<PAGE>

                                                                   EXHIBIT 10.01

                          SUPPLY AND LICENSE AGREEMENT

      THIS SUPPLY AND LICENSE AGREEMENT ("Agreement") entered into as of January
1, 2004 (the "Effective Date") by and between NOVARTIS CONSUMER HEALTH, INC.,
200 Kimball Drive, Parsippany, NJ 07054, a Delaware corporation ("Novartis") and
LECTEC CORPORATION, 10701 Red Circle Drive, Minnetonka, MN 55343, a Minnesota
corporation ("LecTec").

                                    RECITALS

A.    LecTec is a manufacturer of medical and health-related consumer products,
      including a line of proprietary patch products for the over-the-counter
      market which emit vapors which, when inhaled, provide relief of cough and
      cold symptoms (the "Vapor Patches"). LecTec manufactures and sells such
      patch products under its own trade names and also manufactures and sells
      certain of such patch products to third parties.

B.    Novartis is a manufacturer and reseller of health-related consumer
      products.

C.    The parties entered into a Supply and Non-Exclusive License Agreement
      dated as of May 8, 2002 (the "Prior Agreement") pursuant to which Novartis
      undertook to purchase, and LecTec undertook to manufacture and sell to
      Novartis, certain LecTec patch products. As used herein "Products" shall
      mean Vapor Patches for sale to the pediatric market (the "Field of Use")
      in the United States, Canada and Mexico (the "Territory"). The licensed
      patents are shown in Exhibit C (the "Licensed Patents") and made a part of
      this Agreement. All capitalized terms used herein and not otherwise
      defined have the meanings ascribed to them in the Prior Agreement.

D.    Pursuant to the terms of the Prior Agreement, Novartis provided financial
      assistance to LecTec in the form of advance payments of the purchase price
      of the Products and LecTec issued the Advance Payment Note to Novartis and
      granted a security interest and a non-exclusive license to Novartis for
      the purpose of securing LecTec's performance and repayment obligations.

E.    LecTec is indebted to Novartis for (i) an unpaid balance of the Advance
      Payment Note due and payable as of December 31, 2003 (as extended by
      mutual agreement of the parties) in the amount of one million thirty
      thousand twenty-one and 00/100 dollars ($1,030,021.00); (ii) an additional
      obligation defined in the Prior Agreement and referred to herein as the
      "Recall Debt; " and (iii) the balance of the net advance payments of the
      purchase price of the Products made to LecTec subsequent to December 31,
      2003, after credit has been given for the aggregate purchase price of all
      Products delivered by LecTec to Novartis.

** 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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F.    LecTec has informed Novartis that it intends to discontinue its
      manufacturing operations and wind up its business and that it desires to
      do so in a manner that (i) will enable it to discontinue such operations
      in an orderly manner consistent with the preservation of the value of
      LecTec's assets, and (ii) will provide for an orderly transition from
      LecTec to Novartis (or to a contract manufacturer designated by Novartis)
      of the manufacturing function with regard to the Products.

G.    Novartis has been providing and is willing to continue to provide
      financial assistance to LecTec, pursuant to the terms set forth in this
      Agreement, by way of additional advance payments for Products, which
      financial assistance is required by LecTec to enable it to accomplish the
      discontinuance of manufacturing operations as described above.

      NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be bound, hereby agree as follows:

                                    ARTICLE 1
                  INVENTORY REQUIREMENTS AND OTHER OBLIGATIONS

1.1 Production and Sale of Product Inventory. From the Effective Date until
February 5, 2005 or such earlier or later date as the parties may mutually agree
upon (the "Manufacturing Period"), LecTec shall manufacture, sell and cause to
be delivered to Novartis, Products in the quantities set forth in the Purchase
Order and Novartis shall purchase such Products in the quantities and at the
prices set forth in the Purchase Order. As used herein, "Purchase Order" shall
mean the order by Novartis for Products at the prices and upon the delivery
schedule to be purchased by Novartis during the Manufacturing Period as set
forth in Exhibit 1.1 hereto and made a part hereof.

1.2 Exclusivity. LecTec shall manufacture and sell the Products exclusively to
Novartis, provided, however, that the term "exclusively" as used herein shall be
limited to mean that LecTec may not manufacture the Products or any other Vapor
Patches (collectively, "Comparable Products") for sale to any other customers
for pediatric use (the "Field of Use") in the United States, Canada or Mexico
(the "Territory"). Novartis shall have the option until March 31, 2005 to extend
the Territory and the exclusive Field of Use to the adult cough/cold category at
no additional cost and under the same terms and conditions set forth in this
Agreement.

1.3 Regulatory Compliance. As set forth below, LecTec shall be responsible for
regulatory compliance in the manufacture of the Products and supply of same to
Novartis. Novartis shall be responsible for regulatory compliance in the proper
labeling, promotion, and advertising of the Products and the sale of same to end
users according to existing OTC monograph requirements, directly or indirectly,
which shall be under the exclusive control of Novartis. The parties shall
cooperate in good faith to achieve such regulatory compliance.

1.4 Production Standards. All Products sold and delivered to Novartis hereunder
shall (a) conform in all material respects with the specifications set forth in
that certain Quality Assurance Agreement by and between Novartis and LecTec,
dated as of May 5, 2000 (the "QA


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Agreement"), and with such further specifications as shall be agreed to by all
parties in writing (the "Specifications"); (b) be manufactured, packaged and
sold to Novartis without any material deviation from or breach of (i) the QA
Agreement, and (ii) any applicable laws, regulations, and requirements of any
government or governmental agency; and (iii) be subject to the warranties set
forth in this Agreement.

1.5 Brand Name. Novartis intends to market the Products under the proprietary
names "Vapor Patch" or "VaporPatch" (as selected by Novartis in its own
discretion). LecTec hereby acknowledges that it has no objection to Novartis
seeking to register such names at its own expense and risk with the United
States Trademark Office, or with other authorities, and shall file its consent
thereto, as requested in writing by Novartis, but LecTec does not warrant or
imply that such marks are otherwise available or will be granted. LecTec shall
give commercially reasonable cooperation to Novartis to manufacture and label
the Products with such name or names or other names as Novartis, in its sole
discretion, may designate from time to time during the term of this Agreement.
However, subject to the foregoing, nothing herein shall be deemed to authorize
the use of any LecTec trade name or trademark or any other mark that would
dilute or reasonably tend to dilute any such LecTec trade name or trademark.

1.6 Amendment of Purchase Order. LecTec shall use its commercially reasonable
efforts to accommodate any Novartis requests for delivery of Products in excess
of the quantities described in the Purchase Order, or for delivery of Products
sooner than that allowed or specified in the Purchase Order. If Novartis'
business conditions necessitate reduction or delay in its requirements for
Products, then LecTec shall use its commercially reasonable efforts to implement
such requested changes. Notwithstanding the foregoing, LecTec shall not take any
action in response to any such requests which would result in charges to
Novartis in addition to those set forth in the respective purchase order without
Novartis' prior written consent. Article 2

                                    ARTICLE 2
                                     PAYMENT

2.1 Prices. In consideration of the satisfactory manufacture and delivery to
Novartis of the ordered quantities of Products, Novartis shall pay LecTec for
the Products in accordance with the prices set forth in Exhibit 2.1. Subject to
the provisions of Section 2.5 hereof, Novartis shall make such payments within
thirty (30) days of the date of each LecTec invoice issued upon shipment of the
Products. Such payments shall be without prejudice to the inspection and credit
rights of Novartis under Article 3 of this Agreement.

2.2 Taxes. Novartis shall bear the cost of taxes of any kind, nature or
description whatsoever applicable to the sale of any Products by LecTec to
Novartis (other than taxes based upon the income of LecTec or LecTec's employees
or due to the fact that LecTec conducts business or otherwise is present in a
particular tax jurisdiction), unless Novartis is exempt therefrom and provides
to LecTec tax exemption certificates or permits acceptable to the appropriate
taxing authorities.

2.3   **

2.4   **


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2.5 Advance Payments. In order to provide LecTec with working capital funds
necessary to enable it to manufacture and deliver Products to Novartis pursuant
to this Agreement, Novartis shall advance funds (each such advance, an "Advance
Payment" and, collectively, the "Advance Payments") to LecTec for use by LecTec
(a) to pay current accounts payable and expenses not exceeding $2,000,000.00 in
the aggregate and thereafter (b) exclusively for the manufacture and delivery of
Products. Subject to the full and timely performance by LecTec of the Product
shipment requirements set forth in the Purchase Order and all other obligations
of LecTec under this Agreement, Novartis shall disburse the Advance Payments to
LecTec in installments in accordance with the schedule designated as "LecTec
Payments" in Exhibit 2.5.

Novartis shall have no obligation to disburse any Advance Payment (x) if LecTec
shall fail to make any delivery of Products to Novartis in strict compliance
with the provisions of the Purchase Order, time being of the essence or (y) if
such Advance Payment would cause the unpaid principal balance of the New Advance
Payment Note, as defined in Section 2.5.1 to exceed $2,000,000.00. In the event
that Novartis shall withhold any Advance Payment by reason of clause (y) in the
preceding sentence, Novartis shall thereafter disburse the withheld Advance
Payment, in whole or in part, from time to time at the request of LecTec at such
time or times as the making of such disbursement will not cause the unpaid
principal balance of the New Advance Payment Note to exceed $2,000,000.00,
provided that Novartis shall have no obligation to disburse such withheld
Advance Payment unless LecTec shall be in compliance with its obligations under
this Agreement at the time of its request therefore.

      2.5.1 The Advance Payments disbursed to LecTec as provided in Section 2.5
      together with the outstanding balance of advances made by Novartis to
      LecTec on and after the date of the Prior Agreement, including such
      amounts advanced subsequent to December 31, 2003, as set forth in Schedule
      2.5.1 ("Schedule of Inventory Payments") annexed hereto and made a part of
      this Agreement shall be deemed to be a loan from Novartis to LecTec. On
      the Effective Date, LecTec shall execute and deliver to Novartis (a) a
      promissory note in the principal amount of $2,000,000.00 in the form
      attached hereto as Exhibit 2.5.1(a) (the "New Advance Payment Note"), (b)
      a security agreement in the form attached hereto as Exhibit 2.5.1(b) ("New
      Security Agreement"), and (c) such other documents as shall reasonably be
      deemed necessary by Novartis to perfect its security interests in the
      assets of LecTec as provided in the Security Agreement.

      2.5.2 Unless otherwise prepaid in accordance with the terms of the Advance
      Payment Note, LecTec shall repay the principal amount of the New Advance
      Payment Note (or so much thereof as shall actually have been disbursed to
      it in accordance with the provisions of Section 2.5) in monthly
      installments equal to the aggregate purchase price of all Products
      delivered by LecTec to Novartis during such calendar month pursuant to the
      Purchase Order. Novartis shall credit the aggregate purchase price of
      Products delivered, determined as provided in this Agreement, against the
      payment obligations of LecTec under or by reason of (a) first, the
      outstanding balance as of the Effective Date of advances made to LecTec
      until such balance and all obligations of LecTec under the Advance Payment
      Note shall have been fully satisfied and (b) second, the New Advance
      Payment Note, and such credits shall constitute full payment by Novartis
      of the purchase


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      price of such Products until such time as all of LecTec's obligations
      under Section 2.5.1 shall have been paid in full.

      2.5.3 Notwithstanding the provisions of Section 10.2 of this Agreement,
      LecTec shall be deemed to be in default of its obligations under Section
      2.5.2: (a) if, during the Manufacturing Period, two consecutive Batches,
      as defined in Section 2.4 or any three Batches, as so defined, are
      rejected by Novartis based upon a commercially reasonable determination by
      Novartis, made without regard to the procedures set forth in Article 3 of
      this Agreement, that such Batches, as so defined, fail to comply with the
      Product quality provisions of Section 8.1 of this Agreement, or (b) if
      LecTec shall fail to deliver any Batch, as so defined, by the later of (i)
      the thirty (30) day period commencing upon Novartis' QA release or
      rejection and (ii) thirty (30) days following the date specified for
      delivery in the Purchase Order, unless such failure to make timely
      delivery is attributable exclusively to changes ordered by Novartis in
      Product specifications or Product packaging specifications.

                                    ARTICLE 3
                           INSPECTIONS AND ACCEPTANCE

3.1 Inspection; Right of Rejection. Novartis shall accept any delivery of
Products hereunder if, in Novartis' sole and reasonable discretion, Novartis
determines that the delivery complies fully with the Purchase Order, the
Specifications and the requirements of this Agreement. Novartis shall have the
right to inspect all Products delivered hereunder within thirty (30) days of its
receipt of the Products and all required documentation. Novartis shall provide
LecTec with written notice of its acceptance or rejection of the shipment within
sixty (60) days of receipt of the Products and all required documentation. Any
notice of rejection shall specify the reason(s) therefor. Except in the event of
any investigation, corrective action or retesting of a shipment, if Novartis
fails to provide LecTec with written notice of its acceptance or rejection of
the shipment within sixty (60) days of receipt of the Products and all required
documentation, then the shipment shall be deemed to have been accepted by
Novartis. Novartis' prior payment of any invoice for a shipment which is timely
rejected under this Section 3.1 shall not prejudice Novartis' right under
Section 3.2 to seek replacement Products or a credit or refund, as Novartis may
deem appropriate, with respect to any such rejected Products.

3.2 Replacements. If Novartis notifies LecTec that any Products, or any part
thereof, are rejected pursuant to Section 3.1, then, at Novartis' option, (a)
LecTec shall, at no additional charge, deliver replacement Products to Novartis
as soon as reasonably practicable thereafter (but, in any event, within ninety
(90) days after the initial notification by Novartis); or (b) the quantity of
Products so rejected shall be deemed to have been deleted from the Purchase
Order, and Novartis shall not be obligated to make any payments to LecTec with
respect to such quantity or the rejected shipment (or, if payment has already
been made for such Products, then Novartis shall be entitled to a credit in such
amount). Novartis shall give commercially reasonable cooperation to LecTec to
determine the nature and extent of any problem giving rise to a rejection of
Products, including, without limitation, prompt samples of any allegedly
non-conforming Products.


<PAGE>

3.3 Returns. Novartis shall not return any rejected Products to LecTec except
upon a return material authorization ("RMA") from LecTec. LecTec shall pay the
freight to deliver replacement Products to Novartis for rightfully rejected
Products, and LecTec shall pay the freight to return to LecTec or its designee
rejected Products for which LecTec has provided to Novartis an RMA.

                                    ARTICLE 4
                          DOCUMENTATION AND INFORMATION

4.1 Confirmation. LecTec shall submit to Novartis the batch manufacturing and
testing documents relating to any Products ordered hereunder, within ten (10)
days of the completion of the manufacturing process with respect to any
particular batch of Products. LecTec shall provide such documentation as
reasonably requested by Novartis solely (a) to assist Novartis in determining
whether any manufactured or delivered Products comply fully with the
Specifications and the requirements of this Agreement; (b) to assist Novartis in
obtaining any and all regulatory approvals necessary to market the Products in
the Territory; or (c) to enable Novartis to comply with any statutory or
regulatory requirements or with a request by any governmental or regulatory
authority in the Territory. Such records and reports shall be subject to the
confidentiality provisions of Article 7 of this Agreement, shall be deemed
LecTec's Confidential Information, and shall be subject to the requirements of
Section 1.3 of the QA Agreement.

4.2 Certificate of Analysis. Every shipment of the Products to Novartis shall be
accompanied by a Certificate of Analysis from LecTec to certify the active
ingredients therein. LecTec shall warrant the accuracy of each such Certificate
of Analysis to a reasonable degree of scientific certainty.

4.3 Books and Records. During the Manufacturing Period, LecTec shall keep on
file all books and records in connection with the manufacture and testing of the
Products, including, but not limited to, those books and records relating to
cross-over cleaning, process validation, installation qualification, operational
qualification and cleaning validation for a period of seven (7) years, plus the
active year, from the time of generation of such documents.

                                    ARTICLE 5
                              PRODUCTION PROCEDURES

5.1 No Reworked Products. LecTec shall not rework or reprocess any
non-conforming Products without the prior written approval of Novartis.

5.2 Product Packaging. The Products shall be delivered to Novartis packaged in
accordance with the Specifications and the production schedule set forth in
Exhibit 1.1. At a time designated by Novartis, it shall have the Products
packaged with another packager and the cost of the Products from LecTec shall be
reduced as set forth in Exhibit 2.1. Notwithstanding the foregoing, Novartis
shall have the right to require any special or varied packing that it believes
is reasonably necessary to meet customs or regulatory requirements. Reasonable
incremental costs which result directly from any packing changes required by
Novartis will be borne by Novartis.


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5.3 Production Procedures. LecTec's production procedures for the Products
("Production Procedures") have previously been approved by the parties. Such
Production Procedures include the manufacturing site, manufacturing equipment,
manufacturing process, manufacturing conditions and testing procedures for the
manufacture of the Products. If LecTec wishes to make any material change in any
of the Production Procedures so documented and approved, LecTec shall provide
notice thereof to a designated Novartis employee, and shall permit such
designated Novartis employee to review such proposed changes at LecTec's
facility, at least thirty (30) days prior to its first production run under such
revised Production Procedures. All such changes to the Production Procedures
must be approved in writing by Novartis prior to being implemented, which
approval shall not unreasonably be withheld.

5.4 Waste Disposal. LecTec represents and warrants, to the best of its
knowledge, and shall take all commercially reasonable actions necessary to
ensure, that all facilities, equipment and practices used to perform LecTec's
responsibilities under this Agreement by or on behalf of LecTec, or by any of
LecTec's contractors of any rank (including, without limitation, environmental
or safety and health consultants or waste management or disposal firms) (each a
"LecTec Contractor") will be during the term of this Agreement, in full
compliance with all health, safety and environmental laws, statutes, ordinances,
regulations, rules, permits and pronouncements. LecTec assumes responsibility
for disposing of any and all waste generated during the performance of its
responsibilities under this Agreement (including, without limitation, during any
manufacturing, storage and transportation activities) in accordance with all
legal and professional standards.

      5.4.1 LecTec shall Dispose or arrange for the Disposal of Waste and at an
      Approved Disposal Facility. Novartis shall have the right to unilaterally
      modify any designation of any Approved Disposal Facility at any time based
      upon audit and inspection results. LecTec shall only transport Waste to an
      Approved Disposal Facility by means of a transporter lawfully permitted to
      transport the particular types of Waste at issue. LecTec shall be solely
      responsible for the proper Disposal of Waste. For purposes of this Section
      5.4.1,

            5.4.1.1 "Dispose" or "Disposal" shall mean any discharge, deposit,
            injection, dumping, spilling, leaking, or placing of any Waste into
            or on any land or water and the arrangement of any of the foregoing,
            and shall include any storage, pretreatment, treatment (including
            incineration), any other actual disposal, use, sale, sampling or
            other transfer or application of Waste of any kind or nature
            whatsoever;

            5.4.1.2 "Waste" shall mean, for purposes of this Agreement only, all
            materials that are produced or generated in connection with the
            manufacture of any chemical compounds pursuant to this Agreement and
            for which Disposal is required, including but not limited to
            materials that are Hazardous Waste, co-product, by-product, chemical
            compounds that fail to conform to the requirements of this
            Agreement, wastewaters, residues, wastes, bottoms and other
            remainders and materials, packaging of, or components of the
            chemical compounds, and components of any chemical compounds that
            are not used in the manufacture of the chemical compounds;


<PAGE>

            5.4.1.3 "Hazardous Waste" shall mean (a) any material or substance
            defined as or containing materials defined as a "hazardous
            substance" pursuant to any applicable laws or regulations, including
            the Comprehensive Environmental Response, Compensation and Liability
            Act, as amended, the Resource Conservation and Recovery Act, as
            amended, and any similar successor or supplementary legislation, and
            the regulations promulgated thereunder, or (b) any material or
            substance that is radioactive; and

            5.4.1.4 "Approved Disposal Facility" shall mean a disposal facility
            approved by Novartis, which approval shall not be unreasonably
            withheld.

      5.4.2 Notwithstanding anything to the contrary herein, (i) if LecTec
      and/or any LecTec Contractor fails to comply with the obligations set
      forth in this Section 5.4, then LecTec shall be responsible for any
      claims, suits, or liabilities resulting therefrom (including, without
      limitation, those based on strict liability and joint and several
      liability), and LecTec shall indemnify, defend and save Novartis
      (including officers, directors, employees and agents of Novartis) harmless
      from and against any and all such claims, suits, and liabilities; and (ii)
      LecTec shall indemnify, defend and save Novartis (including officers,
      directors, employees and agents of Novartis) harmless from and against any
      and all claims, suits, and liabilities which arise directly or indirectly
      from the storage, release, transportation or disposal of chemicals, raw
      materials, product, waste or any other substance by LecTec and/or any
      LecTec Contractor.

                                    ARTICLE 6
                    OWNERSHIP, PATENT AND LICENSE PROVISIONS

6.1 Novartis Property. All materials, inventions, know-how, trademarks,
information, data, writings and other property, in any form whatsoever, which is
provided to LecTec by and/or on behalf of Novartis, or which is used by LecTec
with respect to the performance of its obligations hereunder, and which was
owned by Novartis prior to being provided to LecTec, shall remain the property
of Novartis (the "Novartis Property"). LecTec shall have a royalty-free license
to use any Novartis Property supplied to it solely to the extent necessary to
enable LecTec to perform its obligations hereunder. LecTec shall not acquire any
other right, title or interest in the Novartis Property as a result of its
performance hereunder. Without limiting the foregoing, Novartis Property shall
include the copyrights and trademarks used in the packaging of the Products
("Packaging IP Rights").

6.2 License to Novartis.

      6.2.1 A promissory note issued by LecTec to Novartis to evidence the
      Recall Debt of LecTec to Novartis in the amount of $250,000 (the "Recall
      Debt Note") became due and payable, by its terms, on December 31, 2003.

      6.2.2 Upon the signing of this Agreement by both parties, Novartis shall
      release the Recall Debt and forgive and relinquish any claim for payment
      of any of the obligations of LecTec under the Recall Debt Note in partial
      consideration of the sale by LecTec to Novartis of the license described
      in Section 6.2.3.


<PAGE>

      6.2.3 On the Effective Date, LecTec shall grant to Novartis, and Novartis
      shall accept, a license (the "License") to all of the intellectual
      property of LecTec used or useful in the production of the Products
      including, without limitation, the trade name "Triaminic Vapor Patch," the
      Licensed Patents listed in Exhibit C, designs, bills of material,
      manufacturing procedures, and know-how associated with the Products,
      together with copies of any documentary materials embodying the know-how
      used in the design, packaging, testing and production of the Products
      (collectively, the "Intellectual Property"). For the sake of clarity, the
      Intellectual Property shall not include any other LecTec trade names and
      shall not extend to the foregoing materials used in the design and
      production of Comparable Products (as such term is defined in Section 1.2
      hereof) to the extent such Intellectual Property is not also used or
      useful in the design and production of the Products. The License shall
      give Novartis the exclusive right to manufacture and sell the Products for
      the Field of Use within the Territory. The term of the License shall be
      co-terminous with the duration of any patents included in the Intellectual
      Property and, with respect to all other elements of the Intellectual
      Property, shall be for the maximum duration permitted under applicable
      law, and shall continue beyond the end of the Manufacturing Period of
      Section 1.1 and Exhibit 1.1. All terms, conditions and obligations of this
      Agreement that are required, or relate to, or are appropriate for this
      License, including but not limited to the Royalties of Section 6.2.3.1
      shall continue in full force and effect beyond the Manufacturing Period
      and until the term of this License expires. Upon the expiration of the
      patents included in the Intellectual Property, Novartis shall have a
      non-revocable, perpetual, fully paid-up, royalty-free license to the
      Intellectual Property.

      The License shall include the right of Novartis to grant sublicenses to
      any Novartis Affiliate or any other third party contract manufacturer of
      the Products, provided, in each case (i) such sublicensee shall
      manufacture the Products only for Novartis; (ii) Novartis shall give
      written notice to LecTec of the grant of such sublicense at least ten (10)
      days prior to the effective date of such sublicense; (iii) such sublicense
      shall terminate when the License terminates; and (iv) Novartis shall give
      prompt written notice to LecTec if Novartis becomes aware that there has
      been a material breach of any of the foregoing terms by a sublicensee. The
      License shall be assignable by Novartis to any Novartis Affiliate or to
      any entity that is a successor to Novartis by merger or sale of all or
      substantially all of the assets of Novartis or to any entity that acquires
      from Novartis the rights to manufacture, distribute or sell the Product so
      long as (i) such acquiror or successor in interest agrees in writing to be
      bound by all the terms and conditions hereof; and (ii) Novartis shall
      first give LecTec written notice of any such assignment. Any purported
      assignment, transfer, or attempt to assign or transfer any interest or
      right hereunder except in compliance with this Section 6.2.3 shall be
      null, void and of no effect. Any such assignment shall be subject to the
      limitations on duration and scope of the License set forth in Article 6.

            6.2.3.1 Licensing Fee and License Royalty Rate. The Licensing Fee
            for the License described in Section 6.2.3 shall be $ 1,065,000.00.
            This amount shall be paid to LecTec by (i) forgiveness of the Recall
            Debt Note as stated under Section 6.2.2, (ii) payment of $407,500.00
            in cash within ten (10) days of execution of


<PAGE>

            this Agreement and (iii) payment of $407,500.00 in cash on October
            1, 2004. Commencing on January 1, 2005 Novartis shall pay Royalties
            to LecTec based on net semi-annual sales of Products by Novartis for
            each year the license is in effect. The term "net sales" as used in
            Section 6.2.3.1 shall mean gross revenues from the arms-length sale
            to unaffiliated third-parties of Products manufactured by or on
            behalf of Novartis pursuant to the License less transportation
            charges to customers, including insurance; sales, excise and taxes
            and duties paid or allowed and any other governmental charges
            imposed upon the sale of any Products; Product royalties to any
            party other than LecTec, normal and customary trade, quantity and
            cash discounts allowed; allowances, chargebacks and credits to
            customers on account of rejection or return of Product. Royalties
            pursuant to Section 6.2.3.1 shall be payable semi-annually not later
            than ninety (90) days following the end of Novartis' two-quarter
            period by certified check or wire transfer payable to LecTec or its
            assignee. Novartis shall furnish to LecTec or its assignee, at the
            time of each semi-annual royalty payment, an accounting of its net
            sales of Product in reasonable detail. Royalty Rates are based on
            semi-annual sales and are shown in Exhibit 6.2.3.1 hereto and made a
            part hereof. For the sake of clarity, Novartis shall not owe any
            royalty payments for any vapor patch products distributed by
            Novartis that would not infringe or contribute to the infringement
            of a valid, enforceable claim of the licensed patents listed in
            Exhibit C.

            Solely to ensure proper accounting for and payment of the royalties
            due LecTec under Article 6, LecTec may request, not more than once
            per calendar year during the term of the License, reasonable access
            during normal business hours and upon at least ten (10) days prior
            written notice by LecTec's independent certified accountants,
            reasonably acceptable to Novartis("LecTec Auditor"), to examine and
            copy the records of Novartis relating to the sale of Products during
            the term of the License. The LecTec Auditor may not disclose any
            such Novartis records to LecTec but shall report to LecTec and
            Novartis only the results of its audit in respect of whether
            Novartis has properly accounted for and paid the royalties due to
            LecTec under Article 6, which report shall be final and binding upon
            the parties. Except in the case of fraud or manifest error, LecTec
            shall bear the cost of any such audit by the LecTec Auditor. If such
            audit determines that Novartis has underpaid any royalties, Novartis
            shall promptly pay the amount underpaid and simple interest thereon
            at the rate of ** per annum and also the LecTec audit cost in the
            event such underpayment exceeds ** of the royalties due. Any other
            provision of this Section 6.3.2.1 to the contrary not withstanding,
            LecTec may not request the audit of Novartis records for any royalty
            period more than two (2) years prior to the date of such request.

6.3 Third Party Obligation -- Reduction in Royalties. In the event Novartis is
required or enters into a settlement agreement to obtain a license from any
unaffiliated third party under any patent or other intellectual property right
and is obligated to pay a royalty to such unaffiliated third party or parties in
any country in respect of the Product or its method of use, for which royalties
are due under this Agreement, and such third party patent or intellectual
property right


<PAGE>

overlaps the patents of Exhibit C then Novartis shall have the right to deduct
the amount of such royalties which Novartis pays to such unaffiliated party or
parties for such product in such country from the royalties to be paid to LecTec
under this Agreement for such product in such country, the deduction being
limited to a maximum of ** of the royalties to be paid to LecTec for sale in
such country provided that Novartis' combined royalty payments to LecTec and
such unaffiliated party or parties do not exceed a total of **. Any excess in
the amount of royalties paid by Novartis to an unaffiliated third party or
parties over the amount of royalties payable to LecTec under this Agreement,
shall be carried forward to future royalty payments until such excess amounts
are fully exhausted.

LecTec warrants that it has no licenses to third party patent holders or royalty
obligations to third parties that concern the manufacture, sale, offer for sale,
use or import of the Product. Without limiting the generality of the foregoing,
LecTec shall remain responsible for any royalty obligations due to third parties
under LecTec Patent Rights which have been licensed to LecTec and are
sub-licensed to Novartis hereunder. LecTec will not be entitled to add such
royalties due to third parties to the Novartis royalty rates.

6.4 Third Party Competition. In the event competition in the sale of a Product
that would, in the opinion of Novartis patent counsel, infringe the patents of
Exhibit C ("Competitive Product") occur in the Territory, LecTec shall, at the
request of Novartis, commence legal action against, or settlement negotiations
with, the independent third party to cause the cessation of the making, having
made, selling or distributing the Competitive Product, or to reach a settlement
with the independent third party. Should such Competitive Product achieve ** ACV
(All Commodity Volume) distribution in any Food or Drug or Mass (FDM) channel in
any country in the Territory, then any royalty otherwise payable for said
country shall be suspended until such time that the independent third party
ceases to make, have made, sell or distribute the Competitive Product in said
country. Such suspension of royalty payments shall be effective on the date of
Novartis' written notification to LecTec of the aforesaid distribution level of
such Competitive Product. Upon cessation of manufacturing and distribution of
the Competitive Product by the third party or settlement with the third party,
any suspended Royalty payments shall resume as if never suspended.

6.5 Notification. Each party hereto shall promptly inform the other party of any
infringement of the LecTec Patent Rights of which it has knowledge.

6.6 Right to bring action. Novartis shall have the right, in its sole
discretion, to initiate legal action in respect of any infringement of the
LecTec Patent Rights in the Field of Use in the Territory. In any suit against
an infringement brought by either party, the prosecuting party shall have the
right to control such suit and to join as a party to such suit the other party
to the Agreement, and such other party shall reasonably cooperate in any such
suit.

6.7 Costs and Expenses: Recovery. The costs and expenses (including attorneys'
fees) of any suit against an infringement brought in accordance with this
Section 6 shall be borne by the party controlling the prosecution of such suit.
Any monetary recovery in connection with such infringement action shall first be
applied to reimburse Novartis and LecTec for their out-of-pocket expenses
(including reasonable attorneys' fees) in prosecuting such infringement action.


<PAGE>

Once the parties have been reimbursed for their out-of-pocket expenses, the
remainder will be apportioned in proportion to damages incurred by the parties.

6.8 LecTec shall promptly advise Novartis of any additions to, or deletions from
the list of LecTec's Patents set forth in Exhibit C, including the issuance of
patents upon any patent applications included therein.

6.9 LecTec shall, at its expense, diligently take all steps and incur all costs
necessary to maintain the LecTec Patents on Exhibit C in full force and effect.
If LecTec shall elect not maintain any of such Patents, it shall promptly notify
Novartis of that election and shall, at Novartis' request, assign to Novartis or
its designee all right, title and interest in and to such Patents, and the
payment of a royalty hereunder shall cease.

6.10 LecTec Property. Subject to the provisions of Sections 6.2 and 6.9, all
materials, inventions, know-how, trademarks, information, data, writings and
other property, in any form whatsoever, which is provided to Novartis by or on
behalf of LecTec, or which is used by LecTec with respect to the performance of
its obligations hereunder, and which was owned by LecTec prior to its
performance or is developed or acquired in the course of such performance
hereunder, shall remain the property of LecTec (the "LecTec Property"). Novartis
shall acquire no right, title or interest in the LecTec Property as a result of
LecTec's performance hereunder except as provided in Sections 6.2 and 6.9.
Without limiting the foregoing, as between the parties hereto, all the
intellectual property rights for the Products other than the Packaging IP Rights
shall be deemed to be LecTec Property subject to the License granted to Novartis
under Section 6.2 hereof.

                                    ARTICLE 7
                  TRADE SECRETS; CONFIDENTIALITY AND PUBLICITY

7.1 Confidential Information. During the period that this Agreement is in effect
and thereafter, LecTec and Novartis shall not disclose to anyone in any manner
whatsoever or use for any purpose other than its performance of this Agreement
or for a purpose which is otherwise authorized under this Agreement (except as
authorized in writing by the disclosing party) any information it receives from
the other party ("Confidential Information"), including, without limitation,
intellectual property, inventions, works of authorship, trade secrets or
know-how or other information relating in any way to the Products, processes,
and services of the other party.

7.2 Limitations. Each party shall limit disclosure of Confidential Information
received hereunder to only those of its employees who are directly concerned
with the performance of any activities with respect to which the Confidential
Information was disclosed. Each party agrees to advise those of its employees
who receive any other party's Confidential Information that such Confidential
Information (a) is proprietary and confidential to such party and (b) shall not
be disclosed to anyone except as authorized by this Agreement or otherwise
authorized by such party in writing. Each party further agrees to take at least
such precautions as it normally takes with its own Confidential Information to
prevent unauthorized disclosure of the other party's Confidential Information.


<PAGE>

7.3 Injunctive Relief. Each party acknowledges that any unauthorized disclosure
of any portion of the other party's Confidential Information shall cause
irreparable injury to the other party and that no adequate or complete remedy
shall be available at law to such other party to compensate for such injury.
Accordingly, each party hereby also acknowledges that the other party shall be
entitled to seek injunctive relief in the event of such unauthorized disclosure
by a party or any of its employees in addition to whatever other remedies it
might have at law.

7.4 Effect of Termination. Upon termination of this Agreement, each party shall
return to the other all copies of the other party's Confidential Information,
and shall make no further use of such Confidential Information, except for one
copy which may be retained in the receiving party's confidential files. This
provision shall not apply if Novartis terminates this Agreement for breach of
contract pursuant to Section 10.2.

7.5 Exceptions. The obligations of this Section 7 shall not apply to information

      7.5.1 that is or has been in the possession of the recipient prior to
      receipt of the same from the disclosing party as evidenced by recipient's
      written records;

      7.5.2 which the recipient lawfully obtains from any third party not under
      an obligation to the disclosing party to hold the same in confidence;

      7.5.3 that is published or becomes part of the public domain without
      breach of any undertakings discussed hereinabove;

      7.5.4 that is independently developed by personnel of the recipient
      without any use of or reliance upon the disclosing party's Confidential
      Information; or

      7.5.5 solely to the extent that it is required to be disclosed pursuant to
      judicial process, court order or administrative request, or that it is
      otherwise required for any regulatory filing, provided that the recipient
      shall notify the other party sufficiently prior to disclosing such
      Confidential Information as to permit such other party to seek a
      protective order.

7.6 Press Releases. LecTec shall not issue any press release or other public
statement disclosing the existence of or relating to this Agreement without
prior written consent of Novartis, which consent shall not be unreasonably
withheld or delayed. The foregoing shall not limit LecTec's rights to make such
disclosures as reasonably required by applicable securities laws or the rules of
any stock exchange where its securities are traded, provided that LecTec
provides a written opinion from outside counsel stating that disclosure is
required.

                                    ARTICLE 8
                    QUALITY OF PRODUCTS; COMPLIANCE WITH LAW

8.1 Representations and Warranties. LecTec hereby represents and warrants that:

      8.1.1 No Products constituting or being a part of any shipment hereunder
      shall at the time of any such shipment be (i) adulterated or misbranded
      within the meaning of the Federal Food, Drug and Cosmetic Act, as amended
      from time to time (the "Act"), or


<PAGE>

      regulations promulgated thereunder, as such law or regulation is
      constituted and in effect at the time of any such shipment, or (ii) an
      article which may not, under the provisions of Sections 404, 505 or 512 of
      the Act, be introduced into interstate commerce;

      8.1.2 all Products furnished to Novartis hereunder shall be in full
      compliance with the Specifications, and shall remain in full compliance
      with the Specifications for the full period of the expected shelf-life of
      such Products, so long as the Products are stored in accordance with the
      Specifications;

      8.1.3 LecTec shall perform its obligations hereunder in compliance with
      any materially applicable federal, state and local laws and regulations,
      including without limitation the Act, the FDA's then-current Good
      Manufacturing Practices ("cGMP"), and any health, safety and environmental
      laws and regulations applicable to LecTec's manufacture and packaging of
      the Products and its other performance hereunder;

      8.1.4 all Products furnished to Novartis hereunder shall have been
      manufactured in accordance with the terms of the QA Agreement;

      8.1.5 LecTec's manufacturing, laboratory and packaging facilities shall
      remain in compliance with CGMP at all times during the term of this
      Agreement to the extent applicable to the manufacture and packaging of the
      Products; and

      8.1.6 LecTec owns or has the right to use all necessary copyright,
      trademark, patents, trade secrets and other intellectual property rights
      which it shall use to perform its obligations hereunder with respect to
      sales of the Products in the United States, Canada and Mexico.

8.2 Disclaimer. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS AGREEMENT,
LECTEC MAKES NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, CONCERNING THE
PRODUCTS, OR THE MERCHANTABILITY OR FITNESS THEREOF FOR ANY PURPOSE.

8.3 Remedy. In the event that Products are delivered to Novartis by LecTec that
are not in compliance with the warranties made in Section 8.1 then, at
Novartis's option (i) LecTec shall replace the non-compliant Products at no
additional charge (which replacement Products shall be delivered to Novartis as
soon as reasonably practicable, but in no event more than ninety (90) days after
the initial notification by Novartis); or (ii) LecTec shall credit Novartis's
account in the amount of the price of the non-compliant Products. Novartis shall
give commercially reasonable cooperation to LecTec to determine the nature and
extent of any problem giving rise to a breach of warranties, including, without
limitation, prompt samples of any allegedly non-compliant Products. Returns of
non-compliant Products shall be subject to the provisions of Section 3.3.

8.4 Quality Assurance Representative. Novartis shall have the right, at its
expense, to place a quality assurance representative in the manufacturing
facilities of LecTec at all times or from time to time during the term of this
Agreement as determined by Novartis. LecTec shall provide complete access to its
manufacturing operations respecting the Products to such representative


<PAGE>

and shall permit such representative to conduct such inspections of materials
and processes as such representative shall determine to be appropriate to assure
Novartis that LecTec is at all times in compliance with the representations and
warranties made in Section 8.1.

                                    ARTICLE 9
                          INDEMNIFICATION AND INSURANCE

9.1 Novartis Indemnification. Novartis shall defend, indemnify and hold LecTec
harmless against any and all claims, damages, expenses, reasonable attorneys'
fees, settlement costs and judgments arising out of any death, personal injury,
bodily injury or property damage to a third party alleged to have been caused by
the Products, except to the extent that such injury or damage was the result of
any breach of this Agreement by LecTec, including any warranty contained herein,
or the result of any latent defects in the Products caused by the negligence or
willful misconduct of LecTec. LecTec shall promptly notify Novartis of any such
claim or action, shall reasonably cooperate with Novartis in the defense of such
claim or action, and shall permit Novartis to control the defense and settlement
of such claim or action, all at Novartis' cost and expense. For the sake of
clarity, the foregoing indemnification, subject to its stated exclusions, shall
extend during the License Phase to any Products made by Novartis or any Novartis
Affiliate under the License and to any Products made for Novartis or any
Novartis Affiliate by a third party contract manufacturer under any sublicense
of the License.

9.2 LecTec Indemnification. LecTec shall defend, indemnify and hold Novartis
harmless against any and all claims, damages, expenses, reasonable attorneys'
fees, settlement costs and judgments arising out of any death, personal injury,
bodily injury or property damage to a third party to the extent that such death,
injury or damage is the result of (i) any breach of this Agreement by LecTec,
including any warranty contained herein; (ii) any claim regarding a work-related
death or injury to any LecTec employee; (iii) any claim regarding latent defects
in the Products caused by the negligence or willful misconduct of LecTec; or
(iv) any claim that the Products, or any means used to manufacture the Products,
infringe any third party's patent, trade secret, trademark, copyright, or other
proprietary interest in the Territory. Novartis shall promptly notify LecTec of
any such claim or action, shall reasonably cooperate with LecTec in the defense
of such claim or action, and shall permit LecTec to control the defense and
settlement of such claim or action, all at LecTec's cost and expense.

9.3 Product Recalls and Withdrawals. Each party shall promptly notify the other
party of any legal and/or factual circumstances which might, under applicable
laws and regulations, necessitate a field correction, recall or withdrawal of
any Products (collectively, a "Regulatory Recall") and shall consult with each
other regarding the appropriate steps to be taken. Novartis shall determine
whether any Regulatory Recall shall take place. Novartis shall notify all
regulatory authorities of any such Regulatory Recall, and shall take all steps
necessary to effectuate such Regulatory Recall. LecTec shall assist Novartis in
each of these activities to the extent reasonably requested by Novartis. LecTec
shall reimburse Novartis for the costs of any such Regulatory Recall to the
extent such Regulatory Recall was made necessary by the actions or inaction of
LecTec. If LecTec is unable in good faith to obtain the recall insurance
required by Section 9.4.6 for a reasonable premium, then the maximum amount
which LecTec shall be required to reimburse Novartis pursuant to the preceding
sentence shall be $500,000 per Regulatory Recall, not including the cost of any
replacement Products made necessary by the


<PAGE>

applicable Regulatory Recall. Novartis shall reimburse LecTec for the costs of
any such Regulatory Recall to the extent such Regulatory Recall was made
necessary by the actions or inaction of Novartis. Any claim for such
reimbursement of costs incurred in such a Regulatory Recall shall be subject to
audit by Novartis' CPA Firm.

9.4 LecTec's Insurance Coverage. LecTec shall obtain, at its own expense,
policies of insurance in amounts no less than those specified below and shall
cause its carrier or carriers to name Novartis as an additional insured on those
coverages marked with an (*) below:

      9.4.1 *general liability insurance with combined limits of not less than
      $1,000,000 per occurrence and $1,000,000 per accident for bodily injury,
      including death, and property damage;

      9.4.2 workers' compensation and disability insurance in the amounts
      required by the law of the state(s) in which its workers are located, and
      employer's liability insurance with limits of not less than $1,000,000 per
      occurrence;

      9.4.3 *automobile liability insurance (in the event that the use of an
      automobile by LecTec is required in the performance of this Agreement)
      with combined limits of not less than $1,000,000 per occurrence and
      $1,000,000 per accident for bodily injury, including death, and property
      damage is required;

      9.4.4 *product liability insurance with limits not less than $5,000,000;

      9.4.5 property insurance for the replacement value of the facilities and
      equipment used to produce the Products;

      9.4.6 *excess insurance with limits not less than $5,000,000.

9.5 Documentation of Coverage. Upon request, LecTec shall provide to Novartis
evidence of its insurance or self insurance. LecTec shall provide Novartis
thirty (30) days prior written notice of any cancellation or material change in
coverage.

9.6 Novartis' Insurance Coverage. Novartis warrants and represents to LecTec
that Novartis maintains a policy or program of insurance or self-insurance at
levels sufficient to support the indemnification obligations assumed herein.
Upon request, Novartis shall provide to LecTec evidence of its insurance or
self-insurance. Novartis shall provide to LecTec thirty (30) days prior written
notice of any cancellation or material change in coverage.

                                   ARTICLE 10
                              TERM AND TERMINATION

10.1 Initial Term; Renewal. This Agreement shall commence on the Effective Date
and shall continue in effect until the end of the Manufacturing Period as
defined in Section 1.1 except that the provisions hereof respecting the License
granted to Novartis as provided in Section 6.2.3 hereof shall continue in effect
until the conclusion of the term of the License.


<PAGE>

10.2 Termination for Cause. If either party materially breaches this Agreement,
the other party shall give such breaching party written notice thereof with
reasonable detail. If the breaching party fails to cure such breach within
forty-five (45) days of its receipt of such notice, then the non-breaching party
may terminate this Agreement at no cost upon written notice thereof.

10.3 Termination on Insolvency. Either party may terminate the Agreement without
notice if the other party becomes insolvent, makes or has made an assignment for
the benefit of creditors, is the subject of proceedings in voluntary or
involuntary bankruptcy instituted on behalf of or against such party (except for
involuntary bankruptcies which are dismissed within ninety (90) days), or has a
receiver or trustee appointed for substantially all of its property.

Without limitation, Novartis' rights under this Agreement shall include those
rights afforded by 11 U.S.C. Section 365(n) of the United States Bankruptcy Code
(the "USBC") and any successor thereto. If the bankruptcy trustee of LecTec as a
debtor or debtor-in-possession rejects this Agreement under 11 U.S.C. Section
365(o) of the USBC, Novartis may elect to retain its rights licensed from LecTec
hereunder (and any other supplementary agreements hereto) for the duration of
this Agreement and avail itself of all rights and remedies to the full extent
contemplated by this Agreement and 11 U.S.C. Section 365(n) of the USBC, and any
other relevant laws.

10.4 In the event that Novartis terminates this agreement pursuant to Article
10.2 (Termination For Cause), Novartis shall retain all its rights to license
the Intellectual Property as set forth in Article 6 on a royalty free basis. In
the event that LecTec terminates this agreement pursuant to Article 10.2
(Termination For Cause), LecTec shall retain all rights to license the
Intellectual Property to other third parties.

                                   ARTICLE 11
                           AUDIT AND INSPECTION RIGHTS

11.1 Audit, Inspection and Observation. During the term of this Agreement,
Novartis shall have the right, at its sole cost and expense, to send Novartis
representatives to audit, inspect and observe the manufacture, storage, disposal
and transportation of the Products, and all other materials reasonably related
thereto or used in connection therewith, upon reasonable prior notice to LecTec
and during LecTec's normal business hours. Such Novartis representatives shall
have no responsibility or authority for supervision of LecTec employees
performing such manufacture, storage, disposal or transportation operations.
Such Novartis representatives shall comply with any reasonable LecTec health,
safety or security rules or policies while at LecTec's premises. The audit,
inspection and observations rights set forth in this Section 11.1 are solely for
the purpose of determining LecTec's compliance with the terms of this Agreement
and the QA Agreement.

11.2 Action Plan. If, as a result of any such audit, inspection or observation
under Section 11.1, Novartis reasonably concludes that LecTec is not in
compliance with any of its obligations hereunder, it shall so notify LecTec in
writing, specifying such areas of non-compliance in reasonable detail. LecTec
shall provide to Novartis within thirty (30) days of Novartis' request a


<PAGE>

written action plan with a time line for resolution of the problems identified
within a reasonable, mutually agreed upon time frame.

11.3 Government Inspections. LecTec shall inform Novartis within twenty-four
(24) hours of any notification to LecTec of any site visits to the LecTec
facility by the FDA, state or federal regulatory agencies or any other
governmental or regulatory agency, relating, directly or indirectly, to the
manufacture of the Products, and shall provide to Novartis all other materials
related thereto or used in connection therewith. Novartis shall have the option
of participating in any site visit by any governmental or regulatory agency
(except to the extent such governmental or regulatory agency visitor objects) if
the site visit relates, directly or indirectly, to the manufacturing, storage,
disposal and transportation of the Products. If Novartis does not participate in
the site visit for any reason, LecTec shall report in writing the results of the
visit to Novartis within seven (7) days of the occurrence thereof. In the event
that any such governmental or regulatory agency finds that the site is deficient
or unsatisfactory in any material respect, LecTec shall cure all such material
deficiencies within the earlier of ninety (90) days or such cure period as
ordered by the government or regulatory agency. If all such deficiencies are not
cured by LecTec within the required time frame, Novartis may deem such condition
to be a material breach of this Agreement without the required 45-day cure
period in Section 10.2 of this Agreement and thus may immediately terminate this
Agreement.

                                   ARTICLE 12
                                  MISCELLANEOUS

12.1 Waiver. Each party acknowledges and agrees that any failure on the part of
the other party to enforce at any time, or for any period of time, any of the
provisions of this Agreement shall not be deemed or construed to be a waiver of
such provisions or of the right of such other party thereafter to enforce each
an every such provision.

12.2 Enforcement. If and to the extent that any provision of this Agreement is
determined by any legislature, court or administrative agency to be, in whole or
in part, invalid or unenforceable, such provision or part thereof shall be
deemed to be surplusage and, to the extent not so determined to be invalid or
unenforceable, each provision hereof shall remain in full force and effect
unless the purposes of this Agreement cannot be achieved. In the event any
provisions shall be held invalid, illegal or unenforceable the parties shall use
commercially reasonable efforts to substitute a valid, legal and enforceable
provision which insofar as practical implements the purposes hereof.

12.3 Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Minnesota as though made and to be
fully performed in said State.

12.4 Notices. All notices required or permitted hereunder shall be given in
writing and sent by confirmed facsimile transmission, or mailed postage prepaid
by first-class certified or registered mail, or sent by a nationally recognized
express courier service, or hand-delivered to the following addressees:


<PAGE>

            Novartis:           Novartis Consumer Health, Inc.
                                200 Kimball Drive
                                Parsippany, NJ 07054
                                Attn:  General Counsel

            LecTec:             LecTec Corporation
                                10701 Red Circle Dr.
                                Minnetonka, MN 55343
                                Attn: Chief Executive Officer

or to such other address as may be specified in a notice given to the other
party in accordance with this Section 12.4. Any notice, if sent properly
addressed, postage prepaid, shall be deemed made three (3) days after the date
of mailing as indicated on the certified or registered mail receipt, or on the
next business day if sent by express courier service or on the date of delivery
or transmission (if delivered or sent during ordinary business hours, otherwise
on the next business day) if hand-delivered or sent by confirmed facsimile
transmission.

12.5 Captions. The captions of each section of this Agreement are inserted only
as a matter of convenience and for reference and in no way shall be deemed to
define, limit, enlarge, or describe the scope of this Agreement and the
relationship of the parties hereto, and shall not in any way affect this
Agreement or the construction of any provisions herein.

12.6 Entire Agreement; Amendment. This Agreement, including all Exhibits annexed
hereto (which are incorporated herein by reference), represents and incorporates
the entire understanding between the parties hereto with respect to the subject
matter of this Agreement and supersedes any prior offers, proposals, drafts or
other communications with respect thereto including, without limitation, the
Prior Agreement. Each party acknowledges that there are no warranties,
representations, covenants or understandings of any kind, nature or description
whatsoever made by any party to any other, except such as are expressly
hereinabove set forth. This Agreement shall not be subject to change or
modification except by the execution of a writing specified to be an explicit
amendment to this Agreement duly executed by all parties hereto.

12.7 Effect of Forms. The parties recognize that, during the term of this
Agreement, a purchase order, acknowledgment form or similar routine document
(collectively, "Forms") may be used to implement or administer provisions of
this Agreement. Therefore, the parties agree that the terms of this Agreement
shall prevail in the event of any conflict between this Agreement and the
printed provisions of such Forms, or typed provisions of Forms that appear to
add to, vary, modify or conflict with the provisions of this Agreement.

12.8 Relationship. Nothing in this Agreement shall create between the parties a
partnership, joint venture or principal-agent relationship and, for the
avoidance of doubt, each of LecTec and Novartis now confirms and accepts that it
is an independent contractor trading for and on its own behalf.

12.9 Assignment. LecTec may not assign or otherwise transfer this Agreement or
any interest herein or any right hereunder (other than to an affiliate) without
the prior written consent of


<PAGE>

Novartis, which consent shall not be unreasonably withheld, except that LecTec
may assign this 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 (i) such acquirer or successor in interest agrees in
writing to be bound by all the terms and conditions hereof; and (ii) LecTec
shall first give Novartis written notice of any such assignment, and fifteen
(15) days to object thereto. The only grounds upon which Novartis may object to
such an assignment are if such acquirer or successor in interest is (a) a direct
competitor of Novartis; or prior to the end of the Manufacturing Period (b) in
Novartis' reasonable discretion, is not a manufacturer which has a proven record
of operational quality at least equal to that of LecTec; or prior to the end of
the Manufacturing Period (c) in Novartis' reasonable discretion, does not have
sufficient financial wherewithal. Any purported assignment, transfer, or attempt
to assign or transfer any interest or right hereunder except in compliance with
this Section 12.9 shall be null, void and of no effect.

12.10 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original and all of which together shall
constitute a single instrument.

12.11 Force Majeure. A party shall not be liable for delayed performance or
non-performance of this Agreement (other than payment of money when due) if such
condition is due to events beyond its reasonable control, including, without
limitation, fire, flood, storm, earthquake, any other Act of God, electrical or
computer failures, supply or labor shortages, strikes, riot, civil disorder, war
or government order or decree.

      12.11.1 A party claiming relief under this Section 12.11 shall give prompt
      written notice thereof to the other party, together with its best estimate
      of when such condition will end and its full performance may be resumed.

      12.11.2 In the event of a Force Majeure, or if for any other reason LecTec
      experiences any shortage and is therefore unable to supply Novartis with
      the full quantity of Products and with the delivery date as ordered by
      Novartis, then Novartis shall be entitled to the same proportionate
      quantity of available Vapor Patches as the quantity of Products purchased
      by Novartis from LecTec in the twelve (12) months preceding the shortage
      bears to all orders for Vapor Patches received by LecTec from all its
      customers during such period, including LecTec's sales to Novartis, and
      including LecTec's sales of Comparable Products directly to retailers
      under its "TheraPatch" trade name, or under any Other LecTec Trade Name.

      12.11.3 Notwithstanding the foregoing, if such condition continues without
      change for more than ninety (90) days, the other party may then elect to
      treat such delayed performance or non-performance as a material breach of
      this Agreement.

12.12 Survival of Terms. Sections 6, 7, 9, 10.3 and 10.4 shall survive and
continue in full force and effect in accordance with their respective terms
notwithstanding any termination of this Agreement.


<PAGE>

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

                                        NOVARTIS CONSUMER HEALTH, INC.

                                        BY: _______________________________
                                            ITS:

                                        LECTEC CORPORATION

                                        BY: _______________________________
                                            ITS:


<PAGE>

                                    EXHIBIT C

                                LICENSED PATENTS

      1.    U.S. Pat. No. 6,090,403

      2.    U.S. Pat. Nos. 5,536,263; 5,741,510; 6,096,333; 6,096,334 and
            6,361,790.

      3.    CA Pat. No. 2 133 598

      4.    MX Pat. No. 187839

      5.    Any reexamination and reissue of the above-listed patents, if
            applicable.

<PAGE>

                                   EXHIBIT 1.1

                               PRODUCTION SCHEDULE

                                  See Attached

<PAGE>

<TABLE>
<CAPTION>
Client  Client PO  Flavor    L #  Coat Date  Ship Date
------  ---------  -------  ----  ---------  ---------
<S>     <C>        <C>      <C>   <C>        <C>        <C>
  **     115193    Cherry   L152      **        **
  **     115194    Cherry   L153      **        **
  **     115195    Cherry   L154      **        **
  **     115196    Cherry   L155      **        **
  **     115197    Cherry   L156      **        **
  **     115198    Cherry   L157      **        **
  **     115199    Cherry   L158      **        **
  **     116427    Cherry    L21      **        **
  **     116428    Cherry    L22      **        **
  **     116429    Cherry    L23      **        **
  **     116430    Cherry    L24      **        **
  **     115191    Menthol  L159      **        **
  **     115190    Menthol  L160      **        **
  **     116431    Cherry    L25      **        **
  **     115200    Cherry   L161      **        **
  **     115201    Cherry   L162      **        **
  **     115397    Cherry   L163      **        **
  **     115202    Cherry   L164      **        **
  **     115203    Cherry   L165      **        **
  **     115204    Cherry   L166      **        **
  **     116432    Cherry    L26      **        **
  **     116433    Cherry    L27      **        **
  **     116434    Cherry    L28      **        **
  **     116435    Cherry    L29      **        **
  **     116436    Cherry    L30      **        **
  **     116437    Cherry    L31      **        **
  **     116438    Cherry    L32      **        **
  **     115205    Cherry   L167      **        **
  **     115398    Cherry   L168      **        **
  **     116439    Cherry    L33      **        **
  **     116440    Cherry    L34      **        **
  **     116441    Cherry    L35      **        **
  **       nya     Cherry   L169      **        **
  **       nya     Cherry   L170      **        **
  **       nya     Menthol  L171      **        **
  **       n/a     Cherry    L36      **        **
  **       n/a     Cherry    L37      **        **
  **       n/a     Cherry    L38      **        **
  **       n/a     Cherry    L39      **        **
  **       n/a     Cherry    L40      **        **
  **       n/a     Cherry    L41      **        **
  **       n/a     Cherry    L42      **        **
  **       n/a     Cherry    L43      **        **
  **       n/a     Cherry    L44      **        **
  **       n/a     Cherry    L45      **        **
  **       n/a     Cherry    L46      **        **
  **       n/a     Cherry    L47      **        **
  **       n/a     Cherry    L48      **        **
  **       n/a     Cherry    L49      **        **
  **       n/a     Cherry    L50      **        **
  **       n/a     Cherry    L51      **        **
  **       n/a     Cherry    L52      **        **
  **       n/a     Cherry   L172      **        **      **
  **       n/a     Cherry   L173      **        **      **
  **       n/a     Cherry   L174      **        **      **
  **       n/a     Cherry   L175      **        **      **
  **       n/a     Cherry   L176      **        **      **
  **       n/a     Menthol  L177      **        **      **
  **       n/a     Menthol  L178      **        **      **
  **       n/a     Cherry   L179      **        **      **
  **       n/a     Cherry   L180      **        **      **
  **       n/a     Cherry   L181      **        **      **
  **       n/a     Cherry   L182      **        **      **
  **       n/a     Cherry   L183      **        **      **
</TABLE>
<PAGE>

                                   EXHIBIT 2.1

                            PRODUCT PACKAGING PRICING

LecTec Pricing - Vapor Patch

United States and Mexico

Pricing for lots through and including **.

<TABLE>
<CAPTION>
                  SIX PATCHES      SIX PATCHES
                  WITH CARTON        WITHOUT         PRICE
    MARKET        AND STICKERS       CARTON        DIFFERENCE
-------------     ------------     -----------     ----------
<S>               <C>              <C>             <C>
UNITED STATES          **              **             **

MEXICO                 **              **             **
</TABLE>

Pricing for ** and **.

<TABLE>
<CAPTION>
                  SIX PATCHES
                    WITHOUT
    MARKET          CARTON
-------------     -----------
<S>               <C>
UNITED STATES         **

MEXICO                **
</TABLE>

Effective all lots manufactured subsequent to ** the price will increase by **
for each patch.

All prices are in U.S. Dollars.

<PAGE>

                                   EXHIBIT 2.5

                     ADVANCE PAYMENTS AND DELIVERY SCHEDULE

                                  See Attached

<PAGE>

                                                                 REVISED 7/14/04

                                   EXHIBIT 2.5
                     ADVANCE PAYMENTS AND DELIVERY SCHEDULE
                       JANUARY 2004 THROUGH FEBRUARY 2005

<TABLE>
<CAPTION>
                                   ACTUAL    ACTUAL     ACTUAL     ACTUAL     ACTUAL     ACTUAL
                                  January   February    March      April       May        June       July      August   September
<S>               <C>             <C>       <C>         <C>        <C>        <C>        <C>         <C>       <C>      <C>
LecTec
Payments                                 **        **         **         **         **         **         **         **         **

Mexico                                   **        **         **         **         **         **         **         **         **
US Cherry                                **        **         **         **         **         **         **         **         **
US Menthol                               **        **         **         **         **         **         **         **         **
Total Lots                               **        **         **         **         **         **         **         **         **

  Lot Size
    ** Mexico                                                 **                               **         **         **         **
    ** US Cherry                         **        **         **         **         **         **         **         **         **
    ** US Menthol                        **        **         **         **         **         **         **
TOTAL PATCHES                            **        **         **         **         **         **         **         **         **
       EFFECTIVE
       LOT **
  Cost per Patch  Cost per Patch

    **                        **         **        **         **         **         **         **         **         **         **
    **                        **         **        **         **         **         **         **         **         **         **
    **                        **         **        **         **         **         **         **         **         **         **
NCH COST                                 **        **         **         **         **         **         **         **         **

AGGREGATE
CASH
ADVANCE           $    1,030,021 $1,324,677 $ 644,413 $1,022,988 $1,107,465 $1,279,541 $1,342,317 $1,298,578 $1,519,578 $1,391,829
</TABLE>

<TABLE>
<CAPTION>
                   October    November  December January February TOTALS
<S>                <C>        <C>       <C>      <C>     <C>      <C>
LecTec
Payments              **         **       **      **        **      **

Mexico                **         **       **      **        **      **
US Cherry             **         **       **      **        **      **
US Menthol            **         **       **      **        **      **
Total Lots            **         **       **      **        **      **

  Lot Size
    ** Mexico         **         **       **                        **
    ** US Cherry      **                  **      **        **      **
    ** US Menthol     **                          **                **
TOTAL PATCHES         **         **       **      **        **      **
       EFFECTIVE
       LOT **
  Cost per Patch

    **                **         **       **      **        **      **
    **                **         **       **      **        **      **
    **                **         **       **      **        **      **
NCH COST              **         **       **      **        **      **

AGGREGATE
CASH
ADVANCE           $1,297,779 $1,052,580 $737,840 $82,800   $ -
</TABLE>

NOTE:  ALL PRICES IN US $

<PAGE>

                                Section 2.5.1(a)
                        Form of New Advance Payment Note

                                 PROMISSORY NOTE

January 1, 2004                         Minnetonka, Minnesota

      FOR VALUE RECEIVED, the undersigned, LECTEC CORPORATION, a Minnesota
corporation with a mailing address of 10701 Red Circle Drive, Minnetonka, MN
55343 (hereinafter referred to as the "LecTec"), promises to pay to the order of
NOVARTIS CONSUMER HEALTH, INC. with a mailing address of 200 Kimball Drive,
Parsippany, NJ 07054 (hereinafter referred to as "Novartis"), the lesser of the
sum of Two Million ($2,000,000.00) Dollars or so much thereof as has been
advanced and remains outstanding pursuant to Section 2.5 of the Supply and
License Agreement between LecTec and Novartis dated as of January 1, 2004, (the
"Agreement") together with interest and costs thereon as set forth below, such
interest and costs being payable only in the event of default by LecTec
hereunder.

      All amounts outstanding under this Note, together with interest thereon,
shall be repaid in full on upon Novartis' acceptance of final shipment of
Product delivered by LecTec under the Agreement. This Note may be subject to
mandatory prepayment under circumstances as set forth in the Agreement.

      Interest on the principal amount outstanding hereunder shall begin to
accrue as of the date hereof, and shall be payable only in the event of default
by LecTec hereunder on the date of such default whether or not any judgment has
been issued thereon. Such default interest shall be payable at the rate per
annum which shall be two (2) percentage points higher than the "prime" rate as
reported in The Wall Street Journal on the first business day of each month,
adjusted monthly.

      This Note is the New Advance Payment Note as defined in the Agreement, to
which reference may be made for a description of the terms and conditions of
advances of principal hereof and the method of payment by way of credits for
products sold and delivered by LecTec

<PAGE>

to Novartis. The indebtedness described herein shall have the benefit of the
Collateral as set forth in a Security Agreement between LecTec and Novartis of
even date herewith.

      This Note may be prepaid, at any time, in whole or in part, without
premium or fee. If this Note is not paid when due, LecTec agrees to pay all
costs of collection, including reasonable attorneys' fees. LecTec hereby waives
demand, presentment, notice of dishonor, protest, and notice of protest.

      WITHOUT LIMITING OTHER RIGHTS ACCORDED TO NOVARTIS HEREUNDER, LECTEC
HEREBY CERTIFIES THAT THE TRANSACTION CONTEMPLATED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND HEREBY WAIVES (A) ITS RIGHTS TO NOTICE AND HEARING AS OTHERWISE
ALLOWED BY LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH NOVARTIS MAY DECIDE
TO USE, AND (B) ALL RIGHTS AS OTHERWISE ALLOWED BY LAW TO REQUEST THAT NOVARTIS
POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT LECTEC OR ANY OTHER PERSON OR
ENTITY LIABLE UNDER THIS NOTE AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY NOVARTIS BY VIRTUE OF ANY DEFAULT OR
PROVISION OF THIS NOTE OR THE AGREEMENT, AND LECTEC HEREBY CONSENTS TO THE
ISSUANCE OF ANY SUCH PREJUDGMENT REMEDY WITHOUT SUCH A BOND.

      IN WITNESS WHEREOF, the undersigned has executed and delivered this Note
as of the date and year first above written.

                                        LECTEC CORPORATION

                                        By:  _________________________________
                                             Name:

                                        Its: _______________________________
                                             Title:


<PAGE>

                                Section 2.5.1(b)
                         Form of New Security Agreement

                               SECURITY AGREEMENT

      THIS SECURITY AGREEMENT ("Security Agreement") dated as of January 1, 2004
between NOVARTIS CONSUMER HEALTH, INC., 200 Kimball Drive, Parsippany, NJ 07054
("Creditor"), a Delaware corporation, and LECTEC CORPORATION, 10701 Red Circle
Drive, Minnetonka, MN 55343 ("Debtor"), a Minnesota corporation.

                                    RECITALS

A.    Creditor has agreed to advance funds to Debtor as provided in a certain
      Supply and License Agreement of even date herewith ("Supply Agreement")
      and Debtor is otherwise indebted to Creditor. Debtor has issued it a
      promissory note (the "Note") to Creditor evidencing Debtor's obligation to
      repay advances made or to be made by Creditor to Debtor and such other
      indebtedness of Debtor to Creditor.

B.    Debtor has agreed to grant a security interest in its assets as provided
      in this Security Agreement to secure its payment obligations under the
      Note.

            NOW, THEREFORE, the parties hereby agree as follows:

      1. Security Interest. To secure the full and prompt payment to Creditor of
      the obligations of Borrower under the Note (hereinafter, the
      "Liabilities"), Debtor has granted and hereby grants to Creditor a
      continuing security interest in and to all of Debtor's accounts
      receivable, inventory, equipment and general intangibles (hereinafter, the
      "Collateral"), whether now owned or existing or hereafter acquired or
      arising, the proceeds of the Collateral, and all books and records
      (including, without limitation, customer lists, credit files, computer
      programs, print-outs, and other computer materials and records) of Debtor
      pertaining to the Collateral.

      2. Disclosure of Security Interest. Debtor shall make appropriate entries
      upon its financial statements disclosing Creditor's security interest in
      the Collateral.

      3. Financing Statements. At Creditor's request, Debtor shall execute or
      deliver to Creditor, at any time or times hereafter, all supplemental
      documentation that Creditor may reasonably request relating to the
      perfection of the security interest granted in Section 1, in form and
      substance acceptable to Creditor, and pay the costs of any recording or
      filing of the same.

      4. Perfection and Priority; Location of Collateral. Debtor represents
      that:

            (A) None of the Collateral is subject to any lien, security interest
            or other encumbrance, except as disclosed on Exhibit A attached
            hereto and made a part hereof;

<PAGE>

            (B) The address specified above is Debtor's chief executive office
            and principal place of business and Debtor is incorporated under the
            laws of the state of Minnesota.

      5. Event of Default. The occurrence of any one or more of the following
      events shall constitute an "Event of Default:"

            (A) Debtor fails to pay the Liabilities when due and payable as
            provided in the Note;

            (B) Debtor fails or neglects to perform, keep or observe any other
            term, provision, condition, covenant, warranty or representation
            contained in this Security Agreement which is required to be
            performed, kept or observed and the same is not cured to Creditor's
            satisfaction within ten (10) days after Creditor gives Debtor
            written notice thereof;

            (C) Any material representation by Debtor to Creditor concerning its
            financial condition is not true and correct when made, in all
            material respects;

            (D) The Collateral or any other of Debtor's material assets are
            attached, seized, levied upon or subjected to a writ or distress
            warrant, or come within the possession of any receiver, trustee,
            custodian or assignee for the benefit of creditors and the same is
            not cured within sixty (60) days thereafter; an application is made
            by any person other than Debtor for the appointment of a receiver,
            trustee, or custodian for the Collateral or any other of Debtor's
            assets and the same is not dismissed within sixty (60) days after
            the application therefore;

            (E) An application is made by Debtor for the appointment of a
            receiver, trustee or custodian for the Collateral or any other of
            Debtor's assets; a petition under any section or chapter of the
            Bankruptcy Code or any similar law or regulation shall be filed by
            Debtor; Debtor makes an assignment for the benefit of its creditors
            or any case or proceeding is filed by Debtor for its dissolution,
            liquidation, or termination; or

            (F) Debtor ceases to conduct its business as now conducted or is
            enjoined, restrained or in any way prevented by court order from
            conducting all or any material part of its business affairs; a
            petition under any section or chapter of the Bankruptcy Code or any
            similar law or regulation is filed against any Debtor or any case or
            proceeding is filed against Debtor for its dissolution or
            liquidation and such injunction, restraint or petition is not
            dismissed within sixty (60) days after the entry or filing thereof.

      6. Remedies. Upon and after an Event of Default, Creditor shall have the
      following rights and remedies:

            (A) All the rights and remedies of a secured party under the Uniform
            Commercial Code as in effect at the time in Minnesota, all of which
            rights and


<PAGE>

            remedies shall be cumulative, and none exclusive, to the extent
            permitted by law, in addition to any other rights and remedies
            contained in this Security Agreement.

            (B) The right to sell or to otherwise dispose of all or any
            Collateral in its then condition, or after any further manufacturing
            or processing thereof, at public or private sale or sales, with such
            notice as may be required by law, in lots or in bulk, for cash or on
            credit, all as Creditor, in its sole discretion, may deem advisable;
            such sales may be adjourned from time to time with or without
            notice. Creditor shall have the right to conduct such sales on the
            premises of Debtor or elsewhere and shall have the right to use
            Debtor's premises without charge for such sales for such time or
            times as Creditor may see fit. Creditor is hereby granted a license
            or other right to use, without charge, Debtor's labels, patents,
            copyrights, rights of use of any name, trade secrets, trade names,
            trademarks and advertising matter, or any property of a similar
            nature, as it pertains to the Collateral; provided, however, that
            the grant of license and right to use herein shall be subject to the
            license provisions of the Supply Agreement. Creditor shall have the
            right to sell, lease or otherwise dispose of the Collateral, or any
            part thereof, for cash, credit or any combination thereof and
            Creditor may purchase all or any part of the Collateral at public
            or, if permitted by law, private sale and in lieu of actual payment
            of such purchase price, may setoff the amount of such price against
            the Liabilities. The proceeds realized from the sale of any
            Collateral shall be applied first to the reasonable costs, expenses
            (including attorneys' fees and expense) incurred by Creditor for
            collection and for acquisition, completion, protection, removal,
            storage, sale and delivery of the Collateral; second to interest due
            upon any of the Liabilities; third to the principal of the
            Liabilities; fourth to the holder of any junior lien or any of the
            Collateral. If any deficiency shall arise, Debtor shall remain
            liable to Creditor therefore. Notwithstanding anything else in this
            Agreement, Creditor shall not sell, lease or otherwise dispose of
            that portion of the Collateral consisting of the Intellectual
            Property, as that term is defined in the Supply Agreement, in whole
            or in part, so long as the Supply Agreement is in effect.

      7. Subordination by Creditor. On no more than a single occasion and upon
      the written request of Debtor, Creditor shall subordinate its security
      interest in the Collateral to a security interest that Debtor may propose
      to grant to an institutional lender to secure a new loan to Debtor in a
      principal amount of not less than $1,000,000. Such subordination shall
      have the effect only of making Creditor's security interest in the
      Collateral junior to the security interest granted to such new lender
      notwithstanding the priority of the perfection of Creditor's security
      interest and shall not otherwise affect any of Creditor's rights under the
      Note or this Security Agreement.

      8. Waiver. Each party acknowledges and agrees that any failure on the part
      of the other party to enforce at any time, or for any period of time, any
      of the provisions of this Security Agreement shall not be deemed or
      construed to be a waiver of such provisions or of the right of such other
      party thereafter to enforce each and every such provision.


<PAGE>

      9. Enforcement. If and to the extent that any provision of this Security
      Agreement is determined by any legislature, court or administrative agency
      to be, in whole or in part, invalid or unenforceable, such provision or
      part thereof shall be deemed to be surplusage and, to the extent not so
      determined to be invalid or unenforceable, each provision hereof shall
      remain in full force and effect unless the purposes of this Security
      Agreement cannot be achieved. In the event any provisions shall be held
      invalid, illegal or unenforceable the parties shall use commercially
      reasonable efforts to substitute a valid, legal and enforceable provision
      which insofar as practical implements the purposes hereof.

      10. Choice of Law. This Agreement shall be governed by, and construed in
      accordance with, the laws of the State of Minnesota as though made and to
      be fully performed in said State.

      11. Notices. All notices required or permitted hereunder shall be given in
      writing and sent by confirmed facsimile transmission, or mailed postage
      prepaid by first-class certified or registered mail, or sent by a
      nationally recognized express courier service, or hand-delivered to the
      following addressees:

            Creditor:            Novartis Consumer Health, Inc.
                                 200 Kimball Drive
                                 Parsippany, NJ 07054
                                 Attn:  General Counsel

            Debtor:              LecTec Corporation
                                 10701 Red Circle Dr.
                                 Minnetonka, MN 55343
                                 Attn: Chief Executive Officer

      or to such other address as may be specified in a notice given to the
      other party in accordance with this Section 11. Any notice, if sent
      properly addressed, postage prepaid, shall be deemed made three (3) days
      after the date of mailing as indicated on the certified or registered mail
      receipt, or on the next business day if sent by express courier service or
      on the date of delivery or transmission (if delivered or sent during
      ordinary business hours, otherwise on the next business day) if
      hand-delivered or sent by confirmed facsimile transmission.

      12. Captions. The captions of each section of this Security Agreement are
      inserted only as a matter of convenience and for reference and in no way
      shall be deemed to define, limit, enlarge, or describe the scope of this
      Security Agreement and the relationship of the parties hereto, and shall
      not in any way affect this Security Agreement or the construction of any
      provisions herein.

      13. Entire Agreement; Amendment. This Security Agreement, including
      Exhibit A annexed hereto, and the Supply Agreement represent and
      incorporate the entire understanding between the parties hereto with
      respect to the subject matter of this Security Agreement and supersedes
      any prior offers, proposals, drafts or other


<PAGE>

      communications with respect thereto. In the event of a conflict between
      the terms of this Security Agreement and the Supply Agreement, the
      provisions of the Supply Agreement shall prevail. Each party acknowledges
      that there are no warranties, representations, covenants or understandings
      of any kind, nature or description whatsoever made by any party to any
      other, except such as are expressly hereinabove set forth. This Security
      Agreement shall not be subject to change or modification except by the
      execution of a writing specified to be an explicit amendment to this
      Security Agreement duly executed by all parties hereto.

      14 Counterparts. This Security Agreement may be executed in two or more
      counterparts, each of which shall constitute an original and all of which
      together shall constitute a single instrument.


<PAGE>

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

                                        LECTEC CORPORATION

                                        By: ____________________________________
                                            Name:  _____________________________
                                            Title: _____________________________

                                        NOVARTIS CONSUMER HEALTH, INC.

                                        By: ____________________________________
                                            Name:  _____________________________
                                            Title: _____________________________


<PAGE>

                                 Exhibit 6.2.3.1
                              License Royalty Rates

<TABLE>
<CAPTION>
Novartis Net Semi-Annual Sales     Royalty Percentage
------------------------------     ------------------
<S>                                <C>
Less than **                               **
**                                         **
over **                                    **
</TABLE>