Document:

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                                  EXHIBIT 10.1

                                SERVICE AGREEMENT

         This Agreement is entered into as of the 9th day of December, 2000, by
and among UGI Development Company ("UGID") and Hunlock Creek Energy Ventures
("Energy Ventures") in consideration of the mutual covenants and agreements
herein, UGID and Energy Ventures (the "Party (ies)") hereby agree as follows:

ARTICLE 1.        SERVICE.

         1.1      Energy Ventures agrees, during the term of this Agreement, to
                  sell electric energy and/or capacity to UGID and UGID agrees
                  to pay for such sale in accordance with the Energy Ventures
                  Market Rate Tariff on file with the Federal Energy Regulatory
                  Commission ("FERC").

         1.2      The terms and conditions of such service shall be (1) governed
                  by the Energy Ventures Market Rate Tariff, as it exists at the
                  time of this Agreement or as subsequently amended, and (2)
                  terms and conditions separately negotiated and agreed to by
                  the Parties, with respect to sales of capacity and/or energy
                  to a Buyer under the Energy Ventures Market Rate Tariff.

         1.3      In executing this Agreement, neither Energy Ventures nor UGID
                  commits to enter into any individual sales of capacity and/or
                  energy to a Buyer under the Energy Ventures Market Rate
                  Tariff.

ARTICLE 2.        EFFECTIVE DATE AND TERM OF AGREEMENT.

         2.1      This Agreement shall become effective on the date first stated
                  above. However, if the FERC or any reviewing court imposes any
                  condition, limitation, or qualification under any of the
                  provisions of the Federal Power Act which, individually or in
                  the aggregate, Energy Ventures determines to be adverse to
                  Energy Ventures, then Energy Ventures may at its option,
                  terminate or renegotiate the terms of this Agreement in light
                  of such FERC order or court action. Each party will use its
                  best efforts to take, or cause to be taken, all actions
                  requisite to obtain the necessary approvals so that this
                  Agreement shall become effective as provided herein at the
                  earliest practicable date.

         2.2      This Agreement shall remain effective until terminated by
                  either Party on written notice.

ARTICLE 3.        NOTICE.

<PAGE>   2

         3.1      Any notice given pursuant to this Agreement or the Tariff
                  shall be in writing and  delivered or  telecopied  to the
                  following:

                  If to Energy Ventures:

                           David R. Stettler
                           --------------------------------
                           Hunlock Creek Energy Ventures
                           390 Route 11
                           P.O. Box 224
                           Hunlock Creek, PA  18621-0224
                           Phone: 570-830-1238
                           Fax: 570-830-1191

                  If to Buyer:

                           Joe Racho - Manager Power Supply
                           UGI Development Company
                           400 Stewart Road
                           P.O. Box 3200
                           Wilkes-Barre, PA  18773-3200
                           Phone: 570-830-1276
                           Fax: 570-830-1190

         3.2      The names and addresses for notice to either Party may be
                  changed at any time by written notice to the other Party.

ARTICLE 4.        TERMS AND CONDITIONS.

         4.1      This Service Agreement is subject to the Market Rate Tariff
                  and any other terms and conditions, agreed to by the parties
                  which are hereby incorporated herein.

         IN WITNESS WHEREOF, the Parties have caused this Service Agreement to
be executed by their respective authorized officials as of the date first above
written.

UGI DEVELOPMENT                             HUNLOCK CREEK ENERGY
COMPANY                                     VENTURES

By: /s/ Mark Dingman                        By: /s/ David R. Stettler
   --------------------------                  --------------------------------

Name: Mark Dingman                          Name: David R. Stettler
     ------------------------                    ------------------------------

Title: Vice President                       Title: Manager - Power Production
      -----------------------                     ------------------------------<PAGE>   1
                                  EXHIBIT 10.2

                                SERVICE AGREEMENT

         This Agreement is entered into as of the 9th day of December, 2000, by
and among Allegheny Energy Supply Company, LLC ("Allegheny") and Hunlock Creek
Energy Ventures ("Energy Ventures") in consideration of the mutual covenants and
agreements herein, Allegheny and Energy Ventures (the "Party (ies)") hereby
agree as follows:

ARTICLE 1.        SERVICE.

         1.1      Energy Ventures agrees, during the term of this Agreement, to
                  sell electric energy and/or capacity to Allegheny and
                  Allegheny agrees to pay for such sale in accordance with the
                  Energy Ventures Market Rate Tariff on file with the Federal
                  Energy Regulatory Commission ("FERC").

         1.2      The terms and conditions of such service shall be (1) governed
                  by the Energy Ventures Market Rate Tariff, as it exists at the
                  time of this Agreement or as subsequently amended, and (2)
                  terms and conditions separately negotiated and agreed to by
                  the Parties, with respect to sales of capacity and/or energy
                  to a Buyer under the Energy Ventures Market Rate Tariff.

         1.3      In executing this Agreement, neither Energy Ventures nor
                  Allegheny commits to enter into any individual sales of
                  capacity and/or energy to a Buyer under the Energy Ventures
                  Market Rate Tariff.

ARTICLE 2.        EFFECTIVE DATE AND TERM OF AGREEMENT.

         2.1      This Agreement shall become effective on the date first stated
                  above. However, if the FERC or any reviewing court imposes any
                  condition, limitation, or qualification under any of the
                  provisions of the Federal Power Act which, individually or in
                  the aggregate, Energy Ventures determines to be adverse to
                  Energy Ventures, then Energy Ventures may at its option,
                  terminate or renegotiate the terms of this Agreement in light
                  of such FERC order or court action. Each party will use its
                  best efforts to take, or cause to be taken, all actions
                  requisite to obtain the necessary approvals so that this
                  Agreement shall become effective as provided herein at the
                  earliest practicable date.

         2.2      This Agreement shall remain effective until terminated by
                  either Party on written notice.

ARTICLE 3.        NOTICE.

<PAGE>   2

         3.1      Any notice given pursuant to this Agreement or the Tariff
                  shall be in writing and delivered or telecopied to the
                  following:

                  If to Energy Ventures:

                           David R. Stettler
                           -------------------------------
                           Hunlock Creek Energy Ventures
                           390 Route 11
                           P.O. Box 224
                           Hunlock Creek, PA  18621-0224
                           Phone: 570-830-1238
                           Fax: 570-830-1191

                  If to Buyer:

                           David C. Benson, Vice President
                           Allegheny Energy Supply Company, LLC
                           Roseytown Road
                           R.R. 12, Box 1000
                           Greensburg, PA  15601
                           Phone: 724-853-3766
                           Fax: 724-853-3788

         3.2      The names and addresses for notice to either Party may be
                  changed at any time by written notice to the other Party.

ARTICLE 4.        TERMS AND CONDITIONS.

         4.1      This Service Agreement is subject to the Market Rate Tariff
                  and any other terms and conditions, agreed to by the parties
                  which are hereby incorporated herein.

         IN WITNESS WHEREOF, the Parties have caused this Service Agreement to
be executed by their respective authorized officials as of the date first above
written.

ALLEGHENY ENERGY                         HUNLOCK CREEK ENERGY
SUPPLY COMPANY, LLC                      VENTURES

By: /s/ Mark Dingman                     By: /s/ David R. Stettler
   --------------------------               ------------------------------------

Name: Mark Dingman                       Name: David R. Stettler
     ------------------------                 ----------------------------------

Title:  Vice President                   Title: Manager - Power Production
      -----------------------                  ---------------------------------Exhibit 10.1

                                 LOAN AGREEMENT

         THIS AGREEMENT is entered into this 21st day of December, 2000,between
LecTec Corporation, a Minnesota corporation (the "Borrower"), and Equity
Holdings II, a Minnesota general partnership, ("Lender"). The parties hereto
agree as follows:

ARTICLE I.

Definitions

         Section 1.01 Definitions. For purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:

              (a)the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and

         (b) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles.

         "Advance" means an advance of funds by Lender pursuant to Article II.

         "Agreement" means this Loan Agreement.

         "Event of Default" has the meaning specified in Section 6.01.

         "Improvements" means the building and improvements constructed on the
Property.

         "Leases" means any lease of all or a portion of the Property and
Improvements now or subsequently executed.

         "Loan" has the meaning specified in Section 2.01.

         "Loan Documents" means this Agreement, the Note, the Mortgage and all
other documents and certificates reasonably requested by Lender in connection
with the Loan transaction.

         "Mortgage" has the meaning specified in Section 3.01(e).

<PAGE>

         "Note" has the meaning specified in Section 2.03.

         "Obligations" means each and every debt, guaranty, liability, and
obligation of every type or description which the Borrower may now or at any
time owe to Lender, whether now existing or hereafter arising, direct or
indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, independent, joint, several, or joint and several.

         "Property" means that certain real estate located at 10701 Red Circle
Drive, Minnetonka, Minnesota which is more fully described on Exhibit A attached
to the Mortgage and the improvements constructed thereon.

         "Title Company" means Chicago Title Insurance Company.

         "Title Policy" has the meaning specified in Section 3.01(g).

         Additional Definitions may be found elsewhere in this Agreement.

ARTICLE II.

Amount and Terms of Loan

         Section 2.01 Amount and Term of Lender's Commitment. Borrower agrees
to borrow from Lender and Lender agrees to lend to Borrower on or before
December 31, 2000, the amount of $820,000 upon the terms and conditions hereof
(the "Loan"), which sums shall be disbursed in accordance with this Agreement
and used solely for business purposes.

         Section 2.02 Making the Loans. Each Advance shall be made by Lender to
the Borrower in satisfaction of all conditions set forth herein. The Borrower
shall be obligated to repay all Advances notwithstanding the fact that the
person requesting the same was not authorized by Borrower to do so.

         Section 2.03 Note. The obligation to repay the Loan together with
interest and other charges thereon shall be evidenced by a Promissory Note of
the Borrower payable to the order of Lender in a form acceptable to Lender dated
the effective date of this Agreement (the "Note"). Interest on the Note shall
accrue on the unpaid principal balance advanced and on any past due payments
thereon at the annual rate of 5.0 percentage points above the Base Rate as
hereinafter defined. The interest rate and payment amount shall change from time
to time as the Base Rate changes. The term "Base Rate" means the highest Prime
Rate of Interest published by the Wall Street Journal. If the Wall Street
Journal discontinues the public announcement of Prime Rates of Interest for any
reason, Lender shall set its own Base Rate and shall so notify Borrower.

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<PAGE>

Lender may lend to its customers at rates that are equal to, above or below the
Base Rate. Interest will begin to accrue on the date of the first advance.

         The principal balance which shall not exceed $820,000 shall become due
and payable in full on or before December 21, 2002. Monthly payments of interest
only shall commence on January 21, 2001 and shall continue on the 21st day of
each month thereafter until December 21, 2002, at which time the entire balance
of principal and accrued interest shall become due and payable in full. Payments
received by Lender more than 15 days after their due date shall incur a late
payment penalty in the amount of 5% of each such payment which shall become
immediately due.

         Section 2.04 Payment, Balance and Setoff. All payments of principal,
interest and other charges under the Note, and of all amounts hereunder shall be
made to Lender in accordance with the terms of the Note in immediately available
funds. The Borrower agrees that the amount shown in the books and records of
Lender as being outstanding shall be prima facie evidence of the outstanding
principal amount of the Note.

         Section 2.05 Use of Proceeds. The Borrower shall use the proceeds of
the Advance only for general business purposes.

         Section 2.06 Proposal Fee. The Borrower shall pay to Lender a Proposal
Fee of 1% of the amount due upon closing. Borrower has paid Lender $10,000 which
will be credited to Borrower at closing.

         Section 2.07 Prepayment. The Loan may be prepaid in full at any time.
No partial prepayments shall be allowed. The prepayment amount shall include all
accrued interest, costs advanced by Lender, the full principal balance and all
scheduled interest payments for the remaining term of the Loan.

ARTICLE III.

Conditions of Lending

         Section 3.01 Required Documents. The initial advance of credit under
the Loan shall be subject to the condition precedent that Lender shall have
received prior thereto all of the following, in form and substance satisfactory
to Lender:

         (a) The Note, properly executed on behalf and in the name of the
Borrower, in a form acceptable to Lender.

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         (b) All financing statements and other writings, properly executed,
which are deemed by Lender to be necessary or desirable to grant Lender a
perfected security interest on the personal property described in the Mortgage.

         (c) Certificates of insurance covering the Property and Improvements
and certificates of all other insurance including without limitation, builders
risk insurance coverage, hazard insurance and comprehensive general public
liability insurance coverage, and flood hazard insurance if the Property lies
within a federally identified flood hazard area, as required by Section 5.03 or
by the terms of the Mortgage, in such companies as shall be reasonably
acceptable to Lender, which certificates shall name Lender as loss payee and
Mortgagee.

         (d) A Certificate of Incorporation and a current Certificate of Good
Standing for the Borrower issued by the Minnesota Secretary of State.

         (e) A Combination Real Estate Mortgage, Security Agreement, Fixture
Financing Statement and Assignment of Leases and Rents in a form acceptable to
Lender ("Mortgage") properly executed by the Borrower.

         (f) An opinion of counsel to the Borrower in a form acceptable to
Lender.

         (g) A mortgagee's Title Policy issued by the Title Company to Lender in
the amount of $820,000, containing such endorsements as Lender deems necessary,
insuring that the Mortgage constitutes a valid first lien on the Property, free
and clear of all standard exceptions, including mechanics' liens and matters
disclosed by a survey and all other exceptions not previously approved by
Lender, and subject only to permitted encumbrances acceptable to Lender.

         (h) Letters from the City of Minnetonka, Minnesota confirming that the
Property is properly zoned for its intended use, that all utilities necessary
for the operation of the Improvements are available, and such other evidence as
Lender may require showing that all building and other permits have been
obtained, and that the Property and all Improvements and the operation thereof
will comply with all applicable laws, codes, rules and regulations, including
those relating to zoning and environmental matters.

         (i) A survey of the Property certified to Lender by a licensed,
registered land surveyor and incorporating the legal description of the
Property, showing the location of all points and lines referred to in, the legal
description, the location of all Improvements, the location of all utilities to
which the Improvements connect, the location of all easements and encroachments
onto or from the Property that

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<PAGE>

are visible on the Property, known to the surveyor preparing the survey or of
record, identifying easements or record by recording data.

         (j) An appraisal of the Property satisfactory to Lender prepared by an
independent appraiser approved by Lender demonstrating that the Property has an
aggregate value of not less than $1,640,000.

         (k) True, complete and correct copies of the Articles of Incorporation
and the Bylaws of the Borrower and all amendments thereto and modifications
thereof, together with a certificate of the Secretary of the Borrower containing
resolutions of the Borrower authorizing the execution and delivery of this
Agreement and all other agreements, instruments and other documents which are
required to be executed by the Borrower in connection with the Loan contemplated
hereby, which certificate shall be in a form reasonably acceptable to Lender's
counsel.

         (l) An Environmental Site Assessment Phase I Report (the "Phase I")
from an environmental engineer acceptable to Lender, in form and substance
satisfactory to Lender, addressed to Lender, and any additional environmental
related tests and reports recommended by the Phase I or deemed necessary by
Lender.

         (m) Such other documents as may be reasonably requested by Lender.

         Section 3.02 Additional Requirements. As additional requirements and
conditions of making the Loan it is agreed that Borrower shall be responsible
for the payment of all costs incurred by Lender in relation to the Loan
including attorney fees incurred in preparation of the Loan Documents.

ARTICLE IV.

Representations and Warranties

         The Borrower represents and warrants to Lender as follows:

         Section 4.01 Existence and Power. The Borrower is a corporation created
and existing and in good standing under the laws of the State of Minnesota, is
duly licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary, and has all
requisite power and authority to execute and deliver and to perform all of its
obligations under this Agreement, the Note, the Mortgage and all other Loan
Documents and writings contemplated hereby.

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<PAGE>

         Section 4.02 Authorization. The execution, delivery and performance by
the Borrower of this Agreement, the Note, the Mortgage and all other Loan
Documents and writings contemplated hereby have been duly authorized by all
requisite action and do and will not (a) require any consent or approval of any
person or governmental authority, (b) violate any law, rule, regulation, order,
writ, injunction or decree, or the Articles of Incorporation or Bylaws of the
Borrower, (c) result in a breach of or constitute a default under any contract,
agreement or other writing to which the Borrower is a party or by which the
Borrower or any property of the Borrower may be bound or affected, or (d) result
in or require the creation or imposition of, any mortgage, security interest or
other interest, encumbrance, claim or charge of any nature, except in favor of
Lender, upon or with respect to any property of the Borrower.

         Section 4.03 Legal Agreements. The Loan Documents constitute the legal,
valid and binding obligations of the Borrower; and this Agreement and any other
writings contemplated hereby constitute the legal, valid and binding obligations
of the Borrower.

         Section 4.04 Financial Statements. The Borrower has furnished financial
statements to Lender which consist of its required 10Q filing with the
Securities and Exchange Commission for the period ending September 30, 2000.
Said statements and balance sheets fully and fairly reflect the financial
condition of the Borrower.

         Section 4.05 No Adverse Change. There has been no material adverse
change in the business, property or condition (financial or otherwise) of the
Borrower.

         Section 4.06 Titles and Liens. The Borrower has good title to all of
the property reflected in the latest balance sheet referred to in Sections 4.04
and 5.01, free and clear of all mortgages, security interests and other
interests, encumbrances, claims and charges, except for liens permitted herein
and covenants, restrictions, rights, easements and minor irregularities in title
which do not materially interfere with the business or operations of the
Borrower.

         Section 4.07 Taxes. Borrower has filed all required tax returns (or
obtained appropriate extensions for the filing thereof), has paid all due and
payable taxes, assessments and other governmental charges levied or imposed upon
it, or upon its income or profits or upon its property, and has made adequate
provision for the payment of such taxes, assessments and other charges accruing
but not yet due and payable.

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<PAGE>

         Section 4.08 Litigation. There is no pending or threatened notice,
claim, litigation, proceeding or investigation against or affecting the
Borrower, or any of its property, whether or not covered by insurance, that
would involve the payment by Borrower of $25,000 or more in the aggregate or
would otherwise have a material adverse effect on the financial condition,
business, prospects, property or operations of Borrower, and there is no basis
for any such order, notice, claim, litigation, proceeding or investigation.

         Section 4.09 No Agricultural Uses. The Borrower will not allow the
Property to be used for any agricultural activities so as to allow the Farm
Mediation Act to apply to this loan or any collateral pledged to Lender.

         Section 4.10 Business Purpose. This Agreement and all writings
contemplated hereby and the proceeds of the Advance are solely for business
purposes and no funds will be used for personal, family or household purposes.

         Section 4.11 Compliance with Zoning Ordinances and Similar Laws. The
Improvements and the proposed use of the Improvements comply and will comply
with all governmental laws, regulations, and requirements, zoning ordinances and
regulations of all governmental bodies exercising jurisdiction over the
Property.

         Section 4.12 Hazardous or Toxic Substances. To Borrower's knowledge
after reasonable investigation, and except as set forth on the Phase I Report
dated December 8, 2000 prepared by Peer Environmental & Engineering Resources,
Inc., (i) no person or entity has caused or permitted materials to be stored,
deposited, treated, recycled or disposed of on, under or at the Property, which
materials, if known to be present, would require clean-up, removal or some other
remedial action under Environmental Laws; (ii) there have never been tanks or
other facilities on, under or at the Property which contained materials which,
if known to be present in soils or groundwater, would require clean-up, removal
or some other remedial action under Environmental Laws; (iii) there are no
conditions existing currently or which will exist during the term of this
Agreement which subject Borrower to damages, penalties, injunctive relief or
clean-up costs under Environmental Laws or which require or are likely to
require clean-up, removal, remedial action or other response by Borrower
pursuant to Environmental Laws; (iv) Borrower is not subject to any judgment,
decree, order or citation relating to or arising out of any Environmental Laws;
and (v) Borrower shall have all permits, licenses and approvals required under
Environmental Laws. As used in this Agreement the term "Environmental Laws"
means all federal, state and local laws including statutes, regulations,
ordinances, codes, rules or other governmental restrictions and requirements
relating to the discharge of air pollutants, water pollutants or process waste
water or otherwise

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<PAGE>

relating to the environment or hazardous substances, including but not limited
to, the Minnesota Petroleum Tank Release Cleanup Act, the Minnesota
Environmental Response and Liability Act, the Federal Solid Waste Disposal Act,
the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental
Responsibility, Cleanup and Liability Act of 1980, regulations of the
Environmental Protection Agency, regulations of the Nuclear Regulatory Agency,
and regulations of any state department of natural resources or state
environmental protection agency now or at any time hereafter in effect.

         Section 4.13 Availability of Utilities. All utility services necessary
for the proper operation of the Improvements and the existing improvements on
the Property for their intended purposes are available at the Property, at
standard utility rates and hook-up charges, including water supply, storm and
sanitary sewer facilities, gas, electricity and telephone facilities.

ARTICLE V.

Covenants

         So long as the Note shall remain outstanding, the Borrower shall comply
with the following requirements:

         Section 5.01 Financial Statements and Other Information. Borrower shall
deliver to Lender, in form and substance satisfactory to Lender:

         (a) Promptly after sending, making available or filing the same, copies
of all Federal tax returns.

         (b) As soon as available, and in any event within 90 days after the end
of each fiscal year, annual financial statements in a format acceptable to
Lender.

         (c) Quarterly rent rolls for the Property setting forth the names of
all tenants and the terms of all leases or rental agreements.

         (d) Such other information respecting the financial condition, business
and property of the Borrower as Lender may from time to time reasonably request.

        Section 5.02 Taxes and other Claims. Borrower shall file when due
(within any period covered by an attainable extension) all required tax returns,
shall pay when due all taxes, assessments and other governmental charges levied
or

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<PAGE>

imposed upon it upon its income or profits, or upon any of its property, and
shall pay when due all lawful claims for labor, materials and supplies which, if
unpaid, might become a lien or charge upon any property of Borrower; provided,
that Borrower shall not be required to pay any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings, and for which a proper reserve has been established
in accordance with generally accepted accounting principles.

         Section 5.03 Insurance. Borrower shall obtain and maintain insurance
with insurers that are reasonably acceptable to Lender, in such amounts and with
such coverages as are reasonably acceptable to Lender, including without
limitation the following insurance coverages:

                  (a) All risk property insurance providing coverage against
         loss by fire, lightning and other hazards and risks customarily covered
         by standard extended coverage endorsement, including the cost of debris
         removal, together with a vandalism and malicious mischief endorsement,
         all in the amounts of not less than the full insurable value or full
         replacement cost of the Improvements, whichever is greater;

                  (b) Flood insurance in the maximum obtainable amount unless
         evidence satisfactory to Lender is provided that the entire Property
         lies entirely outside of a federally-identified flood hazard area or
         flood plain as defined by the Federal Insurance Administration;

                  (c) "Business interruption" insurance coverage in an amount
         reasonably acceptable to Lender;

                  (d) Commercial general liability insurance covering the legal
         liability of Borrower against claims for bodily injury, death or
         property damage occurring on, in or about the Property and
         Improvements, with coverage limits of at least $1,000,000 for each
         occurrence and $3,000,000 excess liability coverage; and

                  (e) Workers' compensation insurance as required by law and all
         other insurance coverages as are consistent with industry practice.

         All insurance policies shall name Lender as mortgagee and a loss payee,
shall be in an amount which shall be, in any event, sufficient to prevent the
insured from becoming a co-insurer of any loss thereunder, and shall contain a
provision whereby they cannot be cancelled except after 30 days' written notice
to Lender. In the event the Borrower fails to pay any premium on any such
insurance, Lender may do so, and the Borrower shall reimburse Lender for any

                                       9
<PAGE>

such payment on demand. Borrower hereby assigns to Lender all returned or
unearned premiums that may be payable to the Borrower upon cancellation of any
such policies for any reason and all proceeds of such insurance, and directs the
insurers to pay Lender all such amounts. Borrower hereby grants Lender a limited
power of attorney to endorse any check or other remittance payable to Borrower
to collect such returned or unearned premiums and the proceeds of such
insurance, and any amount so collected may be applied by Lender to the Note or
other obligations due Lender by the Borrower as Lender, in its discretion, deems
appropriate.

         Section 5.04 Corporate Existence. The Borrower shall preserve and
maintain its corporate existence and all of its rights, privileges and
franchises, and comply with all applicable laws and regulations.

         Section 5.05 Nature of Business. The Borrower shall not engage in any
line of business materially different from that presently engaged in by the
Borrower.

         Section 5.06 Permits and Licenses. Borrower shall obtain and maintain
or cause to be obtained and maintained all permits and licenses necessary to
operate its business on the Property.

         Section 5.07 Due on Sale. Borrower shall not sell, convey, transfer,
further mortgage or encumber or dispose of the Property or any interest-therein
without the prior written consent of Lender.

         Section 5.08 Real Estate Taxes and Assessments. At any time Lender may
require that, in addition to the monthly loan payments required under the Notes,
Borrower shall pay to Lender with each such monthly loan payment one-twelfth of
the annual amount of the real estate taxes and assessments assessed against the
Property. Lender shall have no obligation to segregate said escrow payment. In
the event that the escrow account is insufficient to pay the real estate taxes
and assessments when due, Borrower shall immediately pay Lender amounts
sufficient to allow for payment of the taxes and assessments when due.

         Section 5.09 Indemnity. Borrower shall reimburse and indemnify Lender
for any expenses, costs or claims which Lender may incur relating to its
exercise of any rights under this Agreement or writings contemplated hereby.
Such amounts shall be due and payable upon demand and shall bear interest at the
rate specified in the Note. To the extent possible Lender will attempt to give
Borrower notice five days prior to incurring expenses, however, the failure to
give such notice shall not impair Borrower's obligation to reimburse and
indemnify Lender. Borrower shall defend, indemnify and hold Lender harmless from
and against

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<PAGE>

any and all liabilities arising from brokerage commissions or finder's fees in
connection with the Property, including without limitation, the cost of
attorneys' fees in connection therewith.

         Section 5.10 Compliance with Laws and Requirements. Borrower agrees to
comply at all times with all applicable restrictions, requirements, conditions,
codes, ordinances, regulations and laws of all governmental bodies having
jurisdiction over the Property.

         Section 5.11 Notices to Lender. Borrower covenants and agrees to
furnish to Lender (i) immediately upon receipt, copies of any correspondence,
notice, pleading, citation, indictment, complaint, order, decree or other
document from any source asserting or alleging a circumstance or condition which
requires or may require a financial contribution by Borrower or a cleanup,
removal, remedial action or other response by or on the part of Borrower under
Environmental Laws or which seeks damages or civil, criminal or punitive
penalties from Borrower for an alleged violation of Environmental Laws; and (ii)
written notice of any condition or event which would make the warranties
contained in Article IV inaccurate, as soon as Borrower becomes aware of such
condition or event.

ARTICLE VI.

Events of Default, Rights and Remedies

         Section 6.01 Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default":

         (a) Default in the payment of any amount due under this Agreement, the
Note or any other Obligation of the Borrower to Lender and the continuance of
such default for a period of 10 days; or

         (b) Any statement, representation or warranty of Borrower to Lender at
any time, including without limitation any statement, representation or warranty
made in this Agreement or in any writing contemplated by this Agreement or
otherwise furnished to Lender, shall prove to have been incorrect or misleading
in any material respect when made; or

         (c) Default in the performance or breach of any other covenant or
agreement of Borrower contained in this Agreement, any writing contemplated by
this Agreement or any other agreement with Lender, which defaults or breaches
remain uncured for a period of thirty (30) days, or for a reasonable period
after such thirty (30) day period if such default is curable but requires acts
to be done or conditions to be remedied which cannot be cured or remedied within
such thirty (30) day period and provided the Borrower commences to cure such
default

                                       11
<PAGE>

within such thirty (30) day period and thereafter diligently and continuously
attempts to cure such default within such reasonable period; or

         (d) Borrower shall become insolvent, make an assignment for the benefit
of creditors, apply for or consent to the application or suffer the appointment
of any receiver, trustee or similar officer, die, or initiate or have initiated
against it any act, process or proceeding under any insolvency, bankruptcy,
dissolution, liquidation or similar law (provided that the filing of an
involuntary petition in bankruptcy against Borrower, shall constitute an Event
of Default only if the petition is not dismissed within 30 days after filing);
or

         (e) Any indebtedness in excess of $25,000.00 under any other bond,
debenture, note, other evidence of indebtedness or obligation of Borrower is
declared due and payable prior to its expressed maturity by reason of default by
any such party; or

         (f) Borrower shall suffer a final judgment or other order for the
payment of money in the amount of $25,000 or more which becomes a lien on the
Property, and the same shall not be released, vacated or fully bonded within a
period of 45 days during which execution shall not be effectively stayed; or

         (g) The issuance or levy of any writ, warrant, attachment, execution or
similar process against, or the attachment of any tax lien to, any property of
Borrower and shall not be released or fully bonded within thirty (30) days after
its issue, levy or entry; or

         (h) Occurrence of any event constituting an event of dissolution or
liquidation of Borrower under applicable law; or

         (i) The Improvements are materially damaged or destroyed by fire or
other casualty and the same is not repaired expeditiously in accordance with the
applicable provisions of the Mortgage; or

         Section 6.02 Rights and Remedies. Upon the occurrence of an Event of
Default or at any time thereafter until such Event of Default is cured to the
written satisfaction of Lender, Lender may exercise any and all of the following
rights and remedies:

         (a) Lender may declare all principal, interest and other charges and
amounts under the Note, this Agreement or under any writing evidencing any
obligations of Borrower to Lender to be due and payable, whereupon the same
shall become due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by Borrower.

                                       12
<PAGE>

         (b) Lender may, without notice to Borrower or any other person, apply
any and all money owing by Lender to the Borrower to the payment of principal,
interest and other charges and amounts under the Note or this Agreement or under
any writing evidencing any Obligations of the Borrower to Lender.

         (c) Lender may exercise and enforce its rights and remedies under the
Loan Documents, any agreement or other writing securing any obligations of
Borrower to Lender, the Uniform Commercial Code and any other applicable law.

         (d) Lender may, by notice to the Borrower, declare its obligation to
make Advances hereunder to be terminated, whereupon the same shall terminate.

ARTICLE VII.

Miscellaneous

         Section 7.01 Waiver and Amendment. No provision, of this Agreement or
any of the other Loan Documents can be waived, modified, amended, abridged,
supplemented or terminated, except by a writing executed by Lender. A waiver
shall be effective only in the specific instance and for the specific purpose
given. No delay or failure by Lender to exercise any right or remedy shall be a
waiver thereof, nor shall any single or partial exercise by Lender of any right
or remedy preclude any other exercise thereof or the exercise of any other right
or remedy. All rights and remedies of Lender under this Agreement and the other
Loan Documents are cumulative and not exclusive.

         Section 7.02 Costs and Uses. Borrower shall pay to Lender on demand all
costs and expenses, including without limitation, reasonable attorneys' fees,
incurred by Lender in connection with the preparation of the Loan Documents, and
all costs and expenses, including without limitation, reasonable attorneys'
fees, incurred by Lender in connection with any amendment and/or enforcement of
the Loan Documents.

         Section 7.03 Addresses. All notices, requests, demands and other
communications provided for under this Agreement and the other Loan Documents
shall be in writing and shall be delivered in person or deposited in the mail,
postage prepaid, addressed as follows:

If to the Borrower:          LecTec Corporation
                             10701 Red Circle Drive
                             Minnetonka, MN 55343
                             Attn: President and CFO

                                       13
<PAGE>

With a Copy to:              James L. Tucker III
                             Dorsey & Whitney, LLP
                             220 South Sixth Street
                             Minneapolis, MN 55402-1498

If to Lender:                Equity Holdings II
                             7450 France Avenue South
                             Suite 120
                             Minneapolis, MN 55435
                             Attn: Tim Cashin

or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices, requests, demands and other communications
shall be effective when actually delivered or deposited in the mail.

         Section 7.04 Binding Effect and Assignment. This Agreement and the
other Loan Documents shall be binding upon and inure to the benefit of the
parties hereto and thereto and their respective successors and assigns, except
that Borrower shall not have any right to assign any of their rights hereunder
or thereunder or any interest herein or therein without the prior written
consent of Lender. Lender reserves the right to transfer or sell all or a
portion of its interest in the Loan and in connection therewith to disclose to
any purchaser or potential purchaser of such interest any information furnished
to Lender by Borrower (as long as such potential purchaser agrees to keep such
information confidential) and to assign to any such purchaser all or a portion
of Lender's rights and interests under the terms of this Agreement and the other
Loan Documents. If any provision or application of this Agreement or the other
Loan Documents is held unlawful or unenforceable in any respect, such illegality
or unenforceability shall not affect the other provisions or applications which
can be given effect, and this Agreement and the other Loan Documents shall be
construed as if the unlawful or unenforceable provision or application had never
been contained herein or therein or prescribed hereby or thereby.

         Section 7.05 Jurisdiction and Venue. Borrower consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related in any way to this Agreement or any
of the other Loan Documents, waives any argument that venue in such forums is
not convenient, and agrees that any litigation initiated by Borrower against
Lender in connection with this Agreement or any of the other Loan Documents,
shall be venued in either the District Court of Hennepin County, Minnesota, or
the United States District Court, District of Minnesota, Fourth Division.

                                       14
<PAGE>

         Section 7.06 Headings. Article and Section headings in this Agreement
are for convenience of reference only, and shall not constitute a part of this
Agreement for any other purpose or a limitation of the scope of the particular
Articles or Sections to which they refer.

         Section 7.07 Governing Law. This Agreement and the other Loan Documents
(except as otherwise stated therein), shall be governed by and construed in
accordance with the laws of the State of Minnesota.

         Section 7.08 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which shall
together constitute one instrument.

         Section 7.09 Relationship of Parties. The relationship of the parties
under this Agreement is that of lender and borrower and no joint venture,
partnership or relationship of any other kind is intended, or is to be construed
or implied, to have been created.

         Section 7.10 Merger. This Agreement and the other Loan Documents
contain all of the terms, conditions and covenants between the parties. Borrower
is not relying on any representation or warranty of Lender except as expressly
set forth herein.

                                       15
<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.

BORROWER:                              LECTEC CORPORATION,
                                       a Minnesota corporation

                                       By /s/ Douglas Nesbit
                                       -----------------------------
                                       Douglas Nesbit, its CFO

LENDER:                                EQUITY HOLDINGS II

                                       By  /s/ Tim Cashin
                                       -----------------------------
                                       Tim Cashin, Its Partner

                                       16

<PAGE>

                                                        Exhibit 10.1 (continued)

                                 PROMISSORY NOTE

$820,000.00                                               Minneapolis, Minnesota
                                                               December 21, 2000

         FOR VALUE RECEIVED, the undersigned Borrower promises to pay to the
order of Equity Holdings II (the "Lender"), at its office in Edina, Minnesota,
or at such other place as the holder of this Note may designate from time to
time, the principal sum of $820,000.00 which remains outstanding as shown in the
records of the holder of this Note, as the case may be, and to pay interest on
the outstanding balance hereof at the times and at the rates set forth below.
This Note is secured by a Combination Real Estate Mortgage, Security Agreement,
Fixture Financing Statement and Assignment of Leases and Rents dated the date
hereof from the undersigned to Lender relating to certain property located in
Minnetonka, Minnesota as more particularly described therein (as amended from
time to time, the "Mortgage"). Lender may make additional subsequent advances at
its discretion but at no time shall Lender advance an amount which would cause
the unpaid principal balance of this Note to exceed $820,000.00.

         Interest on the Note shall accrue on the unpaid principal balance and
on any past due payments thereon at the annual rate of 5.0 percentage points
above the Base Rate as hereinafter defined. The interest rate and payment amount
shall change from time to time as the Base Rate changes. The terms "Base Rate"
means the highest Prime Rate of Interest published by the Wall Street Journal.
If the Wall Street Journal discontinues the public announcement of Prime
Interest Rates for any reason, Lender shall set its own Base Rate and shall so
notify Borrower. Lender may lend to others at rates that are equal to, above or
below the Base Rate. Interest will begin to accrue on the date of the first
advance.

         The remaining principal balance of this Note shall become due and
payable in full on or before December 21, 2002. Monthly payments of interest
only shall commence on January 21, 2001 and shall continue on the 21st day of
each month thereafter until December 21, 2002, at which time the entire balance
of principal and accrued interest shall become due and payable in full. Payments
received by Lender more than 15 days after their due date shall incur a late
payment penalty in the amount of 5% of each such payment which shall become
immediately due.

         Interest on this Note shall be calculated on the basis of actual days
elapsed in a year of 360 days. All of the unpaid balance of this Note may be
prepaid in full at any time. No partial prepayments shall be allowed. The
prepayment amount shall include all accrued interest, costs advanced by Lender,
the full principal balance and all scheduled interest payments for the remaining
term of the Loan. Each monthly payment or prepayment shall be applied first to
the payment of other charges under this

<PAGE>

Note, second to the payment of interest accrued through the date of payment and
third to the payment of principal under this Note.

         In the event of any default in the payment of this Note and the
continuance of such default for a period of 15 days, or the occurrence of an
Event of Default under the terms of the Loan Agreement or any of the other "Loan
Documents" (as such term is defined in the Loan Agreement), or of any other
obligations of the undersigned to the holder of this Note; or in the event any
of the undersigned or any maker, endorser, guarantor or surety of this Note or
any other person providing security for this Note or for any guaranty for this
Note shall become insolvent, make an assignment, make an assignment for the
benefit of creditors, apply for or consent to the application or suffer the
appointment of any receiver, trustee or similar officer, die, or initiate or
have initiated against it any act, process or proceeding under any insolvency,
bankruptcy, dissolution, liquidation or similar law (provided that the filing of
an involuntary petition in bankruptcy against the undersigned, or any of the
guarantors of this Note, shall constitute an event of default only if the
petition is not dismissed within 30 days after filing); or a final judgment or
other order for the payment of money in the amount of $25,000 or more, or any
writ, warrant, attachment, execution or similar process, shall be entered and
become a lien on, issued or levied against, the Premises, or any part thereof
and shall not be released, vacated or fully bonded within forty-five (45) days
after its entry, issue or levy; or the issuance or levy of any writ, warrant,
attachment, execution or similar process against any property of any of the
undersigned or any such maker, endorser, guarantor, surety or other person which
is not released or fully bonded within a period of 30 days; or in the event that
any statement, representation or warranty of any of the undersigned or any such
maker, endorser, guarantor, surety or other person to any holder of this Note at
any time shall prove to have been incorrect or misleading in any material
respect when made; then in any such event the holder of this Note may, at its
option, declare this Note to be immediately due and payable and thereupon this
Note shall become due and payable for the entire unpaid principal balance of
this Note plus accrued interest and other charges on this Note without any
presentment, demand, protest or other notice of any kind.

         Each of the undersigned and each endorser, guarantor and surety of this
Note jointly and severally agree to pay this Note; guarantee payment of this
Note; waive demand, presentment, protest, notice of protest, notice of dishonor
and notice of nonpayment of this Note; consent to any extensions and renewals of
this Note without notice; consent to the release of any of them by the holder of
this Note with or without consideration or notice; exonerate the holder of this
Note from any duty or obligation to make demand on anyone for payment of any
security or delivery of any guaranty for this Note or to give notice to anyone
of nonpayment thereof or to collect or sell the same; consent to the extension,
renewal, exchange, subordination, surrender or release of any security for this
Note by the holder of this Note with or without consideration or notice; agree
that no act, omission or thing, except full payment of this Note, which but for
this provision could act as a release or impairment of their liability, shall in
any way release, impair or affect the liability of any of them; agree to
promptly provide the holder of this Note from time to time with their financial
statements and such

                                       2
<PAGE>

other information respecting their financial condition, business and property as
the holder of this Note may request, in form and substance acceptable to the
holder of this Note; agree that when or at any time after this Note becomes due
the holder of this Note may offset or charge the full amount owing on this Note
against any account then maintained by any of them with the holder of this Note
without notice; agree to pay on demand all costs and expenses of the holder of
this Note in connection with this Note and any security and guaranties for this
Note, including without limitation reasonable attorneys' fees, plus interest on
such amounts at the rate set forth in this Note; and consent to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related in any way to this Note or any
security or guaranty for this Note, waive any argument that venue in such forums
is not convenient, and agree that any litigation initiated by any of them
against Lender or any other holder of this Note relating in any way to this Note
or any security or guaranty for this Note shall be venued in either the District
Court of Hennepin County, Minnesota, or the United States District Court,
District of Minnesota, Fourth Division. Interest on any amount under this Note
shall continue to accrue, at the option of the holder of this Note, until such
holder receives final payment of such amount in collected funds in form and
substance acceptable to such holder.

         No waiver of any right or remedy under this Note shall be valid unless
in writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given. All
rights and remedies of the holder of this Note shall be cumulative and may be
exercised singly, concurrently or successively. The undersigned, if more than
one, shall be jointly and severally liable under this Note, and the term
"undersigned" wherever used in this Note, shall mean the undersigned or any one
or more of them. This Note shall be governed by and construed in accordance with
the laws of the State of Minnesota.

         THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE
UNDERSIGNED HAS READ THIS NOTE IN ITS ENTIRETY AND UNDERSTAND ALL OF THE
PROVISIONS OF THIS NOTE. THE UNDERSIGNED ALSO AGREES THAT THE COMPLIANCE BY ANY
PRESENT OR FUTURE HOLDER OF THIS NOTE WITH THE EXPRESS PROVISIONS OF THIS NOTE
SHALL CONSTITUTE GOOD FAITH AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.

                                       LECTEC CORPORATION

                                       By /s/ Douglas Nesbit
                                       --------------------------
                                       Douglas Nesbit, its CFO

                                       3

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