Document:

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                                                                   EXHIBIT 10.41

                              SEPARATION AGREEMENT
                               AND GENERAL RELEASE

         THIS SEPARATION AGREEMENT AND GENERAL RELEASE ("Agreement") is between
EDAC TECHNOLOGIES CORPORATION (the "Company") and RONALD G. POPOLIZIO
("Employee").

                                    RECITALS

         The Company and Employee desire to affect a final resolution and
settlement of all matters and issues relating directly or indirectly to
Employee's employment with the Company and his November 22, 2002, separation
from that employment, and have arrived at a compromise of all such matters in
this Agreement.

                                   AGREEMENTS

         1. Termination of Employment Agreement, Change of Control Agreement and
Employment. Employee acknowledges and agrees that the June 23, 1999 Employment
Agreement between Employee and the Company, a copy of which is attached as
Exhibit A, the January 29, 1999 Change of Control Agreement, a copy of which is
attached as Exhibit B, and Employee's employment by the Company, will all
terminate effective November 22, 2002. Employee acknowledges and agrees that he
has received timely and appropriate notice from the Company of the termination
of the Employment Agreement, the Change of Control Agreement and his employment.
Employee further acknowledges that the Company was entitled to terminate his
employment pursuant to the Employment Agreement and the Change of Control
Agreement, and that he is not otherwise entitled to any further payments
pursuant to the Employment Agreement or the Change of Control Agreement, or to
the consideration called for by this Agreement.

         2. Expense Reimbursement. Employee agrees that he will submit to the
Company a completed expense account form on or before December 31, 2002. The
Company shall reimburse Employee for all outstanding authorized business
expenses incurred by Employee through and including November 22, 2002,
consistent with the Company's normal business expense reimbursement practices.
Employee acknowledges and agrees that, with that payment, he will be entitled to
no additional expense reimbursement from the Company.

         3. Acknowledgment of Full Compensation. Employee acknowledges and
agrees that, with the payment by the Company to Employee on December 1,

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2002 of $4,644.23, less ordinary tax withholding and all required deductions, an
amount representing seven days of accrued vacation, Employee will have received
all the vacation pay owed by the Company to Employee through and including
November 22, 2002. Employee further acknowledges and agrees that he has received
from the Company all salary and wages, fringe benefits (including without
limitation by enumeration bonuses and 401(k) plan contributions) and all other
compensation owed by the Company to Employee through and including November 22,
2002, except for the one-week period ending November 22, 2002, which shall be
paid on or before November 29, 2002, and that he is not entitled to any other
compensation or payment from the Company arising out of Employee's employment
with the Company or pursuant to the terms of either the Employment Agreement or
the Change of Control Agreement, except for such vacation pay and such one-week
pay.

         4. Separation Payment. Conditioned upon Employee's signing of this
Agreement, expiration of the seven day revocation period without revocation, and
Employee's properly executing and returning the attached acknowledgment form to
the Company (Exhibit C) indicating his decision not to revoke this Agreement:

                  (i) The Company shall pay Employee a total gross separation
payment of $129,375.00, less ordinary tax withholding and all required
deductions. Employee shall receive nine (9) equal installments of $14,375.00
gross each, less ordinary tax withholding and all required deductions, with an
installment payable on the first business day of each of nine consecutive months
beginning on December 1, 2002 and ending on August 1, 2003, with the first such
payment being due no earlier than the first regular business day following the
expiration (without revocation) of the seven day revocation period, and only
following the proper execution and return of the acknowledgement form attached
as Exhibit C.

                  (ii) The Company will continue to allow Employee to use the
vehicle currently being leased by the Company and in the possession of Employee
for the remaining 32 months of the lease. The Company will continue to make
monthly lease payments of $579.71 to the leasing company, with the first such
payment due December 1, 2002 and the final such payment due July 1, 2005.
Employee agrees to surrender the vehicle to the Company, at the Company's
offices, on or before July 31, 2005. The Company acknowledges and agrees that it
will obtain and maintain, at its expense, insurance coverage on the vehicle for
the remainder of the lease. Employee agrees that he will be responsible for the
maintenance of the vehicle, and will bear all costs of this maintenance.
Employee agrees that he will be responsible for any mileage charges that result
in the event that the vehicle is driven more than 48,750 miles in the aggregate.
The Company

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agrees that it will be responsible for all state and local personal property
taxes arising out of or otherwise related to the use of the vehicle.

                  (iii) Employee's 94,333 vested stock options will be exchanged
for 28,400 new options exercisable at a strike price of $0.50, which must be
exercised, if at all, prior to November 30, 2003.

                  (iv) The Company shall maintain a policy of Directors and
Officers liability insurance with substantially the same coverage as currently
exists, and shall extend such to Employee until such time as all applicable
statutes of limitation have expired. The Company shall provide Employee evidence
of such insurance as Employee may reasonably request from time to time.

                  (v) The Company shall pay Employee's legal counsel, Del Negro,
Feldman & Volpe, an amount equal to the legal fees actually incurred and paid by
Employee in connection with this matter, in an amount not to exceed $3,500.

                  (vi) The Company shall pay to Employee on December 1, 2002,
the sum of $5,000 representing an outplacement services allowance.

                  (vii) The dental insurance, long term disability and life
insurance coverage provided to Employee by the Company shall remain in force
until August 31, 2003. The Company agrees that it will turn both the long term
disability policy and the life insurance policy relating to such coverage over
to Employee, so that Employee can renew either or both of the policies, at
Employee's expense.

                  (viii) Employee shall be entitled to participate in the
Company's Section 125 Plan in accordance with the terms of such Plan with
respect to medical expenses and child care expenses until August 31, 2003.

No payment under this paragraph shall be deemed "compensation" for purposes of
any of the Company's qualified retirement plans or other benefit programs.
Payment under this paragraph does not entitle Employee to any retirement plan
contributions by the Company for Employee's benefit or account. No payment under
this paragraph shall be due before the expiration (without revocation) of the
seven day revocation period, and only following the proper execution and return
of the acknowledgement form attached as Exhibit C. The consideration specified
in this paragraph is an amount to which Employee is not otherwise entitled, and
constitutes additional consideration for Employee's release and waiver of
potential claims identified in paragraph 7 below, including without limitation a
potential claim for age discrimination under the Age Discrimination in
Employment Act,

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and additional consideration for the agreements made in paragraphs 14 and 15
below.

         5. Non-Disclosure. Until such time as this Agreement becomes a public
document or until such time as disclosure is compelled by legal process, both
parties agree that they will not disclose either the existence or particular
provisions of this Agreement to anyone not a party to this Agreement without the
other's prior written consent, unless required to do so by law. Notwithstanding
the foregoing, Employee may disclose the terms to his spouse, the Company may
disclose the terms to its officers, directors, legal staff and other management
and issue a general press release announcing Employee's separation from
employment, and both parties may disclose the terms to their attorneys or tax
advisors to the extent such disclosure is reasonably necessary to enable such
person to perform his/her duties. Should Employee choose to divulge the terms or
conditions of this Agreement to his spouse, he shall insure that his spouse will
be similarly bound to keep the same confidential. Should either party choose to
divulge the terms or conditions of this Agreement to his or its legal counsel or
tax advisor, he or it shall insure that they will be similarly bound to keep the
same confidential. A breach of this paragraph by Employee's spouse shall be
considered a breach of this paragraph by Employee. Further, a breach of this
paragraph by either party's legal counsel or tax advisor shall be considered a
breach of this paragraph by that party.

         6. Non-Admission of Liability. Neither this Agreement nor any action
taken by the Company pursuant to it shall in any way be construed as an
admission by the Company of any liability, wrongdoing, or violation of law,
regulation, contract or policy regarding any of the Company's decisions and
actions regarding the employment or separation from employment of Employee.

         7. Employee Releases the Company. For valuable consideration from the
Company as stated above, Employee, for himself and his heirs, personal
representatives, successors and assigns, hereby releases all claims of whatever
nature that he may have against the Company, its affiliates, subsidiaries,
predecessors, successors and assigns and its and their present, former or later
insurers, agents, representatives, officers, administrators, directors and
employees (collectively "Releasees"), which arise out of or are in any manner
based upon or related to the employment relationship between Employee and the
Company, and the end of that relationship, and from all other claims or
liabilities of any nature whatsoever which have arisen from any occurrence,
transaction, omission or communication which transpired or occurred at any time
before or on the date of this Agreement; provided, however, that this Agreement
will not prevent any party from asserting a claim against the other party in the
event the other party breaches this Agreement.

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                  Without limitation to the foregoing, Employee specifically
releases, waives and forever discharges the Releasees from and against all
liabilities, claims, actions, demands, damages and costs of every nature,
whether known or unknown, asserted or unasserted, which arise under the State of
Wisconsin Fair Employment Act; the Connecticut Human Rights and Opportunities
Law; the Connecticut Reproductive Hazards Law; Wisconsin and Connecticut wage
and hour laws; the Connecticut Equal Pay Law; the Connecticut Age Discrimination
and Employee Insurance Benefits Law; the Connecticut Family and Medical Leave
Law; the Connecticut Family and Medical Leave Rules; Title VII of the Civil
Rights Act of 1964, as amended; the Age Discrimination in Employment Act (29
U.S.C. Section 621 et seq.); the Americans With Disabilities Act; the Fair Labor
Standards Act; the Equal Pay Act; or arising under any other local, state or
federal statute, ordinance, regulation or order, or which involve a claim or
action for wrongful discharge, tortious interference with a business
relationship, breach of contract (express or implied) and/or any other tort or
common law cause of action including, but not limited to, any cause of action
alleging that the Company breached the Employment Agreement or the Change of
Control Agreement. It is further agreed that Employee does not hereby release
the Company from any obligation that the Company may have to indemnify Employee
pursuant to the Articles of Incorporation or By-Laws of the Company as in effect
as of the date hereof, or the Agreement Regarding Indemnification between
Employee and the Company dated as of June 27, 2002, a copy of which is attached
as Exhibit D.

                  This waiver and release does not affect those rights or claims
which arise after the execution of this Agreement.

         8. The Company Releases Employee. On behalf of itself and any
subsidiary companies, the Company hereby releases all claims of whatever nature
that it, or they, might have against Employee which arise out of or are in any
manner based upon the employment relationship between Employee and the Company,
or Employee's performance as an officer and/or director of the Company, and
subsidiary of the Company, or any employee benefit plan maintained by the
Company, and the conclusion of any such relationship, and from all other claims
or liabilities of any nature whatsoever that have arisen from any occurrence,
transaction, omission or communication which transpired or occurred at any time
before or on the date of this Agreement; provided, however, that this Agreement
will not prevent any party from asserting a claim against the other party in the
event that the other party breaches this Agreement. This waiver and release does
not affect those rights or claims which arise after the execution of this
Agreement, or which arise as a result of a breach of this Agreement.

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         9. No Reinstatement, Reemployment or Rehire. Employee expressly
declines reinstatement, reemployment or rehire by the Company and waives all
rights to claim such relief and agrees never to seek or apply for employment
with the Company or with any of its related entities in the future. If he should
do so, he agrees that he has no entitlement to employment and may be denied such
on the basis of this Agreement.

         10. No Pending Matters. Employee warrants and represents that he has
not filed any pending complaint, charge, claim or grievance concerning his
compensation, termination or terms and conditions of employment against the
Company with any local, state or federal agency, court or commission, and that
if any agency, commission or court assumes jurisdiction of any such complaint or
charge on behalf of Employee, he will request that agency, commission, or court
to dismiss such proceeding. Similarly, the Company warrants and represents that
it has not filed any pending complaint, charge, claim or grievance against
Employee with any local, state or federal agency, court or commission, and that
if any agency, commission or court assumes jurisdiction of any such complaint or
charge on behalf of the Company, the Company will request that agency,
commission or court to dismiss such proceeding.

         11. Non-Disparagement. Employee agrees to maintain a positive and
constructive attitude and demeanor towards the Company, its directors, officers,
employees and agents, and agrees to refrain from making derogatory comments or
statements of a negative nature about the Company, its directors, officers,
employees and agents, to anyone, including, but not limited to, current and
former Company customers, employees, suppliers, vendors and referral sources.
Similarly, the Company agrees that its officers and directors will maintain a
positive and constructive attitude and demeanor towards Employee and will
refrain from making derogatory comments or statements of a negative nature about
Employee to anyone.

         12. Return of Company Property. Employee represents and agrees that he
has returned any and all Company records, files, keys, keyless entry cards,
documents, confidential or proprietary information, computer equipment, CD's,
computer software programs, credit cards and any other property owned by or
belonging to the Company in Employee's possession or under his control on or
after November 30, 2002 without any originals or copies being kept by Employee
or conveyed to any other person. Employee will be permitted to retain his
company provided cell phone. However, Employee agrees that he will obtain, at
Employee's expense, service for the phone and a new phone number. Employee will
bear all costs associated with the use of this phone.

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         13. Continued Assistance. Employee agrees that, between November 25,
2002 and February 28, 2003, Employee shall be available on a standby basis, at
reasonable times and subject to any time constraints that may be imposed by a
subsequent employer, to act as a consultant to the Company with respect to all
aspects of the Company's business and operations. Consulting services, when
provided hereunder, will be performed at such times and places as reasonably
requested by the President of the Company. Employee will use best efforts in the
performance of his duties under this section. In consideration of the services
to be performed by Employee and Employee making himself available to provide
such services, the Company shall pay to Employee the amount of $20,000 (the
"Consulting Fee"). The Consulting Fee shall be payable in two (2) equal
installments of $10,000, with the first installment due on or before January 31,
2003 and the second and final installment due on or before February 28, 2003,
regardless of the timing or amount of the consulting services actually provided.
In the event Employee provides more than 160 hours of consulting services for
the Company between the date of this Agreement and February 28, 2003, Consultant
shall be paid $125 for each approved hour of consulting services provided by
Employee to the Company pursuant to this section in excess of 160 hours (the
Hourly Consulting Fee"). The Company will pay the Hourly Consulting Fee to
Employee promptly after receiving an invoice from Employee that specifies in
reasonable detail the number of hours worked by Employee and the tasks performed
during each such hour. The Company shall be responsible for remitting directly
any applicable sales or use taxes.

         14. Noncompetition. The parties agree that the Company's customer
contacts and relations are established and maintained at great expense and that
by virtue of Employee's employment with the Company, Employee has had unique and
extensive exposure to and personal contact with the Company's customers, and
that he has been able to establish a unique relationship with those individuals
and entities that would enable him to unfairly compete with the Company.
Further, the parties agree that the terms and conditions of the following
covenants are reasonable and necessary for the protection of the Company's
business, trade secrets and Confidential Information (as described in paragraph
15 below) and to prevent great damage or loss to the Company as a result of
action taken by Employee. Accordingly, in exchange for the consideration
provided in paragraph 4 of this Agreement, Employee covenants and agrees that,
for a period of one year following his November 22, 2002 termination from the
Company, he shall not, directly or indirectly, in any capacity substantially
similar to the capacity in which he performed services for the Company and in
any geographic area in which the Company does business:

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         (i)      canvass, contact, solicit or service, for the purpose of
                  providing competitive services or business of a type provided
                  by the Company, any "Active Customers" of the Company;

         (ii)     request or advise any "Active Customers," or any suppliers or
                  vendors, of the Company who currently have, or have had,
                  business relationships with the Company within 12 months
                  preceding Employee's November 22, 2002 termination of
                  employment, to withdraw, curtail or cancel any of their
                  business or relations with the Company; or

         (iii)    induce or attempt to induce any employee of the Company to
                  terminate his relationship or breach any agreement with the
                  Company.

                  "Active Customers" shall mean any customer which Employee
personally solicited or serviced during the one-year period immediately
preceding the termination of his employment with the Company, and any
prospective customer of the Company that Employee personally attempted to
service during the one-year period immediately preceding the termination of his
employment with the Company. The parties agree that a sufficient geographical
component is part of this noncompetition agreement because it is limited to the
geographic areas in which the Company does business and to Active Customers. The
parties also agree that Active Customers as described above do not comprise the
total number of the Company's customers or prospective customers, that they
represent a small percentage of all potential customers in the industry, and
that the restrictions in this paragraph will not prevent Employee from working
in the industry in Connecticut or any other area.

         15. Confidential Information. The parties acknowledge that the Company
has created at great expense strategic plans, methods, financial information,
customer and supplier lists, procedures, operations, techniques, customer
profiles, pricing policies, personnel data and other similar confidential and
proprietary information, and has received from its customers certain
confidential and proprietary information (collectively, the "Confidential
Information"). The parties further acknowledge that the Company has taken and
will continue to take actions to protect its Confidential Information.
Accordingly, in consideration for the benefits described in paragraph 4 of this
Agreement, Employee agrees that until the sooner of (i) such time as the
Confidential Information becomes generally available to the public through no
fault of Employee, (ii) such time as the Confidential Information no longer
provides a benefit to the Company, or (iii) two years after Employee's November
22, 2002

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termination of employment from the Company, Employee will not, in any capacity,
use or disclose, or cause to be used or disclosed, in any geographic area in
which the Company does business, any Confidential Information he acquired while
employed by the Company; provided, however, that Employee shall be entitled to
make such disclosures as may be compelled by legal process, but shall be
required to provide the Company with prompt notice of any such demand upon
Employee.

         16. Law of Torts and Trade Secrets. The parties agree that nothing in
this Agreement shall be construed to limit or negate the common law of torts or
trade secrets where it provides the Company with broader protection than that
provided herein.

         17. Employee Announcement. Both parties agree that the EDAC Personnel
Announcement attached as Exhibit E will be used to announce Employee's
separation from employment to the Company's employees.

         18. Binding Agreement. This Agreement shall be binding upon Employee
and upon his heirs, administrators, representatives, executors, successors and
assigns and shall inure to the benefit of the Releasees and to their heirs,
administrators, representatives, executors, successors and assigns.

         19. Severability. It is understood and agreed that the provisions of
this Agreement shall be deemed severable, and the invalidity or unenforceability
of any one or more of the provisions herein shall not affect the validity and
enforceability of the other provisions herein.

         20. Complete and Exclusive Agreement. The parties understand and agree
that this Agreement is final and binding and constitutes the complete and
exclusive statement of the terms and conditions of settlement, that no
representations or commitments were made by the parties to induce this Agreement
other than as expressly set forth herein and that this Agreement is fully
understood by the parties. This Agreement may not be modified or supplemented
except by a subsequent written agreement signed by the party against whom
enforcement is sought.

         21. Consideration Period. Employee represents and agrees that he has
had the opportunity and time to consult with legal counsel concerning the
provisions of this Agreement and that the Company has given him up to twenty-one
(21) days to consider this Agreement.

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         22. Company Right to Revoke. Employee understands and agrees that the
Company has the right to revoke its offer of settlement at any time prior to
Employee's execution of this Agreement and the Company's receipt of this
Agreement from Employee, for any reason, including without limitation Employee's
making of derogatory comments or statements of a negative nature about the
Company, its directors, officers, shareholders, employees and agents, to anyone,
including, but not limited to, current and former Company customers, employees,
suppliers, vendors and referral sources.

         23. Acknowledgment. The undersigned parties acknowledge and agree that
they have carefully read the foregoing document, that a copy of the document was
available to them prior to execution, that they understand its contents
including its release of claims, that they have been given the opportunity to
ask any questions concerning the Agreement and its contents, and have signed
this Agreement as their free and voluntary act.

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         IN WITNESS WHEREOF, the parties herein executed this Separation
Agreement and General Release as of the date appearing next to their signatures.

                                       EDAC TECHNOLOGIES CORPORATION

Date: November 22, 2002                By: /s/ Dominick A. Pagano
      -----------------                    -------------------------------------
                                       Its: President & CEO
                                            ------------------------------------

CAUTION: THIS IS A RELEASE. THE COMPANY HEREBY ADVISES EMPLOYEE TO CONSULT WITH
AN ATTORNEY AND READ IT BEFORE SIGNING. THIS AGREEMENT MAY BE REVOKED IN WRITING
       BY EMPLOYEE WITHIN SEVEN (7) DAYS OF HIS EXECUTION OF THE DOCUMENT.

Dated: 11/22/02                        /s/ Ronald G. Popolizio
       --------                        -----------------------------------------
                                           Ronald G. Popolizio

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                                    EXHIBIT A

                              EMPLOYMENT AGREEMENT

                                [To be attached.]

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                                    EXHIBIT B

                           CHANGE OF CONTROL AGREEMENT

                                [To be attached.]

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                                    EXHIBIT C

                          SEVEN DAY RIGHT TO REVOCATION
                               ACKNOWLEDGMENT FORM

         I, Ronald G. Popolizio, hereby acknowledge that EDAC Technologies
Corporation has tendered a Separation Agreement and General Release offer which
I voluntarily agreed to accept on December 2__, 2002, a date at least seven days
prior to today's date.

         I certify that seven calendar days have elapsed since my voluntary
acceptance of the above-referenced offer (i.e., seven days have elapsed since
the above date), and that I have voluntarily chosen not to revoke my acceptance
of the above-referenced Separation Agreement and General Release.

         Signed this 2__ day of December, 2002 at Farmington, CT_________.

                                       /s/ Ronald G. Popolizio
                                       -----------------------------------------
                                           Ronald G. Popolizio

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                                    EXHIBIT D

                       AGREEMENT REGARDING INDEMNIFICATION

                                [To be attached.]

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                                    EXHIBIT E

                           EDAC PERSONNEL ANNOUNCEMENT

                                [To be attached.]

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                                                                   EXHIBIT 10.20

                               PURCHASE AGREEMENT
                                  ("AGREEMENT")

THIS PURCHASE AGREEMENT is made and entered into as of this 25th of February,
2003 between LECTEC CORPORATION, a Minnesota corporation ("Seller"), and 10701
RED CIRCLE, LLC, a Minnesota limited liability company, its successors and
assigns ("Purchaser"). For purposes of this Agreement, the term "Effective Date"
shall mean the date on which the last of Seller and Purchaser have executed and
delivered this Agreement to the other, and Seller has delivered the Property
Information (as hereinafter defined) to Purchaser.

In consideration of the covenants and agreements contained herein, the parties
agree as follows:

1.   PREMISES.

     A.   Premises. Subject to compliance with the terms and conditions of this
          Agreement, Seller shall sell to Purchaser and Purchaser shall purchase
          from Seller the following (collectively, the "Premises"):

          1.   The real property located at 10701 RED CIRCLE DRIVE, in the City
               of MINNETONKA, Minnesota, County of HENNEPIN, State of MINNESOTA,
               legally described in EXHIBIT A attached hereto, consisting of
               approximately 3.23 acres of real property together with all
               easements, tenements, hereditaments, and appurtenances belonging
               thereto (the "Land"); and

          2.   All buildings, structures and other improvements erected or
               placed on the land (the "Improvements").

     B.   Excluded Assets; Liabilities of Seller.

          1.   Seller shall retain and not sell to Purchaser any assets
               pertaining to the Premises thereon to the extent not described in
               Section 1.A. above (including but not limited to all supplies,
               tools, machinery, furniture, fixtures, equipment, and other items
               of personal property located on or about the Improvements or used
               in connection with the maintenance, management or operation of
               the Premises or Improvements (collectively, the "Personal
               Property")).

          2.   Except as specifically set forth herein, Purchaser shall not
               assume, pay, perform or discharge (or cause to be paid, performed
               or discharged) any liabilities, expenses, or other obligations of
               Seller, whether known, unknown, liquidated, unliquidated, fixed,
               contingent, or otherwise.

2.   PURCHASE PRICE; PAYMENT.

     A.   Purchase Price. The purchase price for the Premises shall be $845,000
          ("Purchase Price").

     B.   Payment.

          1.   Earnest Money. The sum of $1,000 refundable earnest money
               ("Earnest Money") shall be deposited by Purchaser with a title
               insurance company licensed to issue title insurance in the State
               of MINNESOTA and mutually acceptable to Purchaser and Seller
               ("Escrow Agent") within three (3) business days following
               Purchaser's

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               receipt of a fully executed copy of this Agreement. The Earnest
               Money shall be placed and held by Escrow Agent in its commercial
               interest bearing account in accordance with the terms of this
               Agreement and shall be credited against the Purchase Price in
               favor of Purchaser at closing. Any and all interest accruing on
               the Earnest Money pursuant to this Agreement shall be paid to
               Purchaser and shall accrue solely for Purchaser's benefit. If
               Purchaser provides Seller with written notice of Purchaser's
               waiver or satisfaction of all the conditions to closing set forth
               in Section 7 of this Agreement, then the Earnest Money shall be
               deemed non-refundable to Purchaser, except as otherwise provided
               in Sections 3.D., 5.B., 5.C., 14.A. or elsewhere in this
               Agreement.

          2.   Cash. The balance of the Purchase Price shall be paid (subject to
               prorations, reductions and credits as provided below) by wire
               transfer of good funds to the Escrow Agent's trust account so
               that Seller receives its closing proceeds in its account no later
               than 3:00 p.m. Central Time on the day of the closing.

3.   TITLE TO BE DELIVERED; COMMITMENT; SURVEY; TITLE OBJECTIONS.

     A.   Title To Be Delivered. At closing, Seller agrees to convey Marketable
          Fee Simple Title in the Premises. For purposes of this Agreement, the
          term "Marketable Fee Simple Title" means title to the Premises that,
          when acquired by Purchaser, will be insurable by the Escrow Agent
          under its standard ALTA (Form 10/17/92) Owner's Title Insurance
          Policy, at standard rates and free and clear of all liens,
          encumbrances, easements, covenants, conditions and restrictions other
          than the Permitted Exceptions (defined herein).

     B.   Commitment. As soon hereafter as reasonably possible, Seller at its
          sole cost and expense shall cause to be issued and delivered to
          Purchaser a commitment ("Commitment") covering the Premises issued by
          Escrow Agent wherein Escrow Agent agrees to issue to Purchaser upon
          the recording of the Deed (defined herein) and the conveyance
          documents described herein an ALTA (Form 10/17/92) Owner's Title
          Insurance Policy, with standard coverage, in the full amount of the
          purchase price. The Commitment shall have an effective date after the
          date of this Agreement, shall be accompanied by copies of all recorded
          documents affecting the Premises, and shall include searches for real
          estate taxes and pending and levied special assessments. Seller shall
          deliver a copy of the Survey (defined herein) to Escrow Agent so that
          the initial Commitment may be amended or supplemented to contain any
          survey exceptions to title.

     C.   Survey. As soon hereafter as reasonably possible, Seller at its sole
          cost and expense shall cause to be delivered to Purchaser a current
          ALTA/ACSM Land Title Survey ("Survey") of the Premises prepared by a
          duly licensed land surveyor in the State of MINNESOTA reasonably
          approved by Purchaser, which Survey shall meet the then current
          accuracy standards jointly adopted by ALTA and ACSM and shall contain
          a certification as set forth in the attached EXHIBIT B dated after the
          date of this Agreement and shall contain items 1 through 11, and 13
          through 16 inclusive of Table A of the 1999 Minimum Standard Detail
          Requirements for ALTA/ACSM Land Title Surveys. Seller shall deliver to
          said surveyor a copy of the Commitment to be delivered to Purchaser as
          provided above, so that the Survey delivered to Purchaser will include
          and identify the location of any encroachments, easements,
          encumbrances or other restrictions that are identified or disclosed in
          the Commitment.

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     D.   Title Objections. PURCHASER SHALL HAVE UNTIL TEN (10) DAYS FROM THE
          DATE IT RECEIVES THE LATTER OF THE COMMITMENT OR SURVEY (OR THREE (3)
          DAYS IN THE CASE OF ANY UPDATE OR SUPPLEMENT THERETO) TO MAKE ITS
          OBJECTIONS TO MATTERS DISCLOSED IN THE COMMITMENT OR SURVEY (OR ANY
          UPDATE OR SUPPLEMENT THERETO) IN WRITING TO SELLER. Any exception
          disclosed in the Commitment or Survey (or any update or supplement
          thereto) and not timely objected to by Purchaser within the applicable
          ten (10) day period shall be deemed a "Permitted Exception" hereunder.
          SELLER SHALL HAVE UNTIL TWENTY (20) DAYS AFTER IT RECEIVES SUCH
          OBJECTIONS TO HAVE THE SAME REMOVED OR SATISFIED, USING ITS BEST
          EFFORTS. If Seller shall fail to have such objections removed within
          that time, then, as Purchaser's sole remedies, Purchaser may, at its
          sole discretion, either (a) terminate this Agreement without any
          liability on its part and receive the Earnest Money (together with
          interest) back, (b) waive such objections in writing and proceed to
          closing with the understanding that such uncured objections shall be
          deemed Permitted Exceptions at closing, or (c) attempt to cure such
          uncured objections, in which event Purchaser shall have an additional
          TWENTY (20) DAYS to attempt to cure such objections, and if Purchaser
          is not successful in curing such objections, Purchaser shall then have
          the right to either terminate this Agreement pursuant to clause (a)
          above or waive such objections pursuant to clause (b) above.
          Notwithstanding anything contained herein to the contrary, Seller
          shall be obligated to cure (i) mortgage or deed of trust financing or
          similar liens given for security or collateral purposes, (ii) state,
          federal or local tax liens or liens for the nonpayment of special
          assessments, and (iii) any other judgment liens or non-consensual
          liens (collectively, "Liens"), it being the understanding and
          agreement that any such Liens will be satisfied out of Seller's
          proceeds at closing, if not sooner paid.

4.   SELLER'S PROPERTY INFORMATION; PURCHASER'S INSPECTIONS.

     A.   Seller's Property Information. Concurrently with Seller's acceptance
          and delivery of this Agreement to Purchaser, Seller shall deliver to
          Purchaser, at no cost to Purchaser, complete and accurate copies of
          any contracts, leases, licenses or other agreements pertaining to the
          Premises, including any amendments thereof, and copies of all permits,
          plats, authorizations, notices, consents, approvals, plans,
          specifications, surveys, engineering studies, analysis, soil test
          borings, environmental studies and other documentation pertaining to
          the physical condition, development and operation of the Premises and
          any other information reasonably requested by Purchaser (whether
          prepared by Seller, Seller's agents or independent contractors, any
          governmental authority or agency, federal, state or local, or any
          other third party), to the extent that Seller has the same in its
          possession or has a right of possession thereto ("Property
          Information").

     B.   Purchaser's Inspections. Purchaser, its counsel, accountants, agents
          and other representatives, upon reasonable prior oral or written
          notice to Seller, shall have full and continuing access to the
          Premises. Purchaser and its agents and representatives, with
          reasonable prior oral or written notice to Seller, shall also have the
          right to enter upon the Premises at any time after the execution and
          delivery hereof for any purpose whatsoever, including inspecting,
          surveying, engineering, test boring, performance of environmental
          tests and such other work as Purchaser shall consider appropriate and
          shall have the further right to make such inquiries of governmental
          agencies and utility companies, etc., and to make such feasibility
          studies and analyses as it considers appropriate (collectively the
          "Inspections"). Purchaser shall indemnify and hold harmless Seller
          from and against any liabilities or damages to persons or property
          arising from Purchaser's entry onto the Premises hereunder, unless
          such liabilities or damages arise from the negligence or willful
          misconduct of Seller, and provided, however, that Purchaser's
          indemnification and hold harmless obligations shall not apply to any
          liabilities or damages arising out of or in any

                                       3
<PAGE>

          way related to contaminated soil, asbestos, or other environmental
          hazards discovered during the Inspections and not introduced onto the
          Premises by Purchaser or its agents, employees or contractors.
          Purchaser shall repair or restore any damage to the Property caused by
          the Inspections.

5.   CONTROL OF PREMISES; CONDEMNATION.

     A.   Control of Premises. Until the closing, except for Purchaser's
          indemnification obligations set forth in Section 4.B. above, and
          except in the case of the willful misconduct of Purchaser or its
          agents, Seller shall have the full responsibility and the entire
          liability for any and all damages or injury of any kind whatsoever to
          the Premises, the Improvements thereon, and all persons, whether
          employees or otherwise, and all property from and connected to the
          Premises. Seller agrees to keep the Premises continually insured
          during the term of this Agreement under a policies of (i) commercial
          general liability insurance with policy limits of not less than
          $1,000,000 per incident, and (ii) fire, hazard and all risk property
          insurance in amount equal to one hundred percent (100%) of the
          replacement value of the Improvements. Until the closing, Seller shall
          have the full responsibility for the continued operation, maintenance
          and repair of the Premises, provided, however, Seller shall not (i)
          enter into any new leases or any amendments, modifications, extensions
          or renewals of existing leases, or (ii) approve of any assignment or
          sublease of an existing lease, without the prior written consent of
          the Purchaser, which may be withheld in Purchaser's sole discretion.

     B.   Condemnation. If, prior to the closing, the Premises shall be the
          subject of an action in eminent domain or a proposed taking by a
          governmental authority, whether temporary or permanent, Purchaser, at
          its sole discretion, shall have the right to terminate this Agreement
          upon notice to Seller without liability on its part by so notifying
          Seller and the Earnest Money (with interest) shall be refunded to
          Purchaser. If Purchaser does not exercise its right of termination,
          (i) any and all proceeds arising out of any such eminent domain or
          taking shall be held in trust by Seller for the benefit of Purchaser
          and paid to Purchaser at closing; and (ii) the "Premises" shall
          thereafter be defined to mean the Premises less the portion taken by
          eminent domain or condemnation. In no event shall the Purchase Price
          be increased by the amount of any such proceeds.

     C.   Casualty. If, prior to the closing, the Premises or the Improvements
          are materially damaged or destroyed, Purchaser, at its sole
          discretion, shall have the right to terminate this Agreement upon
          notice to Seller without liability on its part by so notifying Seller
          and the Earnest Money (with interest) shall be refunded to Purchaser.
          If the Premises or Improvements are not materially damaged or
          destroyed or Purchaser does not exercise its right of termination,
          Seller shall proceed forthwith to repair the damage to the Premises
          and Improvements and any and all proceeds arising out of such damage
          or destruction, if the same be insured, shall be held in trust by
          Seller for the benefit of such repair. In no event shall the Purchase
          Price be increased by the amount of any such proceeds.

6.   REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. In order to induce
     Purchaser to enter into this Agreement and purchase the Premises, Seller
     hereby represents, warrants and covenants to Purchaser:

     A.   Seller is a duly organized and validly existing corporation under the
          laws of the State of Minnesota, (ii) Seller is qualified to do
          business in the state in which the Premises are located, (iii) the
          corporation has full right and authority to enter into this Agreement,
          (iv) each person signing on behalf of the corporation is authorized to
          do so, (v) the execution and delivery of this Agreement by Seller will
          not constitute a default under any indenture,

                                       4
<PAGE>

          agreement, contract, mortgage or other instrument to which Seller is a
          party, (vi) Seller is not a "foreign person" as that term is defined
          under Internal Revenue Code Section 1445(F)(3), and (vii) the sale of
          the Property is not subject to any withholding requirements imposed by
          the Internal Revenue Code, including, without limitation, Section
          1445(F)(3).

     B.   To Seller's knowledge, no action in condemnation, eminent domain or
          public taking proceedings are now pending or contemplated against the
          Premises.

     C.   To Seller's knowledge, no ordinance or hearing is now before any local
          governmental body which either contemplates or authorizes any public
          improvements or special tax levies, and there has been no public
          improvements constructed, the cost of which may be assessed against
          the Premises. There are no special assessments currently a lien
          against or encumbering the Premises, except as shown by the
          Commitment.

     D.   To Seller's knowledge, there is no actual or threatened action,
          litigation, or proceeding by any organization, person, individual or
          governmental agency (including governmental actions under condemnation
          authority or similar proceedings) affecting the Premises.

     E.   Seller has Marketable Fee Simple Title interest to the Premises.

     F.   Except as shown by the Commitment, there are no delinquent taxes
          against the Property, and there are no "Green Acres" taxes against the
          Property. Seller has not appealed any taxes or assessments payable
          against the Premises and has made no commitments or agreements with
          any taxing authorities pertaining to the payment of taxes and
          assessments against the Premises or the assessed value of the
          Premises.

     G.   The Premises will as of the date of closing be free and clear of all
          liens, security interests, encumbrances, leases or other restrictions
          or objections to title other than the Permitted Exceptions.

     H.   All labor or material which have been furnished to the Premises during
          the one hundred twenty (120) days prior to the closing date have been
          fully paid for or will be fully paid for prior to the closing date so
          that no lien for labor or materials rendered can be asserted against
          the Premises.

     I.   To Seller's knowledge, no fire insurance underwriter or governmental
          authority has requested any alterations or any additions to the
          Premises.

     J.   To Seller's knowledge, there are no management, maintenance or service
          contracts, leases, licenses, purchase agreements, purchase options,
          rights of first refusal, or other unrecorded agreements affecting the
          Premises, except as set forth on EXHIBIT C. Seller agrees not to enter
          into any new, or modify any existing, written or oral service
          contracts, leases, licenses or other recorded or unrecorded agreements
          affecting the Premises hereafter without Purchaser's prior written
          consent which may be withheld in Purchaser's sole discretion.

     K.   To Seller's knowledge, Seller, in its ownership, use, maintenance and
          occupancy of the Property, is not in violation of and has not
          violated, any applicable federal, state, county or local statutes,
          laws, regulations, rules, ordinances, codes, standards, orders,
          licenses and permits of any governmental authorities relating to
          environmental matters (being hereinafter collectively referred to as
          the "Environmental Laws"), including by way of illustration and not by
          way of limitation, (A) the Clean Air Act, the federal Water Pollution
          Control Act of 1972, the Resource Conservation and Recovery Act of
          1976, the

                                       5
<PAGE>

          Comprehensive Environmental Response, Compensation and Liability Act
          of 1980, the Toxic Substances Control Act, or the Minnesota
          Environmental Response and Liability Act (including any amendments or
          extensions thereof and any rules, regulations, standards or guidelines
          issued pursuant to any of said Environmental Laws). To Seller's
          knowledge, during Seller's period of ownership of the Property, (i)
          neither Seller, its agents, employees and independent contractors nor
          any tenant, has operated the Premises for the purpose of receiving,
          handling, using, storing, treatment, transporting and disposing of
          petroleum products or any Hazardous Material as defined in said
          Environment Laws, other toxic dangerous or hazardous chemicals,
          materials, substances, pollutants and wastes, or any chemical,
          material or substance exposure to which is prohibited, limited or
          regulated by any federal, state, county, regional or local authority
          (all the foregoing being hereinafter collectively referred to as
          "Hazardous Materials"); (ii) there are no existing or pending remedial
          actions or other work, repairs, construction or capital expenditures
          with respect to the Premises in connection with the Environmental
          Laws, nor has Seller received any notice of any of the same; (iii) no
          Hazardous Materials have been or will be released into the
          environment, or have been or will be deposited, spilled, discharged,
          placed or disposed of at, on, the Premises, nor has Seller used the
          Premises as a landfill or a disposal site for Hazardous Materials or
          for garbage, waste or refuse of any kind; (iv) there are no locations
          off the Premises where Hazardous Materials generated by or on the
          Premises by Seller have been treated, stored, deposited or disposed
          of; (v) the sale of the Premises by Seller to Purchaser does not
          require notice to or the prior approval, consent or permission of any
          federal, state or local governmental agency, body, board or official;
          (vi) no notices of any violation of any of the matters referred to in
          the foregoing sections relating to the Premises or its use have been
          received by Seller and there are no writs, injunctions, decrees,
          orders or judgments outstanding, no lawsuits, claims, proceedings or
          investigations pending or threatened, relating to the ownership, use,
          maintenance or operation of the Premises, nor is there any basis for
          any such lawsuit, claim, proceeding or investigation being instituted
          or filed.

     The representations and warranties set forth in this Section 6 shall be
     continuing and shall be true and correct on and as of the closing date with
     the same force and effect as if made at that time and all such
     representations, warranties and covenants shall survive closing for 10
     years and shall not be affected by any investigation, verification or
     approval by any party hereto or by anyone on behalf of any party hereto and
     shall not merge into Seller's deed being delivered at closing. Seller
     agrees to indemnify and hold Purchaser harmless from and against and to
     reimburse Purchaser with respect to any and all claims, demands, causes of
     action, loss, damage, liabilities, and costs (including attorney's fees and
     court costs) asserted against or incurred by Purchaser by reason of or
     arising out of the breach of any representation, warranty or covenant as
     set forth in this Section 6. Notwithstanding any provision of this
     Agreement to the contrary, in any of the foregoing representations and
     warranties, the words "to Seller's knowledge", or any variation thereof,
     shall mean to the actual knowledge of RODNEY YOUNG, President of Seller.
     Notwithstanding any provision in this Agreement to the contrary, if, during
     the course of Purchaser's investigation of the Property, but before the
     Closing Date, Purchaser learns that any of Seller's representations set
     forth in this Section 6 are untrue, then such representation shall be
     deemed to conform to the fact as discovered by Purchaser. Except as
     otherwise set forth in this Agreement, (i) Purchaser is purchasing the
     Property in the Property's "as-is, with all faults" condition; and (ii) in
     determining whether or not to purchase the Property, Purchaser is relying
     only on its investigation of the Property and not on any representation or
     warranty of Seller.

7.   CONDITIONS TO CLOSING. The closing of the transaction contemplated by this
     Agreement and all the obligations of Purchaser and Seller, as the case may
     be, under this Agreement are subject to fulfillment, ON OR BEFORE FEBRUARY
     12, 2003 (THE "CONDITION DATE"), of the following conditions precedent:

                                       6
<PAGE>

     A.   Purchaser shall have determined that the physical status or condition
          of the Premises, including without limitation, condition of the
          Improvements (including without limitation, roof, heating, air
          conditioning and ventilation systems, mechanical, electrical and other
          utility systems, windows, structure, parking lot, parking lot lighting
          and foundation) and environmental, geotechnical (soil), wetland,
          floodplain, drainage and availability of adequate access and
          utilities, shall be satisfactory to Purchaser in its sole discretion.
          Purchaser shall determine the same from review of the Property
          Information and the Inspections performed pursuant to Section 4, and
          any other inquiries or other examinations, studies or evaluations of
          the Premises, if any, which Purchaser elects to perform or to have
          performed, and by taking into consideration such facts as Purchaser
          deems relevant.

     Purchaser may acknowledge satisfaction or waiver of any of the foregoing
     conditions, only by delivering written notice of satisfaction or waiver to
     Seller on or before the Condition Date. If Purchaser does not acknowledge
     in writing the satisfaction of one or more of the foregoing conditions (or
     otherwise waive the same in writing) on or before the Condition Date, then
     this Agreement shall automatically be deemed to be null and void, without
     action required of either party, the Earnest Money (and all interest) shall
     be returned to Purchaser, and Purchaser and Seller shall thereafter be
     released from any liability or obligation hereunder.

     Notwithstanding anything contained herein to the contrary, it shall be a
     condition of Purchaser's obligation to close this transaction that (i) the
     representations and warranties made by Seller in Section 6 shall be correct
     as of the Closing Date with the same force and effect as if such
     representations were made at such time, subject to the provisions of the
     last grammatical paragraph of Section 6, (ii) the status and marketability
     of title shall have been established to Purchaser's satisfaction in
     accordance with this Agreement, and (iii) Seller shall have executed and
     delivered to Purchaser the Lease Agreement in the form attached hereto as
     EXHIBIT D.

     Notwithstanding anything to the contrary, Seller's obligations to close
     under this Agreement are subject to Seller's having received, by the
     Closing Date, approval of the grant of warrants described in Section 19 of
     this Agreement by Seller's board of directors. If Seller has not received
     such approval by the Closing Date, then Seller may terminate this
     Agreement, whereupon the Earnest Money will be returned to Purchaser and
     the parties hereto shall have no further liability or obligation hereunder
     or with regard to the Property, except as set forth 4(B) hereof.

8.   CLOSING DATE. Subject to the fulfillment or waiver of the conditions
     hereof, and provided that all of the covenants, representations and
     warranties of Seller are true and correct on the closing date as though
     made on such date, subject to the provisions of the last grammatical
     paragraph of Section 6, the closing of the purchase and sale shall take
     place on FEBRUARY 28, 2003 or upon such earlier date which Purchaser
     selects upon five (5) days' written notice to Seller (the "Closing Date").
     The closing shall take place at the offices of Escrow Agent or at such
     other place as Seller and Purchaser may mutually determine, and, at either
     Seller's or Purchaser's election, may be an escrow closing which the
     parties do not physically attend. Possession of the Premises shall be
     delivered to Purchaser on the Closing Date, free of the leasehold or
     possessory interest of Seller and any tenants, licensees or occupants
     thereof, except pursuant to the Lease.

9.   SELLER'S OBLIGATIONS AT CLOSING. At or prior to the Closing Date, Seller
     shall execute and deliver or cause to be delivered to Purchaser:

     A.   Seller's duly recordable Limited Warranty Deed (the "Deed") to the
          Premises (in the form attached hereto as EXHIBIT E and made a part
          hereof conveying to Purchaser Marketable Fee Simple Title to the
          Premises and all rights appurtenant thereto.

                                       7
<PAGE>

     B.   The ALTA (Form 10/17/92) Owner's Title Insurance Policy in conformity
          with the requirements of this Agreement, or a "marked-up" Commitment
          in form acceptable to Purchaser.

     C.   Escrow Agent's standard affidavit of Seller confirming that Seller is
          not a "foreign corporation" within the meaning of Section 1445 of the
          Internal Revenue Code.

     D.   Escrow Agent's standard affidavit of Seller in form and content
          sufficient to allow Escrow Agent to delete the standard exceptions
          contained in Purchaser's Owners Title Insurance Policy relative to (i)
          parties in possession (but with the exception of Seller's continued
          occupancy of the Property pursuant to the Lease), (ii) liens for
          labor, materials, or services, and (iii) unrecorded easements or other
          instruments.

     E.   The Lease Agreement.

     F.   A certificate at closing confirming that the representations and
          warranties set forth in Section 6 of this Agreement are true and
          correct as of the Closing Date as though made as of such date, subject
          to the provisions of the last grammatical paragraph of Section 6.

     G.   Such other documents as may be reasonably required by this Agreement
          (including, without limitation, authorizing resolutions of Seller, if
          required by Escrow Agent) all in a form reasonably satisfactory to
          Purchaser, Seller and Escrow Agent.

10.  DELIVERY OF PURCHASE PRICE; OBLIGATIONS AT CLOSING. At closing, subject to
     the terms, conditions, and provisions hereof and the performance by Seller
     of its obligations as set forth herein, the Earnest Money shall be
     delivered to Seller (except any interest accrued thereon) and credited
     against the Purchase Price, and Purchaser shall deliver the balance of the
     Purchase Price to Seller pursuant to Section 2 above. At closing, Purchaser
     shall also execute and deliver the Lease Agreement to Seller.

11.  CLOSING COSTS. The following costs and expenses shall be paid as follows in
     connection with the closing:

     A.   Seller shall pay:

          1.   The cost to prepare and deliver to Purchaser the Commitment
               (including, without limitation, the cost of any title search and
               exam by Escrow Agent); the cost of the Survey; all fees to record
               all of the documents necessary to permit Seller to convey
               Marketable Fee Simple Title to the Premises to Purchaser (other
               than the fee to record the Deed); the cost of any endorsements
               necessary to convey Marketable Fee Simple Title to Purchaser; and
               one-half (1/2) of the closing fee and/or escrow fee charged by
               Escrow Agent in connection with the escrow of Earnest Money or
               the closing of this transaction.

          2.   Any state, county or municipal deed tax, excise tax or transfer
               fee imposed on the conveyance, and any fees and costs incurred by
               Seller.

          3.   Any deferred or delinquent real estate taxes or utilities and
               Seller's pro-rata share of those costs and expenses set forth in
               Section 12 below.

                                       8
<PAGE>

          4.   All special assessments existing as of the Closing Date, whether
               levied, pending, deferred or assessed, including without
               limitation, the unpaid balance of special assessments and/or
               installments of special assessments certified for payment to the
               real estate taxes.

          5.   Attorneys' fees and costs of Seller's attorneys, except as set
               forth in Section 18(J).

     B.   Purchaser shall pay the following costs in connection with the
          closing:

          1.   The documentary fee necessary to record the Deed.

          2.   The premium for the Owner's Title Policy and for any extended
               coverage title insurance endorsement requested by Purchaser.

          3.   One-half (1/2) of the closing fee and/or escrow fee charged by
               Escrow Agent in connection with the escrow of Earnest Money or
               the closing of this transaction.

          4.   The brokerage fee of the Broker pursuant to Section 13 herein.

          5.   Attorneys' fees and costs of Purchaser's attorneys, except as set
               forth in Section 18(J).

     C.   The terms of this Section 11 shall survive the closing of the
          transaction contemplated herein.

12.  PRORATIONS. The following prorations shall be made as of the Closing Date:

     A.   Real estate taxes (excluding any outstanding special assessments
          and/or installments of special assessments certified to the real
          estate taxes for payment Seller is obligated to pay pursuant to
          Section 11.A.4 hereof) allocable to the Premises that are due and
          payable in the year of closing shall be prorated between Seller and
          Purchaser to the Closing Date. Seller shall pay all such real estate
          taxes due and payable in years prior to the year of closing. Purchaser
          shall assume responsibility for the payment of all such taxes due and
          payable in years subsequent to the year of closing. If as of the
          Closing Date the Premises is not assessed for purposes of property
          taxation separately from all other real property, then the real estate
          taxes for the total tax parcel shall be paid in full at closing, and
          the amount of taxes allocable to the Premises shall be determined
          based upon the ratio that the square footage of the Premises bears to
          the square footage of all the real property within the total tax
          parcel.

     B.   The terms of this Section 12 shall survive the closing of the
          transaction contemplated herein.

13.  BROKERAGE. Seller and Purchaser represent and warrant to each other that
     they have not engaged the services of any broker in connection with the
     sale and purchase contemplated by this Agreement, except that Purchaser has
     engaged the services of WELSH COMPANIES (BRAD BOHLMAN) ("Broker"), for
     whose services Purchaser agrees to pay $35,000 only upon the closing of
     this transaction. Broker shall have no right to any portion of the Earnest
     Money if this Agreement is terminated, canceled or rescinded. Purchaser
     hereby agrees to indemnify, defend and hold Seller harmless for any claim
     (including reasonable expenses incurred in defending such claim) made by
     Broker in connection with this transaction. Each party hereby agrees to
     indemnify, defend and hold harmless the other party for any claim
     (including reasonable expenses

                                       9
<PAGE>

     incurred in defending such claim) made by a broker, sales agent or similar
     party (other than Broker) claiming to be entitled to a commission in
     connection with this transaction by reason of the acts of the indemnifying
     party. Broker shall execute this Agreement for purposes of evidencing its
     consent and agreement with the terms of this Section 13. Failure of Broker
     to execute this Agreement shall not affect the validity of this Agreement
     as between Seller and Purchaser. The terms of this Section 13 shall survive
     the closing of the transaction contemplated herein.

14.  REMEDIES.

     A.   Seller Default. If Seller defaults in the performance of this
          Agreement, then Escrow Agent shall promptly refund the Earnest Money
          (and all interest) to Purchaser, and Purchaser may either (i) cancel
          this Agreement by written notice to Seller, or (ii) seek specific
          performance of this Agreement against Seller, as long as Purchaser
          prosecutes such specific performance within 6 months after the date of
          Seller's default.

     B.   Purchaser Default. If Purchaser defaults in the performance of this
          Agreement, Seller's sole and exclusive remedy shall be to cancel this
          Agreement by delivering written notice of such default to Purchaser
          ("Seller's Default Notice"), in which event Purchaser shall have the
          opportunity to cure such default within thirty (30) days after receipt
          of Seller's Default Notice, and if Purchaser fails to timely cure such
          default after receipt of Seller's Default Notice, then this Agreement
          shall be deemed canceled without further action between the parties
          and the Escrow Agent shall deliver the Earnest Money to Seller as
          liquidated damages, it being the understanding and agreement of the
          parties that it would be impractical or extremely difficult to
          determine the actual damages to Seller in the event of Purchaser's
          default, and that the Earnest Money is a reasonable estimate of the
          damages which Seller would incur as a result of Purchaser's default
          hereunder.

15.  ESCROW. Escrow Agent is authorized and agrees by acceptance thereof to
     promptly deposit the Earnest Money as provided herein and to hold same in
     escrow and to disburse the same in accordance with the terms and conditions
     of this Agreement. The sole duties of Escrow Agent regarding the Earnest
     Money shall be those described herein, and Escrow Agent shall be under no
     obligation to determine whether the other parties hereto are complying with
     any requirements of law or the terms and conditions of any other agreements
     among said parties. Escrow Agent may conclusively rely upon and shall be
     protected in acting upon any written notice, consent, order or other
     document believed by it to be genuine and to have been signed or presented
     by the proper party or parties to this Agreement. Escrow Agent shall have
     no duty or liability to verify any such written notice, consent, order or
     other document, and its sole responsibility shall be to act as expressly
     set forth in this Agreement. Escrow Agent shall be under no obligation to
     institute or defend any action, suit or proceeding in connection with this
     Agreement. If Purchaser and Seller execute any separate escrow instructions
     or an escrow agreement with Escrow Agent, then in the event of a conflict
     between the terms of such escrow instructions or escrow agreement and the
     terms of this Agreement, the terms of this Agreement shall control. Escrow
     Agent shall also execute this Agreement solely for the purpose of
     acknowledging its agreement with and understanding of the terms of this
     Section 15 and the other provisions of this Agreement relative to receipt,
     escrow, investment and disbursement of the Earnest Money. Failure of Escrow
     Agent to execute this Agreement shall not affect the validity of this
     Agreement as between Seller and Purchaser. Notwithstanding anything in this
     Section to the contrary, in the event of a dispute between Seller and
     Purchaser sufficient in the sole discretion of Escrow Agent to justify its
     doing so, or in the event that Escrow Agent has not disbursed the Earnest
     Money on or before the date of Closing pursuant hereto, Escrow Agent shall
     be entitled to tender into the registry or custody of any court of
     competent jurisdiction the Earnest Money, together with such pleadings as
     it may deem appropriate, and thereupon be discharged from all further
     duties and liabilities under this Agreement with respect to the Earnest
     Money (other than with respect to any liabilities for willful misconduct or
     breach of trust by Escrow Agent). Any such legal action may be brought in
     such court as Escrow Agent shall determine to have jurisdiction thereof.

                                       10
<PAGE>

16.  SIGNAGE. Intentionally omitted.

17.  TIME FOR ACCEPTANCE. This Agreement, when duly executed by all of the
     parties hereto, shall be binding upon the parties hereto, their heirs,
     representatives, successors and assigns. In the event this Agreement has
     not been duly executed by Seller and delivered to Purchaser or its agent on
     or before February 7, 2003 AT 5:00 P.M. C.S.T., then the offer herein and
     herewith made by Purchaser shall automatically and unconditionally
     terminate and this Agreement shall be null and void, and Escrow Agent shall
     immediately return to Purchaser the Earnest Money.

18.  MISCELLANEOUS. The following general provisions govern this Agreement.

     A.   No Waivers. The waiver by either party hereto of any condition or the
          breach of any term, covenant or condition herein contained shall not
          be deemed to be a waiver of any other condition or of any subsequent
          breach of the same or of any other term, covenant or condition herein
          contained. Purchaser, in its sole discretion may waive any right
          conferred upon Purchaser by this Agreement; provided that such waiver
          shall only be made by Purchaser giving Seller written notice
          specifically describing the right waived.

     B.   Time of Essence. Time is of the essence of this Agreement.

     C.   Governing Law. This Agreement is made and executed under and in all
          respects to be governed and construed by the laws of the State of
          MINNESOTA and the parties hereto hereby agree and consent and submit
          themselves to any court of competent jurisdiction situated in the
          State of MINNESOTA.

     D.   Notices. All notices and demands given or required to be given by any
          party hereto to any other party shall be deemed to have been properly
          given if and when delivered in person, the next business day after
          being sent by reputable overnight commercial courier (e.g. U.P.S. or
          Federal Express), sent by facsimile (with verification of receipt) or
          three (3) business days after having been deposited with the U.S.
          Postal Service and sent by registered or certified mail, postage
          prepaid, addressed as follows (or sent to such other address as any
          party shall specify to the other party pursuant to the provisions of
          this Section):

          TO SELLER:                              TO PURCHASER:

          LECTEC CORPORATION                      LARRY HOPFENSPIRGER
          ATTN: RODNEY YOUNG                      2025 Nicollet Ave. So.
          10701 RED CIRCLE DRIVE                  ----------------------
          MINNETONKA, MINNESOTA 55343             Minneapolis, MN 55404
          PHONE: 952-933-2291                     ----------------------
          FAX: 952-938-1128

          with copy to:                           with copy to:
          DORSEY & WHITNEY LLP
          ATTN:  JAMES L. TUCKER III              ----------------------
          50 SOUTH SIXTH STREET, SUITE 1500
          MINNEAPOLIS, MINNESOTA  55402-1498      ----------------------
          PHONE:  (612) 340-2842
          FAX:  (612) 340-2644                    ----------------------

                                       11
<PAGE>

          IN THE EVENT EITHER PARTY DELIVERS A NOTICE BY FACSIMILE, AS SET FORTH
          ABOVE, SUCH PARTY MUST SEND THE NOTICE TO THE OTHER PARTY BY ONE OF
          THE OTHER METHODS DESCRIBED ABOVE.

          Any party, by notice given as aforesaid, may change the address to
          which subsequent notices are to be sent to such party.

     E.   Successors and Assigns. This Agreement shall be binding upon and inure
          to the benefit of the successors and assigns of each of the parties
          hereto. This Agreement may be assigned or transferred by Purchaser at
          any time without consent of Seller, including, without limitation, to
          a lender of Purchaser, provided the assignee agrees to be bound by the
          terms of this Agreement. Upon such assignment, and written assumption
          by the assignee delivered to Seller, Purchaser shall have no further
          or other obligations under this Agreement, provided, however, that the
          original Purchaser shall remain liable for and not be released from
          its indemnification obligations under Section 4 of this Agreement.

     F.   Invalidity. If for any reason any term or provision of this Agreement
          shall be declared void and unenforceable by any court of law or equity
          it shall only affect such particular term or provision of this
          Agreement and the balance of this Agreement shall remain in full force
          and effect and shall be binding upon the parties hereto.

     G.   Complete Agreement. All understandings and agreements heretofore had
          between the parties are merged into this Agreement which alone fully
          and completely expresses their agreement. This Agreement may be
          changed only in writing signed by both of the parties hereto and shall
          apply to and bind the successors and assigns of each of the parties
          hereto and shall not merge with the deed delivered to Purchaser at
          closing.

     H.   Counterparts. This Agreement may be executed in one or more
          counterparts each of which when so executed and delivered shall be an
          original, but together shall constitute one and the same instrument.

     I.   Calculation of Time Periods. Unless otherwise specifically provided
          herein, in computing any period of time described in this Agreement,
          the day of the act or event after which the designated period of time
          begins to run is not to be included and the last day of the period so
          computed is to be included, unless such last day is a Saturday, Sunday
          or legal holiday under the laws of the State of MINNESOTA, in which
          event the period shall run until the end of the next day which is
          neither a Saturday, Sunday or legal holiday. The final day of such
          period shall be deemed to end at 5:00 p.m., MINNESOTA time.

     J.   Attorneys' Fees. If any dispute arises between the parties regarding
          this Agreement or the subject matter thereof, the prevailing party in
          any court action, administrative proceeding or alternative dispute
          resolution commenced or maintained to resolve such dispute, shall be
          entitled to an award of reasonable attorneys' fees, disbursements and
          court costs in addition to any other remedy to which the parties are
          entitled.

     K.   Survival. Except as set forth in Section 6 hereof, all of the
          warranties, covenants, and representations made herein by either
          Seller or Purchaser shall for one year survive closing and the
          delivery of the Deed to Purchaser, or the earlier termination of this
          Agreement.

                                       12
<PAGE>

19. ADDITIONAL CONSIDERATION; GRANT OF WARRANTS. Seller will grant to Purchaser
a warrant (the "Warrant") to purchase 200,000 shares of Seller's common stock,
par value $.01, at $.90 per share. The Warrant shall be in the form of EXHIBIT F
attached hereto and made a part hereof.

20. REPRESENTATIONS, WARRANTIES AND UNDERSTANDINGS OF PURCHASER Purchaser
represents and warrants to Seller, and understands, as follows:

         A. Purchaser is purchasing the Warrant, and the shares underlying the
Warrant (the "Warrant Shares"), solely for Purchaser's own account for
investment purposes and not with a view to or for sale or distribution of the
Warrant or Warrant Shares (collectively, the "Securities") or any portion
thereof and without any present intention of selling, offering to sell or
otherwise disposing of or distributing the Securities or any portion thereof in
any transaction other than a transaction complying with the registration
requirements of the Securities Act of 1933, as amended (the "Act"), and
applicable state securities or "blue sky" laws, or pursuant to an exemption
therefrom. The entire legal and beneficial interest of the Securities are being
purchased for, and will be held for, Purchaser's account only, and specifically
are not being purchased in whole or in part for any other person or entity.

         B. Purchaser has carefully reviewed and is familiar with the reports
filed by Seller pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act Reports"). Purchaser has been given access to full and complete
information regarding Seller, including, in particular, the current financial
condition of Seller and the risks associated therewith and has utilized such
access to Purchaser's satisfaction for the purpose of obtaining information or
verifying information in the Exchange Act Reports, and particularly, Purchaser
has either attended or been given reasonable opportunity to attend a meeting
with representatives of Seller for the purpose of asking questions of, and
receiving answers from, such representatives concerning Seller and to obtain any
additional information, to the extent reasonably available, necessary to verify
the accuracy of information provided in the Exchange Act Reports.

         C. Purchaser understands that the Securities as an investment involve a
high degree of risk, including, without limitation, the risks described in the
"Cautionary Statements" filed as Exhibit 99.1 to Seller's reports filed with the
Securities and Exchange Commission (the "SEC") on Form 10-K.

         D. Purchaser has carefully considered and has, to the extent Purchaser
believes such discussion necessary, discussed with Purchaser's professional
legal, tax and financial advisors the suitability of an investment in Seller for
the particular tax and financial situation of Purchaser. Purchaser has
determined that the Securities are a suitable investment for Purchaser based on
Purchaser's investment objectives and financial needs. Purchaser has adequate
net worth and means for providing for Purchaser's current financial needs and
contingencies, has no need for liquidity of investment with respect to the
Securities and is in a financial position to bear the economic risk of, and
withstand a complete loss of, the purchase price of the Securities. Purchaser's
overall commitment to investments which are illiquid or not readily marketable
is not disproportionate to Purchaser's net worth, and investment in the
Securities will not cause such overall commitment to become excessive.

         E. Purchaser has such knowledge and experience in financial and
business matters that the Purchaser is capable of evaluating the merits and
risks of Purchaser's purchase of the Securities. Purchaser understands that (a)
the Securities have not been registered under the Act, (b) the Securities are
characterized under the Act as "restricted securities" and, therefore, cannot be
sold or transferred unless they are subsequently registered under the Act or an
exemption from such registration is available, and (c) except as provided in the
Warrant, neither Seller nor any of its officers or directors has any obligation
to register the Securities under the Act. In this connection, Purchaser is
familiar with Rule 144 of the SEC as presently in effect, and understands the
resale limitations imposed thereby and by the Act. Purchaser understands that
Purchaser shall in no event make any disposition

                                       13
<PAGE>

of all or any portion of the Securities unless (x) there is then in effect a
registration statement under the Act covering such proposed disposition and such
disposition is made in accordance with said registration statement or (y)
Purchaser shall have notified Seller of the proposed disposition and shall have
furnished Seller with a reasonably detailed statement of the circumstances
surrounding the proposed disposition, and Purchaser shall have furnished Seller
with an opinion of Purchaser's counsel in form and substance reasonably
acceptable to counsel for Seller to the effect that such disposition will not
require registration of the Securities under the Act. Purchaser understands that
the Warrant and all share certificates will bear a legend restricting the
transfer thereto consistent with the foregoing and that Seller will make a
notation in its records accordingly.

         F. Purchaser is an accredited investor as defined in Rule 501 of
Regulation D under the Securities Act of 1933, as amended (or all of its equity
owners are accredited investors). Purchaser was not organized for the purpose of
acquiring the Securities. Purchaser's principal place of business and principal
office are located within the State of Minnesota and all of its equity owners
are bona fide residents of said state except as otherwise disclosed to Seller in
writing.

         G. Except as set forth in this Agreement, no representations or
warranties have been made to Purchaser by Seller or any agent, employee or
affiliate of Seller and in entering into this transaction, the Purchaser is not
relying on any information, other than that contained herein and in the Exchange
Act Reports and the results of independent investigation by Purchaser.

         H. All information which Purchaser has provided concerning Purchaser is
correct and complete as of the date hereof. Purchaser agrees to indemnify, hold
harmless and defend Seller and its affiliates and agents with respect to any and
all loss, damage, expense, claim, action or liability any of them may incur as a
result of the breach or untruth of any of the representations, warranties or
other information of Purchaser in this Agreement. Purchaser understands and
agrees that if Seller or anyone acting on its behalf discovers any breach or
untruth of any such representations, warranties or other information, Seller
may, at its option, rescind the sale of the Securities to Purchaser.

                                       14
<PAGE>

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

SELLER: LECTEC CORPORATION              PURCHASER: LARRY HOPFENSPIRGER

BY: /s/ RODNEY A. YOUNG                 BY: /s/ LARRY HOPFENSPIRGER
    -------------------------------         ------------------------------------

ITS: Chairman, CEO, President           ITS: Owner
     ------------------------------          -----------------------------------

                                       15
<PAGE>

ACCEPTANCE BY BROKER

The undersigned, whether one or more, being the Broker referred to in this
Agreement, hereby acknowledges and accepts the terms and conditions of this
Agreement. Any amendment, modification or termination of this Agreement shall
not require the signature of the undersigned, except to the extent Section 13 of
this Agreement may be amended or modified (excluding termination of Section 13
due to lapse, termination or cancellation of this Agreement).

Acknowledged and agreed to this 5 day of February, 2003.

BROKER:

WELSH COMPANIES, LLC

By: BRAD BOWMAN
   ---------------------------------

Its: VR
    --------------------------------

                                       16
<PAGE>

ACCEPTANCE BY ESCROW AGENT

The undersigned, being the Escrow Agent referred to in the above Agreement,
hereby acknowledges and accepts the terms of this Agreement as its escrow
instructions and agrees to act in accordance herewith.

Acknowledged and agreed to this ________ day of _________________________, 2003.

ESCROW AGENT:

FIRST AMERICAN TITLE INSURANCE COMPANY

By:
   ----------------------------------

Its:
    ---------------------------------

                                       17
<PAGE>

                                    EXHIBIT A

                          LEGAL DESCRIPTION OF PREMISES

         LOT 2, BLOCK 11, OPUS 2 FOURTH ADDITION, HENNEPIN COUNTY, MINNESOTA.

                                       18
<PAGE>

                                    EXHIBIT B

                        FORM OF SURVEYOR'S CERTIFICATION

I HEREBY CERTIFY TO [INSERT NAME OF PURCHASER] AND [INSERT NAME OF TITLE
INSURANCE COMPANY] AND THEIR HEIRS, SUCCESSORS AND ASSIGNS, THAT I HAVE
PERSONALLY INSPECTED AND SURVEYED, ON THE GROUND, THE FOLLOWING DESCRIBED
PROPERTY (THE "PROPERTY"), AND THIS PLAT OF SURVEY WAS MADE BY ME, OR UNDER MY
DIRECTION AND SUPERVISION, EFFECTIVE AS OF THE CERTIFICATION DATE SET FORTH
BELOW:

(INSERT PROPER LEGAL DESCRIPTION, INCLUDING REFERENCE TO RECORDING DATA OF
SUBDIVISION PLAT, IF APPLICABLE)

I FURTHER CERTIFY THAT (a) THIS PLAT OF SURVEY IS A TRUE, CORRECT AND ACCURATE
DRAWING AND REPRESENTATION OF THE PROPERTY AND OF THE SIZE, LOCATION, EXTERIOR
DIMENSIONS AND BOUNDARIES THEREOF; (b) THAT THE STREET ADDRESSES, LOCATIONS AND
DIMENSIONS OF ALL BUILDINGS, AND THE LOCATIONS AND DIMENSIONS OF ALL PARKING
AREAS, OF ANY OTHER IMPROVEMENTS UPON THE PROPERTY, OF ALL FENCES AND/OR
RETAINING WALLS THEREON, OF ALL RECORDED AND/OR VISIBLE EASEMENTS, RESTRICTIONS
AND COVENANTS (AND THE SAME ARE REFERENCED TO THE APPROPRIATE RECORDED DOCUMENT
NUMBER OR OTHER APPLICABLE RECORDING INFORMATION), OF ALL STREETS, ROADS,
RIGHTS-OF-WAY, AND MEANS OF PUBLIC AND/OR PRIVATE ACCESS WHICH AFFECT, BENEFIT,
BURDEN OR ARE ADJACENT TO THE PROPERTY, OF ALL DITCHES, SEPTIC SYSTEMS, DRAIN
FIELDS, UTILITY LINES AND/OR SYSTEMS (FROM EACH BUILDING OR OTHER LOCATION ON
THE PROPERTY TO THEIR POINT OF CONNECTION WITH THE PUBLIC SYSTEMS) WHICH AFFECT,
BENEFIT, OR BURDEN THE PROPERTY, AND OF ALL BUILDING SETBACK LINES AND/OR OTHER
SETBACK LINES WHICH AFFECT THE PROPERTY, ARE CORRECTLY AND ACCURATELY SHOWN
HEREON; (c) THAT THERE ARE NO DISCREPANCIES, CONFLICTS, GAPS, OVERLAPS, BOUNDARY
DISPUTES, SHORTAGES IN AREA, ENCROACHMENTS OF IMPROVEMENTS OVER BOUNDARY LINES
FROM OR ONTO THE PROPERTY OR UPON EASEMENTS OR RIGHTS-OF-WAY LOCATED ON OR
ADJACENT TO THE PROPERTY, NO OVERLAPPING OF IMPROVEMENTS, NO VISIBLE EASEMENTS,
NO OVERLAPPING OF EASEMENTS, AND NO ROADS, ALLEYS, RIGHTS-OF-WAY OR BUILDING
SETBACK LINES WHICH AFFECT THE PROPERTY, EXCEPT AS SHOWN HEREON; (d) THAT THERE
ARE NO FENCES, RETAINING WALLS, LIGHTPOSTS OR OTHER IMPROVEMENTS APPURTENANT TO
THE PROPERTY WHICH ARE LOCATED WITHIN THE BOUNDARY LINES OF ADJOINING
PROPERTIES, EXCEPT AS SHOWN HEREON; (e) THAT THE LEGAL DESCRIPTION OF THE
PROPERTY, AS SET FORTH HEREON, IS CORRECT, COMPLETE AND ACCURATE; (f) THAT THE
PROPERTY IS NOT LOCATED IN ANY FLOOD PLAIN UNDER ANY STATE OR FEDERAL LAW,
INCLUDING WITHOUT LIMITATION, A "SPECIAL FLOOD HAZARD AREA" (100 YEAR FLOOD
PLAIN), OR IN AN IDENTIFIED "FLOOD PRONE AREA", AS DEFINED BY THE U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, PURSUANT TO THE FLOOD DISASTER
PREVENTION ACT OF 1973, AS AMENDED, AS REFLECTED BY FLOOD INSURANCE RATE MAP
PANEL # ______________, DATED ______, WHICH MAP PANEL COVERS THE AREA IN WHICH
THE PROPERTY IS LOCATED; (g) THAT THIS PLAT OF SURVEY AND THE SURVEY ON WHICH IT
IS BASED WERE MADE IN ACCORDANCE WITH "MINIMUM STANDARD DETAIL REQUIREMENTS FOR
ALTA/ACSM LAND TITLE SURVEYS", AS JOINTLY ESTABLISHED AND ADOPTED BY ALTA AND
ACSM IN 1999, MEETS THE CURRENT ACCURACY STANDARDS JOINTLY ADOPTED BY ALTA AND
ACSM FOR AN ALTA/ACSM URBAN LAND TITLE SURVEY, AS DEFINED THEREIN, AND CONTAINS
ITEMS 1 THROUGH 11, AND 13 THROUGH 16 INCLUSIVE OF TABLE A OF THE 1999 MINIMUM
STANDARD DETAIL REQUIREMENTS FOR ALTA/ACSM LAND TITLE SURVEYS.

DATED:                    , 20                  BY:
      --------------------    -------.
                                                L.S. NO.

                                       19
<PAGE>

                                    EXHIBIT C

                                       20
<PAGE>

                                 LEASE AGREEMENT

This LEASE AGREEMENT ("Lease") is made and entered into this 25th day of
February, 2003 by and between RED CIRCLE DRIVE, LLC, a Minnesota limited
liability company ("Landlord") and LECTEC CORPORATION, a Minnesota corporation
("Tenant").

SECTION 1. FUNDAMENTAL LEASE TERMS. Subject to the covenants, terms and
conditions of this Lease as more particularly set forth herein, the fundamental
terms of this Lease are as follows:

A.   PREMISES (SECTION 2): The entire building ("Building") comprised of
     approximately 29,975 total square feet of rentable area located in the
     Project (defined herein) containing approximately 29,975 total square feet
     of rentable area, in addition to the Project. The Premises is depicted on
     Exhibit A attached hereto and made a part hereof.

B.   INITIAL LEASE TERM (SECTION 4): Twelve (12) months, commencing on February
     25, 2003, and expiring twelve full calendar months thereafter on February
     25, 2004. The Lease Term shall be subject to adjustment pursuant to the
     terms of this Lease, and subject to Tenant's right to renew the lease Term
     pursuant to Section 4.B. hereof.

C.   RENT (SECTION 5): During the initial Lease Term, Tenant's Rent under this
     Lease shall consist of Tenant's monthly estimated Proportionate Share of
     Operating Expenses and any additional rent payable hereunder. Rent during
     the Renewal Term shall be comprised of Tenant's monthly estimated
     Proportionate Share of Operating Expenses plus Base Rent in accordance with
     Section 4.B. hereof, and any additional rent payable hereunder.

D.   PROPORTIONATE SHARE (SECTION 7): One hundred percent (100%).

E.   PERMITTED USE (SECTION 10): Tenant may use the Premises for general office
     use, assembly, research and development, and storage incidental to the
     foregoing.

F.   SECURITY DEPOSIT (SECTION 24): None.

G.   ADDRESS OF PREMISES: 10701 Red Circle Drive, Minnetonka, Minnesota 55343

H.   ADDRESSES FOR INVOICES AND PAYMENTS:

     IF TO LANDLORD:                              IF TO TENANT:

     RED CIRCLE DRIVE, LLC                        LECTEC CORPORATION
     c/o Larry C. Hopfenspirger
     2025 Nicollet Avenue South                   Attn: President
     Minneapolis, MN  55404                       10701 RED CIRCLE DRIVE
                                                  MINNETONKA, MN 55343

                                       21
<PAGE>

I.   ADDRESSES FOR LEGAL NOTICES (SECTION 19):

     IF TO LANDLORD:                              IF TO TENANT:

     RED CIRCLE DRIVE, LLC                        LECTEC CORPORATION
     c/o Larry C. Hopfenspirger                   10701 RED CIRCLE DRIVE
     2025 Nicollet Avenue South                   MINNETONKA, MN  55343
     Minneapolis, MN  55404                       Attn:  President

     (with copy to:)                              (with a copy to:)

     -------------------------                    Dorsey & Whitney LLP
                                                  50 South Sixth Street
     -------------------------                    Suite 1500
                                                  Minneapolis, MN  55402
     -------------------------                    Attn:  James L. Tucker III

     -------------------------

SECTION 2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, in "As-Is" condition, the premises ("Premises") depicted on the
site plan attached hereto as EXHIBIT A. The Premises contains approximately
29,975 TOTAL SQUARE FEET OF RENTABLE AREA. The Premises is comprised of the
entire Building depicted in the site plan attached hereto as EXHIBIT A. The
Building, all other improvements within the area outlined on EXHIBIT A, Common
Areas (as defined herein), and the real property underlying the same are
collectively referred to herein as the "Project". The Project is located at the
street address of 10701 Red Circle Drive, Minnetonka, Minnesota, and is
comprised of approximately 29,975 total square feet of rentable area. For
purposes of this Lease, the number of square feet of rentable area in the
Premises, Building and Project (including without limitation, the Common
Building Areas), has been and will be determined by measuring from the exterior
face of exterior walls, and from the midline or centerpoint of interior or party
walls.

SECTION 3. COMMON AREAS. All areas and facilities of the Building and Project
that are provided and designated by Landlord from time to time for the general
use and convenience of Tenant are collectively referred to herein as "Common
Areas". Except as otherwise provided herein, Tenant and its employees, invitees
and customers shall have the exclusive right to use, without charge, all Common
Areas. Tenant's use of the Common Areas shall be subject to any reasonable rules
and regulations, and amendments or additions thereto, which may be adopted by
Landlord from time to time. The term "Common Areas" shall include, without
limitation, (i) all interior common mechanical rooms, utility rooms, restrooms,
vestibules, stairways or corridors within the Building not intended to
selectively serve one or more tenants (herein, "Common Building Areas"), and
(ii) all exterior pedestrian walkways, patios, landscaped areas, sidewalks,
service drives, plazas, malls, throughways, loading areas and parking areas not
exclusively reserved to Tenant, entrances, exits, driveways, and roads. Landlord
reserves the right to make use of or grant easements over, under or across the
exterior portions of the Building and Common Areas of the Project so long as
such use does not materially disturb or otherwise materially interfere with
Tenant's business operations in the Premises, Building signage or utilization of
the Common Areas.

SECTION 4. LEASE TERM.

A.   Initial Term. Tenant hereby takes the Premises from Landlord, upon and
     subject to the covenants, terms and conditions hereinafter set forth, for
     the term (herein, "term of this Lease" or "Lease Term") commencing on
     February 28, 2003 ("Commencement Date") and continuing through and
     including the expiration of twelve full calendar months thereafter on
     February 27, 2004 ("Expiration Date"), subject to Tenant's right to renew
     the Lease Term pursuant to Section 4.B. herein.

                                       22
<PAGE>

B.   Renewal Term. Tenant shall have the option ("Option") to extend the term of
     this Lease for up to two (2) additional, consecutive sixty (60) month terms
     (the "Renewal Term(s)") under the same terms and conditions contained
     herein, provided, however, that in addition to other Rent payable
     hereunder, Tenant shall also pay Landlord Base Rent which shall be
     determined to be the then current market rate for similar space in the
     southwestern suburban Twin Cities area ("Market Area") determined in
     accordance with SECTION 4.C. below. Tenant may exercise each such Renewal
     Term by delivering written notice to Landlord ("Renewal Notice"), stating
     its irrevocable intent to exercise the Option, not less than one hundred
     eighty (180) days prior to the expiration of the initial Lease Term, or
     expiration of the first Option, as the case may be. In the event that
     Tenant fails to deliver timely notice of its intent to exercise any Option,
     Tenant's right to the Option and any subsequent Option shall be deemed null
     and void. Conditions of the exercise of such Option shall be that Tenant is
     not in Default pursuant to Section 18 of this Lease and that this Lease is
     in full force and effect.

C.   Market Rate Determination. If the market rate must be determined in
     accordance with the provisions of SECTION 4.B. above, the parties hereto
     agree as follows:

     (1)  Within fifteen (15) days following receipt of Tenant's Renewal Notice
          for the Renewal Term, Landlord will submit to Tenant Landlord's
          proposed market rate determination ("Landlord's Proposed Market
          Rate").

     (2)  If Tenant does not notify Landlord within fifteen (15) days after
          receipt of Landlord's Proposed Market Rate that Tenant disagrees with
          Landlord's Proposed Market Rate, then Landlord's Proposed Market Rate
          shall be deemed approved and accepted by Tenant. If Tenant timely
          notifies Landlord of Tenant's disagreement with Landlord's Proposed
          Market Rate, then the parties agree to negotiate in good faith for a
          period of thirty (30) days following Landlord's receipt of Tenant's
          notice of disagreement (the "Negotiation Period") in an attempt to
          reach agreement on the market rate. In connection therewith, each
          party shall submit to the other party such evidence as it then has to
          substantiate its proposed market rate. If the market rate is not
          mutually agreed upon by the parties within the Negotiation Period, the
          Renewal Notice shall remain in full force and effect and the market
          rate shall be determined by arbitration in accordance with the
          remaining provisions of this SECTION 4.C.

     (3)  If the market rate is not mutually agreed upon within the Negotiation
          Period, then within ten (10) days after the expiration of the
          Negotiation Period, the parties shall choose a neutral individual
          having at least ten (10) years recognized brokerage experience with
          first-hand knowledge in the determination of commercial rental rates
          in the Market Area ("Expert"), and the Expert shall determine the
          market rate within twenty (20) business days after expiration of the
          Negotiation Period. If the parties cannot mutually agree on an Expert
          within seven (7) days after expiration of the Negotiation Period, each
          party shall notify the other as to the name, address, and telephone
          number of an arbitrator (having similar experience and qualifications
          required of the Expert) it has selected to serve on the board of
          arbitration ("Board"). The two (2) arbitrators will appoint a third
          arbitrator having such experience and qualifications as promptly as
          reasonably possible and the three (3) arbitrators will constitute the
          Board. All three (3) arbitrators must also be persons totally
          disinterested in any economic way in the ultimate resolution of the
          market rate.

                                       23
<PAGE>

     (4)  After the Board is appointed, it will proceed as expeditiously as
          reasonably possible to resolve the dispute in accordance with the
          commercial rules of arbitration of the National Arbitration Forum and
          to notify the parties of its decision as to the market rate within
          twenty (20) business days of the appointment of the last member of the
          Board. Both Landlord and Tenant may each state in writing what it
          proposes the market rate should be including whatever support for such
          contention it wishes to have considered by the Board. The Board shall
          arrange for such simultaneous exchange of such written information to
          both Landlord and Tenant and shall accept additional evidence,
          rebuttals or other matters the parties may wish to present until five
          days prior to the date on which the Board shall render its decision.
          The Board shall not be limited to choosing between one (1) of the two
          (2) market rates proposed by the parties but may substitute its
          opinion as to market rate, provided, however, that the determination
          of the Board shall be made as follows:

          (a)  Each member of the Board will independently determine the market
               rate and simultaneously disclose to each other his or her
               separate determination.

          (b)  If the high market rate is less than ten percent (10%) higher
               than the middle market rate and the low market rate is less than
               ten percent (10%) lower than the middle market rate, then the
               average market rate of the three Board members shall be the
               market rate.

          (c)  If either the high market rate or the low market rate deviates
               from the middle market rate by more than ten percent (10%), then
               the average of the two market rate determinations closest by
               dollar amount shall be the market rate.

     Upon the determination of the market rate pursuant to the foregoing terms,
     such determination shall be final and binding upon the parties. If for any
     reason the determination of the market rate has not been made as of the
     commencement of the Renewal Term, then Tenant shall nevertheless pay Base
     Rent at Landlord's Proposed Market Rate pending determination of the market
     rate pursuant to the mechanism described above. Any rent paid by Tenant at
     a rate other than the market rate determined pursuant to the foregoing
     terms shall be adjusted retroactively. Any and all fees and expenses
     charged by the Expert shall be divided equally between Landlord and Tenant,
     or alternatively, Landlord and Tenant shall each pay any and all fees and
     expenses incurred in connection with such party's own Board member and the
     fees and expenses of the third Board member shall be divided equally
     between Landlord and Tenant.

SECTION 5. RENT. Tenant agrees to pay Landlord monthly in advance, without
demand, offset, abatement or deduction, as rent, all sums due under this Lease
and the word "Rent", as used in this Lease, shall mean Tenant's monthly payment
of its Proportionate Share of Operating Expenses and the additional rent payable
hereunder; provided, however, that during the Renewal Term, Rent shall also
include Base Rent determined under Section 4.B. and 4.C. of this Lease. All Rent
shall be payable to Landlord at the address set forth in SECTION 1.H. above, or
at such other address as may from time to time be designated by Landlord. If any
Rent or other sum due from Tenant is not received by Landlord on or before the
fifth (5th) day of the month for which the Rent or such sum is due, then a late
payment charge of $50 per occurrence shall become due and payable to Landlord,
all in addition to such amounts owed under this Lease. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated Rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as Rent be deemed an accord and satisfaction, and Landlord shall
accept such check or payment without prejudice to Landlord's right to recover
the balance of such Rent or pursue any other remedy in this Lease provided. Any
sums paid to Landlord by Tenant pursuant to this Lease shall be applied to
Tenant's

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<PAGE>

account in the following order: first to the payment of costs of collection,
including without limitation attorneys' fees and court costs; then to the
payment of late charges and accrued interest due on past due amounts; then to
the payment of Rent. Periodic Rent invoices that may be provided to Tenant by
Landlord are provided at the discretion and will of Landlord and as a courtesy
only and in no event shall the date of delivery or receipt of an invoice, or the
failure to deliver an invoice, extend the time for payment of Rent or the date
Rent is due and payable.

SECTION 6. SURRENDER OF POSSESSION AND HOLDING OVER. In the event that Tenant
fails to surrender possession of the Premises upon the expiration or termination
of this Lease, then Tenant shall be obligated to (i) vacate and deliver the
Premises to Landlord immediately upon receipt of written notice to vacate from
Landlord, (ii) pay Landlord as Rent for such holdover period, an amount equal to
one and one-half (1.5) times the rate of Rent for the Premises immediately prior
to the expiration or termination of this Lease, together with all additional
rent and other sums and charges as provided in this Lease, and (iii) indemnify,
hold harmless and defend Landlord against all claims for liability, costs or
damages by any other party to whom Landlord may have leased all or part of the
Premises. If Tenant holds over with the prior written consent of Landlord, then
Tenant's occupancy for the holdover period shall be deemed a month to month
occupancy terminable by either party upon thirty (30) days written notice to the
other party, and all of the terms and provisions of this Lease shall be
applicable during that period, except that Tenant shall pay Landlord monthly, in
advance, as Rent for the holdover period, an amount equal to Rent in effect on
the date of expiration or termination of this Lease, together with all
additional rent and other sums and charges as provided in this Lease; provided,
however, that Landlord shall have the right, from time to time, to adjust the
Rent payable by Tenant during the holdover period by providing Tenant with at
least thirty (30) days prior written notice of such adjustment. No holding over
by Tenant, without the prior written consent of Landlord shall operate to extend
the term of this Lease. Nothing contained herein shall be construed to give
Tenant any right to hold over or to impair or limit any of Landlord's rights and
remedies set forth in this Lease if Tenant holds over without the prior written
consent of Landlord, including without limitation, the right to terminate this
Lease at any time during such holdover period, to recover possession of the
Premises from Tenant, or to recover damages from Tenant from such holding over.

SECTION 7. OPERATING EXPENSES.

A.       Operating Expenses. Tenant shall also pay Landlord monthly in advance,
         without demand, offset, abatement or deduction, as additional rent
         during the Lease Term, Tenant's Proportionate Share of all costs which
         Landlord may incur in owning, managing and operating the Building, and
         Common Areas within the Project. All such costs are referred to herein
         as "Operating Expenses" and are hereby defined to include, without
         limitation, the following: (a) costs (including without limitation,
         sales and service taxes) incurred by Landlord in the management of the
         Project, including management fees which do not exceed 1.5% of
         Landlord's gross receipts from the Project; (b) all real property
         taxes, installments of special assessments and governmental impositions
         of any kind whatsoever imposed upon Landlord by reason of its
         ownership, operation or management of the Project, including without
         limitation the so called Minnesota "state general tax", and court
         filing fees and legal fees incurred in connection with actions to
         reduce the same, but legal fees may only be included in Operating
         Expenses to the extent reductions are obtained during the Term; (c)
         dues and assessments by means of covenants, conditions, easements or
         restrictions of record and/or owners' associations if any, which accrue
         against the Project during the term of this Lease; (d) all premiums,
         deductibles and retentions for insurance coverages Landlord is required
         to carry pursuant to Section 12.B. herein or by its lender, or that
         Landlord otherwise deems reasonably necessary to carry, including
         without limitation, property insurance, commercial general liability
         insurance, and rent loss insurance; and (e) all other expenses which
         would generally be regarded as operating, repair, replacement and
         maintenance expenses or Common Area expenses.

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<PAGE>

          The following items shall not be considered Operating Expenses:

          1.   Amounts paid directly by Tenant.

          2.   Alterations solely for the benefit of another tenant of the
               Building.

          3.   Interest and any increase in the rate of interest payable by
               Landlord with respect to any mortgage on the Project.

          4.   Amortization or other payments on loans to Landlord.

          5.   Depreciation of the Project or any part thereof.

          6.   Leasing commissions or brokerage commissions of any kind.

          7.   Legal expenses for disputes with Tenant.

          8.   Income, excess profits or franchise taxes measured by the income
               of Landlord.

          9.   Expenses for repair or replacement paid by proceeds of insurance
               or condemnation.

          10.  Expenses incurred in leasing or procuring new tenants.

          11.  The amount of rent or other charges payable under and pursuant to
               any ground lease or master lease pertaining to the Project.

          12.  Any advertising or promotional expenses.

          13.  Any cost representing an amount paid to an entity related to
               Landlord which is in excess of competitive costs charged by
               others.

          14.  Any work to be completed at Landlord's sole expense without
               reimbursement under this Lease.

          15.  Charitable, political or trade association contributions.

          16.  Costs associated with the operation of the business of the
               entity which constitutes the Landlord, as distinguished from the
               costs of operation of the Project, including, without limitation,
               accounting, tax legal, consulting and auditing costs.

          17.  Landlord's general overhead and administrative expenses, except
               for the management fee and employee expense (reasonably allocated
               to the Project) for employees of Landlord or its affiliates
               performing maintenance and repairs of the Project.

          18.  Reserves of any kind, including but not limited to reserves for
               replacement (except reasonable reserve for roof replacement), bad
               debts, lost rent or similar charges.

          19.  Wages, costs and salaries associated with off-site employees,
               except to the extent working at the Project and allocated
               equitably and proportionately to the Project.

     B.   Proportionate Share. Tenant's proportionate share of Operating
          Expenses ("Proportionate Share") shall be equal to one hundred percent
          of the Operating Expenses of the Project. Landlord may invoice Tenant
          monthly for one twelfth (1/12th) of Tenant's estimated annual
          Proportionate Share of Operating Expenses for each calendar year,
          which amount shall be adjusted reasonably from time-to-time by
          Landlord based upon anticipated Operating Expenses. Tenant's
          Proportionate Share of Operating Expenses for the years in which the
          Lease Term commences and terminates shall be prorated as equitably
          determined by Landlord based upon the Commencement Date and date of
          termination of the Lease Term. Notwithstanding anything contained
          herein to the contrary, during the year in which this Lease
          terminates, Landlord, prior to the termination date, shall have the
          option to invoice Tenant for Tenant's Proportionate Share of the
          Operating Expenses based upon the previous year's Operating Expenses.

     C.   Intentionally omitted.

     D.   Reconciliation. Within four (4) months following the close of each
          calendar year, Landlord shall provide Tenant an accounting showing in
          reasonable detail the computations of Operating Expenses due pursuant
          to this Section, provided, however, that Landlord's failure to timely
          provide any such accounting within the applicable four (4) month
          period shall not relieve Tenant of its obligation to pay any sums due
          to Landlord relative to any such reconciliation. If the accounting
          shows that the total of the monthly payments made by Tenant exceeds
          the amount of Operating Expenses due by Tenant under this Section, the
          accounting shall be accompanied by evidence of

                                       26
<PAGE>

         a credit to Tenant's account, except that if the Lease Term has
         expired, then the amount of the credit shall be paid to Tenant. If the
         accounting shows that the total of the monthly payments made by Tenant
         is less than the amount of Operating Expenses due by Tenant under this
         Section, the accounting shall be accompanied by an invoice for the
         additional Operating Expenses due from Tenant and Tenant shall pay
         Landlord the amount set forth in the invoice within thirty (30) days
         following receipt of same.

E.       Tenant's Right to Inspect Landlord's Books. Within thirty (30) days
         after receiving Landlord's annual reconciliation statement for
         Operating Expenses, Tenant may at Tenant's sole expense (except as
         otherwise provided herein) request an audit of Landlord's Operating
         Expenses by an independent certified public accountant chosen by
         Landlord from a list of not fewer than three submitted by Tenant in
         conjunction with the request. If Tenant does not request such audit
         within said thirty (30) day period, Tenant shall be deemed to have
         waived its right to audit Landlord's books for the applicable
         reconciliation statement and Operating Expenses referenced therein. If
         Landlord does not make the choice within fifteen (15) days, Tenant may
         do so. The auditor shall have access to those records of Landlord
         pertaining to Operating Expenses for the year in question. The auditor
         shall report to the parties within thirty (30) days after being chosen.
         The report of the auditor shall be final and binding on both parties
         with respect to the year in question unless Landlord disputes the audit
         by notice to Tenant within fifteen (15) business days after receiving
         the report. If the report is disputed by Landlord, the parties shall
         select a mutually acceptable auditor to review the report, and the
         determination of the mutually acceptable reviewing auditor shall be
         final and binding on both parties. If the actual Operating Expenses
         differ from those charged to Tenant, payments required to make
         adjustments in rent conform to the final report shall be made within 30
         days after receipt of the final report. All expenses of the audit shall
         be borne by Tenant unless the audit, or the final determination by the
         reviewing auditor if Tenant's audit is disputed by Landlord, discloses
         that Landlord's reconciliation statement contains an overstatement of
         Operating Expenses of more than 7%, in which case all reasonable
         expenses (excluding travel, meals and lodging) of Tenant's audit and of
         the reviewing auditor resolving a disputed audit shall be borne by
         Landlord, and payment of Operating Expenses shall be adjusted
         accordingly.

SECTION 8. UTILITIES. Commencing on the Commencement Date, Tenant shall pay
directly to the pertinent utility provider when due, without demand, offset or
deduction, as additional rent during the Lease Term, all charges for utilities
furnished to or for the use or benefit of Tenant or the Premises. Except to the
extent of Landlord's negligence (unless waived pursuant to SECTION 15.C.
herein), Landlord shall not be liable for damages or otherwise, and Tenant shall
have no right of demand, offset, abatement or deduction, if any utility
provider's service to the Premises is interrupted or impaired by weather, fire,
accident, riot, strike, act of God, the making of necessary repairs or
improvements, or any other causes beyond the reasonable control of Landlord. If
any public authorities require a reduction in energy consumption in the use or
operation of the Building or Project, Tenant agrees to conform to such
requirements.

SECTION 9. ADDITIONAL TAXES. If applicable in the jurisdiction where the
Premises are located, Tenant shall pay and be liable for all rental, sales,
service and use taxes or other similar taxes arising from Tenant's operation of
its business within the Premises, if any, levied or imposed by any city, state,
county or other governmental body having authority, and if levied upon Landlord,
such payments shall be included within the definition of Operating Expenses and
recoverable by Landlord pursuant to SECTION 7 above.

SECTION 10. PERMITTED USE. The Premises are leased to Tenant solely for the use
and purpose set forth in SECTION 1.E. of this Lease ("Permitted Use"). Tenant
shall not use, occupy, or permit the use or occupancy of the Premises or any
portion thereof for any other use or purpose whatsoever, without obtaining the
prior written consent of Landlord which consent shall not be unreasonably
withheld.

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<PAGE>

SECTION 11. ADDITIONAL OBLIGATIONS OF TENANT.

A.   Occupancy and Use. Tenant shall occupy the Premises and conduct its
     business in such a manner as is lawful, reputable and will not create a
     nuisance. Tenant shall not overload, damage or deface the Premises or do
     any act which may make void or voidable any insurance on the Premises or
     the Project, or which may render an increased or extra premium payable for
     such insurance, but if Tenant does so, Tenant will be liable for such
     premiums as additional rent. Tenant and its employees, agents, customers,
     vendors and suppliers (collectively, "Affiliated Parties") shall not
     utilize any portion of the loading dock area or the Common Areas for the
     storage of pallets, crates, boxes, refuse or rubbish other than that which
     is placed in rubbish containers or dumpsters provided by or approved by
     Landlord.

B.   Signs. Tenant shall not install, place, erect, or paint any sign, marquee
     or awning of any type or description in or about the Premises or Project
     which are visible from the exterior of the Premises, except those signs
     submitted to and approved by Landlord in writing, which approval shall not
     be unreasonably withheld, and which signs are in conformance with
     applicable governmental laws, rules, regulations and ordinances. However,
     Landlord hereby approves Tenant's signs which are installed in, on, and
     about the Project on the date hereof. Landlord shall have the right to
     approve, which approval shall not be unreasonably withheld, the type and
     size, location and color of all signs which Tenant desires to use or place
     in or upon the exterior or windows of the Premises or the Building.
     Landlord may install temporary or permanent signage relating to the Project
     in the Common Areas that does not materially interfere with Tenant's
     signage as approved by Landlord hereunder. Landlord will not install any
     "For Lease" signs until (i) the last six months of the initial Lease Term,
     or (ii) if Tenant exercises its Right to Renew, the last six months of the
     Extended Renewal Term (as hereinafter defined).

C.   Compliance With Laws, Rules and Regulations. Except as otherwise provided
     in this SECTION 11.C., during the Lease Term and the Extended Renewal Term,
     if any, Tenant shall, at its sole cost and expense, cause the Premises and
     Tenant's use thereof to comply with all laws, ordinances, orders, rules and
     regulations of state, federal, municipal or other agencies or bodies having
     jurisdiction over the use, condition or occupancy of the Premises,
     including without limitation, any repairs, alterations or modifications to
     the exterior or structural elements of the Building or to the Common Areas
     of the Project necessary to comply with applicable laws. Further, Tenant
     shall be solely responsible for the entire cost and expense of any work
     required to comply with applicable laws due to Tenant's specific use or
     occupancy of the Premises or due to Tenant's acts or omissions, or as a
     result of any alterations, modifications or improvements to the Premises or
     Building constructed by Tenant during the Lease Term and Renewal Term, if
     any.

     Upon not less than forty-five (45) days prior written notice to Tenant,
     Tenant will also comply with the reasonable rules and regulations of the
     Project adopted by Landlord. Landlord shall have thereafter have the right
     at all times, upon forty-five (45) days prior written notice to Tenant, to
     change and amend the rules and regulations in any reasonable manner as may
     be deemed advisable for the safety, care, cleanliness, preservation of good
     order and operation or use of the Project or the Premises. All rules and
     regulations of the Project, and amendments or modifications thereof, will
     be sent by Landlord to Tenant in writing and shall thereafter be carried
     out and observed by Tenant.

D.   Tenant's Insurance Obligations. Tenant shall, during the term hereof, keep
     in full force and effect at its expense the following insurance coverages:

     (1)  Property insurance, including plate glass coverage, written on the
          Insurance Service Office's Special Perils form, or equivalent,
          covering the full replacement value of (a)

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<PAGE>

                  Tenant's personal property, goods, inventory, supplies, signs,
                  furniture, and moveable trade fixtures, equipment and
                  machinery (collectively, "Tenant's Personal Property"), and
                  (b) Improvements (defined herein) Tenant is required to remove
                  at Lease expiration or termination pursuant to SECTION 11.F.
                  herein;

         (2)      Commercial General Liability insurance in an amount of not
                  less than $1,000,000 per "occurrence" and $2,000,000
                  "aggregate" for the Premises, insuring Tenant and its
                  Affiliated Parties against liability for bodily injury, death,
                  personal injury, and including contractual liability coverage.
                  The amount of such liability insurance shall not limit
                  Tenant's liability under this Lease. Such policy or policies
                  shall name Landlord and Landlord's management agent, if any,
                  and upon request, Landlord's designated mortgagee, as
                  additional insureds and shall provide that thirty (30) days'
                  prior written notice must be given to Landlord prior to
                  modification or cancellation of such policy of insurance.

         Tenant shall furnish certificates satisfactory to Landlord at the time
         this Lease is executed, and thereafter from time to time within ten
         (10) days after written request by Landlord, evidencing that such
         coverages are in full force and effect. Within ten (10) days after
         written request by Landlord, Tenant shall also provide Landlord with a
         copy of such policies of insurance. All such insurance carried by
         Tenant shall be issued by companies having an A.M. Best Company rating
         B+ or better.

E.       Tenant's Maintenance and Repair Obligations. Tenant shall at its sole
         expense and all times throughout the term of this Lease, including
         renewals and extensions thereof, keep and maintain the Building and the
         Premises and all of Tenant's signage in a clean, safe, sanitary, and
         working condition and in compliance with all applicable federal, state,
         and local laws, codes, ordinances, rules and regulations. Tenant's
         obligations hereunder shall include, but not be limited to, the
         maintenance, repair and replacement, if necessary, of the following
         items: (i) heating, ventilation and air conditioning system and
         equipment (including a regular preventative maintenance contract), (ii)
         lighting, wiring, and plumbing fixtures, piping, and equipment, (iii)
         water heaters, (iv) motors and machinery, (v) all interior fixtures
         (including without limitation, trade fixtures, walls, partitions,
         doors, door handles, locks, closures and frames, and windows),
         including the regular painting thereof, (vi) all exterior entrances,
         windows, doors, door handles, locks, closures and frames, docks
         (including without limitation, lifts, dock levelers, awnings, dock
         shelters, and staircase supports, treads and railings), including the
         regular painting thereof and the replacement of all broken glass, (vii)
         the exterior and structural portions of the Building (including
         exterior painting and tuckpointing), including without limitation, the
         roof (including flashing and drainage systems) and foundation, (viii)
         fire sprinkler system, (ix) utility lines up to connection points with
         the Building, (x) parking areas, (xi) Common Areas (including without
         limitation site lighting, project identification signs, snow and ice
         removal, maintenance of landscaping and irrigation systems), and (xii)
         all other improvements within the Project. When used in this provision,
         the term "repair" shall include replacements or renewals when
         necessary, and all such repairs made by the Tenant shall be equal in
         quality and class to the original work. Tenant shall keep the
         sidewalks, entrances, exits, drive aisles and parking areas of the
         Project clean and shall remove snow and ice accumulations therefrom.
         Tenant shall keep lawn areas neatly mowed and trimmed and reasonably
         free of weeds and shall keep landscaped areas properly irrigated and
         reasonably free of weeds and litter. Within ten (10) days after written
         request by Landlord, Tenant shall provide to Landlord written proof
         substantiating Tenant's performance of any maintenance, repair or
         replacement required under the terms hereof. If Tenant fails, refuses
         or neglects to maintain or repair the Premises as required in this
         Lease, then subject to the notice and cure period requirements of
         SECTION 18.A.(2) herein (except in the event of an emergency when no
         prior notice need be given by Landlord), Landlord may make such
         repairs, without liability to Tenant for any loss or damage that may
         accrue to Tenant's merchandise, personal property, furniture, trade
         fixtures, equipment, or other property or to Tenant's business by
         reason thereof, provided that

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<PAGE>

          Landlord shall use reasonable efforts not to disturb or otherwise
          interfere with Tenant's operations in the Premises, and upon
          completion thereof, Tenant shall pay to Landlord all costs incurred by
          Landlord in making such repairs, including ten percent (10%) for
          overhead, within thirty (30) days after Landlord delivers to Tenant an
          invoice for such costs.

          Notwithstanding any provision in this Lease to the contrary, if Tenant
          is required to perform any improvement to the Property that is
          considered a capital improvement based on sound accounting principles
          applicable to the ownership or management of office/warehouse/light
          industrial buildings in the Twin Cities metropolitan area, then (i)
          Landlord shall perform the capital improvement work and initially pay
          for same subject to reimbursement as provided herein, and (ii) the
          cost of the capital improvement shall be amortized over its useful
          life as reasonably determined by Landlord based on sound accounting
          principles applicable to the ownership or management of
          office/warehouse/light industrial buildings in the Twin Cities
          metropolitan area at an interest rate of ten percent (10%) per annum
          and shall be included as a component of Tenant's monthly Base Rent,
          provided, however, Tenant will not be responsible for the portion of
          the amortization of such capital improvement that occurs outside of
          the Lease Term, unless extended or renewed. Upon completion of any
          such work by Landlord, the parties will execute an addendum to this
          Lease confirming the cost of such work, the amortization schedule for
          such cost computed per the above terms, and increasing Tenant's
          monthly Base Rental obligations by the monthly installments of the
          amortized sum calculated per the above terms.

     F.   Alterations and Improvements. Subject to Tenant obtaining, at its sole
          expense, any and all necessary federal, state and municipal
          governmental licenses, permits or approvals, Tenant shall have the
          right, at its sole expense, to construct and install all tenant
          improvements, furniture, trade fixtures, equipment, machinery and
          other improvements necessary for Tenant to utilize the Premises for
          its Permitted Use; provided, however, that such work is performed in a
          workmanlike manner and Tenant uses reasonable efforts not to disturb
          other tenants' use of their demised premises or the Common Areas
          during performance of such work. Prior to installing or making any
          alterations, physical additions or tenant improvements (collectively,
          "Improvements") on or within the Premises, Tenant shall (i) obtain
          Landlord's written approval of plans and specifications for such
          improvements, which approval shall not be unreasonably withheld, and
          (ii) forward to Landlord a copy of all governmental approvals required
          for the Improvements that Tenant has obtained, together with names and
          addresses of all contractors and subcontractors who will be working at
          the Premises. All such work shall be performed by qualified, licensed
          and insured contractors or subcontractors, and Tenant shall hold
          harmless, indemnify and defend Landlord from any liens, damages,
          costs, liability, or claims for personal injury, property damage or
          death arising from installation of any such improvements. Tenant shall
          not make or allow to be made any Improvements that (i) are structural
          in nature, (ii) affect the mechanical, electrical, utility or other
          service systems for the Building, (iii) are visible from the exterior
          of the Building, or (iv) that cost in excess of $10,000.00, without
          first obtaining the written consent of Landlord, which consent shall
          not be unreasonably withheld. Any Improvements in or to the Premises
          made by Tenant shall, at Landlord's option, become the property of
          Landlord and shall be surrendered to Landlord upon the termination of
          this Lease; provided, however, upon request by Landlord, Tenant shall
          remove any designated Improvements upon expiration or earlier
          termination of the Lease Term, and further provided, that, this clause
          shall not apply to Tenant's Personal Property, which shall remain the
          property of Tenant and shall be removed by Tenant prior to the end of
          the term of this Lease. Notwithstanding the foregoing, at the time
          Landlord gives its consent to any alteration, addition, or improvement
          requested by Tenant, Landlord will advise Tenant in writing whether
          Landlord will require the removal thereof at the end of the Term, as
          the Term may be extended. Tenant shall repair any damage to the
          Premises arising from installation or removal of such Improvements or
          Tenant's Personal Property in order to restore the Premises to the
          condition required by the terms of SECTION 11.J. herein. All costs of
          installation and removal of such Improvements and Tenant's Personal
          Property and repair to the Premises relating thereto,

                                       30
<PAGE>

          shall be paid by Tenant and if not paid, shall be deemed additional
          rent recoverable by Landlord under this Lease.

     G.   Hazardous Substances. Tenant and its Affiliated Parties shall not
          manufacture, generate, treat, transport, dispose of, release,
          discharge, or store on, under or about the Premises or the Project
          (except as reasonably required in the ordinary course of Tenant's
          business operations in the Premises or for routine maintenance
          thereof, to the extent used in compliance with applicable laws), any
          asbestos, petroleum or petroleum products, explosives, toxic
          materials, or substances defined as hazardous wastes, hazardous
          materials, or hazardous substances under any federal, state, or local
          law or regulation ("Hazardous Materials"). Tenant shall indemnify,
          hold harmless and defend (with counsel reasonably approved by
          Landlord) Landlord from and against any claims, damages, penalties,
          liabilities, and costs (including reasonable attorneys fees and
          expenses and court costs) caused by or arising out of (i) a violation
          of the foregoing prohibition by Tenant or (ii) the presence of any
          Hazardous Materials on, under, or about the Premises or the Project
          during the term of the Lease to the extent caused by or arising out of
          the actions or omissions of Tenant or its Affiliated Parties during
          the Lease Term as may be extended. Tenant shall clean up, remove,
          remediate and repair any soil or ground water contamination and damage
          caused by the presence or release of any Hazardous Materials in, on,
          under or about the Premises or the Project during the term of the
          Lease to the extent caused by or arising, out of the actions or
          omissions of Tenant or its Affiliated Parties during the Lease Term,
          as may be extended, as required by applicable law and subject to
          Landlord's prior reasonable approval of the scope of Tenant's work.
          Tenant shall immediately give Landlord written notice (i) upon
          learning of the presence or release of any Hazardous Materials on or
          about the Premises or the Project by Tenant, (ii) upon receiving any
          notices from governmental agencies pertaining to Hazardous Materials
          which may affect the Premises or the Project, or (iii) upon receipt of
          notice of pending or threatened claims against Tenant or the Project
          due to the presence or release of Hazardous Materials on or about the
          Premises or the Project. The obligations of both parties hereunder
          shall survive the expiration or earlier termination of this Lease and
          the monetary obligations of Tenant shall be deemed additional Rent
          payable to and recoverable by Landlord hereunder. Landlord shall
          indemnify, hold harmless and defend (with counsel reasonably approved
          by Tenant) Tenant from and against any claims, damages, penalties,
          liabilities, and costs (including reasonable attorneys fees and
          expenses and court costs) caused by or arising out of the presence or
          release of Hazardous Materials on or about the Premises or the Project
          at any time after execution, to the extent arising from the actions or
          omissions of Landlord or its Affiliated Parties.

     H.   Mechanic's and Materialmen's Liens. Tenant shall keep the Premises and
          the Project free from any claims or liens arising out of any work
          performed, materials furnished or obligations incurred by or on behalf
          of Tenant and Tenant shall immediately notify Landlord of any such
          claim or lien of which Tenant has knowledge. Tenant will pay and
          discharge any mechanic's, materialmen's or other lien against the
          Premises resulting from Tenant's failure to make payment to such
          liening party, or will post bond, cash escrow or other security
          reasonably required by Landlord and diligently contest the lien. If a
          lien is claimed and Tenant does not cause it to be removed or
          contested (together with posting of bond, cash escrow or other
          security reasonably required by Landlord) within thirty (30) days
          after notice from Landlord to do so, then Landlord may require that
          Tenant provide to Landlord, at Tenant's sole cost and expense, a bond,
          letter of credit or cash escrow in an amount equal to one and one-half
          (1.5) times the amount of the lien, to insure Landlord against any
          liability for such lien. If Tenant contests the lien, it will do so at
          its expense in an expeditious manner. If the lien is reduced to final
          judgment, Tenant will discharge the judgment.

     I.   Financial Statements. Tenant shall, within fifteen (15) days following
          written request by Landlord, furnish to Landlord, or any present or
          prospective lender or buyer of the Project, Tenant's prior year and
          most current year-to-date financial statements (including a balance
          sheet and an income

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          statement) certified by an officer or general partner of Tenant, which
          statements shall be in reasonable detail and conform to generally
          accepted accounting principles. Landlord, and the recipient of the
          financial statements shall keep and maintain Tenant's financial
          statements in a confidential manner.

     J.   Obligations Upon Termination. Upon the termination of this Lease in
          any manner whatsoever, Tenant shall (i) remove Tenant's Personal
          Property (and the personal property of any other person claiming under
          Tenant), including without limitation, all tanks, cans or containers
          for the use and/or storage of gasoline, oil, grease, petroleum
          products, cleaning supplies, chemicals, paint, paint thinners,
          solvents, and any other item considered hazardous substances or
          hazardous materials under any applicable law that are owned or
          utilized by Tenant, and if requested by Landlord, any other
          improvements made at any time to the Premises by or at the request of
          Tenant, which Landlord has notified Tenant in writing at the time
          Tenant requested Landlord's consent thereto that such items were to be
          removed, (ii) repair any injury or damage to the Premises arising from
          installation or removal of such personal property or improvements, and
          (iii) quit and deliver up the Premises to Landlord peaceably and
          quietly in as good order and condition as the same are now in or
          hereafter may be put in by Landlord or Tenant, ordinary wear and tear,
          damage from casualty, and repairs or restoration which are Landlord's
          obligation excepted. If Tenant does not return possession of the
          Premises to Landlord in the condition required by this Lease, then (i)
          any improvements Tenant is required to remove upon the termination of
          this Lease or any of Tenant's Personal Property that are not removed
          on or before the date of termination of this Lease, however
          terminated, shall be deemed abandoned and Landlord may remove and
          dispose of the same as it deems prudent and any cost in regard thereto
          shall be payable by Tenant as additional Rent, (ii) Landlord may
          repair and restore the Premises to the condition required above and
          recover the costs of doing so from Tenant, and (iii) Tenant shall be
          liable to Landlord for the fair market value of lost rentals accruing
          during the period of time necessary for Landlord to remove Tenant's
          improvements and Tenant's Personal Property and to repair and restore
          the Premises to the condition noted above.

     SECTION 12. OBLIGATIONS OF LANDLORD.

     A.   Landlord's Maintenance and Repair Obligations. Landlord shall not be
          required to make any improvements, replacements or repairs of any kind
          or character to the Premises or the Project during the term of this
          Lease except as are specifically set forth elsewhere in Section 16 or
          Section 17 of this Lease.

     B.   Landlord's Insurance Obligations. During the term of this Lease,
          Landlord shall carry hazard and property insurance coverage on the
          Building in an amount equal to the full replacement cost thereof.
          Landlord shall not be obligated in any way or manner to insure any of
          Tenant's Personal Property upon or within the Premises or any
          Improvements which Tenant is required to remove pursuant to SECTION
          11.F hereof. Landlord shall also carry Commercial General Liability
          insurance in an amount of at least $1,000,000 per "occurrence" and
          $2,000,000 "aggregate" per this location. Landlord may also carry such
          other insurance coverage, including without limitation, rent loss
          insurance, of the type and in amounts as Landlord deems prudent.
          Notwithstanding the foregoing, any insurance carried or required to be
          carried by Landlord relative to the Project may be maintained under a
          blanket policy or policies of insurance covering the Project and other
          properties owned by Landlord and its affiliates, and all premiums paid
          by Landlord or its management agent for such insurance, to the extent
          properly allocable to the Project, and the cost of repairs not covered
          under such insurance due to deductible provisions, shall be included
          within the definition of Operating Expenses under SECTION 7 of this
          Lease. Tenant shall have no right in or claim to the proceeds of any
          policy of insurance maintained by Landlord under this Lease even if
          the cost of such insurance is borne by Tenant pursuant to SECTION 7 of
          this Lease. If an increase in any insurance premiums paid by Landlord
          relative to the Project is caused by

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    Tenant's specific use of the Premises, then Tenant shall pay the amount of
    such increase as additional rent to Landlord.

C.  Landlord's Warranty of Possession. Landlord warrants that it has the right
    and authority to execute this Lease, and Tenant, upon payment of the
    required Rent and subject to the terms, conditions, covenants and agreements
    contained in this Lease, shall have quiet enjoyment and possession of the
    Premises during the full term of this Lease as well as any extension or
    renewal thereof. Landlord shall not be responsible for the acts or omissions
    of any other lessee or third party that may interfere with Tenant's use of
    the Premises.

SECTION 13. ASSIGNMENT AND SUBLETTING. During the initial twelve (12) month term
of this Lease, Tenant shall not either voluntarily or by operation of law,
assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or any
interest therein, and shall not sublet the Premises or any part thereof, or any
right or privilege appurtenant thereto, or allow any person, other than the
employees, agents, or contractors of Tenant, to occupy or use the Premises or
any portion thereof. During the Renewal Term, Tenant shall not either
voluntarily or by operation of law, assign, transfer, mortgage, pledge,
hypothecate or encumber this Lease or any interest therein, and shall not sublet
the Premises or any part thereof, or any right or privilege appurtenant thereto,
or allow any person, other than the employees, agents, or contractors of Tenant,
to occupy or use the Premises or any portion thereof, without the prior written
consent of Landlord, such consent not to be unreasonably withheld, conditioned
or delayed. Any assignment or transfer of this Lease by transfer of a majority
interest of stock, asset sale, merger, consolidation, liquidation or
dissolution, or any changes in the ownership of, or power to vote in excess of
fifty percent (50%) of its outstanding stock, shall constitute an assignment for
purposes of this Section. Notwithstanding the foregoing, Tenant may, upon at
least five (5) days prior written notification to Landlord, sublease or assign
all or any portion of the Premises during the Term to any parent, subsidiary,
affiliate of Tenant, or any entity which directly or indirectly controls, is
controlled by or under common control of the Tenant, or to any entity which
purchases all or substantially all of the assets and business of Tenant
conducted from the Premises without having the obligation of securing the
Landlord's prior approval or consent; provided, however, upon consummation of
the assignment or sublease, Tenant shall promptly deliver a copy of the written
assignment or sublease document to Landlord, together with such information that
Landlord might reasonably request to determine the identity, state of formation,
principal place of business, type of business operation, and financial
wherewithal of the assignee or subtenant.

No assignee or sublessee of the Premises or any portion thereof may assign or
sublet the Premises or any portion thereof. Upon the occurrence of a Default
hereunder, if all or any part of the Premises are then assigned or sublet,
Landlord, in addition to any other remedies provided by this Lease or provided
by law, may, at its option, collect directly from the assignee or sublessee all
rents becoming due to Tenant by reason of the assignment or sublease. Any
acceptance of Rent or collection by Landlord of other sums directly from the
assignee, sublessee or any other person shall not be construed as a novation or
release of Tenant or any guarantor from the further performance of their
respective obligations under this Lease or any guarantee hereof, and shall not
be construed as a waiver by Landlord of any provisions hereof or any right
hereunder. Any assignment or subletting without consent of Landlord shall be
void, and shall at the option of Landlord, constitute a default under this
Lease. Consent to one assignment, subletting, occupation or use by any other
person or entity shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation or use by another person or entity. No
subletting or assignment by Tenant, made with or without Landlord's consent,
shall ever release Tenant from its obligation to pay the Rent and perform all
other obligations to be performed by Tenant hereunder for the term of this
Lease, or release any guarantor from any obligation or liability under any
guarantee of this Lease.

SECTION 14. LANDLORD'S RIGHT OF ACCESS. At any and all reasonable times
hereunder during Tenant's normal business hours, with reasonable oral or written
notice, Landlord and its Affiliated Parties shall have the right to access and
enter the Premises to inspect the same, to show the Premises to

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prospective purchasers, lessees (but only during the last six (6) months of the
Lease Term or extension or renewal thereof), mortgagees, insurers or other
interested parties, and to alter, improve, maintain, or repair the Premises or
any other portion of the Project. If such access is other than during Tenant's
normal business hours, Landlord shall give Tenant at least 24 hours prior
written notice, except in the event of an emergency when no such prior notice
shall be required. Tenant shall not prohibit Landlord or its Affiliated Parties
from entering the Premises, but Landlord will use reasonable efforts not to
disrupt Tenant's business operations at the Premises. Landlord shall have the
right to use any and all means which Landlord may deem reasonably necessary to
gain entry to the Premises in an emergency without liability therefor. Tenant
shall permit Landlord to install, use, maintain and repair pipes, cables,
conduits, plumbing, vents and wires under or through the raceways, conduits,
risers, utility lines or ceiling plenum of the Premises as often and to the
extent that Landlord may now or hereafter deem to be necessary or appropriate
for the proper use, leasing, operation and maintenance of the Project.

SECTION 15. INDEMNITY AND WAIVER OF SUBROGATION.

A.   Tenant Release. Tenant agrees that Landlord and its Affiliated Parties
     shall not be liable to Tenant or its Affiliated Parties for, and Tenant
     hereby releases such parties from, any damage, compensation, liability,
     loss or claim from any cause, other than the negligence (unless waived
     pursuant to SECTION 15.C. herein) or willful misconduct of Landlord or its
     Affiliated Parties, relative to or arising from: (i) loss or damage to
     Tenant's Personal Property or Improvements that Tenant is required to
     remove pursuant to SECTION 11.F. hereof; (ii) any injury to person or
     damage to property on or about the Premises; (iii) any criminal act on or
     about the Premises or Project; or (iv) interference with Tenant's business
     operations or loss of occupancy or use of the Premises arising from
     Landlord's performance of its maintenance and repair obligations under this
     Lease or from Landlord's right to access or enter the Premises under this
     Lease. Tenant acknowledges and agrees that Landlord has no duty or
     obligation to provide security for the Premises, Building or Common Areas
     of the Project.

B.   Indemnity. Tenant agrees to hold harmless, defend (with counsel reasonably
     approved by Landlord) and indemnify Landlord and its Affiliated Parties
     against any damage, compensation, liability, loss, claim or fees
     (including, without limitation, reasonable attorneys' fees) arising out of
     any personal injury, death or property loss or damage occurring in or about
     the Premises or the Project during the Lease Term, regardless of when such
     claim is made, to the extent arising from the willful misconduct or
     negligent acts or omissions of Tenant or its Affiliated Parties. Landlord
     agrees to hold harmless, defend (with counsel reasonably approved by
     Tenant) and indemnify Tenant and its Affiliated Parties against any damage,
     compensation, liability, loss, claim or fees (including, without
     limitation, reasonable attorneys' fees) arising out of any personal injury,
     death or property loss or damage occurring in or about the Premises or the
     Project during the Lease Term, regardless of when such claim is made, to
     the extent arising from the willful misconduct or negligent acts or
     omissions of Landlord or its Affiliated Parties.

C.   Waiver of Subrogation. Notwithstanding anything in this Lease to the
     contrary, Landlord and Tenant hereby waive and release each other and their
     respective Affiliated Parties of and from any and all right of liability,
     recovery, claim, action or cause of action, against each other or their
     Affiliated Parties (or anyone claiming through or under them by way of
     subrogation or otherwise), for any damage, compensation, liability, loss or
     claim, regardless of cause or origin, including without limitation,
     negligence of Landlord or Tenant and their respective Affiliated Parties,
     to the extent related to or arising from property damage suffered by the
     waiving/releasing party.

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SECTION 16. CASUALTY LOSS.

A.   Total Destruction. If all of the Premises or the Project are totally
     destroyed by fire or any other event ("Casualty"), then this Lease shall
     terminate at the option of either Landlord or Tenant by written notice to
     the other party within sixty (60) days following the date of Casualty, and
     the Rent shall be abated for the unexpired portion of the Lease effective
     as of the date of Casualty.

B.   Partial Destruction. If the Premises is partially damaged by Casualty, and
     if the Premises are damaged to such extent that the damage cannot, in
     Landlord's reasonable judgment, be rebuilt or repaired economically (taking
     into account the time necessary to receive any insurance proceeds and using
     normal construction methods without overtime or other premium) within two
     hundred ten (210) days after the date of Casualty, then this Lease shall
     terminate at the option of Landlord or Tenant by written notice to the
     other party within sixty (60) days following the date of Casualty, and the
     Rent shall be abated for the unexpired portion of the Lease effective as of
     the date of Casualty. Notwithstanding anything herein to the contrary if
     the Premises or the Project is partially damaged by Casualty and either (i)
     insurance proceeds are not made available to Landlord or are inadequate for
     restoration, or (ii) repair or restoration of the same would not be
     economically prudent in Landlord's determination, then Landlord shall have
     the right to terminate this Lease by written notice to Tenant within sixty
     (60) days following the date of Casualty, and the Rent shall be abated for
     the unexpired portion of the Lease effective as of the date of Casualty.

C.   Restoration Obligations. If this Lease is not terminated pursuant to
     SECTION 16.A. or SECTION 16.B. above, then Landlord shall, at its sole
     expense, proceed with reasonable diligence, subject to Force Majeure delays
     (as defined in SECTION 27.G. of this Lease) to rebuild or repair the
     Premises (including Improvements made or paid for by Tenant, the loss of
     which is covered by insurance carried by Landlord, but excluding Tenant's
     Personal Property and Improvements that Tenant is required to remove
     pursuant to SECTION 11.F. above), the Building or other improvements within
     the Project to as near the condition in which they existed immediately
     prior to the date of Casualty as reasonably possible. If the Premises are
     to be rebuilt or repaired and are untenantable in whole or in part
     following the Casualty, then the Rent payable under this Lease during the
     period for which the Premises are untenantable shall be abated in
     proportion to the areas of the Premises rendered untenantable (as
     reasonably and equitably determined by Landlord and Tenant) from the date
     of Casualty until restoration is completed by Landlord. Notwithstanding
     anything contained herein to the contrary, if the holder of a Mortgage
     purchases or acquires Landlord's interest in the Premises or the Project by
     foreclosure sale or deed in lieu thereof, then such holder shall not be
     bound by the restoration obligations set forth in this SECTION 16 and shall
     have the option either to use any such insurance proceeds to restore the
     Premises in accordance with the terms of this Lease or to terminate this
     Lease and retain all such proceeds as its own and upon such termination the
     Rent shall be abated for the unexpired portion of the Lease effective as of
     the date of Casualty. Notwithstanding any provision herein to the contrary,
     if more than twenty percent (20%) of the Premises or Tenant's parking
     spaces within the Project is destroyed by casualty, and restoration of same
     is reasonably expected to take longer than two hundred ten (210) days, than
     Tenant may, by notice to Landlord, terminate this Lease.

D.   Insurance Proceeds. Tenant hereby waives any right in or claim to the
     proceeds of any policy of insurance maintained by Landlord under this
     Lease. If any insurance proceeds are recoverable on account of any Casualty
     affecting the Premises or the Project, then Tenant agrees that as between
     this Lease and any recorded mortgage, deed of trust or other instrument
     presently existing or hereafter created covering Landlord's interest in all
     or part of the Premises or the Project, and all increases, refinancings,
     extensions, renewals, amendments and modifications thereof (collectively,
     "Mortgage"), the terms of such Mortgage shall govern and be determinative
     relative to the payment and disposition of such proceeds.

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<PAGE>

SECTION 17. EMINENT DOMAIN.

A.   Total Taking. If the entire Premises or the Project are taken by eminent
     domain, either party shall have the right to terminate this Lease as of the
     date of taking, and the Rent shall be abated for the unexpired portion of
     the Lease effective as of the date of the taking, by that party's giving
     notice to the other party within 30 days after the date of such taking.

B.   Partial Taking. If more than twenty percent (20%) of the Premises or the
     Project or the parking serving the Premises is taken by eminent domain,
     Landlord or Tenant shall have the right to terminate this Lease as of a
     date specified by Landlord or Tenant by giving written notice thereof to
     the other party within sixty (60) days after the date of taking. If neither
     party elects to terminate this Lease, then Landlord shall, at its sole
     expense, proceed with reasonable diligence, subject to Force Majeure
     delays, to rebuild or repair the Premises (inclusive of Improvements made
     or paid for by Tenant, the loss of which is covered by condemnation
     proceeds received by Landlord, but excluding Tenant's Personal Property and
     Improvements that Tenant is required to remove pursuant to SECTION 11.F.
     above), the Building or other improvements within the Project to as near
     the condition in which they existed immediately prior to the date of taking
     as reasonably possible. If part of the Premises is rendered untenantable
     following any taking, then the Rent payable under this Lease shall be
     abated in proportion to the areas of the Premises rendered untenantable (as
     reasonably and equitably determined by Landlord) effective as of the date
     of taking.

C.   Condemnation Proceeds. All damages awarded for a taking under the power of
     eminent domain shall belong to and be the exclusive property of Landlord
     whether such damages be awarded as compensation for diminution in value of
     the leasehold estate hereby created or to the fee of the Premises or the
     Project; provided, however, that Tenant shall be entitled to maintain an
     action for a separate award to Tenant for (a) Tenant's moving and business
     relocation expenses, (b) loss of Tenant's Personal Property, and (c) any
     other compensable interest Tenant may have under Minnesota law. If any
     condemnation proceeds are recoverable by Landlord on account of any taking
     affecting the Premises or the Project, then Tenant agrees that as between
     this Lease and any Mortgage, the terms of such Mortgage shall govern and be
     determinative relative to the payment and disposition of such proceeds.

SECTION 18. DEFAULT AND REMEDIES.

A.   Default by Tenant. Each of the following occurrences shall be deemed an
     event of default ("Default") by Tenant under this Lease:

     (1)  Tenant has not paid any past due installment of Rent or any other
          payment required pursuant to this Lease within five (5) days after
          Landlord gives written notice of nonpayment to Tenant, provided,
          however, that no more than two (2) such notices shall be required to
          be given in any calendar year; or

     (2)  Tenant has not complied with any term, provision or covenant of this
          Lease, other than the payment of Rent, and has not cured such
          noncompliance within ten (10) days after written notice to Tenant, or
          such longer period as may be reasonably required, if the nature of
          cure is such that it cannot be completed within ten (10) days, so long
          as Tenant commenced cure within the initial ten (10) day period and
          thereafter diligently pursues cure to completion; or

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<PAGE>

     (3)  Tenant files a petition, or an involuntary petition is filed against
          Tenant (and is not dismissed within sixty (60) days), or Tenant
          becomes insolvent under any applicable federal or state bankruptcy or
          insolvency law, or Tenant admits that it cannot meet its financial
          obligations as they become due, or a receiver or trustee shall be
          appointed for all or substantially all of the assets of Tenant (and is
          not dismissed within sixty (60) days), or Tenant shall make a transfer
          in fraud of creditors or shall make an assignment for the benefit of
          creditors; or

     (4)  Tenant does or permits to be done any act which results in a lien
          being filed against the Premises or the Project, and such lien is not
          discharged or bonded over pursuant to SECTION 11.H. of this Lease.

     If a Default under SECTION 18.A.(3) occurs, nothing contained herein shall
     be construed to express or imply that Landlord consents to any assumption
     and/or assignment of the Lease by Tenant or the inclusion of this Lease
     within Tenant's bankruptcy estate, and Landlord expressly reserves the
     right to object to any assumption and/or assignment of the Lease and to any
     inclusion of this Lease within Tenant's bankruptcy estate. Neither Tenant
     nor any trustee who may be appointed in such case shall conduct or permit
     of any "fire", "bankruptcy", "going out of business", auction sale or other
     public sale in or from the Premises.

B.   Landlord's Remedies for Tenant's Default. Upon the occurrence of a Default
     as defined above, Landlord may, in its sole discretion, elect any one or
     more of the following remedies:

     (1)  to cancel and terminate this Lease by written notice to Tenant; or

     (2)  whether or not Landlord elects to terminate this Lease, to enter upon
          and repossess the Premises with resort to judicial process by unlawful
          detainer action, summary proceedings, ejectment, force, or otherwise
          (provided, however, that if Tenant has abandoned or voluntarily
          surrendered possession of the Premises, then Landlord may enter upon
          and repossess the Premises without resort to judicial process or
          notice of any kind), and Landlord may, at Landlord's option, enter the
          Premises and take and hold possession thereof, and may remove all
          persons and property from the Premises and such property may be
          removed and stored in a public warehouse or elsewhere at the cost and
          for the account of Tenant, without Landlord becoming liable for any
          loss or damage which may be occasioned thereby, except in the case of
          Landlord's willful misconduct; or

     (3)  to cure the Default at any time for the account and at the expense of
          Tenant, in which event Tenant shall reimburse Landlord upon demand for
          any amount expended by Landlord in connection with the cure,
          including, without limitation, reasonable attorneys' fees and
          interest; or

     (4)  to pursue any other remedy at law or in equity that may be available
          to Landlord.

     Upon and after repossession, whether or not Landlord has elected to
     terminate this Lease, Landlord may, but shall not be obligated to, relet
     the Premises, or any part thereof, to any one other than the Tenant, for
     such time and upon such terms and uses as Landlord may determine in its
     sole discretion. Landlord may also make alterations and repairs to the
     Premises to the extent Landlord deems reasonably necessary or desirable to
     relet the Premises. Any rent received shall be applied against Tenant's
     monetary obligations hereunder, but Landlord shall not be responsible or
     liable for any failure to collect any rent due upon such reletting.

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<PAGE>

         In the event of any such termination or repossession, Tenant shall be
         liable to Landlord as follows:

         (i)      for all reasonable attorneys' fees and expenses incurred by
                  Landlord in connection with exercising any remedy hereunder;

         (ii)     for the unpaid installments of Rent, additional rent or other
                  unpaid sums that were due prior to such termination or
                  reentry, including without limitation, interest and late
                  payment fees, which sums shall be payable immediately;

         (iii)    for the installments of Rent, additional rent, and other sums
                  falling due pursuant to the provisions of this Lease for the
                  period after reentry, including without limitation, late
                  payment charges and interest, which sums shall be payable
                  immediately;

         (iv)     for all reasonable expenses incurred in releasing the
                  Premises, including leasing commissions, reasonable attorneys'
                  fees, and costs of alteration or repairs, which shall be
                  payable by Tenant as they are incurred by Landlord; and

         (v)      while the Premises are subject to any new lease or leases made
                  pursuant to this Section, for the amount by which the monthly
                  installments of rent payable under such new lease or leases is
                  less than the monthly installment for all charges payable
                  pursuant to this Lease, which deficiencies shall be payable
                  monthly.

C.       Additional Remedies, Waivers, Miscellaneous.

         (1)      The rights and remedies of Landlord set forth herein shall be
                  in addition to any other right and remedy now and hereafter
                  provided by law. All rights and remedies shall be cumulative
                  and not exclusive of each other. Landlord may exercise its
                  rights and remedies at any times, in any order, to any extent,
                  and as often as Landlord deems advisable without regard to
                  whether the exercise of one right or remedy precedes, concurs
                  with or succeeds the exercise of another.

         (2)      A single or partial exercise of a right or remedy shall not
                  preclude a further exercise thereof, or the exercise of
                  another right or remedy from time to time, and shall not be
                  construed to relieve Tenant of any of its liabilities and
                  obligations under this Lease, which shall survive any such
                  election.

         (3)      No delay or omission by Landlord in exercising a right or
                  remedy shall exhaust or impair the same or constitute a waiver
                  of, or acquiescence to, a Default.

         (4)      No waiver of Default shall extend to or affect any other
                  Default or impair any right or remedy with respect thereto.

         (5)      No action or inaction by Landlord shall constitute a waiver of
                  Default.

         (6)      No waiver of a Default shall be effective unless it is in
                  writing and signed by Landlord.

D.       Default by Landlord. If Landlord fails to timely perform any of its
         obligations under this Lease, which failure continues for a period of
         more than fifteen (15) days after receipt of written notice from Tenant
         specifying such failure, or if such failure is of a nature that it
         cannot be cured within said fifteen (15) day period and continues
         beyond the time reasonably necessary to cure (and Landlord has not
         commenced cure within the initial fifteen (15) day cure period and
         thereafter diligently pursued cure to completion), then Landlord shall
         be in default under this Lease and

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<PAGE>

         Tenant, subject to the terms of SECTION 23 of this Lease, shall have
         the right to cure such default for and on behalf of Landlord and
         collect the reasonable costs of cure from Landlord, and if Landlord
         does not pay any such reasonable costs of cure incurred by Tenant
         within thirty (30) days after receipt of written demand for payment
         (together with backup reasonably required by Landlord substantiating
         such costs incurred), then Tenant may offset such past due amounts
         against the next installments of Base Rent coming due hereunder.
         Notwithstanding anything to the contrary contained in this Lease,
         Tenant shall not deduct more than fifty percent (50%) of the Base Rent
         from any monthly installment of Base Rent if there are sufficient
         months remaining in the term of this Lease within which to fully
         recover the amount owed by Landlord (the "Maximum Offset Amount").

SECTION 19. NOTICES. All Rent and other payments required to be made by Tenant
shall be payable to Landlord at the address set forth in SECTION 1.H. of this
Lease, or such other address designated by Landlord by written notice to Tenant.
All payments required to be made by Landlord to Tenant shall be payable at the
address set forth in SECTION 1.H., or such other address within the United
States as designated by Tenant by written notice to Landlord. Any notice or
document required or permitted to be delivered by the terms of this Lease shall
be deemed to be delivered (whether or not actually received) when (i) deposited
in the United States Mail, postage prepaid, certified mail, return receipt
requested, or (ii) deposited with a reputable national commercial courier for
overnight delivery (e.g. Federal Express or U.P.S.), addressed to the parties at
the respective addresses set forth in SECTION 1.I. of this Lease, or such other
address as may be designated by written notice to the other party.

SECTION 20. LANDLORD ASSIGNMENT. Landlord shall have the right to sell, convey,
transfer, mortgage, or assign, in whole or in part, for collateral purposes or
otherwise, its rights and obligations under this Lease and in all or part of the
Premises and the Project. In the event of any sale, conveyance, transfer or
assignment made other than for collateral purposes, this Lease shall remain in
full force and effect, provided, however, that (i) Landlord shall be released
from any and all liabilities under this Lease first arising after the date of
such sale, conveyance, assignment or transfer, so long as the transferee assumes
in writing Landlord's obligations under this Lease first arising after the date
of transfer, and (ii) upon receipt of written notice from Landlord, Tenant shall
immediately and automatically attorn to the transferee, so long as the
transferee assumes in writing Landlord's obligations under this Lease first
arising after the date of transfer.

SECTION 21. SUBORDINATION AND ATTORNMENT. This Lease is subject and subordinate
to (i) the lien of any Mortgage which may now or hereafter encumber all or part
of the Project, and (ii) all existing recorded restrictions, covenants,
easements and agreements with respect to the Project, provided, however, that so
long as this Lease is in full force and effect and Tenant is not in default
beyond any applicable cure period hereunder, Tenant's possession of the Premises
shall not be disturbed. In order to confirm such subordination (and/or any other
terms set forth in this Section), Tenant shall, within ten (10) days after
written request from Landlord, execute and deliver to Landlord or any Mortgage
holder, any certification, instrument or other document reasonably required by
Landlord or such Mortgage holder, in form and content as reasonably required by
Landlord or such Mortgage holder, provided such certification, investment, or
document provides that Tenant's rights under this Lease will not be disturbed as
long as Tenant is not in default hereunder beyond any applicable cure period.
Tenant acknowledges and agrees that its failure to deliver any such statement in
a timely manner is a Default under this Lease. Notwithstanding anything
contained herein to the contrary, if the holder of any Mortgage elects to have
this Lease be prior to its lien, Tenant agrees that upon receipt of notice of
same from Landlord or such Mortgage holder, this Lease will be prior to such
lien.

If the interests of Landlord under this Lease shall be transferred by reason of
foreclosure, deed in lieu of foreclosure or other proceedings for enforcement of
any Mortgage to any third party transferee (including without limitation the
holder of any such Mortgage) (sometimes called the "New Owner"), then (i) Tenant
waives the provisions of any statute or rule of law, now or hereafter in effect,
which may give or purport to

                                       39
<PAGE>

give Tenant any right to terminate or otherwise adversely affect this Lease or
the obligations of Tenant hereunder, (ii) Tenant shall be bound to the New Owner
under the terms, covenants and conditions of this Lease for the balance of the
term remaining, including any extensions or renewals, with the same force and
effect as if the New Owner were Landlord under this Lease, (iii) Tenant shall
attorn to the New Owner as its Landlord, and (iv) so long as this Lease is in
full force and effect and Tenant is not in default beyond any applicable cure
period hereunder at the time of transfer to New Owner, this Lease shall remain
in full force and effect and the New Owner shall not disturb Tenant's possession
of the Premises. Notwithstanding anything in this Lease to the contrary, neither
the holder of any Mortgage, its successors or assigns (whether or not it
acquires the interest of Landlord under this Lease by foreclosure, deed in lieu
of foreclosure or other proceedings to enforce a Mortgage) or any New Owner
shall be liable for any act, omission and/or breach of the Lease by Landlord, or
bound by (a) any offsets or defenses which Tenant might have against Landlord,
(b) any prepayment by Tenant of more than one (1) month's installment of Rent,
(c) any amendment or modification of this Lease made subsequent to the granting
of the Mortgage by Landlord, (d) the application of insurance or condemnation
proceeds or the restoration of the Premises by Landlord in the event of a
casualty loss thereto or a taking thereof, (e) the commencement or completion of
any construction or restoration, or (f) restrictions on the use of other
properties owned by Landlord for purposes which compete with Tenant.

SECTION 22. ESTOPPEL CERTIFICATES. Tenant agrees to furnish, from time to time,
within fifteen (15) days after receipt of request from Landlord, a written
statement certifying, to the extent applicable, the following: (i) Tenant is in
possession of the Premises; (ii) the Lease is in full force and effect and there
have been no amendments or modifications, or if there have been amendments or
modifications, stating the amendments or modifications; (iii) the dates through
which the Rent and other charges hereunder have been paid by Tenant; (iv) Tenant
claims no present charge, lien, or claim or offset against Rent or, if Tenant
does, the nature and amount of such charge, lien, or claim of offset against
Rent; (v) the Rent is not and will not be prepaid for more than one month in
advance; (vi) to Tenant's knowledge, there is no existing default by reason of
some act or omission by Landlord; and (vii) such other matters as may be
reasonably required by Landlord or the Mortgage holder. Tenant agrees that any
such statement may be relied upon by any present owner or prospective purchaser
of the Project and any present or prospective Mortgage holder or assignee of
such Mortgage holder. Tenant acknowledges and agrees that its failure to deliver
any such statement in a timely manner is a Default under this Lease.

SECTION 23. LANDLORD'S LIABILITY. If Landlord shall be in default under this
Lease and, if as a consequence of such default, Tenant shall recover a money
judgment against Landlord, such judgment shall be satisfied only out of the
right, title and interest of Landlord in the Project as the same may then be
encumbered and neither Landlord nor any person or entity comprising Landlord
shall be liable for any deficiency. In no event shall Tenant have the right to
levy execution against any property of Landlord nor any person or entity
comprising Landlord other than its interest in the Project as herein expressly
provided.

SECTION 24. SECURITY DEPOSIT. Intentionally omitted.

SECTION 25. RELOCATION OPTION. Intentionally omitted.

SECTION 26. BROKERAGE. Landlord and Tenant each represents and warrants to the
other that there is no obligation to pay any brokerage fee, commission, finder's
fee or other similar charge in connection with this Lease. Each party covenants
that it will defend, indemnify and hold harmless the other party from and
against any loss or liability by reason of brokerage or similar services alleged
to have been rendered to, at the instance of, or agreed upon by said
indemnifying party. Notwithstanding anything herein to the contrary, Landlord
and Tenant agree that there shall be no brokerage fee or commission due on
expansions, options or renewals by Tenant.

                                       40
<PAGE>

SECTION 27.  MISCELLANEOUS.

A.   Limitation of Warranties. LANDLORD AND TENANT EXPRESSLY AGREE THAT EXCEPT
     AS OTHERWISE SET FORTH IN THIS LEASE, THERE ARE AND SHALL BE NO IMPLIED
     WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR
     PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, AND THERE ARE NO
     WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE.

B.   Landlord's Management Agent. Landlord may appoint an agent to act as the
     manager and operator of the Project for Landlord and is authorized to
     accept service of process and receive or give receipts for notices and
     demands on behalf of Landlord. Landlord reserves the right to change the
     identity and status of its duly authorized agent upon written notice to
     Tenant.

C.   Tenant's Authority. Tenant does hereby represent and warrant that (i)
     Tenant is a duly organized and validly existing corporation under the laws
     of the State of Minnesota, (ii) Tenant is qualified to do business in the
     state in which the Premises are located, (iii) the corporation has full
     right and authority to enter into this Lease, and (iv) each person signing
     on behalf of the corporation is authorized to do so.

D.   Landlord's Authority. Landlord does hereby represent and warrant that (i)
     Landlord is a duly organized and validly existing limited liability company
     under the laws of the State of Minnesota, (ii) Landlord is qualified to do
     business in Minnesota, (iii) the company has full right and authority to
     enter into this Lease, and (iv) each person signing on behalf of the
     company is authorized to do so.

E.   Successors and Assigns. This Lease shall be binding upon and inure to the
     benefit of Landlord and its heirs, personal representatives, successors and
     assigns, and Tenant and its heirs, personal representatives and permitted
     successors and assigns.

F.   Severability. If any provision of this Lease or the application thereof to
     any person or circumstances shall be invalid or unenforceable to any
     extent, the remainder of this Lease and the application of such provisions
     to other persons or circumstances shall not be affected thereby and shall
     be enforced to the greatest extent permitted by law.

G.   Counterparts. This Lease may be executed in any number of counterparts,
     each of which when so executed and delivered shall be deemed an original,
     but together shall constitute one and the same instrument.

H.   Force Majeure. The time within which either of the parties hereto shall be
     required to perform any covenant or obligation in this Lease shall be
     extended, without liability to the other party, if the performance or
     non-performance of the covenant or obligation is delayed, caused or
     prevented by an act of Force Majeure or by the other party, provided,
     however, that the party entitled to such extension gives reasonable notice
     to the other party of the Force Majeure occurrence causing such delay or
     non-performance. For purposes of this Lease, "Force Majeure" shall mean any
     of the following occurrences: act of God; fire; earthquake; flood;
     explosion; actions or the elements of war; invasion; insurrection; riot;
     mob violence; sabotage; inability to procure equipment, facilities,
     materials or supplies in the open market; failure of power; failure of
     transportation; strikes; lockouts; actions of labor unions; condemnation;
     requisition; laws; orders of governments or civil or military authorities;
     or any other cause, whether similar or dissimilar to the foregoing, not
     within the reasonable control of Landlord or Tenant, as the case may be.

                                       41
<PAGE>

I.   Submission of Lease. Submission of this Lease to Tenant for signature does
     not constitute a reservation of space or an option to lease. This Lease is
     not effective until execution by and delivery to both Landlord and Tenant.

J.   Interest and Attorney's Fees. Without limiting and in addition to any other
     remedy of Landlord hereunder, Tenant agrees to pay Landlord (i) accrued
     interest on any sum not timely paid to Landlord when due at the rate of the
     lesser of twelve percent (12%) per annum or the highest rate permitted by
     law, (ii) Landlord's costs of collection of any past due sums owing by
     Tenant, including without limitation court costs and reasonable attorney's
     fees and expenses, whether suit is actually filed or not, and (iii) any
     late charges set forth in SECTION 5 of this Lease.

K.   Headings. The section headings appearing in this Lease are inserted only as
     a matter of convenience and in no way define, limit, construe or describe
     the scope or intent of any Section.

L.   Amendment. This Lease may not be altered, waived, amended, or extended
     except by an instrument in writing signed by Landlord and Tenant.

M.   Entire Agreement. This Agreement constitutes the entire agreement of the
     parties with respect to the subject matter set forth herein, and supersedes
     and replaces all other agreements or understandings of the parties, whether
     oral or written.

N.   Construction. THE PARTIES ACKNOWLEDGE AND AGREE THAT THEY AND THEIR
     RESPECTIVE COUNSEL HAVE REVIEWED AND REVISED, OR HAVE HAD THE OPPORTUNITY
     TO REVIEW AND REVISE, THIS AGREEMENT AND THAT THE NORMAL RULE OF
     CONSTRUCTION TO THE EFFECT THAT AMBIGUITIES ARE TO BE RESOLVED AGAINST THE
     DRAFTING PARTY SHALL NOT BE EMPLOYED IN THE INTERPRETATION OF THIS LEASE OR
     ANY EXHIBITS, ADDENDUMS OR AMENDMENTS HERETO.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease effective the
day and year first above written.

LANDLORD                                   TENANT

RED CIRCLE DRIVE, LLC                      LECTEC CORPORATION

BY:                                        BY:
    -------------------------------            --------------------------------

Print Name                                 Print Name
           ----------------------------               -------------------------

Print Title:                               Print Title:
             --------------------------                 -----------------------

                                       42
<PAGE>

                               EXHIBIT A TO LEASE

                                PLAN OF PREMISES

                                       43
<PAGE>

                        EXHIBIT E (TO PURCHASE AGREEMENT)

                              LIMITED WARRANTY DEED

STATE DEED TAX DUE HEREON: $___________
Date:  ______________, 2003

FOR VALUABLE CONSIDERATION, LECTEC CORPORATION, a Minnesota corporation,
Grantor, hereby conveys and quitclaims to RED CIRCLE, LLC, a Minnesota limited
liability company, Grantee, real property in Hennepin County, Minnesota,
described as follows:

         Lot 2, Block 11, Opus 2 Fourth Addition, Hennepin County, Minnesota.

together with all hereditaments and appurtenances.

This Deed conveys after-acquired title. Grantor warrants that Grantor has not
done or suffered anything to encumber the property, EXCEPT:

Check box if applicable:

[ ] The Seller certifies the seller does not know of any wells on the
described real property.

[ ] A well disclosure certificate accompanies this document.

[ ] I am familiar with the property described in this instrument and I
certify that the status and number of wells on

     the described real property have not changed since the last previously
filed well disclosure certificate.

                                    LECTEC CORPORATION

                                    By:
                                        ----------------------------------------

                                    Its:
                                         ---------------------------------------

                 Affix Deed Tax Stamp Here

STATE OF MINNESOTA                  )

By:
    ------------------------------- )
Its:
     ------------------------------ )
COUNTY OF
          ----------------          )

                                       44
<PAGE>

This instrument was acknowledged before me on _______________, 200__, by
,_______________________________________, the ___________________ of LECTEC
CORPORATION, a Minnesota corporation, on behalf of the corporation.

NOTARIAL STAMP OR SEAL (OR OTHER TITLE OR RANK)

                                   --------------------------------------------
                                   SIGNATURE OF NOTARY PUBLIC OR OTHER OFFICIAL

                                   Check here if part or all of the land is
                                   Registered (Torrens) [ ]

                                   Tax Statements for the real property
                                   described in this instrument should be sent
                                   to:

                                   10701 RED CIRCLE, LLC

                                   -------------------------

                                   -------------------------

                                   -------------------------

THIS INSTRUMENT WAS DRAFTED BY:
Dorsey & Whitney LLP (JLT)
Suite 1500
50 South Sixth Street
Minneapolis, Minnesota  55402-1498

                                       45
<PAGE>

                         EXHIBIT F TO PURCHASE AGREEMENT

THIS WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO (1) REGISTRATION OR
(2) AN OPINION OF COUNSEL FOR THE COMPANY OR OTHER COUNSEL REASONABLY ACCEPTABLE
TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.

                                     WARRANT

                      To Purchase Shares of Common Stock of

                               LECTEC CORPORATION

                               February 25, 2003

         LecTec Corporation, a Minnesota corporation (the "Company"), for value
received, hereby certifies that 10701 Red Circle, LLC, a Minnesota limited
liability company, or its registered assigns (the "Holder") is entitled, subject
to the terms set forth below, upon exercise of this Warrant to purchase from the
Company 200,000 Shares of common stock, $0.01 par value, of the Company (the
"Common Stock") at $.90 per share (the "Exercise Price"). The Exercise Price is
subject to adjustments from time to time pursuant to the terms of this Warrant.
The shares issuable upon exercise of this Warrant, as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the
"Warrant Shares."

         This Warrant is further subject to the following provisions, terms and
conditions:

         1. Term. The Holder may exercise this Warrant, in whole or in part, at
any time before the close of business on the date five years after the date
hereof.

         2. Manner of Exercise. This Warrant may be exercised by the Holder, in
whole or in part (but not as to any fraction of a share of Common Stock), by
surrendering this Warrant, with the Exercise Form attached hereto as EXHIBIT A
filled in and duly executed by such Holder or by such Holder's duly authorized
attorney, to the Company at its principal office accompanied by payment of the
Exercise Price in the amount of the Exercise Price multiplied by the number of
shares as to which the Warrant is being exercised. The Exercise Price may be
paid in the form of a check or wire transfer of funds.

         3. Effective Date of Exercise. Each exercise of this Warrant shall be
deemed effective as of the close of business on the day on which this Warrant is
surrendered to the Company as provided in Section 2 or Section 5. At such time,
the person or persons in whose name or names any certificates for Warrant Shares
shall be issuable upon such exercise shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.
Within 10 days after the exercise of this Warrant in full or in part, the

                                       46
<PAGE>

Company will, at its expense, cause to be issued in the name of and delivered to
the Holder: (i) a certificate or certificates for the number of full Warrant
Shares to which such Holder is entitled upon such exercise, and (ii) unless this
Warrant has expired, a new Warrant or Warrants (dated the date hereof and in
form identical hereto) representing the right to purchase the remaining number
of shares of Common Stock, if any, with respect to which this Warrant has not
then been exercised.

         4. Adjustments. The above provisions are, however, subject to the
following:

         (a) (i) If the Company shall at any time after the date of this Warrant
         subdivide or combine the outstanding shares of Common Stock or declare
         a dividend payable in Common Stock, then the number of shares of Common
         Stock for which this Warrant may be exercised as of immediately prior
         to the subdivision, combination or record date for such dividend
         payable in Common Stock shall forthwith be proportionately decreased,
         in the case of combination, or increased, in the case of subdivision or
         dividend payable in Common Stock.

                  (ii) If the Company shall at any time after the date of this
         Warrant subdivide or combine the outstanding shares of Common Stock or
         declare a dividend payable in Common Stock, the Exercise Price in
         effect immediately prior to the subdivision, combination or record date
         for such dividend payable in Common Stock shall forthwith be
         proportionately increased, in the case of combination, or decreased, in
         the case of subdivision or dividend payable in Common Stock.

         (b) If any capital reorganization or reclassification of the capital
stock of the Company, or share exchange, combination, consolidation or merger of
the Company with another corporation, or the sale of all or substantially all of
its assets to another corporation shall be effected in such a way that holders
of Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, share exchange, combination, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the Holder
shall thereafter have the right at any time prior to the expiration of this
Warrant to receive upon exercise of this Warrant, upon the basis and upon the
terms and conditions specified in this Warrant and in lieu of the shares of the
Common Stock of the Company into which this Warrant could be exercisable or
convertible, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such stock as were
purchasable by the Holder immediately prior to such reorganization,
reclassification, share exchange, combination, consolidation, merger or sale,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of Holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the Exercise Price and of the
number of shares purchasable upon exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company shall not
effect any such share exchange, combination, consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such share exchange, combination, consolidation
or merger or the corporation purchasing such assets shall assume by written
instrument executed and mailed to the Holder, at the last address of such Holder
appearing on the books of the Company, the obligation to deliver to such Holder
such shares of

                                       47
<PAGE>

stock, securities or assets that, in accordance with the foregoing provisions,
such Holder may thereafter be entitled to receive upon exercise of this Warrant.

         (c) Except for: (i) options to purchase shares of Common Stock and the
issuance of awards of Common Stock pursuant to employee, consultant and director
benefit plans adopted by the Company; (ii) shares of Common Stock issued upon
the exercise of such options granted pursuant to such plans; and (iii) the
issuance of securities upon the conversion or exercise of convertible notes,
warrants or options outstanding as of the date of issuance of this Warrant; if
and whenever the Company shall issue or sell any shares of its Common Stock for
a consideration per share less than the Exercise Price in effect immediately
prior to the time of such issue or sale of the Common Stock, then, forthwith
upon such issue or sale, the Exercise Price shall be reduced to the price
(calculated to the nearest cent) determined by dividing (x) an amount equal to
the product of (A) the then existing Exercise Price and (B) the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale and (2) the quotient obtained by dividing the consideration, if any,
received by the Company upon such issue or sale, by the then existing Exercise
Price immediately prior to the time of such issue or sale, by (y) an amount
equal to the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale and (2) the number of shares of Common
Stock thus issued or sold.

         No adjustment of the Exercise Price, however, shall be made in an
amount less than one percent (1%) of such conversion price in effect on the date
of such adjustment, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment
which, together with any such adjustment so carried forward, shall be an amount
equal to or greater than two percent (2%) of the Exercise Price then in effect.

         (d) Upon any adjustment pursuant to this Section 4, then and in each
such case, the Company shall give written notice thereof, by first class mail or
equivalent, postage prepaid, addressed to the Holder of this Warrant at the
address of such Holder as shown on the books of the Company, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares for which this Warrant may be
exercised, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.

         5. Net Exercise Rights.

         (a) In addition to and without limiting the rights of the Holder with
respect to other terms of this Warrant, the Holder shall have the right (the
"Conversion Right") to convert this Warrant or any portion thereof into Warrant
Shares as provided in this Section 5 at any time or from time to time prior to
its expiration. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to this Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder, without payment by the holder
of any exercise price or any cash or other consideration, that number of
Converted Warrant Shares equal to the quotient obtained by dividing the Net
Value (as hereinafter defined) of the Converted Warrant Shares by the fair
market value (as defined in Section 5(c) below) of a single Warrant Share,
determined in each case as of the close of business on the Conversion Date (as
hereinafter defined). The "Net Value" of the Converted Warrant Shares shall be
determined by subtracting the aggregate warrant purchase price of the Converted
Warrant Shares from the aggregate fair market value of

                                       48
<PAGE>

the Converted Warrant Shares. Notwithstanding anything in this Section 5 to the
contrary, the Conversion Right cannot be exercised with respect to a number of
Converted Warrant Shares having a Net Value below One Hundred Dollars ($100). No
fractional shares shall be issuable upon exercise of the Conversion Right, and
if the number of shares to be issued in accordance with the foregoing formula is
other than a whole number, the Company shall pay to the holder of this Warrant
an amount in cash equal to the fair market value of the resulting fractional
share.

         (b) The Conversion Right may be exercised by the holder of this Warrant
by the surrender of this Warrant at the principal office of the Company together
with a notice in the form attached hereto [FORM NOT ATTACHED], specifying that
the holder thereby intends to exercise the Conversion Right and indicating the
number of shares subject to this Warrant that are being surrendered (referred to
in Section 5(a) above as the Converted Warrant Shares) in exercise of the
Conversion Right. Such conversion shall be effective upon receipt by the Company
of this Warrant together with the aforesaid written statement, or on such later
date as is specified therein (the "Conversion Date"), but not later than the
expiration date of this Warrant. Certificates for the Converted Warrant Shares
issuable upon exercise of the Conversion Right, together with a check in payment
of any fractional share and, in the case of a partial exercise, a new warrant
evidencing the shares remaining subject to this Warrant, shall be issued as of
the Conversion Date and shall be delivered to the holder of this Warrant within
fifteen (15) days following the Conversion Date.

         (c) For purposes of this Section 5, the "fair market value" of a
Warrant Share as of a particular date shall be its "Market Price," calculated as
of the Conversion Date, as follows:

                  (i) if the capital stock into which the Warrants are
         exercisable is traded on an exchange or is quoted on the Nasdaq
         National Market, then the average closing or last sale prices,
         respectively, reported for the ten (10) business days immediately
         preceding the Conversion Date,

                  (ii) if the capital stock into which the Warrants are
         exercisable is not traded on an exchange or on the Nasdaq National
         Market but is traded on Nasdaq SmallCap Market or quoted on an
         over-the-counter market, then the average closing bid and asked prices
         reported for the ten (10) business days immediately preceding the
         Conversion Date; or

                  (iii) if the capital stock into which the Warrants are
         exercisable is not traded on an exchange, the Nasdaq National Market or
         the Nasdaq SmallCap Market or quoted on an over-the-counter market,
         then the value as determined in good faith by the Board of Directors of
         the Company.

         6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company unless and until
exercised or converted pursuant to the provisions hereof.

         7. Exercise or Transfer of Warrant or Resale of Common Stock. The
Holder, by acceptance hereof, agrees to give written notice to the Company
before exercising this Warrant, or transferring this Warrant, in whole or in
part, or transferring any shares of Common Stock issued upon the exercise
hereof, of such Holder's intention to do so, describing briefly the manner of
any proposed transfer. Such notice shall include an opinion of counsel
reasonably

                                       49
<PAGE>

satisfactory to the Company that (i) the proposed exercise or transfer may be
effected without registration or qualification under the Securities Act of 1933,
as amended (the "Securities Act"), and any applicable state securities or blue
sky laws, or (ii) the proposed exercise or transfer has been registered under
such laws. Upon delivering such notice, such Holder shall be entitled to
exercise or transfer this Warrant or such Warrant Shares, all in accordance with
the terms of the notice delivered by such Holder to the Company; provided, that
an appropriate legend may be endorsed on the certificates for such shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of counsel to the Company to prevent further transfer that would be in
violation of the Securities Act and applicable state securities or blue sky
laws.

         If in the opinion of counsel to the Company or other counsel reasonably
acceptable to the Company the proposed exercise, transfer or disposition of this
Warrant or the Warrant Shares described in the written notice given pursuant to
this Section 7 may not be effected without registration of this Warrant or the
Warrant Shares, the Company shall promptly give written notice thereof to the
Holder within 10 days after the Company receives such notice, and such holder
will limit its activities in respect to such as, in the opinion of such counsel,
is permitted by law.

         Further, notwithstanding anything above to the contrary, the Holder may
not transfer this Warrant in warrant form except to a subsidiary of the Holder.

         8. Covenants of the Company. The Company covenants and agrees that all
shares that may be issued upon exercise of this Warrant will, upon issuance, be
duly authorized and issued, fully paid, nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof. The Company further
covenants and agrees that the Company will at all times have authorized, and
reserved for the purpose of issuance upon exercise hereof, a sufficient number
of shares of its Common Stock to provide for the exercise of this Warrant.

         9. Certain Notices. The Holder shall be entitled to receive from the
Company as promptly as possible after declaration thereof and at least 10 days
prior to the record date for determination of shareholders entitled thereto or
to vote thereon (or, if no record date is set, prior to the event), written
notice of any event that could require an adjustment pursuant to Section 4
hereof or of the dissolution or liquidation of the Company. All notices under
this Warrant shall be in writing and shall be delivered personally or by
telecopy (receipt confirmed) to such party (or, in the case of an entity, to an
executive officer of such party) or shall be sent by a reputable express
delivery service or by certified mail, postage prepaid with return receipt
requested, addressed as follows:

if to the Holder, to:

     10701 Red Circle, LLC

     ---------------------

     ---------------------

                                       50
<PAGE>

if to the Company to:

         LecTec Corporation
         10701 Red Circle Drive
         Minnetonka, MN 55343
         Attn: President

         Any party may change the above-specified recipient and/or mailing
address by notice to all other parties given in the manner herein prescribed.
All notices shall be deemed given on the day when actually delivered as provided
above (if delivered personally or by telecopy) or on the day shown on the return
receipt (if delivered by mail or delivery service).

         10. Registration Rights.

         (a) Within sixty (60) days of the issuance of at least a majority of
Warrant Shares, the Company shall use its reasonable best efforts to prepare and
file with the Securities and Exchange Commission a registration statement
pursuant to the Securities Act covering the resale of the Warrant Shares. The
Company shall bear all expenses in connection with such registration, including,
but not limited to, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses, marketing expenses, expenses relating to any amendments
of or supplements to any Registration Statement or prospectus and the expense of
any special audit incident to or required by any such registration.

         (b) Notwithstanding the foregoing, the Company shall not be obligated
to effect any such registration pursuant to this Section 10 if (i) Form S-3
under the Securities Act is not available to the Company for such registration,
or (ii) the Company shall furnish to the Holder a certificate signed by the
President or Chief Executive Officer of the Company stating that in the good
faith judgment of the Company it would be detrimental to the Company and its
shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, in which event the
Company shall have the right to defer such filing for up to 180 days after
delivery of such certificate.

         (c) In connection with the filing of a registration statement, the
Company shall:

                  (i) Use its reasonable best efforts to cause the registration
         statement to remain effective until the date on which all Warrant
         Shares covered by the registration statement (1) have been registered
         under the Securities Act, the registration statement in connection
         therewith has been declared effective and they have been disposed of
         pursuant to such effective registration statement, or (2) are eligible
         to be sold or distributed pursuant to Rule 144.

                  (ii) As soon as practicable, prepare and file with the
         Securities and Exchange Commission such amendments and supplements to
         such registration statement and the prospectus used in connection with
         such registration statement, as may be necessary to comply with the
         provisions of the Securities Act with respect to the disposition of all
         securities covered by such registration statement.

                                       51
<PAGE>

                  (iii) As soon as practicable, furnish to the Investors such
         number of copies of a prospectus, including a preliminary prospectus,
         in conformity with the requirements of the Securities Act, and such
         other documents as it may reasonably request in order to facilitate the
         disposition of Warrant Shares included in such registration statement.

                  (iv) Use its reasonable efforts to register and qualify the
         securities covered by such registration statement under such other
         securities or blue sky laws of such jurisdictions as shall be
         reasonably requested by the Holder, provided that the Company shall not
         be required in connection therewith or as a condition thereto to
         qualify to do business or to file a general consent to service of
         process in any such states or jurisdictions in which it is not
         otherwise required to so qualify or consent.

                  (v) Notify the Holder at any time when a prospectus relating
         to such offering is required to be delivered under the Securities Act
         of the happening of any event as a result of which the prospectus
         included in such registration statement, as then in effect, includes an
         untrue statement of a material fact or omits to state a material fact
         required to be stated therein or necessary to make the statements
         therein not misleading in the light of the circumstances then existing.

                  (vi) Notify the Holder (1) when the registration statement,
         any pre-effective amendment, the prospectus, any prospectus supplement
         or post effective amendment to the registration statement has been
         filed and, with respect to the registration statement or any
         post-effective amendment, when the same has become effective; (2) of
         any written request by the Securities and Exchange Commission for
         amendment or supplements to the registration statement or prospectus
         therein; (3) of the notification to the Company by the Securities and
         Exchange Commission of its initiation of any stop order suspending the
         effectiveness of the Registrations Statement; and (4) of the receipt by
         the Company of any notification with respect to the suspension of the
         qualification of any Warrant Shares for sale under the applicable
         securities or blue sky laws of any jurisdiction.

         (d) It shall be a condition precedent to the obligations of the Company
to take any action pursuant to this Section 10 that the Holder shall furnish to
the Company such information regarding itself, the Warrant Shares and the
intended method of disposition of such securities as shall be reasonably
required to effect the registration of the Warrant Shares and to execute such
documents in connection with such registration as the Company may reasonably
request.

         (e) All rights under this Section 10 shall terminate on the date on
which all Warrant Shares issuable under this Warrant either (i) have been
registered under the Securities Act, the registration statement in connection
therewith has been declared effective and they have been disposed of pursuant to
such effective registration statement, or (ii) they are eligible to be sold or
distributed pursuant to Rule 144.

         11. Miscellaneous.

         (a) No amendment, modification or waiver of any provision of this
Warrant shall be effective unless the same shall be in writing and signed by the
holder hereof.

         (b) This Warrant shall be governed by and construed in accordance with
the laws of the State of Minnesota.

                                       52
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
authorized officer and dated as of the date stated above.

                                      LECTEC CORPORATION

                                      By: Rodney A. Young
                                          --------------------------------------
                                      Its: President
                                           -------------------------------------

                                       53
<PAGE>

                                                                      EXHIBIT A

NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in
                                 Order to Exercise the Warrant

     The undersigned hereby irrevocably elects to exercise the attached Warrant
to purchase, for cash pursuant to Section 2 thereof, 200,000 shares of Common
Stock issuable upon the exercise of such Warrant. The undersigned requests that
certificates for such shares be issued in the name of the registered Holder. If
this Warrant is not fully exercised, the undersigned requests that a new Warrant
to purchase the balance of shares remaining purchasable hereunder be issued in
the name of the registered Holder.

Date:  ___________, 20__
                              -------------------------------------------------
                              [name of registered Holder]

                              -------------------------------------------------
                              [signature]

                              -------------------------------------------------
                              [title]

                              -------------------------------------------------
                              [street address]

                              -------------------------------------------------
                              [city, state, zip]

                              -------------------------------------------------
                              [tax identification number]

                                       54
<PAGE>

                                                                      EXHIBIT B

NOTICE OF NET EXERCISE OF WARRANT: To Be Executed by the Registered Holder in
                                   Order to Exercise the Warrant PURSUANT TO
                                   SECTION 5)

     The undersigned hereby irrevocably elects the net exercise of the attached
Warrant for, and to purchase thereunder, 200,000 Converted Warrant Shares, as
provided in Section 5 therein.

     The undersigned requests that certificates for such shares be issued in the
name of the registered Holder. If this Warrant is not fully exercised, the
undersigned requests that a new Warrant to purchase the balance of shares
remaining purchasable hereunder be issued in the name of the registered Holder.

Date:  ___________, 20__
                              -------------------------------------------------
                              [name of registered Holder]

                              -------------------------------------------------
                              [signature]

                              -------------------------------------------------
                              [title]

                              -------------------------------------------------
                              [street address]

                              -------------------------------------------------
                              [city, state, zip]

                              -------------------------------------------------
                              [tax identification number]

                                       55

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