Document:

Exhibit 10.45
                              EMPLOYMENT AGREEMENT

          THIS   AGREEMENT,   dated  January  1,  2000  by  and  between  MEDTOX
Scientific,  Inc., a corporation  (the "Company") and Harry G. McCoy, a resident
of Minnesota ("Executive").

         WHEREAS,  the Company  desires to employ  Executive upon and subject to
the terms and conditions set forth in this agreement,  and Executive  desires to
render services for the Company on such terms and conditions.

         NOW,  THEREFORE,  in  consideration  of the premises and the respective
undertakings  of the  Company and  Executive  set forth  below,  the Company and
Executive agree as follows:

          1 .  Definitions.  The  following  defined  terms have the  respective
     meanings described below:

          1.1 Change in Control. A "Change in Control" of the Company shall mean
     any of the following:

          (a) a change in  control  of a nature  that  would be  required  to be
     reported  in  response  to Item  6(c) of  Schedule  14A of  Regulation  14A
     promulgated  under the  Securities  Exchange  Act of 1934,  as amended (the
     "Exchange  Act"),  whether  or not  the  Company  is then  subject  to such
     reporting requirement; or

          (b) a merger  or  consolidation  to which the  Company  is a party if,
     following  the  effective  date  of  such  merger  or  consolidation,   the
     individuals and entities who were  shareholders of the Company prior to the
     effective date of such merger or  consolidation  have beneficial  ownership
     (as  defined  in Rule  13d-3  under the  Exchange  Act) of less than  fifty
     percent  (50%) of the combined  voting power of the  surviving  corporation
     following the effective date of such merger or consolidation; or

          (c) when,  during any period of twenty-four  (24)  consecutive  months
     during the term of this Agreement, the individuals who, at the beginning of
     such period, constitute the Board (the "Incumbent Directors") cease for any
     reason  other  than  death  to  constitute  at  least a  majority  thereof,
     provided,  however, that a director who was not a director at the beginning
     of such  twenty-four  (24) month period  shall be deemed to have  satisfied
     such twenty-four (24) month requirement,  and be an Incumbent Director,  if
     such  director  was  elected  by, or on the  recommendation  of or with the
     approval of, at least  two-thirds of the  directors  who then  qualified as
     Incumbent  Directors  either  actually,  because they were directors at the
     beginning of such twenty-four  (24) month period,  or by prior operation of
     this Section.

          1.2 Potential  Change in Control.  A "Potential  Change in Control" of
     the Company shall be deemed to have occurred if:

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          (a) the Company enters into an agreement,  the  consummation  of which
     would result in the occurrence of a Change in Control;

          (b) any person (including the Company) publicly announces an intention
     to take or to consider taking actions which if consummated would constitute
     a Change in Control;

          (c) any person becomes the beneficial  owner,  directly or indirectly,
     of securities of the Company  representing ten percent (10%) or more of the
     combined voting power of the Company's then outstanding securities; or

          (d) the Board adopts a resolution to the effect that, for the purposes
     of this  Agreement,  a  "Potential  Change in  Control"  of the Company has
     occurred.

     1.3 Cause.  Termination  by the Company of the  Executive's  employment for
"Cause" shall mean termination upon:

     (a) the willful and  continued  failure by the  Executive to  substantially
perform an  Executive's  duties  with the Company  (other than any such  failure
resulting from Executive's incapacity due to physical or mental illness) after a
written demand for substantial  performance is delivered to the Executive by the
Company's Board of Directors, which demand specifically identifies the manner in
which the  Company  believes  that  Executive  has not  substantially  performed
Executive's duties; or

     (b) the willful  engaging by the Executive in conduct which is demonstrably
and materially injurious to the Company, monetarily or otherwise.

     For  purposes  of this  Section  1.3,  no act,  or failure  to act,  on the
Executive's  part shall be deemed  "willful" unless done, or omitted to be done,
by the  Executive  not in good  faith and  without  reasonable  belief  that the
Executive's action or omission was in the best interest of the Company.

     1.4  Company.  The term  "Company"  means MEDTOX  Scientific.  Inc. and any
successors and assigns of the Company.

     2.  Employment.  The Company  hereby  employs  Executive as  President  and
Chairman  of the Board,  and  Executive  acepts  such  employment  and agrees to
perform  services for the  Company,  for the period and upon the other terms and
conditions set forth in this agreement.

     3. Term of Employment.  The term of Executive's employment hereunder ("Term
of Employment") shall commence on the date hereof and shall continue for a three
year period ending on December 31, 2002 (unless earlier terminated in accordance
with the  provisions  of Section 13 of this  agreement).  The Term of Employment
shall be automatically extended by successive 12-month terms thereafter.

     4. Position and Duties

          4.1 Service with  Company.  During his Term of  Employment,  Executive
     agrees to perform such reasonable  employment  duties,  consistent with the

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     terms of this  agreement,  as the Board of Directors  of the Company  shall
     assign   to  him  from   time  to  time,   Such   duties   and   employment
     responsibilities shall be performed in accordance with the Company's rules,
     regulations  and  instructions  now in force or which may be adopted by the
     Company in the future. During the Executive's Term of Employment, the Board
     of Directors shall nominate and recommend to shareholders  the election of,
     and vote all shareholder  proxies in favor of, Executive's  election to the
     Company's Board of Directors.

     4.2  Performance of Duties.  During his Term of  Employment,  the Executive
agrees to serve the  Company  exclusively  and to the best of his  ability.  The
Executive  shall have active  involvement and be fully committed to the business
and affairs of the Company, and shall devote one hundred percent of his business
time to the affairs of the Company,  except for (i) vacations and excused leaves
of absence as permitted in accordance with Company  policy;  (ii) service on the
Boards of Directors of other  companies at the discretion of the Company's Board
of  Directors;  (iii)  service  on the  Boards of  Directors  of  not-for-profit
entities  without  approval  of the  Company's  Board of  Directors;  and (iv) a
reasonable  amount  of time  during  the  business  day to handle  his  personal
affairs.  Executive hereby confirms that he is under no contractual  commitments
inconsistent  with his  obligations  set forth in this agreement and that during
his Term of Employment, except as provided herein, he will not render or perform
services for any other corporation,  fin-n, entity or person, nor will he become
involved in the  operations or management of any other  commercial  corporation,
firm, entity or person.

     5. Compensation.

          5.1 Base  Salary.  Initial  base  compensation  for all services to be
     rendered  by  the  Executive  under  this  agreement  during  the  Term  of
     Employment,  the Company  shall pay to  Executive  an annual base salary of
     $225,000  per  year,  which  salary  shall be paid in  accordance  with the
     Company's normal payroll procedures and policies.

          5.2 Annual Bonus Plan. Executive shall participate in the Annual Bonus
     Plan of the Company set forth in Attachment 2 to this Agreement.

          5.3  Performance  Unit  Plan.   Executive  shall  participate  in  the
     Performance  Unit Plan of the  Company  set forth in  Attachment  3 to this
     Agreement.

          5.4 Benefits.  Executive  shall be entitled to such  Company-sponsored
     benefits as are provided to executive employees of the Company,  subject to
     the terms and conditions of the applicable policies and/or plans. Executive
     shall  be  entitled  to the  specific  additional  benefits  enumerated  in
     Attachment 4 to this Agreement.

          5.5  Restricted  Stock.  Executive  shall be  entitled  to  grants  of
     restricted stock as provided in Attachment 5 of this Agreement.

         6. Executive's Agreement to Continue Employment for Six (6) Months. The
Executive agrees that, subject to the terms and conditions of this Agreement, in
the event of a Potential  Change in Control of the Company  occurring during the
Term of Employment, if so requested by the Company, Executive will remain in the
employ of the Company  for a period of six (6) months  after the  occurrence  of
such  Potential  Change in Control of the Company.  If more than one  "Potential
Change in Control" occurs during the Term of Employment,  the provisions of this
Section 6 shall be applicable to each  "Potential  Change of Control"  occurring
prior to the occurrence of a Change in Control.

         7. Severance Payments. If during the Term of Employment, (i) whether or
not a Change in Control or Potential Change in Control has occurred, the Company
terminates  the employment of Executive  other than for Cause,  (ii) a Change in
Control  has  occurred  and  Executive  has  complied  with  Section  6 of  this

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Agreement,  or (iii)  the  Executive's  duties,  responsibilities  or  authority
(including status, office, title, reporting relationships or working conditions)
have been materially altered from those in effect on the date of this Agreement,
(iv) the Executive has been required to relocate to an office or related  entity
more than fifty (50) miles from the office  where  Executive  was located on the
date hereof,  or (v) the Company has breached any of its obligations  under this
Agreement, then, in any such event (at the Executive's option in the case of any
event described in clause (ii) through (v) above),  the  Executive's  employment
hereunder shall cease and Executive shall be entitled to the following benefits:

                  (a)      the Company  will pay to  Executive  the  Executive's
                           then  current  base salary for the greater of (i) the
                           twelve (12) month period  following  the date of such
                           termination,  or  (ii)  the  balance  of the  Term of
                           Employment  hereunder,  in  either  case  subject  to
                           applicable  withholdings  and in accordance  with the
                           regular payroll practices of the Company; and

                  (b)      continuous coverage, at the Company's expense,  under
                           any group health plan  maintained  by or on behalf of
                           the Company,  in which  Executive  participated as of
                           the Date of  Termination,  for the greater of (i) the
                           twelve  (12)  month  period  following  the  date  of
                           termination,  or  (ii)  the  balance  of the  Term of
                           Employment hereunder; and

                  (c)      continued  participation  in the  Annual  Bonus  Plan
                           referenced  in Section 5.3, on a pro rata basis,  and
                           continued benefits referenced in Attachment 4 to this
                           Agreement,  for the same period as base salary  shall
                           be payable pursuant to Section 7(a).

     Executive's right to continued  coverage under this section shall in no way
reduce or limit any continuation  coverage under such group health plan to which
Executive or any of Executive's  qualified  beneficiaries are entitled under the
provisions  of the  Consolidated  Omnibus  Budget  Reconciliation  Act  of  1985
("COBRA") or Minnesota  Statutes  61A.092 and 62A.17 et seq.  This  extension of
coverage, however, shall be coordinated with, and shall be provided concurrently
with, any benefits or continuation  rights otherwise  available to Executive and
Executive's  eligible dependents under state or federal continuation of coverage
statutes, including but not limited to, Minnesota Statutes 61A.092 and 62A.17 et
seq. and the federal Consolidated  Omnibus Budget  Reconciliation Act ("COBRA").
Accordingly,  within ten (10) days after the date of termination,  Executive and
Executive's  dependents who are eligible for such statutory  continuation rights
shall  complete  all forms and  papers  necessary  and  customary  to elect such
continuation  coverage.  The  Parties  expressly  agree  that the  extension  of
benefits  provided  for by this  Agreement  is not  intended to create a retiree
health plan covering any other employees.  In all other respects, the payment of
benefits, including the amounts and timing thereof, to Executive and Executive's
eligible dependents will be governed by the terms of applicable employee benefit
plans for which Executive and Executive's  dependents are eligible.  The Company
will answer any  reasonable  questions that Executive may have from time to time
and will offer him the same  assistance  given  other  participants  in employee
benefit plans so long as Executive is entitled to benefits as provided herein or
under the terms of those plans.

         Nothing in this Agreement,  including the Severance  Payments described
in this  Section  7,  shall in any way be  construed  to  extend  the  period of
Executive's employment with the Company.

         8.  Confidential  Information.  Except as  permitted or directed by the
Company's  Board of Directors,  during the term of this Agreement or at any time
thereafter Executive shall not divulge,  furnish or make accessible to anyone or
use  in  any  way  (other  than  in the of  the  business  of the  Company)  any
confidential  or secret  knowledge or information of the Company which Executive
has acquired or become acquainted with or will acquire or become acquainted with
prior  to  the  termination  of the  period  of his  employment  by the  Company
(including  employment by the Company or any affiliated  companies  prior to the
date of this agreement),  whether developed by himself or by others,  concerning
any trade secrets,  confidential or secret designs, processes,  formulae, plans,
devices  or  material  (whether  or not  patented  or  patentable)  directly  or

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indirectly useful in any aspect of the business of the Company,  any customer or
supplier  lists of the  Company,  any  confidential  or  secret  development  or
research work of the Company,  or any other  confidential  information or secret
aspects  of the  business  of  the  Company,  Executive  acknowledges  that  the
above-described knowledge or information constitutes a unique and valuable asset
of the Company and represents a substantial  investment.  of time and expense by
the Company and its  predecessors,  and that any disclosure or other use of such
knowledge or information other than for the sole benefit of the Company would be
wrongful and would cause irreparable harm to the Company.  Both during and after
the term of this  agreement,  Executive  will refrain from any acts or omissions
that would reduce the value of such knowledge or information to the Company. The
foregoing  obligations  of  confidentiality,  however,  shall  not  apply to any
knowledge or information  which is now published or which  subsequently  becomes
generally  publicly known in the form in which it was obtained from the Company,
other than as a direct or  indirect  result of the breach of this  agreement  by
Executive.  It is  hereby  acknowledged  that  it is not  the  intention  of the
forgoing  provisions to preclude the Executive from securing gainful  employment
with  subsequent  employers who are not  competitors of the Company or who would
otherwise have no reasonable  commercial use of the above described knowledge or
information,   but  only  to  protect  the  Company's   legitimate   proprietary
information or knowledge.

         9.  Ventures.  If,  during  the term of this  Agreement,  Executive  is
engaged in or  associated  with the  planning or  implementing  of any  project,
program or venture  involving  the Company  and a third  party or  parties,  all
rights in such project,  program or venture shall belong to the Company.  Except
as formally approved by the Company's Board of Directors, Executive shall not be
entitled  to  any  interest  in  such  project,  program  or  venture  or to any
commission,  finder's fee or other  compensation  in connection  therewith other
than the salary or other  compensation  to be paid to  Executive  as provided in
this Agreement.

 10.      Noncompetition Covenant.

          10.1 Agreement Not to Compete.  Executive agrees that, during his Term
     of Employment with the Company and for a period of twelve (12) months after
     the  termination of such  employment  (whether such  termination is with or
     without  Cause,  or whether such  termination is occasioned by Executive or
     the Company),  he shall not, directly or indirectly,  engage in competition
     with the Company in any manner or capacity (e.g., as an advisor, principal,
     agent, partner, officer, director, stockholder,  employee, or otherwise) in
     any phase of the business  which the Company is conducting  during the term
     of this Agreement.  In addition,  during this same twelve (12) month period
     following  Executive's  Term of Employment,  Executive shall not solicit or
     otherwise encourage any third party or representative  thereof,  who was at
     the end of Executive's Term of Employment,  a customer of the Company,  for
     the purpose of causing such  customer or  customers  to purchase,  lease or
     otherwise  use  any  product  or  service   offered  by  Executive  or  any
     organization  with which  Executive  is  affiliated.  Nor during  this same
     twelve (12) month period shall Executive solicit or otherwise encourage any
     employee of the Company to leave the employ of the Company for any reason.

          10.2 Geographic Extent of Covenant. The obligations of Executive under
     Section 10.1 shall apply to any geographic  area in which the Company:

               (a) has  engaged in  business  during the term of this  agreement
          through  production,  promotional,  sales or  marketing  activity,  or
          otherwise, or

               (b) has otherwise established its goodwill,  business reputation,
          or any customer or supplier relations.

               10.3 Limitation on Covenant. Ownership by Executive, as a passive
          investment,  of less than five percent (5%) of the outstanding  shares
          of capital  stock of any  corporation  listed on an over-the-counter
          market or publicly traded in a national  securities exchange shall
          not constitute a breach of this Section 10.
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               10.4 Indirect Competition.  Executive further agrees that, during
          his Term of Employment  and within twelve (12) months  thereafter,  he
          will not, directly or indirectly, assist or encourage any other person
          in carrying out,  directly or  indirectly,  any activity that would be
          prohibited by the above provisions of this Section 10 if such activity
          were carried out by Executive,  either directly or indirectly,  and in
          particular  Executive agrees that he will not, directly or indirectly,
          induce  any  employee  of  the  Company  to  carry  out,  directly  or
          indirectly, any such activity.

      11.      Patent, Copyrights and Related Matters.

               11.1 Disclosure and Assignment.  Executive will promptly disclose
          in writing to the Company  complete  information  concerning  each and
          every invention,  discovery,  improvement,  device. design, apparatus,
          practice, process, method or product, whether patentable or not, made,
          developed,  perfected, devised, conceived or first reduced to practice
          by Executive,  either solely or in collaboration  with others,  during
          the term of this agreement,  or within six months thereafter,  whether
          or not during  regular  working  hours,  relating  to any phase of the
          business of the Company conducted at such time  (hereinafter  referred
          to as "Developments").  Executive, to the extent that he has the legal
          right  to do  so,  hereby  acknowledges  that  any  and  all  of  said
          Developments  are the  property of the Company and hereby  assigns and
          agrees to  assign to the  Company  and all of the  Executive's  right,
          title and interest in and to any and all of such Developments.

               11.2 Future  Developments.  As to any future Developments made by
          Executive and which are first  conceived or reduced to practice during
          the term of Executive's  employment,  or within six months thereafter,
          but which are  claimed for any reason to belong to an entity or person
          other than the Company,  Executive will promptly  disclose the same in
          writing to the  Company and shall not  disclose  the same to others if
          the Company, within ninety (90) days thereafter, shall claim ownership
          of such Developments under the terms of this agreement. If the Company
          makes such claim,  Executive  agrees  that,  insofar as the rights (if
          any) of Executive are involved,  it will be settled by  arbitration in
          accordance with the rules of the American Arbitration Association. The
          locale of the arbitration  shall be  Minneapolis,  Minnesota (or other
          locale convenient to the Company's principal  executive  offices).  If
          the Company makes no such claim,  Executive hereby  acknowledges  that
          the Company has made no promise to receive and hold in confidence  any
          such information disclosed by Executive.

               11.3  Limitation  on Sections  11.1 and 11.2.  The  provisions of
          sections 11.1 and 11.2 shall not apply to any Development  meeting the
          following conditions:

                    (a) such  Development was developed  entirely on Executive's
               own time; and

                    (b) such Development was made without the use of any Company
               equipment, supplies, facility or trade secret information; and

                    (c) such  Development  does not relate (i)  directly  to the
               business  of the  Company,  or (ii) to the  Company's  actual  or
               demonstrably anticipated research or development.

          11.4  Executive  Assistance.  Executive  agrees to assist  Company  in
     obtaining patents or copyrights on any Developments assigned to the Company
     that the Company,  in its sole  discretion,  seeks to patent or  copyright.
     Executive  also  agrees  to sign all  documents  and do all  things  deemed
     necessary by Company to obtain and/or  maintain such patents or copyrights,
     to assign them to Company,  and to protect them against  infringement.  The

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     obligations  of this  Section  11 are  continuing  and  shall  survive  the
     termination of Executive's employment with Company.

          11.5 Appointment of Agent. Executive irrevocably appoints the Chairman
     of the Board of the  Company to act as  Executive's  agent and  attorney in
     fact to perform all acts  necessary to obtain  and/or  maintain  patents or
     copyrights to any  Developments  assigned by Executive to the Company under
     this  Agreement if (i)  Executive  refuses to perform those acts or (ii) is
     unavailable,  within the meaning of the United  States patent and copyright
     laws.  Executive  acknowledges  that the  grant of the  foregoing  power of
     attorney  is  coupled  with an  interest  and  shall  survive  the death or
     disability of Executive and the termination of Executive's  employment with
     the Company,

          11.6  Notice  and  Acknowledgment.  Executive  acknowledges  that this
     section of this Agreement  does not apply to a Development  for which there
     was no equipment,  supplies,  facilities or trade secret information of the
     Company used and which was developed  entirely on Executive's own time, and
     which  does not  relate  directly  to the  business  of the  Company or the
     Company's actual or demonstrably  anticipated  research or development,  or
     which does not result from any work performed by Executive for the Company.

   12. Termination.

          12.1 Grounds for Termination. This agreement shall be terminated under
     the following circumstances:

               (a) By mutual agreement of Executive and the Company;

               (b) Immediately upon the death of Executive;

               (c) Upon delivery by Executive of a notice of  termination to the
          Company,  in which event this agreement shall be terminated sixty (60)
          days after receipt of such notice;

               (d) At  Executive's  option,  upon the  occurrence  of any of the
          events set forth in clauses (ii) through (v) of the first paragraph of
          Section 7;

               (e)  Upon the  occurrence  of an event  constituting  "Cause"  as
          defined in Section 1.3.

         Notwithstanding  any  termination  of  this  agreement,  Executive,  in
         consideration  of  his  employment   hereunder  to  the  date  of  such
         termination,  shall remain bound by the  provisions  of this  agreement
         which specifically relate to periods, activities or obligations upon or
         subsequent  to the  termination  of  Executive's  employment,  and  the
         Company  shall  remain  bound by the  provisions  of  Section 5 (to the
         extent  that  they  relate  to time  periods  prior to the date of such
         termination),  and  Section 7 except in the case of a  termination  for
         Cause  pursuant  to  Section12.1  (e)  or a  termination  by  Executive
         pursuant to Section 12.1(c).

                  12.2  Surrender of Records and Property.  Upon  termination of
         his employment with the Company,  Executive  shall deliver  promptly to
         the  Company all  records,  manuals,  books,  blank  forms,  documents,
         letters,   memoranda,   notes,   notebooks,   reports,   data,  tables,
         calculations or copies  thereof,  which are the property of the Company
         or which  relate in any way to the  business,  products,  practices  or
         techniques of the Company,  and all other  property,  trade secrets and
         confidential information of the Company, including, but not limited to,
         all  documents  which in whole or in part contain any trade  secrets or
         confidential  information  of the Company;  which in any of these cases
         are in his  possession or under his control.  Provided,  however,  that
         Executive  shall be  entitled  to retain  items of  sentimental  value,

<PAGE>

         copies of which  shall be provided to the Company at the request of the
         Company and at the Company's expense.

         13.      Miscellaneous.

               13.1  Governing  Law.  This  Agreement is made under and shall be
          governed by and construed in accordance  with the laws of the State of
          Minnesota.

               13.2  Prior  Agreements.   This  Agreement  contains  the  entire
          agreement  of the parties  relating to the subject  matter  hereof and
          supersedes  all prior  agreements and  understandings  with respect to
          such subject  matter,  and the parties hereto have made no agreements,
          representations  or warranties  relating to the subject matter of this
          agreement which are not set forth herein.

               13.3 Withholding Taxes. The Company may withhold from all salary,
          bonus,  severance pay or other  benefits  payable under this agreement
          all federal,  state, city or other taxes as shall be required pursuant
          to any law or governmental regulation or ruling.

               13.4  Amendments.  No amendment or modification of this agreement
          shall be deemed  effective  unless  made in writing  and signed by the
          parties hereto.

               13.5 No Waiver.  No term or condition of this agreement  shall be
          deemed to have been waived, nor shall there be any estoppel to enforce
          any  provisions  of this  agreement,  except by a statement in writing
          signed by the party  whom  enforcement  of the waiver or  estoppel  is
          sought.  Any written  waiver shall not be deemed a  continuing  waiver
          unless specifically stated, shall operate only as to the specific term
          or condition  waived and shall not constitute a waiver of such term or
          condition  for the  future  or as to any act other  than  specifically
          waived.

               13.6 Severability.  To the extent any provision of this agreement
          shall be invalid or unenforceable, it shall be considered deleted here
          from and the remainder of such provision and of this  agreement  shall
          be  unaffected  and  shall  continue  in full  force  and  effect.  In
          furtherance  and  not in  limitation  of  the  foregoing,  should  the
          duration or geographical extent of, or business activities covered by,
          any  provision  of this  agreement be in excess of that which is valid
          and  enforceable  under  applicable  law, then such provision shall be
          construed to cover only that duration,  extent or activities which may
          validly  and  enforceably  be  covered.   Executive  acknowledges  the
          uncertainty of the law in this respect and expressly  stipulates  that
          this agreement be given the construction  which renders its provisions
          valid and enforceable to the maximum extent (not exceeding its express
          terms) possible under applicable law.

               13.7 Assignment. This agreement shall not be assignable, in whole
          or in part, by either party  without the written  consent of the other
          party.

                  13.8  Injunctive  Relief.  Executive  agrees  that it would be
         difficult to compensate the Company fully for damages for any violation
         of the provisions of this agreement,  including without  limitation the
         provisions  of  Sections  9, 10,  11 and 12.2.  Accordingly,  Executive
         specifically agrees that the Company shall be entitled to temporary and
         permanent injunctive relief to enforce the provisions of this agreement
         and that such relief may be granted  without the  necessity  of proving
         actual damages.  This provision with respect to injunctive relief shall
         not,  however,  diminish  the right of the Company to claim and recover
         damages in addition to injunctive relief.
<PAGE>

MEDTOX SCIENTIFIC, INC.

By______________________                             ___________________________
     Its ___________________                                  Harry G. McCoy5

                              July 8, 1999

Mr. Charles A. Baker
Chairman and Chief Executive Officer
The Liposome Employer, Inc.
One Research Way
Princeton, NJ 08540-6619

Dear Chuck:

     This letter agreement (the "Letter Agreement") will serve to
amend and modify the agreement (the "Agreement"), dated as of
June 1, 1995, by and between you and The Liposome Employer, Inc.,
a Delaware corporation (the "Employer"), by the addition of the
following terms and conditions thereto:

     1.   The Agreement is hereby amended by the addition of a new
       Section 20 to read as follows:

       "20. Excise Tax Gross-Up.

                 "(a) Equalization Payment.  In the event that
       the Employee becomes subject to the tax (the "Excise
       Tax") imposed by Section 4999 of the Internal Revenue
       Code of 1986, as amended (the "Code") (or any similar tax
       that may hereafter be imposed), with regard to any
       amounts received in connection with Employee's
       termination of employment with the Employer or any other
       payments and benefits provided by the Employer that
       constitute "excess parachute payments" within the meaning
       of Section 280G(b)(1) of the Code (including, but not
       limited to, any and all excess parachute payments
       associated with outstanding long-term incentive grants
       (including, but not limited to, early vesting of stock
       options or restricted stock)) (the "Total Payments"), the
       Employer shall pay to the Employee in cash an additional
       amount (the "Gross-Up Payment") such that the net amount
       retained by the Employee after deduction of any Excise
       Tax or compensation on the Total Payments and any
       federal, state, and local income tax and Excise Tax upon
       the Gross-Up Payment, shall be equal to the Total
       Payments.  Such payment shall be made by the Employer to
       the Employee as soon as practicable following the event
       triggering the Excise Tax, but in no event beyond 30 days
       from such date.

                 "(b) Tax Computation.  For purposes of
       determining whether any of the Total Payments will be
       subject to the Excise Tax and the amounts of such Excise
       Tax:

                      "(i)  Any other payments or benefits
       received or to be received by the Employee in connection
       with a Change in Control of the Employer or the
       Employee's termination of employment (whether pursuant to
       the terms of this Agreement or any other plan,
       arrangement, or agreement with the Employer, or with any
       Person whose actions result in a Change in Control of the
       Employer or any Person affiliated with the Employer or
       such Persons) shall be treated as "parachute payments"
       within the meaning of Section 280G(b)(2) of the Code, and
       all "excess parachute payments" within the meaning of
       Section 280G(b)(1) of the Code shall be treated as
       subject to the excise tax, unless in the opinion of tax
       counsel selected by the Employer's independent auditors
       and acceptable to the Employee, such other payments or
       benefits (in whole or in part) do not constitute
       parachute payments, or unless such excess parachute
       payments (in whole or in part) represent reasonable
       compensation for services actually rendered within the
       meaning of Section 280G(b)(4) of the Code in excess of
       the base amount within the meaning of Section 280G(b)(3)
       of the Code, or are otherwise not subject to the Excise
       Tax;

                      "(ii)  The amount of the Total Payments
       which shall be treated as subject to the Excise Tax shall
       be equal to the lesser of: (1)  the total amount of the
       Total Payments; or (2)  the amount of excess parachute
       payments within the meaning of Section 280G(b)(1) (after
       applying clause (i) above); and

                      "(iii)  The value of any noncash benefits
       or any deferred payment or benefit shall be determined by
       the Employer's independent auditors in accordance with
       the principles of Sections 280G(d)(3) and (4) of the
       Code.

       "For purposes of determining the amount of the Gross-Up
       Payment, the Employee shall be deemed to pay Federal
       income taxes at the highest marginal rate of Federal
       income taxation in the calendar year in which the Gross-
       Up Payment is to be made, and state and local income
       taxes at the highest marginal rate of taxation in the
       state and locality of the Employee's residence on the
       Effective Date of Termination, net of the maximum
       reduction in Federal income taxes which could be obtained
       from deduction of such state and local taxes.

               "(c)  Subsequent Recalculation.  In the event the
Internal Revenue
       Service adjusts the computation of the Employer under
       Section 20(b) hereof, so that the Employee did not
       receive the greatest net benefit, the Employer shall
       reimburse the Employee for the full amount necessary to
       make the Employee whole, plus an appropriate market rate
       of interest, as determined by the Employer's independent
       auditors."

     2.   Section 9(a) of the Agreement is hereby amended by the
       addition of subsection (v) to read as follows:

       "(v) Termination After Age 65.  For purposes of any stock
       options, restricted stock or other equity grants and for
       purposes of any benefit plans in which the Employee
       participates, any termination of the Employee's
       employment (other than by death or, to the extent that
       the Employee would receive greater benefits than upon a
       retirement under a specific plan or grant, a disability
       under such plan or grant) after the Employee has attained
       age 65, whether by the Employer or the Employee and
       notwithstanding the reason for such termination, shall
       constitute a retirement, within the meaning of such
       equity and benefit plans and grants."

     3.   The Agreement is hereby amended by the deletion of
       subsection 9(a)(iv) and the substitution therefor of the language
       annexed hereto as Exhibit A.

     The Agreement, as amended herein, shall remain in full force
and effect.

                              Very truly yours,

                              THE LIPOSOME EMPLOYER, INC.

                              By: _________________________

                              Title: ________________________

Agreed:

_____________________
Charles A. Baker

L:\LEGALDPT\LEGAL\AGREEMEN\CAB Letter Agreement.doc
                            EXHIBIT A

(iv)    "Change in Control" of the Employer shall be deemed to
   have occurred as of the first day that any one or more of the
   following conditions shall have been satisfied:

   (i)When  a  "person,"  as  defined  in  Sections  3(a)(9)  and
      13(d)(3)  of  the  Exchange  Act,  becomes  the  beneficial
      owner,  directly  or  indirectly,  of  securities  of   the
      Employer  representing  (I) more than  thirty-five  percent
      (35%)  of the combined voting power of the Employer's  then
      outstanding  securities, unless such person is  subject  to
      contractual  restrictions that would preclude  him  or  her
      from  voting  such  shares  in a  manner  to  influence  or
      control   the   management  of  the  Employer's   business,
      provided  that  in the event such contractual  restrictions
      are  removed,  a Change of Control will be deemed  to  have
      occurred on the effective date of such removal or  on  such
      later date as the Executive receives actual notice of  such
      removal,  or  (II)  one  hundred  percent  (100%)  of   the
      combined  voting  power of the Employer's then  outstanding
      securities  regardless  of  any  contractual  restrictions.
      For  purposes of this provision, "person" shall not include
      the  Employer, any subsidiary of the Employer, any employee
      benefit  plan  or employee stock plan of the  Employer,  or
      any  person holding the Employer's Common Stock by, for  or
      pursuant  to  the terms of such a plan; and "voting  power"
      shall mean the power under ordinary circumstances (and  not
      merely upon the happening of a contingency) to vote in  the
      election  of  directors.   For the purpose  of  subsections
      9(a)(iv)(A)(I)  and 9(a)(iv)(A)(II) of this Agreement,  the
      right   to   vote  shares  in  a  transaction   for   which
      stockholder   approval  is  required  under  Sections   251
      through  258  (mergers),  271  (sale  of  assets),  or  275
      (dissolution) of the Delaware General Corporation  Law,  as
      the  same  may be amended from time to time, will  not,  in
      themselves,  be  deemed, to constitute the  right  to  vote
      such  shares  "in  a  manner to influence  or  control  the
      management  of  the  Employer's business".   Whether  other
      voting  rights may be granted to a beneficial owner without
      enabling it to influence or control the management  of  the
      Employer's business will depend on the totality  of  rights
      granted in each case.

   (B)When,  as  a  result  of a vote of stockholders  for  which
      proxies  are solicited by or on behalf of any person  other
      than  the Employer in accordance with the SEC rules  issued
      under  Section 14 of the Exchange Act, or which  is  exempt
      from the SEC proxy rules by reason of Rule 14a-2 under  the
      Exchange  Act,  or  as  a result of an  action  by  written
      consent  of  stockholders without a meeting, the "incumbent
      directors" cease to constitute at least a majority  of  the
      authorized  number of members of the Board.   For  purposes
      of  this  provision, "incumbent directors" shall  mean  the
      persons who were members of the Board on January 22,  1998,
      and  the  persons  who were elected or nominated  as  their
      successors  or  pursuant to increases in the  size  of  the
      Board  by a vote of at least an absolute majority (and  not
      just  the  majority of a quorum) of the Board  members  who
      were  then  Board  members  (or  successors  or  additional
      members so elected or nominated).

   (C)When  the  stockholders of the Employer approve  a  merger,
      consolidation,  or  reorganization,  whether  or  not   the
      Employer  is the surviving entity in such transaction,  (I)
      other than a merger, consolidation, or reorganization  that
      would  result  in  the voting securities  of  the  Employer
      outstanding   immediately  prior  thereto   continuing   to
      represent  (either  by remaining outstanding  or  by  being
      converted  into voting securities of the surviving  entity)
      at  least  sixty-five percent (65%) of the combined  voting
      power  of  the voting securities of the Employer  (or  such
      surviving   entity)  outstanding  immediately   after   the
      merger,  consolidation, or reorganization; and  (II)  other
      than  a merger, consolidation or reorganization that  would
      result   in   the   voting  securities  of   the   Employer
      outstanding   immediately  prior  thereto   continuing   to
      represent less than sixty-five percent (65%) but more  than
      one  percent  (1%)  of  the combined voting  power  of  the
      voting  securities  of  the  Employer  (or  such  surviving
      entity)   outstanding   immediately   after   the   merger,
      consolidation  or reorganization if the holder  or  holders
      of   the  shares  in  the  surviving  entity  that  do  not
      represent the securities of the Employer outstanding  prior
      to  the  merger, consolidation or reorganization is or  are
      subject  to  contractual restrictions that  would  preclude
      such  holder or holders from voting such shares in a manner
      to  influence  or control the management of the  Employer's
      (or  such  surviving entity's) business, provided  that  in
      the  event  such  contractual restrictions are  removed,  a
      Change  of Control will be deemed to have occurred  on  the
      effective  date of such removal or on such  later  date  as
      the Executive receives actual notice of such removal.

   (D)When  the stockholders of the Employer approve (I) the sale
      or  other  disposition of all or substantially all  of  the
      assets  the  Employer  or  (II) a complete  liquidation  or
      dissolution of the Employer.

   (E)When  the Board adopts a resolution to the effect that  any
      person  has acquired effective control of the business  and
      affairs of the Employer.

   However, in no event shall a Change in Control be deemed to
   have occurred, with respect to the Executive, if the
   Executive is part of a purchasing group which consummates the
   Change-in-Control transaction.  The Executive shall be deemed
   "part of a purchasing group" for purposes of the preceding
   sentence if the Executive is an equity participant in the
   purchasing Employer or group (except for: (x) passive
   ownership of less than three percent (3%) of the stock of the
   purchasing Employer; or (y) ownership of equity participation
   in the purchasing Employer or group which is otherwise not
   significant, as determined prior to the Change in Control by
   an absolute majority of the non-employee Directors who were
   Directors prior to the transaction, and who continue as
   Directors following the transaction).

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