Document:

EXHIBIT 10.01

                     SECOND AMENDMENT TO CREDIT AND SECURITY
                        AGREEMENT AND WAIVER OF DEFAULTS

            This Amendment, dated as of September 26, 2000, is made by and
between LECTEC CORPORATION, a Minnesota corporation (the "Borrower"), and WELLS
FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").

                                    Recitals

            The Borrower and the Lender have entered into a Credit and Security
Agreement dated as of November 22, 1999 (as previously amended, the "Credit
Agreement"). Capitalized terms used in these recitals have the meanings given to
them in the Credit Agreement unless otherwise specified.

            The Borrower has requested that certain amendments be made to the
Credit Agreement, which the Lender is willing to make pursuant to the terms and
conditions set forth herein.

            NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:

            1. Defined Terms. Capitalized terms used in this Amendment which are
defined in the Credit Agreement shall have the same meanings as defined therein,
unless otherwise defined herein.

            2. No Other Changes. Except as explicitly amended by this Amendment,
all of the terms and conditions of the Credit Agreement shall remain in full
force and effect and shall apply to any advance or letter of credit thereunder.

            3. New Covenants. Section 6.14 of the Credit Agreement is hereby
deleted in Entirety and replaced with the following:

      6.14 New Covenants. On or before October 15, 2000, the Borrower and the
      Lender shall agree on new covenant levels for Sections 6.12, 6.13 and 7.10
      for periods after June 30, 2000. The new covenant levels will be based on
      the Borrower's projections for such periods and shall be no less stringent
      than the present levels.

            4. Waiver of Defaults. The Borrower is in default of the following
provisions of the Credit Agreement (collectively, the "Defaults"):

            (a) the Minimum Book Net Worth covenant set forth in Section 6.12 as
      of June 30, 2000;

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            (b) the Minimum Earnings/Maximum Loss Before Taxes covenant set
      forth in Section 6.13 as of June 30, 2000; and

            (c) the New Covenants covenant set forth in Section 6.14.

Upon the terms and subject to the conditions set forth in this Amendment, the
Lender hereby waives the Defaults. This waiver shall be effective only in this
specific instance and for the specific purpose for which it is given, and this
waiver shall not entitle the Borrower to any other or further waiver in any
similar or other circumstances.

            5. Conditions Precedent. This Amendment, and the waiver set forth in
Paragraph 4 hereof, shall be effective when the Lender shall have received an
executed original hereof.

            6. Representations and Warranties. The Borrower hereby represents
and warrants to the Lender as follows:

            (a) The Borrower has all requisite power and authority to execute
      this Amendment and to perform all of its obligations hereunder, and this
      Amendment has been duly executed and delivered by the Borrower and
      constitutes the legal, valid and binding obligation of the Borrower,
      enforceable in accordance with its terms.

            (b) The execution, delivery and performance by the Borrower of this
      Amendment have been duly authorized by all necessary corporate action and
      do not (i) require any authorization, consent or approval by any
      governmental department, commission, board, bureau, agency or
      instrumentality, domestic or foreign, (ii) violate any provision of any
      law, rule or regulation or of any order, writ, injunction or decree
      presently in effect, having applicability to the Borrower, or the articles
      of incorporation or by-laws of the Borrower, or (iii) result in a breach
      of or constitute a default under any indenture or loan or credit agreement
      or any other agreement, lease or instrument to which the Borrower is a
      party or by which it or its properties may be bound or affected.

            (c) All of the representations and warranties contained in Article V
      of the Credit Agreement are correct on and as of the date hereof as though
      made on and as of such date, except to the extent that such
      representations and warranties relate solely to an earlier date.

            7. References. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.

            8. No Other Waiver. Except as set forth in Paragraph 4 hereof, the
execution of this Amendment and acceptance of any documents related hereto shall
not be deemed to be a waiver of any Default or Event of Default under the Credit
Agreement or breach, default or event of default

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under any Security Document or other document held by the Lender, whether or not
known to the Lender and whether or not existing on the date of this Amendment.

            9. Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.

            10. Costs and Expenses. The Borrower hereby reaffirms its agreement
under the Credit Agreement to pay or reimburse the Lender on demand for all
costs and expenses incurred by the Lender in connection with the Credit
Agreement, the Security Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lender
for the services performed by such counsel in connection with the preparation of
this Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses.

            11. Miscellaneous. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.

            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.

WELLS FARGO BUSINESS CREDIT, INC.        LECTEC CORPORATION

By /s/ Terry Jackson                     By /s/ Douglas Nesbit
   -----------------                        ------------------
   Terry Jackson                            Douglas Nesbit
   Its Vice President                       Its Chief Financial Officer

                                       3EXHIBIT 10.02

                          CREDIT AND SECURITY AGREEMENT

                   (Ex-Im Bank Guaranteed Loan No. AP076760XX)

                         Dated as of September 28, 2000

                  LECTEC CORPORATION, a Minnesota corporation (the "Borrower"),
and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association (the "Lender"), hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

                  Section 1.1 Definitions. Capitalized terms used in this
Agreement have the meanings given in the Borrower Agreement. In addition, in the
following terms have the meanings given below:

                  "Accounts Receivable" shall mean all right, title and interest
         of the Borrower now owned or hereafter acquired in (i) "accounts" (as
         such term is defined in the UCC), other receivables, book debts and
         other forms of obligations, whether arising out of a sale, lease or
         other disposition of goods or other property, out of a rendering of
         services, out of a loan, out of the overpayment of taxes or other
         liabilities, or otherwise arises under any contract or agreement; (ii)
         rights in, to and under all purchase orders or receipts for goods or
         services; (iii) rights to any goods represented or purported to be
         represented by any of the foregoing (including unpaid sellers' rights
         of rescission, replevin, reclamation and stoppage in transit and rights
         to returned, reclaimed or repossessed goods); (iv) moneys due or to
         become due to the Borrower under all purchase orders and contracts for
         the sale or lease of goods or the performance of services or both by
         the Borrower (whether or not yet earned by performance on the part of
         the Borrower), including the proceeds of the foregoing; (v) any notes,
         drafts, chattel paper, bond, letters of credit, insurance proceeds or
         other instruments, documents and writings evidencing or supporting the
         foregoing; and (vi) all collateral security and guarantees of any kind
         given by any other Person with respect to any of the foregoing; whether
         created, generated or earned by the Borrower or by some other Person
         who subsequently transfers such Person's interest to the Borrower,
         whether or not already earned by performance, and howsoever evidenced;
         together with all other rights and interests (including all Liens)
         which the Borrower may at any time have by law or agreement against any
         account debtor or other obligor obligated to make any payment or
         against any property of such account debtor or other obligor; and
         including all rights to payment in the nature of general intangibles.

                  "Advance" has the meaning given in Section 2.1.

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                  "Affiliate" or "Affiliates" means LecTec International
         Corporation, a corporation organized under the laws of the U.S. Virgin
         Islands, and any Person controlled by, controlling or under common
         control with the Borrower, including (without limitation) any
         subsidiary of the Borrower. For purposes of this definition, "control,"
         when used with respect to any specified Person, means the power to
         direct the management and policies of such Person, directly or
         indirectly, whether through the ownership of voting securities, by
         contract or otherwise.

                  "Agreement" means this Credit And Security Agreement, as
         amended, supplemented and restated from time to time.

                  "Availability" means the least of:

                  (a)      the difference of (i) the Borrowing Base and (ii) the
                           outstanding principal balance of the Advances; or

                  (b)      the difference of (i) the Maximum Amount and (ii) the
                           outstanding principal balance of the Advances and
                           (B); or

                  (c)      the difference of $2,800,000 and the outstanding
                           principal balance of the WFBCI Advances.

                  "Borrower Agreement" means the Borrower Agreement of even date
         herewith by and between the Borrower and the Lender in the form
         attached hereto as Exhibit B.

                  "Borrowing Base" means, at any time and subject to change from
         time to time in the Lender's sole discretion, 90% of Eligible
         Export-Related Accounts Receivable.

                  "Borrowing Base Certificate" means a certificate,
         substantially in the form attached hereto as Exhibit D, executed by the
         Borrower and accepted by the Lender.

                  "Business Day" means any day on which the Federal Reserve Bank
         of New York is open for business.

                  "Buyer" shall mean a Person that has entered into one or more
         Export Orders with the Borrower.

                  "Closing Date" means the date of this Agreement.

                  "Collateral" means all Accounts, Equipment, General
         Intangibles, Inventory and Investment Property, together with (i) all
         other collateral described in any Security Document, (ii) all
         substitutions and replacements for and products of any of the foregoing
         property, (iii) all sums on deposit in the Special Account, (iv) in the
         case of all tangible property, together with (A) all accessions,
         accessories, attachments, parts, equipment and repairs now or hereafter
         attached or affixed to or used in connection with any such goods, and
         (B) all warehouse receipts, bills of

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<PAGE>

         lading and other documents of title now or hereafter covering such
         goods, and (v) all proceeds of any and all of the foregoing property.

                  "Collateral Account" has the meaning given in the U.S. Dollar
         Collateral Account Agreement (the "U.S. Dollar Collateral Account" and
         the Multi-Currency Collateral Account Agreement (the "Multi-Currency
         Collateral Account").

                  "Collateral Account Agreements" means the Collateral Account
         Agreement of even date herewith by and among the Borrower, Wells Fargo
         Bank Minnesota, National Association and the Lender (the "U.S. Dollar
         Collateral Account Agreement") and the Collateral Account Agreement of
         even date herewith by and among the Borrower, Wells Fargo Bank
         Minnesota, N.A.--Grand Cayman Branch and the Lender (the
         "Multi-Currency Collateral Account Agreement").

                  "Costs" means all expenditures or obligations incurred and all
         assets expended in the manufacture or provision of Items.

                  "Country Limitation Schedule" shall mean the schedule
         published from time to time by Ex-Im Bank and provided to the Borrower
         by the Lender which sets forth on a country by country basis whether
         and under what conditions Ex-Im Bank will provide coverage for the
         financing of export transactions to countries listed therein.

                  "Credit Facility" means the credit facility made available to
         the Borrower pursuant to Article II.

                  "Debarment Regulations" shall mean, collectively, (i) the
         Governmentwide Debarment and Suspension (Nonprocurement) regulations
         (Common Rule), 53 Fed. Reg. 19204 (May 26, 1988), (ii) Subpart 9.4
         (Debarment, Suspension, and Ineligibility) of the Federal Acquisition
         Regulations, 48 C.F.R. 9.400-9.409 and (iii) the revised Governmentwide
         Debarment and Suspension (Nonprocurement) regulations (Common Rule), 60
         Fed. Reg. 33037 (June 26, 1995).

                  "Debt" of any Person means all items of indebtedness or
         liability which in accordance with GAAP would be included in
         determining total liabilities as shown on the liabilities side of a
         balance sheet of that Person as at the date as of which Debt is to be
         determined. For purposes of determining a Person's aggregate Debt at
         any time, "Debt" shall also include the aggregate payments required to
         be made by such Person at any time under any lease that is considered a
         capitalized lease under GAAP.

                  "Default" means an event that, with giving of notice or
         passage of time or both, would constitute an Event of Default.

                  "Default Period" means any period of time beginning on the
         first day of any month during which a Default or Event of Default has
         occurred and ending on the

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         date the Lender notifies the Borrower in writing that such Default or
         Event of Default has been cured or waived.

                  "Default Rate" means an annual rate equal to two (2%) over the
         Floating Rate, which rate shall change when and as the Floating Rate
         changes.

                  "Dollars" or "$" shall mean the lawful currency of the United
         States.

                  "Eligible Export-Related Accounts Receivable" means an
         Export-Related Account Receivable excluding, however any Export-Related
         Account Receivable:

                           (i) that does not arise from the sale of Items in the
                  ordinary course of the Borrower's business;

                           (ii) that is not subject to a valid, perfected first
                  priority Lien in favor of the Lender;

                           (iii) as to which any covenant, representation or
                  warranty contained in the Loan Documents with respect to such
                  Account Receivable has been breached;

                           (iv) that is not owned by the Borrower or is subject
                  to any right, claim or interest of another Person other than
                  the Liens in favor of the Lender and the Servicer;

                           (v) with respect to which an invoice has not been
                  sent;

                           (vi) that arises from the sale of defense articles or
                  defense services;

                           (vii) that is due and payable from a Buyer located in
                  a country with which Ex-Im Bank is prohibited from doing
                  business as designated in the Country Limitation Schedule;

                           (viii) that does not comply with the requirements of
                  the Country Limitation Schedule;

                           (ix) that is due and payable more than ninety (90)
                  days from the earlier of the date of the invoice or the
                  shipment date;

                           (x) that is not paid within sixty (60) calendar days
                  from its original due date, unless it is insured through Ex-Im
                  Bank export credit insurance for comprehensive commercial and
                  political risk, or through Ex-Im Bank approved private
                  insurers for comparable coverage, in which case it is not paid
                  within ninety (90) calendar days from its due date;

                           (xi) that arises from a sale of goods to or
                  performance of services for an employee of the Borrower, a
                  stockholder of the Borrower, a subsidiary of the Borrower, a
                  Person with a controlling interest in the Borrower or a Person
                  which shares common controlling ownership with the Borrower;

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                           (xii) that is backed by a letter of credit unless the
                  Items covered by the subject letter of credit have been
                  shipped;

                           (xiii) that the Lender or Ex-Im Bank, in its
                  reasonable judgment, deems uncollectible for any reason;

                           (xiv) that is due and payable in a currency other
                  than Dollars, except as may be approved in writing by Ex-Im
                  Bank;

                           (xv) that is due and payable from a military Buyer,
                  except as may be approved in writing by Ex-Im Bank;

                           (xvi) that does not comply with the terms of sale set
                  forth in Section 7 of the Loan Authorization Agreement;

                           (xvii) that is due and payable from a Buyer who (A)
                  applies for, suffers, or consents to the appointment of, or
                  the taking of possession by, a receiver, custodian, trustee or
                  liquidator of itself or of all or a substantial part of its
                  property or calls a meeting of its creditors, (B) admits in
                  writing its inability, or is generally unable, to pay its
                  debts as they become due or ceases operations of its present
                  business, (C) makes a general assignment for the benefit of
                  creditors, (D) commences a voluntary case under any state or
                  federal bankruptcy laws (as now or hereafter in effect), (E)
                  is adjudicated as bankrupt or insolvent, (F) files a petition
                  seeking to take advantage of any other law providing for the
                  relief of debtors, (G) acquiesces to, or fails to have
                  dismissed, any petition which is filed against it in any
                  involuntary case under such bankruptcy laws, or (H) takes any
                  action for the purpose of effecting any of the foregoing;

                           (xviii) that arises from a bill-and-hold, guaranteed
                  sale, sale-and-return, sale on approval, consignment or any
                  other repurchase or return basis or is evidenced by chattel
                  paper;

                           (xix) for which the Items giving rise to such Account
                  Receivable have not been shipped or the services giving rise
                  to such Account Receivable have not been performed by the
                  Borrower or the Account Receivable otherwise does not
                  represent a final sale;

                           (xx) that is subject to any offset, deduction,
                  defense, dispute, or counterclaim or the Buyer is also a
                  creditor or supplier of the Borrower or the Account Receivable
                  is contingent in any respect or for any reason;

                           (xxi) for which the Borrower has made any agreement
                  with the Buyer for any deduction therefrom, except for
                  discounts or allowances made in the ordinary course of
                  business for prompt payment, all of which discounts or
                  allowances are reflected in the calculation of the face value
                  of each respective invoice related thereto;

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                           (xxii) for which any of the Items giving rise to such
                  Account Receivable have been returned, rejected or
                  repossessed;

                           (xxiii) to the extent it includes any finance
                  charges, service charges, taxes, discounts, credits,
                  allowances and Retainages;

                           (xxiv) that arise from the sale of Items containing
                  less than fifty percent (50%) US Content;

                           (xxv) that arise from the sale of Items containing
                  any Foreign Content not incorporated into such Items in the
                  US;

                           (xxvi) that arise from the sale of any Items to be
                  used in the construction, alteration, operation or maintenance
                  of nuclear power, enrichment, reprocessing, research or heavy
                  water production facilities; or

                           (xxvii) that are otherwise deemed ineligible for any
                  reason by the Lender or Ex-Im Bank in its discretion.

                  "Equipment" means all of the Borrower's "equipment", as such
         term is defined in the UCC whether now or hereafter owned, including
         all present and future machinery, vehicles, furniture, fixtures,
         manufacturing equipment, shop equipment, office and recordkeeping
         equipment, parts, tools, supplies, and including specifically the goods
         described in any equipment schedule or list herewith or hereafter
         furnished to the Lender by the Borrower;

                  "Event of Default" has the meaning specified in Section 7.1.

                  "Ex-Im Bank" or "Eximbank" means the Export-Import Bank of the
         United States.

                  "Export Order" shall mean a written export order or contract
         for the purchase by the Buyer from the Borrower of any of the Items.

                  "Export-Related Accounts Receivable" shall mean that portion
         of Accounts Receivable consisting of the unpaid obligations of Buyers
         arising from the sale of Items which is due and payable to the Borrower
         in the United States.

                  "Floating Rate" means an annual rate equal to the sum of the
         Prime Rate plus three percent (3%), which annual rate shall change when
         and as the Prime Rate changes.

                  "Foreign Content" means that portion of the cost of an Item
         arising from materials which are not of US origin or from labor and
         services not performed in the US.

                  "Funding Date" has the meaning given in Section 2.1.

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                  "General Intangibles" means all of the Borrower's general
         intangibles, as such term is defined in the UCC, whether now owned or
         hereafter acquired, including all present and future contract rights,
         patents, patent applications, copyrights, trademarks, trade names,
         trade secrets, customer or supplier lists and contracts, manuals,
         operating instructions, permits, franchises, the right to use the
         Borrower's name, and the goodwill of the Borrower's business; and

                  "GAAP" means generally accepted accounting principles issued
         by the American Institute of Certified Public Accountants, applied on a
         basis consistent with the accounting practices applied in the financial
         statements described in Section 5.2.

                  "Inventory" means all of the Borrower's inventory (as such
         term is defined in the UCC), now or hereafter owned or acquired by the
         Borrower, wherever located, including all inventory, merchandise, goods
         and other personal property which are held by or on behalf of the
         Borrower for sale or lease or are furnished or are to be furnished
         under a contract of service or which constitute raw materials, whole
         goods, spare parts or components, work in process or materials used or
         consumed or to be used or consumed in the Borrower's business or in the
         processing, production, packaging, promotion, delivery or shipping of
         the same, including other supplies.

                  "Investment Property" means all of the Borrower's investment
         property, as such term is defined in the UCC, whether now owned or
         hereafter acquired, including but not limited to all securities,
         security entitlements, securities accounts, commodity contracts,
         commodity accounts, stocks, bonds, mutual fund shares, money market
         shares and U.S. Government securities;

                  "ISP" shall mean the International Standby Practices-ISP98,
         International Chamber of Commerce Publication No. 590 and any
         amendments and revisions thereof.

                  "Items" shall mean the finished goods or services which are
         intended for export from the United States, as specified in Section
         4(A) of the Loan Authorization Agreement.

                  "Lien" shall mean any mortgage, security deed or deed of
         trust, pledge, hypothecation, assignment, deposit arrangement, lien,
         charge, claim, security interest, security title, easement or
         encumbrance, or preference, priority or other security agreement or
         preferential arrangement of any kind or nature whatsoever (including
         any lease or title retention agreement, any financing lease having
         substantially the same economic effect as any of the foregoing, and the
         filing of, or agreement to give, any financing statement perfecting a
         security interest under the UCC or comparable law of any jurisdiction)
         by which property is encumbered or otherwise charged.

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<PAGE>

                  "Loan Authorization Agreement" means the Loan Authorization
         Notice attached as Exhibit E hereto.

                  "Loan Documents" means this Agreement, the Note, the Borrower
         Agreement, the Loan Authorization Agreement, the Security Documents and
         the Disclosure by the Borrower in favor of the Lender of even date
         herewith.

                  "Lockbox" has the meaning given in Section 6.7.

                  "Master Guaranty" means that certain Master Guaranty Agreement
         No. MN-MGA-99-001, dated as of July 20, 1999, by and between the Lender
         and Ex-Im Bank.

                  "Maturity Date" means November 22, 2001

                  "Maximum Amount" means $800,000.

                  "Note" means the Borrower's revolving promissory note, payable
         to the order of the Lender in substantially the form of Exhibit A
         hereto.

                  "Obligations" means each and every debt, liability and
         obligation of every type and description which the Borrower may now or
         at any time hereafter owe to the Lender, all other indebtedness arising
         under this Agreement, the Noteor any other loan or credit agreement or
         guaranty between the Borrower and the Lender, whether now in effect or
         hereafter entered into.

                  "Patent and Trademark Security Agreement" means the Patent and
         Trademark Security Agreement by the Borrower in favor of the Lender of
         even date herewith, as the same may hereafter be amended, supplemented
         or restated from time to time.

                  "Person" means any individual, corporation, partnership, joint
         venture, limited liability company, association, joint-stock company,
         trust, unincorporated organization or government or any agency or
         political subdivision thereof.

                  "Permitted Liens" has the meaning set forth in Section 6.5.

                  "Person" shall mean any individual, sole proprietorship,
         partnership, limited liability partnership, joint venture, trust,
         unincorporated organization, association, corporation, limited
         liability company, institution, public benefit corporation, entity or
         government (whether national, federal, provincial, state, county, city,
         municipal or otherwise, including any instrumentality, division,
         agency, body or department thereof), and shall include such Person's
         successors and assigns.

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<PAGE>

                  "Premises" means all premises where the Borrower conducts its
         business and has any rights of possession.

                  "Prime Rate" means the rate of interest publicly announced
         from time to time by Wells Fargo Bank, N.A. as its "prime rate" or, if
         such bank ceases to announce a rate so designated, any similar
         successor rate designated by the Lender.

                  "Prohibited Country" means any country in which Ex-Im Bank
         coverage is not available for commercial reasons or in which Ex-Im Bank
         is legally prohibited from doing business, as designated in the Country
         Limitation Schedule.

                  "Security Documents" means this Agreement, the Collateral
         Account Agreement, and the Patent and Trademark Security Agreement,
         each of even date herewith.

                  "Security Interest" has the meaning given in Section 3.1.

                  "Servicer" means WFBCI.

                  "Tangible Net Worth" means the difference between (i) the
         tangible assets of the Borrower, which, in accordance with GAAP are
         tangible assets, after deducting adequate reserves in each case where,
         in accordance with GAAP, a reserve is proper and (ii) all Debt of the
         Borrower; provided, however, that notwithstanding the foregoing in no
         event shall there be included as such tangible assets patents,
         trademarks, trade names, copyrights, licenses, goodwill, receivables
         from Affiliates, directors, officers or employees, prepaid expenses,
         deposits, deferred charges or treasury stock or any securities or Debt
         of the Borrower or any other securities unless the same are readily
         marketable in the US or entitled to be used as a credit against federal
         income tax liabilities, non-compete agreements and any other assets
         designated from time to time by the Lender, in its sole discretion.

                  "Termination Date" means the earliest of (i) the Maturity
         Date, (ii) the date the Borrower terminates the Credit Facility, or
         (iii) the date the Lender demands payment of the Obligations.

                  "UCC" means the Uniform Commercial Code as in effect from time
         to time in the State of Minnesota.

                  "UCP " shall mean the Uniform Customs and Practice for
         Documentary Credits (1993 Revision), International Chamber of Commerce
         Publication No. 500 and any amendments and revisions thereof.

                  "US" means the United States of America.

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                  "US Content" means that portion of the cost of an Item arising
         from materials which are of US origin or from labor and services
         performed in the US.

                  "WFBCI" means Wells Fargo Business Credit, Inc., a Minnesota
         corporation.

                  "WFBCI Credit Agreement" means that certain Credit and
         Security Agreement dated November 22, 1999, by and between the Borrower
         and WFBCI, as the same may hereafter be amended, supplemented or
         restated from time to time.

                  "WFBCI Credit Facility" means the credit facility extended to
         the Borrower pursuant to the WFBCI Credit Agreement.

                  "WFBCI Advances" means the Advances as defined in the WFBCI
         Credit Agreement, or as the context requires, the outstanding principal
         balance thereof.

                                   ARTICLE II

                     AMOUNT AND TERMS OF THE CREDIT FACILITY

                  Section 2.1 Advances. The Lender agrees to make advances (each
an "Advance") to the Borrower from time to time from the date all of the
conditions set forth in Section 4.1 are satisfied (the "Funding Date") to the
Termination Date, on the terms and subject to the conditions herein set forth,
to provide the Borrower with working capital to fulfill Export Orders. The
Lender shall have no obligation to make an Advance to the extent that the amount
of the requested Advance exceeds Availability. The Borrower's obligation to pay
the Advances shall be evidenced by the Note and shall be secured by the
Collateral. Within the limits set forth in this Section 2.1, the Borrower may
request Advances, prepay, and request additional Advances.

                  Section 2.2 Requests for Advances. The Borrower shall make
each request for an Advance to the Lender before 11:00 a.m. (Minneapolis,
Minnesota time) of the day of the requested Advance. Requests for Advances may
be made in writing or by telephone. The Lender will not consider any such
request unless the Lender has received from the Borrower, among other things, a
Borrowing Base Certificate as of a date not more than thirty (30) days before
the date of the requested Advance. Whenever the Borrower makes a request for an
Advance based on Eligible Export Inventory, it shall also indicate in its books
and records that such Inventory has been segregated for export and shall no
longer be considered Eligible Inventory under the WFBCI Credit Facility. Any
request for an Advance shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.2 have been satisfied as of the date
of the request.

                                      -10-
<PAGE>

                  Section 2.3 Interest; Minimum Interest; Default Interest. All
interest shall be payable monthly in arrears on the first day of the month and
on the Termination Date.

                  (a) NOTE. Except as set forth in subsection (b), (c) and (d),
         the outstanding principal balance of the Advances shall bear interest
         at the Floating Rate.

                  (b) MINIMUM INTEREST. Notwithstanding the interest payable
         pursuant to Section 2.3(a), the Borrower shall pay to the Lender
         interest of not less than the applicable amount shown below during the
         periods shown below (the "Minimum Interest Charge") during the term of
         this Agreement (provided, however, that the Minimum Interest Charge
         hereunder plus the Minimum Interest Charge under the WFBCI Credit
         Facility shall not exceed the amounts set forth below), and the
         Borrower shall pay any deficiency between the Minimum Interest Charge
         and the amount of interest otherwise calculated under Sections 2.3(a)
         and 2.3(c) on the date and in the manner provided in this Section 2.3:

<TABLE>
<CAPTION>
                  Period                                            Minimum Annual Interest
                  ------                                            -----------------------
<S>                                                                         <C>
                  Through 11/21/00                                          $80,000

                  Each 11/22 through the following 11/21 thereafter         $95,000
</TABLE>

                  (c) DEFAULT INTEREST RATE. At any time during any Default
         Period, in the Lender's sole discretion and without waiving any of its
         other rights and remedies, the principal of the Advances outstanding
         from time to time shall bear interest at the Default Rate, effective
         for any periods designated by the Lender from time to time during that
         Default Period.

                  (d) USURY. In any event no rate change shall be put into
         effect which would result in a rate greater than the highest rate
         permitted by law.

                  Section 2.4 Fees.

                  (a) APPLICATION FEE. The Borrower shall reimburse the Lender
         for the $100 application fee payable to Ex-Im Bank in connection with
         the Master Guaranty.

                  (b) ANNUAL FACILITY FEE. Upon the execution of this Agreement
         and on each anniversary thereof, the Borrower shall pay the Lender a
         fully earned and non-refundable facility fee of $12,000

                  (c) UNUSED LINE FEE. For the purposes of this Section 2.9(c),
         "Unused Amount" means the Maximum Amount reduced by outstanding
         Advances. The Borrower shall pay to the Lender an unused line fee at
         the rate of one-quarter (.25%) per annum on the average daily Unused
         Amount from the Closing Date to and including the Termination Date, due
         and payable monthly

                                      -11-
<PAGE>

         in arrears on the first day of the month and on the Termination Date,
         provided that the sum of the Unused Fee and the unused line fee under
         the WFBCI Credit Facility shall not exceed one-quarter percent (.25%)
         per annum times the difference of (i) $2,800,000 and (ii) the average
         of the sum of the daily outstanding principal balance of the Advances
         and the WFBCI Advances plus the L/C Amount under the WFBCI Credit
         Agreement.

                  (d) AUDIT FEES. The Borrower hereby agrees to pay the Lender,
         on demand, audit fees in connection with any audits or inspections
         conducted by the Lender of any Collateral or the Borrower's operations
         or business at the rates established from time to time by the Lender as
         its audit fees (which fees are currently per $62.50 per hour per
         auditor), together with all actual out-of-pocket costs and expenses
         incurred in conducting any such audit or inspection; provided that so
         long as WFBCI is the Servicer the Borrower shall not have to reimburse
         such costs and expenses to the extent it has already done so pursuant
         to the WFBCI Credit Facility.

                  Section 2.5 Capital Adequacy; Increased Costs and Reduced
Return. If any Related Lender determines at any time that its Return has been
reduced as a result of any Rule Change, such Related Lender may require the
Borrower to pay it the amount necessary to restore its Return to what it would
have been had there been no Rule Change. For purposes of this Section 2.10:

                  (a) "Capital Adequacy Rule" means any law, rule, regulation,
         guideline, directive, requirement or request regarding capital
         adequacy, or the interpretation or administration thereof by any
         governmental or regulatory authority, central bank or comparable
         agency, whether or not having the force of law, that applies to any
         Related Lender. Such rules include rules requiring financial
         institutions to maintain total capital in amounts based upon
         percentages of outstanding loans, binding loan commitments and letters
         of credit.

                  (c) "Return", for any period, means the return as determined
         by such Related Lender on the Advances based upon its total capital
         requirements. Return may be calculated for each calendar quarter and
         for the shorter period between the end of a calendar quarter and the
         date of termination in whole of this Agreement.

                  (d) "Rule Change" means any change in any Capital Adequacy
         Rule occurring after the Closing Date, but the term does not include
         any changes in applicable requirements that on the Closing Date are
         scheduled to take place under the existing Capital Adequacy Rules or
         any increases in the capital that any Related Lender is required to
         maintain to the extent that the increases are required due to a
         regulatory authority's assessment of the financial condition of such
         Related Lender.

                                      -12-
<PAGE>

                  (e) "Related Lender" includes (but is not limited to) the
         Lender, any parent corporation of the Lender and any assignee of any
         interest of the Lender hereunder and any participant in the loans made
         hereunder.

Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.5, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.

                  Section 2.6 Termination by the Borrower. The Borrower may
terminate this Agreement at any time upon 30 days' prior written notice to the
Lender so long as no Letter of Credit has been issued and is outstanding with an
expiration date after such date, and, subject to payment and performance of all
Obligations, may obtain any release or termination of the Security Interest to
which the Borrower is otherwise entitled by.

                  Section 2.7 Mandatory Prepayment. Without notice or demand, if
(i) the Borrowing Base shall at any time be less than the outstanding principal
balance of the Advances, the Borrower shall immediately prepay the Advances to
the extent necessary to eliminate such deficiency or increase the Borrowing Base
by furnishing additional Collateral to the Lender in form and amount
satisfactory to the Lender and Ex-Im Bank.

                  Section 2.8 Advances Without Request. The Borrower hereby
authorizes the Lender, in its discretion, at any time or from time to time
without the Borrower's request, to make Advances to pay accrued interest, fees,
uncollected items that have been applied to the Obligations, and other
Obligations due and payable from time to time.

                  Section 2.9 Use of Proceeds. The Borrower shall use the
proceeds of Advances for working capital to finance the manufacture, assembly,
production or purchase and subsequent sale of Items only. Without limiting the
generality of the foregoing, the Borrower shall not use any proceeds of Advances
for any purpose prohibited by the Borrower Agreement or (i) to acquire fixed
assets or capital goods for use in the Borrower's business; (ii) to acquire,
equip or rent commercial space overseas; (iii) to employ non-US residents in
offices outside the US; (iv) to serve as a retainage or warranty bond; or (v) to
repay pre-existing Debt or future indebtedness of the Borrower unrelated to the
Advances.

                  Section 2.10 Facility Subject to Ex-Im Bank Rules. The
Borrower acknowledges that the Lender is willing to make the Credit Facility
available to the Borrower because the Ex-Im Bank is willing to guaranty payment
of a significant portion of the Obligations pursuant to the Master Guaranty.
Accordingly, in the event of any inconsistency among the Loan Documents and the
Master Guaranty or related documents, the provision that is the more stringent
on the Borrower shall control.

                                      -13-
<PAGE>

                                   ARTICLE III

                                SECURITY INTEREST

                  Section 3.1 Grant of Security Interest. The Borrower hereby
grants to the Lender a security interest (the "Security Interest") in the
Collateral as security for the payment and performance of the Obligations.

                  Section 3.2 Notification of Account Debtors and Other
Obligors. The Lender may at any time (either before or after the occurrence of
an Event of Default) notify any account debtor or other Person obligated to pay
the amount due that such right to payment has been assigned or transferred to
the Lender for security and shall be paid directly to the Lender. The Borrower
will join in giving such notice if the Lender so requests. At any time after the
Borrower or the Lender gives such notice to an account debtor or other obligor,
the Lender may, but need not, as the Borrower's agent and attorney-in-fact,
notify the US Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.

                  Section 3.3 Assignment of Insurance. As additional security
for the payment and performance of the Obligations, the Borrower hereby assigns
to the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
now or at any time hereafter covering the Collateral or any evidence thereof or
any business records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies directly to
the Lender. At any time, whether or not a Default Period then exists, the Lender
may (but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.

                  Section 3.4 Occupancy.

                  (a) The Borrower hereby irrevocably grants to the Lender the
         right to take exclusive possession of the Premises at any time during
         any Default Period.

                  (b) The Lender may use the Premises only to hold, process,
         manufacture, sell, use, store, liquidate, realize upon or otherwise
         dispose of goods that are Collateral and for other purposes that the
         Lender in good faith considers related.

                                      -14-
<PAGE>

                  (c) The Lender's right to hold the Premises shall terminate
         upon the earlier of payment in full of all Obligations, or final sale
         or disposition of all goods constituting Collateral and delivery of all
         such goods to purchasers.

                  (d) The Lender shall not be obligated to pay or account for
         any rent or other compensation for the possession or use of any of the
         Premises; provided, however, that if the Lender does pay or account for
         any rent or other compensation for the possession or use of any of the
         Premises, the Borrower shall reimburse the Lender promptly for the full
         amount thereof.

                  Section 3.5 License. Without limiting the generality of the
Patent and Trademark], the Borrower hereby grants to the Lender a non-exclusive,
worldwide and royalty-free license to use or otherwise exploit all trademarks,
franchises, trade names, copyrights and patents of the Borrower for the purpose
of selling, leasing or otherwise disposing of any or all Collateral following an
Event of Default.

                  Section 3.6 Filing a Copy. A carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by the
Borrower is sufficient as a financing statement.

                                   ARTICLE IV

                              CONDITIONS OF LENDING

                  Section 4.1 Conditions Precedent to the Lender's Willingness
to Consider Making the Initial Advance and Issuing the Initial Letter of Credit.
The Lender's willingness to consider making the initial Advance or to issue the
initial Letter of Credit hereunder shall be subject to the condition precedent
that the Lender shall have received all of the following, each in form and
substance satisfactory to the Lender:

                  (a) This Agreement, properly executed by the Borrower.

                  (b) The Note, properly executed by the Borrower.

                  (c) The SBA/Ex-Im Bank Joint Application, properly completed
         and executed by the Borrower.

                  (d) The Borrower Agreement, properly executed by the Borrower.

                  (e) A properly completed and executed Borrowing Base
         Certificate as of a date not more than five (5) Business Days before
         the date of this Agreement.

                  (f) An Exceptions Approval Letter, properly signed by Ex-Im
         Bank.

                                      -15-
<PAGE>

                  (g) A participation and servicing agreement, properly signed
         by the Servicer.

                  (h) Copies of the Borrower's audited financial statements with
         full disclosure.

                  (i) Copies of the Borrower's federal tax returns for the last
         year together with all schedules thereto.

                  (j) A true and correct copy of any and all leases pursuant to
         which the Borrower is leasing the Premises, together with a landlord's
         disclaimer and consent with respect to each such lease in favor of the
         Lender and WFBCI.

                  (k) A true and correct copy of any and all agreements pursuant
         to which the Borrower's property is in the possession of any Person
         other than the Borrower, together with, in the case of any goods held
         by such Person for resale, (i) a consignee's acknowledgement and waiver
         of liens, (ii) UCC financing statements sufficient to protect the
         Borrower's and the Lender's interests in such goods, and (iii) UCC
         searches showing that no other secured party has filed a financing
         statement against such Person and covering property similar to the
         Borrower's other than the Borrower, or if there exists any such secured
         party, evidence that each such secured party has received notice from
         the Borrower and the Lender sufficient to protect the Borrower's and
         the Lender's interests in the Borrower's goods from any claim by such
         secured party.

                  (l) An acknowledgement and waiver of liens from each warehouse
         in which the Borrower is storing Inventory in favor of the Lender and
         WFBCI.

                  (m) A true and correct copy of any and all agreements pursuant
         to which the Borrower's property is in the possession of any Person
         other than the Borrower, together with, (i) an acknowledgement and
         waiver of liens from each subcontractor who has possession of the
         Borrower's goods from time to time, (ii) UCC financing statements
         sufficient to protect the Borrower's and the Lender's interests in such
         goods, and (iii) UCC searches showing that no other secured party has
         filed a financing statement covering such Person's property other than
         the Borrower, or if there exists any such secured party, evidence that
         each such secured party has received notice from the Borrower and the
         Lender sufficient to protect the Borrower's and the Lender's interests
         in the Borrower's goods from any claim by such secured party.

                  (n) An acknowledgment and agreement from each licensor in
         favor of the Lender, together with a true, correct and complete copy of
         all license agreements in favor of the Lender and WFBCI.

                                      -16-
<PAGE>

                  (o) The U.S. Dollar Collateral Account Agreement, properly
         executed by the Borrower and Wells Fargo Bank Minnesota, National
         Association, and the Multi-Currency Collateral Account Agreement,
         properly executed by the Borrower and Wells Fargo Bank Minnesota,
         N.A.--Grand Cayman Branch.

                  (p) The Patent and Trademark Security Agreement, properly
         executed by the Borrower.

                  (q) Current searches of appropriate filing offices showing
         that (i) no state or federal tax liens have been filed and remain in
         effect against the Borrower, (ii) no financing statements or
         assignments of patents, trademarks or copyrights have been filed and
         remain in effect against the Borrower except those financing statements
         and assignments of patents, trademarks or copyrights relating to
         Permitted Liens or to liens held by Persons who have agreed in writing
         that upon receipt of proceeds of the Advances, they will deliver UCC
         releases and/or terminations and releases of such assignments of
         patents, trademarks or copyrights satisfactory to the Lender, and (iii)
         the Lender has duly filed all financing statements necessary to perfect
         the Security Interest, to the extent the Security Interest is capable
         of being perfected by filing.

                  (r) A certificate of the Borrower's secretary or assistant
         secretary certifying as to (i) the resolutions of the Borrower's
         directors and if required, shareholders, authorizing the execution,
         delivery and performance of the Loan Documents, (ii) the Borrower's
         articles of incorporation and bylaws, and (iii) the signatures of the
         Borrower's officers or agents authorized to execute and deliver the
         Loan Documents and other instruments, agreements and certificates,
         including Advance requests, on the Borrower's behalf.

                  (s) A current certificate issued by the Secretary of State of
         Minnesota, certifying that the Borrower is in compliance with all
         applicable organizational requirements of the State of Minnesota.

                  (t) Evidence that (i) the Borrower is duly licensed or
         qualified to transact business in all jurisdictions where the character
         of the property owned or leased or the nature of the business
         transacted by it makes such licensing or qualification necessary, (ii)
         it has obtained and maintains all necessary export licenses.

                  (u) A certificate of one of the Borrower's officers
         confirming, in his personal capacity, the representations and
         warranties set forth in Article V and in the Disclosure.

                  (v) An opinion of counsel to the Borrower, addressed to the
         Lender.

                                      -17-
<PAGE>

                  (w) Certificates of the insurance required hereunder, with all
         hazard insurance containing a the Lender's loss payable endorsement in
         the Lender's favor and with all liability insurance naming the Lender
         as an additional insured.

                  (x) Payment of the fees and commissions due through the date
         of the initial Advance and expenses incurred by the Lender through such
         date and required to be paid by the Borrower under Sections 2.4(a), (b)
         and 8.3, including all legal expenses incurred through the Closing
         Date.

                  (y) Such other documents as the Lender in its sole discretion
         may require.

                  Section 4.2 Conditions Precedent to All Advances. The Lender
will not consider any request for an Advance unless on such date:

                  (a) the representations and warranties contained in Article V
         are correct on and as of the date of such Advance as though made on and
         as of such date, except to the extent that such representations and
         warranties relate solely to an earlier date; and

                  (b) no event has occurred and is continuing, or would result
         from such Advance, as the case may be, which constitutes a Default or
         an Event of Default.

                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

                  The Borrower represents and warrants to the Lender as follows:

                  Section 5.1 Name; Locations; Tax ID No.; Subsidiaries. During
its existence, the Borrower has done business solely under its corporate name as
set forth herein and under such trade names and such other corporate names as
disclosed to the Lender in writing before this Agreement is signed and
delivered. The address of the Borrower's chief executive office and principal
place of business and its federal tax identification number are set forth below
its signature to this Agreement. All Inventory is located at that location or at
one of the other locations disclosed to the Lender in writing before this
Agreement is signed and delivered. The Borrower has no subsidiaries except as
disclosed to the Lender in writing before this Agreement is signed and
delivered.

                  Section 5.2 Financial Condition; No Adverse Change. Before
this Agreement was signed and delivered, the Borrower furnished the Lender
certain of its audited and unaudited financial statements certified by the
Borrower. Those statements fairly present the Borrower's financial condition as
of the dates indicated therein and the results of its operations for the periods
then ended and were prepared in accordance with generally accepted accounting
principles. Since the date of the most recent financial statements, there has
been no material adverse change in the business, properties or condition
(financial or otherwise) of the Borrower.

                                      -18-
<PAGE>

                  Section 5.3. Suspension and Debarment, etc. On the date of
this Agreement neither the Borrower nor its Principals are (a) debarred,
suspended, proposed for debarment with a final determination still pending,
declared ineligible or voluntarily excluded (as such terms are defined under any
of the Debarment Regulations referred to below) from participating in
procurement or nonprocurement transactions with any United States federal
government department or agency pursuant to any of the Debarment Regulations or
(b) indicted, convicted or had a civil judgment rendered against the Borrower or
any of its Principals for any of the offenses listed in any of the Debarment
Regulations. Unless authorized by Ex-Im Bank, the Borrower will not knowingly
enter into any transactions in connection with the Items with any person who is
debarred, suspended, declared ineligible or voluntarily excluded from
participation in procurement or nonprocurement transactions with any United
States federal government department or agency pursuant to any of the Debarment
Regulations. The Borrower will provide immediate written notice to the Lender if
at any time it learns that the certification set forth in this Section 5.3 was
erroneous when made or has become erroneous by reason of changed circumstances.

                                   ARTICLE VI

                            COVENANTS OF THE BORROWER

                  So long as the Advances or any amount owing to the Lender
hereunder shall remain unpaid, the Borrower will comply with the requirements in
this Article, unless the Lender shall otherwise consent in writing.

                  Section 6.1 Reporting Requirements. The Borrower will deliver
to the Lender each of the following in form and detail acceptable to the Lender:

                  (a) as soon as available, and in any event within 120 days
         after the end of each fiscal year of the Borrower, the Borrower's
         audited financial statements with the unqualified opinion of
         independent certified public accountants selected by the Borrower and
         acceptable to the Lender, which annual financial statements shall
         include the Borrower's balance sheet as at the end of such fiscal year
         and the related statements of the Borrower's income, retained earnings
         and cash flows for the fiscal year then ended, prepared, if the Lender
         so requests, on a consolidating and consolidated basis to include any
         Affiliates, all in reasonable detail and prepared in accordance with
         GAAP, together with (i) copies of all management letters prepared by
         such accountants; (ii) a report signed by such accountants stating that
         in making the investigations necessary for said opinion they obtained
         no knowledge, except as specifically stated, of any Default or Event of
         Default hereunder and all relevant facts in reasonable detail to
         evidence, and the computations as to, whether or not the Borrower is in
         compliance with the requirements set forth in Sections 6.9, and (iii) a
         certificate of the Borrower's chief financial officer stating that such
         financial statements have been prepared in accordance with GAAP and
         whether or not such officer has knowledge of the occurrence of any
         Default or Event of Default hereunder and, if so, stating in reasonable
         detail the facts with respect thereto;

                                      -19-
<PAGE>

                  (b) as soon as available and in any event within 15 days after
         the end of each month, an unaudited/internal balance sheet and
         statements of income and retained earnings of the Borrower as at the
         end of and for such month and for the year to date period then ended,
         prepared, if the Lender so requests, on a consolidating and
         consolidated basis to include any Affiliates, in reasonable detail and
         stating in comparative form the figures for the corresponding date and
         periods in the previous year, all prepared in accordance with GAAP,
         subject to year-end audit adjustments; and accompanied by a certificate
         of the Borrower's chief financial officer, substantially in the form of
         Exhibit B hereto stating (i) that such financial statements have been
         prepared in accordance with GAAP, subject to year-end audit
         adjustments, (ii) whether or not such officer has knowledge of the
         occurrence of any Default or Event of Default hereunder not theretofore
         reported and remedied and, if so, stating in reasonable detail the
         facts with respect thereto, and (iii) all relevant facts in reasonable
         detail to evidence, and the computations as to, whether or not the
         Borrower is in compliance with the requirements set forth in Section
         6.9;

                  (c) within 15 days after the end of each month or more
         frequently if the Lender so requires, agings of the Borrower's accounts
         receivable and its accounts payable, and a calculation of the
         Borrower's Accounts and Eligible Accounts as at the end of such month
         or shorter time period;

                  (d) at least 30 days after the beginning of each fiscal year
         of the Borrower, the projected balance sheets and income statements for
         each month of such year, each in reasonable detail, representing the
         Borrower's good faith projections and certified by the Borrower's chief
         financial officer as being the most accurate projections available and
         identical to the projections used by the Borrower for internal planning
         purposes, together with such supporting schedules and information as
         the Lender may in its discretion require;

                  (e) immediately after the commencement thereof, notice in
         writing of all litigation and of all proceedings before any
         governmental or regulatory agency affecting the Borrower or which seek
         a monetary recovery against the Borrower in excess of $50,000;

                  (f) as promptly as practicable (but in any event not later
         than five business days) after an officer of the Borrower obtains
         knowledge of the occurrence of any breach, default or event of default
         under any Security Document or any event which constitutes a Default or
         Event of Default hereunder, notice of such occurrence, together with a
         detailed statement by a responsible officer of the Borrower of the
         steps being taken by the Borrower to cure the effect of such breach,
         default or event;

                  (g) as soon as possible and in any event within 30 days after
         the Borrower knows or has reason to know that any Reportable Event with
         respect to any Plan has occurred, the statement of the Borrower's chief
         financial officer setting forth details as to such Reportable Event and
         the action which the Borrower proposes to take with respect

                                      -20-
<PAGE>

         thereto, together with a copy of the notice of such Reportable Event to
         the Pension Benefit Guaranty Corporation;

                  (h) as soon as possible, and in any event within 10 days after
         the Borrower fails to make any quarterly contribution required with
         respect to any Plan under Section 412(m) of the Internal Revenue Code
         of 1986, as amended, the statement of the Borrower's chief financial
         officer setting forth details as to such failure and the action which
         the Borrower proposes to take with respect thereto, together with a
         copy of any notice of such failure required to be provided to the
         Pension Benefit Guaranty Corporation;

                  (i) promptly upon knowledge thereof, notice of (A) any of the
         following items exceeding $50,000 individually (i) any disputes or
         claims by the Borrower's customers; (ii) credit memos; (iii) any goods
         returned to or recovered by the Borrower; and (B) any change in the
         persons constituting the Borrower's officers and directors;

                  (j) promptly upon knowledge thereof, notice of any loss of or
         material damage to any Collateral or other collateral covered by the
         Security Documents or of any substantial adverse change in any
         Collateral or such other collateral or the prospect of payment thereof;

                  (k) promptly upon their distribution, copies of all financial
         statements, reports and proxy statements which the Borrower shall have
         sent to its stockholders;

                  (l) promptly after the sending or filing thereof, copies of
         all regular and periodic reports which the Borrower shall file with the
         Securities and Exchange Commission or any national securities exchange;

                  (m) promptly upon knowledge thereof, notice of the Borrower's
         violation of any law, rule or regulation, the non-compliance with which
         could materially and adversely affect the Borrower's business or its
         financial condition; and

                  (n) from time to time, with reasonable promptness, any and all
         receivables schedules, collection reports, deposit records, equipment
         schedules, copies of invoices to account debtors, shipment documents
         and delivery receipts for goods sold, and such other material, reports,
         records or information as the Lender may request.

                  (o) as soon as available and in any event within fifteen (15)
         days after the end of each month, a properly completed Borrowing Base
         Certificate as at the end of such month, signed by the Borrower's chief
         financial officer;

                  (p) as soon as available and in any event within fifteen (15)
         days after the end of each month inventory certifications as at the end
         of such month;

                  (q) as soon as available and in any event within three (3)
         days after they are due, written notice of any and all taxes due but
         not paid; and

                                      -21-
<PAGE>

                  (r) promptly upon knowledge thereof, notice of any Items (and
         the corresponding invoice amount) which are articles, services, or
         related technical data that are listed on the United States Munitions
         List (part 121 of title 22 of the Code of Federal Regulations).

So long as the Servicer is actively servicing the Loan Documents on behalf of
the Lender as described in Section 8.2, the Borrower shall provide to the
Servicer all reports required under this Section 6.1.

                  Section 6.2 Inspection. Upon the Lender's request, the
Borrower will permit any officer, employee, attorney, agent or accountant for
the Lender to audit, review, make extracts from or copy any and all records of
the Borrower and to inspect the Collateral at all times during ordinary business
hours.

                  Section 6.3 Account Verification. The Lender may at any time
and from time to time send, or request the Borrower to send, requests for
verification of Accounts or notices of assignment to account debtors and other
obligors. The Borrower authorizes the Lender to verify Accounts as frequently as
daily and the Borrower understands the Lender intends to do so by telephone
and/or in writing.

                  Section 6.4 Account Debtors to Pay to Designated Accounts;
Pledge of Accounts. The Borrower shall instruct all of its Account debtors
paying for Items by check denominated in Canadian Dollars to make such payments
directly to a lockbox under the Lender's control, to be established with Royal
Bank of Canada for transfer to the Multi-Currency Collateral Account. Borrower
agrees to execute from time-to-time any documentation reasonably required by
Royal Bank of Canada with respect to such lockbox. The Borrower shall instruct
all of its Account debtors outside the US (except debtors making payments by
check denominated in Canadian Dollars) to make all payments for Items directly
by wire transfer to the U. S. Dollar Collateral Account. The Borrower hereby
pledges to, and grants the Lender a security interest in, all funds on deposit
in the Multi-Currency Collateral Account and in the U.S. Dollar Collateral
Account from time to time and all proceeds thereof, to secure payment of all of
the Borrower's obligations to the Lender whether now existing or hereafter
arising.

                  Section 6.5 No Other Liens. The Borrower will not create,
incur or suffer to exist any mortgage, deed of trust, pledge, lien, security
interest, assignment or transfer upon or of any of its assets, now owned or
hereafter acquired, to secure any indebtedness; excluding, however, from the
operation of the foregoing, the following (collectively, "Permitted Liens"):

                  (a) Liens for taxes, assessments or other governmental charges
         or levies not delinquent, or, being contested in good faith and by
         appropriate proceedings and with respect to which proper reserves have
         been taken by Borrower, provided, that, the Lien shall have no effect
         on the priority of the

                                      -22-
<PAGE>

         Liens in favor of Lender or the value of the assets in which Lender has
         such a Lien and a stay of enforcement of any such Lien shall be in
         effect;

                  (b) deposits or pledges securing obligations under worker's
         compensation, unemployment insurance, social security or public
         liability laws or similar legislation;

                  (c) deposits or pledges securing bids, tenders, contracts
         (other than contracts for the payment of money), leases, statutory
         obligations, surety and appeal bonds and other obligations of like
         nature arising in the ordinary course of Borrower's business;

                  (d) judgment Liens that have been stayed or bonded;

                  (e) mechanics', workers', materialmen's or other like Liens
         arising in the ordinary course of Borrower's business with respect to
         obligations which are not due;

                  (f) Liens placed upon fixed assets hereafter acquired to
         secure a portion of the purchase price thereof, provided, that, any
         such Lien shall not encumber any other property of Borrower;

                  (g) security interests being terminated concurrently with the
         execution of the Loan Documents;

                  (h) Liens in favor of Lender securing the Loan Facility
         Obligations;

                  (i) Liens disclosed in Section 6(D) of the Loan Authorization
         Agreement

                  (j) Liens securing the WFBCI Advances; and

                  (k) in the case of any of the Borrower's property which is not
         Collateral or other collateral described in the Security Documents,
         covenants, restrictions, rights, easements and minor irregularities in
         title which do not materially interfere with the Borrower's business or
         operations as presently conducted, provided, however, that the Borrower
         expressly agrees that it will not mortgage its real estate locally
         known as 10701 Red Circle Drive, Minnetonka, Minnesota.

                  Section 6.6 Insurance. The Borrower will at all times keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
a the Lender's loss payable clause in favor of the Lender to the extent of its
interest.

                                      -23-
<PAGE>

                  Section 6.7 Lockbox. Upon the Lender's request, the Borrower
will irrevocably direct all present and future Account debtors and other Persons
obligated to make payments on Receivables to make such payments directly to a
special lockbox, including without limitation the lockbox described in Section
6.4 (the "Lockbox") to be under the Lender's control.

                  Section 6.9 Minimum Tangible Net Worth. The Borrower will
maintain, at all times its Tangible Net Worth, determined as at the end of each
month, at an amount not less than $1.00.

                  Section 6.11 No Sale or Transfer of Collateral and Other
Assets. The Borrower will not sell, lease, assign, transfer or otherwise dispose
of (i) the stock of any subsidiary, (ii) all or a substantial part of its
assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to anyone other than the sale of
Inventory in the ordinary course of business.

                  Section 6.12 Consolidation and Merger; Asset Acquisition. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.

                  Section 6.13 Place of Business; Name; Organizational
Structure. The Borrower will not change the location of its chief executive
office or principal place of business from that disclosed pursuant to Section
5.1. The Borrower will not permit any tangible Collateral to be located in any
state or area in which a financing statement covering such Collateral would be
required to be, but has not in fact been, filed in order to perfect the Security
Interest. The Borrower will not change its name or organizational structure.

                                   ARTICLE VII

                     EVENTS OF DEFAULT, RIGHTS AND REMEDIES

                  Section 7.1 Events of Default. "Event of Default", wherever
used herein, means any one of the following events:

                  (a) Default in the payment of the Obligations that becomes due
         and payable;

                  (b) Any payment default shall occur under any agreement (other
         than this Agreement) between the Borrower and the Lender, or the Lender
         shall accelerate or demand payment of any obligations (other than
         arising under this Agreement) owed to it by the Borrower, or the Lender
         shall begin exercising its remedies against the Borrower;

                                      -24-
<PAGE>

                  (d) Any payment default shall occur under any agreement
         between the Borrower and the Servicer, or the Servicer shall accelerate
         or demand payment of any obligations owed to it by the Borrower, or the
         Servicer shall begin exercising its remedies against the Borrower;

                  (e) Ex-Im Bank shall repudiate, purport to revoke or fail to
         perform its obligations under the Master Guaranty;

                  (f) Any material litigation is commenced against the Borrower
         and is not withdrawn within thirty (30) calendar days of filing or any
         levy, assessment, attachment, seizure or Lien, other than a Permitted
         Lien, exists against any of the Collateral which is not stayed or
         lifted within thirty (30) calendar days;

                  (g) The Borrower (i) applies for, consents to or suffers the
         appointment of, or the taking of possession by, a receiver, custodian,
         trustee, liquidator or similar fiduciary of itself or of all or a
         substantial part of its property or calls a meeting of its creditors,
         (ii) admits in writing its inability, or is generally unable, to pay
         its debts as they become due or ceases operations of its present
         business, (iii) makes a general assignment for the benefit of
         creditors, (vi) commences a voluntary case under any state or federal
         bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as
         bankrupt or insolvent, (vi) files a petition seeking to take advantage
         of any other law providing for the relief of debtors, (vii) acquiesces
         to, or fails to have dismissed within thirty (30) days, any petition
         filed against it in any involuntary case under such bankruptcy laws,
         (viii) dissolves or (ix) takes any action for the purpose of effecting
         any of the foregoing;

                  (h) any material provision of any Loan Document for any reason
         ceases to be valid, binding and enforceable in accordance with its
         terms;

                  (i) Default in the performance, or breach, of any covenant or
         agreement of the Borrower contained in any Loan Document not
         specifically addressed in this Section 7.1, which shall remain uncured
         for 30 days after notice from the Lender.

                  Section 7.2 Rights and Remedies During any Default Period, the
Lender may exercise any or all of the following rights and remedies:

                  (a) The Lender may exercise and enforce any and all rights and
         remedies available upon default to a secured party under the UCC,
         including the right to take possession of Collateral, or any evidence
         thereof, proceeding without judicial process or by judicial process
         (without a prior hearing or notice thereof, which the Borrower hereby
         expressly waives) and the right to sell, lease or otherwise dispose of
         any or all of the Collateral, and in connection therewith, the Borrower
         will on demand assemble the Collateral and make it available to the
         Lender at a place to be designated by the Lender which is reasonably
         convenient to both parties;

                                      -25-
<PAGE>

                  (b) the Lender may make demand upon the Borrower and,
         forthwith upon such demand, the Borrower will pay to the Lender in
         immediately available funds for deposit in the Special Account pursuant
         to Section 2.5 an amount equal to the maximum aggregate amount
         available to be drawn under all Letters of Credit then outstanding,
         assuming compliance with all conditions for drawing thereunder; and

                  (c) The Lender may exercise any other rights and remedies
         available to it by law or agreement.

The remedies provided hereunder are cumulative.

                  Section 7.3 Certain Notices. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 8.1) at least 10
calendar days before the date of intended disposition or other action.

                                  ARTICLE VIII

                                  MISCELLANEOUS

                  Section 8.1 Addresses for Notices, Etc. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for hereunder shall be in writing and shall be (i)
personally delivered, (ii) sent by first class US mail, (iii) sent by overnight
courier of national reputation, or (iv) transmitted by telecopy, in each case
addressed or telecopied to the party to whom notice is being given at its
address or telecopy number as set forth below its signature to this Agreement.

                  Section 8.2 Servicing of Credit Facility.

                  (a) The Lender has requested that the Servicer service and
         enforce the Loan Documents, make all Advances, cause all Letters of
         Credit to be issued, and collect all Obligations on the Lender's behalf
         and the Servicer has agreed to do so. The Borrower acknowledges and
         accepts the Servicer's appointment as such.

                  (b) The Servicer shall have no duties or responsibilities to
         the Borrower hereunder, but only to the Lender. Neither the Servicer
         nor any of its officers, directors, employees or agents shall be liable
         for any action taken or omitted by them hereunder or in connection
         herewith, unless caused by its or their willful misconduct. The
         Servicer's duties shall be mechanical and administrative in nature;
         nothing in this Agreement, express or implied, is intended to or shall
         be so construed as to impose upon the Servicer any obligations with
         respect to the Loan Documents except as expressly set forth herein.
         Neither the Borrower nor any Guarantor shall in any way

                                      -26-
<PAGE>

         be construed to be a third party beneficiary of any relationship
         between the Servicer and the Lender.

                  (c) The Servicer shall be entitled to rely, and shall be fully
         protected in relying, upon any communication whether written or oral
         believed by it to be genuine and correct and to have been signed, sent
         or made by the proper Person, and, with respect to all legal matters
         pertaining to this Agreement and its duties hereunder, upon advice of
         counsel selected by it.

                  (d) The Borrower shall be entitled to rely upon any
         communication whether written or oral sent or made by the Servicer for
         and on behalf of the Lender with respect to all matters pertaining to
         the Loan Documents and the Borrower's duties and obligations hereunder,
         unless and until the Borrower receives written notice from the Lender
         that the Servicer is no longer servicing this credit facility.

                  (e) The Servicer shall hold and be the custodian of the Loan
         Documents on the Lender's behalf for so long as the Servicer is
         servicing the Credit Facility.

                  Section 8.3 Costs and Expenses. The Borrower agrees to pay on
demand all costs and expenses (including legal fees) incurred by the Lender in
connection with the Loan Documents, any Letters of Credit, and any other
document or agreement related thereto, and the transactions contemplated hereby,
including wire transfer and ACH charges, the cost of credit reports, overadvance
fees, the expense of any auditors and fees and expenses in enforcing this
Agreement.

                  Section 8.4 Indemnity. In addition to the payment of expenses
pursuant to Section 8.3, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):

                           (i) any and all transfer taxes, documentary taxes,
                  assessments or charges made by any governmental authority by
                  reason of the execution and delivery of this Agreement and the
                  other Loan Documents or the making of the Advances;

                           (ii) any and all liabilities, losses, damages,
                  penalties, judgments, suits, claims, costs and expenses of any
                  kind or nature whatsoever (including, without limitation, the
                  reasonable fees and disbursements of counsel) in connection
                  with any investigative, administrative or judicial
                  proceedings, whether or not such Indemnitee shall be
                  designated a party thereto, which may be imposed on, incurred
                  by or asserted against any such Indemnitee, in any manner
                  related to or arising out of or in connection with the making
                  of the

                                      -27-
<PAGE>

                  Advances, this Agreement and the other Loan Documents or the
                  use or intended use of the proceeds of the Advances; and

                           (iii) any claim, loss or damage to which any
                  Indemnitee may be subjected as a result of any violation of
                  any federal, state, local or other governmental statute,
                  regulation, law, or ordinance dealing with the protection of
                  human health and the environment.

If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, then the Borrower or counsel
designated by the Borrower and satisfactory to the Indemnitee, will resist and
defend such action, suit or proceeding to the extent and in the manner directed
by the Indemnitee. Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 8.4 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder. If Ex-Im Bank makes
payment of a claim to the Lender under the Master Guaranty in connection with
the Credit Facility, Ex-Im Bank may assume all rights and remedies of the Lender
under the Loan Documents and may enforce any such rights or remedies against the
Borrower, the Collateral and any Guarantors. the Borrower shall hold Ex-Im Bank
and the Lender harmless from and indemnify them against any and all liabilities,
damages, claims, costs and losses incurred or suffered by either of them
resulting from (a) any materially incorrect certification or statement knowingly
made by the Borrower or its agent to Ex-Im Bank or the Lender in connection with
the Loan Facility, this Agreement, the Loan Authorization Agreement or any other
Loan Documents or (b) any material breach by the Borrower of the terms and
conditions of this Agreement, the Loan Authorization Agreement or any of the
other Loan Documents. the Borrower also acknowledges that any statement,
certification or representation made by the Borrower in connection with the Loan
Facility is subject to the penalties provided in Article 19 U.S.C. Section 1001.

                  Section 8.5 Binding Effect; Assignment; Counterparts;
Exchanging Information. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement and other Loan Documents may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same instrument. Without limiting the Lender's right to share
information regarding the Borrower and its Affiliates with the Lender's
participants, accountants, lawyers and other advisors, the Lender, Norwest
Corporation, and all direct and indirect subsidiaries of Norwest Corporation,
may exchange any and all information they may have in their possession regarding
the Borrower and its Affiliates, and the Borrower

                                      -28-
<PAGE>

waives any right of confidentiality it may have with respect to such exchange of
such information.

                  Section 8.7 Governing Law; Jurisdiction, Venue; Waiver of Jury
Trial. This Agreement and the Note shall be governed by and construed in
accordance with the laws (other than conflict laws) of the State of Minnesota.
Each party consents to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement, waives any argument that venue in any such forum is not
convenient and agrees that any litigation initiated by any of them in connection
with this Agreement shall be venued in either the District Court of Hennepin
County, Minnesota, or the United States District Court, District of Minnesota,
Fourth Division. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.

                  IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the date first above written.

WELLS FARGO BANK MINNESOTA,                LECTEC CORPORATION
  NATIONAL ASSOCIATION

By /s/ Brett A. Beugen                     By /s/ Douglas Nesbit
   -------------------                        ------------------
   Brett A. Beugen                            Douglas Nesbit
   Its  Assistant Vice President              Its  Chief Financial Officer

Address:                                   Address:

Sixth Street and Marquette Avenue          10701 Red Circle Drive
Minneapolis, Minnesota 55479               Minnetonka, MN 55343

Telecopy No. 612-667-2269                  Telecopy No. 612-933-4808

Federal Employer Identification No.        Federal Employer Identification No.
41-1592157                                 41-1301878

                                      -29-
<PAGE>

                                                Exhibit A to Credit and Security
                                                Agreement

                                 REVOLVING NOTE

$800,000.00                                               Minneapolis, Minnesota
                                                              September 28, 2000

         For value received, the undersigned, LECTEC CORPORATION, a Minnesota
corporation (the "Borrower"), hereby promises to pay on the Termination Date
under the Credit Agreement (defined below) to the order of WELLS FARGO BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association (the "Lender"),
at its main office in Minneapolis, Minnesota, or at any other place designated
at any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of Eight Hundred
Thousand Dollars and No Cents ($800,000) or, if less, the aggregate unpaid
principal amount of all Advances made by the Lender to the Borrower under the
Credit And Security Agreement of even date herewith by and between the Lender
and the Borrower (as the same may hereafter be amended, supplemented or restated
from time to time, the "Credit Agreement") together with interest on the
principal amount hereunder remaining unpaid from time to time (computed on the
basis of actual days elapsed in a 360-day year) from the date of the initial
Advance until this Note is fully paid at the rate from time to time in effect
under the Credit Agreement.

         This Note is the Note as defined in the Credit Agreement and is subject
to the Credit Agreement.

                                          LecTec Corporation

                                          By
                                             --------------------------
                                             Douglas Nesbit
                                             Its Chief Financial Officer

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