Document:

Exhibit
10.1

     

    ADVISORY
SERVICES AGREEMENT

     

    This
ADVISORY SERVICES
AGREEMENT (this “Agreement”) takes effect as
of June 1, 2010, and is entered into by and between LecTec Corporation, a
Minnesota corporation (the “Company”), and Mr. Judd
Berlin (“Advisor”), who
is domiciled in the State of Florida.

     

    WHEREAS, Advisor is the
Chairman of the Board of Directors, and former Chief Executive Officer and Chief
Financial Officer, of the Company; and

     

    WHEREAS, given Advisor’s prior
experience as an officer of the Company and knowledge of the Company’s pending
litigation and hand sanitizing patch initiative, the Company desires to retain
Advisor to render certain advisory services to the Company on the terms and
conditions set forth in this Agreement; and

     

    WHEREAS, Advisor desires to be
retained by the Company on such terms and conditions.

     

    NOW, THEREFORE, in
consideration of the premises, the mutual agreements herein set forth and other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:

     

    1.           Retention of Advisor; Services to be
Performed.  The Company
hereby retains Advisor to render the advisory services set forth on Exhibit A hereto (the “Services”).  Advisor
hereby accepts such engagement and agrees to perform such Services for the
Company upon the terms and conditions set forth in this
Agreement.  During the Term of this Agreement, Advisor shall devote
such portion of his time, attention, skill and energy as may be reasonably
required to perform the Services required by this Agreement.  For the
purposes of the Services provided under this Agreement, Advisor shall coordinate
his efforts under this Agreement with the Company’s Chief Executive
Officer.

     

    In
rendering Services hereunder, Advisor shall not be acting as an employee of the
Company.  Advisor shall be responsible for the payment of all federal,
state or local taxes payable with respect to all amounts paid to Advisor under
this Agreement; provided,
however, that if the Company is determined to be liable for collection
and/or remittance of any such taxes, Advisor shall immediately reimburse the
Company for all such payments made by the Company.

     

    2.           Term.  This Agreement
shall commence as of the date first written above and shall continue for a
continuous period until terminated in accordance with Section 6 (the “Term”).

     

    3.           Compensation.  As compensation
for Advisor’s Services, the Company shall pay to Advisor an annual fee of
$132,000 (the “Advisory
Fee”).  The Advisory Fee shall be payable to Advisor at the end
of each calendar month (or part thereof on a pro rata basis) during the Term,
beginning in June 2010.  In the event that Advisor becomes physically
or mentally disabled such that he is unable to adequately perform the Services,
the Company shall not be obligated for the payment of any further compensation
hereunder until such disability has ceased and Advisor is able to resume his
responsibilities and duties hereunder, even though this Agreement has not been
terminated by the Company pursuant to Section 6(b).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
    

    4.           Expenses.  The Company shall
reimburse Advisor in accordance with the policies and procedures that the
Company establishes from time to time for all reasonable and necessary
out–of–pocket expenses that Advisor incurs in performing the Services hereunder,
including, without limitation, reasonable travel expenses incurred by Advisor.
In addition, if and to the extent that such an allowance is not being provided
to Advisor as Chairman of the Board of the Company, the Company will provide
Advisor with a monthly mobile telephone allowance of $500.

     

    5.           Standards
of Conduct.  Advisor and the
Company acknowledge that Advisor is also concurrently serving as a member of the
Company’s Board of Directors and in such role owes certain duties to the Company
and its shareholders, including, without limitation, duties of care and loyalty,
which will also govern Advisor’s performance of the Services
hereunder.  In the event that Advisor is continuing to perform the
Services under this Agreement after Advisor has ceased to be a member of the
Board of Directors, then the following provisions shall become effective upon
Advisor ceasing to be a director of the Company:

     

    (a)           Ownership of Intellectual
Property

     

    (i)           Notification and
Disclosure.  Advisor shall
promptly notify the Company in writing of the existence and nature of, and shall
promptly and fully disclose to the Company, any and all ideas, designs,
practices, processes, apparatus, improvements and inventions (all of which are
hereinafter referred to as “inventions”) that Advisor has
conceived or first actually reduced to practice and/or may conceive or first
actually reduce to practice during the Term or which Advisor may conceive or
reduce to practice within six (6) months after the Term, if such inventions
relate to a product or process upon which Advisor worked during the
Term.

     

    (ii)           Ownership of
Inventions.  All such
inventions shall be the sole and exclusive property of the Company or its
nominee, and during the Term of this Agreement and thereafter, whenever
requested to do so by the Company, Advisor shall execute and assign any and all
applications, assignments and other instruments that the Company shall deem
necessary or convenient in order to apply for and obtain Letters Patent of the
United States and/or of any foreign countries for such inventions and in order
to assign and convey to the Company or its nominee the sole and exclusive right,
title and interest in and to such inventions.  Advisor will render aid
and assistance to the Company in any interference or litigation pertaining to
such inventions and all expenses reasonably incurred by Advisor at the request
of the Company shall be borne by the Company.  In this connection, if
any such aid or assistance requires any expenditure of Advisor’s time after
termination of this Agreement, Advisor shall be entitled to compensation for the
time requested by the Company at an hourly rate equal to the pro rata hourly
rate at which Advisor was being paid for a normal pay period immediately prior
to the end of the Term of this Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
    

    (iii)           Limitation.  The provisions
of this Section 5(a) shall not apply to any invention meeting the following
conditions:

     

    (A)         such
invention was developed entirely on Advisor’s own time;

     

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

     

    (C)         such
invention does not relate (i) directly to the business of the Company or (ii) to
the Company’s actual or demonstrably anticipated research or development;
and

     

    (D)         such
invention does not result from any service performed by Advisor for the
Company.

     

    (iv)           Survival.  This Section
5(a) shall survive the Term.

     

    (b)          Protection of Trade Secrets,
Know–How and/or Other Confidential Information of the Company.

     

    (i)           Confidential
Information.  During the Term
of this Agreement or at any time thereafter Advisor shall not divulge, furnish
or make accessible to anyone or use in any way (other than in the ordinary
course of the business of the Company as contemplated for use by Advisor under
this Agreement) any confidential or secret knowledge or information of the
Company which Advisor has acquired or become acquainted with or will acquire or
become acquainted with prior to the termination of the period of his engagement
by the Company (including engagement by the Company or any affiliated companies
prior to the date of this Agreement), whether developed by himself or by others,
concerning any trade secrets, confidential or secret designs, processes,
formulae, plans, devices or material (whether or not patented or patentable)
directly or indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential or secret
development or research work of the Company or any other confidential
information or secret aspects of the business of the Company.  Advisor
acknowledges that the above–described knowledge or information constitutes a
unique and valuable asset of the Company acquired at great time and expense by
the Company and its predecessors and that any disclosure or other use of such
knowledge or information other than for the sole benefit of the Company would be
wrongful and would cause irreparable harm to the Company.  Both during
and after the Term of this Agreement, Advisor will refrain from any acts or
omissions that would reduce the value of such knowledge or information to the
Company.  The foregoing obligations of confidentiality, however, shall
not apply to any knowledge or information which is now published or which
subsequently becomes generally publicly known in the form in which it was
obtained from the Company, other than as a direct or indirect result of the
breach of this agreement by Advisor.

     

    (ii)           Copyrightable
Material.  All
right, title and interest in all copyrightable material which Advisor shall
conceive or originate, either individually or jointly with others, and which
arise out of the performance of this Agreement, will be the property of the
Company and are, by this Agreement, assigned to the Company along with ownership
of any and all copyrights in the copyrightable material.  Advisor
agrees to execute all papers and perform all other acts necessary to assist the
Company to obtain and register copyrights on such materials in any and all
countries.  Where applicable, works of authorship created by Advisor
for the Company in performing his responsibilities under this agreement shall be
considered “works made for hire” as defined in the U.S. Copyright
Act.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iii)           Know–How and Trade
Secrets.  All know–how and
trade secret information conceived or originated by Advisor which arises out of
the performance of the services hereunder or any related material or information
shall be the property of the Company and all rights therein are hereby assigned
to the Company.

     

    (iv)           Return of Records.  Upon termination
of this Agreement, Advisor shall deliver to the Company all property that is in
his possession and that is the Company’s property or relates to the Company’s
business, including, but not limited to, records, notes, data, memoranda,
software, electronic information, models, equipment and any copies of the
same.  Advisor shall permanently delete all of his electronic data
containing such property.

     

    (c)           Advisor Representations and
Warranties.  Advisor
represents and warrants to the Company as follows:

     

    (i)       
    Compliance with
Laws.  All Services
provided hereunder comply with or will comply with all applicable laws and
regulations; and

     

    (ii)           Competing
Activities.  Advisor has
disclosed to the Company any and all other obligations, arrangements, agreements
or interests of Advisor that may constitute or give rise to a conflict of
interest on the part of Advisor given the nature and terms of this Agreement,
and Advisor is not now under any obligation of a contractual or other nature to
any person, firm, corporation or other entity which is inconsistent or in
conflict with this Agreement, or which would prevent, limit or impair the
execution of this Agreement or the performance by Advisor of Advisor’s
obligations hereunder.

     

    (d)           Indemnification.  Advisor shall
indemnify, defend and hold harmless the Company and its officers, directors,
agents and employees from and against all claims, losses, expenses, fees
(including attorneys’ and expert witnesses’ fees), costs and judgments that may
be asserted against the Company (a) that result from the acts or omissions of
Advisor or (b) that result from or arise in any way out of any such claims by
any third parties which are based upon or are the result of any breach of the
warranties contained in Section 5(c).

     

    6.           Termination.  Notwithstanding
any contrary provision contained elsewhere in this Agreement, this Agreement and
the rights and obligations of the Company and Advisor hereunder (other than the
rights and obligations of the parties under Sections 5, 6 and 7(n) which shall
survive any termination of this Agreement) shall be terminated immediately upon
the occurrence of any of the following events:

     

    (A)          Advisor’s
death;

     

    (B)          Advisor
becomes physically or mentally disabled such that he is unable to adequately
perform the services hereunder for a continuous period of thirty (30)
days;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (C)           Advisor
is convicted of any crime (excluding traffic violations or other minor
offenses), or engages in any activity that constitutes a material violation of
normal standards of business ethics;

     

    (D)          Advisor
willfully refuses to comply with or implement reasonable policies established by
the Company;

     

    (E)           party
is in breach of this Agreement and has failed to cure such breach within fifteen
(15) days of the receipt of written notice of breach from the non–breaching
party; or

     

    (F)           for
any reason by either party upon thirty (30) days’ written notice to the other
party;

     

    provided that, if this
Agreement is terminated by Advisor under Section 6(e) or by the Company under
Section 6(f), and Advisor thereafter provides services to the Company,
including, without limitation, attending, testifying at or otherwise assisting
the Company at any trial in the Company’s medicated patch patent infringement
litigation, then Advisor shall be compensated for such services at the rate of
$250 per hour, subject to maximums of $3,000 per day and $10,000 per
week.

     

    7.           Miscellaneous.

     

    (a)           Entire
Agreement.  This Agreement
(including the exhibits, schedules and other documents referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and supersedes any prior understandings, agreements or
representations, written or oral, relating to the subject matter
hereof.

     

    (b)           Counterparts.  This Agreement
may be executed in separate counterparts, each of which will be an original and
all of which taken together shall constitute one and the same agreement, and any
party hereto may execute this Agreement by signing any such
counterpart.

     

    (c)           Severability.  Whenever
possible, each provision of this Agreement shall be interpreted in such a manner
as to be effective and valid under applicable law but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule, the validity, legality and enforceability of the other provision of
this Agreement will not be affected or impaired thereby.

     

    (d)           Successors and
Assigns.  This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives and, to the extent permitted by
subsection (e), successors and assigns.

     

    (e)           Assignment.  This Agreement
and the rights and obligations of the parties hereunder shall not be assignable,
in whole or in part, by either party without the prior written consent of the
other party.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
    

    (f)           Modification, Amendment,
Waiver or Termination.  No provision of
this Agreement may be modified, amended, waived or terminated except by an
instrument in writing signed by the parties to this Agreement.  No
course of dealing between the parties will modify, amend, waive or terminate any
provision of this Agreement or any rights or obligations of any party under or
by reason of this Agreement.

     

    (g)           Notices.  All notices,
consents, requests, instructions, approvals or other communications provided for
herein shall be in writing and delivered by personal delivery, overnight
courier, mail, electronic facsimile or e–mail addressed to the receiving party
at the address set forth below.  All such communications shall be
effective when received.

     

    As
to the Company

     

    LecTec Corporation

    1407
South Kings Highway

    Texarkana,
Texas 75501

    Attention:
Chief Executive Officer

    

    As
to Advisor

    

    Judd A.
Berlin

    9115
Strada Place

    Naples,
Florida 34108

    

    Any party
may change the address set forth above by notice to each other party given as
provided herein.

     

    (h)           Headings.  The headings and
any table of contents contained in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.

     

    (i)           Governing
Law.  ALL MATTERS RELATING TO THE
INTERPRETATION, CONSTRUCTION, VALIDITY AND ENFORCEMENT OF THIS AGREEMENT SHALL
BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO
ANY CHOICE OF LAW PROVISIONS THEREOF.

     

    (j)           Third–Party
Benefit.  Nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights, remedies, obligations or liabilities of any nature
whatsoever.

     

    (k)           No Waiver.  No delay on the
part of the Company in exercising any right hereunder shall operate as a waiver
of such right.  No waiver, express or implied, by the Company of any
right or any breach by Advisor shall constitute a waiver of any other right or
breach by Advisor.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (l)           Jurisdiction and
Venue.  THIS AGREEMENT MAY BE ENFORCED IN ANY
FEDERAL COURT OR STATE COURT SITTING IN TEXARKANA, TEXAS, AND EACH PARTY
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUM IS NOT CONVENIENT.  IF ANY PARTY COMMENCES
ANY ACTION UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM
THE RELATIONSHIP CREATED BY THIS AGREEMENT IN ANOTHER JURISDICTION OR VENUE, ANY
OTHER PARTY TO THIS AGREEMENT SHALL HAVE THE OPTION OF TRANSFERRING THE CASE TO
THE ABOVE–DESCRIBED VENUE OR JURISDICTION OR, IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

     

    (m)           Remedies.  The parties
agree that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may, in its discretion, apply to
any court of law or equity of competent jurisdiction for specific performance
and injunctive relief in order to enforce or prevent any violations this
Agreement, and any party against whom such proceeding is brought hereby waives
the claim or defense that such party has an adequate remedy at law and agrees
not to raise the defense that the other party has an adequate remedy at
law.

     

    (n)           Foreign Earned Income
Exclusion.  The Company will
also reimburse you in the amount of $30,000 if, in the course of performing your
duties as Chairman of the Board of Directors of the Company and/or providing the
Services hereunder (including attending, testifying at or otherwise assisting
the Company at any trial as described in the proviso to Section 6 of this
Agreement), you are required to be physically present in the United States for
more than 30 days within any calendar year after 2010 and, as a result, forfeit
the benefit of the Foreign Earned Income Exclusion under the U.S. Internal
Revenue Code of 1986, as amended (the Reimbursement
Fee”).  For the avoidance of doubt, the obligations of the
Company set forth in this Section 7(n) are in addition to, and do not supersede
or in any way modify, the Company’s current obligation to pay Mr. Berlin the
Reimbursement Fee as a result of Mr. Berlin’s physical presence in the United
States for more than 30 days during the 2010 calendar year in connection with
Mr. Berlin’s performance of his duties as the Company’s then chief executive
officer and chief financial officer.

     

    (Remainder
of page intentionally left blank; signature page follows)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date set forth in the first
paragraph.

     

    
      
        	 
      	
                COMPANY

              
	 
      	 
      
	 
      	
                LecTec
      Corporation

              
	 
      	 
      
	 
      	
                By:

              	
                /s/ Greg Freitag

              
	 
      	 
      	
                Name:
      Greg Freitag

              
	 
      	 
      	
                Its:
      Chief Executive Officer

              
	 
      	 
      
	 
      	
                ADVISOR

              
	 
      	 
      
	 
      	
                /s/ Judd Berlin

              
	 
      	
                Judd
      Berlin

              

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
A

    Services

    

    (1)           Medicated Patch Patent Infringement
Litigation.  At the Company’s direction, Advisor shall provide
advice, guidance and other services with respect to the Company’s patent
infringement litigation against Chattem, Inc. and Prince of Peace Enterprises,
Inc. related to the Company’s medicated patch technology, including, without
limitation, attending, testifying at or otherwise assisting the Company at any
trial held in this litigation.

    

    (2)           Business Opportunities in
Asia.  At the Company’s direction, Advisor shall provide
services with respect to developing the Company’s business in Asia, particularly
with respect to the Company’s hand sanitizing patch technology.Exhibit
10.2

    

    LECTEC
CORPORATION

    NON–QUALIFIED
STOCK OPTION AGREEMENT

     

    This Non–Qualified Stock Option
Agreement (the “Agreement”), made as of this
1st day of June, 2010 (the “Effective Date”), by and
between LecTec Corporation, a Minnesota corporation (the “Company”), and Greg Freitag,
a resident of Minneapolis, Minnesota (the “Optionee”).

    

    1.           Grant of
Option.  The Company hereby grants to Optionee the right and
option (the “Option”)
to purchase all or any part of an aggregate of 125,000 shares (the “Shares”) of the common stock,
par value $0.01 per share (the “Common Stock”), of the
Company at the price of $3.50 per Share on the terms and conditions set forth
herein.  It is understood and agreed that such price is not less than
100% of the fair market value of a share of Common Stock on the date of this
Agreement.  The Option is not intended to qualify as an incentive
stock option within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended (the “Code”).

    

    2.           Duration and
Exerciseability.  The Option may not be exercised by Optionee
except as set forth herein, and the Option shall in all events terminate ten
(10) years from the Effective Date.  Subject to the other terms and
conditions set forth herein, the Option shall vest and may be exercised by
Optionee in cumulative installments as follows:

    

    
      
        
          
            
              	
                      On or after each of the following dates

                    	     	
                      Percentage of Shares as to

                      which the Option is exercisable

                    	 
	
                      90th
      day following the Effective Date

                    	 	 	20	%
	
                      180th
      day following the Effective Date

                    	 	 	20	%
	
                      270th
      day following the Effective Date

                    	 	 	20	%
	
                      360th
      day following the Effective Date

                    	 	 	20	%
	
                      450th
      day following the Effective Date

                    	 	 	20	%

            

          

        

      

    

    

    During
the lifetime of Optionee, the Option shall be exercisable only by
Optionee.  The vesting of the Option is subject to acceleration under
the circumstances described in Sections 3 and 4.

    

    3.           Effect of Termination of Relationship
with the Company.

     

    (a)           In
the event that Optionee shall cease to be employed by the Company, for any
reason other than by the Company for Cause (as defined below) or due to
Optionee’s death or disability, Optionee shall have the right to exercise the
Option at any time within twelve (12) months after such termination of
employment to the extent of the full number of Shares Optionee was entitled to
purchase under the Option on the date of termination, subject to the condition
that the Option shall not be exercisable after the expiration of its
term.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b)           In
the event that Optionee shall cease to be employed by the Company by reason of
Optionee’s termination by the Company for Cause (as defined below), the Option
shall terminate as of the date of the misconduct and shall not be exercisable
thereafter.

     

    (c)           If
Optionee shall die while employed by the Company, or within three (3) months
after termination of his employment with the Company for any reason other than
by the Company for Cause, or if Optionee’s employment with the Company is
terminated because the Optionee has become disabled within the meaning of
Section 22(e)(3) of the Code, and Optionee shall not have fully exercised the
Option, the Option may be exercised at any time within twelve (12) months after
the date of Optionee’s death or termination of employment because of disability
by the legal representative or, if applicable, guardian of Optionee or by any
person to whom the Option is transferred by will or the applicable laws of
descent and distribution to the extent of the full number of Shares Optionee was
entitled to purchase under the Option on the date of death (or termination of
his employment, if earlier) or termination of Optionee’s employment because of
disability and subject to the condition that the Option shall not be exercisable
after the expiration of its term.

    

    4.           Effect of Change in Control and
Termination.

    

    (a)                 Notwithstanding
the vesting schedule set forth in Section 2 of this Agreement, the entire Option
shall vest and be immediately exercisable in the event that there shall have
been a Change in Control of the Company (as defined below) and Optionee’s
employment by the Company shall have been terminated within 15 months following
the Change in Control of the Company for any reason other than (i) because of
Optionee’s death, (ii) by the Company for Cause (as defined below) or (iii) by
Optionee other than for Good Reason (as defined below).

     

    (b)                 For
purposes of this Agreement, a “Change in Control of the
Company” shall be deemed to have occurred if (i) a change in control
occurs of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), whether or
not the Company is then subject to such reporting requirement; (ii) any “person”
or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the “beneficial owner” (as defined in Rule 13d–3 promulgated
under the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company’s then
outstanding securities; iii) individuals who at the date hereof constitute the
Board of Directors of the Company cease for any reason to constitute at least a
majority thereof (unless the election or the nomination for election of each new
director was approved by a vote of at least a majority of the directors then
still in office who were directors at the date hereof and/or their successor
directors who were recommended or elected to succeed a beginning director by at
least a majority of the directors who were directors at the date hereof); or
(iv) the shareholders of the Company approve (A) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of Company stock would be converted into cash,
securities or other property, other than a merger of the Company in which
shareholders immediately prior to the merger have the same proportionate
ownership of stock of the surviving corporation immediately after the merger;
(B) any sale, lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all of the assets of the
Company; or (C) any plan of liquidation or dissolution of the
Company.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (c)                 For
purposes of this Agreement, termination by the Company of Optionee’s employment
for “Cause” shall mean
termination upon (i) the willful and continued failure by Optionee to
substantially perform his duties with the Company (other than any such failure
resulting from his disability or from termination by Optionee for Good Reason),
after a demand for substantial performance is delivered to Optionee that
specifically identifies the manner in which the Company believes that Optionee
has not substantially performed his duties, and Optionee has failed to resume
substantial performance of his duties on a continuous basis within 30 days of
receiving such demand, (ii) the willful engaging by Optionee in conduct which is
demonstrably and materially injurious to the Company, monetarily or otherwise or
(iii) Optionee’s conviction of a felony.  For purposes of this Section
4(c), no act, or failure to act, on Optionee’s part shall be deemed “willful”
unless done, or omitted to be done, by Optionee not in good faith and without
reasonable belief that his action or omission was in the best interest of the
Company.  Failure to perform duties with the Company during any period
of disability shall not constitute Cause.

     

    (d)                 For
purposes of this Agreement, termination by Optionee of his employment for “Good
Reason” shall mean termination within 15 months following a Change in Control of
the Company upon the occurrence of any one or more of the
following:

     

    (i) the
assignment to Optionee of any duties inconsistent in any respect with his
position (including status, offices, titles, and reporting requirements),
authorities, duties, or other responsibilities as in effect immediately prior to
the Change in Control of the Company or any other action of the Company which
results in a diminishment in such position, authority, duties, or
responsibilities, other than an insubstantial and inadvertent action which is
remedied by the Company promptly after receipt of notice thereof given by
Optionee;

     

    (ii) a
reduction by the Company in Optionee’s base salary as in effect on the date
hereof and as the same shall be increased from time to time hereafter;
and

     

    (iii) the
failure by the Company to (A) continue in effect any material compensation or
benefit plan, program, policy or practice in which Optionee was participating at
the time of the Change in Control of the Company or (B) provide Optionee with
compensation and benefits at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each employee benefit plan,
program, policy and practice as in effect immediately prior to the Change in
Control of the Company (or as in effect following the Change in Control of the
Company, if greater).

     

    Optionee’s
right to terminate his employment pursuant to this Section 4(d) shall not be
affected by his incapacity due to physical or mental
illness.  Optionee’s continued employment shall not constitute consent
to, or a waiver of rights with respect to, any circumstance constituting Good
Reason hereunder.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (e)                 Any
purported termination of Optionee’s employment by the Company or by Optionee
(other than by reason of Optionee’s death) within 15 months following the month
in which a Change in Control of the Company occurs, shall be communicated by
Notice of Termination to the other party hereto.  For purposes of this
Agreement, a “Notice of
Termination” shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and the Date of
Termination (as defined below) and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of Optionee’s
employment under the provision so indicated.

     

    (f)                 For
purposes of this Agreement, “Date of Termination” shall
mean the date specified in the Notice of Termination (except in the case of
Optionee’s death, in which case Date of Termination shall be the date of death);
provided, however, that if Optionee’s employment is terminated by the Company
other than for Cause, the date specified in the Notice of Termination shall be
at least 30 days from the date the Notice of Termination is given to Optionee
and if Optionee’s employment is terminated by Optionee for Good Reason, the date
specified in the Notice of Termination shall not be more than 60 days from the
date the Notice of Termination is given to the Company.

     

    (g)                 Any
termination of Optionee’s employment by the Company without Cause prior to a
Change in Control of the Company which occurs at the request or insistence of
any person (other than the Company) related to the Change in Control of the
Company shall be deemed to have occurred after the Change in Control of the
Company for purposes of this Agreement.

     

    5.           Manner of
Exercise.

    

    (a)           The
Option may only be exercised by Optionee or other proper party within the option
period by delivering written notice of exercise to the Company at its principal
executive office.  The notice shall state the number of Shares as to
which the Option is being exercised and shall be accompanied by payment in full
of the option price for all of the Shares designated in the notice.

    

    (b)           Optionee
may, at the Company’s election, pay the option price in cash, by check (bank
check, certified check or personal check) or by any other means approved by the
Board of Directors of the Company (the “Board”) in its
discretion.

    

    (c)           The
exercise of the Option is contingent upon receipt from Optionee (or other proper
person exercising the Option) of a representation that, at the time of such
exercise, it is Optionee’s intention to acquire the Shares being purchased for
investment and not with a view to the distribution or sale thereof within the
meaning of the Securities Act of 1933, as amended (the “Securities Act”); provided, however, that the
receipt of such representation shall not be required upon exercise of the Option
if, at the time of such exercise, the issuance of the Shares subject to the
Option shall have been properly registered under the Securities Act and all
applicable state securities laws.  Such representation shall be in
writing and in such form as the Company may reasonably request.  The
certificate representing the Shares so issued for investment shall be imprinted
with an appropriate legend setting forth all applicable restrictions on their
transferability.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    6.           Adjustments.  If
there shall be any change in the Common Stock through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split or other change in
the corporate structure of the Company, appropriate adjustments shall be made by
the Board in the number of Shares and the price per Share of the Shares subject
to this Option in order to prevent dilution or enlargement of option rights
granted hereunder.

    

    7.           Miscellaneous.

    

    (a)           This
Agreement contains all of the terms governing this grant, and this Agreement is
intended to be complete, final and conclusive.

     

    (b)           This
Agreement shall not confer on Optionee any right with respect to continuance of
employment by the Company or any of its subsidiaries, nor will it interfere in
any way with the right of the Company to terminate such employment at any
time.  Optionee shall have none of the rights of a shareholder with
respect to the Shares until such Shares shall have been issued to him or her
upon exercise of the Option.

     

    (c)           The
Company shall at all times during the term of the Option reserve and keep
available such number of Shares as will be sufficient to satisfy the
requirements thereof.  The exercise of all or any part of the Option
shall only be effective at, and may be deferred until, such time as the sale of
the Shares pursuant to such exercise will not violate any federal or state
securities laws, it being understood that the Company shall have no obligation
to register the issuance or sale of the Shares for such purpose.

     

    (d)           This
Option may not be transferred, except by will or the laws of descent and
distribution to the extent provided in Section 3(c) or pursuant to a qualified
domestic relations order as defined by the Code.

    

    (e)           The
Board may amend the terms and conditions of this Agreement, accelerate the
exercisability of the Option, and waive any conditions of or rights of the
Company under this Agreement, prospectively or
retroactively.  Notwithstanding the foregoing, except as otherwise
provided in this Agreement, the Board may not amend, alter, suspend, discontinue
or terminate this Agreement, prospectively or retroactively, if such action
would adversely affect the rights of Optionee, without the consent of the
Optionee (or such other person entitled to hold this Option pursuant to Section
3(c) above).

    

    (g)           In
order to comply with all applicable federal or state income tax laws or
regulations, the Company may take such action as it deems appropriate to ensure
that all applicable federal or state payroll, withholding, income or other
taxes, which are the sole and absolute responsibility of the Optionee, are
withheld or collected from such Optionee.  In order to assist an
Optionee in paying all or a portion of the federal and state taxes to be
withheld or collected upon exercise of the Option, the Board, in its discretion
and subject to such additional terms and conditions as it may adopt, may permit
the Optionee to satisfy such tax obligation
by (i) electing to have the Company withhold a portion of the Shares otherwise
to be delivered upon exercise or receipt of (or the lapse of restrictions
relating to) such Option with a Fair Market Value (as defined below) equal to
the amount of such taxes or (ii) delivering to the Company Shares other than
Shares issuable upon exercise such Option with a Fair Market Value equal to the
amount of such taxes. The election, if any, must be made on or before the date
that the amount of tax to be withheld is determined.  For purposes of
this Agreement, “Fair Market
Value” shall mean, with respect to property (including without limitation
any Shares), the fair market value of such property determined by such methods
or procedures as shall be established from time to time by the
Board.  Notwithstanding the foregoing, unless otherwise determined by
the Board, the Fair Market Value of Shares as of a given date shall be, if the
Shares are then quoted on the Over–the–Counter Bulletin Board (“OTCBB”), the closing price as
reported on the OTCBB on such date or, if the OTCBB is not open for trading on
such date, on the most recent preceding date when it is open for
trading.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (h)           The
validity, construction and effect of the terms of this Agreement and any rules
and regulations relating to this Agreement shall be determined in accordance
with the laws of the State of Minnesota.

    

    (i)           If
any provision of this Agreement is or becomes or is deemed to be invalid,
illegal or unenforceable in any jurisdiction or would disqualify the Option
under any law deemed applicable by the Company, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be so
construed or deemed amended without, in the determination of the Company,
materially altering the purpose or intent of the Agreement, such provision shall
be stricken from this Agreement, and the remainder of the Agreement shall remain
in full force and effect.

    

    (j)           This
Agreement shall not create or be construed to create a trust or separate fund of
any kind or a fiduciary relationship between the Company or any affiliate of the
Company and the Optionee or any other person.

    

    (k)           No
fractional shares of Common Stock shall be issued or delivered pursuant to this
Agreement, and the Company shall determine whether cash shall be paid in lieu of
any fraction share or whether such fractional share or any rights thereto shall
be canceled, terminated or otherwise eliminated.

    

    (Remainder
of this page intentionally left blank; signature page follows)

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed on the Effective
Date.

    

    
      
        
          
            
              
                
                  
                    	
                            LECTEC
      CORPORATION

                          
	 
      	 
      
	
                            By:

                          	
                            /s/ Judd A. Berlin

                          
	 
      	
                            Judd
      A. Berlin, Chairman of the Board

                          
	 
      	 
      
	
                            OPTIONEE

                          
	 
      	 
      
	
                            /s/ Greg Freitag

                          
	
                            Greg
      Freitag

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