CREDIT AGREEMENT

CREDIT AGREEMENT


THIS CREDIT AGREEMENT is made and entered into as of May 1, 1996, by
and between LECTEC CORPORATION, a Minnesota corporation (the "Borrower"), whose
address is 10701 Red Circle Drive, Minnetonka, Minnesota 55343, and FIRST BANK
NATIONAL ASSOCIATION, a national banking association (the "Lender"), whose
address is 300 Prairie Center Drive, Eden Prairie, Minnesota 55344.

RECITALS

FIRST: Pursuant to one or more agreements ("Prior Loan Agreements"),
the Lender has made available to the Borrower a revolving line of credit ("Line
of Credit") in the maximum principal amount of One Million and No/100 Dollars
($1,000,000.00) evidenced by a promissory note dated January 2, 1996 made by the
Borrower payable to the order of the Lender ("Prior Revolver").

SECOND: The Borrower has requested that the Lender extend the
maturity date of the Line of Credit and revise the rate at which interest
accrues thereon and the Lender has indicated its willingness to accommodate such
request, subject, however, to certain terms and conditions.

NOW, THEREFORE, for and in consideration of the loans and advances to
be made by the Lender to the Borrower hereunder, the mutual covenants, promises
and agreements contained herein, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the Borrower and the
Lender agree as follows:

The following terms when used in this Credit Agreement shall, except
where the context otherwise requires, have the following meanings both in the
singular and plural forms thereof:

1. DEFINITIONS

"Account" means any right of the Borrower to payment for goods sold
or services rendered.

"Advance" means any advance by the Lender made under the Revolving
Credit Commitment. The face amount of any Letter of Credit shall be deemed an
Advance hereunder.

"Affiliate" means any corporation, association, partnership, joint
venture or other business entity directly or indirectly controlling or
controlled by, or under direct or indirect common control of, the Borrower or
any of its Subsidiaries.

"Borrower" means LecTec Corporation, a Minnesota corporation.

"Business Day" means any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to be
open in Minneapolis, Minnesota and, with respect to Advances to bear interest at
the Eurodollar Rate, a day on which dealings in United States dollars may be
carried on by the Lender in the interbank eurodollar market.

"Credit Agreement" means this Credit Agreement, as originally
executed and as may be amended, modified, supplemented, or restated from time to
time by written agreement between the Borrower and the Lender.

"Current Assets" means, at any date, the aggregate amount of all
assets of the Borrower that are classified as current assets in accordance with
GAAP.

"Current Liabilities" means, at any time, the aggregate amount of all
liabilities of the Borrower that are classified as current liabilities in
accordance with GAAP (including taxes and other proper accruals and the matured
portion of any indebtedness).

"Current Ratio" means, at any date, the ratio of the Borrower's
Current Assets to its Current Liabilities.

"Debt" means (i) all items of indebtedness or liability that, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liabilities side of a balance sheet as at the date of which Debt is
to be determined; (ii) indebtedness secured by any mortgage, pledge, lien or
security interest existing on property owned by the Person whose Debt is being
determined, whether or not the indebtedness secured thereby shall have been
assumed; and (iii) guaranties, endorsements (other than for purposes of
collection in the ordinary course of business) and other contingent obligations
in respect of, or to purchase or otherwise acquire indebtedness of others.

"Default" means any event which if continued uncured would, with
notice or lapse of time or both, constitute an Event of Default

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and as may be further amended from time to time, and the rules and
regulations promulgated thereunder by any governmental agency or authority, as
from time to time in effect.

"ERISA Affiliate" means, with respect to any person, any entity
(whether or not incorporated) which is a member of a Controlled Group, within
the meaning of Section 412(n) of the Internal Revenue Code, as amended from time
to time, and the regulations promulgated and ruling issued thereunder, of which
such person is a member.

"ERISA Event" means (i) a "reportable event," as such term is
described in Section 4043 of ERISA (other than a "reportable event" not subject
to the provision for a thirty (30) day notice to the PBGC), or an event
described in Section 4068(f) of ERISA, or (ii) the withdrawal of Borrower or any
ERISA Affiliate thereof from a multiple employer plan during a plan year in
which it was a "substantial employer," as such term is defined in Section
4001(a)(2) of ERISA, or the incurrence of liability by Borrower or any ERISA
Affiliate thereof under Section 4064 of ERISA upon the termination of a multiple
employer plan, or (iii) the distribution of a notice of intent to terminate a
Plan pursuant to Section 4041 (a)(2) of ERISA or the treatment of a plan
amendment as a termination under Section 4041 of ERISA, or (iv) the institution
of proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, or
(v) any other event or condition which is reasonably likely to constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan.

"Eurodollar Interbank Rate" means, for each Business Day, the offered
rate for deposits in United States Dollars (rounded upwards, if necessary, to
the nearest 1/16th of one percent), as reported on the Reuters Screen LIBO Page
for such Business Day for delivery of such deposits two (2) Business Days later
for an Interest Period of one (1) month. If at least two rates appear on the
Reuters Screen LIBO Page, the rate for such Interest Period shall be the
arithmetic mean of such rates (rounded as provided above). If fewer than two
rates appear, the Lender may, at its discretion, determine the rate based on
rates offered to the Lender for United States Dollar deposits in the interbank
Eurodollar market.

"Reuters Screen LIBO Page" means the display designated as page
"LIBO" on the Reuter Monitor Money Rates Service (or such other page as may
replace the LIBO Page on that service for the purpose of displaying London
interbank offered rates of major banks for United States Dollar deposits).

"Eurodollar Rate" means a per annum rate of interest equal to the
Eurodollar Rate (Reserve Adjusted) plus two and one-half percent (2.5011/o).

"Eurodollar Rate (Reserved Adjusted)": A rate per annum (rounded
upward, if necessary, to the nearest 1/16th of one percent) calculated for each
Business Day in accordance with the following formula, which shall continue in
effect until the next succeeding Business Day:

ERRA = Eurodollar Interbank Rate

1.00 - ERR

In such formula, "ERR" means "Eurodollar Reserve Rate" and "ERRA" means
"Eurodollar Rate (Reserve Adjusted)," in each instance determined by the Lender
for the applicable Interest Period. The Lender's determination of all such rates
for any Interest Period shall be conclusive in the absence of manifest error.

"Eurodollar Reserve Rate": A percentage, determined for each Business
Day, equal to the daily average during such Interest Period of the aggregate
maximum reserve requirements (including all basic, supplemental, marginal, and
other reserves), as specified under Regulation D of the Federal Reserve Board,
or any other applicable regulation that prescribes reserve requirements
applicable to Eurocurrency liabilities (as presently defined in Regulation D) or
applicable to extensions of credit by the Lender the rate of interest on which
is determined with regard to rates applicable to Eurocurrency liabilities.
Without limiting the generality of the foregoing, the Eurocurrency Reserve
Requirement shall reflect any reserves required to be maintained by the Lender
against (i) any category of liabilities that includes deposits by reference to
which the Eurodollar Rate is to be determined, or (ii) any category of
extensions of credit or other assets that includes the Revolving Credit Loan.

"Event of Default" means any event of default described in Section
8.1 hereof.

"GAAP" means the generally accepted accounting principles in the United
States in effect from time to time including, but not limited to, Financial
Accounting Standards Board (FASB) Standards and Interpretations, Accounting
Principles Board (APB) Opinions and Interpretations, Committee on Accounting
Procedure (CAP) Accounting Research Bulletins, and certain other accounting
principles which have substantial authoritative support.

"Interest Period": Except as otherwise indicated, a period commencing
on a Business Day and continuing until the following Business Day but not to
extend beyond the Maturity of the Revolving Credit Note.

"Lender" means First Bank National Association, a national banking
association, its successors and assigns:

"Letter of Credit" means any letter of credit issued by the Lender for
the account of the Borrower, together with all amendments, modifications,
replacements or restatements thereof.

"Lein" means any lien, security interest, pledge, mortgage, statutory
or tax lien, or other encumbrance of any kind whatsoever (including without
limitation, the lien or retained security title of a conditional vendor),
whether arising under a security instrument or as a matter of law, judicial
process or otherwise or by an agreement of the Borrower to grant any lien or
security interest or to pledge, mortgage or otherwise encumber any of its
assets.

"Loan Documents" means this Credit Agreement, the Notes and such other
documents as the Lender may reasonably require as security for, or otherwise
executed in connection with, any loan hereunder, all as originally executed and
as may be amended, modified or supplemented from time to time by written
agreement between the parties thereto.

"Material Adverse Occurrence" means any occurrence which materially
adversely affects the present or prospective financial condition or operations
of the Borrower, or which impairs, or may impair the ability of the Borrower to
perform its obligations under the Loan Documents.

"Maturity" of the Revolving Credit Note means the earlier of (a) the
date on which the Revolving Credit Note becomes due and payable upon the
occurrence of an Event of Default; or (b) the Termination Date.

"Note(s)" means the Revolving Credit Note and any and all promissory
notes and other evidences of indebtedness and repayment obligations of the
Borrower to the Lender delivered in connection with a Letter of Credit, in each
case as originally executed and as may be amended, modified, restated or
replaced pursuant to written agreement signed by the Lender.

"Person" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual fiduciary or other capacity.

"Reference Rate" means the rate of interest established and publicly
announced by the Lender from time to time as its "reference rate". The Lender
may lend to its customers at rates that are at, above or below the Reference
Rate.

"Regulatory Change" means any change after the date hereof in any (or
the adoption after the date hereof of any new) (a) Federal or state law or
foreign law applying to the Lender, or (b) regulation, interpretation, directive
or request (whether or not having the force of law) applying or in the
reasonable opinion of the Lender applicable to, the Lender of any court or
governmental authority charged with the interpretation or administration of any
law referred to in clause (a) of this definition or of any fiscal monetary, or
other authority having jurisdiction over the Lender.

"Revolving Credit Commitment" means the sum of One Million and No/100
Dollars ($1,000,000.00) or the Lender's obligation to extend Advances to the
Borrower under Section 2, as the context may require.

"Revolving Credit Loan" means, at any date, the aggregate amount of all
Advances made by the Lender to the Borrower pursuant to Section 2 hereof.

"Revolving Credit Note" means the Revolving Credit Note of even date
herewith in the original principal amount of One Million and No/100 Dollars
($1,000,000.00) made by the Borrower payable to the order of the Lender,
together with all extensions, renewals, modifications, substitutions and changes
in form thereof effected by written agreement between the Borrower and the
Lender.

"Subsidiary" means any corporation of which more than fifty percent
(50%) of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether,
at the time, stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned by the Borrower and/or one or more
Subsidiary or Affiliate.

"Tangible Net Worth" shall have the meaning ascribed to such term
under GAAP (and shall be reduced by all proper reserves) except that in no event
shall it include any receivables due from officers, directors, shareholders,
partners, or entities affiliated with the Borrower, any leasehold improvements,
patents, copyrights, or trademarks, any goodwill, or any organizational costs,
nor shall it include any prepaid expenses or any investment by the Borrower in
Natus, LLC.

"Termination Date" means the earlier of (a) January 1, 1997; or (b)
the date upon which the obligation of the Lender to make Advances is terminated
pursuant to Section 2.8.

"Working Capital" means, as of any date of determination the
Borrower's Current Assets minus its Current Liabilities.

2. THE REVOLVING CREDIT LOAN

2.1. Commitment for Revolving Credit. Subject to the Conditions of
Lending set forth in Section 4 hereof and as long as no Event of Default has
occurred hereunder, the Lender agrees to make Advances to the Borrower from time
to time from the date of this Credit Agreement through the Termination Date,
provided, however, that the Lender shall not be obligated -to make any Advance,
if after giving effect to such Advance, the aggregate outstanding principal
amount of all Advances would exceed the Revolving Credit Commitment. Within the
limits set forth above, the Borrower may borrow, repay and reborrow amounts
under the Revolving Credit Note.

2.2. Purpose of Loan/Use of Proceeds. The Borrower will use the
proceeds of any Advance hereunder for the Borrower's general corporate purposes.

2.3. The Revolving Credit Note. All Advances shall be evidenced by,
and the Borrower shall repay such Advances to the Lender, in accordance with,
the terms of the Revolving Credit Note; including without limitation the
provision of the Revolving Credit Note that the principal amount payable
thereunder at any time shall not exceed the then unpaid principal amount of all
Advances made by the Lender.

2.4. Records of Advances and Proceeds. The Borrower hereby
irrevocably authorizes the Lender to make or cause to be made, at or about the
time each Advance is made by the Lender, an appropriate notation on the Lender's
records of the principal amount of such Advance and the Lender shall make or
cause to be made, on or about the time a payment of any principal or interest of
the Revolving Credit Note is received an appropriate notation of such payment on
its records. The aggregate amount of all unpaid Advances set forth on the
records of the Lender shall be rebuttable presumptive evidence of the principal
amount owing and unpaid on the Revolving Credit Note.

2.5. Interest on the Revolving Credit Note.


(a) The Borrower agrees to pay interest on the outstanding
principal amount of the Revolving Credit Note from the
date thereof until paid in full at the Eurodollar Rate,
adjusted each Business Day; provided, however, that upon
the occurrence and during the continuation of an Event of
Default the Borrower agrees to pay interest on the
outstanding principal amount of the Revolving Credit Note
at a rate per annum equal to the greater of (a) two
percent (2.00%) in excess of the rate applicable to the
unpaid principal amount immediately before such Event of
Default; or (b) two percent (2.00%) in excess of the
Reference Rate in effect from time to time.



(b) Interest accrued on the Revolving Credit Note through
Maturity shall be payable on the first day of each
calendar month, commencing June 1, 1996 and at Maturity.
Interest accrued after Maturity shall be payable upon
demand.

(c) No provision of this Credit Agreement or the Revolving
Credit Note shall require the payment or permit the
collection of interest in excess of the rate permitted by
applicable law.

(d) All computation of interest on the outstanding principal
amount of the Revolving Credit Note shall be computed on
the basis of a year comprised of 360 days, but charged for
the actual number of days elapsed. Each change in the
interest rate payable on the Revolving Credit Note due to
a change in the Eurodollar Interbank Rate shall take place
simultaneously with the corresponding change in such rate.

2.6. Manner of Borrowing. The Borrower shall give the Lender written
or telephonic notice of each requested Advance by not later than 1:00 p.m.
(Minneapolis time) on the date such Advance is to be made. Each Advance shall be
deposited to the Borrower's account no. 1-801-2060-0150 with the Lender.

2.7. Payments. Payments and prepayments of principal of, and interest
on, the Revolving Credit Note and all fees, expenses and other obligations under
this Credit Agreement and the other Loan Documents shall be made without set-off
or counterclaim in immediately available funds not later than 3:00 p.m.,
Minneapolis time, on the dates due at the office of the Lender in Minneapolis,
Minnesota indicated on the first page of this Credit Agreement. Funds received
on any day after such time shall be deemed to have been received on the next
Business Day. Whenever any payment to be made hereunder or on the Revolving
Credit Note shall be stated to be due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and such extension of
time shall be included in the computation of any interest or fees.
Notwithstanding the foregoing, the Borrower authorizes the Lender to charge from
time to time against the Borrower's account no. 1-801-2060-0150 with the Lender
any payments when due.

2.8. Termination. The obligation of the Lender to make Advances shall
terminate:

(a) Upon receipt by the Lender of three (3) days' written
notice of termination from the Borrower given at any time
when no amount is outstanding under the Revolving Credit
Note;

(b) Immediately and without further action upon the occurrence
of an Event of Default of the nature referred to in
Subsection 8.1(c) or

(c) Immediately when any Event of Default (other than of the
nature specified in Subsection 8.I c shall have occurred
and be continuing and either (i) the Lender shall have
demanded payment of the Revolving Credit Note or (ii) the
Lender shall so elect to terminate its obligation to make
Advances by giving notice to Borrower.

3. ADDITIONAL PROVISIONS REGARDING EURODOLLAR RATE


3.1. Increased Costs. If, as a result of any law, rule, regulation,
treaty or directive, or any change therein or in the interpretation or
administration thereof or compliance by the Lender with any request or directive
(whether or not having the force of law) from any court, central bank,
governmental authority, agency or instrumentality, or comparable agency:


(a) any tax, duty or other charge with respect to any of the
loans under this Credit Agreement ("Loans"), the Notes or
the Revolving Credit Commitment is imposed, modified or
deemed applicable, or the basis of taxation of payments to
the Lender of interest or principal of the Loans or of any
fees with respect to the Revolving Credit Commitment
("Commitment Fees") (other than taxes imposed on the
overall net income of the Lender by the jurisdiction in
which the Lender has its principal office) is changed;

(b) any reserve, special deposit, special assessment or
similar requirement against assets of, deposits with or
for the account of, or credit extended by, the Lender is
imposed, modified or deemed applicable;

(c) any increase in the amount of capital required or expected
to be maintained by the Lender or any Person controlling
the Lender is imposed, modified or deemed applicable; or

(d) any other condition affecting this Credit Agreement or the
Revolving Credit Commitment is imposed on the Lender or
the relevant funding markets;

and the Lender determines that, by reason thereof, the cost to the Lender of
making or maintaining the Loans or the Revolving Credit Commitment is increased,
or the amount of any sum receivable by the Lender hereunder or under a Note in
respect of any Loan is reduced;

then, the Company shall pay to the Lender upon demand such additional amount or
amounts as will compensate the Lender (or the controlling Person in the instance
of (c) above) for such additional costs or reduction (provided that the Lender
has not been compensated for such additional cost or reduction in the
calculation of the Eurodollar Reserve Rate). Determinations by the Lender for
purposes of this section of the additional amounts required to compensate the
Lender shall be conclusive in the absence of manifest error. In determining such
amounts, the Lender may use any reasonable averaging, attribution and allocation
methods.

3.2. Deposits Unavailable or Interest Rate Unascertainable or
Inadequate: Impracticability. If the Lender determines (which determination
shall be conclusive and binding on the parties hereto) that:

(a) deposits of the necessary amount for the relevant Interest
Period for any Advance are not available to the Lender in
the relevant markets or that, by reason of circumstances
affecting such market, adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate for such
Interest Period;

(b) the Eurodollar Rate (Reserve Adjusted) will not adequately
and fairly reflect the cost to the Lender of making or
funding Advances for a relevant Interest Period; or

(c) the making or funding of Advances to bear interest at the
Eurodollar Rate has become impracticable as a result of
any event occurring after the date of this Credit
Agreement which, in the opinion of the Lender, materially
and adversely affects such Advances or the Lender's
commitment to make such Advances or the relevant market;

the Lender shall promptly give notice of such determination to the Company, and
from and after such notice interest shall accrue on all then-outstanding and
future Advances at one or more alternate rates of interest reasonably determined
by the Lender.

3.3. Changes in Law Rendering Use of Eurodollar Rate Unlawful. If at
any time due to the adoption of any law, rule, regulation, treaty or directive,
or any change therein or in the-interpretation -or administration thereof by any
court, central bank, governmental authority, agency or instrumentality, or
comparable agency charged with the interpretation or administration thereof, or
for any other reason arising subsequent to the date of this Credit Agreement, it
shall become unlawful or impossible for the Lender to apply the Eurodollar Rate
to obligations of the Company, the obligation of the Lender to apply such rate
shall, upon the happening of such event, forthwith be suspended for the duration
of such illegality or impossibility and, from and after such time interest shall
accrue on then-outstanding and future Advances at one or more alternate rates of
interest reasonably determined by the Lender.

3.4. Discretion of the Lender as to Manner of Funding.
Notwithstanding any provision of this Credit Agreement to the contrary, the
Lender shall be entitled to fund and maintain its funding of all or any part of
the Loans in any manner it elects; it being understood, however, that for
purposes of this Credit Agreement, all determinations hereunder shall be made as
if the Lender had actually funded and maintained each Advance through the
purchase of deposits having a term corresponding to such Interest Period and
bearing an interest rate equal to the Eurodollar Interbank Rate for such
Interest period (whether or not the Lender shall have granted any participations
in such Advances).

4. CONDITIONS OF LENDING

4.1. Conditions Precedent. This Credit Agreement and the Lender's
obligations hereunder are subject to receipt by the Lender of the following,
each to be in form and substance satisfactory to the Lender, unless the Lender
waives receipt of any of the following in writing:


(a) This Credit Agreement and the Revolving Credit Note each
appropriately completed and duly executed by the Borrower;

(b) A current UCC secured transaction search, federal and
state tax lien search, judgment and bankruptcy search,
reflecting results satisfactory to the Lender, on the
Borrower from the appropriate filing offices as required
by the Lender,

(c) A Certificate of Good Standing for the Borrower issued by
the Secretary of State of Minnesota;

(d) A copy of the Borrower's Bylaws, together with all
amendments, certified by the Secretary of the Borrower to
be a true and correct copy thereof;

(e) A copy of the Articles of Incorporation of the Borrower,
together with all amendments, certified by the Secretary
of State of the state of the Borrower's incorporation to
be a true and correct copy thereof;

(f) A copy of the resolutions of the Board of Directors of the
Borrower authorizing or ratifying the transactions
contemplated hereby, and the execution, delivery and
performance of the Loan Documents, and designating the
officers authorized to execute the Loan Documents to which
the Borrower is a party and to perform the obligations of
the Borrower thereunder,

(g) A certificate of the Secretary of the Borrower certifying
the names of the officers authorized to execute the Loan
Documents, together with a sample of the true signature of
each such officer; and

(h) Such other documents, information and actions as the
Lender may reasonably request.

4.2. Conditions Precedent to all Advances. The obligation of the
Lender to make any Advance hereunder, including the initial Advance, is subject
to the satisfaction of each of the following, unless waived in writing by the
Lender:

(a) The representations and warranties set forth in Section 5
are true and correct in all material respects on the date
hereof and on the date of any Advance.

(b) No Default or Event of Default shall have occurred and be
continuing.

(c) No litigation, arbitration or governmental investigation
or proceeding shall be pending, or, to the knowledge of
the Borrower, threatened, against the Borrower or
affecting the business or operations of the Borrower which
was not previously disclosed to the Lender and which, if
determined adversely to the Borrower, would have a
material adverse effect on the operation or financial
condition of the Borrower.

(d) No Default or Event of Default shall result from the
making of any such Advance.

(e) No Material Adverse Occurrence shall have occurred and be
continuing.

5. REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lender as follows:

5.1. Organization, etc. The Borrower is corporation validly organized
and existing and in good standing under the laws of the State of Minnesota, has
full power and authority to own its property and conduct its business
substantially as presently conducted by it and is duly qualified to do business
and is in good standing as a foreign corporation in each other jurisdiction
where the nature of its business makes such qualification necessary. The
Borrower has full power and authority to enter into and perform its obligations
under the Loan Documents and to obtain the loans and Advances hereunder.

5.2. Due Authorization. The execution, delivery and performance by
the Borrower of the Loan Documents have been duly authorized by all necessary
corporate action, do not require any approval or consent of, or any
registration, qualification or filing with, any governmental agency or authority
or any approval or consent of any other Person (including, without limitation,
any stockholder), do not and will not conflict with, result in any violation of
or constitute any default under, any provision of the Borrower's Articles of
Incorporation or Bylaws, any agreement binding on or applicable to the Borrower
or any of its property, or any law or governmental regulation or court decree or
order, binding upon or applicable to the Borrower or of any of its property and
will not result in the creation or imposition of any Lien on any of its property
pursuant to the provisions of any agreement binding on or applicable to the
Borrower or any of its property except pursuant to the Loan Documents.

5.3. Validity of the Loan Documents. The Loan Documents to which the
Borrower is a party are the legal, valid and binding obligations of the Borrower
and are enforceable in accordance with their terms, subject only to bankruptcy,
insolvency, reorganization, moratorium or similar laws, rulings or decisions at
the time in effect affecting the enforceability of rights of creditors generally
and to general equitable principles which may limit the right to obtain
equitable remedies.

5.4. Financial Information. The financial statements of the Borrower
furnished to the Lender have been and will be prepared in accordance with GAAP
consistently applied by the Borrower and present fairly the financial condition
of the Borrower as of the dates thereof and for the periods covered thereby. The
Borrower is not aware of any contingent liabilities or obligations which would,
upon becoming non-contingent liabilities or obligations, be a Material Adverse
Occurrence. Since the date of the most recent such statements, neither the
condition (financial or otherwise), the business nor the properties of the
Borrower have been materially and adversely affected in any way.

5.5. Litigation, Other Proceedings. Except as previously disclosed to
and approved of in writing by the Lender, there is no action, suit or proceeding
at law or equity, or before or by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, pending or, to
the knowledge of the Borrower, threatened, against the Borrower or any of its
property, which, if determined adversely would be a Material Adverse Occurrence;
and the Borrower is not in default with respect to any final judgment, writ,
injunction, decree, rule or regulation of any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, where
such default would be a Material Adverse Occurrence.

5.6. Title to Assets. Except for Liens permitted by Section 7.2, the
Borrower has good and marketable title to all of its assets, real and personal.

5.7. Guarantees and Indebtedness. Except as disclosed on financial
statements of the Borrower furnished to the Lender, the Borrower is not a party
to any contract of guaranty or suretyship and none of its assets is subject to
any contract of that nature and the Borrower is not indebted to any other party,
except the Lender.

5.8. Margin Stock. No part of any loan or Advance hereunder shall be
used at any time by the Borrower to purchase or carry margin stock (within the
meaning of Regulation U promulgated by the Board of Governors of the Federal
Reserve System) or to extend credit to others for the purpose of purchasing or
carrying any margin stock. The Borrower is not engaged principally, or as one of
its important activities, in the business of extending credit for the purposes
of purchasing or carrying any such margin stock. No part of the proceeds of any
loan or Advance hereunder will be used by the Borrower for any purpose which
violates, or which is inconsistent with, any regulations promulgated by the
Board of Governors of the Federal Reserve System.

5.9. Taxes. The Borrower has filed all federal, state and other
income tax returns which are required to be filed through the date of this
Credit Agreement and has paid all taxes as shown on said returns, and all taxes
due or payable without returns and all assessments received to the extent such
taxes and assessments have become due. All tax liabilities of the Borrower are
adequately provided for on its books, including interest and penalties. No
income tax liability of a material nature has been asserted by taxing
authorities for taxes in excess of those already paid. The Borrower has made all
required withholding deposits.

5.10. Accuracy of Information. All factual information furnished by
or on behalf of the Borrower to the Lender for purposes of or in connection with
this Credit Agreement or any transaction contemplated by this Credit Agreement
is, and all other such factual information furnished by or on behalf of the
Borrower to the Lender in the future, will be true and accurate in every
material respect on the date as of which such information is dated or certified.
No such information contains any material misstatement of fact or omits any
material fact or any fact necessary to prevent such information from being
misleading.

5.11. Material Agreements. The Borrower is not a party to any
agreement or instrument or subject to any restriction that materially and
adversely affects its business, property or assets, operations or condition
(financial or otherwise).

5.12. Defaults. The Borrower is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any: (a) agreement to which such entity is a party, which default
might have a material adverse effect on the business, properties or assets,
operations, or condition (financial or otherwise) of the Borrower, or (b)
instrument evidencing any indebtedness or under any agreement relating to such
indebtedness.

5.13. ERISA. (a) No Reportable Event has occurred and is continuing
with respect to any Plan; (b) the Pension Benefit Guaranty Corporation or any
successor entity has not instituted proceedings to terminate any Plan; and (c)
each Plan of the Borrower has been maintained and funded in all material
respects in accordance with its terms and with ERISA. All undefined capitalized
terms used in this Section shall have the meanings ascribed to them in ERISA.

5.14. Financial Status. The Borrower is not insolvent (as such term
is defined in Section 101(29) of the United States Bankruptcy Code of 1978, as
amended or Minnesota Statutes Section 513.42, as amended) and will not be
rendered insolvent (as such term is defined in Section 10 1(29) of the United
States Bankruptcy Code of 1978, as amended or Minnesota Statutes Section 513.42,
as amended) by execution of this Credit Agreement or any other of the Loan
Documents, or consummation of the transactions contemplated thereby.

5.15. Survival of Representations. All representations and warranties
contained in this Section 5 shall survive the delivery of the Notes and the
making of the loans and Advances evidenced thereby and any investigation at any
time made by or on behalf of Lender shall not diminish its rights to rely
thereon.

6. AFFIRMATIVE COVENANTS

As long as there remains any amount outstanding under the Notes or
the Lender has any obligation to make Advances under the Revolving Loan
Commitment, the Borrower shall, unless waived in writing by the Lender:

6.1. Financial Statements and Reports. Furnish to the Lender, at the
times set forth below, the following financial statements, reports and
information:

(a) As soon as available, but in any event within one hundred
twenty (120) days after each fiscal year end, audited
financial statements of the Borrower including without
limitation a balance sheet, income statement and sources of
income certified by certified public accountants satisfactory
to the Lender to have been prepared in accordance with GAAP
consistently applied;

(b) As soon as available but in any event within one hundred
twenty (120) days after each fiscal year end a copy of the
form IOK Report filed for such year by the Borrower with the
Securities and Exchange Commission or other governmental
entity;

(c) As soon as available, but in any event within sixty (60) days
after the last day of each quarterly fiscal period a copy of
the form IO-Q Report for such quarter filed by the Borrower
with the Securities and Exchange Commission or other
governmental entity; and

(d) Such other information concerning the business, operations and
condition (financial or otherwise) of the Borrower as the
Lender may reasonably request.

6.2. Maintenance of Corporate Existence. Maintain and preserve its
corporate existence.

6.3. Taxes. Pay and discharge as the same shall become due and
payable, all taxes, assessments and other governmental charges and levies
against or on any of its property, as well as claims of any kind which, if
unpaid, might become a Lien upon any of its properties, unless such tax, levy,
charge assessment or Lien is being contested in good faith by the Borrower and
is supported by an adequate book reserve. The Borrower shall make all required
withholding deposits.

6.4. Notices. As soon as practicable, give notice to the Lender of:

(a) The commencement of any litigation relating to the Borrower
involving claimed damages in excess of $100,000.00 or
relating to the transactions contemplated by this Credit
Agreement;

(b) The commencement of any material arbitration or governmental
proceeding or investigation not previously disclosed to the
Lender which has been instituted or, to the knowledge of the
Borrower, is threatened against the Borrower or its property
which, if determined adversely to the Borrower, would have a
material adverse effect on the business, operations or
condition (financial or otherwise) of the Borrower,

(c) Any Reportable Event or "prohibited transaction" or the
imposition of a Withdrawal Liability, within the meaning of
ERISA, in connection with any Plan and, when known, any
action taken by the Internal Revenue Service, Department of
Labor or Pension Benefit Guaranty Corporation with respect
thereto, and any adverse development which occurs in any
litigation, arbitration or governmental investigation or
proceeding previously disclosed to the Lender which if
determined adversely to the Borrower would constitute a
Material Adverse Occurrence; and

(d) Any Default or Event of Default under this Credit Agreement.

6.5. Compliance with Laws - Carry on its business activities in
substantial compliance with all applicable federal or state laws and all
applicable rules, regulations and orders of all governmental bodies and offices
having power to regulate or supervise its business activities. The Borrower
shall maintian all material rights, liens, franchises, permits, certificates of
compliance or grants of authority required in the conduct of its business.

6.6. Books and Records. Keep books and records reflecting all of its
business affairs and transactions in accordance with GAAP consistently applied
and permit the Lender, and its representatives, at reasonable times and
intervals, to visit all of its offices, discuss its financial matters with
officers of the Borrower and its independent public accountants (and by this
provision the Borrower authorizes its independent public accountants to
participate in such discussions) and examine any of its books and other
corporate records.

6.7. Insurance. The Borrower shall keep its business adequately
insured and maintain the insurance coverages required under any document
securing the Notes or this Credit Agreement.

6.8. Conduct of Business. Continue to engage primarily in the
business being conducted on the date of this Credit Agreement.

6.9. Working Capital. Maintain at all times Working Capital of not
less than Two Million and No/I00 Dollars ($2,000,000.00).

6.10. Tangible Net Worth. Maintain at all times Tangible Net Worth in
an amount not less than Eight Million Eight Hundred Fifty Thousand and No/100
Dollars ($8,850,000.00).

6.11. Current Ratio. Maintain at all times a Current Ratio of not
less than 2.5 to 1.0

6.12. Debt to Tangible Net Worth Ratio:. Maintain at all times a
ratio of its Debt to its Tangible Net Worth of not more than .70 to 1.0

6.13. Zero Balance. Maintain a zero balance under the Revolving
Credit Note for at least thirty (30) days during the term thereof.

6.14. Further Assurances. The Borrower agrees upon reasonable request
by the Lender to execute and deliver such further instruments, deeds and
assurances, and do such further acts as may be necessary or proper to carry out
more effectively the purposes of this Credit Agreement and the other Loan
Documents.

6.15. ERISA Compliance. Comply at all times with all applicable
provisions of ERISA and the regulations and published interpretations
thereunder.

6.16. Letters of Credit. The Borrower agrees that if it wishes from
time to time to have the Lender issue for the Borrower's account one or more
Letters of Credit, the Lender shall only be obligated to issue any such Letter
of Credit upon completion of all applications, agreements for repayment and
other documentation deemed necessary by the Lender for such Letter of Credit in
accordance with its standard practices. The Borrower further agrees that (i) any
repayment agreement or other evidence of the Borrower's obligation to repay
amounts outstanding under a Letter of Credit will be deemed one of the "Notes"
for purposes of this Credit Agreement; (ii) the Borrower will pay to the Lender
in connection with Letters of Credit all fees and costs in accordance with the
Lender's customary and standard practices for letters of credit of the same type
and amount and interest accrued on amounts advanced thereunder at the rate or
rates described in the documents executed in connection with each such Letter of
Credit; and (iii) no Letter of Credit shall expire later than the maturity date
of the Revolving Credit Note stated thereon.

7. NEGATIVE COVENANTS

As long as there remains any amount outstanding under the Notes or
the Lender has any obligation to make Advances under the Revolving Loan
Commitment, the Borrower shall not, unless waived in writing by the Lender:

7.1. Consolidation Merger, Sale of Assets- Acquisitions. Consolidate
with or merge into or with any other entity; or sell (other than sales of
inventory in the ordinary course of business), transfer, lease or otherwise
dispose of all or a substantial part of its assets; or acquire a substantial
interest in another Person either through the purchase of all or substantially
all of the assets of that Person or the purchase of a controlling equity
interest in that Person.

7.2. Liens. Create, incur, assume or suffer to exist any Lien or any
of its property, real or personal, except (a) Liens in favor of the Lender, (b)
Liens disclosed to and approved of in writing by the Lender, (c) Liens for
current taxes and assessments which are not yet due and payable; and (d)
purchase money security interests to secure the indebtedness permitted under
Section 7.3(d) below.

7.3. Additional Indebtedness. Create, incur, assume or suffer to
exist any indebtedness except: (a) indebtedness in favor of the Lender, (b)
current liabilities incurred in the ordinary course of business; (c)
indebtedness existing on the date of this Credit Agreement and disclosed to and
approved of in writing by the Lender; and (d) purchase money indebtedness
incurred in connection with the acquisition of fixed assets not to exceed
$250,000.00 in the aggregate during any fiscal year of the Borrower.

7.4. Guaranties. Assume, guarantee, endorse or otherwise become
liable in connection with the indebtedness of any other person or entity except
endorsements of negotiable instruments for deposit or collection in the ordinary
course of business.

7.5. Change in Ownership. Permit a material change in the ownership
or management of the Borrower as in effect on the date of this Credit Agreement.

8. EVENTS OF DEFAULT AND REMEDIES

8.1. Events of Default. The term "Event of Default" shall mean any of
the following events:

(a) The Borrower shall default in the payment when due, or if
payable on demand, upon demand, of any principal or interest
on any of the Notes; or

(b) The Borrower shall default (other than a default in payment
under subsection (a) above) in the due performance and
observance of any of the covenants contained in any of the
Loan Documents and such default shall continue unremedied for
a period of fifteen (I5) days after notice from the Lender to
the Borrower thereof; or

(c) The Borrower shall become insolvent or generally fail to pay
or admit in writing its inability to pay its debts as they
become due; or the Borrower shall apply for, consent to,
or acquiesce in the appointment of a trustee, receiver or
other custodian for itself or any of its property, or make a
general assignment for the benefit of its creditors; or
trustee, receiver or other custodian shall otherwise be
appointed for the Borrower or any of its assets; or any
bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding shall be commenced by or
against the Borrower or the Borrower shall take any corporate
action to authorize, or in furtherance of, any of the
foregoing; or

(d) Any judgments, writs, warrants of attachment, executions or
similar process (not undisputedly covered by insurance) in an
aggregate amount in excess of $25,000.00 shall be issued or
levied against the Borrower or any of its assets and shall not
be released, vacated or fully bonded prior to any sale and in
any event within forty-five (45) days after its issue or levy;
or

(e) Any garnishment summons, writ of attachment, or other legal
paper referring to the Borrower or any Guarantor shall be
served on the Lender, or

(f) Any representation or warranty set forth in this Credit
Agreement or any other Loan Document shall be untrue in any
material respect on the date as of which the facts set forth
are stated or certified; or

(g) The occurrence of any Material Adverse Occurrence; or

(h) A Reportable Event (as defined under ERISA) shall have
occurred.

8.2. Remedies. If an Event of Default described in Section 8.1(c)
shall occur, the full unpaid balance of the Notes (outstanding balance plus
accrued interest) and all other obligations of the Borrower to the Lender shall
automatically be due and payable without declaration, notice, presentment,
protest or demand of any kind (all of which are hereby expressly waived) and the
obligation of the Lender to make additional Advances shall automatically
terminate. If any other Event of Default shall occur and be continuing, the
Lender may terminate its obligation to make additional Advances and may declare
the outstanding balance of the Notes and all other obligations of the Borrower
to the Lender to be due and payable without further notice, presentment, protest
or demand of any kind (all of which are hereby expressly waived), whereupon the
full unpaid amount of Notes and all other obligations of the Borrower to the
Lender shall become immediately due and payable. Upon any Event of Default, the
Lender shall be entitled to exercise any and all rights and remedies available
under any of the Loan Documents or otherwise available at law or in equity to
collect Notes and all other obligations of the Borrower to the Lender and to
realize upon or otherwise pursue any and all Collateral and other security
(including without limitation any and all guarantees) for the loans under this
Credit Agreement

9. MISCELLANEOUS

9.1. Waivers-Amendments. The provisions of the Loan Documents may
from time to time be amended, modified, or waived, if such amendment,
modification or waiver is in writing and signed by the Lender. No failure or
delay on the part of the Lender or the holder(s) of the Notes in exercising any
power or right under any of the Loan Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. No notice to or demand on the Borrower in any case shall entitle
it to any notice or demand in similar or other circumstances.

9.2. Notices. All communications and notices provided under this Credit
Agreement shall be in writing and addressed or delivered to the Borrower or the
Lender at their respective addresses shown on the first page hereof, or to any
party at such other address as may be designated by such party in a written
notice to the other parties. Such notices shall be delivered by any of the
following means: (i) mailing through the United States Postal Service, postage
prepaid, by registered or certified mail, return receipt requested; (ii)
delivery by reputable overnight delivery service including without limitation,
and by way of example only: Federal Express, DHL, Airborne Express and Express
Mail; or (iii) delivery by reputable private personal delivery service. Notices
delivered in accordance with (i) above shall be deemed delivered the second
Business Day after deposit in the mail; notices delivered in accordance with
(ii) above shall be deemed delivered the first Business Day after delivery to
the delivery service; and notices delivered in accordance with (iii) above shall
be deemed delivered the same Business Day as that specified by the notifying
party to the delivery service.

9.3. Costs and Expenses. The Borrower agrees to pay all expenses for
the preparation of this Credit Agreement, including exhibits, and any amendments
to this Credit Agreement as may from time to time hereafter be required, and the
reasonable attorneys fees and legal expenses of counsel for the Lender, from
time to time incurred in connection with the preparation and execution of this
Credit Agreement and any document relevant to this Credit Agreement, and
amendments hereto or thereto, and the consideration of legal questions relevant
hereto and thereto. The Borrower agrees to reimburse Lender upon demand for, all
reasonable out-of-pocket expenses (including attorneys fees and legal expenses)
in connection with the Lender's enforcement of the obligations of the Borrower
hereunder or under the Note or any other of the Loan Documents, whether or not
suit is commenced including, without limitation, attorneys fees, and legal
expenses in connection with any appeal of a lower court's order or judgment The
obligations of the Borrower under this Section 9.3 shall survive any termination
of this Credit Agreement.

9.4. Interest Limitation. All agreements between the Borrower and the
Lender are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the indebtedness
evidenced or secured thereby or otherwise, shall the rate of interest charged or
agreed to be paid to the Lender for the use, forbearance, loaning or detention
of such indebtedness exceed the maximum permissible interest rate under
applicable law ("Maximum Rate"). If for any reason or in any circumstance
whatsoever fulfillment of any provision of this Credit Agreement and/or the
Notes, any document securing or executed in connection herewith or therewith, or
any other agreement between the Borrower and the Lender, at any time shall
require or permit the interest rate applied thereunder to exceed the Maximum
Rate, then the interest rate shall automatically be reduced to the Maximum Rate,
and if the Lender should ever receive interest at a rate that would exceed the
Maximum Rate, the amount of interest received which would be in excess of the
amount receivable after applying the Maximum Rate to the balance of the
outstanding obligation shall be applied to the reduction of the principal
balance of the outstanding obligation for which the amount was paid and not to
the payment of interest thereunder. This provision shall control every other
provision of any and all agreements between the Borrower and the Lender and
shall also be binding upon and applicable to any subsequent holder of the Notes.

9.5. Severability. Any provision of this Credit Agreement or any
other of the Loan Documents executed pursuant hereto which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such portion or unenforceability without invalidating the
remaining provisions of this Credit Agreement or such Loan Document or affecting
the validity or enforceability of such provisions in any other jurisdiction.

9.6. Cross-References. References in this Credit Agreement or in any
other of the Loan Documents executed pursuant hereto to any Section are, unless
otherwise specified, to such Section of this Credit Agreement or such Loan
Document, as the case may be.

9.7. Headings. The various headings of this Credit Agreement or of
any other of the Loan Documents executed pursuant hereto are inserted for
convenience only and shall not affect the meaning or interpretation of this
Credit Agreement or such Loan Document or any provisions hereof or thereof.

9.8. Governing Law: Venue, Each of the Loan Documents shall be deemed
to be a contract made under and governed by the laws of the State of Minnesota.
The Borrower hereby 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 Credit Agreement and any other of the Loan
Documents, waives any argument that venue in such forums is not convenient and
agrees that any litigation instigated by the Borrower against the Lender in
connection herewith or therewith shall be venued in the federal or state court
that has jurisdiction over matters arising in Minneapolis, Minnesota.

9.9. Successors and Assigns. This Credit Agreement shall be binding
upon and shall inure to the benefit of the parities hereto and their respective
successors and assigns, except that Borrower may not assign or transfer its
rights hereunder without the prior written consent of Lender.

9.10. Recitals Incorporated. The recitals to this Credit Agreement
are incorporated into and constitute an integral part of this Credit Agreement

9.11. Multiple Counterparts. This Credit Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original and
all of which shall constitute one and the same instrument.

9.12. Prior Loan Agreements Superseded, This Credit Agreement amends,
restates, and supersedes in their entirety the Prior Loan Agreements and all
obligations, liabilities and indebtedness of the Borrower incurred or arising
thereunder shall be deemed to have been incurred and arising hereunder.

IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

LECTEC CORPORATION,
a Minnesota corporation

By: /s/Erwin Templin

Its: Excecutve Vice President

FIRST BANK NATIONAL ASSOCIATION,
a national banking association

By: /s/Terri A. Deveau

Its: Vice President


ACKNOWLEDGMENTS



STATE OF MINNESOTA )
)
COUNTY OF HENNEPIN )

The foregoing instrument was acknowledged before me this 6th day of
May 1996, by Erwin Templin, the Executive Vice President of LECTEC CORPORATION,
a Minnesota corporation, on behalf of the corporation.


/s/Terri A. Deveau
Notary Public

Terri A. DeVeau
HENNEPIN COUNTY
My Commission Expires Jan. 31, 2000



STATE OF MINNESOTA )
)
COUNTY OF HENNEPIN )


The foregoing instrument was acknowledged before me this 6th day of
May, 1996, by Terry A. DeVeau, the Vice President of FIRST BANK NATIONAL
ASSOCIATION a national banking association, on behalf of the association.


/s/ Dawn M. Riegert
Notary Public

Dawn M. Reigert
Hennipin County
My Commission Expires Jan. 31. 2000