Exhibit 10.1 to Electromed, Inc. Form S1



Exhibit 10.1



CREDIT AGREEMENT


          THIS
CREDIT AGREEMENT, dated as of December 9, 2009, is by and between ELECTROMED,
INC., a corporation organized under the laws of the State of Minnesota (the
“Borrower”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association
(the “Bank”). 


ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS


          Section
1.1 Defined Terms. As used in this Agreement the following terms shall
have the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural form of the terms defined, as the
context may require): 


	
  

 	
  

 
	
  

 	
           “Affiliate”:
 When used with reference to any Person, (a) each Person that, directly or
 indirectly, controls, is controlled by or is under common control with, the
 Person referred to, (b) each Person which beneficially owns or holds,
 directly or indirectly, five percent or more of any class of voting Equity
 Interests of the Person referred to, (c) each Person, five percent or more of
 the voting Equity Interests (or if such Person is not a corporation, five
 percent or more of the equity interest) of which is beneficially owned or
 held, directly or indirectly, by the Person referred to, and (d) each of such
 Person’s officers, directors, joint venturers and partners. The term control
 (including the terms “controlled by” and “under common control with”) means
 the possession, directly, of the power to direct or cause the direction of
 the management and policies of the Person in question. 

 
	
  

 	
  

 
	
  

 	
           “Applicable
 Margin”: 2.75%. 

 
	
  

 	
  

 
	
  

 	
           “Bank”:
 As defined in the opening paragraph hereof. 

 
	
  

 	
  

 
	
  

 	
           “Banking
 Day”: Any day (other than a Saturday, Sunday or legal holiday in the
 State of Minnesota) on which banks are permitted to be open in Minneapolis,
 Minnesota. 

 
	
  

 	
  

 
	
  

 	
           “Board”:
 The Board of Governors of the Federal Reserve System or any successor
 thereto. 

 
	
  

 	
  

 
	
  

 	
           “Borrower”:
 As defined in the opening paragraph hereof. 

 
	
  

 	
  

 
	
  

 	
           “Borrower
 Loan Documents”: This Agreement, the Notes and any of the Security
 Documents to be executed by the Borrower. 

 
	
  

 	
  

 
	
  

 	
           “Borrowing
 Base”: As determined in accordance with the formula set forth in Exhibit
 E hereto. 

 
	
  

 	
  

 
	
  

 	
           “Borrowing
 Base Certificate”: A certificate in the form of Exhibit F hereto. 

 


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           “Borrowing
 Base Deficiency”: At the time of any determination, the amount, if any,
 by which the unpaid principal balance of the Revolving Note exceeds the
 Borrowing Base. 

 
	
  

 	
  

 
	
  

 	
           “Capital
 Expenditures”: For any period, the sum of all amounts that would, in
 accordance with GAAP, be included as additions to property, plant and
 equipment on a statement of cash flows for the Borrower during such period,
 in respect of (a) the acquisition, construction, improvement, replacement or
 betterment of land, buildings, machinery, equipment or of any other fixed
 assets or leaseholds, (b) to the extent related to and not included in (a)
 above, materials, contract labor (excluding expenditures properly chargeable
 to repairs or maintenance in accordance with GAAP), and (c) other capital
 expenditures and other uses recorded as capital expenditures or similar terms
 having substantially the same effect. 

 
	
  

 	
  

 
	
  

 	
           “Capitalized
 Lease”: A lease of (or other agreement conveying the right to use) real or
 personal property with respect to which at least a portion of the rent or
 other amounts thereon constitute Capitalized Lease Obligations. 

 
	
  

 	
  

 
	
  

 	
           “Capitalized
 Lease Obligations”: As to any Person, the obligations of such Person to
 pay rent or other amounts under a lease of (or other agreement conveying the
 right to use) real or personal property which obligations are required to be
 classified and accounted for as a capital lease on a balance sheet of such
 Person under GAAP (including Statement of Financial Accounting Standards No.
 13 of the Financial Accounting Standards Board), and, for purposes of this
 Agreement, the amount of such obligations shall be the capitalized amount
 thereof, determined in accordance with GAAP (including such Statement No.
 13). 

 
	
  

 	
  

 
	
  

 	
           “Change
 of Control”: The occurrence, after the Closing Date, of any of the
 following circumstances: (a) any Person or two or more Persons acting in
 concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of
 the Securities and Exchange Commission under the Securities Exchange Act of
 1934), directly or indirectly, of Equity Interests of the Borrower
 representing 50% or more of the combined voting power of all Equity Interests
 of the Borrower entitled to vote in the election of directors; or (b) during
 any period of up to twelve consecutive months, whether commencing before or
 after the Closing Date, individuals who at the beginning of such twelve-month
 period were directors of the Borrower ceasing for any reason to constitute a
 majority of the Board of Directors of the Borrower (other than by reason of
 death, disability or scheduled retirement). 

 
	
  

 	
  

 
	
  

 	
           “Charges”:
 As defined in Section 8.20. 

 
	
  

 	
  

 
	
  

 	
           “Closing
 Date”: Any Banking Day between the date of this Agreement and December 31, 2009 selected by the Borrower for the making of the Term Loan or the first
 Revolving Loan hereunder; provided, that all the conditions precedent to the
 obligation of the Bank to make such Loan, as set forth in Article III, have been,
 or, on such Closing Date, will be, satisfied. 

 


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           “Code”:
 The Internal Revenue Code of 1986, as amended. 

 
	
  

 	
  

 
	
  

 	
           “Commitments”:
 The Revolving Commitment and the Term Loan Commitments. 

 
	
  

 	
  

 
	
  

 	
           “Contingent
 Obligation”: With respect to any Person at the time of any determination,
 without duplication, any obligation, contingent or otherwise, of such Person
 guaranteeing or having the economic effect of guaranteeing any Indebtedness
 of any other Person (the “primary obligor”) in any manner, whether directly
 or otherwise: (a) to purchase or pay (or advance or supply funds for the
 purchase or payment of) such Indebtedness or to purchase (or to advance or
 supply funds for the purchase of) any direct or indirect security therefor,
 (b) to purchase property, securities, Equity Interests or services for the
 purpose of assuring the owner of such Indebtedness of the payment of such
 Indebtedness, (c) to maintain working capital, equity capital or other
 financial statement condition of the primary obligor so as to enable the
 primary obligor to pay such Indebtedness or otherwise to protect the owner
 thereof against loss in respect thereof, or (d) entered into for the purpose
 of assuring in any manner the owner of such Indebtedness of the payment of
 such Indebtedness or to protect the owner against loss in respect thereof;
 provided, that the term “Contingent Obligation” shall not include
 endorsements for collection or deposit, in each case in the ordinary course
 of business. 

 
	
  

 	
  

 
	
  

 	
           “Current
 Liabilities”: As of any date, the current liabilities of the Borrower,
 determined in accordance with GAAP. 

 
	
  

 	
  

 
	
  

 	
           “Default”:
 Any event which, with the giving of notice (whether such notice is required
 under Section 7.1, or under some other provision of this Agreement, or
 otherwise) or lapse of time, or both, would constitute an Event of Default. 

 
	
  

 	
  

 
	
  

 	
           “EBITDA”:
 For any period of determination, the net income of the Borrower before
 deductions for income taxes, Interest Expense, depreciation and amortization,
 all as determined in accordance with GAAP. 

 
	
  

 	
  

 
	
  

 	
           “EBITDAR:
 For any period of determination, the net income of the Borrower before
 deductions for income taxes, Interest Expense, depreciation, amortization and
 operating lease expense, all as determined in accordance with GAAP. 

 
	
  

 	
  

 
	
  

 	
           “Environmental
 & ADA
 Indemnity Agreement”: The Environmental & ADA Indemnity Agreement by the Borrower in favor of the
 Bank dated as of the date hereof, as the same may be amended, restated or
 otherwise modified from time to time. 

 
	
  

 	
  

 
	
  

 	
           ‘‘Equity
 Interests”: All shares, interests, participation or other equivalents,
 however designated, of or in a corporation or limited liability company,
 whether or not voting, including but not limited to common stock, member
 interests, warrants, preferred stock, convertible debentures, and all
 agreements, instruments and documents convertible, in whole or in part, into
 any one or more or all of the foregoing. 

 
	
  

 	
  

 
	
  

 	
           “ERISA”:
 The Employee Retirement Income Security Act of 1974, as amended. 

 


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           “ERISA
 Affiliate”: Any trade or business (whether or not incorporated) that is a
 member of a group of which the Borrower is a member and which is treated as a
 single employer under Section 414 of the Code. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Event
 of Default”: Any event described in Section 7.1. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Fixed
 Charge Coverage Ratio”: For the four consecutive fiscal quarters ending
 on the date of determination, the ratio of 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (a)          EBITDA,
 plus operating lease expense, minus the sum of (i) any Restricted Payments,
 (ii) 50% of depreciation and (iii) tax expenses of the Borrower paid in cash,
 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
                         to

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (b)          the
 sum of Interest Expense and all required principal payments with respect to
 Total Liabilities (including but not limited to all payments with respect to
 Capitalized Lease Obligations of the Borrower), plus operating lease expense,
 

 
	
  

 	
  

 	
  

 
	
  

 	
 in each case
 determined for said period in accordance with GAAP. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “GAAP”:
 Generally accepted accounting principles set forth in the opinions and
 pronouncements of the Accounting Principles Board of the American Institute
 of Certified Public Accountants and statements and pronouncements of the
 Financial Accounting Standards Board or in such other statements by such
 other entity as may be approved by a significant segment of the accounting
 profession, which are applicable to the circumstances as of any date of
 determination. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Government
 Receivable ” means any account receivable with respect to which the
 obligor is a Governmental Entity. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Governmental
 Entity ” means the United States of America, any state, any political
 subdivision of a state and any agency or instrumentality of the United States
 of America or any state or political subdivision thereof and any entity
 exercising executive, legislative, judicial, regulatory or administrative
 functions of or pertaining to government. Payments from Governmental Entities
 shall be deemed to include payments governed under the Social Security Act
 (42 U.S.C. § 1395,
 et seq.), including payments under Medicare, Medicaid and CHAMPUS, and
 payments administered or regulated by CMS. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Governmental
 Entity Receivables Account” means account no. 1-047-9049-1310 or any
 successor thereto at the Bank. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Governmental
 Entity Receivables Account Notice ” means a notice pursuant to which the
 Borrower gives revocable standing instructions to the Bank to sweep funds on
 a daily basis from the Governmental Entity Receivables Account to a deposit
 account 

 


4









	
  

 	
  

 
	
  

 	
 satisfactory
 to the Bank in its sole discretion which account is subject to the Bank’s
 “control,” as defined in Section 9-104 of the Uniform Commercial Code. 

 
	
  

 	
  

 
	
  

 	
           “Immediately
 Available Funds”: Funds with good value on the day and in the city in
 which payment is received. 

 
	
  

 	
  

 
	
  

 	
           “Indebtedness”:
 With respect to any Person at the time of any determination, without
 duplication, all obligations, contingent or otherwise, of such Person which
 in accordance with GAAP should be classified upon the balance sheet of such
 Person as liabilities, but in any event including: (a) all obligations of
 such Person for borrowed money (including non-recourse obligations), (b) all
 obligations of such Person evidenced by bonds, debentures, notes or other
 similar instruments, (c) all obligations of such Person upon which interest
 charges are customarily paid or accrued, (d) all obligations of such Person
 under conditional sale or other title retention agreements relating to
 property purchased by such Person, (e) all obligations of such Person issued
 or assumed as the deferred purchase price of property or services, (f) all
 obligations of others secured by any Lien on property owned or acquired by
 such Person, whether or not the obligations secured thereby have been
 assumed, (g) all Capitalized Lease Obligations of such Person, (h) all
 obligations of such Person in respect of interest rate swap agreements, cap
 or collar agreements, interest rate futures or option contracts, currency
 swap agreements, currency futures or option agreements and other similar
 contracts (i) all obligations of such Person, actual or contingent, as an
 account party in respect of letters of credit or bankers’ acceptances, (j) all obligations of any
 partnership or joint venture as to which such Person is or may become
 personally liable, (k) all obligations of such Person under any Equity
 Interests issued by such Person, and (1) all Contingent Obligations of such
 Person. 

 
	
  

 	
  

 
	
  

 	
           “Indemnitee”:
 As defined in Section 8.13. 

 
	
  

 	
  

 
	
  

 	
           “Interest
 Expense”: For any period of determination, the aggregate amount, without
 duplication, of interest paid, accrued or scheduled to be paid in respect of
 any Indebtedness of the Borrower, including (a) all but the principal
 component of payments in respect of conditional sale contracts, Capitalized
 Leases and other title retention agreements, (b) commissions, discounts and other
 fees and charges with respect to letters of credit and bankers’ acceptance
 financings and (c) net costs under interest rate protection agreements, in
 each case determined in accordance with GAAP. 

 
	
  

 	
  

 
	
  

 	
           “Interest
 Differential”: As defined in Section 2.4. 

 
	
  

 	
  

 
	
  

 	
           “Investment”:
 The acquisition, purchase, making or holding of any Equity Interests or other
 security, any loan, advance, contribution to capital, extension of credit
 (except for trade and customer accounts receivable for inventory sold or
 services rendered in the ordinary course of business and payable in
 accordance with customary trade terms), any acquisitions of real or personal
 property (other than real and personal property acquired in the ordinary
 course of business) and any purchase or commitment or option to purchase
 Equity Interests, securities or other debt of or any interest in another
 Person or any integral part of any business or the assets comprising such
 business or part thereof and the formation of, or entry into, any partnership
 as a limited or general partner 

 


5









	
  

 	
  

 
	
  

 	
 or the entry
 into any joint venture. The amount of any Investment shall be the original
 cost of such Investment plus the cost of all additions thereto, without any
 adjustments for increases or decreases in value, or write-ups, write-downs or
 write-offs with respect to such Investment. 

 
	
  

 	
  

 
	
  

 	
           “Lien”:
 With respect to any Person, any security interest, mortgage, pledge,
 lien, charge, encumbrance, title retention agreement or analogous instrument
 or device (including the interest of each lessor under any Capitalized
 Lease), in, of or on any assets or properties of such Person, now owned or
 hereafter acquired, whether arising by agreement or operation of law. 

 
	
  

 	
  

 
	
  

 	
           “Loan”:
 A Revolving Loan or a Term Loan. 

 
	
  

 	
  

 
	
  

 	
           “Loan
 Documents”: This Agreement, the Notes, and the Security Documents. 

 
	
  

 	
  

 
	
  

 	
           “Material
 Adverse Occurrence”: Any occurrence of whatsoever nature (including,
 without limitation, any adverse determination in any litigation, arbitration,
 or governmental investigation or proceeding) which could reasonably be
 expected to materially and adversely affect (a) the financial condition or
 operations of the Borrower, (b) impair the ability of the Borrower to perform
 its obligations under any Loan Document, or any writing executed pursuant
 thereto, (c) the validity or enforceability of the material obligations of
 the Borrower under any Loan Document, (d) the rights and remedies of the Bank
 against any the Borrower, (e) the timely payment of the principal of and
 interest on the Loans or other amounts payable by the Borrower hereunder, or
 (f) the validity of the joint and several nature of the obligations of the
 Borrower with respect to all of the Obligations. 

 
	
  

 	
  

 
	
  

 	
           “Maximum
 Rate”: As defined in Section 8.20. 

 
	
  

 	
  

 
	
  

 	
           “Mortgage”:
 The Mortgage by the Borrower in favor of the Bank dated as of the date
 hereof, as the same may be amended, restated or otherwise modified from time
 to time. 

 
	
  

 	
  

 
	
  

 	
           “Multiemployer
 Plan”: A multiemployer plan, as such term is defined in Section
 4001(a)(3) of ERISA, which is maintained (on the Closing Date, within the
 five years preceding the Closing Date, or at any time after the Closing Date)
 for employees of the Borrower or any ERISA Affiliate. 

 
	
  

 	
  

 
	
  

 	
           “Note”:
 A Term Note or the Revolving Note. 

 
	
  

 	
  

 
	
  

 	
           “Obligations”:
 The Borrower’s obligations in respect of the due and punctual payment of
 principal and interest on the Notes when and as due, whether by acceleration
 or otherwise and all fees, expenses, indemnities, reimbursements and other
 obligations of the Borrower under this Agreement or any other Borrower Loan
 Document, and the Rate Protection Obligations, in all cases whether now
 existing or hereafter arising or incurred. 

 
	
  

 	
  

 
	
  

 	
           “Other
 Taxes”: As defined in Section 2.25(b). 

 


6









	
  

 	
  

 	
  

 
	
  

 	
           “Participants”:
 As defined in Section 8.7(b). 

 
	
  

 	
  

 	
  

 
	
  

 	
           “PBGC”:
 The Pension Benefit Guaranty Corporation, established pursuant to Subtitle A
 of Title IV of ERISA, and any successor thereto or to the functions thereof. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Person”:
 Any natural person, corporation, partnership, limited partnership, limited
 liability company, joint venture, firm, association, trust, unincorporated
 organization, government or governmental agency or political subdivision or
 any other entity, whether acting in an individual, fiduciary or other
 capacity. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Plan”:
 Each employee benefit plan (whether in existence on the Closing Date
 or thereafter instituted), as such term is defined in Section 3 of ERISA,
 maintained for the benefit of employees, officers or directors of the
 Borrower or of any ERISA Affiliate. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Pledge
 Agreement”: The Pledge Agreement by the Borrower in favor of the Bank
 dated as of the date hereof, as the same may be amended, restated or
 otherwise modified from time to time. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Prepayment
 Event”: Means: 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (a)          any
 sale, transfer or other disposition (including pursuant to a sale and leaseback
 transaction) of any property or asset of the Borrower, other than
 dispositions described in clauses (a), (b) and (c) of Section 6.2; 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (b)          any
 casualty or other insured damage to, or any taking under power of eminent
 domain or by condemnation or similar proceeding of, any property or asset of
 the Borrower, but only to the extent that the net proceeds therefrom have not
 been applied, or committed pursuant to an agreement (including any purchase
 orders) to be applied, to repair, restore or replace such property or asset
 within 180 days after such event; 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (c)          the
issuance by the Borrower of any Equity Interests, or receipt by the Borrower
of any capital contribution, other than (i) stock options, warrants or other
rights to acquire stock awarded to employees, consultants, agents, officers
and directors pursuant to incentive compensation plans or agreements;
provided that all such options, warrants and rights do not exceed, in the
aggregate, $100,000; or  

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (d)          the
 incurrence by the Borrower of any Indebtedness, other than Indebtedness
 permitted by Section 6.12. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Prohibited
 Transaction”: The respective meanings assigned to such term in Section
 4975 of the Code and Section 406 of ERISA. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Rate
 Protection Agreement”: Any interest rate swap, cap or option agreement,
 or any other agreement pursuant to which the Borrower hedges interest rate
 risk with respect to a portion of the Obligations, entered into by the
 Borrower with a Rate Protection Provider. 

 


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           “Rate
 Protection Obligations”: The liabilities, indebtedness and obligations of
 the Borrower, if any, to any Rate Protection Provider under a Rate Protection
 Agreement. 

 
	
  

 	
  

 
	
  

 	
           “Rate
 Protection Provider”: The Bank, or any Affiliate of the Bank, that is the
 counterparty of the Borrower under any Rate Protection Agreement. 

 
	
  

 	
  

 
	
  

 	
           “Regulatory
 Change”: Any change after the Closing Date in federal, state or foreign
 laws or regulations or the adoption or making after such date of any
 interpretations, directives or requests applying to a class of banks
 including the Bank under any federal, state or foreign laws or regulations
 (whether or not having the force of law) by any court or governmental or
 monetary authority charged with the interpretation or administration thereof.
 

 
	
  

 	
  

 
	
  

 	
           “Reportable
Event”: A reportable event as defined in Section 4043 of ERISA and the
regulations issued under such Section, with respect to a Plan, excluding,
however, such events as to which the PBGC by regulation has waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall
be a Reportable Event regardless of the issuance of any waiver in accordance
with Section 412(d) of the Code.  

 
	
  

 	
  

 
	
  

 	
           “Restricted
 Payments”: With respect to the Borrower, collectively, all dividends or
 other distributions of any nature (cash, Equity Interests other than common
 stock of the Borrower, assets or otherwise), and all payments on any class of
 Equity Interests (including warrants, options or rights therefor) issued by
 the Borrower, whether such Equity Interests are authorized or outstanding on
 the Closing Date or at any time thereafter and any redemption or purchase of,
 or distribution in respect of, any of the foregoing, whether directly or
 indirectly. 

 
	
  

 	
  

 
	
  

 	
           “Revolving
 Commitment”: The obligation of the Bank to make Revolving Loans to the
 Borrower. 

 
	
  

 	
  

 
	
  

 	
           “Revolving
 Commitment Amount”: $3,500,000. 

 
	
  

 	
  

 
	
  

 	
           “Revolving
 Loan”: As defined in Section 2.1. 

 
	
  

 	
  

 
	
  

 	
           “Revolving
 Loan Date”: The date of the making of any Revolving Loan hereunder. 

 
	
  

 	
  

 
	
  

 	
           “Revolving
 Note”: A promissory note of the Borrower in the form of Exhibit A hereto,
 evidencing the obligation of the Borrower to repay the Revolving Loan. 

 
	
  

 	
  

 
	
  

 	
           “Security
 Agreement”: The Security Agreement by the Borrower in favor of the Bank
 dated as of the date hereof, as the same may be amended, restated or
 otherwise modified from time to time. 

 
	
  

 	
  

 
	
  

 	
           “Security
 Documents”: The Security Agreement, the Pledge Agreement, the Mortgage
 and the Environmental & ADA Indemnity Agreement. 

 


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           “Subordinated
 Debt”: Any Indebtedness of the Borrower, now existing or hereafter
 created, incurred or arising, which is subordinated in right of payment to
 the payment of the Obligations in a manner and to an extent (a) that the Bank
 has approved in writing prior to the creation of such Indebtedness, or (b) as
 to any Indebtedness of the Borrower existing on the date of this Agreement,
 that the Bank has approved as Subordinated Debt in a writing delivered by the
 Bank to the Borrower on or prior to the Closing Date. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Subsidiary”:
 Any corporation or other entity of which Equity Interests having ordinary
 voting power for the election of a majority of the board of directors or other
 Persons performing similar functions are owned by the Borrower either
 directly or through one or more Subsidiaries. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Termination
 Date”: The earliest of (a) November 30, 2010, or (b) the date on which the
 Revolving Commitment is terminated pursuant to Section 7.2 hereof. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Term
Loan A”: As defined in Section 2.1. 

          “Term Loan B”: As defined in Section
2.1. 

          “Term Loan A Maturity Date”: December 9, 2014.


          “Term Loan B Maturity Date”: December 9, 2012.  

 
	
  

 	
  

 	
  

 
	
  

 	
           “Term
 Loan Commitment”: The agreement of the Bank to make a Term Loan to the
 Borrower in the amount specified in Section 2.1 upon the terms and subject to
 the conditions of this Agreement. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Term
 Note A”: A promissory note of the Borrower in the form of Exhibit B
 hereto, evidencing the obligation of the Borrower to repay the Term Loan A. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Term
 Note B”: A promissory note of the Borrower in the form of Exhibit C
 hereto, evidencing the obligation of the Borrower to repay the Term Loan B. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Total
 Cash Flow Leverage Ratio”: For any period of determination, the ratio of 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (a)          the
 sum (without duplication) of the aggregate principal amount of all
 outstanding Capitalized Lease Obligations of the Borrower and that portion of
 Total Liabilities bearing interest determined as of the last day of that
 period, plus six times operating lease expense for such period, 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
                         to

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (b)          EBITDAR
 determined for said period in accordance with GAAP. 

 
	
  

 	
  

 	
  

 
	
  

 	
           “Total
 Liabilities”: At the time of any determination, the amount of all items
 of Indebtedness of the Borrower that would constitute “liabilities” for
 balance sheet purposes in accordance with GAAP. 

 


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           “U.S.
 Taxes”: As defined in Section 2.25(e). 

 



          Section
1.2     Accounting Terms and Calculations.
Except as may be expressly provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with GAAP. To the extent any change in
GAAP affects any computation or determination required to be made pursuant to
this Agreement, such computation or determination shall be made as if such
change in GAAP had not occurred unless the Borrower and the Bank agree in
writing on an adjustment to such computation or determination to account for
such change in GAAP. 


          Section
1.3     Computation of Time Periods. In this
Agreement, in the computation of a period of time from a specified date to a later specified date, unless
otherwise stated the word “from” means “from and including” and the word “to”
or “until” each means “to but excluding”. 


          Section
1.4     Other Definitional Terms. The words
“hereof,” “herein” and “hereunder” and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. References to Sections, Exhibits,
schedules and like references are to this Agreement unless otherwise expressly
provided. The words “include,” “includes” and “including” shall be deemed to be
followed by the phrase “without limitation.” Unless the context in which used
herein otherwise clearly requires, “or” has the inclusive meaning represented
by the phrase “and/or.” All incorporation by reference of covenants, terms,
definitions or other provisions from other agreements are incorporated into
this Agreement as if such provisions were fully set forth herein, and such
incorporation shall include all necessary definitions and related provisions
from such other agreements but including only amendments thereto agreed to by
the Bank, and shall survive any termination of such other agreements until the
obligations of the Borrower under this Agreement and the Notes are irrevocably
paid in full, and the commitments of the Bank to advance funds to the Borrower
are terminated. 


ARTICLE II

TERMS OF THE CREDIT FACILITIES


          Section
2.1     Lending Commitments. On the terms and
subject to the conditions hereof, the Bank agrees to make the following lending
facilities available to the Borrower: 


	
  

 	
  

 
	
  

 	
           (a)          Revolving
 Credit. A revolving credit facility available as loans (each, a
 “Revolving Loan” and, collectively, the “Revolving Loans”) to the Borrower on
 a revolving basis at any time and from time to time from the Closing Date to
 the Termination Date, during which period the Borrower may borrow, repay and
 reborrow in accordance with the provisions hereof, provided, the unpaid
 principal amount of outstanding Revolving Loans shall not at any time exceed
 the Revolving Commitment Amount; and provided, further, that no
 Revolving Loan will be made if, after giving effect thereto, the unpaid
 principal balance of all Revolving Loans would exceed the Borrowing Base. 

 
	
  

 	
  

 
	
  

 	
           (b)          Term
 Loan A. A term loan (the “Term Loan A”) from the Bank to the Borrower on
 the Closing Date in the amount of $1,520,000. 

 


10








	
  

 	
  

 	
  

 
	
  

 	
           (c)          Term
 Loan B. A term loan (the “Term Loan B”) from the Bank to the Borrower on
 the Closing Date in the amount of $1,000,000.

 
	
  

 	
  

 	
  

 
	
 Notwithstanding any provision hereof, this Agreement
 and the Revolving Commitment shall terminate
 and the Bank shall have no obligation hereunder if the Term Loans hereunder
 have not been made by December 31, 2009, provided, however, that the
 obligations of the Borrower under Section 8.3 shall survive any such
 termination.

 
	
  

 
	
  

 	
  

 	
  

 
	
           Section
 2.2       Procedure
 for Loans. This is the procedure for obtaining Loans:

 
	
  

 
	
  

 	
           (a)          Procedure for Revolving Loans. Any request by the Borrower for a Revolving Loan hereunder shall be in writing or
 by telephone and must be given so as to be received by the Bank not
 later than 2:00 pm (Minneapolis time) on the requested Revolving Loan Date.
 Each request for a Revolving Loan hereunder shall be irrevocable and shall be
 deemed a representation by the Borrower that on the requested Revolving Loan
 Date and after giving effect to the requested Revolving Loan the applicable conditions specified in Article III have been
 and will be satisfied. Each request for a Revolving Loan hereunder
 shall specify (i) the requested Revolving Loan Date, and (ii) the amount of the Revolving Loan to be made on
 such date. The Bank may rely on any telephone request by the Borrower
 for a Revolving Loan hereunder which it believes in good faith to be genuine; and the Borrower hereby waives the right to
 dispute the Bank’s record of the
 terms of such telephone request. Unless the Bank determines that any applicable
 condition specified in Article III has not been satisfied, the Bank will make
 available to the Borrower at the Bank’s
 principal office in Minneapolis, Minnesota in Immediately Available Funds not later than 4:00 pm (Minneapolis time)
 on the requested Revolving Loan Date the amount of the requested
 Revolving Loan.

 
	
  

 	
  

 	
  

 
	
  

 	
           (b)          Procedure for Term Loans. The Borrower shall deliver to the Bank a
 written notice of borrowing. The request for the Term Loans shall be deemed a
 representation by the Borrower that on the Closing Date and after
 giving effect to the Term Loans the applicable conditions specified in
 Article III have been and will be satisfied.
 Unless the Bank determines that any applicable condition specified in Article
 III has not been satisfied, the
 Bank will make the proceeds of the Term Loans available to the Borrower at the Bank’s main office on the
 requested date.

 
	
  

 	
  

 	
  

 
	
           Section
 2.3       Notes.
 The Revolving Loans shall be evidenced by a single Revolving Note payable to the order of the Bank in a
 principal amount equal to the Revolving Commitment Amount originally
 in effect. The Term Loan A shall be evidenced by a Term Note A payable to the order of the Bank in the principal amount
 of the Term Loan A. The Term Loan B shall be evidenced by a Term Note
 B payable to the order of the Bank in the principal amount of the Term Loan
 B. The Bank shall enter in its ledgers and records the amount of the Term
 Loans and each Revolving Loan, converted or continued and the payments made
 thereon, and the Bank is authorized by
 the Borrower to enter on a schedule attached to a Term Note or Revolving
 Note, as appropriate, a record of such Term Loan, Revolving Loans, and
 payments; provided, however that the failure by the Bank to make any such
 entry or any error in making such entry shall not limit or otherwise affect
 the obligation of the Borrower hereunder and on the Notes, and, in all
 events, the principal amounts owing by the Borrower in respect of the
 Revolving Note shall be

 


11






the aggregate amount of all Revolving Loans made by
the Bank less all payments of principal thereof
made by the Borrower and the principal amount owing by the Borrower in respect
of the Term Note shall be the aggregate amount of such Term Loan less
all payments of principal thereof made by
the Borrower.


	
  

 	
  

 	
  

 
	
           Section
 2.4       Interest Rates;
 Conversions and Continuations; Etc.

 
	
  

 
	
  

 	
           (a)           Interest on Revolving Loans. Interest on each advance hereunder shall accrue at an annual rate equal to the
 Applicable Margin plus the one-month LIBOR rate quoted by Bank from
 Reuters Screen LIBOR01 Page or any successor thereto, which shall be that
 one-month LIBOR rate in effect two New York Banking Days prior to the Reprice Date, adjusted for any reserve
 requirement and any subsequent costs arising from a change in
 government regulation, such rate rounded up to the nearest one-sixteenth percent and such rate to be reset monthly on
 each Reprice Date. The term “New York Banking Day” means any date (other than a Saturday or
 Sunday) on which commercial banks are open for business in New York,
 New York. The term “Reprice Date” means
 the first day of each month. If the initial
 advance under this Note occurs other than on the Reprice Date, the
 initial one-month LIBOR rate shall be that one-month LIBOR rate in effect two
 New York Banking Days prior to the date of the initial advance, which rate
 plus the percentage described above shall be in effect until the next Reprice
 Date. Bank’s internal records of
 applicable interest rates shall be determinative in the absence of manifest error.

 
	
  

 	
  

 	
  

 
	
  

 	
           (b)           The
 Term Loan A. The Term Loan A shall bear interest on the unpaid principal
 amount thereof at a per annum rate of 5.79%.

 
	
  

 	
  

 	
  

 
	
  

 	
           (c)           The
 Term Loan B. The Term Loan B shall bear interest on the unpaid principal
 amount thereof at a per annum rate of 4.28%.

 
	
  

 	
  

 	
  

 
	
  

 	
           (d)           Interest Upon Event of Default. Upon the occurrence of any Event of Default, each Loan shall, at the option of the
 Bank (or, in the case of an Event of Default under Section 7.1(f), (g) or (h), automatically upon the occurrence
 of such Event of Default), bear interest until paid in full at the
 rate otherwise applicable thereto plus 5%.

 
	
  

 	
  

 	
  

 
	
           Section
 2.5       Repayment.

 
	
  

 
	
  

 	
           (a)          Revolving
 Loans. Interest and principal upon the Revolving Loans shall be paid as follow:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
               (i)          Interest
 shall be payable (A) on the last day of each month; (B) with respect to all
 Revolving Loans, upon any permitted prepayment (on the amount prepaid); and (C) with respect to all
 Revolving Loans, on the Termination Date; provided that interest under
 Section 2.4(d) shall be payable on demand.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
               (ii)         Principal on the Revolving Loans is payable on
 the Termination Date.

 


12









	
  

 	
  

 	
  

 	
  

 
	
  

 	
           (b)        Term
 Loan. Interest and principal upon the Term Loans shall be paid as follows:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (i)         Principal
 and interest on the Term Loan A are payable in installments of $10,706.41 each, beginning December 31, 2009, and on
 the same date of each consecutive month thereafter (except that if a given month
 does not have such a date, the last day of such month), plus a final
 payment equal to all unpaid principal and accrued interest on the Term Loan A
 Maturity Date.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (ii)        Principal
 and interest on the Term Loan B are payable in installments of $29,648.71 each, beginning December 31, 2009, and on
 the same date of each consecutive month thereafter (except that if a given
 month does not have such a date, the last day of such month), plus a
 final payment equal to all unpaid principal and accrued interest on the Term
 Loan B Maturity Date.

 
	
  

 	
  

 	
  

 
	
           Section
 2.6      Prepayments.

 
	
  

 
	
  

 	
           (a)         Mandatory
 Prepayments for Borrowing Base Deficiency. If at any time a Borrowing Base Deficiency exists, the Borrower
 shall immediately pay on the principal of the Advances an amount equal to
 such Borrowing Base Deficiency.

 
	
  

 	
  

 
	
  

 	
           (b)         Mandatory Prepayments for a Prepayment Event. If at any time a Prepayment Event
 occurs, the Borrower shall immediately pay to the Bank the net proceeds realized by such Prepayment Event. Any
 such prepayments shall be applied first, to the Term Loan B, second,
 to the Term Loan A, and third, to any outstanding Revolving Loan. All prepayments applied to a
 Term Loan shall be applied to the scheduled
 principal payments on such Term Loan in the inverse order of their
 maturities.

 
	
  

 	
  

 
	
  

 	
           (c)         Other Mandatory Prepayments. If at any time the aggregate unpaid principal balance of the Revolving Note exceeds
 the Revolving Commitment Amount, the Borrower shall immediately repay
 to the Bank the amount of such excess.

 



          Section
2.7       Computation.
Interest on the Loans shall be computed on the basis of actual days elapsed and a year of 360 days.


          Section
2.8       Payments.
Payments and prepayments of principal of, and interest on, the Notes and all
fees, expenses and other obligations under this Agreement payable to the Bank shall be made without setoff or counterclaim in
Immediately Available Funds not later than 3:00 pm (Minneapolis time) on the
dates called for under this Agreement and the Notes to the Bank at its main office in Minneapolis, Minnesota. Funds
received after such time shall be deemed to have been received on the
next Banking Day. Whenever any payment to be made hereunder or on the Notes
shall be stated to be due on a day which is not a Banking Day, such payment
shall be made on the next succeeding Banking Day and such extension of time, in
the case of a payment of principal, shall be included in the computation of any
interest on such principal payment.


13





          Section
2.9         Use of Loan Proceeds. The proceeds of the Loans shall be used for refinancing existing indebtedness and general
business purposes in a manner not in conflict with any of the Borrower’s
covenants in this Agreement.


          Section
2.10       Prepayment of Term Note. There shall be no prepayments of a Term Note,
provided that the Bank may consider requests for its consent with respect to
prepayment of a Term Note, without incurring an obligation to do so, and the
Borrower acknowledges that in the event
that such consent is granted, the Borrower shall be required to pay the Bank,
upon prepayment of all or part of the principal amount before final
maturity, a prepayment indemnity (“Prepayment
Fee”) equal to the greater of zero, or that amount, calculated on any date of
prepayment (“Prepayment Date”), which is derived by subtracting: (a) the
principal amount of such Term Note or portion of such Term Note to be
prepaid from (b) the Net Present Value of such
Term Note or portion of such Term Note to be prepaid on such Prepayment Date;
provided, however, that the Prepayment Fee shall not in any event exceed
the maximum prepayment fee permitted by
applicable law. For purposes of this Section:


	
  

 	
  

 	
  

 
	
  

 	
           “Net
 Present Value” shall mean the amount which is derived by summing the present values of each prospective payment of
 principal and interest which, without such full or partial prepayment,
 could otherwise have been received by the Bank over the shorter of the
 remaining contractual life of such Term Note or next repricing date if the Bank had instead initially invested such Term
 Note proceeds at the Initial Money Market Rate. The individual discount rate used to present value each
 prospective payment of interest and/or principal shall be the Money
 Market Rate at Prepayment for the maturity matching that of each specific
 payment of principal and/or interest.

 
	
  

 	
  

 
	
  

 	
           “Initial
 Money Market Rate” shall mean the rate per annum, determined solely by
 the Bank, on the first day of the term of such Term Note or the most recent
 repricing date or as mutually agreed upon by the Borrower and the
 Bank, as the rate at which the Bank would be able to borrow funds in Money
 Markets for the amount of such Term Note and with an interest payment frequency and principal repayment schedule
 equal to such Term Note and for a term as may be arranged and agreed
 upon by the Borrower and the Bank, adjusted for any reserve requirement and
 any subsequent costs arising from a change in government regulation. The
 Borrower acknowledges that the Bank is under no obligation to actually
 purchase and/or match funds for the Initial Money Market Rate of such Term Note.

 
	
  

 	
  

 
	
  

 	
           “Money
 Market Rate At Prepayment” shall mean that zero-coupon rate, calculated
 on the Prepayment Date, and determined solely by the Bank, as the rate at
 which the Bank would be able to borrow funds in Money Markets for the
 prepayment amount matching the maturity
 of a specific prospective Term Note payment or repricing date,
 adjusted for any reserve requirement and any subsequent costs arising from a
 change in government regulation. A separate Money Market Rate at Prepayment
 will be calculated for each prospective interest and/or principal payment
 date.

 
	
  

 	
  

 
	
  

 	
           “Money
 Markets” shall mean one or more wholesale funding markets available to
 and selected by the Bank, including negotiable certificates of deposit,
 commercial paper, eurodollar deposits, bank notes, federal funds,
 interest rate swaps or others.

 


14





In calculating the amount of such Prepayment Fee, the
Bank is hereby authorized by the Borrower
to make such assumptions regarding the source of funding, redeployment of funds
and other related matters, as the
Bank may deem appropriate. If the Borrower fails to pay any Prepayment Fee when due, the amount of such
Prepayment Fee shall thereafter bear interest until paid at the default
rate specified in this Agreement (computed on the basis of a 360-day year, actual days elapsed). Any prepayment of principal
shall be accompanied by a payment of interest accrued to date thereon;
and said prepayment shall be applied to the principal installments in the
inverse order of their maturities. All prepayments shall be in an amount of at
least $100,000 or, if less, the remaining entire principal balance of such Term
Note.


	
  

 	
  

 	
  

 
	
           Section 2.11       Taxes.

 
	
  

 	
  

 
	
  

 	
           (a)        Any and all payments by the Borrower hereunder
or under the Notes shall be made free and clear of and without deduction
for any and all present or future taxes, levies, imposts, deductions, charges
of withholdings, and all liabilities with respect thereto, excluding, in the case of the Bank, taxes imposed on
its overall net income and franchise taxes imposed on it in lieu of
net income taxes (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities in respect of payments hereunder or
under the Notes being hereinafter referred to as “Taxes”). 

 
	
  

 	
  

 
	
  

 	
           (b)        The Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder
or under the Notes or from the execution, delivery or registration of,
performing under, or otherwise with respect to, this Agreement or the Notes
(hereinafter referred to as “Other Taxes”). 

 
	
  

 	
  

 
	
  

 	
           (c)        The
 Borrower shall indemnify the for the full amount of Taxes or Other Taxes
 imposed on or paid by the and any penalties, interest and expenses with
 respect thereto. Payments on this
 indemnification shall be made within 30 days from the date the makes written demand therefor.

 
	
  

 	
  

 
	
  

 	
           (d)        In
the case of any payment hereunder or under the Notes by or on behalf of the Borrower through an account or branch
outside the United States or by or on behalf of the Borrower by a pay or that
is not a United States person, if the Borrower determine that no Taxes
are payable in respect thereof, the Borrower shall furnish or shall cause
such payor to furnish, to the Bank, at such address, an opinion of counsel
acceptable to the Bank stating that such
payment is exempt from Taxes. For purposes of this subsection (d), the
terms “United States” and “United States person” shall have the
meanings specified in Section 7701 of the Internal Revenue Code. 

 
	
  

 	
  

 
	
  

 	
           (e)        If
the Borrower shall be required by law or regulation to make any deduction,
withholding or backup withholding of any taxes, levies, imposts, duties,
fees, liabilities or similar charges of the United States of America, any
possession or territory of the United States of America (including the
Commonwealth of Puerto Rico) or any area subject to the jurisdiction of the
United States of America (“U.S. Taxes”) from any payments to the Bank pursuant to any Loan Document in respect of the
Obligations payable to the then or thereafter outstanding, the
Borrower shall make such withholdings 

 



15









	
  

 	
  

 
	
  

 	
 or deductions and pay the full
 amount withheld or deducted to the relevant taxation authority or
 other authority in accordance with applicable law.

 


ARTICLE III 

CONDITIONS PRECEDENT


	
  

 	
  

 	
  

 	
  

 
	
           Section
 3.1      Conditions of Initial Transaction.
 The making of the Term Loan and the initial
 Revolving Loan shall be subject to the prior or simultaneous fulfillment of
 the following conditions:

 
	
  

 
	
  

 	
  

 	
 (a)

 	
 Documents. The Bank shall have received the following:

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (i)          The
 Revolving Note and the Term Notes executed by a duly authorized officer (or
 officers) of the Borrower and dated the Closing Date.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (ii)         The
 Security Documents, each duly executed by a duly authorized officer
 (or officers) of the Borrower.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (iii)        A
 copy of the corporate resolution of the Borrower authorizing the execution,
 delivery and performance of the Borrower Loan Documents, certified as of the Closing Date by the Secretary or an
 Assistant Secretary of the Borrower.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (iv)        An
 incumbency certificate showing the names and titles and bearing the signatures of the officers of the
 Borrower authorized to execute the Borrower Loan Documents and to
 request Loans and conversions and continuations of Advances hereunder,
 certified as of the Closing Date by the Secretary or an Assistant Secretary
 of the Borrower.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (v)         A
 copy of the Articles of Incorporation of the Borrower with all amendments
 thereto, certified by the appropriate governmental official of the jurisdiction of its incorporation as of a date
 not more than 30 days prior to the Closing
 Date.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (vi)        A
 certificate of good standing for the Borrower in the jurisdiction of
 its incorporation or organization certified by the appropriate governmental
 officials as of a date not more than 30 days prior to the Closing Date.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (vii)        A
 copy of the bylaws of the Borrower, certified as of the Closing Date
 by the Secretary or an Assistant Secretary of the Borrower.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (viii)       A
 certificate dated the Closing Date of the chief executive officer or chief
 financial officer of the Borrower certifying as to the matters set forth in
 Sections 3.2(a) and (b) below.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (ix)          A
 Governmental Entity Receivables Account Notice, duly executed by the
 Borrower.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (x)          The
 initial Borrowing Base Certificate required under Section 5.1.

 


16









	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (xi)          ACORD
 27 certificates of insurance with respect to each of the businesses and real properties of the Borrower
 in such amounts and with such carriers as shall be reasonably
 acceptable to the Bank.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
             (xii)          A
 Guaranty and Security Agreement, each duly executed by a duly authorized
 officer (or officers) of Electromed Financial, LLC.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
           (b)     Opinion. The Borrower shall have
 requested Kelly, Hannaford & Battles, P.A., its counsel, to prepare a
 written opinion, addressed to the Bank and dated the Closing Date, covering
 the matters set forth in Exhibit D hereto, and such opinion shall have been
 delivered to the Bank.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
           (c)     Compliance. The Borrower shall have performed and complied
 with all agreements, terms and conditions contained in this Agreement
 required to be performed or complied with by the Borrower prior to or
 simultaneously with the Closing Date.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
          (d)     Security Documents. All Security Documents (or financing statements
 with respect thereto) shall have been appropriately filed or recorded
 to the satisfaction of the Bank; any pledged collateral shall have been duly
 delivered to the Bank; any title insurance required by the Bank (with
 endorsements required by the Bank) shall have been obtained and be satisfactory to the Bank; and the priority and
 perfection of the Liens created by the Security Documents shall have
 been established to the satisfaction of the Bank
 and its counsel.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
          (e)     Other Matters. All corporate and legal proceedings relating
 to the Borrower and all instruments and agreements in connection with
 the transactions contemplated by this
 Agreement shall be satisfactory in scope, form and substance to the Bank
 and its counsel, and the Bank shall have received all information and copies
 of all documents, including records of corporate proceedings, as the Bank or
 its counsel may reasonably have requested
 in connection therewith, such documents where appropriate to be
 certified by proper corporate or governmental authorities.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
           (f)     Fees and Expenses. The Bank shall have received all fees and
 other amounts due and payable by the Borrower on or prior to the
 Closing Date, including (i) an
 origination fee in the amount of $30,100;and (ii) the reasonable fees and
 expenses of counsel to the Bank payable pursuant to Section 8.3.

 
	
  

 	
  

 	
  

 	
  

 
	
 Any one or more of the
 conditions set forth above which have not been satisfied by the Borrower on
 or prior to the date of disbursement of the initial Loan under this Agreement
 shall not be deemed permanently waived by the Bank unless the Bank shall
 waive the same in a writing which expressly states that the waiver is
 permanent, and in all cases in which the waiver is not stated to be permanent
 the Bank may at any time subsequent thereto insist upon compliance and
 satisfaction of any such condition as a condition to any subsequent Loan
 hereunder and failure by the Borrower to
 comply with any such condition within five (5) Business Day’s written notice from
 the Bank to the Borrower shall constitute an Event of Default under this
 Agreement.

 


17









	
  

 	
  

 	
  

 	
  

 
	
           Section
 3.2     Conditions Precedent to all Loans.
 The obligation of the Bank to make any
 Loans hereunder (including the Term Loan and the initial Revolving Loan)
 shall be subject to fulfillment of the following conditions:

 
	
  

 
	
  

 	
           (a)     Representations and
 Warranties. The
 representations and warranties contained
 in Article IV shall be true and correct on and as of the Closing Date and on
 the date of each Revolving Loan with the same force and effect as if
 made on such date.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
           (b)     No Default. No Default or Event of Default shall have
 occurred and be continuing on the
 Closing Date and on the date of each Revolving Loan or will exist after giving
 effect to the Loans made on such date.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
           (c)     Notices and Requests. The Bank shall have received the Borrower”s request
 for such Loan as required under Section 2.2.

 


ARTICLE IV 

REPRESENTATIONS AND WARRANTIES


          To
induce the Bank to enter into this Agreement and to make Loans hereunder, the Borrower
represents and warrants to the Bank:


          Section
4.1     Organization, Standing, Etc. The
Borrower is a corporation duly incorporated and validly existing and in
good standing under the laws of the jurisdiction named in the opening paragraph hereof and has all requisite power and
authority to carry on its business as now conducted, to enter into this
Agreement and to issue the Notes and to perform its obligations under the Borrower Loan Documents. The Borrower (a) holds
all certificates of authority, licenses and permits necessary to carry
on its business as presently conducted in each jurisdiction in which it is
carrying on such business, except where the failure to hold such certificates,
licenses or permits would not constitute a Material Adverse Occurrence and (b)
is duly qualified and in good standing as a foreign corporation (or other
organization) in each jurisdiction in which the character of the properties
owned, leased or operated by it or the business conducted by it makes such
qualification necessary and the failure so to qualify would permanently preclude the Borrower from enforcing
its rights with respect to any assets or expose the Borrower to any
Material Adverse Occurrence.


          Section
4.2     Authorization and Validity. The
execution, delivery and performance by the Borrower of the Borrower Loan
Documents have been duly authorized by all necessary corporate action by the Borrower. This Agreement constitutes, and the
Notes and other Borrower Loan Documents when executed will constitute,
the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their
respective terms, subject to limitations as to enforceability which might
result from bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights
generally and subject to limitations on the availability of equitable
remedies.


          Section
4.3     No Conflict; No Default. The execution,
delivery and performance by the Borrower of
the Borrower Loan Documents will not (a) violate any provision of any law,
statute, rule or regulation or any order, writ, judgment, injunction, decree,
determination or award of any court, governmental agency or arbitrator
presently in effect having applicability to the Borrower,


18





(b) violate or contravene any provision of the
Articles of Incorporation, bylaws or partnership agreement of the Borrower, or
(c) result in a breach of or constitute a default under any indenture, loan or
credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or any of its
properties may be bound or result in the creation of any Lien thereunder. The Borrower is not in
default under or in violation of any such law, statute, rule or
regulation, order, writ, judgment, injunction, decree, determination or award
or any such indenture, loan or credit
agreement or other agreement, lease or instrument in any case in which
the consequences of such default or violation could constitute a Material
Adverse Occurrence.


          Section
4.4     Government Consent. No order, consent,
approval, license, authorization or validation of, or filing, recording or
registration with, or exemption by, any governmental or public body or
authority is required on the part of the Borrower to authorize, or is required
in connection with the execution, delivery and performance of, or the legality,
validity, binding effect or enforceability of, the Borrower Loan Documents,
except for any necessary filing or recordation of or with respect to any of the
Security Documents.


          Section
4.5     Financial Statements and Condition. The
Borrower’s audited financial statements as at June 30, 2009, as
heretofore furnished to the Bank, have been prepared in accordance with GAAP on
a consistent basis (except for the absence of footnotes and subject to year-end audit adjustments as to the interim
statements) and fairly present the financial condition of the Borrower as at
such dates and the results of its operations and changes in financial position for
the respective periods then ended. As of the dates of such financial
statements, the Borrower had no material obligation, contingent liability,
liability for taxes or long-term lease obligation which is not reflected in such financial statements or in the notes
thereto. Since June 30, 2009, there has been no Material Adverse
Occurrence.


          Section
4.6     Litigation. There are no actions, suits
or proceedings pending or, to the knowledge
of the Borrower, threatened against or affecting the Borrower or any of its
properties before any court or arbitrator, or any governmental
department, board, agency or other instrumentality which, if determined
adversely to the Borrower, would constitute a Material Adverse Occurrence, and
there are no unsatisfied judgments against the Borrower, the satisfaction or
payment of which would constitute a Material Adverse Occurrence.


          Section
4.7     Environmental, Health and Safety Laws.
There does not exist any violation
by the Borrower of any applicable federal, state or local law, rule or
regulation or order of any government, governmental department, board,
agency or other instrumentality relating to environmental, pollution, health or
safety matters which has, will or threatens to impose a material liability on
the Borrower or which has required or would require a material expenditure by the Borrower to cure. The Borrower has not
received any notice to the effect that any part of its operations or
properties is not in material compliance with any such law, rule, regulation or
order or notice that it or its property is the subject of any governmental
investigation evaluating whether any remedial action is needed to respond to
any release of any toxic or hazardous waste or
substance into the environment, which non-compliance or remedial action could
reasonably be expected to constitute
a Material Adverse Occurrence. The Borrower does not have knowledge that
it or its property will become subject to environmental laws or regulations
during the term of


19





this Agreement, compliance with
which could reasonably be expected to require Capital Expenditures which
would constitute a Material Adverse Occurrence.


          Section
4.8     ERISA. Each Plan is in substantial
compliance with all applicable requirements of ERISA and the Code and
with all material applicable rulings and regulations issued under the provisions of ERISA and the Code setting forth those
requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. All of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
reasonably be expected to result in the institution of proceedings to terminate
any Plan under Section 4042 of ERISA. With respect to each Plan subject to
Title IV of ERISA, as of the most recent valuation date for such Plan, the
present value (determined on the basis of reasonable assumptions employed by
the independent actuary for such Plan and previously furnished in writing to
the Bank) of such Plan’s projected benefit obligations did not exceed the fair
market value of such Plan’s assets.


          Section
4.9     Federal Reserve Regulations. The
Borrower is not engaged principally or as
one of its important activities in the business of extending credit for the
purpose of purchasing or carrying
margin stock (as defined in Regulation U of the Board). The value of all margin
stock owned by the Borrower does not
constitute more than 25% of the value of the assets of the Borrower.


          Section
4.10     Title to Property; Leases; Liens;
Subordination. The Borrower has (a) good and marketable title to its
real properties and (b) good and sufficient title to, or valid, subsisting and
enforceable leasehold interest in, its other material properties, including all
real properties, other properties and assets, referred to as owned by the
Borrower in the most recent financial statement referred to in Section 5.1
(other than property disposed of since the date of such financial statements in
the ordinary course of business). None of such properties is subject to a Lien, except as allowed under Section 6.12.
The Borrower has not subordinated any of its rights under any obligation
owing to it to the rights of any other person.


          Section
4.11     Taxes. The Borrower has filed all
federal, state and local tax returns required
to be filed and has paid or made provision for the payment of all taxes due and
payable pursuant to such returns and pursuant to any assessments made
against it or any of its property and all other taxes, fees and other charges
imposed on it or any of its property by any governmental authority (other than
taxes, fees or charges the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in accordance with GAAP have been provided on the books of the
Borrower). No tax Liens have been filed and no material claims are being
asserted with respect to any such taxes, fees
or charges. The charges, accruals and reserves on the books of the Borrower in
respect of taxes and other governmental charges are adequate and the
Borrower knows of no proposed material tax assessment against it or any basis
therefor.


          Section
4.12     Trademarks, Patents. The Borrower
possesses or has the right to use all of the patents, trademarks, trade names,
service marks and copyrights, and applications therefor, and all technology,
know-how, processes, methods and designs used in or necessary for the conduct
of its business, without known conflict with the rights of others.


20







          Section
4.13          Burdensome
Restrictions. The Borrower is not a party to or otherwise bound by any
indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any charter, corporate or partnership restriction
which would foreseeably constitute a Material Adverse Occurrence.


          Section
4.14          Force
Majeure. Since the date of the most recent financial statement referred to
in Section 5.1, the business, properties and other assets of the Borrower have
not been materially and adversely affected in any way as the result of any fire
or other casualty, strike, lockout, or other labor trouble, embargo, sabotage,
confiscation, condemnation, riot, civil disturbance, activity of armed forces
or act of God.


          Section
4.15          Investment
Company Act. The Borrower is not an “investment company” or a company
“controlled” by an investment company within the meaning of the Investment
Company Act of 1940, as amended.


          Section
4.16          Public
Utility Holding Company Act. The Borrower is not a “holding company” or a
“subsidiary company” of a holding company or an “affiliate” of a holding
company or of a subsidiary company of a holding company within the meaning of
the Public Utility Holding Company Act of 1935, as amended.


          Section
4.17          Retirement
Benefits. Except as required under Section 4980B of the Code, Section 601
of ERISA or applicable state law, neither the Borrower nor any Subsidiary is
obligated to provide post-retirement medical or insurance benefits with respect
to employees or former employees.


          Section
4.18          Full
Disclosure. Subject to the following sentence, neither the financial
statements referred to in Section 5.1 nor any other certificate, written
statement, exhibit or report furnished by or on behalf of the Borrower in
connection with or pursuant to this Agreement contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements contained therein not misleading. Certificates or statements
furnished by or on behalf of the Borrower to the Bank consisting of projections
or forecasts of future results or events have been prepared in good faith and
based on good faith estimates and assumptions of the management of the
Borrower, and the Borrower has no reason to believe that such projections or
forecasts are not reasonable.


          Section
4.19          Subsidiaries.
The Borrower has one Subsidiary, Electromed Financial, LLC, a Minnesota limited
liability company.


          Section
4.20          Labor
Matters. There are no pending or threatened strikes, lockouts or slowdowns
against the Borrower. The Borrower has not been or is in violation in any
material respect of the Fair Labor Standards Act or any other applicable
Federal, state, local or foreign law dealing with such matters. All payments
due from the Borrower on account of wages and employee health and welfare
insurance and other benefits (in each case, except for de minimus amounts),
have been paid or accrued as a liability on the books of the Borrower. The
consummation of the transactions contemplated under the Loan Documents will not
give rise to any right of termination or right of renegotiation on the part of
any union under any collective bargaining agreement to which the Borrower is
bound.


21





          Section
4.21          Solvency.
After the making of any Loan and after giving effect thereto, (a) the fair
value of the assets of the Borrower, at a fair valuation, will exceed its debts
and liabilities, subordinated, contingent or otherwise; (b) the present fair
saleable value of the property of the Borrower will be greater than the amount
that will be required to pay the probable liability of its debts and other
liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured; (c) the Borrower will be able to pay
its debts and liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured; and (d) the Borrower will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is proposed to be conducted following the Closing
Date.


ARTICLE
V 

AFFIRMATIVE COVENANTS


          Until
any obligation of the Bank hereunder to make the Term Loan and Revolving Loans
shall have expired or been terminated and the Notes and all of the other
Obligations have been paid in full, unless the Bank shall otherwise consent in
writing:


          Section
5.1          Financial
Statements and Reports. The Borrower will furnish to the Bank:


	
  

 	
  

 
	
  

 	
           (a)          As
 soon as available and in any event within 120 days after the end of each
 fiscal year of the Borrower, the audited financial statements of the Borrower
 consisting of at least statements of income, cash flow and changes in
 stockholders’ equity, and a balance sheet as at the end of such year, setting
 forth in each case in comparative form corresponding figures from the
 previous annual audit, certified without qualification by Larson Allen LLC or
 other independent certified public accountants of recognized national
 standing selected by the Borrower and acceptable to the Bank, together with
 any management letters, management reports or other supplementary comments or
 reports to the Borrower or its board of directors furnished by such
 accountants.

 
	
  

 	
  

 
	
  

 	
           (b)          As
 soon as available and in any event within 30 days after the end of each
 fiscal quarter, unaudited statements of income, cash flow and changes in
 stockholders’ equity for the Borrower for such quarter and for the period
 from the beginning of such fiscal year to the end of such quarter, and a
 balance sheet of the Borrower as at the end of such quarter, setting forth in
 comparative form figures for the corresponding period for the preceding
 fiscal year, accompanied by a certificate signed by the chief financial
 officer of the Borrower stating that such financial statements present fairly
 the financial condition of the Borrower and that the same have been prepared
 in accordance with GAAP (except for the absence of footnotes and subject to
 year-end audit adjustments as to the interim statements).

 
	
  

 	
  

 
	
  

 	
           (c)          As
 soon as practicable and in any event within 30 days after the end of each
 fiscal quarter, a Compliance Certificate in the form attached hereto as
 Exhibit G signed by the chief financial officer of the Borrower demonstrating
 in reasonable detail compliance (or noncompliance, as the case may be) with
 Sections 6.14 and Section 6.15 as at the end of such quarter and stating that
 as at the end of such quarter there did not

 


22









	
  

 	
  

 
	
  

 	
 exist any Default or Event of Default or, if such
 Default or Event of Default existed, specifying the nature and period of
 existence thereof and what action the Borrower proposes to take with respect
 thereto.

 
	
  

 	
  

 
	
  

 	
           (d)          As
 soon as practicable and in any event within 30 days after the end of each
 month, a Borrowing Base Certificate signed by the chief financial officer of
 the Borrower, reporting (i) the Borrowing Base as of the last day of the
 month just ended, (ii) gross monthly A/R billings; and (iii) levels of
 dilutive write-offs to receivables.

 
	
  

 	
  

 
	
  

 	
           (e)          As
 soon as practicable and in any event within 30 days after the beginning of
 each fiscal year of the Borrower, statements of forecasted income for the
 Borrower for each fiscal month in such fiscal year and a forecasted balance
 sheet of the Borrower, together with supporting assumptions, as at the end of
 each fiscal month, all in reasonable detail and reasonably satisfactory in
 scope to the Bank.

 
	
  

 	
  

 
	
  

 	
           (f)          Immediately
 upon any officer of the Borrower becoming aware of any Default or Event of
 Default, a notice describing the nature thereof and what action Borrower
 proposes to take with respect thereto.

 
	
  

 	
  

 
	
  

 	
           (g)          Immediately
 upon any officer of the Borrower becoming aware of the occurrence, with
 respect to any Plan, of any Reportable Event or any Prohibited Transaction, a
 notice specifying the nature thereof and what action the Borrower proposes to
 take with respect thereto, and, when received, copies of any notice from PBGC
 of intention to terminate or have a trustee appointed for any Plan.

 
	
  

 	
  

 
	
  

 	
           (h)          Immediately
 upon any officer of the Borrower becoming aware of any matter that has
 resulted or is reasonably likely to result in a Material Adverse Occurrence,
 a notice from the Borrower describing the nature thereof and what action
 Borrower proposes to take with respect thereto.

 
	
  

 	
  

 
	
  

 	
           (i)          Immediately
 upon any officer of the Borrower becoming aware of (i) the commencement of
 any action, suit, investigation, proceeding or arbitration before any court
 or arbitrator or any governmental department, board, agency or other
 instrumentality affecting the Borrower or any property of such Person, or to
 which the Borrower is a party (other than litigation where the insurance
 insures against the damages claimed and the insurer has assumed defense of
 the litigation without reservation) and in which an adverse determination or
 result could constitute a Material Adverse Occurrence; or (ii) any adverse
 development which occurs in any litigation, arbitration or governmental
 investigation or proceeding previously disclosed by the Borrower which, if
 determined adversely to the Borrower would constitute a Material Adverse
 Occurrence, a notice from the Borrower describing the nature and status
 thereof and what action the Borrower proposes to take with respect thereto.

 
	
  

 	
  

 
	
  

 	
           (j)          As
 required pursuant to Section 5.3, proof of insurance as requested by the
 Bank.

 
	
  

 	
  

 
	
  

 	
           (k)          Promptly
 upon the mailing or filing thereof, copies of all financial statements,
 reports and proxy statements mailed to the Borrower’s shareholders, and

 


23









	
  

 	
  

 
	
  

 	
 copies of all registration statements, periodic
 reports and other documents filed with the Securities and Exchange Commission
 (or any successor thereto) or any national securities exchange.

 
	
  

 	
  

 
	
  

 	
           (1)          From
 time to time, such other information regarding the business, operation and
 financial condition of the Borrower as the Bank may reasonably request.

 



          Section
5.2          Existence.
The Borrower will maintain its corporate existence in good standing under the
laws of its jurisdiction of organization and its qualification to transact
business in each jurisdiction where failure so to qualify would permanently
preclude the Borrower from enforcing its rights with respect to any material
asset or would expose the Borrower to any material liability.


          Section
5.3          Insurance.
The Borrower shall maintain with financially sound and reputable insurance
companies such insurance as may be required by law and such other insurance in
such amounts and against such hazards as is customary in the case of reputable
firms engaged in the same or similar business and similarly situated. Without
limiting the generality of the foregoing, with respect to the property covered
by the Mortgage, the Borrower shall obtain, maintain and keep in full force and
effect policies of insurance as described in, and meeting the requirements set
forth in, Exhibit H attached hereto. Upon request of the Bank and in any
event not later than one hundred twenty (120) days after the end of each
calendar year, the Borrower shall furnish to the Bank copies of policies of
insurance meeting the requirements set forth in this Section and shall furnish
to the Bank proof of payment of all premiums for such insurance. At least ten (10)
days prior to the termination of any such coverage, the Borrower shall provide
the Bank with evidence satisfactory to the Bank that such coverage will be
renewed or replaced upon termination with insurance that complies with the
provisions of this Section. The Borrower, at its sole cost and expense, from
time to time when the Bank shall so request, will provide the Bank with
evidence, in a form acceptable to the Bank, of the full insurable replacement
cost of the property covered by the Mortgage. All property (including boiler
and machinery) and liability insurance policies maintained by the Borrower
pursuant to this Section shall (i) include effective waivers by the insurer of
all claims for insurance premiums against the Bank, and (ii) provide that any
losses shall be payable notwithstanding (a) any act of negligence by the
Borrower or the Bank, (b) any foreclosure or other proceedings or notice of
foreclosure sale relating to the property covered by the Mortgage, or (c) any
release from liability or waiver of subrogation rights granted by the insured.
All insurance policies maintained by the Borrower pursuant to the foregoing
provisions shall respond on a primary basis relative to any other insurance
carried by the Bank in the event of loss. Insurance terms not otherwise defined
herein shall be interpreted consistent with insurance industry usage.


          Section
5.4          Payment of
Taxes and Claims. The Borrower shall file all tax returns and reports which
are required by law to be filed by it and will pay before they become
delinquent all taxes, assessments and governmental charges and levies imposed
upon it or its property and all claims or demands of any kind (including but
not limited to those of suppliers, mechanics, carriers, warehouses, landlords
and other like Persons) which, if unpaid, might result in the creation of a
Lien upon its property; provided that the foregoing items need not be paid if
they are being contested in good faith by appropriate proceedings, and as long
as the Borrower’s title to its property is not materially adversely affected,
its use of such property in the ordinary course


24





of its business is not materially interfered with and
adequate reserves with respect thereto have been set aside on Borrower’s books
in accordance with GAAP.


          Section
5.5          Inspection.
The Borrower shall permit any Person designated by the Bank to visit and
inspect any of the properties, books and financial records of the Borrower, to
examine and to make copies of the books of accounts and other financial records
of the Borrower, and to discuss the affairs, finances and accounts of the
Borrower with, and to be advised as to the same by, its officers at such
reasonable times and intervals as the Bank may designate.


          Section
5.6          Maintenance
of Properties. The Borrower will maintain its properties used or useful in
the conduct of its business in good condition, repair and working order, and
supplied with all necessary equipment, and make all necessary repairs, renewals,
replacements, betterments and improvements thereto, all as may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.


          Sections
5.7          Books and
Records. The Borrower will keep adequate and proper records and books of
account in which full and correct entries will be made of its dealings,
business and affairs.


          Section
5.8          Compliance.
The Borrower will comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject; provided, however, that failure so to comply shall not be a
breach of this covenant if such failure does not constitute a Material Adverse
Occurrence and the Borrower is acting in good faith and with reasonable
dispatch to cure such noncompliance.


          Section
5.9          ERISA.
The Borrower will maintain each Plan in compliance with all material applicable
requirements of ERISA and of the Code and with all applicable rulings and
regulations issued under the provisions of ERISA and of the Code and will not,
and will not permit any of the ERISA Affiliates to (a) engage in any
transaction in connection with which the Borrower or any of the ERISA Affiliates
would be subject to either a civil penalty assessed pursuant to Section 502(i)
of ERISA or a tax imposed by Section 4975 of the Code, in either case in an
amount exceeding $50,000, (b) fail to make full payment when due of all amounts
which, under the provisions of any Plan, the Borrower any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any accumulated
funding deficiency (as such term is defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, with respect to any Plan in an
aggregate amount exceeding $50,000 or (c) fail to make any payments in an
aggregate amount exceeding $50,000 to any Multiemployer Plan that the Borrower
or any of the ERISA Affiliates may be required to make under any agreement
relating to such Multiemployer Plan or any law pertaining thereto.


          Section
5.10        Environmental Matters;
Reporting. The Borrower will observe and comply with all laws, rules,
regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters
to the extent non-compliance could result in a material liability or otherwise
constitute a Material Adverse Occurrence. The Borrower will give the Bank
prompt written notice of any violation as to any environmental matter by the
Borrower and of the commencement of any judicial or


25





administrative proceeding relating to health, safety
or environmental matters (a) in which an adverse determination or result could result
in the revocation of or have a material adverse effect on any operating
permits, air emission permits, water discharge permits, hazardous waste permits
or other permits held by the Borrower which are material to the operations of
the Borrower, or (b) which will or threatens to impose a material liability on
the Borrower to any Person or which will require a material expenditure by the
Borrower to cure any alleged problem or violation.


          Section
5.11        Further Assurances.
The Borrower shall promptly correct any defect or error that may be discovered
in any Loan Document or in the execution, acknowledgment or recordation
thereof. Promptly upon request by the Bank, the Borrower also shall do,
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all deeds, conveyances, mortgages, deeds of trust, trust
deeds, assignments, estoppel certificates, financing statements and
continuations thereof, notices of assignment, transfers, certificates, assurances
and other instruments as the Bank may reasonable require from time to time in
order: (a) to carry out more effectively the. purposes of the Loan Documents;
(b) to perfect and maintain the validity, effectiveness and priority of any
security interests intended to be created by the Loan Documents including,
without limitation, the delivery of a landlord waiver from any landlord
required by the Bank; and (c) to better assure, convey, grant, assign,
transfer, preserve, protect and confirm unto the Bank the rights granted now or
hereafter intended to be granted to the Bank under any Loan Document or under
any other instrument executed in connection with any Loan Document or that the
Borrower may be or become bound to convey, mortgage or assign to the Bank in order
to carry out the intention or facilitate the performance of the provisions of
any Loan Document. The Borrower shall furnish to the Bank evidence satisfactory
to the Bank of every such recording, filing or registration.


          Section
5.12        Compliance with Terms of
Material Contracts. The Borrower shall make all payments and otherwise
perform all material obligations in respect of all material contracts to which
the Borrower is a party.


ARTICLE VI 

NEGATIVE COVENANTS


          Until
any obligation of the Bank hereunder to make the Term Loan and Revolving Loans
shall have expired or been terminated and the Notes and all of the other
Obligations have been paid in full, unless the Bank shall otherwise consent in
writing:


          Section
6.1          Merger.
The Borrower will not merge or consolidate or enter into any analogous
reorganization or transaction with any Person or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution).


          Section
6.2          Disposition of
Assets. The Borrower will not directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one transaction or a
series of transactions) any property (including accounts and notes receivable,
with or without recourse) or enter into any agreement to do any of the
foregoing, except:


	
  

 	
  

 
	
  

 	
           (a)          dispositions
 of inventory, or used, worn-out or surplus equipment, all in the ordinary
 course of business; and

 


26









	
  

 	
  

 
	
  

 	
           (b)          the
 sale of equipment to the extent that such equipment is exchanged for credit
 against the purchase price of similar replacement equipment, or the proceeds
 of such sale are applied with reasonable promptness to the purchase price of
 such replacement equipment.

 



          Section
6.3          Plans.
The Borrower will not permit any event to occur or condition to exist which
would permit any Plan to terminate under any circumstances which would cause
the Lien provided for in Section 4068 of ERISA to attach to any assets of the
Borrower; and the Borrower will not permit, as of the most recent valuation
date for any Plan subject to Title IV of ERISA, the present value (determined
on the basis of reasonable assumptions employed by the independent actuary for
such Plan and previously furnished in writing to the Bank) of such Plan’s
projected benefit obligations to exceed the fair market value of such Plan’s
assets.


          Section
6.4          Change in
Nature of Business. The Borrower will not make any material change in the
nature of the business of the Borrower, as carried on at the date hereof.


          Section
6.5          Subsidiaries.
The Borrower will not form or acquire any corporation which would thereby
become a Subsidiary.


          Section
6.6          Negative
Pledges. The Borrower will not enter into any agreement, bond, note or
other instrument with or for the benefit of any Person other than the Bank
which would (i) prohibit the Borrower from granting, or otherwise limit the
ability of the Borrower to grant, to the Bank any Lien on any assets or
properties of the Borrower, or (ii) require the Borrower to grant a Lien to any
other Person if the Borrower grants any Lien to the Bank.


          Section
6.7          Restricted
Payments. The Borrower will not make any Restricted Payments.


          Section
6.8          Transactions
with Affiliates. The Borrower will not enter into any transaction with any
Affiliate of the Borrower, except upon fair and reasonable terms no less
favorable than the Borrower would obtain in a comparable arm’s-length
transaction with a Person not an Affiliate.


          Section
6.9          Accounting
Changes. The Borrower will not make any significant change in accounting
treatment or reporting practices, except as required by GAAP, or change its fiscal
year.


          Section
6.10        Subordinated Debt.
The Borrower will not (a) make any payment of the principal of or interest on
any Subordinated Debt which would be prohibited by the terms of any
subordination agreement related to such Subordinated Debt; (b) amend or cancel
the subordination provisions applicable to any Subordinated Debt; (c) take or
omit to take any action if as a result of such action or omission the
subordination of such Subordinated Debt, or any part thereof, to the Obligations
might be terminated, impaired or adversely affected; or (d) omit to give the
Bank prompt notice of any notice received from any holder of Subordinated Debt,
or any trustee therefor, or of any default under any agreement or instrument
relating to any Subordinated Debt by reason whereof such Subordinated Debt
might become or be declared to be due or payable.


27





          Section
6.11        Indebtedness. The
Borrower will not incur, create, issue, assume or suffer to exist any
Indebtedness, except:


	
  

 	
  

 
	
  

 	
           (a)          The
 Obligations.

 
	
  

 	
  

 
	
  

 	
           (b)          Current
 Liabilities, other than for borrowed money, incurred in the ordinary course
 of business.

 
	
  

 	
  

 
	
  

 	
           (c)          Indebtedness
 existing on the date of this Agreement and previously disclosed to the Bank,
 but not including any extension or refinancing thereof.

 
	
  

 	
  

 
	
  

 	
           (d)          Subordinated
 Debt in the form of debentures not to exceed $2,500,000 in the aggregate:

 






	
  

 	
  

 	
  

 
	
  

 	
 (i)

 	
 which U.S. Bank was given a right of first refusal
 to provide on terms and conditions substantially similar to such Indebtedness
 as issued;

 
	
  

 	
  

 	
  

 
	
  

 	
 (ii)

 	
 which after giving effect to such Subordinated Debt,
 would not cause the Fixed Charge Coverage Ratio, as of the date of issuance
 for the preceding four fiscal quarters, to be less than 1.20 to 1.0;

 
	
  

 	
  

 	
  

 
	
  

 	
 (iii)

 	
 which after giving effect to such Subordinated Debt,
 would not cause, in the Bank’s reasonable judgment, a projected Default or an
 Event of Default under Sections 6.15 or 6.16 in any of the four fiscal
 quarters ending on or after the date of issuance;

 
	
  

 	
  

 	
  

 
	
  

 	
 (iv)

 	
 which imposes covenants on the Borrower, financial
 or otherwise, which are no more restrictive than the covenants set forth in
 this Credit Agreement; and

 
	
  

 	
  

 	
  

 
	
  

 	
 (v)

 	
 which was issued at a time when no Default or Event
 of Default has occurred and is continuing.

 






	
  

 	
  

 
	
  

 	
           (e)          Indebtedness
 secured by Liens permitted under Section 6.12 hereof.

 



          Section
6.12          Liens.
The Borrower will not create, incur, assume or suffer to exist any Lien, or
enter into, or make any commitment to enter into, any arrangement for the
acquisition of any property through conditional sale, lease-purchase or other
title retention agreements, with respect to any property now owned or hereafter
acquired by the Borrower, except:


	
  

 	
  

 
	
  

 	
           (a)          Liens
 granted to the Bank under the Security Documents to secure the Obligations.

 
	
  

 	
  

 
	
  

 	
           (b)          Liens
 existing on the date of this Agreement and previously disclosed to the Bank.

 


28









	
  

 	
  

 
	
  

 	
           (c)          Deposits
 or pledges to secure payment of workers’ compensation, unemployment
 insurance, old age pensions or other social security obligations, in the
 ordinary course of business of the Borrower.

 
	
  

 	
  

 
	
  

 	
           (d)          Liens
 for taxes, fees, assessments and governmental charges not delinquent or to
 the extent that payment therefor shall not at the time be required to be made
 in accordance with the provisions of Section 5.4.

 
	
  

 	
  

 
	
  

 	
           (e)          Liens
 of carriers, warehousemen, mechanics and materialmen, and other like Liens
 arising in the ordinary course of business, for sums not due or to the extent
 that payment therefor shall not at the time be required to be made in
 accordance with the provisions of Section 5.4.

 
	
  

 	
  

 
	
  

 	
           (f)          Liens
 incurred or deposits or pledges made or given in connection with, or to
 secure payment of, indemnity, performance or other similar bonds.

 
	
  

 	
  

 
	
  

 	
           (g)          Liens
 arising solely by virtue of any statutory or common law provision relating to
 banker’s liens, rights of set-off or similar rights and remedies as to
 deposit accounts or other funds maintained with a creditor depository
 institution; provided that (i) such deposit account is not a dedicated
 cash collateral account and is not subject to restriction against access by
 the Borrower in excess of those set forth by regulations promulgated by the
 Board, and (ii) such deposit account is not intended by the Borrower to
 provide collateral to the depository institution.

 
	
  

 	
  

 
	
  

 	
           (h)          Encumbrances
 in the nature of zoning restrictions, easements and rights or restrictions of
 record on the use of real property and landlord’s Liens under leases on the
 premises rented, which do not materially detract from the value of such
 property or impair the use thereof in the business of the Borrower.

 
	
  

 	
  

 
	
  

 	
           (i)          The
 interest of any lessor under any Capitalized Lease entered into after the
 Closing Date or purchase money Liens on property acquired after the Closing
 Date; provided, that, (i) the Indebtedness secured thereby is otherwise
 permitted by this Agreement and (ii) such Liens are limited to the property
 acquired and do not secure Indebtedness other than the related Capitalized
 Lease Obligations or the purchase price of such property.

 



          Section
6.13          Contingent
Liabilities. The Borrower will not be or become liable on any Contingent
Obligations.


          Section
6.14          Fixed Charge
Coverage Ratio. The Borrower will not permit the Fixed Charge Coverage
Ratio, as of the last day of any fiscal quarter for the four consecutive fiscal
quarters ending on that date to be less than 1.2 to 1.0.


          Section
6.15          Total Cash
Flow Leverage Ratio. The Borrower will not permit the Total Cash Flow
Leverage Ratio, as of the last day of any fiscal quarter, to be more than 3.5
to 1.0.


          Section
6.16          Loan
Proceeds. The Borrower will not use any part of the proceeds of the Loans
or Advances directly or indirectly, and whether immediately, incidentally or
ultimately,


29





(a) to purchase or carry margin stock (as defined in
Regulation U of the Board) or to extend credit to others for the purpose of
purchasing or carrying margin stock or to refund Indebtedness originally
incurred for such purpose or (b) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of Regulations U or X of the
Board.


          Section
6.17          Key-Man Life
Insurance. The Borrower shall have obtained a key-man life insurance policy
on the life of Robert D. Hansen in the face amount of $3,000,000, which policy
shall be in full force and effect as of the Closing Date. Within sixty days
after the date hereof, such insurance policy shall name the Bank as the
beneficiary and shall provide that such insurance policies may not be canceled
unless the insurance carrier gives at least 30 days prior written notice of
such cancellation to the beneficiary.


          Section
6.18          Lockbox;
Bank Accounts. As of the Closing Date, the Borrower shall direct each
Account Debtor (as such term is defined in the Security Agreement) that is a
Government Entity to remit payments with respect to Accounts (as such term is
defined in the Security Agreement) to the Governmental Entity Receivables
Account. At the Bank’s sole discretion and direction, the Borrower shall direct
each Account Debtor that is not a Government Entity to remit payments with
respect to Accounts to a lockbox and/or a lockbox account established with the
Bank. The Borrower shall not make any change in its instructions to any Account
Debtor regarding payments to be made to any such box or account.


          (b)          The
Borrower, and all of the Borrower’s Subsidiaries, shall maintain the Borrower’s
and such Subsidiaries’ primary depository and operating accounts and securities
accounts with the Bank. The Borrower shall identify to the Bank, in writing,
any deposit or securities account opened by the Borrower with any institution
other than the Bank. In addition, for each such account that the Borrower at
any time opens or maintains, the Borrower shall, at the Bank’s request and
option, pursuant to an agreement in form and substance acceptable to the Bank,
cause the depository bank or securities intermediary to agree that such account
is the collateral of the Bank. The provisions of the previous sentence shall
not apply to deposit accounts exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of the
Borrower’s employees.


          Section
6.19          Management. In no event shall Robert D. Hansen or Terry M. Belford cease to be chief
executive officer or chief financial officer, respectively.


          Section
6.20          Collateral
Exam. The Borrower shall permit the Bank to make annual collateral
examinations as provided in the Security Agreement.


          Section
6.21          Revolving
Commitment. The Borrower shall not permit the Revolving Commitment to
expire or terminate.


          Section
6.22          Medicaid/Medicare
Certification. The Borrower shall remain at all times an enrolled
participating provider or supplier in the Medicare program and any other
federal or state health care programs in which the Borrower is enrolled as a
participating provider or supplier as of the Closing Date, and none of the
Borrower’s enrollments or participating provider or supplier agreements in such
programs, nor its status as a participating provider or supplier in such
programs may terminate, either voluntarily or involuntarily.


30







          Section
6.23        Sale and
Leaseback Transactions. The Borrower will not enter into any arrangement,
directly or indirectly, whereby it shall sell or transfer any property, real or
personal, and thereafter lease such property for the same or a substantially
similar purpose or purposes as the property sold or transferred.


          Section
6.24        Hedging
Agreements. The Borrower will not enter into any hedging arrangements,
other than any Rate Protection Agreements.


ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES


          Section
7.1          Events of Default. The occurrence of any one or more of the following events shall
constitute an Event of Default: 


	
  

 	
  

 
	
  

 	
                (a)          The
 Borrower shall fail to make when due, whether by acceleration or otherwise,
 any payment of principal of or interest on either Note or any other
 Obligation required to be made to the Bank pursuant to this Agreement.

 
	
  

 	
  

 
	
  

 	
                (b)          Any
 representation or warranty made by or on behalf of the Borrower in this
 Agreement or any other Loan Document or by or on behalf of the Borrower in
 any certificate, statement, report or document herewith or hereafter
 furnished to the Bank pursuant to this Agreement or any other Loan Document
 shall prove to have been false or misleading in any material respect on the
 date as of which the facts set forth are stated or certified.

 
	
  

 	
  

 
	
  

 	
                (c)          The
 Borrower shall fail to comply with Sections 5.2 or 5.3 hereof or any Section
 of Article VI hereof.

 
	
  

 	
  

 
	
  

 	
                (d)          The
 Borrower shall fail to comply with any other agreement, covenant, condition,
 provision or term contained in this Agreement (other than those hereinabove
 set forth in this Section 7.1) and such failure to comply shall continue for
 30 calendar days after whichever of the following dates is the earliest: (i)
 the date the Borrower gives notice of such failure to the Bank, (ii) the date
 the Borrower should have given notice of such failure to the Bank pursuant to
 Section 5.1, or (iii) the date the Bank gives notice of such failure to the
 Borrower.

 
	
  

 	
  

 
	
  

 	
                (e)          Any
 default (however denominated or defined) shall occur under any Security
 Document.

 
	
  

 	
  

 
	
  

 	
                (f)          The
 Borrower shall become insolvent or shall generally not pay its debts as they
 mature or shall apply for, shall consent to, or shall acquiesce in the
 appointment of a custodian, trustee or receiver of the Borrower or for a
 substantial part of the property thereof or, in the absence of such
 application, consent or acquiescence, a custodian, trustee or receiver shall
 be appointed for the Borrower or for a substantial part of the property
 thereof and shall not be discharged within 45 days, or the Borrower shall
 make an assignment for the benefit of creditors.

 


31









	
  

 	
  

 
	
  

 	
                (g)         Any
 bankruptcy, reorganization, debt arrangement or other proceedings under any
 bankruptcy or insolvency law shall be instituted by or against the Borrower,
 and, if instituted against the Borrower, shall have been consented to or acquiesced
 in by the Borrower, or shall remain undismissed for 60 days, or an order for
 relief shall have been entered against the Borrower.

 
	
  

 	
  

 
	
  

 	
                (h)         Any
 dissolution or liquidation proceeding shall be instituted by or against the
 Borrower, and, if instituted against the Borrower, shall be consented to or
 acquiesced in by the Borrower or shall remain for 45 days undismissed.

 
	
  

 	
  

 
	
  

 	
                (i)          A
 judgment or judgments for the payment of money in excess of the sum of
 $25,000 in the aggregate shall be rendered against the Borrower and either
 (i) the judgment creditor executes on such judgment or (ii) such judgment
 remains unpaid or undischarged for more than 60 days from the date of entry
 thereof or such longer period during which execution of such judgment shall
 be stayed during an appeal from such judgment.

 
	
  

 	
  

 
	
  

 	
                (j)          The
 maturity of any material Indebtedness of the Borrower (other than
 Indebtedness under this Agreement) shall be accelerated, or the Borrower
 shall fail to pay any such material Indebtedness when due (after the lapse of
 any applicable grace period) or, in the case of such Indebtedness payable on
 demand, when demanded (after the lapse of any applicable grace period), or
 any event shall occur or condition shall exist and shall continue for more
 than the period of grace, if any, applicable thereto and shall have the
 effect of causing, or permitting the holder of any such Indebtedness or any
 trustee or other Person acting on behalf of such holder to cause, such
 material Indebtedness to become due prior to its stated maturity or to
 realize upon any collateral given as security therefor. For purposes of this
 Section, Indebtedness of the Borrower shall be deemed “material” if it
 exceeds $25,000 as to any item of Indebtedness or in the aggregate for all
 items of Indebtedness with respect to which any of the events described in
 this Section 7.1(j) has occurred.

 
	
  

 	
  

 
	
  

 	
                (k)          Any
 execution or attachment shall be issued whereby any substantial part of the
 property of the Borrower shall be taken or attempted to be taken and the same
 shall not have been vacated or stayed within 30 days after the issuance
 thereof.

 
	
  

 	
  

 
	
  

 	
                (l)          Any
 Security Document shall, at any time, cease to be in full force and effect or
 shall be judicially declared null and void, or the validity or enforceability
 thereof shall be contested by the Borrower, or the Bank shall cease to have a
 valid and perfected security interest having the priority contemplated
 thereunder in all of the collateral described therein, other than by action
 or inaction of the Bank if (i) the aggregate value of the collateral affected
 by any of the foregoing exceeds $25,000 and (ii) any of the foregoing shall
 remain unremedied for ten days or more after receipt of notice thereof by the
 Borrower from the Bank.

 
	
  

 	
  

 
	
  

 	
                (m)         Any
 Governmental Entity Receivables Account Notice shall be revoked or revised
 without the written consent of the Bank.

 


32









	
  

 	
  

 
	
  

 	
              (n)          An
 easement or license agreement, in form and substance acceptable to the Bank,
 regarding the pipeline and detention pond encroachment on the Borrower’s land
 onto the adjoining Lot 1, Block 1, New Prague Business Park 1st Addition to
 the north, for which no easements currently appear of record, as shown on the
 survey prepared by Bohlen Surveying & Associates, LLC, dated October 23,
 2009, designated as Job No. H60-05-07B, has not been executed and consented
 to by all appropriate parties and properly recorded in the appropriate county
 recording office no later than 180 days after the date hereof.

 
	
  

 	
  

 
	
  

 	
              (o)          Any
 Change of Control shall occur.

 



          Section
7.2          Remedies. If (a) any Event
of Default described in Sections 7.1 (f), (g) or (h) shall occur, the
Commitments shall automatically terminate and the Notes and all other
Obligations shall automatically become immediately due and payable; or (b) any
other Event of Default shall occur and be continuing, then, the Bank may (i)
declare the Commitments terminated, whereupon the Commitments shall terminate
and (ii) declare the outstanding unpaid principal balance of the Notes, the
accrued and unpaid interest thereon and all other Obligations to be forthwith
due and payable, whereupon the Notes, all accrued and unpaid interest thereon
and all such Obligations shall immediately become due and payable, in each case
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, anything in this Agreement or in the Notes to the
contrary notwithstanding. Upon the occurrence of any of the events described in
clause (a) or (b) of the preceding sentence the Bank may exercise all rights
and remedies under any of the Loan Documents, and enforce all rights and
remedies under any applicable law.


          Section
7.3         Deposit Accounts; Offset. The Borrower
hereby grants the Bank a security interest in all deposits, credits and deposit
accounts of the Borrower with the Bank (the “Deposits”). In addition to the
remedies set forth in Section 7.2, upon the occurrence of any Event of Default
and thereafter while the same be continuing, the Borrower hereby irrevocably
authorizes the Bank to (a) set off any Obligations against all Deposits of the
Borrower with, and any and all claims of the Borrower against, the Bank, and
(b) to enforce the security interest granted pursuant to the first sentence
hereof. Such right shall exist whether or not the Bank shall have made any
demand hereunder or under any other Loan Document, whether or not the
Obligations, or any part thereof, or Deposits is or are matured or unmatured,
and regardless of the existence or adequacy of any collateral, guaranty or any
other security, right or remedy available to the Bank. The Bank agrees that, as
promptly as is reasonably possible after the exercise of any such setoff or
enforcement right, it shall notify the Borrower of its exercise of such setoff
or enforcement right; provided, however, that the failure of the Bank to
provide such notice shall not affect the validity of the exercise of such
setoff or enforcement rights. Nothing in this Agreement shall be deemed a
waiver or prohibition of or restriction on the Bank to all rights of banker’s
Lien, setoff and counterclaim available pursuant to law. Notwithstanding
anything contained herein to the contrary, the Bank waives any security
interest or right of setoff in the Governmental Entity Receivables Account.


33





ARTICLE VIII 

MISCELLANEOUS


          Section
8.1      Modifications.
Notwithstanding any provisions to the contrary herein, any term of this
Agreement may be amended with the written consent of the Borrower; provided
that no amendment, modification or waiver of any provision of this Agreement or
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be in writing and signed by the Bank, and then
such amendment, modification, waiver or consent shall be effective only in the
specific instance and for the purpose for which given.


          Section
8.2      Expenses.
Whether or not the transactions contemplated hereby are consummated, the
Borrower agrees to pay or reimburse the Bank upon demand for all reasonable
out-of-pocket expenses paid or incurred by the Bank, including filing and
recording costs and fees, charges and disbursements of outside counsel to the
Bank (determined on the basis of such counsel’s generally applicable rates,
which may be higher than the rates such counsel charges the Bank in certain
matters) and/or the allocated costs of in-house counsel incurred from time to
time, in connection with the negotiation, preparation, approval, review,
execution, delivery, administration, amendment, modification, interpretation,
collection and enforcement of this Agreement and the other Loan Documents and
any commitment letters relating thereto paid or incurred by the Bank in
connection with the collection and enforcement of this Agreement and any other
Loan Document. The obligations of the Borrower under this Section shall survive
any termination of this Agreement.


          Section
8.3      Waivers, etc.
No failure on the part of the Bank or the holder of a Note to exercise and no
delay in exercising any power or right hereunder or under any other Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude any other or further exercise thereof
or the exercise of any other power or right. The remedies herein and in the
other Loan Documents provided are cumulative and not exclusive of any remedies
provided by law.


          Section
8.4      Notices.
Except when telephonic notice is expressly authorized by this Agreement, any
notice or other communication to any party in connection with this Agreement
shall be in writing and shall be sent by manual delivery, facsimile
transmission, overnight courier or United States mail (postage prepaid)
addressed to such party at the address specified on the signature page hereof,
or at such other address as such party shall have specified to the other party
hereto in writing. All periods of notice shall be measured from the date of
delivery thereof if manually delivered, from the date of sending thereof if
sent by facsimile transmission, from the first Banking Day after the date of
sending if sent by overnight courier, or from four days after the date of
mailing if mailed; provided, however, that any notice to the Bank under Article
II hereof shall be deemed to have been given only when received by the Bank.


          Section
8.5      Taxes. The
Borrower agrees to pay, and save the Bank harmless from all liability for, any
stamp or other taxes which may be payable with respect to the execution or
delivery of this Agreement or the issuance of the Notes, which obligation of
the Borrower shall survive the termination of this Agreement.


          Section
8.6      Successors
and Assigns; Participations; Purchasing Banks.


34









	
  

 	
  

 
	
  

 	
           (a)          This
 Agreement shall be binding upon and inure to the benefit of the Borrower, the
 Bank, all future holders of the Notes, and their respective successors and
 assigns, except that the Borrower may not assign or transfer any of its
 rights or obligations under this Agreement without the prior written consent
 of the Bank.

 
	
  

 	
  

 
	
  

 	
           (b)          The
Bank may, in the ordinary course of its commercial banking business and in
accordance with applicable law, at any time sell to one or more banks or
other financial institutions (“Participants”) participating interests in a
minimum amount of $100,000 in any Revolving Loan or the Term Loan or other
Obligation owing to the Bank, the Revolving Note or the Term Note, and the
Revolving Commitment or the Term Loan Commitment, or any other interest of
the Bank hereunder. In the event of any such sale by the Bank of
participating interests to a Participant, (i) the Bank’s obligations under
this Agreement to the other parties to this Agreement shall remain unchanged,
(ii) the Bank shall remain solely responsible for the performance thereof,
(iii) the Bank shall remain the holder of the Revolving Note or the Term Note
for all purposes under this Agreement, (iv) the Borrower shall continue to
deal solely and directly with the Bank in connection with the Bank’s rights
and obligations under this Agreement and (v) the agreement pursuant to which
such Participant acquires its participating interest herein shall provide
that the Bank shall retain the sole right and responsibility to enforce the
Obligations, including, without limitation the right to consent or agree to
any amendment, modification, consent or waiver with respect to this Agreement
or any other Loan Document, provided that such agreement may provide that the
Bank will not consent or agree to any such amendment, modification, consent
or waiver with respect to the matters set forth in Sections 8.2(a) through
(e) without the prior consent of such Participant. The Borrower agrees that
if amounts outstanding under this Agreement, the Revolving Note, the Term
Note and the Loan Documents are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have, to the extent permitted by
applicable law, the right of setoff in respect of its participating interest
in amounts owing under this Agreement and the Revolving Note, the Term Note
or other Loan Document to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this
Agreement or any the Revolving Note, the Term Note or other Loan Document.
The Borrower also agrees that each Participant shall be entitled to the
benefits of this Credit Agreement with respect to its participation in the
Revolving Commitment, Term Loan Commitment, Revolving Loan and Term Loan;
provided, that no Participant shall be entitled to receive any greater amount
pursuant to such subsections than the Bank would have been entitled to
receive in respect of the amount of the participation transferred by the Bank
to such Participant had no such transfer occurred.  

 
	
  

 	
  

 
	
  

 	
           (c)          The
 Borrower shall not be liable for any costs incurred by the Bank in effecting
 any participation under subparagraph (b) of this subsection.

 
	
  

 	
  

 
	
  

 	
           (d)          The
 Bank may disclose to any Assignee or Participant and to any prospective
 Assignee or Participant any and all financial information in the Bank’s
 possession concerning the Borrower or any of their Subsidiaries (if any)
 which has been delivered to the Bank by or on behalf of the Borrower or any
 of its Subsidiaries pursuant to this Agreement or which has been delivered to
 the Bank by or on behalf of the

 


35









	
  

 	
  

 
	
  

 	
 Borrower or
any of their Subsidiaries in connection with the Bank’s credit evaluation of
the Borrower or any of its Subsidiaries prior to entering into this
Agreement, provided that prior to disclosing such information, the Bank shall
first obtain the agreement of such prospective Assignee or Participant to
comply with the provisions of Section 8.7. 

 
	
  

 	
  

 
	
  

 	
           (e)          Notwithstanding
 any other provision in this Agreement, the Bank may at any time create a
 security interest in, or pledge, all or any portion of its rights under and
 interest in this Agreement and any note held by it in favor of any federal
 reserve bank in accordance with Regulation A of the Board or U. S. Treasury
 Regulation 31 CFR § 203.14, and such Federal Reserve Bank may enforce such
 pledge or security interest in any manner permitted under applicable law.

 
	
  

 	
  

 
	
  

 	
           (f)          In
 connection with this Agreement, the other Loan Documents and the transactions
 and any litigation relating thereto (including in connection with (i) the
 negotiation, preparation and execution of the Loan Documents, (ii) the
 perfection of any security interest, (iii) the completion of any filings or registrations,
 (iv) the obtaining of any consents and (v) any present or future legal
 representation relating to the administration, amendment, modification,
 waiver or enforcement of, or any restructuring or forbearance arrangement
 relating to, any Loan Document), Dorsey & Whitney LLP and any other
 counsel retained by the Bank in connection with any of such matters
 (collectively, the “Bank’s Counsel”) has only represented and shall only
 represent the Bank. Each Borrower and each assignee or participant of the
 Bank (by accepting an assignment or a participation under Section 8.6
 hereof), agrees and acknowledges that the Bank’s Counsel does not represent
 it, and no attorney-client relationship exists between it and the Bank’s
 Counsel, in connection with any of the matters described in the preceding
 sentence.

 



          Section
8.7      Confidentiality
of Information. The Bank shall use reasonable efforts to assure that
information about the Borrower and its operations, affairs and financial
condition, not generally disclosed to the public or to trade and other
creditors, which is furnished to the Bank pursuant to the provisions hereof is
used only for the purposes of this Agreement and any other relationship between
the Bank and the Borrower and shall not be divulged to any Person other than
the Bank, its Affiliates and their respective officers, directors, employees
and agents, except: (a) to their attorneys and accountants, (b) in connection
with the enforcement of the rights of the Bank hereunder and under the Loan
Documents or otherwise in connection with applicable litigation, (c) in
connection with assignments and participations and the solicitation of
prospective assignees and participants referred to in the immediately preceding
Section, (d) if such information is generally available to the public other
than as a result of disclosure by the Bank, (e) to any direct or indirect
contractual counterparty in any hedging arrangement or such contractual
counterparty’s professional advisor, (f) to any nationally recognized rating
agency that requires information about the Bank’s investment portfolio in
connection with ratings issued with respect to the Bank, and (g) as may
otherwise be required or requested by any regulatory authority having
jurisdiction over the Bank or by any applicable law, rule, regulation or
judicial process, the opinion of the Bank’s counsel concerning the making of
such disclosure to be binding on the parties hereto. The Bank shall not incur
any liability to the Borrower by reason of any disclosure permitted by this
Section.


36





          Section
8.8      Governing Law
and Construction. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT
GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL
BANKS. Whenever possible, each provision of this Agreement and the other Loan
Documents and any other statement, instrument or transaction contemplated
hereby or thereby or relating hereto or thereto shall be interpreted in such
manner as to be effective and valid under such applicable law, but, if any
provision of this Agreement, the other Loan Documents or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be held to be prohibited or invalid under such applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement, the other Loan Documents or any other
statement, instrument or transaction contemplated hereby or thereby or relating
hereto or thereto.


          Section
8.9      Consent to
Jurisdiction. AT THE OPTION OF THE BANK, THIS AGREEMENT AND THE OTHER
BORROWER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY; AND THE BORROWER CONSENTS TO THE JURISDICTION
AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS
IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR
INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.


          Section
8.10     Waiver of
Jury Trial. EACH OF THE BORROWER AND THE BANK IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.


          Section
8.11     Survival of
Agreement. All representations, warranties, covenants and agreement made by
the Borrower herein or in the other Borrower Loan Documents and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be deemed to have
been relied upon by the Bank and shall survive the making of the Loan by the
Bank and the execution and delivery to the Bank by the Borrower of the Note,
regardless of any investigation made by or on behalf of the Bank, and shall
continue in full force and effect as long as any Obligation is outstanding and
unpaid and so long as the Commitment has not been terminated; provided, however,
that the obligations of the under 8.3, 8.6 and 8.13 shall survive payment in
full of the Obligations and the termination of the Commitment.


37





          Section
8.12       Indemnification.
The Borrower hereby agrees to defend, protect, indemnify and hold harmless the
Bank and its Affiliates and the directors, officers, employees, attorneys and
agents of the Bank and its Affiliates (each of the foregoing being an
“Indemnitee” and all of the foregoing being collectively the “Indemnitees”)
from and against any and all claims, actions, damages, liabilities, judgments,
costs and expenses (including all reasonable fees and disbursements of counsel
which may be incurred in the investigation or defense of any matter) imposed
upon, incurred by or asserted against any Indemnitee, whether direct, indirect
or consequential and whether based on any federal, state, local or foreign laws
or regulations (including securities laws, environmental laws, commercial laws
and regulations), under common law or on equitable cause, or on contract or
otherwise:


	
  

 	
  

 
	
  

 	
              (a)          by
 reason of, relating to or in connection with the execution, delivery,
 performance or enforcement of any Loan Document, any commitments relating
 thereto, or any transaction contemplated by any Loan Document; or

 
	
  

 	
  

 
	
  

 	
              (b)          by
 reason of, relating to or in connection with any credit extended or used
 under the Loan Documents or any act done or omitted by any Person, or the
 exercise of any rights or remedies thereunder, including the acquisition of
 any collateral by the Bank by way of foreclosure of the Lien thereon, deed or
 bill of sale in lieu of such foreclosure or otherwise;

 



provided,
however, that the Borrower shall not be liable to any Indemnitee for any
portion of such claims, damages, liabilities and expenses resulting from such
Indemnitee’s gross negligence or willful misconduct. In the event this
indemnity is unenforceable as a matter of law as to a particular matter or
consequence referred to herein, it shall be enforceable to the full extent
permitted by law.


          This
indemnification applies, without limitation, to any act, omission, event or
circumstance existing or occurring on or prior to the later of the Termination
Date or the date of payment in full of the Obligations, including specifically
Obligations arising under clause (b) of this Section. The indemnification
provisions set forth above shall be in addition to any liability the Borrower
may otherwise have. Without prejudice to the survival of any other obligation
of the Borrower hereunder the indemnities and obligations of the Borrower
contained in this Section shall survive the payment in full of the other
Obligations.


          Section
8.13       Captions.
The captions or headings herein and any table of contents hereto are for
convenience only and in no way define, limit or describe the scope or intent of
any provision of this Agreement.


          Section
8.14       Entire
Agreement. This Agreement and the other Borrower Loan Documents embody the
entire agreement and understanding between the Borrower and the Bank with
respect to the subject matter hereof and thereof. This Agreement supersedes all
prior agreements and understandings relating to the subject matter hereof.
Nothing contained in this Agreement or in any other Loan Document, expressed or
implied, is intended to confer upon any Persons other than the parties hereto
any rights, remedies, obligations or liabilities hereunder or thereunder.


38





          Section
8.15       Counterparts.
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument, and any of the
parties hereto may execute this Agreement by signing any such counterpart.


          Section
8.16       Borrower
Acknowledgements. The Borrower hereby acknowledges that (a) it has been
advised by counsel in the negotiation, execution and delivery of this Agreement
and the other Loan Documents, (b) the Bank has no fiduciary relationship to the
Borrower, the relationship being solely that of debtor and creditor, (c) no
joint venture exists between the Borrower and the Bank, and (d) the Bank
undertakes no responsibility to the Borrower to review or inform the Borrower
of any matter in connection with any phase of the business or operations of the
Borrower and the Borrower shall rely entirely upon its own judgment with
respect to its business, and any review, inspection or supervision of, or
information supplied to, the Borrower by the Bank is for the protection of the
Bank and neither the Borrower nor any third party is entitled to rely thereon.


          Section
8.17       Interest
Rate Limitation. Notwithstanding anything herein to the contrary, if at any
time the interest rate applicable to any Loan, together with all fees, charges
and other amounts that are treated as interest on such Loan under applicable
law (collectively, the “Charges”), shall exceed the maximum lawful rate (the
“Maximum Rate”) that may be contracted for, charged, taken, received or reserved
by the Bank in accordance with applicable law, the rate of interest payable in
respect of such Loan hereunder, together with all Charges payable in respect
thereof, shall be limited to the Maximum Rate and, to the extent lawful, the
interest and Charges that would have been payable in respect of such Loan but
were not payable as a result of the operation of this Section shall be
cumulated and the interest and Charges payable to the Bank in respect of other
Loans or periods shall be increased (but not above the Maximum Rate therefor)
until such cumulated amount, together with interest thereon at the Federal
Funds Effective Rate to the date of repayment, shall have been received by the
Bank.


[The remainder of this page has been left
blank intentionally.]


39





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


	
  

 	
  

 	
  

 
	
  

 	
 ELECTROMED,
 INC.

 
	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
 

 
	
  

 	
 Name: Robert D. Hansen

 
	
  

 	
 Title: Chief
 Executive Officer

 
	
  

 	
  

 	
  

 
	
 Address:

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 500 Sixth
 Avenue NW 

 New Prague, MN 56071 

 ATTN: Robert D. Hansen 

 Fax Number: 952-758-1941

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 U.S. BANK
 NATIONAL ASSOCIATION

 
	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
 

 





	
  

 	
  

 	
  

 
	
  

 	
 Name:

 	
      Gregory
 J. Guttormsson

 





	
  

 	
  

 	
  

 
	
  

 	
 Title:

 	
      Vice
 President

 
	
  

 	
  

 	


 
	
  

 	
  

 	
  

 
	
 Address for
 Bank:

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 U.S. Bank
 National Association 

 BC-MN-H03W

 	
  

 	
  

 
	
 800 Nicollet
 Mall

 	
  

 	
  

 
	
 Minneapolis,
 MN 55402-4302 

 ATTN: Daniel J. Miller 

 Fax Number: 612-303-2252

 	
  

 	
  

 


[Signature Page to Credit Agreement]







EXHIBIT A TO

CREDIT AGREEMENT


REVOLVING NOTE


	
  

 	
  

 
	
 $3,500,000

 	
 December
 [   ], 2009

 
	
  

 	
 Minneapolis, Minnesota

 



          FOR
VALUE RECEIVED, ELECTROMED, INC., a corporation organized under the laws of the
State of Minnesota hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the “Bank”) at its main office in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) on the Termination Date the principal amount
of THREE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,500,000.00) or,
if less, the aggregate unpaid principal amount of all Advances made by the Bank
under the Credit Agreement, and to pay interest (computed on the basis of
actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times
set forth in the Credit Agreement.


          This
note is the Revolving Note referred to in the Credit Agreement dated as of
December [   ], 2009 (as the same may hereafter be from time to
time amended, restated or otherwise modified, the “Credit Agreement”) between
the undersigned and the Bank. This note is secured, it is subject to certain
mandatory prepayments and its maturity is subject to acceleration, in each case
upon the terms provided in said Credit Agreement.


          In
the event of default hereunder, the undersigned agrees to pay all costs and expenses
of collection, including reasonable attorneys’ fees. The undersigned waives
demand, presentment, notice of nonpayment, protest, notice of protest and
notice of dishonor.


          THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS.


	
  

 	
  

 	
  

 	
  

 
	
  

 	
 ELECTROMED, INC.

 
	
  

 	
  

 	
  

 
	
  

 	
 By: 

 	
  



 	
  

 
	
  

 	
 Name: Robert D. Hansen 

 	
  

 
	
  

 	
 Title: Chief Executive Officer 

 	
  

 









EXHIBIT B TO

CREDIT AGREEMENT


TERM NOTE A


	
  

 	
  

 
	
 $1,520,000

 	
 December
 [   ], 2009

 
	
  

 	
 Minneapolis, Minnesota

 



          FOR
VALUE RECEIVED, ELECTROMED, INC., a corporation organized under the laws of the
State of Minnesota hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the “Bank”) at its main office in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) the principal amount of ONE MILLION FIVE
HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS ($1,520,000.00) and to pay interest
(computed on the basis of actual days elapsed and a year of 360 days) in like
funds on the unpaid principal amount hereof from time to time outstanding at
the rates and times set forth in the Credit Agreement.


          The
principal hereof is payable as provided in the Credit Agreement.


          This
note is the Term Note A referred to in the Credit Agreement dated as of
December [   ], 2009 (as the same may hereafter be from time to
time amended, restated or otherwise modified, the “Credit Agreement”) between
the undersigned and the Bank. This note is secured and its maturity is subject
to acceleration, in each case upon the terms provided in said Credit Agreement.


          In
the event of default hereunder, the undersigned agrees to pay all costs and
expenses of collection, including reasonable attorneys’ fees. The undersigned
waives demand, presentment, notice of nonpayment, protest, notice of protest
and notice of dishonor.


          THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF,, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS.


	
  

 	
  

 	
  

 	
  

 
	
  

 	
 ELECTROMED, INC.

 
	
  

 	
  

 	
  

 
	
  

 	
 By: 

 	
  



 	
  

 
	
  

 	
 Name: Robert D. Hansen 

 	
  

 
	
  

 	
 Title: Chief Executive Officer 

 	
  

 









EXHIBIT C TO

CREDIT AGREEMENT


TERM NOTE B


	
  

 	
  

 
	
 $1,000,000

 	
 December
 [   ], 2009

 
	
  

 	
 Minneapolis, Minnesota

 



          FOR
VALUE RECEIVED, ELECTROMED, INC., a corporation organized under the laws of the
State of Minnesota hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the “Bank”) at its main office in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) the principal amount of ONE MILLION AND
NO/100 DOLLARS ($1,000,000.00) and to pay interest (computed on the basis of
actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times
set forth in the Credit Agreement.


          The
principal hereof is payable as provided in the Credit Agreement.


          This
note is the Term Note B referred to in the Credit Agreement dated as of
December [   ], 2009 (as the same may hereafter be from time to
time amended, restated or otherwise modified, the “Credit Agreement”) between
the undersigned and the Bank. This note is secured and its maturity is subject
to acceleration, in each case upon the terms provided in said Credit Agreement.


          In
the event of default hereunder, the undersigned agrees to pay all costs and
expenses of collection, including reasonable attorneys’ fees. The undersigned
waives demand, presentment, notice of nonpayment, protest, notice of protest
and notice of dishonor.


          THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF,, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS.


	
  

 	
  

 	
  

 	
  

 
	
  

 	
 ELECTROMED, INC.

 
	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
  



 	
  

 
	
  

 	
 Name: Robert D. Hansen 

 	
  

 
	
  

 	
 Title: Chief Executive Officer 

 	
  

 









EXHIBIT D TO

CREDIT AGREEMENT


MATTERS TO BE
COVERED BY

OPINION OF COUNSEL

TO THE BORROWER


          The
opinion of counsel to the Borrower which is called for by Article III of the
Credit Agreement (the “Credit Agreement”) shall be addressed to the Bank and
dated the Closing Date. It shall be satisfactory in form and substance to the
Bank and shall cover the matters set forth below, subject to such assumptions,
exceptions and qualifications as may be acceptable to the Bank and counsel to
the Bank. Capitalized terms used herein have the respective meanings given such
terms in the Credit Agreement.


          1.          The
Borrower is a corporation duly incorporated and validly existing and in good
standing under the laws of the State of Minnesota and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into the Borrower Loan Documents and to perform all of its obligations
under each and all of the foregoing. The Borrower is duly qualified and in good
standing as a foreign corporation in all of the jurisdictions in which the
character of the properties owned or leased by it or the business conducted by
it makes such qualification necessary and the failure to so qualify would
permanently preclude the Borrower from enforcing its rights with respect to any
material asset or expose the Borrower to any material liability.


          2.          The
execution, delivery and performance by the Borrower of the Borrower Loan
Documents have been duly authorized by all necessary corporate action by the
Borrower.


          3.          The
Borrower Loan Documents constitute the legal, valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms.


          4.          The
execution, delivery and performance by the Borrower of the Borrower Loan Documents
will not (i) violate any provision of any law, statute, rule or regulation or,
to the best knowledge of such counsel, any order, writ, judgment, injunction,
decree, determination or award of any court, governmental agency or arbitrator
presently in effect having applicability to the Borrower, (ii) violate or
contravene any provision of the Articles of Incorporation or bylaws of the
Borrower of the Borrower, or (iii) result in a breach of or constitute a
default under any indenture, loan or credit agreement or any other agreement,
lease or instrument known to such counsel to which the Borrower is a party or
by which it or any of its properties may be bound or result in the creation of
any Lien thereunder.


          5.          No
order, consent, approval, license, authorization or validation of, or filing,
recording or registration with, or exemption by, any governmental or public
body or authority is required on the part of the Borrower to authorize, or is
required in connection with the execution, delivery and performance of, or the
legality, validity, binding effect or enforceability of, the Borrower Loan
Documents, except for any necessary filing or recordation of or with respect to
any of the Security Documents.






          6.          To
the best knowledge of such counsel, there are no actions, suits or proceedings
pending or threatened against or affecting the Borrower or any of its
properties before any court or arbitrator, or any governmental department,
board, agency or other instrumentality which (i) challenge the legality,
validity or enforceability of the Borrower Loan Documents, or (ii) if
determined adversely to the Borrower, would constitute a Material Adverse
Occurrence.


          7.          Each
Security Document creates the Lien it purports to create upon the properties
and interests specifically described therein. The descriptions of properties
and interests in the Security Documents and any related financing statements
are adequate for the purpose of such instruments and for perfection of the
Liens of the Bank. As to any Security Documents which are Security Agreements,
the filing of the Uniform Commercial Code financing statements delivered by the
Borrower to the Bank in the filing offices listed thereon will perfect Liens
created under such Security Agreements to the extent such Liens are capable of
being perfected by filing financing statements under the Uniform Commercial
Code.


          8.          The
Mortgage is in proper form for recording in the State of Minnesota in order to create
a lien upon the real property included within the Mortgaged Property (“Real
Property”) and in order to assign the leases and rents evidenced thereby to the
Bank as security for the Loan. Upon the proper recording of the Mortgage in the
office(s) of the ___________________ [and of the ___________________ (if both
Torrens and Abstract Property)] in and for ________________ County(ies),
Minnesota, and payment of mortgage registry tax in the proper amount, the
Mortgage will, subject to the assumptions and qualifications herein set forth,
create a valid lien upon the Real Property and a valid assignment of the leases
of and the rents from the Real Property, and will impart constructive notice to
third parties of the existence of said lien and assignment as of the date and
time of recording (“Recording Date”).


          9.
          The Mortgage is
effective as a grant by the Borrower to the Bank of a security interest in the
fixtures which form a part of the Real Property (“Fixtures”) to secure the
obligations secured by the Mortgage. [Upon proper recording of the Mortgage in
the office(s) of the
________________ [ and of the _______________________________________ (if both Torrens and Abstract Property)] in and for
_____________ County(ies), Minnesota, the Mortgage will be effective as a
fixture filing and a fixture financing statement, the security interest in the
Fixtures granted by the Mortgage will be perfected, and no other filing,
registration or recording in the State of Minnesota will be required to perfect
such security interest in the Fixtures (if
requested)]. The
Mortgage [Security Agreement] is effective as a grant by the Borrower to the
Bank of a security interest in the portion of the Mortgaged Property in which a
security interest may be granted pursuant to the UCC.






EXHIBIT E TO

CREDIT AGREEMENT


FORMULA FOR

BORROWING BASE


	
  

 	
  

 	
  

 
	
  

 	
             1.          Borrowing
 Base. The “Borrowing Base” as of any date of determination shall be 60% of
 the face amount of Eligible Accounts.

 
	
  

 	
  

 	
  

 
	
           2.          Definitions.
 Capitalized terms use herein which are defined in the Credit Agreement are
 used herein with the respective meanings attributed thereto in the Credit
 Agreement. In addition, for the purposes of this Exhibit and for determining
 the Borrowing Base, the following terms shall have the following respective
 meanings:

 
	
  

 	
  

 	
  

 
	
  

 	
           “Eligible
Accounts”: the right of the Borrower to receive payment for goods sold or
services rendered, including any such right evidenced by instruments or
chattel paper, provided such right to payment: 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (a)          has
 arisen out of the sale of goods or the performance of services by the
 Borrower within the United States, or, if such goods are sold or services
 performed outside the United States, is backed by a letter of credit issued
 or confirmed by a bank chartered under the laws of the United States or of
 any State;

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (b)          is
 the valid, binding and legally enforceable obligation of the obligor and such
 right to payment has not been subordinated by the Borrower to any other claim
 against the obligor and such obligor is not (i) the Borrower or an Affiliate
 of the Borrower (ii) a Person who is a shareholder, director, officer or
 employee of the Borrower, (iii) the United States or any department, agency
 or instrumentality thereof unless the Borrower shall have complied with
 Section 6.18(a) with respect to such account, (iv) a debtor under any
 proceeding under the Bankruptcy Code or comparable provision of state or
 foreign law or (v) an assignor for the benefit of creditors;

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (c)          is
 assignable;

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (d)          is
 subject to a perfected first security interest in favor of the Bank and is
 free and clear of any other Lien;

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (e)          is
 not subject to any claimed offset, counterclaim or other defense with respect
 thereto;

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (f)          is
 not unpaid more than 90 days from the due date of the relevant invoice;

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (g)          is
 not conditioned upon the approval of the obligor obligated thereon or subject
 to any repurchase obligations on the part of the Borrower or any return
 privilege on the part of such obligor; and

 













	
  

 	
  

 
	
  

 	
           (h)          is
 not, as reasonably determined by the Bank in its discretion, uncollectible,
 difficult to collect or otherwise disqualified;

 



provided, that the Bank shall,
notwithstanding the foregoing, have the right, in the reasonable exercise of
its discretion, to establish reserves against the aggregate amount of Eligible
Accounts.








	
  

 	
  

 
	
  

 	
 EXHIBIT
 F TO 

 
	
  

 	
 CREDIT AGREEMENT

 
	
  

 
	
 FORM OF BORROWING BASE
 CERTIFICATE

 






	
  

 
	
 Date

 
	
  

 






	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 TOTAL
 ACCOUNTS RECEIVABLE

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 1)

 	
 A/R
 balance as of date above

 	
  

 	
  

 	
  

 	
  

 	
 $4,000,000

 	
  

 
	
 2)

 	
 Minus
 Ineligibles (from Schedule A) 

 	
  

 	
  

 	
  

 	
  

 	
 $0

 	
  

 
	
 3)

 	
 ELIGIBLE
 ACCOUNTS RECEIVABLE: (Line 1 minus Line 2 times advance rate):

 	
  

 	
  

 	
 60%

 	
  

 	
 $2,400,000

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
 (Advance rate)

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 4)

 	
 MAXIMUM
 AVAILABLE: (lesser of line 3 or $3,500,000)

 	
  

 	
  

 	
 $3,500,000

 	
  

 	
 $2,400,000

 	
  

 
	
  

 	
  

 	
  

 	
 (Maximum Line Amount)

 	
  

 	
  

 	
  

 
	
 LOAN DETAIL

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 5)

 	
 Line
 of Credit Outstanding: 

 	
  

 	
 $

 	
 0  

 	
  

 	
  

 	
  

 
	
 6)

 	
 Term
 Loan Outstanding 

 	
  

 	
 $

 	
 0  

 	
  

 	
  

 	
  

 
	
 7)

 	
 TOTAL LOANS OUTSTANDING: (Line 5 plus Line 6)

 	
  

 	
  

 	
  

 	
  

 	
 $0

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 8)

 	
 Amount to
 be (Repaid)/Available:
 (Line 4 minus Line 7)

 	
  

 	
  

 	
  

 	
  

 	
 $2,400,000

 	
  

 



The undersigned represents and warrants
that:

The foregoing
information is true, complete and correct, and that the collateral, designated
as eligible, hereby complies fully with the conditions, terms, warranties,
representations and covenants set forth in the Loan Agreement (“Agreement”)
between the undersigned and U.S. Bank National Association(“Lender”).


	
  

 	
  

 	
  

 	
  

 	
  

 
	
 ELECTROMED,
 INC.

 	
  

 	
  

 	
  

 	
  

 
	
 Borrower

 	
  

 	
 Authorized signature

 	
  

 	
 Date

 










SCHEDULE A 
COMPUTATION OF INELIGIBLES




	
  

 	
  

 
	
 Date:

 	
  

 




	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 INELIGIBLE ACCOUNTS RECEIVABLE:

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 a) Over 90 days past
 due date

 	
  

 	
  

 	
  

 	
 $

 	
 —

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 b) Aged Credits **

 	
  

 	
  

 	
  

 	
 $

 	
 —

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 c) Contra accounts

 	
  

 	
  

 	
  

 	
 $

 	
 —

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 d) Co-op Advertising
 Accrual

 	
  

 	
  

 	
  

 	
 $

 	
 —

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 e) Foreign accounts
 receivable

 	
  

 	
  

 	
  

 	
 $

 	
 —

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 f) Employee/intercompany
 accounts receivable

 	
  

 	
  

 	
  

 	
 $

 	
 —

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 g) Cash/COD accounts

 	
  

 	
  

 	
  

 	
 $

 	
 —

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 h) Finance/service
 charges

 	
  

 	
  

 	
  

 	
 $

 	
 —

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 i) Debit
 memos/charge-backs

 	
  

 	
  

 	
  

 	
 $

 	
 —

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 j) Other ineligible
 accounts receivable (describe)

 	
  

 	
  

 	
  

 	
 $

 	
 —

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 TOTAL INELIGIBLE ACCOUNTS RECEIVABLE

 	
  

 	
 (Transfer
 to line 2, page 1)

 	
  

 	
 $

 	
 0

 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 **
 Credit balances over 60 days past due need to be added to ineligibles

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 











EXHIBIT G TO

CREDIT AGREEMENT


FORM OF COMPLIANCE
CERTIFICATE


To: U.S. Bank National Association:


THE UNDERSIGNED HEREBY CERTIFIES THAT:


          (1)          I
am the duly elected chief financial officer of Electromed, Inc. (the
“Borrower”);


          (2)          I
have reviewed the terms of the Credit Agreement dated as of December [  ], 2009
between the Borrower and U.S. Bank National Association (the “Credit
Agreement”) and I have made, or have caused to be made under my supervision, a
detailed review of the transactions and conditions of the Borrower during the
accounting period covered by the Attachment hereto;


          (3)          The
examination described in paragraph (2) did not disclose, and I have no
knowledge, whether arising out of such examinations or otherwise, of the
existence of any condition or event which constitutes a Default or an Event of
Default (as such terms are defined in the Credit Agreement) during or at the
end of the accounting period covered by the Attachment hereto or as of the date
of this Certificate, except as described below (or on a separate attachment to
this Certificate). The exceptions listing, in detail, the nature of the
condition or event, the period during which it has existed and the action which
the Borrower has taken, is taking or proposes to take with respect to each such
condition or event are as follows:


	
  

 
	
  

 
	
  

 
	
  

 



          The foregoing certification, together with the
computations in the Attachment hereto and the financial statements delivered
with this Certificate in support hereof, are made and delivered this ___ day
of _______________, _______ pursuant to Section 5.1(d) of the Credit Agreement.


	
  

 	
  

 	
  

 	
  

 
	
  

 	
 ELECTROMED, INC.

 
	
  

 	
  

 
	
  

 	
 By

 	
  

 
	
  

 	
  

 
	
  

 	
 Title

 	
  

 









ATTACHMENT TO
COMPLIANCE CERTIFICATE


This Compliance Certificate is delivered under the Credit
Agreement dated as of ________________, 2009, between Electromed and U.S. Bank
National Association (the “Credit Agreement”).


All terms used in this Compliance Certificate shall
have the meanings given them in the Credit Agreement.


The figures used in this Compliance Certificate were
determined as of____________________.


I certify that the following amounts were correctly
determined according to the Credit Agreement as of the date set forth above:


1. Total
Cash Flow Leverage (Tested Quarterly) In Compliance Yes______ No______


	
  

 	
  

 	
  

 
	
 Long Term Interest Bearing Debt

 	
  

 	
  

 
	
 Plus Short Term Interest Bearing
 Debt

 	
  

 	
  

 
	
 Plus Capital Leases

 	
  

 	
  

 
	
 Plus 6 times Annual Rent Expense 

 	
  

 	
  

 
	
 Total
 (A)

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 EBITDAR for LTM (B)

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 Ratio of (A) to (B)

 	
  

 	
  

 
	
  

 	
  

 	
  

 



2. Fixed
Charge Coverage Ratio (Tested Quarterly) In Compliance Yes______ No______


	
  

 	
  

 	
  

 
	
  

 	
  

 	
 For
 LTM

 
	
 EBITDAR

 	
  

 	
  

 
	
 Less: 

 	
  

 	
  

 
	
 Cash Taxes

 	
  

 	
  

 
	
 Cash Dividends/Cash distributions

 	
  

 	
  

 
	
 Maintenance CAPEX (50% of Depreciation
 Expense) 

 	
  

 	
  

 
	
 Total (A)

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 Required Principal
 Payments

 	
  

 	 
 
	
 Plus Interest Expense

 	
  

 	 

 
	
 Plus Rental or Lease
 Expense

 	
  

 	
  

 
	
 Total (B)

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 Ratio of (A) to (B)

 	
  

 	
  

 









3. No
Additional Interest Bearing Debt (except for S2.5MM debentures, if approved by US Bank) (Tested Quarterly)


	
  

 	
  

 
	
 In
 Compliance Yes ______ No______

 	
  

 


I further certify that
the Borrower is in compliance with all other terms and conditions of the
Agreement and that no Event of Default or event that with notice or lapse of
time would be an Event of Default has occurred since the last Compliance
Certificate provided to the Bank.


Electromed,
Inc.


	
  

 	
  

 	
  

 	
  

 
	
 By

 	
  

 	
  

 
	
  

 	
  

 
	
 Title

 	
  

 	
  

 









EXHIBIT H TO

CREDIT AGREEMENT


INSURANCE
REQUIREMENTS


	
  

 	
  

 
	
 I.

 	
 PROPERTY INSURANCE

 






	
  

 	
  

 	
  

 	
  

 
	
  

 	
 An ORIGINAL (or certified copy) All-Risk Hazard
 Insurance Policy or ORIGINAL Acord 27 Certificate of Insurance naming the
 borrowing entity as an insured, reflecting coverage of 100% of the
 replacement cost, and written by a carrier approved by the Bank with a
 current Best’s Insurance Guide Rating of at least A- IX (which is authorized
 to do business in the state in which the property is located) that
 affirmatively includes the following:

 
	
  

 
	
  

 	
 1.

 	
 Mortgagee Clause naming U.S. Bank National
 Association as Mortgagee with a 30-day notice to the Bank in the event of
 cancellation, non-renewal or material change.

 
	
  

 	
  

 	
  

 
	
  

 	
 2.

 	
 The Bank’s Loss Payable Endorsement with a
 Severability of Interest Clause with a 30-day notice to the Bank in the event
 of cancellation, non-renewal or material change.

 
	
  

 	
  

 	
  

 
	
  

 	
 3.

 	
 Replacement Cost Endorsement.

 
	
  

 	
  

 	
  

 
	
  

 	
 4.

 	
 No Exclusion for Acts of Terrorism.

 
	
  

 	
  

 	
  

 
	
  

 	
 5.

 	
 No Coinsurance Clause.

 
	
  

 	
  

 	
  

 
	
  

 	
 6.

 	
 Boiler and Machinery Coverage.

 
	
  

 	
  

 	
  

 
	
  

 	
 7.

 	
 Sprinkler Leakage Coverage.

 
	
  

 	
  

 	
  

 
	
  

 	
 8.

 	
 Vandalism and Malicious Mischief Coverage.

 
	
  

 	
  

 	
  

 
	
  

 	
 9.

 	
 If applicable, Loss of Rents Insurance in an amount
 of not less than 100% of one year’s Rental Value of the Project. “Rental
 Value” shall include:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 a)

 	
 The total projected gross rental income from tenant
 occupancy of the property,

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 b)

 	
 The amount of all charges which are the legal
 obligation of tenants and which would otherwise be the obligation of the
 Borrower, and

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 c)

 	
 The fair rental value of any portion of the property
 which is occupied by the Borrower.

 
	
  

 	
  

 	
  

 
	
  

 	
 10.

 	
 One year’s business interruption insurance in an
 amount acceptable to the Bank.

 
	
  

 	
  

 	
  

 
	
  

 	
 11.

 	
 Extra Expense Coverage.

 
	
  

 	
  

 	
  

 
	
  

 	
 12.

 	
 The Borrower’s coverage is primary and
 non-contributory with any insurance or self-insurance carried by U.S. Bank
 National Association.

 













	
  

 	
  

 	
  

 
	
  

 	
  

 	
 13. Waiver of Subrogation against any party whose
 interests are covered in the policy.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 II.

 	
 LIABILITY INSURANCE

 
	
  

 	
  

 
	
  

 	
 An ORIGINAL Acord 25 Certificate of General
 Comprehensive Liability Insurance naming the borrowing entity as an insured,
 providing coverage on an “occurrence” rather than a “claims made” basis and
 written by a carrier approved by the Bank with a current A.M. Best’s
 Insurance Guide Rating of at least A- IX (which is authorized to do business
 in the state in which the property is located) that affirmatively includes
 the following:

 
	
  

 	
  

 
	
  

 	
 1.

 	
 Combined general liability policy limit of at least $5,000,000.00
 each occurrence, applying liability for Bodily Injury, Personal Injury,
 Property Damage, Contractual, Products and Completed Operations which
 combined limit may be satisfied by the limit afforded under the Commercial
 General Liability Policy, or by such Policy in combination with the limits
 afforded by an Umbrella or Excess Liability Policy (or policies); provided
 the coverage afforded under any such Umbrella or Excess Liability Policy is
 at least as broad in all material respects as that afforded by the underlying
 Commercial General Liability Policy.

 
	
  

 	
  

 	
  

 
	
  

 	
 2.

 	
 No Exclusion for Acts of Terrorism.

 
	
  

 	
  

 	
  

 
	
  

 	
 3.

 	
 Aggregate limit to apply per location.

 
	
  

 	
  

 	
  

 
	
  

 	
 4.

 	
 The Borrower’s coverage is primary and
 non-contributory with any insurance or self-insurance carried by U.S. Bank
 National Association.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 5.

 	
 Waiver of Subrogation against any party whose
 interests are covered in the policy.

 
	
  

 	
  

 	
  

 
	
  

 	
 Additional Insured Endorsement naming U.S. Bank
 National Association as an additional insured with a 30-day notice to the
 Bank in the event of cancellation, non-renewal or material change. A
 Severability of Interests provision should be included.

 
	
  

 	
  

 
	
 III.

 	
 WORKER’S COMPENSATION

 
	
  

 	
  

 
	
 An ORIGINAL Certificate of Worker’s Compensation
 coverage in the statutory amount and Employer’s Liability Coverage with
 minimum limits of $500,000 / $500,000 / $500,000, naming the Borrower and
 written by a carrier approved by the Bank.