Exhibit 10.7 to Electromed, Inc. Form S1



Exhibit 10.7


PLEDGE
AGREEMENT


          THIS
PLEDGE AGREEMENT, dated as of December 9, 2009, is made and given by
ELECTROMED, INC., a corporation organized under the laws of the State of
Minnesota (the “Pledgor”) to U.S. BANK NATIONAL ASSOCIATION (the “Secured
Party”).


RECITALS


          A.     The
Pledgor and the Secured Party have entered into a Credit Agreement dated as of
December 9, 2009 (as the same may hereafter be amended, restated, supplemented or
otherwise modified from time to time, the “Credit Agreement”) pursuant to which
the Secured Party has agreed to extend to the Pledgor certain credit
accommodations consisting of a revolving facility and two term loan facilities.


          B.     The
Pledgor is the owner of the member interests (the “Pledged Member Interests”)
described in Schedule I hereto issued by the limited liability company named
therein.


          C.     It
is a condition precedent to the obligation of the Secured Party to extend
credit accommodations pursuant to the terms of the Credit Agreement that this
Agreement be executed and delivered by the Pledgor.


          D.     The
Pledgor finds it advantageous, desirable and in the best interests of the
Pledgor to comply with the requirement that this Agreement be executed and
delivered to the Secured Party.


          NOW,
THEREFORE, in consideration of the premises and in order to induce the Secured
Party to enter into the Credit Agreement and to extend credit accommodations to
the Pledgor thereunder, the Pledgor hereby agrees with the Secured Party for
the Secured Party’s benefit as follows:


          Section
1.     Defined Terms.


	
  

 	
  

 	
  

 	
  

 
	
  

 	
           1(a)     As
 used in this Agreement, the following terms shall have the meanings
 indicated:

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
           “Collateral”
 shall have the meaning given to such term in Section 2.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
           “Event
 of Default” shall have the meaning given to such term in Section 11.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
           “Lien”
 shall mean any security interest, mortgage, pledge, lien, charge,
 encumbrance, title retention agreement or analogous instrument or device
 (including the interest of the lessors under capitalized leases), in, of or
 on any assets or properties of the Person referred to.

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
           “Obligations”
 shall mean (a) all indebtedness, liabilities and obligations of the Pledgor
 to the Secured Party of every kind, nature or description under the Credit
 Agreement, including the Pledgor’s obligation on any promissory note or

 
	
  

 	
  

 	
  

 



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 notes under the Credit Agreement and any note or
 notes hereafter issued in substitution or replacement thereof, (b) all
 liabilities of the Pledgor under this Agreement, (c) any and all other
 liabilities and obligations of the Pledgor to the Secured Party of every
 kind, nature and description, whether direct or indirect or hereafter
 acquired by the Secured Party from any Person, absolute or contingent,
 regardless of how such liabilities arise or by what agreement or instrument
 they may be evidenced, and in all of the foregoing cases whether due or to
 become due, and whether now existing or hereafter arising or incurred.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           “Person”
 shall mean any individual, 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.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           “Pledged
 Member Interests” shall have the meaning given to such term in Recital B
 above.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           “Security
 Interest” shall have the meaning given to such term in Section 2.

 






	
  

 	
  

 
	
  

 	
           1(b)     Terms
 Defined in Uniform Commercial Code. All other terms used in this
 Agreement that are not specifically defined herein or the definitions of
 which are not incorporated herein by reference shall have the meaning
 assigned to such terms in Revised Article 9 of the Uniform Commercial Code as
 adopted in the State of Minnesota.

 
	
  

 	
  

 
	
  

 	
           1(c)     Singular/Plural,
 Etc. Unless the context of this Agreement otherwise clearly requires,
 references to the plural include the singular, the singular, the plural and
 “or” has the inclusive meaning represented by the phrase “and/or.” The words
 “include,” “includes” and “including” shall be deemed to be followed by the
 phrase “without limitation.” The words “hereof,” “herein,” “hereunder,” and
 similar terms in this Agreement refer to this Agreement as a whole and not to
 any particular provision of this Agreement. References to Sections are
 references to Sections in this Pledge Agreement unless otherwise provided.

 
	
  

 	
  

 
	
            Section
 2.     Pledge. As security for the payment
 and performance of all of the Obligations, the Pledgor hereby pledges to the
 Secured Party and grants to the Secured Party a security interest (the
 “Security Interest”) in the following, including any securities account
 containing a securities entitlement with respect to the following (the
 “Collateral”):

 
	
  

 	
  

 
	
  

 	
           2(a)     The
 Pledged Member Interests and the certificates representing the Pledged Member
 Interests, and all dividends, cash, instruments and other property from time
 to time received, receivable or otherwise distributed in respect of or in
 exchange for any or all of the Pledged Member Interests.

 
	
  

 	
  

 
	
  

 	
           2(b)     All
 additional member interests of any issuer of the Pledged Member Interests
 from time to time acquired by the Pledgor in any manner, and the certificates
 representing such additional member interests, and all dividends, cash,
 instruments and

 


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 other property from time to time received, receivable
 or otherwise distributed in respect of or in exchange for any or all of such
 member interests.

 
	
  

 	
  

 
	
  

 	
           2(c)     All
 proceeds of any and all of the foregoing (including proceeds that constitute
 property of types described above).

 



          Section
3.      Delivery of Collateral. All
certificates and instruments representing or evidencing the Pledged Member
Interests shall be delivered to the Secured Party contemporaneously with the
execution of this Agreement. All certificates and instruments representing or
evidencing Collateral received by the Pledgor after the execution of this
Agreement shall be delivered to the Secured Party promptly upon the Pledgor’s
receipt thereof. All such certificates and instruments shall be held by or on
behalf of the Secured Party pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Secured Party. With respect to all Pledged Member Interests consisting of
uncertificated securities, book-entry securities or securities entitlements,
the Pledgor shall either (a) execute and deliver, and cause any necessary
issuers or securities intermediaries to execute and deliver, control agreements
in form and substance satisfactory to the Secured Party covering such Pledged
Member Interests, or (b) cause such Pledged Member Interests to be transferred
into the name of the Secured Party. The Secured Party shall have the right at
any time, whether before or after an Event of Default, to cause any or all of
the Collateral to be transferred of record into the name of the Secured Party
or its nominee (but subject to the rights of the Pledgor under Section 6) and
to exchange certificates representing or evidencing Collateral for certificates
of smaller or larger denominations. If the Collateral is in the possession of a
bailee, the Pledgor will join with the Secured Party in notifying the bailee of
the interest of the Secured Party and in obtaining from the bailee an
acknowledgment that it hold the Collateral for the benefit of the Secured
Party.


          Section
4.     Certain Warranties and Covenants. The
Pledgor makes the following warranties and covenants:


	
  

 	
  

 
	
  

 	
           4(a)    The
 Pledgor has title to the Pledged Member Interests and will have title to each
 other item of Collateral hereafter acquired, free of all Liens except the
 Security Interest.

 
	
  

 	
  

 
	
  

 	
           4(b)    The
 Pledgor has full power and authority to execute this Pledge Agreement, to
 perform the Pledgor’s obligations hereunder and to subject the Collateral to
 the Security Interest created hereby.

 
	
  

 	
  

 
	
  

 	
           4(c)    No
 financing statement covering all or any part of the Collateral is on file in
 any public office (except for any financing statements filed by the Secured
 Party).

 
	
  

 	
  

 
	
  

 	
           4(d)    The
 Pledged Member Interests have been duly authorized and validly issued by the
 issuer thereof and are fully paid and non-assessable. The certificates
 representing the Pledged Member Interests The Pledged Member Interests are
 not subject to any offset or similar right or claim of the issuers thereof.

 


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           4(e)    The
 Pledged Member Interests constitute the percentage of the issued and
 outstanding member interests of the respective issuers thereof indicated on
 Schedule I (if any such percentage is so indicated).

 



          Section
5.     Further Assurances. The Pledgor agrees
that at any time and from time to time, at the expense of the Pledgor, the
Pledgor will promptly execute and deliver all further instruments and
documents, and take all further action that may be necessary or that the
Secured Party may reasonably request, in order to perfect and protect the
Security Interest or to enable the Secured Party to exercise and enforce its
rights and remedies hereunder with respect to any Collateral (but any failure
to request or assure that the Pledgor execute and deliver such instruments or
documents or to take such action shall not affect or impair the validity,
sufficiency or enforceability of this Agreement and the Security Interest,
regardless of whether any such item was or was not executed and delivered or
action taken in a similar context or on a prior occasion).


          Section
6.     Voting Rights; Dividends; Etc.


	
  

 	
  

 	
  

 
	
  

 	
           6(a)    Subject
 to paragraph (d) of this Section 6, the Pledgor shall be entitled to exercise
 or refrain from exercising any and all voting and other consensual rights
 pertaining to the Pledged Member Interests or any other stock that becomes
 part of the Collateral or any part thereof for any purpose not inconsistent
 with the terms of this Agreement or the Credit Agreement; provided, however,
 that the Pledgor shall not exercise or refrain from exercising any such right
 if such action could reasonably be expected to have a material adverse effect
 on the value of the Collateral or any material part thereof.

 
	
  

 	
  

 
	
  

 	
           6(b)    Subject
 to paragraph (e) of this Section 6, the Pledgor shall be entitled to receive,
 retain, and use in any manner not prohibited by the Credit Agreement any and
 all dividends paid in respect of the Collateral; provided, however,
 that any and all

 
	
  

 	
  

 
	
  

 	
  

 	
           (i)          dividends
 paid or payable other than in cash in respect of, and instruments and other
 property received, receivable or otherwise distributed in respect of, or in
 exchange for, any Collateral,

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (ii)          dividends
 and other distributions paid or payable in cash in respect of any Collateral
 in connection with a partial or total liquidation or dissolution or in
 connection with a reduction of capital, capital surplus or paid-in-surplus,
 and

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (iii)          cash
 paid, payable or otherwise distributed in redemption of, or in exchange for,
 any Collateral,

 
	
  

 	
  

 	
  

 
	
  

 	
 shall be, and shall be forthwith delivered to the
 Secured Party to hold as, Collateral and shall, if received by the Pledgor,
 be received in trust for the benefit of the Secured Party, be segregated from
 the other property or funds of the Pledgor, and be forthwith delivered to the
 Secured Party as Collateral in the same form as so received (with any
 necessary indorsement or assignment). The Pledgor shall, upon request by the
 Secured Party, promptly execute all such documents and do all such acts as
 may be necessary or desirable to give effect to the provisions of this
 Section 6.

 



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           6(c)    The
 Secured Party shall execute and deliver (or cause to be executed and
 delivered) to the Pledgor all such proxies and other instruments as the
 Pledgor may reasonably request for the purpose of enabling the Pledgor to
 exercise the voting and other rights that it is entitled to exercise pursuant
 to Section 6 hereof and to receive the dividends that it is authorized to
 receive and retain pursuant to Section 6 hereof.

 
	
  

 	
  

 	
  

 
	
  

 	
           6(d)    Upon
 the occurrence and during the continuance of any Event of Default, the
 Secured Party shall have the right in its sole discretion, and the Pledgor
 shall execute and deliver all such proxies and other instruments as may be
 necessary or appropriate to give effect to such right, to terminate all
 rights of the Pledgor to exercise or refrain from exercising the voting and
 other consensual rights that it would otherwise be entitled to exercise
 pursuant to Section 6 hereof, and all such rights shall thereupon become
 vested in the Secured Party who shall thereupon have the sole right to
 exercise or refrain from exercising such voting and other consensual rights;
 provided, however, that the Secured Party shall not be deemed to possess or
 have control over any voting rights with respect to any Collateral unless and
 until the Secured Party has given written notice to the Pledgor that any
 further exercise of such voting rights by the Pledgor is prohibited and that
 the Secured Party and/or its assigns will henceforth exercise such voting
 rights; and provided, further, that neither the registration of any item of
 Collateral in the Secured Party’s name nor the exercise of any voting rights
 with respect thereto shall be deemed to constitute a retention by the Secured
 Party of any such Collateral in satisfaction of the Obligations or any part
 thereof.

 
	
  

 	
  

 	
  

 
	
  

 	
           6(e)    Upon
 the occurrence and during the continuance of any Event of Default:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (i)          all
 rights of the Pledgor to receive the dividends that it would otherwise be
 authorized to receive and retain pursuant to Section 6 hereof shall cease,
 and all such rights shall thereupon become vested in the Secured Party who
 shall thereupon have the sole right to receive and hold such dividends as
 Collateral, and

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
           (ii)          all
 payments of dividends that are received by the Pledgor contrary to the
 provisions of paragraph (i) of this Section 6 shall be received in trust for
 the benefit of the Secured Party, shall be segregated from other funds of the
 Pledgor and shall be forthwith paid over to the Secured Party as Collateral
 in the same form as so received (with any necessary indorsement).

 
	
  

 	
  

 	
  

 
	
  

 	
 Section 7.     Transfers
 and Other Liens; Additional Member Interests.

 
	
  

 	
  

 	
  

 
	
  

 	
           7(a)     Except
 as may be permitted by the Credit Agreement, the Pledgor agrees that it will
 not (i) sell, assign (by operation of law or otherwise) or otherwise dispose
 of, or grant any option with respect to, any of the Collateral, or (ii)
 create or permit to exist any Lien, upon or with respect to any of the
 Collateral.

 
	
  

 	
  

 	
  

 
	
  

 	
           7(b)     The
 Pledgor agrees that it will (i) cause each issuer of the Pledged Member
 Interests that it controls not to issue any stock or other securities in
 addition to or in substitution for the Pledged Member Interests issued by
 such issuer, except to the

 


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 Pledgor, and (ii) pledge hereunder, immediately upon
 its acquisition (directly or indirectly) thereof, any and all additional
 member interests or other securities of each issuer of the Pledged Member
 Interests.

 
	
  

 	
  

 	
  

 
	
           Section
 8.     Secured Party Appointed Attorney-in-Fact.
 As additional security for the Obligations, the Pledgor hereby irrevocably
 appoints the Secured Party the Pledgor’s attorney-in-fact, with full authority
 in the place and stead of such Pledgor and in the name of such Pledgor or
 otherwise, from time to time in the Secured Party’s good-faith discretion, to
 take any action and to execute any instrument that the Secured Party may
 reasonably believe necessary or advisable to accomplish the purposes of this
 Agreement (subject to the rights of the Pledgor under Section 6 hereof), in a
 manner consistent with the terms hereof, including, without limitation, to receive,
 indorse and collect all instruments made payable to the Pledgor representing
 any dividend or other distribution in respect of the Collateral or any part
 thereof and to give full discharge for the same.

 
	
  

 	
  

 	
  

 
	
           Section
 9.     Secured Party May Perform. The Pledgor
 hereby authorizes the Secured Party to file financing statements with respect
 to the Collateral (including financing statements containing a broader
 description of the Collateral than the description set forth herein. The
 Pledgor irrevocable waives any right to notice of any such filing. If the
 Pledgor fails to perform any agreement contained herein, the Secured Party
 may itself perform, or cause performance of, such agreement, and the
 reasonable expenses of the Secured Party incurred in connection therewith
 shall be payable by the Pledgor under Section 14 hereof.

 
	
  

 	
  

 	
  

 
	
           Section
 10.     The Secured Party’s Duties. The
 powers conferred on the Secured Party hereunder are solely to protect its
 interest in the Collateral and shall not impose any duty upon it to exercise
 any such powers. The Secured Party shall be deemed to have exercised
 reasonable care in the safekeeping of any Collateral in its possession if
 such Collateral is accorded treatment substantially equal to the safekeeping
 which the Secured Party accords its own property of like kind. Except for the
 safekeeping of any Collateral in its possession and the accounting for monies
 and for other properties actually received by it hereunder, the Secured Party
 shall have no duty, as to any Collateral, as to ascertaining or taking action
 with respect to calls, conversions, exchanges, maturities, tenders or other
 matters relative to any Collateral, whether or not the Secured Party has or
 is deemed to have knowledge of such matters, or as to the taking of any
 necessary steps to preserve rights against any Persons or any other rights
 pertaining to any Collateral. The Secured Party will take action in the
 nature of exchanges, conversions, redemption, tenders and the like requested
 in writing by the Pledgor with respect to any of the Collateral in the
 Secured Party’s possession if the Secured Party in its reasonable judgment
 determines that such action will not impair the Security Interest or the
 value of the Collateral, but a failure of the Secured Party to comply with
 any such request shall not of itself be deemed a failure to exercise
 reasonable care.

 
	
  

 	
  

 	
  

 
	
           Section
 11.     Default Each of the following
 occurrences shall constitute an Event of Default under this Agreement: (a) the
 Pledgor shall fail to observe or perform any covenant or agreement applicable
 to the Pledgor under this Agreement; (b) any representation or warranty made
 by the Pledgor in this Agreement or in any financial statements, reports or
 certificates heretofore or at any time hereafter submitted by or on behalf of
 the Pledgor to the Secured Party shall prove to have been false or materially
 misleading when made; (c) any Event of Default

 


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 shall occur under the Credit Agreement; (d) the
 Secured Party receives at any time any information indicating that the
 Secured Party’s Security Interest is not enforceable, is not perfected or in
 not prior to all other security interests or other interests in the
 Collateral, except as otherwise agreed by the Secured Party.

 
	
  

 	
  

 	
  

 
	
           Section
 12.      Remedies upon Default. If any Event
 of Default shall have occurred and be continuing:

 
	
  

 	
  

 	
  

 
	
  

 	
           12(a)     The
 Secured Party may exercise in respect of the Collateral, in addition to other
 rights and remedies provided for herein or otherwise available to it, all the
 rights and remedies of a secured party on default under Revised Article 9 of
 the Uniform Commercial Code as adopted in the State of Minnesota (the “Code”)
 in effect at that time, and may, without notice except as specified below,
 sell the Collateral or any part thereof in one or more parcels at public or
 private sale, at any exchange, broker’s board or at any of the Secured
 Party’s offices or elsewhere, for cash, on credit or for future delivery, and
 upon such other terms as the Secured Party may reasonably believe are
 commercially reasonable. The Pledgor agrees that, to the extent notice of
 sale shall be required by law, at least ten days’ prior notice to the Pledgor
 of the time and place of any public sale or the time after which any private
 sale is to be made shall constitute reasonable notification. The Secured
 Party shall not be obligated to make any sale of Collateral regardless of
 notice of sale having been given. The Secured Party may adjourn any public or
 private sale from time to time by announcement at the time and place fixed
 therefor, and such sale may, without further notice, be made at the time and
 place to which it was so adjourned. The Pledgor hereby waives all
 requirements of law, if any, relating to the marshalling of assets which
 would be applicable in connection with the enforcement by the Secured Party
 of its remedies hereunder, absent this waiver. The Secured Party may disclaim
 warranties of title and possession and the like.

 
	
  

 	
  

 	
  

 
	
  

 	
           12(b)     The
 Secured Party may notify any Person obligated on any of the Collateral that
 the same has been assigned or transferred to the Secured Party and that the
 same should be performed as requested by, or paid directly to, the Secured
 Party, as the case may be. The Pledgor shall join in giving such notice, if
 the Secured Party so requests. The Secured Party may, in the Secured Party’s
 name or in the Pledgor’s name, demand, sue for, collect or receive any money
 or property at any time payable or receivable on account of, or securing, any
 such Collateral or grant any extension to, make any compromise or settlement
 with or otherwise agree to waive, modify, amend or change the obligation of
 any such Person.

 
	
  

 	
  

 	
  

 
	
  

 	
           12(c)     Any
 cash held by the Secured Party as Collateral and all cash proceeds received
 by the Secured Party in respect of any sale of, collection from, or other
 realization upon all or any part of the Collateral may, in the discretion of
 the Secured Party, be held by the Secured Party as collateral for, or then or
 at any time thereafter be applied in whole or in part by the Secured Party
 against, all or any part of the Obligations (including any expenses of the
 Secured Party payable pursuant to Section 14 hereof).

 
	
  

 	
  

 	
  

 
	
           Section
 13.     Waiver of Certain Claims. The Pledgor
 acknowledges that because of present or future circumstances, a question may
 arise under the Securities Act of 1933, as from

 


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 time to time amended (the “Securities Act”), with
 respect to any disposition of the Collateral permitted hereunder. The Pledgor
 understands that compliance with the Securities Act may very strictly limit
 the course of conduct of the Secured Party if the Secured Party were to
 attempt to dispose of all or any portion of the Collateral and may also limit
 the extent to which or the manner in which any subsequent transferee of the
 Collateral or any portion thereof may dispose of the same. There may be other
 legal restrictions or limitations affecting the Secured Party in any attempt
 to dispose of all or any portion of the Collateral under the applicable Blue
 Sky or other securities laws or similar laws analogous in purpose or effect.
 The Secured Party may be compelled to resort to one or more private sales to
 a restricted group of purchasers who will be obliged to agree, among other
 things, to acquire such Collateral for their own account for investment only
 and not to engage in a distribution or resale thereof. The Pledgor agrees
 that the Secured Party shall not incur any liability, and any liability of
 the Pledgor for any deficiency shall not be impaired, as a result of the sale
 of the Collateral or any portion thereof at any such private sale in a manner
 that the Secured Party reasonably believes is commercially reasonable (within
 the meaning of Section 9-627 of the Uniform Commercial Code). The Pledgor
 hereby waives any claims against the Secured Party arising by reason of the
 fact that the price at which the Collateral may have been sold at such sale
 was less than the price that might have been obtained at a public sale or was
 less than the aggregate amount of the Obligations, even if the Secured Party
 shall accept the first offer received and does not offer any portion of the
 Collateral to more than one possible purchaser. The Pledgor further agrees
 that the Secured Party has no obligation to delay sale of any Collateral for
 the period of time necessary to permit the issuer of such Collateral to
 qualify or register such Collateral for public sale under the Securities Act,
 applicable Blue Sky laws and other applicable state and federal securities
 laws, even if said issuer would agree to do so. Without limiting the
 generality of the foregoing, the provisions of this Section would apply if,
 for example, the Secured Party were to place all or any portion of the
 Collateral for private placement by an investment banking firm, or if such
 investment banking firm purchased all or any portion of the Collateral for
 its own account, or if the Secured Party placed all or any portion of the
 Collateral privately with a purchaser or purchasers.

 
	
  

 	
  

 	
  

 
	
           Section
 14.     Costs and Expenses; Indemnity. The
 Pledgor will pay or reimburse the Secured Party on demand for all reasonable
 out-of-pocket expenses paid or incurred by the Secured Party, including in
 each case all filing and recording costs and fees, charges, taxes and
 disbursements of outside counsel to the Secured Party (determined on the
 basis of such counsel’s generally applicable rates, which may be higher than
 the rates such counsel charges the Secured Party in certain matters) and/or
 the allocated costs of in-house counsel incurred from time to time, in
 connection with the creation, perfection, protection, satisfaction,
 foreclosure or enforcement of the Security Interest and the preparation,
 administration, continuance, amendment, collection and enforcement of this
 Agreement, and all such costs and expenses shall be part of the Obligations
 secured by the Security Interest. The Pledgor shall indemnify and hold the
 Secured Party harmless from and against any and all claims, losses and
 liabilities (including reasonable attorneys’ fees) growing out of or
 resulting from this Agreement (including enforcement of this Agreement) or
 the Secured Party’s actions pursuant hereto, except claims, losses or
 liabilities resulting from the Secured Party’s gross negligence or willful
 misconduct as determined by a final judgment of a court of competent
 jurisdiction. Any liability of the Pledgor to indemnify and hold Secured
 Party harmless pursuant to the preceding sentence shall be part of the
 Obligations secured by the Security Interest. The obligations of the Pledgor
 under this Section shall survive any termination of this Agreement.

 


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           Section
 15.     Waivers and Amendments; Remedies.
 This Agreement can be waived, modified, amended, terminated or discharged,
 and the Security Interest can be released, only explicitly in a writing
 signed by the Secured Party. A waiver so signed shall be effective only in
 the specific instance and for the specific purpose given. Mere delay or
 failure to act shall not preclude the exercise or enforcement of any rights
 and remedies available to the Secured Party. All rights and remedies of the
 Secured Party shall be cumulative and may be exercised singly in any order or
 sequence, or concurrently, at the Secured Party’s option, and the exercise or
 enforcement of any such right or remedy shall neither be a condition to nor
 bar the exercise or enforcement of any other.

 
	
  

 	
  

 	
  

 
	
           Section
 16.     Notices. Any notice or other
 communication to any party in connection with this Agreement shall be in
 writing and shall be sent by manual delivery, telegram, telex, 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 telegram, telex or facsimile transmission, from the first
 business day after the date of sending if sent by overnight courier, or from
 four days after the date of mailing if mailed.

 
	
  

 	
  

 	
  

 
	
           Section
 17.     Pledgor Acknowledgments. The Pledgor
 hereby acknowledges that (a) the Pledgor has been advised by counsel in the
 negotiation, execution and delivery of this Agreement, (b) the Secured Party
 has no fiduciary relationship to the Pledgor, the relationship being solely that
 of debtor and creditor, and (c) no joint venture exists between the Pledgor
 and the Secured Party.

 
	
  

 	
  

 	
  

 
	
           Section
 18.     Continuing Security Interest; Assignments
 under Credit Agreement. This Agreement shall create a continuing security
 interest in the Collateral and shall (a) remain in full force and effect
 until the payment in full of the Obligations and the expiration of the
 obligation, if any, of the Secured Party to extend credit accommodations to
 the Pledgor, (b) be binding upon the Pledgor, its successors and assigns, and
 (c) inure, together with the rights and remedies of the Secured Party
 hereunder, to the benefit of, and be enforceable by, the Secured Party and
 its successors, transferees and assigns. Without limiting the generality of
 the foregoing clause (c), the Secured Party may assign or otherwise transfer
 all or any portion of its rights and obligations under the Credit Agreement
 to any other Person to the extent and in the manner provided in the Credit
 Agreement, and may similarly transfer all or any portion of its rights under
 this Pledge Agreement to such Persons.

 
	
  

 	
  

 	
  

 
	
           Section
 19.     Termination of Security Interest. Upon payment in full of the
 Obligations and the expiration of any obligation of the Secured Party to extend
 credit accommodations to the Pledgor, the security interest granted hereby
 shall terminate and all rights to the Collateral shall revert to the Pledgor.
 Upon any such termination, the Secured Party will return to the Pledgor such
 of the Collateral as shall not have been sold or otherwise applied pursuant
 to the terms hereof and execute and deliver to the Pledgor such documents as
 the Pledgor shall reasonably request to evidence such termination. Any
 reversion or return of the Collateral upon termination of this Agreement and
 any instruments of transfer or termination shall be at the expense of the
 Pledgor and shall be without warranty by, or recourse on, the Secured Party.
 As used in this Section, “Pledgor” includes any assigns of Pledgor, any Person
 holding a subordinate security

 


9









	
  

 	
  

 	
  

 
	
 interest in any part of the Collateral or whoever
 else may be lawfully entitled to any part of the Collateral.

 
	
  

 	
  

 	
  

 
	
           Section
 20.     Governing
 Law and Construction. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY
 OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA;
 PROVIDED, HOWEVER, THAT NO EFFECT SHALL BE GIVEN TO CONFLICT OF LAWS
 PRINCIPLES OF THE STATE OF MINNESOTA, EXCEPT TO THE EXTENT THAT THE VALIDITY
 OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
 RESPECT OF ANY PARTICULAR COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF
 A JURISDICTION OTHER THAN THE STATE OF MINNESOTA. Whenever possible, each
 provision of this Agreement and any other statement, instrument or
 transaction contemplated hereby or relating hereto shall be interpreted in
 such manner as to be effective and valid under such applicable law, but, if
 any provision of this Agreement or any other statement, instrument or
 transaction contemplated hereby or relating hereto 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 or any other statement, instrument or transaction contemplated
 hereby or relating hereto.

 
	
  

 	
  

 	
  

 
	
           Section
 21.     Consent
 to Jurisdiction. AT THE OPTION OF THE SECURED PARTY, THIS AGREEMENT MAY
 BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN
 COUNTY; AND THE PLEDGOR 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 PLEDGOR 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 SECURED PARTY 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
 22.     Waiver
 of Jury Trial. EACH OF THE PLEDGOR AND THE SECURED PARTY, BY ITS
 ACCEPTANCE OF THIS AGREEMENT, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL
 BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
 OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 
	
  

 	
  

 	
  

 
	
           Section
 23.     Counterparts. This Agreement may be
 executed in any number of counterparts, each of which when so executed and
 delivered shall be deemed an original, but all such counterparts together
 shall constitute but one and the same instrument.

 
	
  

 	
  

 	
  

 
	
           Section
 24.     General. All representations and
 warranties contained in this Agreement or in any other agreement between the
 Pledgor and the Secured Party shall survive the execution,

 


10





delivery and performance of this Agreement and the
creation and payment of the Obligations. The Pledgor waives notice of the acceptance
of this Agreement by the Secured Party. Captions in this Agreement are for
reference and convenience only and shall not affect the interpretation or
meaning of any provision of this Agreement.


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


11





          IN
WITNESS WHEREOF, the Pledgor has caused this Pledge Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.


	
  

 	
  

 	
  

 	
  

 
	
  

 	
 PLEDGOR:

 
	
  

 	
  

 
	
  

 	
 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


Address for the Lender:


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 Pledge Agreement]





SCHEDULE I


PLEDGED STOCK


	
  

 	
  

 
	
 Stock Issuer:

 	
 Electromed Financial, LLC

 
	
  

 	
  

 
	
 Percentage Ownership:

 	
 95%