Exhibit 10.1


BUSINESS
LOAN AGREEMENT (ASSET BASED)


	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
 Principal

 	
 Loan Date

 	
 Maturity

 	
 Loan No

 	
 Call /
 Coll

 	
 Account

 	
 Officer

 	
 Initials

 
	
 $2,500,000.00

 	
 12-18-2014

 	
 12-18-2015

 	
 15695

 	
  

 	
  

 	
  

 	
  

 
	
 References
 in the boxes above are for Lender’s use only and do not limit the
 applicability of this document to any particular loan or item.

 
	
 Any
 item above containing “***” has been omitted due to text length limitations.

 






	
  

 	
  

 	
  

 	
  

 
	
 Borrower:

 	
 Electromed, Inc.

 	
 Lender:

 	
 Venture Bank

 
	
  

 	
 500 Sixth Avenue Northwest

 	
  

 	
 4470 W 78th St. Circle

 
	
  

 	
 New Prague, MN 56071

 	
  

 	
 Suite 100

 
	
  

 	
  

 	
  

 	
 Bloomington, MN 55435

 






	
  

 	
  

 	
  

 
	
  

 	
  

 	
  

 
	
 THIS BUSINESS LOAN
 AGREEMENT (ASSET BASED) dated December 18, 2014, is made and executed between
 Electromed, Inc. (“Borrower”) and Venture Bank (“Lender”) on the following
 terms and conditions. Borrower has received prior commercial loans from
 Lender or has applied to Lender for a commercial loan or loans or other
 financial accommodations, including those which may be described on any
 exhibit or schedule attached to this Agreement. Borrower understands and
 agrees that: (A) in granting, renewing, or extending any Loan, Lender is
 relying upon Borrower’s representations, warranties, and agreements as set
 forth in this Agreement; (B) the granting, renewing, or extending of any Loan
 by Lender at all times shall be subject to Lender’s sole judgment and
 discretion; and (C) all such Loans shall be and remain subject to the terms
 and conditions of this Agreement.

 
	
  

 	
  

 	
  

 
	
 TERM. This Agreement shall be effective as
 of December 18, 2014, and shall continue in full force and effect until such
 time as all of Borrower’s Loans in favor of Lender have been paid in full,
 including principal, interest, costs, expenses, attorneys’ fees, and other
 fees and charges, or until such time as the parties may agree in writing to
 terminate this Agreement.

 
	
  

 	
  

 	
  

 
	
 LINE OF CREDIT. Lender agrees to make Advances to
 Borrower from time to time from the date of this Agreement to the Expiration
 Date, provided the aggregate amount of such Advances outstanding at any time
 does not exceed the Borrowing Base. Within the foregoing limits, Borrower may
 borrow, partially or wholly prepay, and reborrow under this Agreement as
 follows:

 
	
  

 	
  

 	
  

 
	
  

 	
 Conditions
 Precedent to Each Advance. Lender’s obligation to make any Advance to or for the account of Borrower
 under this Agreement is subject to the following conditions precedent, with
 all documents, instruments, opinions, reports, and other items required under
 this Agreement to be in form and substance satisfactory to Lender:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (1) Lender shall have received evidence that this Agreement and all
 Related Documents have been duly authorized, executed, and delivered by
 Borrower to Lender.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (2) Lender shall have received such opinions of counsel, supplemental
 opinions, and documents as Lender may request.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (3) The security interests in the Collateral shall have been duly
 authorized, created, and perfected with first lien priority and shall be in
 full force and effect.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (4) All guaranties required by Lender for the credit facility(ies) shall
 have been executed by each Guarantor, delivered to Lender, and be in full
 force and effect.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (5) Lender, at its option and for its sole benefit, shall have
 conducted an audit of Borrower’s Accounts, books, records, and operations,
 and Lender shall be satisfied as to their condition.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (6) Borrower shall have paid to Lender all fees, costs, and expenses
 specified in this Agreement and the Related Documents as are then due and
 payable.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (7) There shall not exist at the time of any Advance a condition
 which would constitute an Event of Default under this Agreement, and Borrower
 shall have delivered to Lender the compliance certificate called for in the
 paragraph below titled “Compliance Certificate.”

 
	
  

 	
  

 	
  

 
	
  

 	
 Making Loan
 Advances. Advances
 under this credit facility, as well as directions for payment from Borrower’s
 accounts, may be requested orally or in writing by authorized persons. Lender
 may, but need not, require that all oral requests be confirmed in writing.
 Each Advance shall be conclusively deemed to have been made at the request of
 and for the benefit of Borrower (1) when credited to any deposit account of
 Borrower maintained with Lender or (2) when advanced in accordance with the
 instructions of an authorized person. Lender, at its option, may set a cutoff
 time, after which all requests for Advances will be treated as having been
 requested on the next succeeding Business Day.

 
	
  

 	
  

 	
  

 
	
  

 	
 Mandatory Loan
 Repayments. If at
 any time the aggregate principal amount of the outstanding Advances shall
 exceed the applicable Borrowing Base, Borrower, immediately upon written or
 oral notice from Lender, shall pay to Lender an amount equal to the
 difference between the outstanding principal balance of the Advances and the
 Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full
 the aggregate unpaid principal amount of all Advances then outstanding and
 all accrued unpaid interest, together with all other applicable fees, costs
 and charges, if any, not yet paid.

 
	
  

 	
  

 	
  

 
	
  

 	
 Loan Account. Lender shall maintain on its books a record of
 account in which Lender shall make entries for each Advance and such other
 debits and credits as shall be appropriate in connection with the credit
 facility. Lender shall provide Borrower with periodic statements of
 Borrower’s account, which statements shall be considered to be correct and
 conclusively binding on Borrower unless Borrower notifies Lender to the
 contrary within thirty (30) days after Borrower’s receipt of any such
 statement which Borrower deems to be incorrect.

 
	
  

 	
  

 	
  

 
	
 COLLATERAL. To secure payment of the Primary
 Credit Facility and performance of all other Loans, obligations and duties
 owed by Borrower to Lender, Borrower (and others, if required) shall grant to
 Lender Security Interests in such property and assets as Lender may require.
 Lender’s Security Interests in the Collateral shall be continuing liens and
 shall include the proceeds and products of the Collateral, including without
 limitation the proceeds of any insurance. With respect to the Collateral,
 Borrower agrees and represents and warrants to Lender:

 













	
  

 	
  

 	
  

 
	
  

 	
 BUSINESS
 LOAN AGREEMENT (ASSET BASED)

 	
  

 
	
 Loan No: 15695

 	
 (Continued) 

 	
 Page 2

 
	
  

 	
  

 	
  

 






	
  

 	
  

 	
  

 
	
  

 	
 Perfection of
 Security Interests. Borrower agrees to execute all
 documents perfecting Lender’s Security Interest and to take whatever actions
 are requested by Lender to perfect and continue Lender’s Security Interests
 in the Collateral. Upon request of Lender, Borrower will deliver to Lender
 any and all of the documents evidencing or constituting the Collateral, and
 Borrower will note Lender’s interest upon any and all chattel paper and
 instruments if not delivered to Lender for possession by Lender.
 Contemporaneous with the execution of this Agreement, Borrower will execute
 one or more UCC financing statements and any similar statements as may be
 required by applicable law, and Lender will file such financing statements
 and all such similar statements in the appropriate location or locations.
 Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the
 purpose of executing any documents necessary to perfect or to continue any
 Security Interest. Lender may at any time, and without further authorization
 from Borrower, file a carbon, photograph, facsimile, or other reproduction of
 any financing statement for use as a financing statement. Borrower will
 reimburse Lender for all expenses for the perfection, termination, and the
 continuation of the perfection of Lender’s security interest in the
 Collateral. Borrower promptly will notify Lender before any change in
 Borrower’s name including any change to the assumed business names of
 Borrower. Borrower also promptly will notify Lender before any change in
 Borrower’s Social Security Number or Employer Identification Number. Borrower
 further agrees to notify Lender in writing prior to any change in address or
 location of Borrower’s principal governance office or should Borrower merge
 or consolidate with any other entity.

 
	
  

 	
  

 	
  

 
	
  

 	
 Collateral Records.
 Borrower does now, and at all times hereafter shall, keep correct and
 accurate records of the Collateral, all of which records shall be available
 to Lender or Lender’s representative upon demand for inspection and copying
 at any reasonable time. With respect to the Accounts, Borrower agrees to keep
 and maintain such records as Lender may require, including without limitation
 information concerning Eligible Accounts and Account balances and agings.
 Records related to Accounts (Receivables) are or will be located at the
 Borrower’s Corporate Headquarters. The above is an accurate and complete list
 of all locations at which Borrower keeps or maintains business records
 concerning Borrower’s collateral.

 
	
  

 	
  

 	
  

 
	
  

 	
 Collateral Schedules.
 Concurrently with the execution and delivery of this Agreement, Borrower
 shall execute and deliver to Lender schedules of Accounts and schedules of
 Eligible Accounts in form and substance satisfactory to the Lender.
 Thereafter supplemental schedules shall be delivered according to the
 following schedule: With respect to Eligible Accounts, schedules shall be
 delivered according to the additional requirements under the paragraph titled
 “Affirmative Covenants”.

 
	
  

 	
  

 	
  

 
	
  

 	
 Representations and
 Warranties Concerning Accounts. With respect to the
 Accounts, Borrower represents and warrants to Lender: (1) Each Account
 represented by Borrower to be an Eligible Account for purposes of this
 Agreement conforms to the requirements of the definition of an Eligible
 Account; (2) All Account information listed on schedules delivered to Lender
 will be true and correct, subject to immaterial variance; and (3) Lender, its
 assigns, or agents shall have the right at any time and at Borrower’s expense
 to inspect, examine, and audit Borrower’s records and to confirm with Account
 Debtors the accuracy of such Accounts.

 
	
  

 	
  

 	
  

 
	
 CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the
 initial Advance and each subsequent Advance under this Agreement shall be
 subject to the fulfillment to Lender’s satisfaction of all of the conditions
 set forth in this Agreement and in the Related Documents.

 
	
  

 	
  

 	
  

 
	
  

 	
 Loan Documents.
 Borrower shall provide to Lender the following documents for the Loan: (1)
 the Note; (2) Security Agreements granting to Lender security interests in
 the Collateral; (3) financing statements and all other documents perfecting
 Lender’s Security Interests; (4) evidence of insurance as required below; (5)
 together with all such Related Documents as Lender may require for the Loan;
 all in form and substance satisfactory to Lender and Lender’s counsel.

 
	
  

 	
  

 	
  

 
	
  

 	
 Borrower’s Authorization.
 Borrower shall have provided in form and substance satisfactory to Lender
 properly certified resolutions, duly authorizing the execution and delivery
 of this Agreement, the Note and the Related Documents. In addition, Borrower
 shall have provided such other resolutions, authorizations, documents and
 instruments as Lender or its counsel, may require.

 
	
  

 	
  

 	
  

 
	
  

 	
 Fees and Expenses
 Under This Agreement. Borrower shall have paid to
 Lender all fees, costs, and expenses specified in this Agreement and the Related
 Documents as are then due and payable.

 
	
  

 	
  

 	
  

 
	
  

 	
 Representations and
 Warranties. The representations and warranties set
 forth in this Agreement, in the Related Documents, and in any document or
 certificate delivered to Lender under this Agreement are true and correct.

 
	
  

 	
  

 	
  

 
	
  

 	
 No Event of Default.
 There shall not exist at the time of any Advance a condition which would
 constitute an Event of Default under this Agreement or under any Related
 Document.

 
	
  

 	
  

 	
  

 
	
 REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
 Lender, as of the date of this Agreement, as of the date of each disbursement
 of loan proceeds, as of the date of any renewal, extension or modification of
 any Loan, and at all times any Indebtedness exists:

 
	
  

 	
  

 	
  

 
	
  

 	
 Organization.
 Borrower is a corporation for profit which is, and at all times shall be,
 duly organized, validly existing, and in good standing under and by virtue of
 the laws of the State of Minnesota. Borrower is duly authorized to transact
 business in all other states in which Borrower is doing business, having
 obtained all necessary filings, governmental licenses and approvals for each
 state in which Borrower is doing business. Specifically, Borrower is, and at
 all times shall be, duly qualified as a foreign corporation in all states in
 which the failure to so qualify would have a material adverse effect on its
 business or financial condition. Borrower has the full power and authority to
 own its properties and to transact the business in which it is presently
 engaged or presently proposes to engage. Borrower maintains an office at 500
 Sixth Avenue Northwest, New Prague, MN 56071. Unless Borrower has designated
 otherwise in writing, the principal office is the office at which Borrower
 keeps its books and records including its records concerning the Collateral.
 Borrower will notify Lender prior to any change in the location of Borrower’s
 state of organization or any change in Borrower’s name. Borrower shall do all
 things necessary to preserve and to keep in full force and effect its existence,
 rights and privileges, and shall comply with all regulations, rules,
 ordinances, statutes, orders and decrees of any governmental or
 quasi-governmental authority or court applicable to Borrower and Borrower’s
 business activities.

 
	
  

 	
  

 	
  

 
	
  

 	
 Assumed Business
 Names. Borrower has filed or recorded all documents
 or filings required by law relating to all assumed business names used by
 Borrower. Excluding the name of Borrower, the following is a complete list of
 all assumed business names under which Borrower does business: None.

 
	
  

 	
  

 	
  

 
	
  

 	
 Authorization.
 Borrower’s execution, delivery, and performance of this Agreement and all the
 Related Documents have been duly authorized by all necessary action by
 Borrower and do not conflict with, result in a violation of, or constitute a
 default under (1) any provision of (a) Borrower’s articles of incorporation
 or organization, or bylaws, or (b) any agreement or other instrument binding
 upon Borrower or (2) any law, governmental regulation, court decree, or order
 applicable to Borrower or to Borrower’s properties.

 
	
  

 	
  

 	
  

 
	
  

 	
 Financial
 Information. Each of Borrower’s financial statements
 supplied to Lender truly and completely disclosed Borrower’s financial
 condition as of the date of the statement, and there has been no material adverse
 change in Borrower’s financial condition subsequent to the date of the most
 recent financial statement supplied to Lender. Borrower has no material
 contingent obligations except as disclosed in such financial statements.

 
	
  

 	
  

 	
  

 
	
  

 	
 Legal Effect.
 This Agreement constitutes, and any instrument or agreement Borrower is
 required to give under this Agreement when delivered will constitute legal,
 valid, and binding obligations of Borrower enforceable against Borrower in
 accordance with their respective terms.

 













	
  

 	
  

 	
  

 
	
  

 	
 BUSINESS
 LOAN AGREEMENT (ASSET BASED)

 	
  

 
	
 Loan No: 15695

 	
 (Continued) 

 	
 Page 3

 
	
  

 	
  

 	
  

 






	
  

 	
  

 	
  

 
	
  

 	
 Properties.
 Except as contemplated by this Agreement or as previously disclosed in
 Borrower’s financial statements or in writing to Lender and as accepted by
 Lender, and except for property tax liens for taxes not presently due and
 payable, Borrower owns and has good title to all of Borrower’s properties
 free and clear of all Security Interests, and has not executed any security
 documents or financing statements relating to such properties. All of
 Borrower’s properties are titled in Borrower’s legal name, and Borrower has
 not used or filed a financing statement under any other name for at least the
 last five (5) years.

 
	
  

 	
  

 	
  

 
	
  

 	
 Hazardous
 Substances. Except as disclosed to and acknowledged
 by Lender in writing, Borrower represents and warrants that: (1) During the
 period of Borrower’s ownership of the Collateral, there has been no use,
 generation, manufacture, storage, treatment, disposal, release or threatened
 release of any Hazardous Substance by any person on, under, about or from any
 of the Collateral. (2) Borrower has no knowledge of, or reason to believe
 that there has been (a) any breach or violation of any Environmental Laws;
 (b) any use, generation, manufacture, storage, treatment, disposal, release
 or threatened release of any Hazardous Substance on, under, about or from the
 Collateral by any prior owners or occupants of any of the Collateral; or (c)
 any actual or threatened litigation or claims of any kind by any person
 relating to such matters. (3) Neither Borrower nor any tenant, contractor,
 agent or other authorized user of any of the Collateral shall use, generate,
 manufacture, store, treat, dispose of or release any Hazardous Substance on,
 under, about or from any of the Collateral; and any such activity shall be
 conducted in compliance with all applicable federal, state, and local laws,
 regulations, and ordinances, including without limitation all Environmental
 Laws. Borrower authorizes Lender and its agents to enter upon the Collateral
 to make such inspections and tests as Lender may deem appropriate to
 determine compliance of the Collateral with this section of the Agreement.
 Any inspections or tests made by Lender shall be at Borrower’s expense and
 for Lender’s purposes only and shall not be construed to create any
 responsibility or liability on the part of Lender to Borrower or to any other
 person. The representations and warranties contained herein are based on
 Borrower’s due diligence in investigating the Collateral for hazardous waste
 and Hazardous Substances. Borrower hereby (1) releases and waives any future
 claims against Lender for indemnity or contribution in the event Borrower
 becomes liable for cleanup or other costs under any such laws, and (2) agrees
 to indemnify, defend, and hold harmless Lender against any and all claims,
 losses, liabilities, damages, penalties, and expenses, including attorneys’
 fees, consultants’ fees, and costs which Lender may directly or indirectly
 sustain or suffer resulting from a breach of this section of the Agreement or
 as a consequence of any use, generation, manufacture, storage, disposal,
 release or threatened release of a hazardous waste or substance on the
 Collateral. The provisions of this section of the Agreement, including the
 obligation to indemnify and defend, shall survive the payment of the
 Indebtedness and the termination, expiration or satisfaction of this
 Agreement and shall not be affected by Lender’s acquisition of any interest
 in any of the Collateral, whether by foreclosure or otherwise.

 
	
  

 	
  

 	
  

 
	
  

 	
 Litigation and
 Claims. No litigation, claim, investigation,
 administrative proceeding or similar action (including those for unpaid
 taxes) against Borrower is pending or threatened, and no other event has
 occurred which may materially adversely affect Borrower’s financial condition
 or properties, other than litigation, claims, or other events, if any, that
 have been disclosed to and acknowledged by Lender in writing.

 
	
  

 	
  

 	
  

 
	
  

 	
 Taxes.
 To the best of Borrower’s knowledge, all of Borrower’s tax returns and
 reports that are or were required to be filed, have been filed, and all
 taxes, assessments and other governmental charges have been paid in full,
 except those presently being or to be contested by Borrower in good faith in the
 ordinary course of business and for which adequate reserves have been
 provided.

 
	
  

 	
  

 	
  

 
	
  

 	
 Lien Priority.
 Unless otherwise previously disclosed to Lender in writing, Borrower has not
 entered into or granted any Security Agreements, or permitted the filing or
 attachment of any Security Interests on or affecting any of the Collateral
 directly or indirectly securing repayment of Borrower’s Loan and Note, that
 would be prior or that may in any way be superior to Lender’s Security
 Interests and rights in and to such Collateral.

 
	
  

 	
  

 	
  

 
	
  

 	
 Binding Effect.
 This Agreement, the Note, all Security Agreements (if any), and all Related
 Documents are binding upon the signers thereof, as well as upon their
 successors, representatives and assigns, and are legally enforceable in accordance
 with their respective terms.

 
	
  

 	
  

 	
  

 
	
 AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
 that, so long as this Agreement remains in effect, Borrower will:

 
	
  

 	
  

 	
  

 
	
  

 	
 Notices of Claims
 and Litigation. Promptly inform Lender in writing of
 (1) all material adverse changes in Borrower’s financial condition, and (2)
 all existing and all threatened litigation, claims, investigations,
 administrative proceedings or similar actions affecting Borrower or any
 Guarantor which could materially affect the financial condition of Borrower
 or the financial condition of any Guarantor.

 
	
  

 	
  

 	
  

 
	
  

 	
 Financial Records.
 Maintain its books and records in accordance with GAAP, applied on a
 consistent basis, and permit Lender to examine and audit Borrower’s books and
 records at all reasonable times.

 
	
  

 	
  

 	
  

 
	
  

 	
 Financial
 Statements. Furnish Lender with the following:

 
	
  

 	
  

 	
  

 
	
  

 	
 Interim Statements.
 As soon as available, but in no event later than 45 days after the end of
 each month, Borrower’s balance sheet and profit and loss statement for the
 period ended, prepared by Borrower.

 
	
  

 	
  

 	
  

 
	
  

 	
 Tax Returns.
 As soon as available, but in no event later than 45 days after the applicable
 filing date for the tax reporting period ended, Borrower’s Federal and other
 governmental tax returns, prepared by a tax professional satisfactory to
 Lender.

 
	
  

 	
  

 	
  

 
	
  

 	
 Additional
 Requirements.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 1. Borrower will provide, as soon as available, but in no event later
 than forty-five (45) days after the end of each calendar quarter, Borrower’s
 Accounts Receivable Aging report.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 2. Borrower will provide, as soon as available, but in no event later
 than forty-five (45) days after the end of each month, Borrower’s Collateral
 Schedule.

 
	
  

 	
  

 	
  

 
	
  

 	
 All financial reports required to be provided under this Agreement
 shall be prepared in accordance with GAAP, applied on a consistent basis, and
 certified by Borrower as being true and correct.

 
	
  

 	
  

 	
  

 
	
  

 	
 Additional
 Information. Furnish such additional information and
 statements, as Lender may request from time to time.

 
	
  

 	
  

 	
  

 
	
  

 	
 Additional Requirements.

 
	
  

 	
  

 	
  

 
	
  

 	
 1. Borrower must maintain a Minimum Tangible Net Worth of not less
 than $10,125,000.00. Tangible Net Worth is defined as total capital plus debt
 subordinated to Venture Bank less intangible assets. Intangible assets
 include but are not limited to goodwill, non-compete agreements, trademarks,
 notes due from related parties and employee advances. Tangible Net Worth will
 be calculated quarterly based on SEC filed financial statements.

 
	
  

 	
  

 	
  

 
	
  

 	
 2. Borrower will maintain their primary deposit accounts with Venture
 Bank.

 
	
  

 	
  

 	
  

 
	
  

 	
 3. A pro-rated non-usage fee of 0.125% based on the average unused
 portion of the line of credit will be assessed up to the maturity date of
 12/18/2015.

 
	
  

 	
  

 	
  

 
	
 COVENANTS
 REVIEWED AND ACCEPTED BY: JTB (initials)

 













	
  

 	
  

 	
  

 
	
  

 	
 BUSINESS LOAN
 AGREEMENT (ASSET BASED)

 
	
 Loan No: 15695

 	
 (Continued) 

 	
 Page 4

 
	
  

 	
  

 	
  

 






	
  

 	
  

 	
  

 
	
  

 	
 Insurance.
 Maintain fire and other risk insurance, public liability insurance, and such
 other insurance as Lender may require with respect to Borrower’s properties
 and operations, in form, amounts, coverages and with insurance companies
 acceptable to Lender. Borrower, upon request of Lender, will deliver to
 Lender from time to time the policies or certificates of insurance in form
 satisfactory to Lender, including stipulations that coverages will not be
 cancelled or diminished without at least ten (10) days prior written notice
 to Lender. Each insurance policy also shall include an endorsement providing
 that coverage in favor of Lender will not be impaired in any way by any act,
 omission or default of Borrower or any other person. In connection with all
 policies covering assets in which Lender holds or is offered a security
 interest for the Loans, Borrower will provide Lender with such lender’s loss
 payable or other endorsements as Lender may require.

 
	
  

 	
  

 	
  

 
	
  

 	
 Insurance Reports.
 Furnish to Lender, upon request of Lender, reports on each existing insurance
 policy showing such information as Lender may reasonably request, including
 without limitation the following: (1) the name of the insurer; (2) the risks
 insured; (3) the amount of the policy; (4) the properties insured; (5) the
 then current property values on the basis of which insurance has been
 obtained, and the manner of determining those values; and (6) the expiration
 date of the policy. In addition, upon request of Lender (however not more
 often than annually), Borrower will have an independent appraiser
 satisfactory to Lender determine, as applicable, the actual cash value or
 replacement cost of any Collateral. The cost of such appraisal shall be paid
 by Borrower.

 
	
  

 	
  

 	
  

 
	
  

 	
 Other Agreements.
 Comply with all terms and conditions of all other agreements, whether now or
 hereafter existing, between Borrower and any other party and notify Lender
 immediately in writing of any default in connection with any other such
 agreements.

 
	
  

 	
  

 	
  

 
	
  

 	
 Loan Proceeds.
 Use all Loan proceeds solely for Borrower’s business operations, unless
 specifically consented to the contrary by Lender in writing.

 
	
  

 	
  

 	
  

 
	
  

 	
 Taxes, Charges and
 Liens. Pay and discharge when due all of its
 indebtedness and obligations, including without limitation all assessments,
 taxes, governmental charges, levies and liens, of every kind and nature,
 imposed upon Borrower or its properties, income, or profits, prior to the
 date on which penalties would attach, and all lawful claims that, if unpaid,
 might become a lien or charge upon any of Borrower’s properties, income, or
 profits. Provided however, Borrower will not be required to pay and discharge
 any such assessment, tax, charge, levy, lien or claim so long as (1) the
 legality of the same shall be contested in good faith by appropriate
 proceedings, and (2) Borrower shall have established on Borrower’s books
 adequate reserves with respect to such contested assessment, tax, charge,
 levy, lien, or claim in accordance with GAAP.

 
	
  

 	
  

 	
  

 
	
  

 	
 Performance.
 Perform and comply, in a timely manner, with all terms, conditions, and
 provisions set forth in this Agreement, in the Related Documents, and in all
 other instruments and agreements between Borrower and Lender. Borrower shall
 notify Lender immediately in writing of any default in connection with any
 agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 Operations.
 Maintain executive and management personnel with substantially the same
 qualifications and experience as the present executive and management
 personnel; provide written notice to Lender of any change in executive and
 management personnel; conduct its business affairs in a reasonable and
 prudent manner.

 
	
  

 	
  

 	
  

 
	
  

 	
 Environmental
 Studies. Promptly conduct and complete, at
 Borrower’s expense, all such investigations, studies, samplings and testings
 as may be requested by Lender or any governmental authority relative to any
 substance, or any waste or by-product of any substance defined as toxic or a
 hazardous substance under applicable federal, state, or local law, rule,
 regulation, order or directive, at or affecting any property or any facility
 owned, leased or used by Borrower.

 
	
  

 	
  

 	
  

 
	
  

 	
 Compliance with
 Governmental Requirements. Comply with all laws,
 ordinances, and regulations, now or hereafter in effect, of all governmental
 authorities applicable to the conduct of Borrower’s properties, businesses
 and operations, and to the use or occupancy of the Collateral, including
 without limitation, the Americans With Disabilities Act. Borrower may contest
 in good faith any such law, ordinance, or regulation and withhold compliance
 during any proceeding, including appropriate appeals, so long as Borrower has
 notified Lender in writing prior to doing so and so long as, in Lender’s sole
 opinion, Lender’s interests in the Collateral are not jeopardized. Lender may
 require Borrower to post adequate security or a surety bond, reasonably
 satisfactory to Lender, to protect Lender’s interest.

 
	
  

 	
  

 	
  

 
	
  

 	
 Inspection.
 Permit employees or agents of Lender at any reasonable time to inspect any
 and all Collateral for the Loan or Loans and Borrower’s other properties and
 to examine or audit Borrower’s books, accounts, and records and to make
 copies and memoranda of Borrower’s books, accounts, and records. If Borrower
 now or at any time hereafter maintains any records (including without
 limitation computer generated records and computer software programs for the
 generation of such records) in the possession of a third party, Borrower,
 upon request of Lender, shall notify such party to permit Lender free access
 to such records at all reasonable times and to provide Lender with copies of
 any records it may request, all at Borrower’s expense.

 
	
  

 	
  

 	
  

 
	
  

 	
 Compliance
 Certificates. Unless waived in writing by Lender,
 provide Lender at least annually, with a certificate executed by Borrower’s
 chief financial officer, or other officer or person acceptable to Lender,
 certifying that the representations and warranties set forth in this
 Agreement are true and correct as of the date of the certificate and further
 certifying that, as of the date of the certificate, no Event of Default
 exists under this Agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 Environmental
 Compliance and Reports. Borrower shall comply in all
 respects with any and all Environmental Laws; not cause or permit to exist,
 as a result of an intentional or unintentional action or omission on
 Borrower’s part or on the part of any third party, on property owned and/or
 occupied by Borrower, any environmental activity where damage may result to
 the environment, unless such environmental activity is pursuant to and in
 compliance with the conditions of a permit issued by the appropriate federal,
 state or local governmental authorities; shall furnish to Lender promptly and
 in any event within thirty (30) days after receipt thereof a copy of any
 notice, summons, lien, citation, directive, letter or other communication
 from any governmental agency or instrumentality concerning any intentional or
 unintentional action or omission on Borrower’s part in connection with any
 environmental activity whether or not there is damage to the environment
 and/or other natural resources.

 
	
  

 	
  

 	
  

 
	
  

 	
 Additional
 Assurances. Make, execute and deliver to Lender such
 promissory notes, mortgages, deeds of trust, security agreements,
 assignments, financing statements, instruments, documents and other
 agreements as Lender or its attorneys may reasonably request to evidence and
 secure the Loans and to perfect all Security Interests.

 
	
  

 	
  

 	
  

 
	
 LENDER’S EXPENDITURES. If any action or proceeding is commenced
 that would materially affect Lender’s interest in the Collateral or if
 Borrower fails to comply with any provision of this Agreement or any Related
 Documents, including but not limited to Borrower’s failure to discharge or
 pay when due any amounts Borrower is required to discharge or pay under this
 Agreement or any Related Documents, Lender on Borrower’s behalf may (but
 shall not be obligated to) take any action that Lender deems appropriate,
 including but not limited to discharging or paying all taxes, liens, security
 interests, encumbrances and other claims, at any time levied or placed on any
 Collateral and paying all costs for insuring, maintaining and preserving any
 Collateral. All such expenditures incurred or paid by Lender for such
 purposes will then bear interest at the rate charged under the Note from the
 date incurred or paid by Lender to the date of repayment by Borrower. All
 such expenses will become a part of the Indebtedness and, at Lender’s option,
 will (A) be payable on demand; (B) be added to the balance of the Note and be
 apportioned among and be payable with any installment payments to become due
 during either (1) the term of any applicable insurance policy; or (2) the
 remaining term of the Note; or (C) be treated as a balloon payment which will
 be due and payable at the Note’s maturity.

 













	
  

 	
  

 	
  

 
	
  

 	
 BUSINESS
 LOAN AGREEMENT (ASSET BASED)

 	
  

 
	
 Loan No: 15695

 	
  (Continued) 

 	
 Page 5

 
	
  

 	
  

 	
  

 






	
  

 	
  

 	
  

 
	
 NEGATIVE COVENANTS. Borrower covenants and agrees with Lender
 that while this Agreement is in effect, Borrower shall not, without the prior
 written consent of Lender:

 
	
  

 	
  

 	
  

 
	
  

 	
 Indebtedness and
 Liens. (1) Except for trade debt incurred in the
 normal course of business and indebtedness to Lender contemplated by this
 Agreement, create, incur or assume indebtedness for borrowed money, including
 capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a
 security interest in, or encumber any of Borrower’s assets (except as allowed
 as Permitted Liens), or (3) sell with recourse any of Borrower’s accounts,
 except to Lender.

 
	
  

 	
  

 	
  

 
	
  

 	
 Continuity of
 Operations. (1) Engage in any business activities
 substantially different than those in which Borrower is presently engaged,
 (2) cease operations, liquidate, merge, transfer, acquire or consolidate with
 any other entity, change its name, dissolve or transfer or sell Collateral
 out of the ordinary course of business, or (3) pay any dividends on
 Borrower’s stock (other than dividends payable in its stock), provided,
 however that notwithstanding the foregoing, but only so long as no Event of
 Default has occurred and is continuing or would result from the payment of
 dividends, if Borrower is a “Subchapter S Corporation” (as defined in the
 Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
 on its stock to its shareholders from time to time in amounts necessary to
 enable the shareholders to pay income taxes and make estimated income tax
 payments to satisfy their liabilities under federal and state law which arise
 solely from their status as Shareholders of a Subchapter S Corporation
 because of their ownership of shares of Borrower’s stock, or purchase or
 retire any of Borrower’s outstanding shares or alter or amend Borrower’s
 capital structure.

 
	
  

 	
  

 	
  

 
	
  

 	
 Loans, Acquisitions
 and Guaranties. (1) Loan, invest in or advance money
 or assets to any other person, enterprise or entity, (2) purchase, create or
 acquire any interest in any other enterprise or entity, or (3) incur any
 obligation as surety or guarantor other than in the ordinary course of
 business.

 
	
  

 	
  

 	
  

 
	
  

 	
 Agreements.
 Enter into any agreement containing any provisions which would be violated or
 breached by the performance of Borrower’s obligations under this Agreement or
 in connection herewith.

 
	
  

 	
  

 	
  

 
	
 CESSATION OF ADVANCES. If Lender has made any commitment to make
 any Loan to Borrower, whether under this Agreement or under any other
 agreement, Lender shall have no obligation to make Loan Advances or to
 disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under
 the terms of this Agreement or any of the Related Documents or any other
 agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any
 Guarantor dies, becomes incompetent or becomes insolvent, files a petition in
 bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there
 occurs a material adverse change in Borrower’s financial condition, in the
 financial condition of any Guarantor, or in the value of any Collateral
 securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts
 to limit, modify or revoke such Guarantor’s guaranty of the Loan or any other
 loan with Lender; or (E) Lender in good faith deems itself insecure, even
 though no Event of Default shall have occurred.

 
	
  

 	
  

 	
  

 
	
 RIGHT OF SETOFF. To the extent permitted by applicable law,
 Lender reserves a right of setoff in all Borrower’s accounts with Lender
 (whether checking, savings, or some other account). This includes all
 accounts Borrower holds jointly with someone else and all accounts Borrower
 may open in the future. However, this does not include any IRA or Keogh accounts,
 or any trust accounts for which setoff would be prohibited by law. Borrower
 authorizes Lender, to the extent permitted by applicable law, to charge or
 setoff all sums owing on the Indebtedness against any and all such accounts,
 and, at Lender’s option, to administratively freeze all such accounts to
 allow Lender to protect Lender’s charge and setoff rights provided in this
 paragraph.

 
	
  

 	
  

 	
  

 
	
 DEFAULT.
 Each of the following shall constitute an Event of Default under this
 Agreement:

 
	
  

 	
  

 	
  

 
	
  

 	
 Payment Default.
 Borrower fails to make any payment when due under the Loan.

 
	
  

 	
  

 	
  

 
	
  

 	
 Other Defaults.
 Borrower fails to comply with or to perform any other term, obligation,
 covenant or condition contained in this Agreement or in any of the Related
 Documents or to comply with or to perform any term, obligation, covenant or
 condition contained in any other agreement between Lender and Borrower.

 
	
  

 	
  

 	
  

 
	
  

 	
 False Statements.
 Any warranty, representation or statement made or furnished to Lender by
 Borrower or on Borrower’s behalf under this Agreement or the Related
 Documents is false or misleading in any material respect, either now or at
 the time made or furnished or becomes false or misleading at any time
 thereafter.

 
	
  

 	
  

 	
  

 
	
  

 	
 Insolvency.
 The dissolution or termination of Borrower’s existence as a going business,
 the insolvency of Borrower, the appointment of a receiver for any part of
 Borrower’s property, any assignment for the benefit of creditors, any type of
 creditor workout, or the commencement of any proceeding under any bankruptcy
 or insolvency laws by or against Borrower.

 
	
  

 	
  

 	
  

 
	
  

 	
 Defective
 Collateralization. This Agreement or any of the
 Related Documents ceases to be in full force and effect (including failure of
 any collateral document to create a valid and perfected security interest or
 lien) at any time and for any reason.

 
	
  

 	
  

 	
  

 
	
  

 	
 Creditor or
 Forfeiture Proceedings. Commencement of foreclosure
 or forfeiture proceedings, whether by judicial proceeding, self-help,
 repossession or any other method, by any creditor of Borrower or by any
 governmental agency against any collateral securing the Loan. This includes a
 garnishment of any of Borrower’s accounts, including deposit accounts, with
 Lender. However, this Event of Default shall not apply if there is a good
 faith dispute by Borrower as to the validity or reasonableness of the claim
 which is the basis of the creditor or forfeiture proceeding and if Borrower
 gives Lender written notice of the creditor or forfeiture proceeding and
 deposits with Lender monies or a surety bond for the creditor or forfeiture
 proceeding, in an amount determined by Lender, in its sole discretion, as
 being an adequate reserve or bond for the dispute.

 
	
  

 	
  

 	
  

 
	
  

 	
 Events Affecting
 Guarantor. Any of the preceding events occurs with
 respect to any Guarantor of any of the Indebtedness or any Guarantor dies or
 becomes incompetent, or revokes or disputes the validity of, or liability
 under, any Guaranty of the Indebtedness.

 
	
  

 	
  

 	
  

 
	
  

 	
 Change in Ownership.
 Any change in ownership of twenty-five percent (25%) or more of the common stock
 of Borrower.

 
	
  

 	
  

 	
  

 
	
  

 	
 Adverse Change.
 A material adverse change occurs in Borrower’s financial condition, or Lender
 believes the prospect of payment or performance of the Loan is impaired.

 
	
  

 	
  

 	
  

 
	
  

 	
 Insecurity.
 Lender in good faith believes itself insecure.

 
	
  

 	
  

 	
  

 
	
  

 	
 Right to Cure.
 If any default, other than a default on Indebtedness, is curable and if
 Borrower or Grantor, as the case may be, has not been given a notice of a
 similar default within the preceding twelve (12) months, it may be cured if
 Borrower or Grantor, as the case may be, after Lender sends written notice to
 Borrower or Grantor, as the case may be, demanding cure of such default: (1)
 cure the default within fifteen (15) days; or (2) if the cure requires more
 than fifteen (15) days, immediately initiate steps which Lender deems in
 Lender’s sole discretion to be sufficient to cure the default and thereafter
 continue and complete all reasonable and necessary steps sufficient to
 produce compliance as soon as reasonably practical.

 













	
  

 	
  

 	
  

 
	
  

 	
 BUSINESS
 LOAN AGREEMENT (ASSET BASED)

 	
  

 
	
 Loan No: 15695

 	
  (Continued) 

 	
 Page 6

 
	
  

 	
  

 	
  

 






	
  

 	
  

 	
  

 
	
 EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur,
 except where otherwise provided in this Agreement or the Related Documents,
 all commitments and obligations of Lender under this Agreement or the Related
 Documents or any other agreement immediately will terminate (including any
 obligation to make further Loan Advances or disbursements), and, at Lender’s
 option, all Indebtedness immediately will become due and payable, all without notice of
 any kind to Borrower, except that in the case of an Event of Default of the
 type described in the “Insolvency” subsection above, such acceleration shall
 be automatic and not optional. In addition, Lender shall have all the rights
 and remedies provided in the Related Documents or available at law, in
 equity, or otherwise. Except as may be prohibited by applicable law, all of
 Lender’s rights and remedies shall be cumulative and may be exercised
 singularly or concurrently. Election by Lender to pursue any remedy shall not
 exclude pursuit of any other remedy, and an election to make expenditures or
 to take action to perform an obligation of Borrower or of any Grantor shall
 not affect Lender’s right to declare a default and to exercise its rights and
 remedies.

 
	
  

 	
  

 	
  

 
	
 MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a
 part of this Agreement:

 
	
  

 	
  

 	
  

 
	
  

 	
 Amendments.
 This Agreement, together with any Related Documents, constitutes the entire
 understanding and agreement of the parties as to the matters set forth in
 this Agreement. No alteration of or amendment to this Agreement shall be
 effective unless given in writing and signed by the party or parties sought
 to be charged or bound by the alteration or amendment.

 
	
  

 	
  

 	
  

 
	
  

 	
 Attorneys’ Fees;
 Expenses. Borrower agrees to pay upon demand all of
 Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees
 and Lender’s legal expenses, incurred in connection with the enforcement of
 this Agreement. Lender may hire or pay someone else to help enforce this
 Agreement, and Borrower shall pay the costs and expenses of such enforcement.
 Costs and expenses include Lender’s reasonable attorneys’ fees and legal
 expenses whether or not there is a lawsuit, including reasonable attorneys’
 fees and legal expenses for bankruptcy proceedings (including efforts to
 modify or vacate any automatic stay or injunction), appeals, and any
 anticipated post-judgment collection services. Borrower also shall pay all
 court costs and such additional fees as may be directed by the court.

 
	
  

 	
  

 	
  

 
	
  

 	
 Caption Headings.
 Caption headings in this Agreement are for convenience purposes only and are
 not to be used to interpret or define the provisions of this Agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 Consent to Loan
 Participation. Borrower agrees and consents to
 Lender’s sale or transfer, whether now or later, of one or more participation
 interests in the Loan to one or more purchasers, whether related or unrelated
 to Lender. Lender may provide, without any limitation whatsoever, to any one
 or more purchasers, or potential purchasers, any information or knowledge
 Lender may have about Borrower or about any other matter relating to the
 Loan, and Borrower hereby waives any rights to privacy Borrower may have with
 respect to such matters. Borrower additionally waives any and all notices of
 sale of participation interests, as well as all notices of any repurchase of
 such participation interests. Borrower also agrees that the purchasers of any
 such participation interests will be considered as the absolute owners of
 such interests in the Loan and will have all the rights granted under the
 participation agreement or agreements governing the sale of such
 participation interests. Borrower further waives all rights of offset or
 counterclaim that it may have now or later against Lender or against any
 purchaser of such a participation interest and unconditionally agrees that
 either Lender or such purchaser may enforce Borrower’s obligation under the
 Loan irrespective of the failure or insolvency of any holder of any interest
 in the Loan. Borrower further agrees that the purchaser of any such
 participation interests may enforce its interests irrespective of any
 personal claims or defenses that Borrower may have against Lender.

 
	
  

 	
  

 	
  

 
	
  

 	
 Governing
 Law. This Agreement will be governed by federal law applicable to Lender and,
 to the extent not preempted by federal law, the laws of the State of
 Minnesota without regard to its conflicts of law provisions. This Agreement
 has been accepted by Lender in the State of Minnesota.

 
	
  

 	
  

 
	
  

 	
 No Waiver by Lender.
 Lender shall not be deemed to have waived any rights under this Agreement
 unless such waiver is given in writing and signed by Lender. No delay or
 omission on the part of Lender in exercising any right shall operate as a
 waiver of such right or any other right. A waiver by Lender of a provision of
 this Agreement shall not prejudice or constitute a waiver of Lender’s right
 otherwise to demand strict compliance with that provision or any other
 provision of this Agreement. No prior waiver by Lender, nor any course of
 dealing between Lender and Borrower, or between Lender and any Grantor, shall
 constitute a waiver of any of Lender’s rights or of any of Borrower’s or any
 Grantor’s obligations as to any future transactions. Whenever the consent of
 Lender is required under this Agreement, the granting of such consent by
 Lender in any instance shall not constitute continuing consent to subsequent
 instances where such consent is required and in all cases such consent may be
 granted or withheld in the sole discretion of Lender.

 
	
  

 	
  

 	
  

 
	
  

 	
 Notices.
 Any notice required to be given under this Agreement shall be given in
 writing, and shall be effective when actually delivered, when actually
 received by telefacsimile (unless otherwise required by law), when deposited
 with a nationally recognized overnight courier, or, if mailed, when deposited
 in the United States mail, as first class, certified or registered mail
 postage prepaid, directed to the addresses shown near the beginning of this
 Agreement. Any party may change its address for notices under this Agreement
 by giving formal written notice to the other parties, specifying that the
 purpose of the notice is to change the party’s address. For notice purposes,
 Borrower agrees to keep Lender informed at all times of Borrower’s current
 address. Unless otherwise provided or required by law, if there is more than
 one Borrower, any notice given by Lender to any Borrower is deemed to be
 notice given to all Borrowers.

 
	
  

 	
  

 	
  

 
	
  

 	
 Severability.
 If a court of competent jurisdiction finds any provision of this Agreement to
 be illegal, invalid, or unenforceable as to any circumstance, that finding
 shall not make the offending provision illegal, invalid, or unenforceable as
 to any other circumstance. If feasible, the offending provision shall be
 considered modified so that it becomes legal, valid and enforceable. If the
 offending provision cannot be so modified, it shall be considered deleted
 from this Agreement. Unless otherwise required by law, the illegality,
 invalidity, or unenforceability of any provision of this Agreement shall not
 affect the legality, validity or enforceability of any other provision of
 this Agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 Subsidiaries and
 Affiliates of Borrower. To the extent the context of
 any provisions of this Agreement makes it appropriate, including without
 limitation any representation, warranty or covenant, the word “Borrower” as
 used in this Agreement shall include all of Borrower’s subsidiaries and
 affiliates. Notwithstanding the foregoing however, under no circumstances
 shall this Agreement be construed to require Lender to make any Loan or other
 financial accommodation to any of Borrower’s subsidiaries or affiliates.

 
	
  

 	
  

 	
  

 
	
  

 	
 Successors and
 Assigns. All covenants and agreements by or on
 behalf of Borrower contained in this Agreement or any Related Documents shall
 bind Borrower’s successors and assigns and shall inure to the benefit of
 Lender and its successors and assigns. Borrower shall not, however, have the
 right to assign Borrower’s rights under this Agreement or any interest
 therein, without the prior written consent of Lender.

 
	
  

 	
  

 	
  

 
	
  

 	
 Survival of
 Representations and Warranties. Borrower understands
 and agrees that in extending Loan Advances, Lender is relying on all
 representations, warranties, and covenants made by Borrower in this Agreement
 or in any certificate or other instrument delivered by Borrower to Lender
 under this Agreement or the Related Documents. Borrower further agrees that
 regardless of any investigation made by Lender, all such representations, warranties
 and covenants will survive the extension of Loan Advances and delivery to
 Lender of the Related Documents, shall be continuing in nature, shall be
 deemed made and redated by Borrower at the time each Loan Advance is made,
 and shall remain in full force and effect until such time as Borrower’s
 Indebtedness shall be paid in full, or until this Agreement shall be
 terminated in the manner provided above, whichever is the last to occur.

 
	
  

 	
  

 	
  

 
	
  

 	
 Time is of the
 Essence. Time is of the essence in the performance
 of this Agreement.

 













	
  

 	
  

 	
  

 
	
  

 	
 BUSINESS
 LOAN AGREEMENT (ASSET BASED)

 	
  

 
	
 Loan No: 15695

 	
 (Continued) 

 	
 Page 7

 
	
  

 	
  

 	
  

 






	
  

 	
  

 	
  

 
	
 DEFINITIONS. The following capitalized words and terms
 shall have the following meanings when used in this Agreement. Unless
 specifically stated
 to the contrary, all references to dollar amounts shall mean amounts in
 lawful money of the United States of America. Words and terms used in the
 singular shall include the plural, and the plural shall include the singular,
 as the context may require. Words and terms not otherwise defined in this
 Agreement shall have the meanings attributed to such terms in the Uniform
 Commercial Code. Accounting words and terms not otherwise defined in this
 Agreement shall have the meanings assigned to them in accordance with
 generally accepted accounting principles as in effect on the date of this
 Agreement:

 
	
  

 	
  

 	
  

 
	
  

 	
 Account.
 The word “Account” means a trade account, account receivable, other
 receivable, or other right to payment for goods sold or services rendered
 owing to Borrower (or to a third party grantor acceptable to Lender).

 
	
  

 	
  

 	
  

 
	
  

 	
 Account Debtor.
 The words “Account Debtor” mean the person or entity obligated upon an
 Account.

 
	
  

 	
  

 	
  

 
	
  

 	
 Advance.
 The word “Advance” means a disbursement of Loan funds made, or to be made, to
 Borrower or on Borrower’s behalf under the terms and conditions of this
 Agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 Agreement.
 The word “Agreement” means this Business Loan Agreement (Asset Based), as
 this Business Loan Agreement (Asset Based) may be amended or modified from
 time to time, together with all exhibits and schedules attached to this
 Business Loan Agreement (Asset Based) from time to time.

 
	
  

 	
  

 	
  

 
	
  

 	
 Borrower.
 The word “Borrower” means Electromed, Inc. and includes all co-signers and
 co-makers signing the Note and all their successors and assigns.

 
	
  

 	
  

 	
  

 
	
  

 	
 Borrowing Base.
 The words “Borrowing Base” mean, as determined by Lender from time to time,
 the lesser of (1) $2,500,000.00 or (2) 57.000% of the aggregate amount of
 Eligible Accounts.

 
	
  

 	
  

 	
  

 
	
  

 	
 Business Day.
 The words “Business Day” mean a day on which commercial banks are open in the
 State of Minnesota.

 
	
  

 	
  

 	
  

 
	
  

 	
 Collateral.
 The word “Collateral” means all property and assets granted as collateral
 security for a Loan, whether real or personal property, whether granted
 directly or indirectly, whether granted now or in the future, and whether
 granted in the form of a security interest, mortgage, collateral mortgage,
 deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral
 chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional
 sale, trust receipt, lien, charge, lien or title retention contract, lease or
 consignment intended as a security device, or any other security or lien
 interest whatsoever, whether created by law, contract, or otherwise. The word
 Collateral also includes without limitation all collateral described in the
 Collateral section of this Agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 Eligible Accounts.
 The words “Eligible Accounts” mean at any time, all of Borrower’s Accounts
 which contain selling terms and conditions acceptable to Lender. The net
 amount of any Eligible Account against which Borrower may borrow shall
 exclude all returns, discounts, credits, and offsets of any nature. Unless
 otherwise agreed to by Lender in writing, Eligible Accounts do not include:

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (1) Accounts with respect to which the Account Debtor is employee or
 agent of Borrower.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (2) Accounts with respect to which the Account Debtor is a subsidiary
 of, or affiliated with Borrower or its shareholders, officers, or directors.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (3) Accounts with respect to which goods are placed on consignment,
 guaranteed sale, or other terms by reason of which the payment by the Account
 Debtor may be conditional.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (4) Accounts with respect to which Borrower is or may become liable
 to the Account Debtor for goods sold or services rendered by the Account
 Debtor to Borrower.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (5) Accounts which are subject to dispute, counterclaim, or setoff.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (6) Accounts with respect to which the goods have not been shipped or
 delivered, or the services have not been rendered, to the Account Debtor.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (7) Accounts with respect to which Lender, in its sole discretion,
 deems the creditworthiness or financial condition of the Account Debtor to be
 unsatisfactory.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (8) Accounts of any Account Debtor who has filed or has had filed
 against it a petition in bankruptcy or an application for relief under any
 provision of any state or federal bankruptcy, insolvency, or debtor-in-relief
 acts; or who has had appointed a trustee, custodian, or receiver for the
 assets of such Account Debtor; or who has made an assignment for the benefit
 of creditors or has become insolvent or fails generally to pay its debts
 (including its payrolls) as such debts become due.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (9) Accounts which have not been paid in full within 90 Days from the
 invoice date.

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (10) Contractor progress billings, foreign receivables, bonded
 receivables and retainages.

 
	
  

 	
  

 	
  

 
	
  

 	
 Environmental Laws.
 The words “Environmental Laws” mean any and all state, federal and local
 statutes, regulations and ordinances relating to the protection of human
 health or the environment, including without limitation the Comprehensive
 Environmental Response, Compensation, and Liability Act of 1980, as amended,
 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and
 Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous
 Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
 Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable
 state or federal laws, rules, or regulations adopted pursuant thereto, or
 common law, and shall also include pollutants, contaminants, polychlorinated
 biphenyls, asbestos, urea formaldehyde, petroleum and petroleum products, and
 agricultural chemicals.

 
	
  

 	
  

 	
  

 
	
  

 	
 Event of Default.
 The words “Event of Default” mean any of the events of default set forth in
 this Agreement in the default section of this Agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 Expiration Date.
 The words “Expiration Date” mean the date of termination of Lender’s commitment
 to lend under this Agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 GAAP.
 The word “GAAP” means generally accepted accounting principles.

 
	
  

 	
  

 	
  

 
	
  

 	
 Grantor.
 The word “Grantor” means each and all of the persons or entities granting a
 Security Interest in any Collateral for the Loan, including without
 limitation all Borrowers granting such a Security Interest.

 
	
  

 	
  

 	
  

 
	
  

 	
 Guarantor.
 The word “Guarantor” means any guarantor, surety, or accommodation party of
 any or all of the Loan.

 
	
  

 	
  

 	
  

 
	
  

 	
 Guaranty.
 The word “Guaranty” means the guaranty from Guarantor to Lender, including
 without limitation a guaranty of all or part of the Note.

 













	
  

 	
  

 	
  

 
	
  

 	
 BUSINESS
 LOAN AGREEMENT (ASSET BASED) 

 	
  

 
	
 Loan No: 15695

 	
 (Continued) 

 	
 Page 8

 
	
  

 	
  

 	
  

 






	
  

 	
  

 	
  

 
	
  

 	
 Hazardous
 Substances. The words “Hazardous Substances” mean
 materials that, because of their quantity, concentration or physical,
 chemical or infectious characteristics, may cause or pose a present or
 potential hazard to human health or the environment when improperly used,
 treated, stored, disposed of, generated, manufactured, transported or
 otherwise handled. The words “Hazardous Substances” are used in their very
 broadest sense and include without limitation any and all hazardous or toxic
 substances, materials or waste as defined by or listed under the
 Environmental Laws. The term “Hazardous Substances” also includes, without
 limitation, petroleum and petroleum by-products or any fraction thereof and
 asbestos.

 
	
  

 	
  

 	
  

 
	
  

 	
 Indebtedness.
 The word “Indebtedness” means the indebtedness evidenced by the Note or
 Related Documents, including all principal and interest together with all
 other indebtedness and costs and expenses for which Borrower is responsible
 under this Agreement or under any of the Related Documents.

 
	
  

 	
  

 	
  

 
	
  

 	
 Lender.
 The word “Lender” means Venture Bank, its successors and assigns.

 
	
  

 	
  

 	
  

 
	
  

 	
 Loan.
 The word “Loan” means any and all loans and financial accommodations from
 Lender to Borrower whether now or hereafter existing, and however evidenced,
 including without limitation those loans and financial accommodations
 described herein or described on any exhibit or schedule attached to this
 Agreement from time to time.

 
	
  

 	
  

 	
  

 
	
  

 	
 Note.
 The word “Note” means the Note dated December 18, 2014 and executed by
 Electromed, Inc. in the principal amount of $2,500,000.00, together with all
 renewals of, extensions of, modifications of, refinancings of, consolidations
 of, and substitutions for the note or credit agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 Permitted Liens.
 The words “Permitted Liens” mean (1) liens and security interests securing
 Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or
 similar charges either not yet due or being contested in good faith; (3)
 liens of materialmen, mechanics, warehousemen, or carriers, or other like
 liens arising in the ordinary course of business and securing obligations
 which are not yet delinquent; (4) purchase money liens or purchase money
 security interests upon or in any property acquired or held by Borrower in
 the ordinary course of business to secure indebtedness outstanding on the
 date of this Agreement or permitted to be incurred under the paragraph of
 this Agreement titled “Indebtedness and Liens”; (5) liens and security
 interests which, as of the date of this Agreement, have been disclosed to and
 approved by the Lender in writing; and (6) those liens and security interests
 which in the aggregate constitute an immaterial and insignificant monetary
 amount with respect to the net value of Borrower’s assets.

 
	
  

 	
  

 	
  

 
	
  

 	
 Primary Credit
 Facility. The words “Primary Credit Facility” mean
 the credit facility described in the Line of Credit section of this
 Agreement.

 
	
  

 	
  

 	
  

 
	
  

 	
 Related Documents.
 The words “Related Documents” mean all promissory notes, credit agreements,
 loan agreements, environmental agreements, guaranties, security agreements,
 mortgages, deeds of trust, security deeds, collateral mortgages, and all
 other instruments, agreements and documents, whether now or hereafter
 existing, executed in connection with the Loan.

 
	
  

 	
  

 	
  

 
	
  

 	
 Security Agreement.
 The words “Security Agreement” mean and include without limitation any agreements,
 promises, covenants, arrangements, understandings or other agreements,
 whether created by law, contract, or otherwise, evidencing, governing,
 representing, or creating a Security Interest.

 
	
  

 	
  

 	
  

 
	
  

 	
 Security Interest.
 The words “Security Interest” mean, without limitation, any and all types of
 collateral security, present and future, whether in the form of a lien,
 charge, encumbrance, mortgage, deed of trust, security deed, assignment,
 pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel
 trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien
 or title retention contract, lease or consignment intended as a security
 device, or any other security or lien interest whatsoever whether created by
 law, contract, or otherwise.

 
	
  

 	
  

 	
  

 
	
 BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
 THIS BUSINESS LOAN AGREEMENT (ASSET BASED) AND BORROWER AGREES TO ITS TERMS.
 THIS BUSINESS LOAN AGREEMENT (ASSET BASED) IS DATED DECEMBER 18, 2014.

 





	
  

 	
  

 	
  

 
	
 BORROWER:

 
	
  

 
	
 ELECTROMED, INC.

 
	
  

 
	
 By:

 	
 /s/ Jeremy Brock

 	
  

 
	
  

 	
 Jeremy
 Brock, Chief Financial Officer of Electromed, Inc.

 	
  

 
	
  

 	
  

 	
  

 
	
 LENDER:

 	
  

 
	
  

 	
  

 
	
 VENTURE BANK

 	
  

 
	
  

 	
  

 
	
 By:

 	
 /s/ Kevin Doyle

 	
  

 
	
  

 	
 Authorized Signer

 	
  

 






	
  

 
	
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