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<SEC-DOCUMENT>0000897101-10-000912.txt : 20100503
<SEC-HEADER>0000897101-10-000912.hdr.sgml : 20100503
<ACCEPTANCE-DATETIME>20100503151916
ACCESSION NUMBER:		0000897101-10-000912
CONFORMED SUBMISSION TYPE:	S-1
PUBLIC DOCUMENT COUNT:		41
FILED AS OF DATE:		20100503
DATE AS OF CHANGE:		20100503

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			Electromed, Inc.
		CENTRAL INDEX KEY:			0001488917
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845]
		IRS NUMBER:				000000000
		STATE OF INCORPORATION:			MN

	FILING VALUES:
		FORM TYPE:		S-1
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-166470
		FILM NUMBER:		10792446

	BUSINESS ADDRESS:	
		STREET 1:		500 SIXTH AVENUE NW
		CITY:			NEW PRAGUE
		STATE:			MN
		ZIP:			56071
		BUSINESS PHONE:		952-758-9299

	MAIL ADDRESS:	
		STREET 1:		500 SIXTH AVENUE NW
		CITY:			NEW PRAGUE
		STATE:			MN
		ZIP:			56071
</SEC-HEADER>
<DOCUMENT>
<TYPE>S-1
<SEQUENCE>1
<FILENAME>elmd101390s1_s1.htm
<DESCRIPTION>FORM S-1
<TEXT>
<HTML>
<HEAD><TITLE></TITLE></HEAD>
<BODY>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
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 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="40%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>As filed with the Securities and Exchange
 Commission on May 3, 2010</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
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 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>Registration No. 333-_____</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP colspan=3>
<HR WIDTH="100%" SIZE="4" NOSHADE STYLE="MARGIN-TOP: -5PX">
<HR WIDTH="100%" SIZE="1" NOSHADE STYLE="MARGIN-TOP: -10PX">
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=4><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=3><B>Washington,
 D.C. 20549</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
  <TR STYLE="FONT-SIZE:1PX">
 <TD VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER>&nbsp;</P>


 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=5><B>FORM S-1</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>REGISTRATION STATEMENT UNDER THE SECURITIES
 ACT OF 1933</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
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 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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   <TR STYLE="FONT-SIZE:1PX">
 <TD VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER>&nbsp;</P>


 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>

 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=6><B>ELECTROMED,
 INC.</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>(Exact name of registrant as specified in its charter)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="25%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="30%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="15%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="20%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>Minnesota</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>3845</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>41-1732920</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>(State
 or other jurisdiction of</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>(Primary
 Standard Industrial</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>(I.R.S.
 Employer</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>incorporation
 or organization)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>Classification
 Code Number)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>Identification
 No.)</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="40%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="20%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="40%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>
   <TR STYLE="FONT-SIZE:1PX">
 <TD VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER>&nbsp;</P>


 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>

 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>500 Sixth Avenue NW</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>New Prague, Minnesota 56071</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B> (952) 758-9299</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>(Address, including zip code, and telephone number, including area
 code, of registrant&#146;s principal executive offices)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
  <TR STYLE="FONT-SIZE:1PX">
 <TD VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER>&nbsp;</P>


 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>

 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>Robert D. Hansen</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>Co-Founder, Chairman and Chief Executive
 Officer</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>500 Sixth Avenue NW</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>New Prague, Minnesota 56071</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>(952) 758-9299</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>(Name, address, including zip code, and telephone number, including
 area code, of agent for service)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="35%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="30%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="35%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>
   <TR STYLE="FONT-SIZE:1PX">
 <TD VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER>&nbsp;</P>


 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>

 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><I>Copies to:</I></FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="35%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="35%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE="2"><B>Melodie R. Rose<BR>
Ryan C. Brauer<BR>
Fredrikson &amp; Byron, P.A.<BR>
200 South Sixth Street<BR>
Suite 4000<BR>
Minneapolis, MN 55402-1425<BR>
(612) 492-7000</B> </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE="2"><B>W. Morgan Burns<BR>
Erik J. Romslo<BR>
Faegre &amp; Benson LLP<BR>
2200 Wells Fargo Center<BR>
90 South Seventh Street<BR>
Minneapolis, MN 55402-1425<BR>
(612) 766-7000</B> </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE="2"><B>Jule Hannaford<BR>
Kelly, Hannaford &amp; Battles P.A.<BR>
900 Baker Building<BR>
706 Second Avenue South<BR>
Minneapolis, MN 55402-1425<BR>
(612) 341-0881</B> </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="35%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="30%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="35%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P ><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Approximate
date of commencement of proposed sale to the public: </B>As soon as
practicable after the effective date of this registration statement.</FONT></P>

<P ><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended,
check the following box. <FONT FACE=WINGDINGS>o</FONT></FONT></P>

<P ><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. <FONT FACE=WINGDINGS>o</FONT></FONT></P>

<P ><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this
Form is a post effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. <FONT FACE=WINGDINGS>o</FONT></FONT></P>

<P ><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this
Form is a post effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. <FONT FACE=WINGDINGS>o</FONT></FONT></P>

<P ><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of &#147;large accelerated filer,&#148; &#147;accelerated filer&#148; and &#147;smaller reporting company&#148; in Rule 12b-2 of the Exchange Act </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="57%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="25%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Large
 accelerated filer <FONT FACE=WINGDINGS>o</FONT></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>Accelerated filer <FONT FACE=WINGDINGS>o</FONT></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Non-accelerated
 filer <FONT FACE=WINGDINGS>o</FONT> (do not check if a smaller reporting company)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>Smaller reporting company <FONT FACE=WINGDINGS>x</FONT></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>
<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>CALCULATION OF REGISTRATION FEE</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="38%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="38%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="23%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM style="border-top:solid black 1px;border-left:solid black 1px">
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><B>Title
 of Each Class of Securities to be </B></FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM style="border-top:solid black 1px;border-left:solid black 1px">
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><B>Proposed
 Maximum Aggregate </B></FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM style="border-top:solid black 1px;border-left:solid black 1px;border-right:solid black 1px">
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><B>Amount
 of </B></FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=TOP style="border-bottom:solid black 1px;border-left:solid black 1px">
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><B>Registered</B></FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=TOP style="border-bottom:solid black 1px;border-left:solid black 1px">
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><B>Offering
 Price<SUP>(1)(2)(3)</SUP></B></FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=TOP style="border-bottom:solid black 1px;border-left:solid black 1px;border-right:solid black 1px">
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><B>Registration
 Fee</B></FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=24 STYLE='HEIGHT:0.25IN'>
 <TD HEIGHT=24 style="border-bottom:solid black 1px;border-left:solid black 1px">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Common Stock, $0.01 par value</FONT></P>
 </TD>
 <TD HEIGHT=24 style="border-bottom:solid black 1px;border-left:solid black 1px">
 <P ALIGN=CENTER><FONT SIZE=2>$13,800,000</FONT></P>
 </TD>
 <TD HEIGHT=24 style="border-bottom:solid black 1px;border-left:solid black 1px;border-right:solid black 1px">
 <P ALIGN=CENTER><FONT SIZE=2>$984</FONT></P>
 </TD>
 </TR>
</TABLE>
<BR>
<div><FONT SIZE=2>(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with Rule 457(o) under the
Securities Act of 1933, the number of shares being registered and the proposed
maximum offering price per share are not included in this table.</FONT></div>

<div><FONT SIZE=2>(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimated
solely for the purpose of computing the registration fee pursuant to Rule
457(o) under the Securities Act.</FONT></div>

<div><FONT SIZE=2>(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Includes
shares of common stock issuable upon exercise of the underwriter&#146;s
over-allotment option to purchase additional common stock. </FONT></div>

<P><FONT SIZE=2><B>The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the registration statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.</B></FONT></P>

<HR WIDTH="100%" SIZE="1" noshade style="margin-top: -2px">
<HR WIDTH="100%" SIZE="4" noshade style="margin-top: -10px">

<P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="40%" VALIGN=TOP>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="20%" VALIGN=TOP>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="40%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2 color=red>The
 information in this prospectus is not complete and may be changed. We may not
 sell these securities until our registration statement filed with the
 Securities and Exchange Commission is effective. The prospectus is not an
 offer to sell these securities and is not soliciting an offer to buy these
 securities in any state where the offer or sale is not permitted. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><B>SUBJECT TO COMPLETION, DATED MAY 3,
 2010</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=CENTER><FONT  SIZE=2><img src="electromed.gif"  ALT="(LOGO)"></font></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=4><B>Shares</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=4><B>Common Stock</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=4><B>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
 share</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Electromed,
Inc. is offering
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common
stock. This is our initial public offering and no public market currently
exists for our shares. We anticipate that the initial public offering price
will be between $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
and $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share. We
intend to apply to have our common stock approved for listing on the Nasdaq Capital Market
under the symbol &#147;ELMD.&#148; There is no guarantee the Nasdaq Capital
Market will accept our application and no guarantee that our common stock will
be listed on the Nasdaq Capital Market.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="74%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1PX">
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Per
 Share</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Total</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Initial
 public offering price</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Underwriting
 discount</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Proceeds,
 before expenses, to Electromed, Inc.</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1PX">
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P>&nbsp;</P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I><B>The underwriter has
a 45-day option to purchase up to
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional shares
of common stock from us at the initial public offering price less the
underwriting discount to cover over-allotments, if any.</B></I></FONT></P>

<P><FONT SIZE=2><I><B>This investment
involves risk. See &#147;Risk Factors&#148; beginning on page 8.</B></I></FONT></P>

<P><FONT SIZE=2><B>Neither the
Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense. </B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><img src="feltl.jpg" ALT="(LOGO)"></font></P>

<P ALIGN=CENTER><FONT SIZE=2><B>The date of this prospectus is
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2010.</B></FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>TABLE
OF CONTENTS</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="91%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="4%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2><B>PAGE</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A001_v2">SUMMARY</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A002_v2">THE OFFERING</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A003_v2">SUMMARY FINANCIAL DATA</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A004_v2">RISK FACTORS</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>8</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A005_v2">INFORMATION REGARDING
FORWARD-LOOKING STATEMENTS</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>26</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A006_v2">USE OF PROCEEDS</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>27</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A007_v2">DIVIDEND POLICY</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>27</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A008_v2">CAPITALIZATION</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>28</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A009_v2">DILUTION</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>29</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><A HREF="#a1013901A010_v2">MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=2>30</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A011_v2">BUSINESS</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>39</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A012_v2">MANAGEMENT</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>62</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A013_v2">EXECUTIVE COMPENSATION</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>65</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A014_v2">CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>70</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A015_v2">PRINCIPAL SHAREHOLDERS AND
MANAGEMENT SHAREHOLDINGS</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>71</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A016_v2">DESCRIPTION OF CAPITAL
STOCK</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>72</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A017_v2">SHARES ELIGIBLE FOR FUTURE
SALE</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>75</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A018_v2">UNDERWRITING</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>77</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A019_v2">LEGAL MATTERS</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>80</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A020_v2">EXPERTS</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>80</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A021_v2">WHERE YOU CAN FIND MORE
INFORMATION</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>80</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2><A HREF="#a1013901A022_v2">INDEX TO FINANCIAL
STATEMENTS</A></FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>F-1</FONT></P>
</TD>
</TR>
</TABLE>

<P><FONT SIZE=2><B>You should rely only on the information contained in this
prospectus. We have not, and the underwriter has not, authorized any other
person to provide you with different information. This prospectus is not an
offer to sell, nor is it seeking an offer to buy, these securities in any state
where the offer or sale is not permitted. The information in this prospectus is
complete and accurate as of the date on the front cover of this prospectus, but
the information may have changed since that date.</B></FONT></P>

<P><FONT SIZE=2><B>All trademarks, trade names and service marks appearing in
this prospectus are the property of their respective owners.</B></FONT></P>

<P><FONT SIZE=2><B>We obtained
industry and market data used throughout this prospectus through our research,
surveys and studies conducted by third parties and industry and general
publications. We have not independently verified market and industry data from
third-party sources. While we believe internal company surveys are reliable and
market definitions are appropriate, neither these surveys nor these definitions
have been verified by any independent sources.</B></FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>S<A NAME="A1013901A001_V2"></A>UMMARY</B></FONT></P>

<P><FONT SIZE=2><I>This summary
highlights information contained elsewhere in this prospectus. You should read
this entire prospectus carefully, including the sections titled &#147;Risk Factors&#148;
and &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of
Operations&#148; and our financial statements and the notes thereto accompanying
this prospectus, before making an investment in our common stock. Except where
the context otherwise requires, in this prospectus, the terms &#147;Company,&#148; &#147;we,&#148;
&#147;our,&#148; and &#147;us&#148; refer to Electromed, Inc. and our wholly-owned subsidiary,
Electromed Financial, LLC. </I></FONT></P>

<P><FONT SIZE=2><B>Our Company</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Electromed,
Inc. manufactures, markets and sells products that provide airway clearance
therapy, including the SmartVest&reg; Airway Clearance System (&#147;SmartVest System&#148;)
and related products, to patients with compromised pulmonary function. The
SmartVest System generates High Frequency Chest Wall Oscillation (&#147;HFCWO&#148;), a
technique for airway clearance therapy, also known as High Frequency Chest
Compression. The SmartVest System has been approved by the FDA to treat the
condition of excess lung secretions. Consequently, it may be prescribed to
patients suffering from cystic fibrosis, chronic obstructive pulmonary disease,
muscular dystrophy, post-surgical airway complications and a variety of other
diseases and conditions associated with impaired lung and airway capacity. By
clearing airways, patients are able to rid their lungs of retained secretions
and are therefore less likely to develop lung infections such as pneumonia. The
SmartVest System is a doctor-prescribed therapy and, depending on the
circumstances of the patient, its cost to an individual is generally
reimbursable by Medicare, Medicaid and private insurance, or a combination of
the three. </FONT></P>

<P><FONT SIZE=2><B>Our Markets</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
manufacture and sell products primarily for the home health care market, and we
have recently begun to sell our products for use in hospitals, which we refer
to as &#147;institutional sales.&#148; We
have been successful in marketing the SmartVest System, along with its
predecessor product, the MedPulse Respiratory Vest System&reg;, to patients with
cystic fibrosis and other conditions that compromise pulmonary function, and
have also been successful in securing reimbursement from major private
insurance providers, HMOs, state Medicaid systems, and the federal Medicare
system. We believe we have established a solid foundation of product quality
and customer service from which to expand our existing markets and enter
progressively larger markets for HFCWO.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
market our products for use by a broad patient population, including those
suffering from chronic obstructive pulmonary disease, post-surgical and
intensive care patients at risk of developing pneumonia, patients with
end-stage neuromuscular disease, and ventilator-dependent patients. While HFCWO
is a well-accepted treatment for bronchiectasis, neuromuscular conditions and
cystic fibrosis, its uses are not limited to such conditions. Physicians may
prescribe HFCWO treatments for any patient the doctor believes may benefit from
improved airway clearance therapy, such as amyotrophic lateral sclerosis (Lou
Gehrig&#146;s disease), spinal injuries, post-polio syndrome, and other conditions
that affect a patient&#146;s lung function. We believe the treatments are
cost-effective because they reduce a patient&#146;s risk of secondary complications
and lower respiratory infections that are likely to occur when excess secretions are
present.</FONT></P>

<P><FONT SIZE=2><B>HFCWO Therapy</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HFCWO
was first developed for human use at the University of Minnesota. The goal in
developing HFCWO was to provide more effective mucus clearance in a process that
could be performed independently of a caregiver. For patients with a chronic pulmonary condition,
many hours per day may be dedicated to treatment. HFCWO clears secretions by
mimicking the actions of a normal human cough. A vest is worn over the torso
that repeatedly compresses and releases the chest at frequencies from 5 to 20
cycles per second. Each compression (or oscillation) produces a pulsation
through the lungs that shears the secretions from the sides of the airways and
propels them toward the mouth where they can be removed by normal coughing.
Unlike traditional chest physio-therapy, which must be performed on the patient
while he or she is placed in a series of often uncomfortable
positions, HFCWO delivered by the SmartVest System treats all lobes of the lung simultaneously and can be
performed with the patient sitting upright. The treatment can be
self-administered, relieving a caregiver of participation in the therapy, and eliminating the
attendant cost of an in-home care provider.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
goal is to make HFCWO treatments as comfortable and convenient as possible so
our patients can better tolerate their airway clearance therapy regimen and
have their treatments performed as readily as possible. We believe HFCWO
therapy is cost-effective because regular treatments have been shown to reduce
lung infections and other complications associated with impaired mucus
transport, the most common of which is pneumonia. This reduces the need for and
duration of hospital stays and medications resulting from secondary
complications such as pneumonia, which may become serious and even
life-threatening. </FONT></P>

<P><FONT SIZE=2><B>Our Business Strengths</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that we have numerous business strengths, including our intellectual
property, the competitive advantages of the SmartVest System, our
industry contacts, a highly-trained and motivated sales staff (nearly all of
whom are respiratory therapists), and our
engineering and manufacturing talent. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
intellectual property represents one of our most significant business
strengths because it allowed us to pioneer an HFCWO device with a single-hose
and flow-through system, resulting in key competitive advantages. We currently
hold 17 issued U.S. patents and 5 issued foreign patents covering the SmartVest
System and its underlying technology. As of March 31, 2010, we had submitted
approximately 35 additional U.S. and foreign patent applications, which are in
varying stages of prosecution. These patents and patent applications offer
coverage in the field of air pressure pulse delivery to a human in support of
airway clearance. We intend to continue to expand our intellectual property
portfolio as our business grows. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe the SmartVest System offers competitive advantages that result in
improved patient comfort and satisfaction. Unlike other HFCWO products that are
primarily dependent upon a two-hose, closed-loop system for attaining
consistent air pulse transmission to the vest and lungs, the SmartVest System
relies on a single-hose, flow-through system. We believe a single-hose,
flow-through system provides greater ease of use and patient
comfort. For example, the single-hose system delivers pulse therapy upward and
inward from the base of the SmartVest across the entire circumference of the
patient&#146;s torso, rather than initiating the pulse from the chest area, which
may be wounded from surgery or otherwise sensitive. The flow-through system
allows the therapy garment of the SmartVest System to maintain consistent
pressure pulses during the patient&#146;s breathing cycle by continuously loading
and releasing air through a patented grid. Additional benefits are described in
detail below in the section entitled &#147;Business&#151;Business Strengths&#151;Competitive
Advantages of SmartVest System.&#148;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
management team has significant business experience and has developed strong
industry relationships through maintaining active memberships in numerous
professional organizations and frequently attending, sponsoring, and
participating in medical conferences. We believe these investments of time and
capital have increased the visibility of the SmartVest System and established a
favorable reputation for Electromed. In addition to relationships developed at
the management level, our staff and contractors, who often play a key role in
the education of current and potential customers, have developed trusted
relationships across the U.S. with physicians and other caregivers.
</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nearly
all of our sales representatives, or Clinical Area Managers, are
respiratory therapists. Many of these individuals have over 20
years of experience in the field of respiratory care, and their relationships
and experience are of great worth to us. In addition, more than 30% of our full-time
employees, including our entire Patient Services Department, are respiratory therapists. These individuals interact with clinics, patients,
patient families, and respiratory therapist trainers to provide a consistent
base of service and support. We believe this network is a key factor in our
ability to gain patients and secure reimbursement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Another
significant business strength is the valuable know-how of our Engineering and
Manufacturing Departments. The experience of the individuals in these
departments helps ensure the efficient production of high-quality products.
These efficiencies in turn allow us to offer our products at competitive prices
and respond quickly to increases in demand for our products. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>Our Growth Strategy </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend to take the following steps to achieve growth:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>Expand and reposition our sales staff
 within the U.S. </I>We select experienced medical
 professionals, usually respiratory therapists, to represent our products in
 the field. Our sales representatives, which we identify as Clinical Area
 Managers (&#147;CAMs&#148;), are employed full-time by Electromed, are assigned an
 exclusive territory, and under the supervision of a regional manager, serve
 discrete geographic areas of the U.S. They are equipped with demonstration
 models, and, where appropriate, arrange for such models to be accessed by patients
 through a demonstration program to physicians, clinics, and hospitals. We
 believe this approach is an effective sales model and ensures that patients,
 physicians, clinics, and hospitals receive reliable and correct training for
 our products. We intend to recruit additional CAMs and expect that doing so
 will increase our domestic sales. As we gain sales and industry contacts
 within each territory, we intend to continue to actively monitor sales
 opportunities by repositioning certain of our current CAMs to serve smaller
 geographic areas. In addition, in June 2008, we entered into a relationship
 with a consultant to assist with obtaining contracts with hospital buying
 groups. We have renewed this contract on an annual basis and we anticipate
 that the agreement will continue to be renewed in successive one-year terms
 or that the relationship will otherwise be continued.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>Establish and strengthen sales relationships in
 Europe and Asia. </I>Internationally, we have
 made sales in more than ten countries. We are actively identifying distributors and other sales opportunities. Our historical practice and continued
 intent includes developing long-term relationships with distributors who
 possess the knowledge, experience, and financial maturity to serve pulmonary
 patients and reliably satisfy payment obligations. Our agreements typically
 require the distributor to meet particular sales thresholds on an annual
 basis. We believe that growing our distributor relationships in Europe and Asia
 will generate revenue growth because it will allow us to establish our SmartVest
 System as the preferred airway clearance therapy product in regions where
 HFCWO therapy is not yet widely used. Attention is given to a distributor
 candidate&#146;s knowledge and experience in serving respiratory physicians and
 patients in the host country. We then designate members of our regulatory
 staff to actively monitor the distributor&#146;s conformity with all applicable
 regulations and good practices in the host country. We support our
 distributors by providing advertising materials and direct training
 opportunities at our headquarters. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>Maintain leadership in product innovation. </I>We
 have pursued our goal of continuous improvement through an active research
 and product development program, and plan to develop and introduce future
 advancements in HFCWO products for patient use. Each product will be designed
 to provide compact, portable, and user-friendly features. In addition, we expect
 to continue enhancing our Single Patient Use Vest&#153; and SmartVest Wrap&reg;, which
 we market to hospitals and health care providers.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Risk Factors</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
business is subject to a number of risks discussed under the heading &#147;Risk
Factors&#148; and elsewhere in this prospectus. The principal risks facing our
business include, among others, risks relating to: our dependence on sales of
the SmartVest System and its ancillary products; implementation of our business
strategy; market opportunities; product development; competition; our
dependence on our direct sales force and third-party distributors; regulatory
compliance; health care reimbursement procedures and limits; our need for
capital and ability to comply with debt covenants; and our ability to protect our
intellectual property and defend against infringement claims. There
are also several risks relating to this offering and the ownership of our
common stock. You should carefully consider these factors, as well as all of
the other information set forth in this prospectus.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>Corporate Information</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Electromed,
Inc. was incorporated in Minnesota in 1992. Our corporate headquarters are located at 500
Sixth Avenue NW, New Prague, Minnesota 56071. Our telephone number is (952)
758-9299. Our websites can be found at <I>www.electromed.com
</I>and <I>www.smartvest.com.</I> The information
on our websites is not part of this prospectus. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>T<A NAME="A1013901A002_V2"></A>HE OFFERING</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="42%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="55%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Common stock
 offered by us</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>shares</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Common stock
 to be outstanding after this offering</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>shares</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Over-allotment
 option</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>The
 underwriter has a 45-day option to purchase up to
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional shares of common stock from us.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Initial
 public offering price</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>per share</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Use of
 proceeds</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>We estimate
 that the net proceeds to us from this offering, after deducting underwriting
 discounts and estimated offering expenses, will be approximately
 $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million (or approximately
 $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million if the underwriter exercises in full
 its option to purchase additional shares to cover overallotments, if any).</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>We intend to
 use the net proceeds from this offering to add employees to our
 Reimbursement, Patient Services and Administrative Departments; to add
 members to our sales force and further develop our focus on institutional
 sales; for research and development; and for general corporate purposes,
 including to satisfy working capital needs. We may also use a portion of our
 net proceeds from this offering to reduce existing indebtedness. See &#147;Use of
 Proceeds&#148; for additional information.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Proposed
 Nasdaq Capital Market symbol</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>ELMD</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless
otherwise indicated, the number of shares of our common stock that will be
outstanding immediately after this offering is based on 6,075,885 shares
outstanding as of December 31, 2009, and excludes 599,567 shares of common stock
issuable upon the exercise of warrants outstanding as of December 31, 2009.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
as otherwise noted, all information in this prospectus assumes:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>an initial
 public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the
 mid-point of the range set forth on the cover of this prospectus; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>no exercise
 of the underwriter&#146;s over-allotment option. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>S<A NAME="A1013901A003_V2"></A>UMMARY FINANCIAL DATA</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following tables set forth, for the periods and dates indicated, our summary
financial data. The summary financial data as of and for our fiscal years ended
June 30, 2009 and 2008 have been derived from our audited consolidated
financial statements included elsewhere in this prospectus. The summary
financial data as of and for the six months ended December 31, 2009 and 2008
have been derived from our unaudited consolidated financial statements included
elsewhere in this prospectus. The unaudited consolidated financial statements
have been prepared on the same basis as our audited consolidated financial
statements and, in the opinion of our management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for those periods. The results included here and
elsewhere in this prospectus are not necessarily indicative of future
performance.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="35%" VALIGN=BOTTOM>
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 </TD>
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 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="14%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="14%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="12%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="12%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Years
 ended June 30,</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Six
 months ended December 31,</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN="CENTER"><FONT SIZE=2>2009</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN="CENTER"><FONT SIZE=2>2008</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN="CENTER"><FONT SIZE=2>2009</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN="CENTER"><FONT SIZE=2>2008</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(dollars
 in thousands, except share and <BR>
 per share data)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)
 <BR>
 (dollars in thousands, except share <BR>
 and per share data)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2><B>Consolidated
 Statements of Operations Data:</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Net revenue</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>12,999</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>8,752</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,451</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,119</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Cost of revenues</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>3,340</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>2,147</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,661</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,443</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Gross profit</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>9,659</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,605</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>4,790</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>4,676</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Operating expenses</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>7,203</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>6,271</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>4,025</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>3,486</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Operating income</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2,456</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>334</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>766</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,190</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Interest income (expense)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(270</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(477</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(122</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(129</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Net income before income taxes</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2,185</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(143</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>644</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,061</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Income tax (expense) benefit</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(830</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>427</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(260</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(400</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Net income</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,355</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>284</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>384</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>661</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT  SIZE=2>Income attributable to noncontrolling interest</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(22</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(16</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(13</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(10</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT  SIZE=2>NET INCOME ATTRIBUTABLE TO ELECTROMED, INC.</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,333</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>268</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>371</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>651</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT  SIZE=2>Earnings per share attributable to Electromed, Inc. common
 shareholders</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Basic</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>0.22</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>0.05</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>0.06</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>0.11</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Diluted</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>0.22</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>0.04</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>0.06</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>0.11</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT  SIZE=2>Weighted-average Electromed, Inc. common shares outstanding</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Basic</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>5,980,383</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>5,430,486</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,059,158</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>5,937,474</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Diluted</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,013,458</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,447,538</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,100,334</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>5,994,632</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="49%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>June
 30,</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>December
 31</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>Actual</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>Pro
 Forma<SUP>(1)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(dollars
 in thousands)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)<BR>
 (dollars in thousands)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2><B>Consolidated Balance Sheet Data:</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Cash and cash equivalents</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>362</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,442</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>350</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Inventories</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,179</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>850</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,307</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Accounts Receivable</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,348</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3,929</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,709</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Current assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>8,413</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,545</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>9,025</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Total assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>11,461</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>9,396</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>12,430</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Current liabilities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>2,098</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>2,627</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>3,486</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Total liabilities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>5,402</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>5,355</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>5,825</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Total stockholders&#146; equity</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,059</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>4,041</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,605</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(1)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>As
 adjusted to reflect the sale of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock in this offering
 at an assumed initial public offering price of
 $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the midpoint of the range on the
 front cover of this prospectus, after deducting the estimated underwriting
 discounts and commissions and estimated offering expenses payable by us. A
 $1.00 increase or decrease in the assumed initial public offering price of
 $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share would increase or decrease,
 respectively, cash and cash equivalents, current assets, total assets and
 total stockholders&#146; equity by
 $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming the number of
 shares offered by us, as set forth on the front cover of this prospectus,
 remains the same, and after deducting the estimated underwriting discounts
 and commissions and estimated offering expenses payable by us.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>7</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>R<A NAME="A1013901A004_V2"></A>ISK FACTORS</B></FONT></P>

<P><FONT SIZE=2><I>An investment in our common stock involves a
high degree of risk. You should carefully consider the following risk factors
and all the other information contained in this prospectus before you decide to
buy our common stock. If any of the following risks related to our business
actually occurs, our business, financial condition and operating results would
be adversely affected. The market price of our common stock could decline due
to any of these risks and uncertainties related to our business, or related to
an investment in our common stock, and you may lose part or all of your
investment.</I></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>Risks Related to Our Business</B></FONT></P>

<P><FONT SIZE=2><I><B>Our SmartVest System
and its ancillary products generate all of our net revenue. If sales of this
family of products were to decline, our net revenue and results of operations
would be adversely affected.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
success is substantially dependent on the sale of the SmartVest&reg; Airway
Clearance System (&#147;SmartVest System&#148;). The SmartVest System and its ancillary
products represented 100% of our net revenue for the fiscal year ended June 30,
2009, and we anticipate it will continue to account for a substantial portion
of our net revenue for the foreseeable future. If sales of the SmartVest System
were to decline in any of our key markets because of decreased demand, adverse
regulatory actions, patent or trademark infringement claims, failure to protect
our intellectual property, manufacturing problems or delays, pricing pressures,
competitive factors or any other reason, our net revenue would be significantly
impacted, which would negatively affect our business, financial condition and
results of operations and may affect our ability to continue operations. </FONT></P>

<P><FONT SIZE=2><I><B>If we do not
successfully implement our business strategy, our business and results of
operations will be adversely affected.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may not be able to successfully implement our business strategy. Any such
failure may adversely affect our business and results of operations. For
example, to implement our business strategy we need to, among other things,
develop and introduce new generations of HFCWO products, achieve lower
manufacturing costs through design improvements, educate health care
professionals and patients about the clinical and cost benefits of our
institutional and home health care SmartVest System, obtain regulatory approval
and reimbursement codes for new or significantly modified products and
applications and maintain effective marketing and sales efforts domestically
and internationally. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
rely on a direct sales force in the U.S. that consists primarily of respiratory therapists and, in June 2008 initiated an
independent contractor relationship with a consultant to assist with our
marketing efforts to hospital buying groups. There is no assurance that these
approaches will improve our sales. Further, using a direct sales force of
medical professionals may be less cost-effective than using a third-party
distributor or hiring salespeople without health care credentials. In addition,
our direct sales model may be ineffective if we are unable to hire and retain
qualified salespeople and if our sales force fails to establish relationships
with physicians or comply with regulatory requirements. We are also seeking to
increase our international sales, including by establishing and strengthening international sales relationships through agreements with third parties, and there is no
guarantee we will be successful in doing so. Moreover, even if we successfully
implement our business strategy, we may not have positive operating results. We
may decide to alter or discontinue aspects of our business strategy and may
adopt different strategies due to business or competitive factors. </FONT></P>

<P><FONT SIZE=2><I><B>The market
opportunities that we currently focus on or expect to develop for our products
may not remain or become as large as we expect or may not develop at all. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
growth of our business is dependent, in large part, upon the development of
market opportunities for our SmartVest System. The market opportunities that we
expect to exist may not develop as expected, or at all. For example, a
substantial percentage of our products are sold to assist patients with cystic
fibrosis (&#147;CF&#148;). If a cure is discovered for CF or other pulmonary conditions
for which our products are currently prescribed, our sales would decrease and
our operating results would be negatively affected. Moreover, even if our
current patient market</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>8</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>remains
consistent and new market opportunities develop as expected, new technologies
and products introduced by our competitors may significantly limit our ability
to capitalize on any such market opportunity. Our failure to maintain our
current market or capitalize on our expected market opportunities would
adversely effect our growth. </FONT></P>

<P><FONT SIZE=2><I><B>If we are unable to
successfully develop and market new generations of HFCWO products or market our
existing products to a broad patient population, we will not remain
competitive.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
future success and our ability to increase net revenue and earnings depend, in
part, on our ability to develop and market new generations of HFCWO products
and market our existing products to a broad patient population. However, we may
not be able to, among other things: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>successfully develop or
 market new products or enhance existing products; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>educate health care
 professionals and patients about the benefits of HFCWO treatments for
 patients with a broad range of pulmonary disorders; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>manufacture, market and
 distribute existing and future products in a cost-effective manner; or</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>obtain required regulatory
 clearances and approvals for new products or significant modifications to
 existing products.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
failure to do any of the foregoing could have a material adverse effect on our
business, financial condition and results of operations. In addition, if any of
our current or future products contain undetected errors or design defects or
do not work as expected for expanded patient populations, our ability to market
these products could be substantially impeded, resulting in lost net revenue,
potential damage to our reputation and delays in obtaining market acceptance of
these products. We cannot assure you that we will continue to successfully
develop and market new or enhanced products or new applications for our
existing products. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Moreover,
extensions to our current line of products, including new or enhanced products
or new applications for our existing products, would require us to obtain new
510(k) clearance or, depending upon the new technology or indications,
premarket approval from the FDA before such products or applications could be
marketed in the U.S. In seeking FDA clearance, we may be required to prove the
safety and efficacy of the new or modified products by clinical trials. We may
be unable to do so, and in such circumstances our products would not receive
regulatory approval. In addition, these clinical trials typically last several
years, and during that time competing products, procedures or therapies may be
introduced that are less expensive and/or more effective than our products and
thus render our products obsolete. If we do not continue to expand our product
portfolio on a timely basis or if those products and applications do not
receive regulatory and market acceptance or become obsolete, we will not grow
our business as we currently expect. </FONT></P>

<P><FONT SIZE=2><I><B>If we fail to
educate physicians and patients as to the distinctive characteristics,
benefits, safety, clinical efficacy and cost-effectiveness of our products, our
sales will not grow.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
certain of the pulmonary conditions that can be treated by our devices can also
be treated by surgery, drugs or other medical devices and therapies, some of
which have a longer history of use and are more widely used by the medical
community, acceptance of our SmartVest System depends, in large part, on our
ability to educate the medical community and patients as to the distinctive
characteristics, benefits, safety, clinical efficacy and cost-effectiveness of
our products compared to alternative products, procedures and therapies.
Physicians may be reluctant to change their medical treatment practices for a
number of reasons, including: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>lack of
 experience with new products; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>lack of
 evidence supporting additional patient benefits; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>perceived
 liability risks generally associated with the use of new products; and </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>costs
 associated with the purchase of new products and equipment. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>9</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Convincing
patients, physicians and other caregivers to dedicate the time and energy
necessary to properly train to use new devices is challenging, and we may not
be successful in these efforts. Accordingly, even if our devices are superior
to alternative treatments, our success will depend on our ability to gain and
maintain market acceptance for our devices. If we fail to do so, our sales will
not grow and our business, financial condition and results of operations will
be adversely affected. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Continued
acceptance of our SmartVest System also depends on our ability to offer
exceptional customer service and training opportunities to purchasers. We have
developed a network of 300 respiratory therapists and nurses who provide
in-home training on a non-exclusive basis. If we are unable to maintain this network,
our ability to provide timely training and orientation would be impaired.
Inability to achieve timely training would be noted by the prescribing
physician, which could adversely affect our standing with such physicians and
discourage them from prescribing our products. Moreover, if we are unable to
provide proper training, patients or physicians may misuse or ineffectively use
the SmartVest System, which may result in unsatisfactory patient outcomes and
negative publicity. </FONT></P>

<P><FONT SIZE=2><I><B>We operate in a very
competitive environment. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
medical device industry is highly competitive. We face direct competition from
Hill-Rom Holdings, Inc. and Respiratory Technologies, Inc., and face indirect
competition from several companies that offer alternative products for airway
clearance. Certain of our competitors have substantially greater capital
resources, larger customer bases, broader product lines, larger sales forces,
greater marketing and management resources, larger research and development
staffs and larger facilities than ours and have more established reputations
with our target customers, as well as global distribution channels that may be
more effective than ours. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
medical device industry is characterized by rapid change resulting from
technological advances and scientific discoveries. Our competitors may develop
and offer technologies and products that are more effective, have better
features, are easier to use, less expensive or more readily accepted by the
marketplace than ours. Their products could make our technology and products
obsolete or noncompetitive. Our competitors may also be able to achieve more
efficient manufacturing and distribution operations than we may be able to and
may offer lower prices than we could offer profitably. We may decide to alter
or discontinue aspects of our business and may adopt different strategies due
to business or competitive factors or factors currently unforeseen, such as the
introduction by our competitors of new products or new medical technologies that
would make our products obsolete or uncompetitive. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, consolidation in the medical device industry could make the
competitive environment more difficult. The industry has recently experienced
some consolidation, and there is a risk that larger companies will enter our
markets. </FONT></P>

<P><FONT SIZE=2><I><B>Our business,
financial condition and results of operations may be adversely affected by the
performance of third-party distributors and consultants and our ability to
maintain these relationships on terms that are favorable to us.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We frequently use third-party distributors to sell our medical devices outside the
U.S., and use a consultant to establish relationships with hospital
buying groups within the U.S. Our distributors operate independently of us, and
we have limited control over their operations, which exposes us to significant
risks. Distributors may not commit the necessary resources to market and sell
our products and may also market and sell competitive products. In addition,
our international distributors may not comply with the laws and regulatory
requirements in their local jurisdictions, which may limit their ability to
market or sell our products. If current or future distributors do not perform
adequately, or if we are unable to locate competent distributors in particular
countries and secure their services on favorable terms, or at all, we may be
unable to increase or maintain our level of net revenue in these markets or
enter new markets, and we may not realize our expected international growth. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
rely to some degree upon third parties to augment our product development and
manufacturing processes. For example, we rely on third parties to supply
certain components for our products, and third parties also assist with our
product development and prototype testing activities. To the extent any of
these parties fail to deliver</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>10</FONT></P>

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<P><FONT SIZE=2>their
components and other services in a timely manner or within required
specifications or pricing, we could be adversely affected and would need to
replace these important relationships. We have established most of these
relationships over a period of more than five years.</FONT></P>

<P><FONT SIZE=2><I><B>To successfully
market and sell our products internationally, we must address additional risks
associated with operations in foreign countries. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that a significant portion of our future business will come from
international sales through increased penetration in countries where we currently
sell our products, combined with expansion into new international markets. We
frequently use third party distributors to sell our products internationally. Our
success internationally is subject to a number of risks, including: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>difficulties
 in penetrating foreign markets in which HFCWO is not a prevalent form of
 treatment or our competitors&#146; products are more established; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>intense
 competition, including competition with products that are not available in
 the U.S. which may claim to offer benefits similar to or better than
 the SmartVest System; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>maintaining
 existing and obtaining new foreign certification and regulatory clearances
 and approvals; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>difficulties
 in managing international operations; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>difficulties
 identifying effective distributors and managing distributor relationships; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>export
 restrictions, trade regulations and foreign tax laws; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>reduced or
 no protection for intellectual property rights in some countries; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>fluctuating
 foreign currency exchange rates; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>political
 and economic instability, including occasional disruptions in overseas
 financial markets. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, foreign sales subject us to numerous stringent U.S. and
foreign laws, including the Foreign Corrupt Practices Act, or FCPA, and
comparable foreign laws and regulations which prohibit improper payments or
offers of payments to foreign governments and their officials and political
parties by U.S. and other business entities for the purpose of
obtaining or retaining business. The FCPA also requires companies with stock
registered with the Securities and Exchange Commission, or SEC, to devise and maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and that improper payments are not
made to foreign officials. We cannot assure you that our internal accounting
controls will be sufficient to protect against unauthorized payments or offers
of payments by one of our employees, consultants, sales agents or distributors,
which could constitute a violation by us of various laws including the FCPA,
even though such parties are not always subject to our control. Safeguards that
we implement to discourage these practices may prove to be ineffective and
violations of the FCPA and other laws may result in severe criminal or civil
sanctions, or other liabilities or proceedings against us, including class action
lawsuits and enforcement actions from the SEC, Department of Justice and
overseas regulators, which could adversely affect our reputation, business,
financial condition and results of operations. Any of these factors, or any
other international factors, could impair our ability to effectively sell our
products outside of the United States, causing our revenue to be lower than
expected and harming our results of operations. There can be no assurance that
we can successfully manage these risks or avoid their effects. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>11</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><I><B>Our ability to
operate our company effectively could be impaired if we lose members of our
senior management team or other key personnel.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
depend on the continued service of key managerial, engineering and
manufacturing personnel, as well as our ability to continue to attract and
retain highly qualified personnel. We compete for such personnel with other
companies, academic institutions, government entities and other organizations.
Any loss or interruption of the services of our key personnel could
significantly reduce our ability to effectively manage our operations and meet
our strategic objectives, because we may be unable to find an appropriate
replacement, if necessary. </FONT></P>

<P><FONT SIZE=2><I><B>We conduct
substantially all of our operations at our facilities located in New Prague, Minnesota, and any
fire, explosion, violent weather conditions or other unanticipated events
affecting our facilities could adversely affect our business,
financial condition and results of operations.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conduct all of our manufacturing and research and development activities, as
well as most of our sales, warehousing and administrative activities, at our
facilities in New Prague, Minnesota. Our facilities are subject to the risk of catastrophic loss due to unanticipated events, such as
fires, explosions or violent weather conditions. These facilities and the
manufacturing equipment that we use to produce our products would be difficult
to replace or repair and could require substantial lead-time to do so. For
example, if we were unable to utilize our existing manufacturing facility, the
use of any new facility would need to be approved by the FDA, which would
result in significant production delays. We may also in the future experience
plant shutdowns or periods of reduced production as a result of regulatory
issues, equipment failure or delays in deliveries. Any disruption or other
unanticipated events affecting our facilities and therefore our
sales, manufacturing, warehousing, research and development and administrative
activities would adversely affect our business, financial condition and results
of operations. We carry insurance for damage to our property and the disruption
of our business. Such insurance coverage, however, may not be sufficient to
cover all of our potential losses and may not continue to be available to us on
acceptable terms, or at all. </FONT></P>

<P><FONT SIZE=2><I><B>Any failure of our
management information systems could harm our business and results of
operations. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
business&#146;s rapid growth may continue to place a significant strain on our
managerial, operational and financial resources and systems. We depend on our
management information systems to actively manage our controlled regulatory and
manufacturing documents. We also depend on our enterprise resource planning
system to actively manage our invoicing, manufacturing and inventory planning,
clinical trial information and quality compliance. We must continually assess
the necessity for any upgrades to our information systems. We may not be able
to successfully implement any such upgrade. The inability of our management
information systems to operate as we anticipate could damage our reputation
with our customers, disrupt our business or result in, among other things,
decreased net revenue and increased overhead costs. As a result, any such
failure could harm our business, financial condition and results of operations.
</FONT></P>

<P><FONT SIZE=2><I><B>We may need to raise
additional capital in the future, which may not be available to us on
acceptable terms, or at all. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may require significant additional debt and equity financing in order to
implement our business strategy. In particular, our capital requirements depend
on many factors, including the amount of expenditures on research and
development and intellectual property, new product development and the cash
required to service our debt. To the extent that our existing or future capital
is insufficient to meet these requirements and cover any losses, we will need
to refinance all or a portion of our existing debt, raise additional funds
through financings or curtail our growth, reduce our costs or sell certain of
our assets. Our ability to raise additional capital will likely depend on,
among others, our performance, our prospects, our level of indebtedness and
market conditions. Any additional equity or debt financing, if available at
all, may be on terms that are not favorable to us. The recent global economic
crisis and related tightening of credit markets has made it more difficult and
more expensive to raise additional capital. If we are unable to access
additional capital on terms acceptable to us, we may not be able to fully
implement our business strategy, which may limit the future growth and
development of our business. Equity financings could result in dilution to our
shareholders, and equity or debt securities issued in future financings may
have rights, preferences and privileges that are senior to those of our common
stock. If our need for capital arises because of
significant losses, the occurrence of these losses may make it more difficult
for us to raise the necessary capital. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>12</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P ALIGN=CENTER><FONT SIZE=2><B>Risks Relating to Regulation</B></FONT></P>

<P><FONT SIZE=2><I><B>Demand for our
products may decrease if reimbursement by governmental or other third-party
payers is reduced or unavailable in the future.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Demand
for our products is partially dependent on whether the patient or hospital will
receive reimbursement from various third-party payers, such as governmental
programs (<I>e.g.</I>, Medicare and Medicaid), private insurance plans and managed-care
plans. The ability of our customers to obtain appropriate reimbursement for
their products and services from government and third-party payers is critical
to our success. The availability of reimbursement affects which products
customers purchase and the prices they are willing to pay. Reimbursement varies
from country to country and can significantly impact the acceptance of new
products. The SmartVest System currently qualifies for reimbursement under
Medicare, Medicaid and private insurance programs in the U.S. and several
foreign countries. Congress recently passed, and on March 23, 2010, President
Obama signed into law, the Patient Protection and Affordable Care Act of 2010
and the Health Care and Education and Reconciliation Act of 2010 (collectively,
the &#147;health care reform laws&#148;), which cause substantial changes to the existing
system for paying for health care in the U.S. While the health care reform laws
do not directly prohibit or reduce reimbursement for our products, the laws
grant various governmental agencies the authority to monitor health care
reimbursement by governmental payers and implement cost-containment measures in
order to reduce the overall cost of health care items and services over the
next ten years. If legislative or administrative changes to U.S. or
international reimbursement practices reduce reimbursement for our products, or
if future products that we develop do not ultimately qualify for reimbursement,
we may experience an adverse impact on demand for such products and the prices
that customers are willing to pay for them. This, in turn, would adversely
affect our business, financial condition and results of operations.</FONT></P>

<P><FONT SIZE=2><I><B>Our products could
be subject to exclusion from Medicare, Medicaid and other government programs if
we do not comply with all applicable standards for reimbursement. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to continue receiving reimbursement under Medicare and Medicaid, we must
show on a periodic basis that we comply with numerous Medicare supplier
standards. These standards generally relate to our methods for filling orders,
overseeing delivery of equipment, responding to questions and complaints,
maintaining and repairing rental equipment, complying with state and federal
licensure and regulatory requirements, honoring product warranties, maintaining
a physical address, and maintaining appropriate liability insurance. If we fail
to meet required standards, whether intentionally or unintentionally, our
ability to obtain reimbursements on a timely basis could be impaired. Delays in
reimbursement could result in significant financial shortfalls. In 2009, we
were alerted to unintentional noncompliance with state licensure requirements
in two states. Consequently, between October 4, 2009 and December 1, 2009, our
Medicare reimbursement payments were suspended. This matter was promptly
addressed and rectified by management and did not result in a loss of revenue
since all Medicare claims were recovered following reinstatement. Although we
believe we have procedures in place to ensure ongoing future compliance with
all applicable standards, we can provide no assurance that such procedures will
be adequate or that we will be able to continuously maintain our eligibility
for reimbursement in the future.</FONT></P>

<P><FONT SIZE=2><I><B>Health care
legislative or administrative changes may result in cost-containment measures
that restrict third-party payer reimbursement practices or otherwise put
downward pressure on the price of our products. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Major
third-party payers for hospital services in the United States and abroad
continue to work to contain health care costs. The introduction of
cost-containment incentives, combined with closer scrutiny of health care
expenditures by governmental agencies, private health insurers and employers,
has resulted in increased discounts and contractual adjustments to hospital
charges for services performed and products used. The focus on reducing health
care costs will likely become even more prevalent in the U.S. due to the health
care reform laws&#146; extension of medical benefits to those who currently lack
insurance coverage, as such measures will be funded, in part, through
cost-containment efforts. In addition, in many foreign countries where our
products are sold, prices are set in accordance with local regulations and also
subject to pressure from cost saving measures. While some of these savings may
come from realizing greater efficiencies in delivering care, improving the
effectiveness of preventive care and enhancing the overall quality of care,
much of the cost savings may come from reducing the cost of care.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>13</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost
of care could be reduced by lowering the level of reimbursement for medical
services or products (including products manufactured and marketed by us), or
by restricting coverage (and, thereby, utilization) of medical services or
products. If payers reduce the amount of reimbursement for a product, it may
cause groups or individuals prescribing the product to discontinue use of the
type of treatment offered by the product, to substitute lower cost products or
to seek additional price related concessions. In either case, a reduction in
the utilization of, or reimbursement for, our products could have a materially
adverse impact on our financial performance. Hospitals or physicians may also
respond to such cost-containment pressures by substituting products or other
treatments that physicians view as more cost-effective, which would further
reduce demand for our products.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, the Medicare Modernization Act of 2003 included a number of changes
in the Medicare payment methodology and conditions for coverage of durable
medical equipment, including proposed competitive bidding requirements for
certain types of durable medical equipment, and the health care reform laws
expand the competitive bidding program to a greater geographical area. If
competitive bidding requirements become applicable to HFCWO devices, Medicare
would no longer provide reimbursement under its fee schedule amount in
designated competitive bidding regions. Instead, only those suppliers selected
through competitive bidding process within each designated region would be
eligible to have their products reimbursed by Medicare. HFCWO devices were not
included in the initial round of items subject to bidding; however, there is no
assurance they will not be included in the future. Inclusion of HFCWO products
in Medicare competitive bidding or other Medicare reimbursement or coverage
reductions could result in our SmartVest System being sold in lesser quantities
or for a lower price, or Medicare reimbursement coverage being discontinued
altogether. Any of these developments could have a material adverse effect on
our results of operations. In addition, if we are not selected to participate
in the competitive bidding program in a particular region, it could have a
material adverse effect on our sales and profitability.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is substantial uncertainty regarding how the health care reform laws in the
U.S. and legislation abroad will affect reimbursement for our products, if at
all. This uncertainty limits our ability to forecast changes that may occur in
the future and to manage our business accordingly. </FONT></P>

<P><FONT SIZE=2><I><B>Our financial
performance may be adversely affected by medical device tax provisions in the
health care reform laws.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
U.S. health care reform laws impose an excise tax on medical device
manufacturers in order to offset, in part, the government&#146;s cost of insuring
additional individuals. Beginning in 2013, a new section of the tax code will
establish an excise tax on all sales of medical devices equal to 2.3% of the
price of the device. If efforts to repeal this tax are not successful, and if
our products are subject to such tax, the additional expense would adversely
affect our profitability and financial condition.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>14</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><I><B>Our business may be
adversely affected if consolidation in the health care industry leads to demand
for price concessions or if we are excluded from being a supplier by a group
purchasing organization or similar entity.</B></I></FONT></P>

<P><FONT SIZE=2><I><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></I>Independent of health
care reform initiatives, we have experienced and expect to experience pricing
pressures on our current products and pipeline products from initiatives aimed
at reducing health care costs by governmental and private third-party payers,
the increasing influence of health maintenance organizations, and regulatory
proposals, both in the United States and in foreign markets. As a result of
cost-containment efforts, there has been a consolidation trend in the health
care industry to create larger companies, including hospitals, with greater
market power. As the health care industry consolidates, competition to provide
products and services to industry participants has become and will continue to
become more intense. This has resulted and will likely continue to result in
greater pricing pressures and the exclusion of certain suppliers from important
markets as group purchasing organizations, independent delivery networks and
large single accounts continue to use their market power to consolidate
purchasing decisions. If a group purchasing organization excludes us from being
one of their suppliers, our long-term net revenue could be adversely impacted.
We expect that market demand, government regulation, third-party reimbursement
policies and societal pressures will continue to change the worldwide health
care industry, which may exert further downward pressure on the prices of our
products. </FONT></P>

<P><FONT SIZE=2><I><B>If we fail to comply
with the U.S. Federal Anti-Kickback Statute or similar state and foreign
anti-fraud laws, we could be subject to criminal and civil penalties and
exclusion from Medicare, Medicaid and other governmental programs. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
provision of the U.S. Social Security Act, commonly referred to as the U.S.
Federal Anti-Kickback Statute, prohibits the offer, payment, solicitation or
receipt of any form of remuneration in return for referring, ordering, leasing,
purchasing or arranging for or recommending the ordering, purchasing or leasing
of items or services payable by Medicare, Medicaid or any other federal health
care program. The Federal Anti-Kickback Statute is very broad in scope and many
of its provisions have not been uniformly or definitively interpreted by
existing case law or regulations. In addition, most of the states in which our
products are sold in the United States have adopted laws similar to the Federal
Anti-Kickback Statute, and some of these laws are even broader than the Federal
Anti-Kickback Statute in that their prohibitions are not limited to items or
services paid for by a federal health care program but, instead, apply
regardless of the source of payment. A number of states also regulate and
require extensive disclosures of financial relationships between device
manufacturers and physicians and other health care providers. Violations of the
Federal Anti-Kickback Statute or such similar state laws may result in
substantial civil or criminal penalties and exclusion from participation in
federal or state health care programs. In addition, many foreign governments
have equivalent statutes with similar penalties. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Federal Anti-Kickback Statute has increasingly been used as a basis for claims
under the Federal False Claims Act, which imposes liability for the submission
of false or fraudulent claims to the federal government. Both the Department of
Justice and private whistleblowers, who are permitted to bring claims on behalf
of the federal government, have successfully alleged that violations of the
Federal Anti-Kickback Statute cause claims to Medicare or Medicaid to be false and
fraudulent on the theory that the Anti-Kickback violation precludes the party
submitting the claim from truthfully asserting compliance with all applicable
laws, which is a condition of payment. Medical device manufacturers have been
subjected to substantial monetary sanctions as a result of False Claims Act
cases.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
of our financial relationships with health care providers and others who
provide products or services to federal health care program beneficiaries are
potentially governed by the Federal Anti-Kickback Statute and similar state and
foreign laws. We believe our operations are in material compliance with the
Federal Anti-Kickback Statute, False Claims Act, and similar state and foreign
laws. However, we cannot assure you that we will not be subject to
investigations or litigation alleging violations of these laws, which could be
time-consuming and costly to us, could divert management&#146;s attention from
operating our business and could prevent health care providers from purchasing
our products, all of which could have a material adverse effect on our
business. In addition, if our arrangements were found to violate the Federal
Anti-Kickback Statute, False Claims Act, or similar state or foreign laws, it
could have a material adverse effect on our business and results of operations.
</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>15</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><I><B>Our business will be
subject to heightened scrutiny by governmental agencies because of new fraud
detection and prevention oversight measures that are part of the health care
reform laws. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
new health care reform laws include a number of changes to federal law and
enforcement activities intended to detect and prevent fraud by medical device
manufacturers and other health care providers. For example, beginning in 2013
our business will be subject to new regulations on transparency and disclosure,
particularly relating to company ownership, finances and transactions with
health care providers such as hospitals and physicians. Our disclosures under
these regulations will be available for public inspection. As a Medicare
supplier, we may also be subject to screening requirements, such as licensure
checks, unscheduled and unannounced site visits, database checks and other
screening measures if certain government agencies determine there to be a risk of
fraud, waste or abuse by suppliers of medical devices. These screening
procedures will not apply until 2012, unless we are required to revalidate our
Medicare enrollment before that time. Additionally, we may be required to
implement more aggressive compliance and ethics programs and adopt stricter
standards for doing business with government health care programs as a
condition of our enrollment in programs such as Medicare and Medicaid. The
specific requirements of the new compliance and ethics programs have yet to be
determined. We will likely have to devote significant resources, including
management attention and financial resources, to ensure compliance with the
government&#146;s new fraud-fighting initiatives. Although these new oversight
measures are not effective immediately, we must begin implementing policies now
in order to ensure that we satisfy our obligations as of the effective date. If
we fail to meet the new fraud prevention and detection standards, we may be
excluded from participating in government health care programs such as Medicare
and Medicaid. If we are unable to participate in government reimbursement
programs, there will be a material adverse effect on our business and results
of operations. </FONT></P>

<P><FONT SIZE=2><I><B>Our business will be
harmed if we fail to obtain necessary clearances or approvals to market our
medical devices. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
products are classified as medical devices and are subject to extensive
regulation in the United States by the FDA and other federal, state and local
authorities. Similar regulatory review, clearance and approval processes also exist in
foreign countries in which our products are marketed. These regulations relate
to product design, development, testing, manufacturing, labeling, sale,
promotion, distribution, import, export and shipping. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although
our SmartVest System has received FDA clearance under the premarket notification
(510(k) clearance process), we would not be permitted to market a new medical
device, or a new use of, or claim for, or significant modification to, our existing
HFCWO products in the United States, without first obtaining either approval of
a Premarket Approval Application (&#147;PMA&#148;) or 510(k) clearance from the FDA or
demonstrating that an exemption applies. The PMA approval process, commonly
used for riskier devices such as those which support or sustain life, requires
an applicant to demonstrate the safety and efficacy of the device based, in
part, on data obtained in clinical trials. The PMA approval process and
clinical trials can be expensive and lengthy and entail significant user fees.
In the 510(k) clearance process, the FDA must determine that the proposed
device is &#147;substantially equivalent&#148; to a device legally on the market, known
as a &#147;predicate&#148; device, with respect to intended use, technology and safety
and efficacy, in order to clear the proposed device for marketing. Clinical
data is sometimes required to support substantial equivalence. The PMA approval
pathway is much more costly and uncertain than the 510(k) clearance process. It
generally takes from one to three years, or even longer, from the time the PMA
is submitted to the FDA until an approval is obtained. The 510(k) clearance
process usually takes from three to 12 months, but it can take longer. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
many of the foreign regions in which we market our products, such as Europe, we
are subject to regulations substantially similar to those of the FDA, although
these foreign regulatory requirements may vary widely from country to country.
In Europe, only medical devices which bear a CE Mark may be marketed. In
addition, were we to convert into direct sales forces in foreign regions, we
could be subject to additional regulations in these markets. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is no guarantee that the FDA will grant 510(k) clearance or PMA approval to new
or modified products that we develop in the future. Delays in receipt or
failures to receive desired marketing clearances or approvals from the FDA or
other federal, state or foreign regulatory authorities may adversely affect our
ability to market our products and may have a significant adverse effect on our
overall business. Moreover, the value of existing clearances or approvals can
be eroded if safety or efficacy problems develop. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>16</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><I><B>Modifications to our
products may require new regulatory approvals or clearances or may require us
to recall or cease marketing our modified products until approvals or
clearances are obtained.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Modifications
to our products may require new approvals or clearances in the United States
and abroad, such as PMA approvals or 510(k) clearances in the United States and
CE Marks in Europe. The FDA requires device manufacturers to initially make a
determination of whether or not a modification requires a new approval,
supplement or clearance. A manufacturer may determine that a modification does
not significantly affect safety or efficacy or does not represent a major
change in its intended use, so that no new U.S. or foreign approval or
clearance is necessary. We have made modifications that we determined do not require
approval or clearance. However, the FDA and foreign authorities can review a
manufacturer&#146;s decision, including any of our decisions, and may disagree. If
the FDA or other foreign authority disagrees and requires new approvals or
clearances for the modifications, we may be required to recall and to stop
marketing our products as modified, which could require us to redesign our
products and harm our operating results. In these circumstances, we may also be
subject to significant enforcement actions. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we determine that a modification to an FDA-cleared device could
significantly affect its safety or efficacy, or would constitute a major change
in its intended use, then we must obtain a new PMA or PMA supplement approval
or 510(k) clearance. Where we determine that modifications to our products
require a new PMA or PMA supplemental approval or 510(k) clearance, we may not
be able to obtain those additional approvals or clearances for the
modifications or additional indications in a timely manner, or at all. For
those products sold in Europe, we must notify our European Union Notified Body
if significant changes are made to the products or if there are substantial
changes to our quality assurance systems affecting those products. Delays in
obtaining required future approvals or clearances would adversely affect our
ability to introduce new or enhanced products in a timely manner, which in turn
would harm our future growth. </FONT></P>

<P><FONT SIZE=2><I><B>We may fail to
comply with continuing post-market regulatory requirements of the FDA and other
federal, state or foreign authorities and become subject to substantial
penalties, or our products may subsequently prove to be unsafe, forcing us to
recall or withdraw such products from the market.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even
after product clearance or approval, we must comply with continuing regulation
by the FDA and other federal, state or foreign authorities, including the FDA&#146;s
Quality System Regulation requirements, which obligate manufacturers to adhere
to stringent design, testing, control, documentation and other quality
assurance procedures during the design and manufacture of a device. We are also
subject to medical device reporting regulations in the United States and
abroad. For example, we are required to report to the FDA if our products may
have caused or contributed to a death or serious injury or malfunction in a way
that would likely cause or contribute to a death or serious injury if the
malfunction were to recur. We must report corrections to the FDA where the
correction was initiated to reduce a risk to health posed by the device or to
remedy a violation of the U.S. Food, Drug, and Cosmetic Act caused by the
device that may present a risk to health, and we must maintain records of other
corrections. The FDA closely regulates promotion and advertising, and our
promotional and advertising activities may come under scrutiny. If any medical
device reports we file with the FDA regarding death, serious injuries or
malfunctions indicate or suggest that one of our products presents an
unacceptable risk to patients, including when used off-label by physicians, we
may be forced to recall our product or withdraw it from the market. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
failure to comply with continuing regulation by the FDA or other federal, state
or foreign authorities could result in enforcement action that may include
regulatory letters requesting compliance action, suspension or withdrawal of
regulatory clearances or approvals, product recall, modification or termination
of product marketing, entering into a consent decree, seizure and detention of
products, paying significant fines and penalties, criminal prosecution and
similar actions that could limit product sales, delay product shipment and harm
our profitability. Any of these actions could materially harm our business,
financial condition and results of operations.</FONT></P>

<P><FONT SIZE=2><I><B>The possibility of
non-compliance with manufacturing regulations raises uncertainties with respect
to our ability to manufacture our products. Our failure to meet strict
regulatory requirements could require us to pay fines, incur other costs or
even close our facilities. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
FDA and other federal, state and foreign regulatory authorities require that
our products be manufactured according to rigorous standards, including, but
not limited to, Quality System Regulations, Good Manufacturing
Practices and International Standards Organization, or ISO, standards. These
federal, state and foreign regulatory authorities conduct periodic audits of
our facilities and our processes to monitor our compliance with applicable
regulatory standards. If a regulatory authority finds that we fail to comply
with the appropriate regulatory standards, it may require product validation,
new processes and procedures or shutdown of our manufacturing operations. It
may impose fines on us or delay or withdraw clearances or other regulatory
approvals. If a regulatory authority determines that our non-compliance is
severe, it may impose other penalties including limiting our ability to secure
approvals or clearances for new products. In addition, many of the improvements we make to
our manufacturing process must first be approved or cleared by the FDA and other federal,
state and foreign regulatory authorities. Our failure to obtain the necessary
approvals and clearances may limit our ability to improve the way in which we manufacture our
products. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>17</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P ALIGN=CENTER><FONT SIZE=2><B>Risks Relating to Our Intellectual Property
and Potential Litigation</B></FONT></P>

<P><FONT SIZE=2><I><B>We have been and may
in the future become subject to claims that our products violate the patent or
intellectual property rights of others, which could be costly and disruptive to
us. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
operate in an industry that is susceptible to significant patent litigation,
and in recent years, it has been common for companies in the medical device
industry to aggressively challenge the rights of other companies to prevent the
marketing of new or existing devices. As a result, we or our products may
become subject to patent infringement claims or litigation. Further, one or
more of our patents or applications may become subject to interference
proceedings declared by the U.S. Patent and Trademark Office, or USPTO, or the
foreign equivalents thereof to determine the priority of claims to inventions.
The defense of intellectual property suits, USPTO interference proceedings or
the foreign equivalents thereof, as well as related legal and administrative
proceedings, are both costly and time consuming and may divert management&#146;s
attention from other business concerns. An adverse determination in litigation
or interference proceedings to which we may become a party could, among other
things: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>subject us
 to significant liabilities to third parties, including treble damages; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>require
 disputed rights to be licensed from a third party for royalties that may be
 substantial; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>require us
 to cease using such technology; or </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>prohibit us
 from selling certain of our products. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
of these outcomes could have a material adverse effect on our business,
financial condition and results of operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hill-Rom
Services, Inc., Advanced Respiratory, Inc.
(&#147;ARI&#148;), Hill-Rom Company, Inc. and Hill-Rom Services Pte. Ltd. (collectively,
&#147;Hill-Rom&#148;), subsidiaries of Hill-Rom Holdings, Inc., brought an action on August 21, 2009, against us in the Southern
District of Indiana alleging that our use of the term &#147;SmartVest,&#148; for which we
had been granted trademark protection, infringes on its alleged trademarks &#147;The
Vest&#148; and &#147;Vest.&#148; We have answered the allegations and brought counter-claims
against Hill-Rom alleging, among other things, defamation and libel. Litigation
is inherently unpredictable and risky and an adverse result could have a
material adverse effect on our results of operations or financial position. If
Hill-Rom is successful in its claim, we may be required to discontinue use of
the SmartVest trademark, which would negatively impact product recognition and
may result in higher marketing expenses. In addition, the costs associated with
defending our trademark currently impacts our working capital. This and any other
litigation may impact our results of operations in the future. For additional
information about previous and pending litigation, see &#147;Business&#151;Legal
Proceedings.&#148; </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>18</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><I><B>We may initiate
patent and trademark litigation claims in the U.S. and foreign jurisdictions in
the future to protect our intellectual property. If we are unsuccessful in these
claims, our business, financial condition and results of operations could be
adversely affected. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may initiate litigation to assert claims of infringement, enforce our patents
and trademarks, protect our trade secrets and know-how, or determine the
enforceability, scope and validity of the proprietary rights of others. Any
lawsuits that we initiate could be expensive, time consuming and divert
management&#146;s attention from other business concerns. Furthermore, litigation
may provoke third parties to assert claims against us and may put our patents
and trademarks at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not being issued. Further, we may not prevail in
lawsuits that we initiate, and the damages or other remedies awarded, if any,
may not be commercially valuable. The occurrence of any of these events may
have a material adverse effect on our business, financial condition and results
of operations. </FONT></P>

<P><FONT SIZE=2><I><B>If our patents and
other intellectual property rights do not adequately protect our products, we
may lose market share to our competitors and be unable to operate our business
profitably. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Patents
and other proprietary rights are essential to our business, and our ability to
compete effectively with other companies depends on the proprietary nature of
our technologies. We also rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop, maintain and
strengthen our competitive position. We pursue a policy of generally obtaining
patent protection in both the United States and key foreign countries for
patentable subject matter in our proprietary devices and also attempt to review
third-party patents and patent applications to the extent publicly available to
develop an effective patent strategy, avoid infringement of third-party
patents, identify licensing opportunities and monitor the patent claims of
others. Our patent portfolio includes 17 issued U.S. patents and 5 issued
foreign patents, the first of which expires in the United States in July 2013
and in Canada in August 2016, and, as of March 31, 2010, we had approximately
35 pending U.S. and foreign patent applications. We cannot assure you that any
pending or future patent applications will result in issued patents, that any
current or future patents issued or licensed to us will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
a competitive advantage to us or prevent competitors from entering markets
which we currently serve. Any required license may not be available to us on
acceptable terms, if at all. In addition, some licenses may be non-exclusive,
and therefore our competitors may have access to the same technologies as we
do. Furthermore, we may have to take legal action in the future to protect our
trade secrets or know-how, or to defend them against claimed infringement of
the rights of others. Any legal action of that type could be costly and
time-consuming to us, and we cannot assure you that such actions will be
successful. The invalidation of key patents or proprietary rights which we own
or unsuccessful outcomes in lawsuits to protect our intellectual property may
have a material adverse effect on our business, financial condition and results
of operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
laws of foreign countries may not protect our intellectual property rights to
the same extent as the laws of the United States. If we cannot adequately
protect our intellectual property rights in these foreign countries, our
competitors may be able to compete more directly with us, which could adversely
affect our competitive position and, as a result, our business, financial
condition and results of operations. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>Risks Relating to Our Debt</B></FONT></P>

<P><FONT SIZE=2><I><B>Our debt may
adversely affect our financial condition and operating activities. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2009, we had total outstanding debt of approximately
$3,880,000, including obligations under term debt and a revolving line of
credit with U.S. Bank, National Association (&#147;U.S. Bank&#148;) and capital lease
arrangements, and the ability to incur additional indebtedness under our
revolving line of credit with U.S. Bank. As of December 31, 2009, we owed
approximately $1,268,000 on our revolving line of credit and the total
outstanding principal and interest thereunder is due on November 30, 2010, if
the line of credit is not renewed. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on our current level of indebtedness and interest rates applicable as of
December 31, 2009, and after giving effect to this offering and the anticipated
application of the net proceeds therefrom, we expect our annual interest
expense to be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for
the year ending June 30, 2010. Any significant increase in the </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>19</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>amount of debt
or any decline in the amount of cash available to make interest payments may
require us to divert funds identified for other purposes for debt service and
could impair our liquidity position. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
indebtedness has other significant consequences to you, including: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>requiring us
 to use a portion of our cash flow from operations to pay interest and
 principal on our debt, thereby reducing the availability of our cash flow to
 fund working capital, sales and marketing efforts, research and development,
 including clinical trials, acquisitions and other general corporate purposes;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>limiting our
 ability to obtain additional financing in the future for working capital,
 sales and marketing efforts, research and development, including clinical
 trials, acquisitions and other general corporate purposes; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>subjecting
 us to the risk of interest rate increases on our indebtedness with variable
 interest rates; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>subjecting
 us to the possibility of an event of default under the financial and
 operating covenants contained in the agreements governing our indebtedness;
 and </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>limiting our
 ability to adjust to rapidly changing market conditions, reducing our ability
 to withstand competitive pressures and making us more vulnerable to a
 downturn in general economic conditions than our competitors with less debt. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I><B>Our inability to
generate sufficient cash flow may require us to seek additional financing. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we are unable to generate sufficient cash flow from operations in the future to
service our debt, we may be required to refinance all or a portion of our
existing debt, sell assets, borrow more money or raise capital through sales of
our equity securities. If these or other kinds of additional financing become
necessary, we cannot assure you that we could arrange such financing on terms
that are acceptable to us, or at all. </FONT></P>

<P><FONT SIZE=2><I><B>We may incur
additional indebtedness from time to time to finance research and development,
including clinical trials, acquisitions, investments or strategic alliances or
for other purposes. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may incur substantial additional indebtedness in the future. Although the
agreement governing our credit facility contains restrictions on the incurrence
of additional indebtedness, these restrictions are subject to a number of
qualifications and exceptions, and the indebtedness incurred in compliance with
these restrictions could be substantial. For example, as of December 31, 2009,
we had $1,259,000 of available borrowings under our revolving line of credit
and we are permitted to incur up to an additional $2.5 million of subordinated
debt. If we incur additional debt above the levels currently in effect, the
risks associated with our leverage would increase. </FONT></P>

<P><FONT SIZE=2><I><B>We are subject to
restrictive debt covenants, which may restrict our operational flexibility. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
agreement governing our credit facility contains various financial and
operating covenants, including, among other things, restrictions on our ability
to change the nature of our business, incur additional indebtedness, pay
dividends on and redeem any capital stock or other equity, make other
restricted payments, grant liens, enter into certain related-party transactions, sell
our assets or enter into consolidations, mergers and transfers of all or
substantially all of our assets, or change our management team. The agreement
also requires us to maintain particular amounts of key-man and property
insurance coverage, deliver financial statements, maintain specified financial
ratios and satisfy financial condition tests. Our ability to meet those
financial ratios and tests can be affected by events beyond our control, and we
cannot assure you that we will continue to meet those ratios and tests. A
breach of any of these covenants, ratios, tests or restrictions could result in
an event of default under our notes. Agreements governing any additional
indebtedness we incur in the future may contain similar or more stringent
covenants. Covenants in our existing or future debt agreements could limit our
ability to take actions that we believe are in our best interests. If an event
of default exists under our current credit facility or any additional
indebtedness we incur in the future, the lenders under such agreements could
elect to declare all amounts outstanding thereunder to be immediately due and
payable. If any such lender accelerates the payment of one of our
indebtednesses, we cannot assure
you that our assets would be sufficient to repay in full that indebtedness and
our other indebtedness that would become due as a result of any acceleration. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>20</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2><I><B>Our obligations
under our credit facility are secured by substantially all of our assets. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
obligations under our credit facility are secured by liens on substantially all
of our assets and guaranteed by our wholly-owned subsidiary, Electromed
Financial, LLC. If we become insolvent or are liquidated, or if repayment of
any of our outstanding loans is accelerated and we cannot repay such
indebtedness, the lenders will be entitled to exercise the remedies available
to a secured lender under applicable law and the applicable agreements and
instruments, including the right to foreclose on substantially all of our
assets and those of our subsidiary. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>Risks Relating to this Offering and Ownership
of Our Common Stock</B></FONT></P>

<P><FONT SIZE=2><I><B>Because there has
not been a public market for our common stock and our stock price may be
volatile, you may not be able to resell your shares at or above the initial
public offering price.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to this offering, you could not buy or sell our common stock publicly. We
cannot predict the extent to which investors&#146; interests will lead to an active
trading market for our common stock or whether the market price of our common
stock will be volatile following this offering. If an active trading market
does not develop, you may have difficulty selling any of our common stock that
you buy. The initial public offering price for our common stock was determined
by negotiations between the underwriter and us and may not be indicative of
prices that will prevail in the open market following this offering.
Consequently, you may not be able to sell our common stock at prices equal to
or greater than the price you paid in this offering. In addition, the stock markets
have been extremely volatile. In addition to the factors discussed elsewhere in
this section, the following factors, most of which are outside of our control,
could cause the market price of our common stock to decrease significantly from
the price you pay in this offering:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>variations
 in our quarterly operating results;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>decreases in
 market valuations of similar companies; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>fluctuations
 in stock market prices and volumes.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I><B>If equity research
analysts do not publish research or reports about our business or if they issue
unfavorable research or downgrade our common stock, the price of our common
stock could decline.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
trading market for our common stock will rely in part on the research and
reports that equity research analysts publish about us and our business. We do
not control these analysts. Equity research analysts may elect not to provide
research coverage of our common stock, which may adversely affect the market
price of our common stock. If equity research analysts do provide research
coverage of our common stock, the price of our common stock could decline if
one or more of these analysts downgrade our common stock or if they issue other
unfavorable commentary about us or our business. If one or more of these analysts
ceases coverage of our company, we could lose visibility in the market, which
in turn could cause our stock price to decline.</FONT></P>

<P><FONT SIZE=2><I><B>Future sales of our
common stock by our existing shareholders could cause our stock price to
decline.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
our shareholders sell substantial amounts of our common stock in the public
market, the market price of our common stock could decrease significantly. The
perception in the public market that our shareholders might sell shares of our
common stock could also depress the market price of our common stock. Our
directors, executive officers, and shareholders prior to this offering are
subject to lock-up agreements that restrict their ability to transfer their
shares of our common stock for a period of time following this offering. In
addition, as of December 31, 2009 we had granted warrants to purchase 599,567
shares of common stock, which shares will be subject to restrictions on
transfer when they are issued. The market price of shares of our common stock
may decrease significantly when the restrictions on resale by our existing
shareholders lapse and our shareholders and warrant holders are able to sell shares of our
common stock into the market. A decline in the price of shares of our common
stock might impede our ability to raise capital through the issuance of
additional shares of our common stock or other equity securities, and may cause
you to lose part or all of your investment in our shares of common stock.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>21</FONT></P>

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<P><FONT SIZE=2><I><B>We have broad
discretion in the use of the proceeds of this offering and may apply the
proceeds in ways with which you do not agree.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend to use the net proceeds from this offering to add employees to our
Reimbursement, Patient Services and Administrative Departments; to add members
to our sales force and further develop our focus on institutional sales; for
research and development; and for general corporate purposes, including to
satisfy working capital needs. We may also use a portion of our net proceeds
from this offering to reduce existing indebtedness. We have not, however,
determined the exact allocation of these net proceeds among the various uses
described in this prospectus. Our management will have broad discretion over
the use and investment of these net proceeds, and, accordingly, you will have
to rely upon the judgment of our management with respect to our use of these
net proceeds, with only limited information concerning management&#146;s specific
intentions. You will not have the opportunity, as part of your investment
decision, to assess whether we use the net proceeds from this offering
appropriately. We may place the net proceeds in investments that do not produce
income or that lose value, which may cause our stock price to decline.</FONT></P>

<P><FONT SIZE=2><I><B>Our directors and
executive officers will continue to have substantial control over us after this
offering and could limit your ability to influence the outcome of key
transactions, including changes of control.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
anticipate that our executive officers and directors and entities affiliated with
them will, in the aggregate, beneficially own approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of our outstanding
common stock following the completion of this offering, assuming the
underwriter does not exercise its over-allotment option. Our executive
officers, directors and affiliated entities, if acting together, would be able
to control or influence significantly all matters requiring approval by our
shareholders, including the election of directors and the approval of mergers
or other significant corporate transactions. These shareholders may have
interests that differ from yours, and they may vote in a way with which you
disagree and that may be adverse to your interests. The concentration of
ownership of our common stock may have the effect of delaying, preventing or
deterring a change of control of our company, could deprive our shareholders of
an opportunity to receive a premium for their common stock as part of a sale of
our company and may affect the market price of our common stock. This
concentration of ownership of our common stock may also have the effect of
influencing the completion of a change in control that may not necessarily be
in the best interests of all of our shareholders.</FONT></P>

<P><FONT SIZE=2><I><B>Various factors may
inhibit a takeover that shareholders consider favorable.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
the closing of this offering, provisions of our Articles of Incorporation and
Bylaws, applicable provisions of Minnesota law and various other factors may
delay or discourage transactions involving an actual or potential change in our
control or change in our management, including transactions in which
shareholders might otherwise receive a premium for their shares, or
transactions that our shareholders might otherwise deem to be in their best
interests. The factors that may discourage takeover attempts or make them more
difficult include: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>Articles of Incorporation and Bylaws</I>:
 Our Articles of Incorporation and Bylaws permit our Board of Directors to
 issue up to 10,000,000 shares of common stock, and to authorize from among
 such shares, one or more classes or series, with the rights, preferences and
 limitations as they may designate, including the right to approve an
 acquisition or other change in our control; provide that the authorized
 number of directors may be increased by resolution of the Board of Directors
 between regular meetings of shareholders; provide that all vacancies other
 than those resulting from a newly created directorship, may, except as
 otherwise required by law, be filled by the affirmative vote of a majority of
 directors then in office, even if less than a quorum; require that any action
 to be taken by our stockholders by written action be unanimous; and do not
 provide for cumulative voting rights (therefore allowing the holders of a
 majority of the shares of common stock entitled to vote in any election of
 directors to elect all of the directors standing for election, if they should
 so choose). </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>22</FONT></P>

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<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>Minnesota Business Corporation Act</I>:
 Certain provisions of the Minnesota Business Corporation Act could discourage
 business combinations and acquisitions of controlling blocks of our shares.
 These provisions may have the effect of entrenching our management team and
 may deprive you of the opportunity to sell your shares to potential acquirers
 at a premium over prevailing prices. This potential inability to obtain a
 control premium could reduce the price of our common stock. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>Issuance of Warrants</I>:
 We have issued warrants to purchase common stock to certain lenders that will
 require us, in the event of a reorganization, reclassification, merger,
 consolidation, or sale of substantially all of the assets of the Company, to
 ensure these persons are able to receive the kind and amount of securities or
 assets upon exercise that they would have been entitled to receive if they exercised
 immediately prior to the transaction. These payments may have the effect of
 increasing the costs of acquiring Electromed, thereby discouraging future
 takeover attempts. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>Employment Agreements</I>:
 We have employment agreements with each of our executive officers which will
 remain in effect following the offering and contain severance provisions that
 are triggered if the executive resigns following a change in control of the
 Company or is terminated without cause. These agreements may have the effect
 of increasing the costs of acquiring Electromed, thereby discouraging future
 takeover attempts.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>For a more
 detailed description of the potential anti-takeover effect of provisions in
 our governing documents and the Minnesota Business Corporation Act, please
 see &#147;Description of Capital Stock &#151; Anti-Takeover Provisions.&#148; </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I><B>You will experience
immediate and substantial dilution in the net tangible book value of the common
stock you purchase in this offering.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you purchase shares of our common stock in this offering, you will experience
immediate dilution of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share (assuming an offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share),
because the price that you pay will be substantially greater than the adjusted
net tangible book value per share of common stock that you acquire. This
dilution is due in large part to the fact that our earlier investors paid
substantially less than the price of the shares being sold in this offering
when they purchased their shares of our capital stock. In addition, if outstanding
warrants to purchase our common stock are exercised, you will experience
additional dilution. See &#147;Dilution.&#148; </FONT></P>

<P><FONT SIZE=2><I><B>We can issue shares
of preferred stock without shareholder approval, which could adversely affect
the rights of common shareholders. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Articles of Incorporation permit us to establish the rights, privileges,
preferences and restrictions, including voting rights, of future series of
stock and to issue such stock without approval from our shareholders.
The rights of holders of our common stock may suffer as a result of the rights
granted to holders of preferred stock that may be issued in the future. In
addition, we could issue preferred stock to prevent a change in control of our
company, depriving common shareholders of an opportunity to sell their stock at
a price in excess of the prevailing market price.</FONT></P>

<P><FONT SIZE=2><I><B>As a result of our
becoming a public company, we will become subject to additional reporting and
corporate governance requirements that will require additional management time,
resources and expense. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
our inception in 1992, we have operated our business as a private company. In
connection with this offering, we will become obligated to file with the U.S.
Securities and Exchange Commission annual and quarterly information and other
reports that are specified in the U.S. Securities Exchange Act of 1934. We will
also become subject to other reporting and corporate governance requirements,
including requirements of the Nasdaq Capital Market and the Sarbanes-Oxley Act
of 2002, as amended, and the rules and regulations promulgated thereunder, all
of which will impose significant compliance and reporting obligations upon us.
In particular, we will be required to do the following: </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>23</FONT></P>

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<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>create or
 expand the roles and duties of our Board of Directors, our Board committees
 and management; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>institute a
 more comprehensive compliance function; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>prepare and
 distribute periodic public reports in compliance with our obligations under
 the federal securities laws; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>evaluate,
 test and implement internal controls over financial reporting to enable
 management to report on, and our independent registered public accounting
 firm to make any required attestations to, such internal controls as required by Section 404 of the
 Sarbanes-Oxley Act; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>involve to a
 greater degree outside counsel and accountants in the activities listed
 above; and </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>establish
 new internal policies, such as those relating to disclosure controls and
 procedures and insider trading. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Complying
with these rules and regulations may significantly increase our legal,
accounting, reporting, compliance and other expenses, make some activities more
time-consuming and costly, and divert our management&#146;s attention away from the
operation of our businesses. We also expect these rules and regulations may
make it more difficult and more expensive for us to obtain director and officer
liability insurance and we may be required to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar
coverage. As a result, we may experience more difficulty attracting and
retaining qualified individuals to serve on our Board of Directors or as
executive officers. We cannot predict or estimate the amount of additional costs
we may incur as a result of these requirements or the timing of such costs.
Furthermore, our current management does not have prior experience in running a
public company. The costs of becoming public and the diversion of management&#146;s
time and attention may have a material adverse effect on our business,
financial condition and results of operations.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally,
we may not be successful in complying with these obligations. Failure to comply
with the additional reporting and corporate governance requirements could lead
to fines imposed on us, suspension or delisting from the Nasdaq Capital Market,
deregistration under the Exchange Act and, in the most egregious cases,
criminal sanctions could be imposed. </FONT></P>

<P><FONT SIZE=2><I><B>Our internal
controls over financial reporting may not be effective and our independent
registered public accounting firm may not be able to certify as to their
effectiveness, which could have a significant and adverse effect on our
business and reputation. </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a newly public reporting company, we are in a continuing process of developing,
establishing, and maintaining internal controls and procedures that will allow
our management to report on, and our independent registered public accounting
firm to attest to, our internal controls over financial reporting if and when
required to do so under Section 404 of the Sarbanes-Oxley Act of 2002. Our
management will be required to report on our internal controls over financial
reporting under Section 404 commencing in fiscal year 2011. If we fail to
achieve and maintain the adequacy of our internal controls, we would not be
able to conclude on an ongoing basis that we have effective internal controls
over financial reporting in accordance with Section&nbsp;404. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection
 with its audit of our financial statements for the years ended June 30, 2009 and 2008, our
 independent registered public accounting firm identified a material weakness in our internal
 controls over financial reporting. The material weakness resulted from certain issues surrounding the
 monitoring of accounting recognition matters and the accounting for revenue recognition, share-based
 transactions and income taxes, among certain other items that resulted in significant adjustments to our
 financial statements. The issues that resulted from these weaknesses were properly addressed before the
 completion of our consolidated financial statements. Our board of directors and management have developed a
 plan to address this material weakness, which involves adding financial personnel with training and experience
 in accounting and financial reporting, and relying more heavily on outside accounting consultants. We have added
 a senior staff accountant and intend to implement additional remedial measures.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>24</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
cannot provide assurance that the measures we have taken to date or any future
measures will adequately remediate the material weakness identified by our
independent registered public accounting firm. In addition, we cannot be
certain that additional material weaknesses in our internal controls will not
be discovered in the future. Any failure to remediate the material weakness
identified above, or to implement improved controls, or difficulties
encountered in the implementation of controls, could affect our ability to
comply with Section 404. If we are not able to implement the requirements of
Section&nbsp;404 in a timely manner or with adequate compliance, our independent
registered public accounting firm may not be able to certify as to the
effectiveness of our internal control over financial reporting (if required),
we may be unable to report our financial results accurately or in a timely
manner and we may be subject to sanctions or investigation by regulatory
authorities, such as the SEC. As a result, there could be a negative reaction
in the financial markets due to a loss of confidence in the reliability of our
financial statements. In addition, we may be required to incur costs in
improving our internal control system and the hiring of additional personnel.
Any such action could negatively affect our results of operations. </FONT></P>

<P><FONT SIZE=2><I><B>We do not intend to
declare dividends on our stock after this offering.</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently intend to retain all future earnings for the operation and expansion
of our business and, therefore, do not anticipate declaring or paying cash
dividends on our common stock in the foreseeable future. Any payment of cash
dividends on our common stock will be at the discretion of our Board of
Directors and will depend upon our results of operations, earnings, capital
requirements, financial condition, future prospects, contractual restrictions
and other factors deemed relevant by our Board of Directors. Therefore, you
should not expect to receive dividend income from shares of our common stock.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>25</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><A NAME="A1013901A005_V2"></A><FONT SIZE=2><B>INFORMATION REGARDING FORWARD-LOOKING
STATEMENTS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
prospectus contains forward-looking statements that involve risks and
uncertainties. In some cases, you can identify forward-looking statements by
the following words: &#147;anticipate,&#148; &#147;believe,&#148; &#147;continue,&#148; &#147;could,&#148; &#147;estimate,&#148;
&#147;expect,&#148; &#147;intend,&#148; &#147;may,&#148; &#147;ongoing,&#148; &#147;plan,&#148; &#147;potential,&#148; &#147;predict,&#148;
&#147;project,&#148; &#147;should,&#148; &#147;will,&#148; &#147;would,&#148; or the negative of these terms or other
comparable terminology, although not all forward-looking statements contain
these words. These forward-looking statements include, among others, statements
related to our business and growth strategy, our business strengths and competitive advantages, our intent to increase
international sales and distribution, our expectation that our products will be
prescribed for an increasing number of conditions, our plan to continue to
increase investment in research and development, our intent to continue
improvement of our product offerings through innovation, our belief that we
will continue to expand our intellectual property portfolio, and our
anticipated revenues and capital requirements. These statements involve known
and unknown risks, uncertainties and other factors that may cause our results
or our industry&#146;s actual results, levels of activity, performance or
achievements to be materially different from the information expressed or
implied by these forward-looking statements. Forward-looking statements are
only predictions and are not guarantees of performance. These statements are
based on our management&#146;s beliefs and assumptions, which in turn are based on
currently available information. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Important
factors that could cause the foregoing forward-looking statements to differ
from management&#146;s current expectations include, but are not limited to:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>our
 dependence on sales of the SmartVest System and ancillary products;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>our ability
 to educate physicians and patients about the advantages of our products;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>the
 competitive nature of our market;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>the risks
 associated with expansion into international markets;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>changes to
 Medicare, Medicaid, or private insurance reimbursement policies;</FONT></P>
 </TD>
 </TR>

<TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>changes
 to health care laws;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>changes
 affecting the medical device industry; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>our need to
 maintain regulatory compliance and to gain future regulatory approvals and clearances;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>our ability
 to protect our intellectual property;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>the outcome
 of current and future litigation;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>general
 economic and business conditions; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>the other
 risks described under &#147;Risk Factors&#148; in this prospectus. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should read these risk factors and the other cautionary statements made in this
prospectus as being applicable to all related forward-looking statements
wherever they appear in this prospectus. We cannot assure you that the
forward-looking statements in this prospectus will prove to be accurate.
Furthermore, if our forward-looking statements prove to be inaccurate, the
inaccuracy may be material. You should read this prospectus completely. Other
than as required by law, we undertake no obligation to update these forward-looking
statements, even though our situation may change in the future. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>26</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><A NAME="A1013901A006_V2"></A><FONT SIZE=2><B>USE
OF PROCEEDS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
estimate that the net proceeds from our sale of shares of common stock in this
offering will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million, or
approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million if the underwriter
exercises its over-allotment option in full. This estimate is based upon an
assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per
share, the mid-point of our filing range, less estimated underwriting discounts
and commissions and offering expenses payable by us. A $1.00 increase or
decrease in the assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share would increase or decrease,
respectively, the net proceeds to us from this offering by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
million, assuming the number of shares offered by us, as set forth on the front
cover of this prospectus, remains the same and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend to use the net proceeds from this offering to add employees to our
Reimbursement, Patient Services and Administrative Departments; to add members
to our sales force and further develop our focus on institutional sales; for
research and development; and for general corporate purposes, including to
satisfy working capital needs.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may also use a portion of our net proceeds from this offering to reduce
existing indebtedness under our credit facility with U.S. Bank, National
Association (&#147;U.S. Bank&#148;), which we entered into in December 2009 for the
purpose of refinancing existing indebtedness and for general corporate
purposes. As of December 31, 2009, we had total outstanding debt of
approximately $3,755,000 under the U.S. Bank credit facility, consisting of the
following: approximately $1,268,000 principal balance under a revolving line of
credit that bears interest at a rate of LIBOR plus 2.75% and is scheduled to
mature on November 30, 2010, if not renewed; approximately $973,000 principal balance under a
term loan that bears interest at a rate of 4.28% and is scheduled to mature on
December 9, 2012; and approximately $1,514,000 principal balance under a term
loan that bears interest at a rate of 5.79% and is scheduled to mature on
December 9, 2014.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have not determined the exact allocation of net proceeds among the various uses
described in this prospectus. Proceeds will be used in management&#146;s discretion.
We reserve the right to modify the use of proceeds for other purposes in the
event of changes in our business plan. Pending the uses described above, we
intend to invest the net proceeds of this offering in short- to medium-term,
investment-grade, interest-bearing securities.</FONT></P>

<P ALIGN=CENTER><A NAME="A1013901A007_V2"></A><FONT SIZE=2><B>DIVIDEND POLICY</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have not historically paid any dividends on our common stock. Following the completion
of this offering, we intend to retain our future earnings, if any, to finance
the expansion and growth of our business. We do not expect to pay cash
dividends on our common stock in the foreseeable future. Payment of future cash
dividends, if any, will be at the discretion of our Board of Directors after
taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs, outstanding indebtedness
and plans for expansion and restrictions imposed by lenders, if any. Currently,
the agreement governing our credit facility restricts our ability to pay cash
dividends.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>27</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><A NAME="A1013901A008_V2"></A><FONT SIZE=2><B>CAPITALIZATION</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth our capitalization as of December 31, 2009</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>on an actual
 basis; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>on a pro
 forma basis to reflect the sale of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
 of common stock in
 this offering at an assumed initial public offering price of
 $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(the mid-point
 of the initial public offering price range), after deducting estimated
 underwriting discounts and commissions and offering expenses and the
 application of the net proceeds from our sale of common stock in this
 offering.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should read this information in conjunction with &#147;Management&#146;s Discussion and
Analysis of Financial Condition and Results of Operations&#148; and our financial
statements and the related notes appearing elsewhere in this prospectus.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="71%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="9%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="9%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>As of December 31, 2009<BR>
 (Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Actual</FONT></P>

 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Pro Forma<SUP>(1)</SUP></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(dollars in thousands)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Cash and cash equivalents</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>350</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=CENTER><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>

<TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Current maturities of long-term debt</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>384</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:0PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=CENTER><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:0PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>

<TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Revolving line of credit</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" >
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM  BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM  BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,268</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM  BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM  BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=CENTER><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM  BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM  BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>



 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Long-term debt, less current maturities</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>2,227</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Electromed, Inc. stockholders&#146; equity:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2>Common stock, $0.01 par value, 10,000,000 shares authorized,
 6,075,885 shares issued and outstanding,
 actual;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares
 authorized,&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
 issued and outstanding, pro forma</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>61</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2>Additional paid-in capital</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,375</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2>Retained earnings</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>253</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2>Common stock subscriptions receivable for shares outstanding</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(84</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Total Electromed, Inc. stockholders&#146; equity</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,604</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Noncontrolling interest</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Total stockholders&#146; equity</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>6,605</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Total capitalization</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>8,832</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=CENTER><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="97%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>(1)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>A $1.00 increase or
 decrease in the assumed initial public offering price would result in an
 approximately $&nbsp;&nbsp;&nbsp;&nbsp; million increase or decrease, respectively, in pro forma
 additional paid-in capital, pro forma total stockholders&#146; equity and pro
 forma total capitalization, assuming the number of shares offered by us, as
 set forth on the front cover of this prospectus, remains the same and after
 deducting the estimated underwriting discounts and commissions and estimated
 offering expenses payable by us.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
information set forth in the table excludes 599,567 shares of common stock issuable
upon exercise of outstanding warrants with a weighted-average exercise price of
$3.27 per share.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>28</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><A NAME="A1013901A009_V2"></A><FONT SIZE=2><B>DILUTION</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you invest in our common stock, your ownership interest will be diluted to the
extent of the difference between the initial public offering price per share of
our common stock and the adjusted net tangible book value per share of our
common stock immediately after completion of this offering. Our net tangible
book value as of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2010, was $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share of common stock. Net tangible book
value per share is equal to our total tangible assets (total assets less
intangible assets) less our total liabilities divided by the number of shares
of common stock outstanding. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After giving
effect to our sale of shares at an assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share (the mid-point of the initial public
offering price range), deducting estimated underwriting discounts and
commissions and offering expenses, and applying the net proceeds from this sale,
the pro forma as adjusted net tangible book value of our common stock, as
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, would have been
approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
or $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share. This amount represents an
immediate increase in net tangible book value to our existing shareholders of $ per share and an immediate dilution to new investors of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. The
following table illustrates this per share dilution:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="88%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="7%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Assumed initial public offering price per
 share</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Net
 tangible book value per share as
 of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, before
 giving effect to this offering</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Increase
 per share attributable to new investors</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Pro forma net tangible book value per share
 after this offering</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=2>Dilution per share to new investors in this
 offering</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
$1.00 increase or decrease in the assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share would increase or decrease,
respectively, our pro forma net tangible book value by
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; million, the pro
forma net tangible book value per share by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per
share and the dilution per share to investors in this offering by
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, assuming the number of shares offered
by us, as set forth on the cover page of this prospectus, remains the same and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us. If the underwriter exercises its
over-allotment option in full, there will be an increase in pro forma net
tangible book value to existing shareholders of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share and an
immediate dilution in pro forma net tangible book value to new investors of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following
table summarizes, as
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
, on a pro forma basis, the number of shares of common stock purchased from us,
the total consideration paid to us and the average price per share paid by our
existing shareholders and by new investors, based upon an assumed initial
public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share (the
mid-point of the initial public offering price range) and before deducting
estimated underwriting discounts and commissions and offering expenses payable
by us.</FONT></P>


<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="51%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>Shares Purchased</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>Total Consideration</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Average Price<BR>
 Per Share</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Number</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Percent</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Amount</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Percent</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Existing shareholders</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>%</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>%</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>New investors</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>%</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>%</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Total</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>100</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>%</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>100</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>%</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
$1.00 increase or decrease in the assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share would increase or decrease,
respectively, total consideration paid by new investors and total consideration
paid by all stockholders by approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
million, assuming the number of shares offered by us, as set forth on the cover
page of this prospectus, remains the same and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
discussion and tables above assume no exercise of outstanding warrants to
purchase common stock. As
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, there were
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common
stock issuable upon the exercise of outstanding warrants having a weighted
average exercise price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. To the
extent the warrants are exercised, there will be further dilution to investors
purchasing common stock in this offering.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>29</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><A NAME="A1013901A010_V2"></A><FONT SIZE=2><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF<BR>
OPERATIONS</B></FONT></P>

<P><FONT SIZE=2><I>The following discussion and analysis of our
financial condition and results of operations should be read in conjunction
with our financial statements and the accompanying notes included elsewhere in
this prospectus. The forward-looking statements include statements that reflect
management&#146;s beliefs, plans, objectives, goals, expectations, anticipations and
intentions with respect to our future development plans, capital resources and
requirements, results of operations, and future business performance. Our
actual results could differ materially from those anticipated in the
forward-looking statements included in this discussion as a result of certain
factors, including, but not limited to, those discussed in &#147;Risk Factors&#148; and
&#147;Information Regarding Forward-Looking Statements&#148; included elsewhere in this
prospectus.</I></FONT></P>

<P><FONT SIZE=2><B>Overview</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Electromed,
Inc. was incorporated in 1992. We are engaged in the business of providing
innovative airway clearance products applying High Frequency Chest Wall
Oscillation (&#147;HFCWO&#148;) technologies in pulmonary care for patients of all ages.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
manufacture, market and sell products that provide HFCWO, including the
SmartVest&reg; Airway Clearance System (&#147;SmartVest System&#148;) and related products,
to patients with compromised pulmonary function. Our products are sold for both
the home health care market and the institutional market for use by patients in
hospitals, which we refer to as &#147;institutional sales.&#148; For approximately ten
years, we have marketed the SmartVest System and its predecessor
products to patients suffering from cystic fibrosis, chronic obstructive
pulmonary disease (&#147;COPD&#148;), bronchiectasis and repeated episodes of pneumonia.
Additionally, we offer our products to a patient population that includes
post-surgical and intensive care patients at risk of developing pneumonia,
patients with end-stage neuromuscular disease, and ventilator-dependent
patients. Our goal is to be a consistent innovator in providing HFCWO to
patients with compromised pulmonary function. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
sale of the SmartVest System is by physician&#146;s prescription only, we focus our
marketing efforts on physicians as well as directly to patients. In addition to
distributors overseas, we have established our own domestic sales force, nearly
all of whom are respiratory therapists, who we
believe are able to provide superior support and training to our customers. In
addition, we have non-exclusive independent contractor arrangements with over
300 respiratory therapists and health care professionals who also provide education and
training to our customers. Further, although the reimbursement process is
subject to many contingencies, the SmartVest System is often eligible for
reimbursement from major private insurance providers, HMOs, state Medicaid
systems, and the federal Medicare system, which is an important consideration
for patients considering an HFCWO course of therapy. We believe that our
SmartVest System has created a solid foundation to support our entry into
larger markets for airway clearance therapy. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
SmartVest System may be reimbursed under the Medicare-assigned billing code for
High Frequency Chest Wall Oscillation devices if the patient has cystic
fibrosis, bronchiectasis (including chronic bronchitis or COPD that has
resulted in a diagnosis of bronchiectasis), or any one of certain enumerated
neuro-muscular diseases, and can demonstrate that another less expensive
physical or mechanical treatment did not adequately mobilize retained
secretions. The amount of reimbursement a provider or individual receives under
Medicare and Medicaid is based on the Medicare Physician Fee Schedule values
for the SmartVest System, which generally depend on the relative value units
(&#147;RVUs&#148;) assigned to it, multiplied by a conversion factor. Many private payers
also base their payment rates based on the RVUs adopted by Centers for Medicare
and Medicaid Services. Private payers consider a variety of sources, including
Medicare, as guidelines in setting their coverage policies and payment amounts.
</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have been generating revenue from the sale of our SmartVest System or its
predecessor products since 2000 and have generated net income since the
fiscal year ended June 30, 2006. For the fiscal year ended June 30, 2009, we
generated revenue of approximately $12,999,000 and net income of approximately
$1,333,000. Our sales growth rate for the first six months of fiscal 2010 was approximately 5.4% compared to 48.5%
experienced during the 2009 fiscal year. Management believes the decrease in sales growth during the first six months
of fiscal 2010 was impacted to a certain degree by a temporary suspension of Medicare reimbursement, which
was fully resolved effective December 1, 2009, as well as a trademark lawsuit, both of which required the attention
of management, thereby diverting their operational focus during the second fiscal quarter of 2010.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>30</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>Critical Accounting Policies and Estimates </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the preparation of our consolidated financial statements, we are required to
make estimates, assumptions and judgments that affect reported amounts. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. We update these estimates, assumptions and judgments as
appropriate, which in most cases is at least quarterly. We use our technical
accounting knowledge, cumulative business experience, judgment and other
factors in the selection and application of our accounting policies. While we
believe the estimates, assumptions and judgments we use in preparing our
consolidated financial statements are appropriate, they are subject to factors
and uncertainties regarding their outcome and therefore, actual results may
materially differ from these estimates. We believe the following are our
primary critical accounting policies and estimates:</FONT></P>

<P><FONT SIZE=2><I><B>Revenue Recognition
and Allowance for Doubtful Accounts</B></I></FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues
from direct patient sales are recorded at amounts estimated to be received
under reimbursement arrangements with third-party payers, including private
insurers, prepaid health plans, Medicare and Medicaid. Due to the nature of the
industry and the reimbursement environment in which we operate, certain
estimates are required to record net revenues at their net realizable values.
Inherent in these estimates is the risk that they will have to be revised or
updated as additional information becomes available. Specifically, the
complexity of many third-party billing arrangements and the uncertainty of
reimbursement amounts for certain services from certain payers may result in
adjustments to amounts originally billed. Such adjustments are typically
identified and recorded at the point of cash application, claim denial or
account review. </FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
record an estimate of such potential future adjustments, including potential
sales returns, as a reduction of net revenues in the same period revenue is
recognized. We estimate this sales discount based on historical collection and
sales allowance experience with direct patient sales. We periodically review
and make changes to the estimation process by considering any changes in recent
collection or sales allowance experience. Other than the installment sales as
discussed below, the Company receives payment of the vast majority of accounts
receivables within one year. However, in some instances, payment for direct
patient sales can be delayed or interrupted resulting in a small portion of
collections occurring later than one year.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
third-party reimbursement agencies pay the Company on a monthly installment
basis, which can span over several years. Payment can at times be further
delayed or adjusted if, among other things, the insured individual changes
insurance providers or no longer requires treatment. Due to the inherent
uncertainty of collectability with these installment sales, the Company uses
the installment method of revenue recognition for these sales, and accordingly,
does not record accounts receivable or revenue at the time of product shipment.
Under the installment method, the Company defers and amortizes the costs
associated with the sale and, as each installment is received, that amount is
recognized as revenue. Deferred costs associated with the sale are amortized to
cost of revenue ratably over the estimated period in which collections are
scheduled to occur.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts
receivable are carried at amounts estimated to be received under reimbursement
arrangements with third-party payers. Accounts receivable are also net of an
allowance for doubtful accounts, which are accounts from which payment is not
expected to be received although service was provided and revenue was earned.
Management determines the allowance for doubtful accounts by regularly
evaluating individual customer receivables and considering a customer&#146;s
financial condition and credit history. Receivable are written off when deemed
uncollectible. Recoveries of receivables previously written off are recorded
when received.</FONT></P>

<P><FONT SIZE=2><I><B>Valuation of
Long-lived and Intangible Assets</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived
assets, such as property and equipment and finite-life intangible assets are
evaluated for impairment whenever events or changes in circumstances indicate
the carrying value of an asset may not be recoverable. In evaluating
recoverability, the following factors, among others, are considered: a
significant change in the circumstances used to determine the amortization
period, an adverse change in legal factors or in the business climate, a
transition to a new product or service strategy, a significant change in
customer base, and a realization of failed marketing efforts. The
recoverability of an asset is measured by a comparison of the unamortized
balance of the asset to future undiscounted cash flows. If we believe the
unamortized balance is unrecoverable, we would </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>31</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>recognize an
impairment charge necessary to reduce the unamortized balance to the estimated
fair value of the asset. The amount of such impairment would be charged to
operations at the time of determination. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property
and equipment are stated at cost less accumulated depreciation. We use the
straight-line method for depreciating property and equipment over their
estimated useful lives, which range from 3 to 39 years. Our finite-life
intangibles consist of patents and trademarks and their carrying costs include
the original cost of obtaining the patents, periodic renewal fees, and other
costs associated with maintaining and defending patent and trademark rights.
Patents and trademarks are amortized over their estimated useful lives,
generally 15 and 12 years using the straight-line method. During the six-month
period ended December 31, 2009 we incurred legal defense costs associated with
a trademark infringement lawsuit filed against us (see Note 9 to the
consolidated financial statements included in this prospectus). Such legal
defense costs are being capitalized and amortized over the remaining useful
life of the trademark. We expect future amortization expense to increase as we
incur additional costs associated with our patents and trademarks, including
the trademark defense costs. </FONT></P>

<P><FONT SIZE=2><I><B>Allowance for Excess
and Slow-moving Inventory</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
allowance for potentially slow-moving or excess inventories is made based on
our analysis of inventory levels on hand and comparing it to expected future
production requirements, sales forecasts and current estimated market values. </FONT></P>

<P><FONT SIZE=2><I><B>Income Taxes</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
recognize deferred tax assets and liabilities based on the differences between
the financial statement carrying amounts and the tax basis of assets and
liabilities. We provide a valuation allowance for deferred tax assets if we
determine, based on the weight of available evidence, that it is more likely
than not that some or all of the deferred tax assets will not be realized.
During the year ended June 30, 2008, we eliminated the $526,000 valuation
allowance that had been established in previous periods as we began to
recognize sufficient amounts of taxable income in which to fully utilize our
deferred tax assets. </FONT></P>

<P><FONT SIZE=2><I><B>Warranty Reserve</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
provide a limited warranty on products sold. We estimate, based upon a review
of historical warranty claim experience, the costs that may be incurred under
our warranty policies and record a liability in the amount of such estimate at
the time a product is sold. The warranty cost is based upon future product
performance and durability, and is estimated largely based upon historical
experience. Factors that affect our warranty liability include the number of
units sold, historical and anticipated rates of warranty claims, and cost per
claim. We periodically assess the adequacy of our recorded warranty liability
and make adjustments to the accrual as claim data and historical experience
warrant. </FONT></P>

<P><FONT SIZE=2><I><B>Share-Based
Compensation</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share-based
payment awards consist of warrants issued to employees for services, and to
nonemployees in lieu of payment for products or services. Compensation expense
is estimated using the Black-Scholes pricing model at the date of grant and the
portion of the award that is ultimately expected to vest is recognized on a
straight-line basis over the requisite service or vesting period of the award.
In determining the fair value of our share-based payment awards, we make
various assumptions when using the Black-Scholes pricing model including
expected risk free interest rate, stock price volatility, life and forfeitures.
</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>32</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2><B>Results of Operations</B></FONT></P>

<P><FONT SIZE=2><I><B>Six Months Ended
December 31, 2009 Compared to Six Months Ended December 31, 2008</B></I></FONT></P>

<P><FONT SIZE="2"><B><I>Revenues</I></B> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
results for the six month periods are summarized in the table below (dollar
amounts in thousands). </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="36%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="16%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="16%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="16%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="16%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 1px;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2><B>Six
 Months Ended Dec. 31,</B></FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=4 STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2><B>Increase
 (Decrease)</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 1px;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2><B>2009</B></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2><B>2008</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 1px;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><B>Total
 Revenue</B></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$6,451</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$6,119</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$332</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>5.4%</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=TOP STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 1px;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><B>Home Care
 Revenue</B></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$5,981</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$5,582</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$399</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>7.1%</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 1px;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><B>International
 Revenue</B></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$275</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$250</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$25</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>10.0%</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=TOP STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 1px;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><B>Government/Institutional
 Revenue</B></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$195</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$287</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>($92)</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>(32.1%)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Home
Care Revenue</I>. Home care revenue increased primarily
from an increase in the number of SmartVest Systems sold. We attribute this
increase in revenue primarily to an increase in productivity by our existing
sales staff as they continued to expand and strengthen their relationships with
our customers. In addition, in October 2008, Medicare expanded its coverage for
HFCWO therapy to include 33 neuro-muscular diseases. This expansion of coverage
contributed to an increase in Medicare referrals, which we believe resulted in
increased home care revenue in the first six months of fiscal 2010 over the
comparable period in fiscal 2009. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;International
Revenue</I>. International revenue increased by 10.0% as we
continued our efforts to penetrate international markets. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government/Institutional
Revenue</I>. We believe the decrease in
Government/Institutional revenue was a result of budget decreases for capital
equipment expenditures in institutions during the comparable periods. </FONT></P>

<P><FONT SIZE="2"><B><I>Gross Profit</I></B> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross
profit for the first six months of fiscal 2010 increased to approximately
$4,790,000, or 74% of net revenues, compared to approximately $4,676,000, or
76% of net revenues, for the same period of fiscal 2009, which primarily
resulted from the increase in sales volume. </FONT></P>

<P><FONT SIZE="2"><B><I>Operating expenses</I></B> </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling,
general and administrative expenses</I>. Our
selling, general and administrative expenses rose by 15%, or approximately
$478,000, to approximately $3,774,000 in the six months ended December 31,
2009, compared to approximately $3,296,000 in the same period in the prior
year. Professional fees increased by $172,000 due to increased utilization of a
third-party marketing organization and an independent contractor used to
procure group purchasing contracts from hospitals and other institutions.
General and administrative payroll increased by </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>33</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>$170,000,
reflecting an increase in the number of employees, non-cash compensation from
warrants vesting during the period, and increased bonus expense recognized and
payable upon higher calendar-year sales levels. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
and development expenses</I><I>. </I>Our research and
development expenses increased by 32%, or approximately $61,000, to
approximately $251,000 in the first six months of fiscal 2010 as compared to
approximately $190,000 in the same period in fiscal 2009. The increase was
related to a new research project undertaken during fiscal 2010, the purpose of
which is to further enhance the quality and depth of our product line. </FONT></P>

<P><FONT SIZE=2><I><B>Interest
expense</B></I></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</I>Interest
expense decreased to approximately $122,000 in the first six months of fiscal
2010, compared to approximately $129,000 in the same period in fiscal 2009. The
decrease was due to lower average debt outstanding in connection with payments
on term loans.</FONT></P>

<P><FONT SIZE=2><I><B>Income
tax expense</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax expense decreased $140,000 to $260,000 compared to $400,000 in the same
period in fiscal 2009. The decrease was primarily the result of a decrease in
net income before income taxes. Our effective tax rate increased from 37.7% to
40.4%, primarily due to an increase in non-deductible expenses. </FONT></P>

<P><FONT SIZE="2"><B><I>Fiscal Year Ended June&nbsp;30, 2009 Compared
to Fiscal Year Ended June 30, 2008</I></B> </FONT></P>

<P><FONT SIZE="2"><B><I>Revenue</I></B> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
results for the twelve month periods are summarized in the table below (dollar
amounts in thousands). </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="36%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="16%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="16%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="16%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="16%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 1px;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=3 STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2><B>Twelve Months Ended June 30,</B></FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=5 STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2><B>Increase
 (Decrease)</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 1px;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 1px;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD ROWSPAN=2 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2><B>2009</B></FONT></P>
 </TD>
 <TD ROWSPAN=2 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2><B>2008</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8" HEIGHT=31 STYLE='HEIGHT:23.0PT'>
 <TD HEIGHT=31 STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><B>Total
 Revenue</B></FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$12,999</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$8,752</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$4,246</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>48.5%</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=31 STYLE='HEIGHT:23.0PT'>
 <TD HEIGHT=31 STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><B>Home Care
 Revenue</B></FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$11,651</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$7,855</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$3,788</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>47.8%</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8" HEIGHT=31 STYLE='HEIGHT:23.0PT'>
 <TD HEIGHT=31 STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><B>International
 Revenue</B></FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$919</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$727</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$192</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>26.4%</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=31 STYLE='HEIGHT:23.0PT'>
 <TD HEIGHT=31 STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><B>Government/Institutional
 Revenue</B></FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$429</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$140</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>$289</FONT></P>
 </TD>
 <TD HEIGHT=31 STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>206.4%</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Home
Care Revenue</I>. Our revenue increase in fiscal 2009 was a
direct result of an increase in the number of SmartVest Systems sold.
Contributing to this increase in revenue were increases in productivity from
our sales staff as they continued to expand and strengthen their relationships
with our customers. In addition, in October 2008, Medicare expanded its
coverage for HFCWO therapy to include 33 neuro-muscular diseases. This
expansion of coverage contributed to an increase in Medicare referrals, which
we believe resulted in increased home care revenue in fiscal 2009 over fiscal
2008.</FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;International
Revenue</I>. International revenue increased by 26.4%
as we continued our efforts to penetrate international markets by adding
additional distributors in more foreign countries. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government/Institutional
Revenue</I>. Government revenue increased to
approximately $116,000 in fiscal 2009, compared to approximately $45,000 in
fiscal 2008, reflecting the existence of a new Veterans Administration contract
for the full year of fiscal 2009, compared to four months in fiscal 2008.
Institutional revenue rose by approximately $218,000 to approximately $313,000.
Instrumental to this increase was the introduction of our SmartVest Wrap in
March of 2008. Revenue from the SmartVest Wrap increased to approximately
$90,000 in fiscal </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>34</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>2009, compared
to approximately $14,000 in fiscal 2008. In addition to the increase in
revenue, we believe the SmartVest Wrap, along with our Single Patient Use Vest,
provide synergies with our home care SmartVest System, because they introduce
the hospital patient to our product line. </FONT></P>

<P><FONT SIZE="2"><B><I>Gross Profit</I></B> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross
profit increased to $9,659,000, or 74% of net revenues, for the fiscal year
ended June 30, 2009, from approximately $6,605,000, or 75% of net revenues, for
the fiscal year ended June 30, 2008. The increase in gross profit resulted
primarily from increased net revenue. </FONT></P>

<P><FONT SIZE="2"><B><I>Operating expenses</I></B> </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling,
general and administrative expenses. </I>Selling, general
and administrative expenses for the fiscal year ended June 30, 2009 were
approximately $6,845,000, compared to $6,000,000 for the same period in the
prior year. The primary reason for the increase was an increase in headcount
and other resources necessary to service the increased sales activity. Payroll
and compensation related expenses increased by 38%, or $858,000, to $3,126,000
in fiscal 2009, compared to $2,268,000 in fiscal 2008. Commissions expense to
outside representatives decreased by $949,000 in fiscal 2009, to $206,000,
compared to $1,155,000 in fiscal 2008, due to the expiration and non-renewal of
a contract with an outside sales representative organization. Advertising,
marketing and trade show costs for the fiscal year ended June 30, 2009
increased to $642,000 from $454,000 in fiscal 2008, which increase primarily
resulted from more trade shows attended and increased advertising. Selling expenses
related to travel and entertainment and patient training increased by
approximately $139,000 and $115,000, respectively, over fiscal 2008, because of increased sales activity. General office expenses and health insurance premiums
increased by approximately $135,000 and $102,000, respectively, over fiscal
2008, due primarily to more employees and costs needed to service the higher
volume of revenue. We recognized $153,000 of stock-based compensation expense
for the fiscal year ended June 30, 2009 compared to $68,000 for the fiscal year
ended June 30, 2008. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
and development expenses</I><I>.</I> Research and development
expenses were approximately $358,000 and $271,000 for the fiscal years ended
June 30, 2009 and 2008, respectively. The increase was related to a new
research project in fiscal 2009, which has continued into fiscal 2010, the
purpose of which is to further enhance the quality and depth of our product line.
</FONT></P>

<P><FONT SIZE=2><I><B>Interest
expense</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
expense decreased to approximately $270,000 in fiscal 2009, compared to
$477,000 in fiscal 2008. The decrease was primarily due to a decrease in average
debt outstanding due to payments on term loans and the elimination of our
convertible debt through a combination of partially refinancing with a new term
loan and converting approximately $1,165,000 to equity. </FONT></P>

<P><FONT SIZE=2><I><B>Income
tax expense</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax expense was approximately $830,000 in fiscal 2009, compared to an income
tax benefit of $427,000 in the 2008 fiscal year. During the fiscal year ended
June 30, 2008, as a result of achieving a level of sustained profitability, we
eliminated the valuation allowance on our deferred tax assets that had been
established in previous periods. As a result of eliminating the valuation
allowance, we recorded an income tax benefit in fiscal 2008. In fiscal 2009,
our income tax expense was the result of increased profitability and resulted
in an effective income tax rate of approximately 38%. </FONT></P>

<P><FONT SIZE=2><B>Liquidity
and Capital Resources</B></FONT></P>

<P><FONT SIZE=2><I><B>Sources of Liquidity</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
primary sources of future liquidity are existing cash, including anticipated
proceeds of this offering to the extent such proceeds are not used to repay
indebtedness, cash flow from operations and available borrowings under our line
of credit. We expect that ongoing requirements for debt service and capital
expenditures will be </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>35</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>funded from
these sources, including the anticipated proceeds of this offering. See &#147;Use of
Proceeds&#148; for a more detailed description of our plans for the use of the
proceeds from this offering. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently have a credit facility with U.S. Bank, National Association (&#147;U.S.
Bank&#148;) that provides for a $3,500,000 revolving line of credit and $2,520,000
in term debt. The operating line of credit has an interest rate of LIBOR plus
2.75%. A $1,520,000 term loan bears interest at 5.79% (&#147;Term Loan A&#148;). The
remaining $1,000,000 term loan bears interest at 4.28% (&#147;Term Loan B&#148;). The
operating line of credit requires monthly payments of interest due and has a
maturity date of November 30, 2010, which we expect will be renewed. Term Loan
A requires monthly payments of principal and interest of approximately $10,700
and has a maturity date of December 9, 2014. Term Loan B requires monthly
payments of principal and interest of approximately $29,600 and has a maturity
date of December 9, 2012. Our obligations under the U.S. Bank credit facility
are secured by substantially all of our assets and guaranteed by our
wholly-owned subsidiary, Electromed Financial, LLC. As of December 31, 2009, we
had $1,268,000 outstanding on the operating line of credit and $2,487,000
outstanding on the term debt for a total outstanding under the U.S. Bank credit
facility of $3,755,000. As of December 31, 2009, we had $1,259,000 available to
borrow under our line of credit. The agreement governing the credit facility
contains certain covenants that restrict our ability to, among other things,
incur indebtedness or liens, change Chief Executive Officer or Chief Financial
Officer, merge or consolidate with any person, or sell, lease, assign, transfer
or otherwise dispose of any assets other than in the ordinary course of
business. The agreement also contains financial covenants that require
maintenance of certain fixed charge and cash flow leverage ratios. </FONT></P>

<P><FONT SIZE=2><I><B>Adequacy of Capital
Resources</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
primary uses of cash have been to fund the purchase of components for use in
our products, meet debt service requirements, purchase equipment and fund
operating activities and working capital. The primary factors affecting our
ability to generate cash and to meet existing, known or reasonably likely cash
requirements are any future need for capital equipment, cash for legal fees
associated with the defense of our trademark, possible cash payments as
required under our employment agreements with certain of our officers, and our
operating performance as impacted by general economic conditions and financial,
competitive, industry and other factors as identified in the &#147;Risk Factors&#148;
section of this prospectus.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
fiscal 2009 and fiscal 2008, we spent approximately $649,000 and $566,000 on
property and equipment, respectively. We expect our equipment expenditures for
fiscal 2010 to be lower than in fiscal 2009. The actual amount of our fiscal
2010 equipment expenditures will depend upon factors such as general economic
conditions, growth prospects for our industry and our competitive factors. We
currently expect to finance equipment purchases with borrowings under our
credit facility, the anticipated proceeds of this offering and cash flow from
operations. We may need to incur additional debt if we have an unforeseen need
for additional capital equipment or if our operating performance does not
generate adequate cash flow.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the six months ended December 31, 2009, we incurred and capitalized
approximately $469,000 of legal defense costs associated with our trademark
lawsuit. For additional information, see &#147;Business&#151;Legal Proceedings.&#148; Although
we cannot predict the ultimate costs or outcome of this lawsuit, we anticipate
such costs will continue at a similar level for the remainder of fiscal 2010.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the employment agreements we entered into with our Chief
Executive Officer and Chief Financial Officer on January 1, 2010, we may be
required to make cash payments to these officers if they resign following a
change in control or are terminated at any time without cause. With respect to
a resignation upon a change in control, the amount of the severance payment
would be equal to two times the annual base salary then in effect. With respect
to a termination without cause, the amount of the severance payment would be
equal to the base salary of the executive then in effect. In each instance, the
executive would also be entitled to a pro rata portion of any earned but unpaid
incentive compensation at the time of termination, the severance would be
payable in a lump sum within 60 days of the separation event, and the executive
would, in order to receive the severance and continued benefits, be required to
sign a release of claims against us, return all property owned by Electromed
and agree not to disparage us. See &#147;Executive Compensation.&#148;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on our current operational performance, we believe our cash flow from
operations, available cash and available borrowings under the existing credit
facility will adequately provide our liquidity needs for, at a </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>36</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>minimum, the
next twelve months. We cannot assure you, however, that our business will
generate sufficient cash flow from operations or that future borrowings will be
available under the U.S. Bank credit facility in amounts sufficient to support
our long-term growth objectives, as our ability to do so will be impacted by
general economic conditions and financial, competitive, industry and other
factors, some of which are beyond our immediate control. If we are unable to
generate sufficient cash flow from operations, obtain sufficient future
borrowings or obtain the anticipated proceeds of this offering to finance
long-term product development, sales, and other goals, we may be required to
seek one or more alternatives such as refinancing or restructuring our
indebtedness, selling material assets or operations or seeking to raise
additional debt or equity capital. We cannot assure you that we will be able to
succeed with any of these alternatives on commercially reasonable terms, if at
all. In addition, if we pursue strategic acquisitions or new product development,
we may require additional equity or debt financing in connection therewith, and
we cannot assure you that we will succeed in obtaining this financing on
favorable terms or at all. If we incur additional indebtedness for any reason,
this may place increased demands on our cash flow from operations to service
the resulting increased debt. Our existing credit agreement contains covenants
that may restrict our ability to adopt any of these alternatives. Any
non-compliance by us with the terms of our credit agreement could result in an
event of default which, if not cured, could result in the acceleration of our
debt.</FONT></P>

<P><FONT SIZE=2><I><B>Cash Flows</B></I></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
Flows from Operating Activities</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the six months ended December 31, 2009, our net cash provided by operating
activities was approximately $78,000. Cash flows provided by operations were
primarily a result of net income, offset by approximately $361,000, $129,000
and $124,000 increases in accounts receivable, inventories and other current
assets, respectively. For the six months ended December 31, 2008, net cash used
by operating activities was approximately $1,106,000. Cash flows used by
operations were primarily a result of an increase in accounts receivable of
approximately $1,401,000 and a decrease in accounts payable and accrued
liabilities of approximately $784,000.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the fiscal year ended June 30, 2009, our net cash used by operating activities
was approximately $1,158,000. Our cash flows used by operations were primarily
the result of a decrease in accounts payable and accrued liabilities of
approximately $571,000 and an increase in accounts receivable of approximately
$2,419,000, driven by the increase in sales and timing differences associated
with collection of those sales, offset by net income adjusted for noncash
expenses. For the fiscal year ended June 30, 2008, operating activities
provided net cash flow of $243,000. Cash flows from operations in that fiscal
year were primarily the result of temporary increases in accounts payable and
accrued liabilities of approximately $813,000, partially offset by an increase
in accounts receivable of approximately $630,000.</FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
Flows from Investing Activities</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the six months ended December 31, 2009 and 2008, cash used in investing
activities was $499,000 and $490,000, respectively. During the six months ended
December 31, 2009, we paid approximately $407,000 in costs related to
defending our SmartVest trademark. During the six months ended December 31,
2008, cash used in investing activities related primarily to the purchase of
fixtures and equipment for our new manufacturing building. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the fiscal year ended June 30, 2009, cash used for investing activities was
$712,000. Cash of approximately
$649,000 was used for expanding and equipping our new manufacturing building and

 approximately $62,000 was used for payment of patent costs. For
the fiscal year ended June 30, 2008, cash used for investing activities was
$646,000. Cash of approximately $566,000 was used for expanding and equipping our new manufacturing building.
Payment of patent costs totaled approximately $46,000 and we paid
deferred financing fees of $34,000. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>37</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><I><B>Cash Flows From Financing Activities</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the six months ended December 31, 2009, cash provided by financing activities
was approximately $409,000. Short- and long-term borrowings during the period,
which includes borrowings under our U.S. Bank credit facility and capital lease
arrangements, were approximately $3,788,000. The proceeds from the U.S. Bank
credit facility were primarily used to pay off the principal balance of
existing debt. Proceeds from the issuance of common stock were approximately
$73,000.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the six months ended December 31, 2008, cash provided by financing activities
was approximately $733,000. Long-term borrowings were approximately $901,000
and proceeds from the sale of common stock were approximately $239,000.
Offsetting the cash provided by financing activities were principal payments on
long-term debt of approximately $452,000.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the fiscal year ended June 30, 2009, cash provided by financing activities was
approximately $790,000. Cash provided by financing activities was primarily
from long-term borrowings of approximately $1,027,000 and proceeds from the
issuance of common stock of approximately $364,000. Partially offsetting the
cash provided by financing activities were principal payments on long-term debt
of $641,000. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the fiscal year ended June 30, 2008, cash provided by financing activities was
approximately $877,000. Cash provided by financing activities was primarily
from long-term borrowings of approximately $2,210,000 and proceeds from the
issuance of common stock of approximately $689,000. Partially offsetting the
cash provided by financing activities were principal payments on long-term debt
of approximately $2,005,000. </FONT></P>

<P><FONT SIZE=2><B>Certain Information Concerning Off-Balance
Sheet Arrangements</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have no off-balance sheet arrangements. </FONT></P>

<P><FONT SIZE=2><B>New Accounting Pronouncements </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
recently issued accounting pronouncements, see Note 1 to the Consolidated
Financial Statements included in this prospectus.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>38</FONT></P>

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<P ALIGN=CENTER><FONT SIZE=2><B><A NAME="A1013901A011_V2"></A>BUSINESS</B></FONT></P>

<P><FONT SIZE=2><B>Overview</B></FONT></P>

<P><FONT SIZE=2><I><B>Our Company</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Electromed,
Inc. was founded by Mr. Robert Hansen and Mr. Craig Hansen and incorporated in
Minnesota in 1992. We hold numerous patents, which cover our innovative means
of administering High Frequency Chest Wall Oscillation, or HFCWO, airway clearance therapy. We believe our system provides
improved ease of use, comfort and control at a cost that is comparable to
current alternatives.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Electromed
has established itself as a leader in developing innovative airway clearance
therapy products for use by patients with compromised pulmonary function.
Our goal has been to make the HFCWO airway clearance treatments as comfortable and
convenient as possible so our patients can more easily tolerate their regimen
and be able to perform their treatments as readily as possible.
We created and introduced a portable, programmable, and
multi-positional airway clearance machine which employs HFCWO. For the past ten years, our primary product, the SmartVest&reg; Airway
Clearance System (&#147;SmartVest System&#148;), along with its predecessor product, the
MedPulse Respiratory Vest System&reg;, have been providing daily respiratory
therapy to patients in the U.S.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to maintain and expand our position in the market for airway clearance
therapy products, we have assembled an experienced team of employees with
expertise in health care, product development, manufacturing, marketing, sales, and
financial management. For example, more than 30% of our employees
are respiratory therapists. In addition, we engage over 300
respiratory therapists and health professionals on a non-exclusive independent
contractor basis to educate and train customers on the SmartVest System. Our
team also includes several consultants who advise us on quality assurance,
product development, and financing, and who keep us apprised of industry
developments and opportunities in Europe.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We manufacture and sell
products for use by chronically-ill patients who face health risks due to
pneumonia and mucus accumulation in the lungs, particularly patients with
cystic fibrosis, chronic obstructive pulmonary disease (&#147;COPD&#148;),
bronchiectasis, and neuro-muscular disorders. The
purpose of our primary product, the SmartVest System, is to loosen,
mobilize, and release respiratory secretions from the lungs. Our products are primarily used
in the home health care market,
and we have recently begun to sell our products for use in hospitals, which we
refer to as &#147;institutional sales.&#148;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
SmartVest System features a programmable electro-mechanical pulse generator
and a pneumatic therapy garment, which together provide safe, comfortable, and
effective airway clearance therapy. We believe that the lightweight, portable
design allows patients greater freedom to travel and enjoy activities of daily
living, resulting in enhanced quality of life for patients using our SmartVest
System. A broad range of vest sizes for children and adults allow for tailored
fit and function. User-friendly controls allow children to administer their own
daily therapy under adult supervision.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
approximately ten years, we have marketed the SmartVest System and
predecessor models to patients suffering with cystic fibrosis (&#147;CF&#148;). CF is a
genetic disease in which normal mucus becomes thick and sticky, eventually
restricting the function of the lungs, pancreas, and liver. Cystic fibrosis
patients require daily respiratory therapy. This was traditionally provided by
a respiratory therapist, parent or family member who must &#147;clap&#148; or pound on a
patient&#146;s chest and back to loosen secretions that build up in the respiratory
tract. Severe build-up can result in lung infections, scarring and ultimately
death due to the patient&#146;s inability to absorb oxygen. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>HFCWO Therapy</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
1989, the University of Minnesota School of Medicine developed a new
airway clearance tharapy to be applied to CF patients, known as High Frequency Chest Wall
Oscillation. HFCWO clears secretions by mimicking the actions of a normal human
cough. A vest is worn over the torso that repeatedly compresses and releases
the chest at frequencies from 5 to 20 cycles per second. Each compression (or
oscillation) produces pulsations within the lungs that shears secretions
from the surfaces of the airways and propels them toward the mouth where they
can be removed by normal
coughing. Unlike traditional chest physio-therapy, which must be performed on
the patient while he or she is placed in a series of often uncomfortable
positions, HFCWO can be performed with the patient sitting upright. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>39</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Studies
show that HFCWO therapy is as effective an airway clearance method for patients
who have cystic fibrosis or other forms of compromised pulmonary function as
traditional chest physio-therapy administered by a respiratory therapist.
However, HFCWO can be self-administered, relieving a caregiver of
participation in the therapy, and eliminating the attendant cost of an in-home care provider.
We believe the treatments are cost-effective primarily because they reduce a
patient&#146;s risk of respiratory infections and other secondary complications that
are associated with impaired mucus transport. Secondary complications, such as
pneumonia, may be serious and even life-threatening. According to information
gathered by the U.S. Department of Health and Human Services in 2006, the
average hospital cost attributable to a pneumonia patient was $22,597. </FONT></P>

<P><FONT SIZE=2><I><B>Market Overview</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
SmartVest System is currently prescribed to patients who suffer from CF, COPD,
bronchiectasis, neuro-muscular disorders, post-surgical complications, or other
conditions involving excess secretion and impaired mucus transport. When
we entered the market in 2000, we focused on providing our product to CF
patients because we felt those individuals could greatly benefit from treatment
from our HFCWO system and it was the indication most likely to qualify for
reimbursement at that time. During our 2009 fiscal year, sales to CF patients
comprised approximately 30% of our net revenue, although overlap in patient
populations makes it difficult to attribute revenue to any particular condition
with certainty. We expect that the CF patient population will remain an
important customer population in the future. However, we believe that our
greatest opportunities for growth are in emerging areas of application, such as
COPD, bronchiectasis, neuro-muscular disorders, and acute care. The combined
patient population of addressable pulmonary conditions has been estimated in
the millions. We also believe that international populations present a key
market opportunity, as HFCWO is not yet a prevalent form of therapy outside of
the U.S. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
market our HFCWO products to a broad patient population. Points of contact are
home health care use, hospitals, clinics, and pulmonary rehabilitation centers,
both domestically and internationally. Our products are used by patients
suffering from COPD and CF, post-surgical and intensive care patients at risk
of developing pneumonia, patients with neuro-muscular disease, and
ventilator-dependent patients. While HFCWO is a well-accepted treatment for
bronchiectasis, neuromuscular conditions, and cystic fibrosis, its uses are not
limited to such conditions. It may be prescribed by physicians for any patient
the doctor believes may benefit from improved airway clearance therapy, such as
amyotrophic lateral sclerosis (Lou Gehrig&#146;s disease), spinal injuries,
post-polio syndrome, and other conditions that affect a patient&#146;s lung
function. </FONT></P>

<P><FONT SIZE=2><B>Our Products</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
manufacture and sell products for both the home health care market and the
institutional or hospital market. For patients with a chronic pulmonary
condition, many hours per day may be dedicated to a variety of treatments. The
SmartVest System provides effective airway clearance therapy in a comfortable
and portable design which allows patients greater independence and speed of treatment.
Building from a foundation of product quality, as well as our dedication to
customer service, our goal is to be a consistent innovator in providing airway
clearance therapy to patients with compromised pulmonary function.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
provide our products to a patient population that includes not only CF and COPD
patients, but also patients in post-surgical recovery, intensive care patients
at risk of developing pneumonia, patients with neuro-muscular disease, and
ventilator-dependent patients. Our products have been cleared for market by the
FDA. All U.S. Durable Medical Equipment Medicare Administrative Contractors
(&#147;DME MACs&#148;) have authorized payment through
Medicare Part B for patients with cystic fibrosis, bronchiectasis, where
documented, and neuro-muscular diseases or other conditions that would result
in excess secretions.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>40</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe Electromed is well-positioned to experience
significant growth. We intend to achieve growth through expanding and
repositioning our sales staff within the U.S., establishing and strengthening our sales
relationships in Europe and Asia, and maintaining our leadership in product
innovation. Management believes it has the engineering talent to help lead our
innovation in this field. We intend to use a portion of the net proceeds from
this offering to add members to our sales force and further develop our
institutional sales focus. See &#147;Use of Proceeds&#148; for additional information. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
payment terms allow patients to acquire the SmartVest System in accordance with
reimbursement procedures typically used under Medicare. The amount we receive
for any single unit is based on reimbursement schedules and may vary based on a
number of factors, including Medicare and third-party reimbursement processes
and policies.</FONT></P>

<P><FONT SIZE=2><I><B>The SmartVest System
</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
SmartVest System consists of a pneumatic therapy garment, an electronic pulse
generator for creating and controlling force pulses, and a single hose which
extends the force pulses from the generator to the pneumatic vest. The
SmartVest System is a portable airway clearance therapy system that gives the
patient direct control over the most difficult and time-consuming aspects of
respiratory therapy, and provides caregivers an easier and more reproducible
means of administering therapy to invalid or bedridden patients. The SmartVest
System also has other appealing practical features, including improved ease of
use and a non-clinical appearance. We believe these attributes particularly
appeal to children, teenagers and young adults who represent the majority of
the cystic fibrosis patient population. Our system allows the patient to be
relatively mobile while therapy is being given, unlike manual chest physical
therapy in which the patient must remain in a fixed position. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe the SmartVest System&#146;s therapy garment is unique in its:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><U>Design</U>:
 We have pioneered a vest design that provides consistent and controlled pulse
 pressure that is distributed throughout the vest and treats the entire front
 and back thoracic cavity. The vest is low profile, featuring a soft,
 breathable fabric. Some competitive models have reduced weight and size of
 their vests by reducing coverage area of the chest and applying pressure to
 the chest only. We do not endorse or employ a partial coverage vest, and all
 of our products offer 360-degree coverage. Our vest uses a flow-through
 system design, which improves patient comfort by providing a continuous
 accommodation grid of air release holes in the vest air bladder, allowing air
 releases to automatically adjust. This can prevent lags in pulse pressure
 accommodation as compared to a closed-loop system, in which electronic signal
 generators must continuously send changes in air fill instruction to the air
 pump. We believe heightened patient comfort is realized because of our
 flow-through design.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><U>Size and
 Ease of Use</U>: The SmartVest System is available in
 eight sizes to accommodate children and adults. The simple design of Velcro
 and overlap closure system creates a broad size adjustment range to insure a
 properly tailored fit. It also makes the vest easier to clean and disinfect
 than some competitors&#146; products, which often use straps and buckles. The
 patented design includes a removable bladder, permitting the therapy garment
 to be easily washed and dried. This feature also helps improve infection
 control efforts.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><U>Material</U>:
 An attractive washable nylon shell with quick fit Velcro provides an
 appealing non-clinical look and feel, which we believe enhances self-esteem
 and patient compliance.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><U>Modular
 Assembly</U>: The vest&#146;s modular assembly allows the
 custom modification of the manifold to enhance pulsation and avoid local
 areas of sensitivity such as incisions and catheters.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>41</FONT></P>

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<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>The
 SmartVest System&#146;s electronic pulse generator features the following
 important aspects:</FONT></P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><U>Portable
 Design</U>: The pulse generator for the SmartVest System
 is streamlined and fits into a roller bag for easy transport. The vest and
 hose are carried in a small companion bag. The unit is relatively lightweight
 and can be readily carried or rolled by an individual. The system complies
 with airline carry-on size limits and can be carried onto an airplane or
 stowed in the trunk of a car, allowing patients greater freedom to travel. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><U>Single-Hose
 System</U>: When the SmartVest System is in use, a
 single hose delivers the pulsation to the vest, which we believe provides
 therapy in a more comfortable and unobtrusive manner than a two-hose system.
  In addition to
 facilitating patient comfort, the single-hose system provides
 effective treatment by simplifying delivery of the air pulse energy to the
 lungs. The pulse is delivered evenly from the base of the SmartVest therapy
 garment, extending the force pulses upward and inward in strong but smooth cycles
 of 360-degree latitudes, which delivers simultaneous treatment to the
 patient&#146;s chest and back and all lobes of the lungs. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><U>Programmable
 Pulse Generation</U>: The SmartVest System uses a pulse
 generator with an internal programmable memory feature to generate a
 pneumatic pulse electronically. The pulse frequency can be adjusted from 5 to
 20 cycles per second, which accommodates the required therapeutic range. The
 range can be preset, by programmable controls, to assure patient safety and
 specific treatment requirements. For example, the unit can be programmed to
 deliver a varying pulse frequency during the course of a treatment session
 without requiring manually directed changes. We believe this feature adds
 convenience and enhances patient compliance with treatment protocol choices.
 For more information about the complexity of treatments typically offered to
 patients with chronic pulmonary dysfunction, please refer to the information
 under the heading &#147;Customers.&#148;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><U>Power Supply</U>:
 The SmartVest System also includes a power supply suitable for use in
 international markets, such that voltage and amperage are accommodated
 automatically. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I><B>Other Products</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to maintain and expand our position in the airway clearance therapy industry, we plan
to develop and introduce future advancements in HFCWO products. Our goal is to
provide effective treatment while improving the quality of life for patients
who suffer from chronic pulmonary conditions resulting in impaired airway
clearance. Therefore, we plan to make each product progressively more compact,
portable, and user-friendly. Our goal is to seek improvements in design that
will result in a relatively lower manufacturing cost for each subsequent
generation of the SmartVest System. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
market our Single Patient Use Vest (&#147;SPUV&#148;)&#153; and SmartVest Wrap&reg; to health care providers, particularly
those working in intensive care units. Hospitals issue the SPUV or SmartVest
Wrap to one patient for the duration of his or her stay. Both products
facilitate continuity of care because they introduce the patient to our
product line and may encourage use of the home care SmartVest System, which can
be provided to the chronic condition patient upon discharge. Both products
provide full coverage pulsation. The SPUV is a full-sized vest that is often
used for patients undergoing institutional treatment who are already accustomed
to using a SmartVest System. The SmartVest Wrap, which we introduced in 2007,
is lightweight, convenient, and well-suited for patients recovering from
surgery and short-term illnesses. We believe that the design of the SmartVest
Wrap makes it easy for the health care
professional to operate. In addition, we believe that our ability to provide a
relatively more comfortable therapy alternative to patients results in a higher
likelihood of patient cooperation and consistent use.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have designed a mobile pedestal, which we manufacture and provide with sales of
our institutional models of the SmartVest System. The mobile pedestal allows
for easy transport within the medical facility. This unit includes a pneumatic
feature, permitting ease of movement in raising and lowering the vertical
position of the generator.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>42</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>Business Strengths</B></FONT></P>

<P><FONT SIZE=2><I><B>Intellectual
Property</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
intellectual property represents one of our most significant business
strengths. It allowed us to pioneer an HFCWO device with a single-hose and
flow-through system design, leading to the competitive advantages described
below. We currently hold 17 issued U.S. patents and 5 issued foreign patents
covering the SmartVest System and its underlying technology. As of March 31,
2010, we had approximately 35 additional U.S. and foreign patent applications
pending. These patents and patent applications offer coverage in the field of
air pressure pulse delivery to a human in support of airway clearance. These
patents and patent applications are described in more detail below, under the
heading &#147;Intellectual Property.&#148; </FONT></P>

<P><FONT SIZE=2><I><B>Competitive
Advantages of SmartVest System</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that the SmartVest System offers competitive advantages in improved
patient comfort and satisfaction. Unlike our competitors&#146; products, which are
primarily dependent upon a two-hose, closed-loop system for attaining
consistent air pulse transmission to the vest and lungs, the SmartVest System
relies on a single-hose, flow-through system. We believe a single-hose,
flow-through system provides the following benefits:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>The
 single-hose system simplifies delivery of the air pulse energy to the lungs.
 The pulse is delivered evenly from the base of our vest, extending the
 force pulses upward and inward in strong but smooth cycles of 360-degree
 latitudes, which delivers simultaneous treatment to the patient&#146;s chest and
 back and all lobes of the lungs. In addition, the single hose is less
 obtrusive than a two-hose system and is longer than the hoses used by many
 competing products, allowing the patient greater comfort during the course
 of treatment.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>The
 flow-through system design provides a continuous accommodation grid of air
 release holes in the vest air bladder. No matter what resistance a patient&#146;s
 chest may be creating in normal aspiration (breathing), air release adjusts
 accordingly in the bladder. This can prevent lags in pulse pressure accommodation
 as compared to a closed-loop system, in which electronic signal generators
 must continuously send changes in air fill instruction to the air pump. We
 believe greater patient comfort is realized in our flow-through system
 design.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I><B>Industry Contacts</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
management team has significant business experience and has developed industry
relationships, including memberships in the American Association of Respiratory
Care, Capital Focus (an association of respiratory care professionals), Cystic
Fibrosis Centers established and recognized by the Cystic Fibrosis Foundation,
the European Respiratory Society, and numerous regional and state organizations
who serve the professional interests of respiratory care professionals across
the U.S. We have also, for more than ten years, attended, sponsored, and
participated in numerous medical conferences in the U.S., Europe, and Asia. We
believe these investments of time and capital have increased visibility of the
SmartVest System and established a favorable reputation and perception of
Electromed. In addition, participation in industry conferences allows us to
educate and train health care professionals on the SmartVest System. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to relationships developed at the management level, our staff and
contractors, who often play a key role in the education of current and
potential customers, have developed trusted relationships across the U.S. with
 physicians and other caregivers over the course of their careers.
Over 30% of our full-time employees, including our entire Patient
Services Department and nearly all of our sales representatives, are respiratory therapists. Many of these individuals
have over 20 years of experience in the field of respiratory care, and their
relationships and experience are of great worth to us. These individuals
maintain a dialogue with clinics, patients, patient families, and respiratory
therapist trainers to ensure that our products are being properly operated and
are performing effectively. Additionally, our sales representatives participate
in various events, such as &#147;family days&#148; held by the Cystic Fibrosis Foundation for cystic fibrosis patients, at which
they have an opportunity to demonstrate the effectiveness of the SmartVest
System and further develop relationships with patients, patient </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>43</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>families,
physicians and hospitals. We believe that the relationships and reputation for
service that our staff and contractors have developed are key factors in our
ability to gain patients and secure reimbursement.</FONT></P>

<P><FONT SIZE=2><I><B>Engineering and
Manufacturing Departments</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Another
significant business strength is the valuable know-how of our Engineering and
Manufacturing Departments. The experience of the individuals in these
departments helps ensure the efficient production of high-quality products. In
order to foster continued success, we provide attractive salaries and benefits
to all employees and conduct performance evaluations based on our ongoing
review of the engineering and manufacturing processes. We believe this gives
our team members an incentive to maintain specific manufacturing and quality
standards. In addition, we have established a network of vendors who permit us
to integrate all assembly and quality assurance on a single campus. We believe
that our efficient product development and manufacturing processes create a
business strength because they allow us to offer our products at competitive
prices and respond quickly to increases in demand. </FONT></P>

<P><FONT SIZE=2><B>Growth
Strategy</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe we are poised for significant sales and earnings growth, predicated on
the following objectives:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>Expanding and repositioning our sales staff
 within the U.S. </I>We select experienced medical
 professionals, usually respiratory therapists, to represent our products in
 the field. Our sales representatives, which we identify as Clinical Area
 Managers (&#147;CAMs&#148;), are employed full-time by Electromed, are assigned an
 exclusive territory, and under the supervision of a regional manager, serve
 discrete geographic areas of the U.S. They are equipped with demonstration
 models, and, where appropriate, arrange for such models to be accessed by
 patients through a demonstration program to physicians, clinics, and
 hospitals. We believe this approach is an effective sales model and ensures
 that patients, physicians, clinics, and hospitals receive reliable and
 correct training for our products. We intend to recruit additional CAMs and
 expect that doing so will increase our domestic sales. As we gain sales and
 industry contacts within each territory, we intend to continue to actively
 monitor sales opportunities by repositioning certain of our current CAMs to
 serve smaller geographic areas. In addition, in June 2008, we entered into a
 relationship with a consultant to assist with obtaining contracts with hospital
 buying groups. We have renewed this contract on an annual basis and we
 anticipate that the agreement will continue to be renewed in successive
 one-year terms or that the relationship will otherwise be continued.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>Establishing and strengthening sales relationships in
 Europe and Asia. </I>Internationally, we have
 made sales in more than ten countries. We are actively identifying distributors and other sales opportunities. Our historical practice and continued
 intent includes developing long-term relationships with  distributors
 who possess the knowledge, experience, and financial maturity to serve
 pulmonary patients and reliably satisfy payment obligations. Our agreements
 typically require the distributor to meet particular sales thresholds on an
 annual basis. We believe that expanding our distributor relationships in Europe and
 Asia will generate revenue growth because it will allow us to establish our SmartVest
 System as the preferred airway clearance therapy product in regions where
 HFCWO therapy is not yet widely used. Attention is given to a distributor
 candidate&#146;s knowledge and experience in serving respiratory physicians and
 patients in the host country. We then designate members of our regulatory
 staff to actively monitor the distributor&#146;s conformity with all applicable
 regulations and good practices in the host country. We support our
 distributors by providing advertising materials and direct training
 opportunities at our headquarters.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>Maintaining leadership in product innovation. </I>We
 have pursued our goal of continuous improvement through an active research
 and product development program, and plan to develop and introduce future
 advancements in HFCWO products for patient use. Each product will be designed
 to provide compact, portable, and user-friendly features. In addition, we
 expect to continue enhancing our Single Patient Use Vest and SmartVest Wrap,
 which we market to hospitals and health
 care providers.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>44</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>Our Markets</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
sale of the SmartVest System is by physician&#146;s prescription only, we market to
health care professionals, such as doctors, nurses, respiratory therapists, and
clinic coordinators. However, with respect to both
our in-home and institutional products, the health care professionals&#146;
decisions may be based on preferences expressed by patients. Therefore, we
believe that it is also important to market our products to patients and
caregivers. In addition, because the availability of reimbursement is an
important consideration for health care professionals and patients, we must
also prove the effectiveness of our product to public and private insurance
providers. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
SmartVest System is primarily prescribed for patients with cystic fibrosis,
chronic obstructive pulmonary disease, and bronchiectasis. While HFCWO is an
accepted standard of care for conditions such as bronchiectasis, neuromuscular
conditions, and cystic fibrosis, indications for HFCWO are not disease-specific
and may be prescribed by physicians for any patient the doctor believes may
benefit from improved airway clearance therapy. Individual assessment of each
patient by their physician is appropriate prior to HFCWO prescription. HFCWO
therapy has been shown to reduce:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>the
 incidence of serious and life-threatening episodes of pneumonia;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>the cost of
 medications and hospitalizations; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>the need for
 persistent treatment by respiratory therapists.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
we entered the market in 2000, we focused on providing our product to CF
patients because we believed those individuals could greatly benefit from treatment
with HFCWO therapy and it was the indication most likely to qualify for
reimbursement at that time. During our 2009 fiscal year, sales to CF patients
comprised approximately 30% of our net revenue, although overlap in patient
populations makes it difficult to attribute revenue to any particular condition
with certainty. We expect that the CF patient population will remain an important
customer segment in the future. However, throughout our history, we have sought
to continuously expand our product offerings to a broader patient population,
which now includes post-surgical and intensive care patients at risk of
developing pneumonia, patients with end-stage neuromuscular disease, and
ventilator-dependent patients. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that our greatest opportunities for growth are in emerging areas of
application, such as COPD, bronchiectasis, neuro-muscular disorders, and acute
care. Clinical studies suggest that HFCWO could have significant benefits for
other conditions that result in excess secretion or an impaired ability
to cough or otherwise clear the airways, including a number of genetic
disorders, such as pseudohypoaldosteronism and Kartagener Syndrome, a wide
range of neuro-muscular/neuro-motor disorders, including multiple sclerosis,
cerebral palsy, spina bifida, quadriplegia, and traumatic head and spinal cord
injuries, and a wide range of pulmonary conditions. We estimate that the number
of U.S. patients who have been diagnosed with conditions that may benefit from
HFCWO treatment is approximately 13 million, and that there are several million
additional people who suffer from COPD or other pulmonary impairment conditions
who have not been diagnosed. However, the size of the combined market for HFCWO
is affected by the fact that there is often overlap among patient populations
who suffer from pulmonary impairment.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diseases
and conditions that may benefit from HFCWO therapy include the following:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>genetic and neuro-muscular disorders
 such as cystic fibrosis, muscular dystrophy, lupus, and cerebral palsy;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>acquired diseases
 such as COPD, lung cancer, immuno-deficiency diseases and other diseases causing
 lung impairment; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>accidents and other conditions
 causing
 impaired lung function such as paralysis, scoliosis, surgical
 recovery, and other conditions that restrict airway function, require
 ventilator assistance, or make the patient more vulnerable to lung infections
 such as pneumonia.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>45</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reimbursement
for HFCWO therapy and the SmartVest System varies among public and private
insurance providers, and is often dependent on the reimbursement source. Most
patients are able to obtain reimbursement from Medicare, Medicaid, private
insurance or combinations of the foregoing. Please refer to the subheading in
this Business section entitled &#147;Third-Party Reimbursement.&#148;</FONT></P>

<P><FONT SIZE=2><I><B>Cystic Fibrosis </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cystic
fibrosis (&#147;CF&#148;) is a genetic defect that disrupts chloride (salt) transfer in
and out of cells, causing the normal secretions from the exocrine glands to become
very thick and sticky, eventually blocking ducts of the glands in the pancreas,
lungs and liver. The thick mucus accumulates in the lung&#146;s respiratory tracts,
causing chronic infections, scarring, and decreased vital capacity. Normal
coughing is often not sufficient to dislodge these secretions. Cystic
fibrosis usually appears in early childhood. The median life expectancy for CF
patients in the U.S. is approximately thirty-seven years, although some
patients live into their fifties and beyond. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately
25,000 people in the U.S. have cystic fibrosis, with an estimated 1,000 new
cases diagnosed each year. We estimate that during our 2009 fiscal year, sales
to CF patients comprised approximately 30% of our net revenue, although overlap
in patient populations makes it difficult to attribute revenue to any
particular condition with certainty. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following information is a brief summary of the CF patient population in the
U.S. The information is derived from the Cystic Fibrosis Foundation Patient
Registry, found in its Annual Data Report: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="2%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK 0.5PT;BORDER-LEFT:SOLID BLACK 0.5PT;BORDER-BOTTOM:NONE;BORDER-RIGHT:NONE'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="53%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-TOP:SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK 0.5PT;BORDER-LEFT:NONE;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="13%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-TOP:SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK 0.5PT;BORDER-LEFT:NONE;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="13%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-TOP:SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK 0.5PT;BORDER-LEFT:NONE;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="13%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-TOP:SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=TOP STYLE='BORDER-TOP:SOLID BLACK 0.5PT;BORDER-LEFT:NONE;BORDER-BOTTOM:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=2><B>1985</B></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=2><B>1995</B></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=2><B>2008</B></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Total CF
 Patients (receiving care at a CFF-accredited care center in the U.S.)</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=2>15,145</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=2>19,736</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=2>25,651</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Total Newly
 Diagnosed Patients</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=2>802</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=2>822</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=2>1,006</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Median
 Survival Age</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=2>25.6 years</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=2>29.6 years</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=2>37.4 years</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
patients with cystic fibrosis require respiratory therapy as a daily part of
their care regimen. The buildup of thick, sticky mucus in the lungs clogs
airways and traps bacteria, providing an ideal environment for respiratory
infections and chronic inflammation. This inflammation causes permanent
scarring of the lung tissue, reducing the capacity of the lungs to absorb
oxygen and, ultimately, sustain life. Respiratory therapy must be performed
even when the patient is feeling well, in order to prevent infections and
maintain vital capacity.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Traditionally,
care providers perform Chest Physical Therapy (&#147;CPT&#148;) one to four times per
day. CPT consists of a patient lying in one of twelve positions (most with the
head pointed downward) while a caregiver &#147;claps&#148; or pounds on the chest and
back over each lobe of the lung. To treat all areas of the lung in all twelve
positions requires pounding for 30 to 45 minutes along with inhalation therapy.
CPT clears the secretions by shaking loose airway secretions through chest
percussions and draining the loosened secretions towards the mouth. Active coughing
is required to ultimately remove the loosened secretions.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although
some older patients can learn to perform CPT on themselves, CPT usually
requires the assistance of a caregiver, often a family member, a nurse or
respiratory therapist. It is a physically exhausting process for both the
patient and the caregiver. Patient and caregiver non-compliance with prescribed
protocols is a well-recognized problem that diminishes the effectiveness of
this method. CPT effectiveness is also highly technique sensitive and degrades
as the giver becomes tired. The requirement that a second person be available
to perform the therapy severely limits the independence of the CF patient.</FONT></P>

<P><FONT SIZE=2><I><B>Bronchiectasis</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bronchiectasis
is a chronic lung condition characterized by abnormal widening of the bronchial
tubes, or, as defined by Medicare, a productive cough that occurs more than
twice per year or lasts longer than six months. In a patient with
bronchiectasis, the bronchial tubes are damaged by the abnormal widening, which
impairs their ability to clear mucus from the lungs and causes a chronic cough.
Bronchiectasis may affect multiple areas of one or both lungs. The condition is
often caused by inflammation and infection of the airways, for example due to
bacterial lung infections (chronic bronchitis or pneumonia) or inhaling foreign
objects. Cystic fibrosis causes about half of all </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>46</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>bronchiectasis
in the U.S. The effects of bronchiectasis include excessive coughing, shortness
of breath, fatigue, and recurring pneumonias. Depending on the severity of a
patient&#146;s condition, treatments range from bronchodilator medications
(inhalers), antibiotics, daily CPT and drainage, or surgical removal of the
affected lung tissue. We believe that our success in the CF market suggests
that our SmartVest System can provide effective treatment to patients with
bronchiectasis, as clearing the airways of secretions is central to the
treatment of both conditions. We estimate that during our 2009 fiscal year,
sales to bronchiectasis patients comprised approximately 43.5% of our net
revenue, although overlap in patient populations makes it difficult to
attribute revenue to any particular condition with certainty.</FONT></P>

<P><FONT SIZE=2><I><B>Chronic Obstructive
Pulmonary Disease</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chronic
obstructive pulmonary disease is a progressive disease that, over time, makes
it more and more difficult for a patient to breathe. According to statistics
published by the World Health Organization in November 2008, COPD is the fourth
leading cause of death in the world, and some experts expect that it will be
the largest cause of disability and death due to respiratory disease in the
year 2020. It is also the only cause of death that is rising in the U.S. and in
the world. The death rate from COPD is rising fastest among women. According to
the U.S. Centers for Disease Control and Prevention, 10 million Americans
already suffer from COPD and another 14 million have impaired lung function.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;People
with COPD may have chronic inflammation of the bronchial tubes, emphysema or,
more likely, both. In emphysema, the walls between the air sacs in the lungs
are damaged, causing them to lose their shape and become deflated. This damage
can also destroy the walls of the air sacs, leading to fewer and larger air
sacs instead of many tiny ones. In chronic obstructive bronchitis, the lining
of the airways is constantly irritated and inflamed. This causes the lining to
thicken. The patient&#146;s immune system reacts by increasing secretions,
making it difficult to breathe. Thus, patients with COPD slowly suffocate over
a period of years. Using auxiliary muscles, people can inhale with considerable
effort but are unable to exhale. Even a mild case of COPD can have an impact on
the heart. Heart failure is also associated with severe COPD. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;COPD
has no cure, and traditional treatments are inconvenient for the patient and
have limited effectiveness. These treatments consist of inhaled dilator and
steroid medications, physical therapy exercises, major surgery, such as a lung
transplant or lung volume reduction surgery, and oxygen therapy, either
constantly through nasal prongs or for several hours per day through a mask.
For some patients, the primary course of action is merely to manage the risks
and complications that result from the disease, such as by obtaining pneumonia
and influenza vaccines, since infections may suddenly increase the severity of
COPD. We believe that the combination of excess secretions and the inability to
forcibly exhale to clear the lungs make COPD patients ideal candidates for our
airway clearance therapy. </FONT></P>

<P><FONT SIZE=2><I><B>Neuro-Muscular
Diseases</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neuro-muscular
diseases include muscular dystrophy, spinal muscular atrophy, and multiple
sclerosis. Patients with neuro-muscular diseases have difficulty breathing, as
well as difficulty clearing their lungs of accumulated mucus. The conditions
often cause a patient&#146;s diaphragm muscles to deteriorate and lead to poor
spinal alignment, each of which impairs the patient&#146;s ability to fully inhale.
In addition, poor muscle coordination makes it difficult for the patient to
forcefully exhale or cough. Due to this difficulty, patients with
neuro-muscular diseases have an exceptionally high risk of developing serious
secondary complications, such as pneumonia and respiratory failure. Secretion
management is a critical aspect of the respiratory care of these patients. We
believe that our SmartVest System aids in producing effective coughs, and
thereby improves breathing and reduces the risk of infection. </FONT></P>

<P><FONT SIZE=2><I><B>New Markets</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Acute Care</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
acute care market includes ventilator-dependent patients and post-surgical
patients at risk for pulmonary complications. Patients at risk include smokers,
those with a history of lung disease, asthma, or chronic bronchitis, the
overweight, the elderly, those immobilized by illness or injury, and those who
have an adverse reaction to anesthesia. Specific problems may include
pneumonia, infection, atelectasis (collapsed lung), and/or respiratory failure
all of which increase mucus retention in the lungs. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>47</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have worked with health care professionals to create products for acute care
patients, including our Single Patient Use Vest, or SPUV, and our SmartVest Wrap. We
market both of these products to health care providers, particularly those
working in intensive care units. Hospitals issue the SPUV or SmartVest Wrap to
one patient for the duration of his or her hospital stay. Both products
facilitate continuity of care, because they introduce the patient to our
product line and may encourage use of the home care SmartVest System, which can
be provided to the chronic condition patient upon discharge. Both products
provide full coverage pulsation. The SPUV is a full-sized vest that is often
used for patients undergoing institutional treatment who are already accustomed
to using a SmartVest System. The SmartVest Wrap, which we introduced in 2007,
is lightweight, convenient and well-suited for patients recovering from surgery
and short-term illnesses. We believe that the lightweight nature of the
SmartVest Wrap makes it easy for the health care professional to operate. In
addition, we believe that our ability to provide a relatively more comfortable
therapy alternative to patients results in a higher level of patient
cooperation and consistent use.</FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
Indications</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
benefits of airway clearance therapy using the SmartVest System are not
disease-specific. They apply to a broad range of
conditions characterized by lung congestion. One currently underserved group of
patients are those with underlying medical conditions and circumstances, such
as severe down syndrome, demobilizing injuries and severe muscular distrophy.
Patients with severe underlying conditions often suffer from multiple physical
problems and may be non-ambulatory. Their inability to move predisposes them to
lung congestion, which often progresses to more serious medical conditions such
as pneumonia. We believe these patients could improve their lung functionality
and reduce their incidence of infection by using airway clearance therapy with
the SmartVest System, and that the consistently higher oxygen levels that
result from improvements to breathing could offer ancillary benefits for their
conditions. </FONT></P>

<P><FONT SIZE=2><B>Marketing, Sales and Distribution </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe we are poised for significant sales and earnings growth, which we
intend to achieve through expanding and repositioning our domestic sales staff,
focusing on continuing education opportunities and industry relationships,
building distributor relationships in Europe and Asia, and maintaining
leadership in product innovation. Each of these objectives is described in more
detail above in the section entitled &#147;Overview&#151;Growth Strategy.&#148;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
sale of the SmartVest System is by physician&#146;s prescription only, we focus our
marketing efforts on physicians and health care professionals such as
physician&#146;s assistants, nurses, nurse practitioners, and respiratory
therapists, as well as directly to their patients. In addition to increasing
the visibility and acceptance of our products through participating in medical
conferences and maintaining industry contacts, as explained in more detail
above in the section entitled &#147;Business Strengths&#151;Industry Contacts,&#148; we have a
designated Marketing Department and place advertisements in leading medical
magazines and journals in the U.S. and Europe. We also believe that the
Internet has provided us with a marketing benefit in recent years, as several
overseas distributors have contacted us after visiting our website. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to distributors overseas, as explained in more detail below under the
heading &#147;International Marketing,&#148; we have established our own sales force in
the U.S., nearly all of whom are respiratory
therapists. Each sales representative, or Clinical Area Manager (&#147;CAM&#148;), is
responsible for introducing our products, principally the SmartVest System, to
clinics and hospitals within a specific geographical area, and are also able to
provide training and continued support to customers. We have also developed a
network of over 300 respiratory therapists and health care
professionals to assist with training patients across the U.S. on a
non-exclusive independent contractor basis. We believe that the professional
understanding of the Clinical Area Managers and trainers demonstrates our
commitment to customer service and facilitates sales. We expect that with
expanded funding, our current and future Clinical Area Managers can capture
additional market share.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>48</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have been marketing our SmartVest System and predecessor products
to patients with cystic fibrosis for ten years. We have also been
successful in securing reimbursement from major private insurance providers,
HMOs, state Medicaid systems, and the federal Medicare system, which is an
important consideration for patients considering an HFCWO course of therapy. We
believe that our SmartVest System has created a solid foundation to support our
entry into progressively larger markets for airway clearance therapy. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
evaluating market expansion for the SmartVest System, it is important to
understand the needs of the patients requiring airway clearance therapy and, in
some instances, their care providers. The essential requirements that make a
patient a candidate for airway clearance therapy are compromised respiratory
function with a need to:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>secure
 airway clearance therapy on a cost-effective long-term basis, confidently and
 with relative ease;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>maintain
 and/or improve pulmonary status;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>mobilize secretions several times per day; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>carry out
 activities of daily living.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
SmartVest System provides a convenient means to mobilize secretions. In contrast, traditional manual Chest
Physical Therapy (&#147;CPT&#148;) requires the presence and assistance of a second person,
severely limiting independence. Attending college, working a job, traveling on
business, and having a normal social life are all adversely impacted by the
need for CPT. Although some older patients can learn to perform some elements
of CPT on themselves, many adults do not, and must forego regular CPT in order
to meet the requirements of school and employment with concomitant risk to
their health.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
SmartVest System is designed to meet the individual patient&#146;s needs by
providing a therapy that is efficient, is easy to administer, and can be
performed independently. Electromed&#146;s established marketing and product support
services provide education, training, and follow-up with the patient population
to insure the product is integrated into their daily treatment regimen. We
believe advantages of the SmartVest System to the independent patient include:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>usually can
 be reimbursed by private insurance, by federal or state government programs
 or combinations of the foregoing;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>consistent
 treatments at home;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>independence
 from a dedicated caregiver;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>portability;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>improved
 comfort during therapy; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>improved
 self-image. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I><B>International
Marketing</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
international market for HFCWO therapy devices is emerging and we believe
represents a major growth opportunity for us. In fiscal 2009, our
international sales comprised approximately 7.1 % of net revenue. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Internationally, we have made sales in more than
ten countries. We are actively identifying distributors and other sales opportunities. Our historical practice and
continued intent includes developing long-term relationships with distributors who have
knowledge and experience in
serving respiratory physicians and patients in the host country. Units are sold
at a consistent price with prepayment usually required. For all international sales, our
Quality Assurance Department and Chief Financial Officer monitor pricing,
payments and conforming regulatory practice. Our Chief Executive Officer and
Marketing Director oversee the growth and performance of international sales.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>49</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
obtained ISO 9001 Certification in January 2005, which provides assurance to
our international distributors and customers that our products conform with
uniform standards for manufacturing quality and that our business meets certain
professional standards. Securing certification from the International
Organization for Standardization (&#147;ISO&#148;) provides assurance across national
boundaries that the goods imparted are of a reliable and predictable quality,
consistent with the representations of the manufacturer. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have
also obtained clearance to use the European Union CE Mark on our products. The CE Mark is required for
medical device sales in countries within the European Economic Area, which
includes the twenty-seven member countries of the European Union as well as
Iceland, Liechtenstein, Norway, Switzerland, and Turkey, and other European
countries that may adopt EU standards voluntarily. We also require all of our
distributors to comply with their home country regulations. We originally
obtained clearance to use the CE Mark in April 2005. Renewal is required every five years, and
our notified body performs an annual audit to ensure that we are in compliance
with all applicable regulations. We have maintained our CE Mark in good
standing since originally receiving it and most recently renewed it in January
2010. </FONT></P>

<P><FONT SIZE=2><B>Competition
</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;High
Frequency Chest Wall Oscillation (&#147;HFCWO&#148;) was first developed for CF patients at
the University of Minnesota. The purpose
of HFCWO is to provide more effective mucus clearance in a form
that could be performed independently of a caregiver. The original technology
was licensed to American Biosystems, Inc. (now Advanced Respiratory, Inc.
(&#147;ARI&#148;), part of Hill-Rom Holdings, Inc., a publicly traded company) which,
until the introduction of our original MedPulse Respiratory Vest System&reg; in
2000, was the only manufacturer of this technology. All of ARI&#146;s products use a
two-hose, closed-loop system, in contrast to the single-hose, flow-through system
that we designed, which we believe provides greater ease of
use and patient comfort. In 2005, Respiratory Technologies, Inc., a privately
held company doing business as RespirTech, received FDA clearance to market
their inCourage system (the &#147;inCourage System&#148;), which includes a HFWCO vest.
Like our SmartVest System, ARI&#146;s The Vest and RespirTech&#146;s inCourage System are
cleared for market by the FDA. We believe we compete effectively with our
competitors on the basis of product features and customer service. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Alternative products for administering pulmonary
 therapy include: </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Positive Expiratory Pressure (&#147;PEP&#148;) mask, which
 provides backpressure into the lungs on expiration to keep respiratory tracts
 open longer to drain;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>The Flutter<I>&reg;</I> (Scandipharm), a tube which vibrates
 on expiration;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Acapella&reg; Vibratory PEP Therapy System (Smiths
 Medical), a handheld device that combines PEP with oscillations;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Intrapulmonary Percussive Ventilation Device,
 generally comprised of a ventilator that combines positive air pressure with
 nebulisation as appropriate; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Traditional Chest Physical Therapy (&#147;CPT&#148;), which is
 usually performed one to four times per day. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Physicians
may prescribe a single product or treatment or a combination of products,
depending on what they feel will best ensure patient compliance and well-being.
We believe our primary competitive advantage over alternative treatments is
patient comfort, ease of use, and the effectiveness of HFCWO treatment as
compared to CPT and other alternative treatments. Because HFCWO is not
&#147;technique dependent,&#148; as compared to most other pulmonary therapy products,
therapy begins automatically once power is provided and remains consistent and
controlled for the duration of the session. We strive
to make the SmartVest System an increasingly attractive and comfortable form of
HFCWO therapy. We believe that HFCWO therapy generally, and our SmartVest
System in particular, produces less interference with daily activities, which
increases the likelihood of regular use. We believe these advantages encourage
physicians to prescribe and patients to request the SmartVest System for
pulmonary therapy.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>50</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
a clinical performance perspective, all HFCWO products meet a common standard
of &#147;substantial evidence.&#148; As a result, features and benefits such as number of
hoses required to deliver the therapy (one hose versus two hoses), construction
quality, appearance of the generator, reputation for patient services, and
sales effectiveness of field personnel have become key variables. We believe
that the product features of our SmartVest System enable us to compete
effectively, particularly when health care professionals, patients, and
caregivers are provided with demonstrations of product choices prior to
committing to a specific product. We often provide demonstration units to
encourage such comparisons. Unlike our competitors&#146; products, the SmartVest
System has a single-hose, flow-through system design and an adjustable
vest made from soft, breathable and washable fabric. We use Velcro in our
patented vest to provide a tailored fit, as opposed to an inflatable fit model.
In addition to product features, our focus on providing exemplary customer
training and service, along with our commitment to engage and retain highly
motivated employees and contractors, many of whom are medical professionals,
provides a valuable competitive advantage. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Physicians
who treat patients with respiratory difficulties are primarily concerned with
maintaining the pulmonary capacity of their patients. Therefore,
they will prescribe whatever product or combination of products they feel will
best ensure patient compliance and well-being. The CF patient population is
particularly unique in its knowledge of the disease, therapy options, and
willingness to demand the best treatment possible. Patients may use some or all
of these devices and techniques, depending upon their health status, severity
of disease, compliance, or personal preference. </FONT></P>

<P><FONT SIZE=2><B>Manufacturing</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Electromed
staff is responsible for manufacturing each SmartVest System. While components
are outsourced based upon detailed specifications, each SmartVest System is
assembled, tested, and approved for final shipment at our manufacturing site in
New Prague, Minnesota, under careful control consistent with FDA, Underwriters
Laboratory (&#147;UL&#148;), and ISO standards. While all third-party vendors present
some degree of risk of supply or impairment issues, many of our vendors are
located within 100 miles of our headquarters, which enables us to closely
monitor the supply chain. We maintain at least a two-month supply of all of our
critical components.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
headquarters in New Prague, Minnesota include a dedicated manufacturing and
engineering facility of more than 10,000 square feet. Our site has been
regularly audited by the FDA, in accordance with FDA practices, and we maintain
our operations in a manner consistent with FDA requirements for a medical
device manufacturer. Our manufacturing processes emphasize simplicity,
cost-effectiveness, and a capacity to realize increases in production volume
with escalation in demand. All employees are responsible for maintaining
specific manufacturing and quality standards, which are monitored by our
quality assurance manager under an extensive system designed to satisfy FDA and
ISO standards. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
rigorous quality standard is applied to components received from vendors. Any
adverse findings result in the quarantine of any out of specification
components. Before a SmartVest System is shipped to a patient, rigorous testing
is again applied to match the performance of the air pulse generator with the
particular vest size stipulated for the patient. </FONT></P>

<P><FONT SIZE=2><B>Research
and Development</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have demonstrated our commitment to product development by introducing several
new products and product enhancements since we first entered the market in
2000. In addition to the 17 U.S. patents and 5 foreign patents that we currently
hold, we have a number of pending patent applications domestically and
internationally. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>51</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2009, our research and development staff consisted of three
full-time employee engineers. We also receive engineering support from several
consultants, including Mr. Craig Hansen, pursuant to an agreement with Hansen
Engine Corporation. See &#147;Certain Relationships and Related Party Transactions.&#148;
Our team, the majority of whom have experience in respiratory therapy and
medical device development, has a demonstrated record of developing new
products which receive the appropriate product approvals and regulatory
clearances, with our products having been approved or cleared in the U.S., Canada, and the
member countries of the European Economic Area. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the fiscal years ended June 30, 2009 and 2008, and the six months ended
December 31, 2009, we incurred research and development expenses of $358,000,
$271,000, and $251,000, respectively. As a result of our expected investments
in enhancing the SmartVest System, we expect the amount we spend on research
and development to increase in the future. </FONT></P>

<P><FONT SIZE=2><B>Intellectual
Property </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently hold 17 issued U.S. patents and 5 foreign patents covering the
SmartVest System and its underlying technology. In addition, as of March 31, 2010, we had
approximately 35 pending U.S. and foreign patent applications. The pending U.S.
patent applications primarily relate to additional aspects of the underlying
technology for the SmartVest System and the pending foreign patent applications
correspond to our existing U.S. patents and pending U.S. patent applications.
We believe it will take several years, or possibly longer, for pending patent
applications to result in issued patents, if at all. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
current patents and patent applications offer coverage in the field of air
pressure pulse delivery to a human in support of airway clearance. The
following table provides information about our issued U.S. patents: </FONT></P>

<table cellpadding=0 cellspacing=0 border=0 align=center>
<tr >
     <td valign=top style='border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in; ' nowrap>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="TIMES NEW ROMAN BOLD,serif" style='font-variant:small-caps;'><b><font face="TIMES NEW ROMAN BOLD,serif" style='font-size:10.0pt;'>U.S. Patent<br>
Number</font></b></font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="TIMES NEW ROMAN BOLD,serif" style='font-variant:small-caps;'><b><font face="TIMES NEW ROMAN BOLD,serif" style='font-size:10.0pt;'>&nbsp;</font></b></font></p>
</td>
     <td width=330 style='border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;' nowrap>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="TIMES NEW ROMAN BOLD,serif" style='font-variant:small-caps;'><b><font face="TIMES NEW ROMAN BOLD,serif" style='font-size:10.0pt;'>Title</font></b></font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="TIMES NEW ROMAN BOLD,serif" style='font-variant:small-caps;'><b><font face="TIMES NEW ROMAN BOLD,serif" style='font-size:10.0pt;'>&nbsp;</font></b></font></p>
</td>
     <td width=120 nowrap style='border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;' nowrap>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="TIMES NEW ROMAN BOLD,serif" style='font-variant:small-caps;'><b><font face="TIMES NEW ROMAN BOLD,serif" style='font-size:10.0pt;'>Issued</font></b></font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>5,453,081</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Pulsator</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;September 26, 1995</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>5,569,170</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Pulsator</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;October 29,1996</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>6,254,556</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Repetitive Pressure Pulse Jacket</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;July 3, 2001</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>D456,591</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Human Body Pulsating Jacket</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;May 7, 2002</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>D461,897</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Human Body Respiratory Vest</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;August 20, 2002</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>6,488,641</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Body Pulsating Apparatus</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;December 3, 2002</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>D469,876</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Human Respiratory Bladder</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;February 4, 2003</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>6,547,749</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Body Pulsating Method and Apparatus</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;April 15, 2003</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>6,605,050</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Body Pulsating Jacket</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;August 12, 2003</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>D478,989</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Supine Respiratory Vest</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;August 26, 2003</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>6,676,614</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Vest for Body Pulsating Method and Apparatus</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;January 13, 2004</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>D531,728</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 nowrap style='padding:0in 0in 0in 0in;' nowrap>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Combined Human Body Pulsator and Movable&nbsp;Pedestal</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;November 7, 2006</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>D547,718</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Air Pulsating Generator</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;July 31, 2007</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>7,278,978</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Respiratory Vest with Inflatable Bladder</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;October 9, 2007</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>7,374,550</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Respiratory Vest for Repetitive Pressure Pulses</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;May 20, 2008</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>D585,991</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Combined Air Pulsator and Movable Pedestal</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;February 3, 2009</font></p>
</td> </tr>
<tr >
     <td valign=top width=80 style='padding:0in 0in 0in 0in;'>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>7,537,575</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
</td>
     <td valign=top width=330 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;Body Pulsating Method and Apparatus</font></p>
</td>
     <td valign=top width=35 style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp; </font></p>
</td>
     <td valign=top width=120 nowrap style='padding:0in 0in 0in 0in;'>
<p align=left style='margin:0in;margin-bottom:0pt;text-align:left;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;May 26, 2009</font></p>
</td> </tr> </table>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have also received the following U.S. trademark and service mark registrations:
MEDPULSE, MEDPULSE RESPIRATORY VEST SYSTEM, SMARTVEST, SMARTVEST WRAP,
SMARTWRAP, FACT, SOFT START, TRIMLINE, and CREATING SUPERIOR CARE THROUGH
INNOVATION.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to our patent and trademark protected intellectual property, we seek
to protect proprietary information and know-how through confidentiality and
non-competition provisions in the agreements with our executives and employees.
We cannot provide assurance that these persons will abide by the terms of these
agreements. In addition, despite measures taken to protect our intellectual
property, unauthorized parties might copy aspects of our products or obtain and
use information that we regard as proprietary.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>52</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend to continue expanding our intellectual property portfolio, and particularly our
patent position, as our business grows. However, our patent applications may
not result in issued patents, and we cannot assure you that any patents that
have been issued or might be issued will be broad enough to prevent competitors
from emulating our products, or that all of our patents will be upheld if
asserted against third parties, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
industry is characterized by the existence of a large number of patents and
frequent litigation based on assertions of patent infringement. We were the
defendant in a patent infringement action filed in U.S. District Court by
Advanced Respiratory, Inc. of St. Paul, Minnesota, a subsidiary of Hill-Rom
Holdings, Inc. Management and legal counsel took steps to provide an effective
defense. On July 22, 2003, after a jury returned its verdict in our favor, the
court dismissed the infringement action. On September 5, 2003, a Settlement
Agreement was reached and approved by both parties. The terms of this agreement
are confidential.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a description of litigation relating to our intellectual property, please refer
to the subheading in this Business section entitled &#147;Legal Proceedings.&#148; </FONT></P>

<P><FONT SIZE=2><B>Product Warranties</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
SmartVest Systems initially purchased and currently located in the United
States and Canada, we provide a lifetime warranty to the individual patient for
whom the system is prescribed. The lifetime warranty covers the cost of a
replacement system, parts and labor. For institutions and sales made outside of
the United States and Canada, we provide a limited three-year warranty for
replacement systems, and cost of parts and labor. Our warranties provide that
if a newer model of our systems has been developed and sold between the time of
purchase of the original system and the need for replacement, we may replace
the system with a newer model at our discretion. </FONT></P>

<P><FONT SIZE=2><B>Third-Party Reimbursement</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Much of our
growth is dependent on continued acceptance of HFCWO technology by
third-party payers. In the U.S., individuals who use the SmartVest System will
generally rely on third-party payers, including private payers and governmental
payers such as Medicare and Medicaid, to cover and reimburse all or part of the
cost of using the SmartVest System. Reimbursement for HFCWO therapy and our
SmartVest System varies among public and private insurance providers. Most
patients are able to obtain reimbursement from Medicare, Medicaid, private
insurance or combinations of the foregoing. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recent
government and private sector initiatives in the U.S. and foreign countries are
aimed to limit the growth of health care costs, including price regulation, competitive
pricing, coverage and payment policies, comparative effectiveness of therapies,
technology assessments, and managed-care arrangements, and are causing the
marketplace to put increased emphasis on the delivery of more cost-effective
medical devices. Government programs, including Medicare and Medicaid, private
health care insurance, and managed-care plans have attempted to control costs
by limiting the amount of reimbursement they will pay for particular procedures
or treatments, restricting coverage for certain products or services, and
implementing other mechanisms designed to constrain utilization and contain
costs, including, for example, gainsharing, where a hospital agrees with
physicians to share any realized cost savings resulting from the physicians&#146;
collective change in practice patterns such as standardization of devices where
medically appropriate. This has created an increasing level of price
sensitivity among customers. We believe HFCWO can reduce the risk of secondary
complications and required hospitalizations from excess secretion, and is
therefore a cost-effective alternative to traditional treatments. We believe
that the cost-saving aspects of the SmartVest System will increase in
importance as cost control measures become more prevalent in the health care
industry.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
pursue product reimbursement and payment by seeking insurance
authorization and processing claims on behalf of the patient. We
have developed an effective system to secure the prescription and
obtain reimbursement. First, a physician sends us a written prescription for a patient&#146;s SmartVest System. In response, we provide
a single-page data collection form to the prescribing physician. The
information provided to us on this form enables our staff to confirm the validity of the prescription, contact the patient
and/or the patient&#146;s family to secure information necessary for reimbursement
and confirm the likelihood of reimbursement, advise our Patient Services
Department of the referral so that we can arrange for delivery of the SmartVest
System, ensure proper sizing and contact a trainer in the area of the patient&#146;s
home to arrange a training time, and initiate an order copying the Administrative
Department so that our Manufacturing/Shipping Department can arrange to ship
the patient&#146;s SmartVest System as promptly as possible. Once shipped, a notice
is transmitted to our Reimbursement and Accounting Departments so that a claim
can be prepared and tracked to payment. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>53</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reimbursement
for HFCWO therapy and our SmartVest System varies among public and private
insurance providers, and is often dependent on the circumstances of the
patient. Reimbursement under Medicare Part B is allowed pursuant to Local
Coverage Determinations by all four regional carriers designated by the
Department of Health and Human Services as Durable Medical Equipment Medicare
Administrative Contractors (&#147;DME MACs&#148;). All four regional DME MACs have
approved the SmartVest System for reimbursement. Consequently, reimbursement is
available under Medicare in all U.S. states and territories for patients who
have CF, certain neuro-muscular disorders, or bronchiectasis, which is usually
defined as a productive cough that occurs more than twice per year or lasts
longer than six months. Due to the broad definition of bronchiectasis,
reimbursement is often available under Medicare for any condition that causes
excess secretions and is not effectively treated by antibiotics. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although
the reimbursement process is subject to contingencies which may affect the
status of the patient&#146;s claim, the majority of patients are able to obtain
monthly payments from Medicare, Medicaid, private insurance or combinations of the
foregoing. Our payment terms allow patients to acquire the SmartVest System in
accordance with reimbursement procedures typically used under Medicare. The
amount we receive for any single unit is based on reimbursement schedules and
may vary based on a number of factors, including Medicare and third-party
reimbursement processes and policies.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Overseas
sales to distributors are prepaid. Overseas sales were approximately 7.1 % of
our net revenue in fiscal 2009, as explained in more detail below under the
heading &#147;International Marketing.&#148; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
key element in our customer support strategy has been achieved by establishing
an effective Reimbursement Department. The skill and knowledge gained and
offered by our Reimbursement Department is an important factor in building our
revenue and serving patients&#146; financial interests. Its function and attendant
responsibilities involve:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>insurance pre-authorizations;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>claims processing; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>payment.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that subsequent generations of HFCWO products will also qualify for
reimbursement under Medicare Plan B and most major health plans. However, some
third-party payers must also approve coverage for new or innovative devices or
therapies before they will reimburse health care providers who use the medical
devices or therapies. Consequently, our sales will continue to depend in part
on the availability of coverage and reimbursement from third-party payers, even
though our devices may have been cleared for commercial distribution by the
FDA.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
manner in which reimbursement is sought and obtained varies based upon the type
of payer involved and the setting in which the procedure is furnished.
The nature of any future legislation is uncertain, making it
difficult for us to predict the impact of cost-containment trends on operating results.</FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Medicare
and Medicaid</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
SmartVest System may be reimbursed under the Medicare-assigned billing code for
High Frequency Chest Wall Oscillation devices if the patient has cystic
fibrosis, bronchiectasis (including chronic bronchitis or COPD that has
resulted in a diagnosis of bronchiectasis), or any one of certain enumerated
neuro-muscular diseases, </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>54</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>and can demonstrate that another less expensive
physical or mechanical treatment did not adequately mobilize retained
secretions. The amount of reimbursement a provider receives is based on the
&#147;allowable&#148; values for HFCWO therapy. We believe the payment resulting from
this process is generally sufficient, but there is a significant risk that new
or modified products could have a lower reimbursement rate, or that the levels
of reimbursement currently available for our existing products could decrease,
which would hamper our ability to market and sell that product. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commercial
Insurers</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many
private payers look to Medicare as a guideline in setting their coverage
policies and payment amounts. They tend to seek guidance from a variety of
sources, including recommendations issued by the U.S. Preventive Services Task
Force (&#147;USPTF&#148;), which is an independent panel of experts assembled by the U.S.
Department of Health and Human Services that develops recommendations for
clinical preventive services. The current coverage policies of these private
payers may differ from the Medicare program, and the payment rates they make
may be higher, lower, or the same as the Medicare program. If the Centers for
Medicare and Medicaid Service, the USPTF or other agencies make negative
recommendations or decrease or limit reimbursement payments for physicians and
individuals, this may affect coverage and reimbursement determinations by many
private payers. Additionally, some private payers do not follow the Medicare
guidelines, and those payers may reimburse only a portion of the costs
associated with the use of our products, or not at all. </FONT></P>

<P><FONT SIZE=2><B>Governmental
Regulation</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have received clearance from the U.S. Food and Drug Administration to market
our products, including the SmartVest System, as a &#147;powered percussor.&#148; Since
inception, management has retained the necessary clinical, medical and legal
expertise to support required clearances and approvals to market our products. On April 7,
2004, our Model 2000ez SMARTVEST was cleared to market by the FDA pursuant to a
510(k) submission.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
medical devices are subject to regulation by numerous government agencies,
including the FDA and comparable foreign agencies. To varying degrees, each of
these agencies requires us to comply with laws and regulations governing the
development, testing, manufacturing, labeling, marketing, and distribution of
our medical devices. A full-time quality assurance manager as well as a
consulting regulatory and clinical expert provide detailed oversight of their
respective areas of responsibility.</FONT></P>

<P><FONT SIZE=2><I><B>FDA Premarket Clearance and Approval Requirements</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
of our current products have been cleared for sale in the U.S. by the FDA under
the premarket notification (510(k) clearance process). However, unless an
exemption applies, if we develop new medical devices or modifications to
existing products that would affect the product&#146;s safety or effectiveness, we
must obtain FDA clearance before marketing the new or modified product in the
U.S., either through the 510(k) clearance process or the more complex Premarket
Approval Application (&#147;PMA&#148;) process.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
510(k) clearance process would be available if we could demonstrate that our
new medical device is substantially equivalent to a legally marketed medical
device. In this process, we would be required to submit data that supports our
equivalence claim. While human clinical data has not been routinely required
for 510(k) products in the past, the FDA is increasingly requiring it for new
technologies. If human clinical data is required, it must be gathered in
compliance with FDA investigational device exemption regulations. We must
receive an order from the FDA finding substantial equivalence to another
legally marketed medical device before we can commercially distribute the new
medical device. Modifications to cleared medical devices can be made without
using the 510(k) process if the changes do not significantly affect safety or
effectiveness. A very small number of our devices are exempt from pre-market
review.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
second, more rigorous process, known as pre-market approval (PMA), would
require us to independently demonstrate that the new medical device is safe and
effective. We would do this by collecting data regarding design, materials,
bench and animal testing, and human clinical data for the medical device. The
FDA will authorize commercial release if it determines there is reasonable
assurance that the medical device is safe and </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>55</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>effective. This determination is based on benefit
outweighing risk for the population intended to be treated with the device.
This process is much more detailed, time-consuming and expensive than the
510(k) clearance process.</FONT></P>

<P><FONT SIZE=2><I><B>510(k) Clearance Pathway</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
a 510(k) clearance is required, we will be required to submit a 510(k)
demonstrating that our proposed device is substantially equivalent to a
previously cleared 510(k) device or a device that was in commercial
distribution before May&nbsp;28, 1976 for which the FDA has not yet called for
the submission of PMAs. In cases where no predicate is available, we can
request a de novo classification of the product. If the FDA classifies the
device as substantially equivalent to a predicate device, we will receive an
order that allows us to market the device. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
modification to a 510(k)-cleared device that would constitute a major change in
its intended use, or any change that could significantly affect the safety or
effectiveness of the device, requires a new 510(k) clearance and may even, in
some circumstances, require a PMA, if the change raises complex or novel
scientific issues or the product has a new intended use. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is no guarantee that the FDA will grant 510(k) clearance to new or modified
products that we develop in the future. Failure to obtain such clearances or
approvals could adversely affect our ability to grow our business. Delays in
receipt or failure to receive clearances or approvals, the loss of previously
received clearances or approvals, or the failure to comply with existing or
future regulatory requirements could have a material adverse effect on our
business.</FONT></P>

<P><FONT SIZE=2><I><B>Clinical Trials</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
were able to obtain FDA clearance by demonstrating &#147;substantial equivalence&#148; to
preexisting products, and therefore new clinical trials were not required to
obtain FDA clearance for our current products. However, clinical trials are
increasingly required for 510(k) clearance and therefore may be required to
obtain FDA clearance for future products. If the device presents a &#147;significant
risk,&#148; as defined by the FDA, to human health, the FDA requires the device
sponsor to file an investigational device exemption (an &#147;IDE&#148;) application with
the FDA and obtain IDE&nbsp;approval prior to commencing the human clinical
trials. Such trials generally require an IDE&nbsp;application approved in
advance by the FDA for a specified number of patients and study sites, unless
the product is deemed a non-significant risk device eligible for more
abbreviated IDE requirements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Clinical
trials are subject to extensive monitoring, recordkeeping and reporting
requirements. Clinical trials must be conducted under the oversight of an
institutional review board (&#147;IRB&#148;) for the relevant clinical trial sites and
must comply with FDA&nbsp;regulations, including but not limited to those
relating to good clinical practices. To conduct a clinical trial, we also are
required to obtain the patients&#146; informed consent in form and substance that
complies with both FDA requirements and state and federal privacy and human subject
protection regulations. If the clinical trial is not performed in accordance
with the FDA&#146;s IDE regulations, the FDA could seek an enforcement action
against the sponsor and the investigators. In addition, the sponsor, the FDA or
the IRB could suspend a clinical trial at any time for various reasons,
including a belief that the risks to study subjects outweigh the anticipated
benefits. Even if a trial is completed, the results of clinical testing may not
adequately demonstrate the safety and efficacy of the device or may otherwise
not be sufficient to obtain FDA clearance to market the product in the U.S.
Similarly, in Europe the clinical study must be approved by a local ethics
committee and in some cases, including studies with high-risk devices, by the
ministry of health in the applicable country. </FONT></P>

<P><FONT SIZE=2><I><B>Pervasive and Continuing Regulation</B></I></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>After a device is placed on the market, numerous
 regulatory requirements apply. These include:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>product listing and establishment registration,
 which helps facilitate FDA inspections and other regulatory action;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Quality System Regulation (&#147;QSR&#148;), which is the
 medical device term for good manufacturing practices, requires manufacturers,
 including third-party manufacturers, to follow stringent design,
testing, control, documentation and other quality
 assurance procedures during all aspects of the manufacturing process;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>56</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>labeling regulations and FDA prohibitions against
 the promotion of products for uncleared, unapproved or off-label use or
 indication;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>clearance of product modifications that could
 significantly affect safety or efficacy or that would constitute a
 significant change in the safety or efficacy of our cleared devices;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>medical device reporting regulations, which require
 that manufacturers comply with FDA requirements to report if their device may
 have caused or contributed to a death or serious injury, or has malfunctioned
 in a way that would likely cause or contribute to a death or serious injury
 if the malfunction of the device or a similar device were to recur;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>post-approval or post-clearance restrictions or conditions, including
 post-approval or post-clearance study commitments;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>post-market surveillance regulations, which apply
 when necessary to protect the public health or to provide additional safety
 and effectiveness data for the device; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>the FDA&#146;s recall authority, whereby it can ask, or
 under certain conditions order, device manufacturers to recall from the
 market a product that is in violation of governing laws and regulations.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advertising
and promotion of medical devices, in addition to being regulated by the FDA,
are also regulated by the Federal Trade Commission and by state regulatory and
enforcement authorities. Recently, promotional activities for FDA-regulated
products of other companies have been the subject of enforcement action brought
under health care reimbursement laws and consumer protection statutes. In
addition, under the federal Lanham Act and similar state laws, competitors and
others can initiate litigation relating to advertising claims. In addition, we
are required to meet regulatory requirements in countries outside the U.S.,
which can change rapidly with relatively short notice. If the FDA determines
that our promotional materials or training constitutes promotion of an
unapproved or uncleared use, it could request that we modify our training or
promotional materials or subject us to regulatory or enforcement actions,
including the issuance of an untitled letter, a warning letter, injunction,
seizure, civil fine or criminal penalties. It is also possible that other
federal, state or foreign enforcement authorities might take action if they
consider our promotional or training materials to constitute promotion of an
unapproved use, which could result in significant fines or penalties under
other statutory authorities, such as laws prohibiting false claims for
reimbursement. In that event, our reputation could be damaged and adoption of
the products would be impaired.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
we could face product recalls, FDA enforcement actions, and user lawsuits if
any of our products are found to pose a risk of injury or otherwise be
defective. We believe that our products pose a low risk of injury because they
are non-invasive, and we maintain an active training program that we expect
would provide early identification of any product defects. Nevertheless, our
products could be subject to voluntary recall if we or the FDA determine, for
any reason, that our products pose a risk of injury or are otherwise defective.
Moreover, the FDA can order a mandatory recall if there is a reasonable
probability that our device would cause serious adverse health consequences or
death. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
FDA has broad post-market and regulatory enforcement powers. Our facilities
have been and will continue to be subject to unannounced inspections by the FDA
to determine our level of compliance with the QSR and other regulations.
Failure by us or by our suppliers to comply with applicable regulatory requirements
can result in enforcement action by the FDA or other regulatory authorities,
which may result in sanctions including, but not limited to:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
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 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>warning letters or untitled letters;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>fines and civil penalties;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>57</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>unanticipated expenditures to address or defend such
 actions;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>delays in clearing or approving, or refusal to clear
 or approve, our products;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>withdrawal or suspension of approval or clearance of our products
 or those of our third-party suppliers by the FDA or other regulatory bodies;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>product recall or seizure;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>orders for physician notification or device repair,
 replacement or refund;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>injunctions; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>criminal prosecution.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I><B>Fraud and Abuse Laws</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Federal
health care laws apply when we or customers submit claims for items or services
that are reimbursed under Medicare, Medicaid or other federally-funded health
care programs. The principal federal laws include: the False Claims Act
which prohibits the submission of false or otherwise improper claims for
payment to a federally-funded health care program; the Anti-Kickback
Statute which prohibits offers to pay or receive remuneration of any kind for
the purpose of inducing or rewarding referrals of items or services
reimbursable by a federal health care program; and health care fraud
statutes that prohibit false statements and improper claims with any
third-party payer. There are often similar state false claims, anti-kickback,
and anti-self referral and insurance laws that apply to state-funded Medicaid
and other health care programs and private third-party payers. In addition, the
U.S. Foreign Corrupt Practices Act can be used to prosecute companies in the
U.S. for arrangements with physicians, or other parties outside the U.S. if the
physician or party is a government official of another country and the
arrangement violates the law of that country.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
laws applicable to us are subject to change, and to evolving interpretations.
If a governmental authority were to conclude that we are not in compliance with
applicable laws and regulations, we and our officers and employees could be
subject to severe criminal and civil penalties including substantial penalties,
fines and damages, and exclusion from participation as a supplier of product to
beneficiaries covered by Medicare or Medicaid.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Federal Anti-Kickback Statute prohibits persons from knowingly and willfully
soliciting, offering, receiving or providing remuneration, directly or
indirectly, in exchange for or to induce either the referral of an individual,
or the furnishing or arranging for a good or service, for which payment may be
made under a federal health care program such as Medicare or Medicaid. The
definition of &#147;remuneration&#148; has been broadly interpreted to include anything
of value, including for example gifts, improper discounts, the furnishing of
free supplies, equipment or services, credit arrangements, payments of cash and
waivers of payments. Several courts have interpreted the statute&#146;s intent requirement
to mean that if any one purpose of an arrangement involving remuneration is to
induce referrals of federal health care covered business, the statute has been
violated. Penalties for violations include criminal penalties and civil
sanctions such as fines, imprisonment and possible exclusion from Medicare,
Medicaid and other federal health care programs. In addition, some
anti-kickback allegations have been claimed to violate the Federal False Claims
Act, discussed in more detail below.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Anti-Kickback Statute is broad and prohibits many arrangements and practices
that are lawful in businesses outside of the health care industry. Recognizing
that the Anti-Kickback Statute is broad and may technically prohibit many
innocuous or beneficial arrangements, Congress authorized the Office of
Inspector General of the U.S.&nbsp;Department of Health and Human Services, or
OIG, to issue a series of regulations, known as &#147;safe harbors.&#148; These safe
harbors, issued by the OIG beginning in July&nbsp;1991, set forth provisions
that, if all their applicable requirements are met, will assure health care
providers and other parties that they will not be prosecuted under the
Anti-Kickback Statute. The failure of a transaction or arrangement to fit
precisely within one or more safe harbors does not necessarily mean that it is
illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each
applicable safe harbor may result in increased scrutiny by government enforcement
authorities such as the OIG.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>58</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many
states have adopted laws similar to the Anti-Kickback Statute. Some of these
state prohibitions apply to referral of patients for health care items or
services reimbursed by any source, not only the Medicare and Medicaid programs.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government
officials have focused their enforcement efforts on marketing of health care
services and products, among other activities, and recently have brought cases
against companies, and certain sales, marketing and executive personnel, for
allegedly offering unlawful inducements to potential or existing customers in
an attempt to procure their business.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Another
development affecting the health care industry is the increased use of the
Federal Civil False Claims Act and, in particular, actions brought pursuant to
the False Claims Act&#146;s &#147;whistleblower&#148; or &#147;<I>qui
tam</I>&#148; provisions. The False Claims Act imposes liability on any
person or entity who, among other things, knowingly presents, or causes to be
presented, a false or fraudulent claim for payment by a federal health care
program. The qui tam provisions of the False Claims Act allow a private
individual to bring actions on behalf of the federal government alleging that
the defendant has submitted a false claim to the federal government and to
share in any monetary recovery. In recent years, the number of suits brought
against health care providers by private individuals has increased
dramatically. In addition, various states have enacted false claim laws analogous
to the Civil False Claims Act, although many of these state laws apply where a
claim is submitted to any third-party payer and not merely a federal health
care program.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
an entity is determined to have violated the False Claims Act, it may be
required to pay up to three times the actual damages sustained by the
government, plus civil penalties of between $5,500 to $11,000 for each separate
false claim. There are many potential bases for liability under the False
Claims Act. Liability arises, primarily, when an entity knowingly submits, or
causes another to submit, a false claim for reimbursement to the federal
government. The False Claims Act has been used to assert liability on the basis
of inadequate care, kickbacks and other improper referrals, and improper use of
Medicare numbers when detailing the provider of services, in addition to the
more predictable allegations as to misrepresentations with respect to the
services rendered. In addition, companies have been prosecuted under the False
Claims Act in connection with alleged off-label promotion of products. Our
future activities relating to the reporting of wholesale or estimated retail
prices for our products, the reporting of discount and rebate information and
other information affecting federal, state and third-party reimbursement of our
products, and the sale and marketing of our products, may be subject to
scrutiny under these laws. We are unable to predict whether we would be subject
to actions under the False Claims Act or a similar state law, or the impact of
such actions. However, the costs of defending such claims, as well as any
sanctions imposed, could significantly affect our financial performance.</FONT></P>

<P><FONT SIZE=2><I><B>HIPAA and Other Fraud and Privacy Regulations</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Among
other things, the Health Insurance Portability and Accountability Act of 1996,
or HIPAA, created two new federal crimes: health care fraud and false
statements relating to health care matters. The HIPAA health care fraud statute
prohibits, among other things, knowingly and willfully executing, or attempting
to execute, a scheme to defraud any health care benefit program, including
private payers. A violation of this statute is a felony and may result in
fines, imprisonment and/or exclusion from government-sponsored programs. The
HIPAA false statements statute prohibits, among other things, knowingly and
willfully falsifying, concealing or covering up a material fact or making any
materially false, fictitious or fraudulent statement or representation in
connection with the delivery of or payment for health care benefits, items or
services. A violation of this statute is a felony and may result in fines
and/or imprisonment.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to creating the two new federal health care crimes, regulations
implementing HIPAA also establish uniform standards governing the conduct of
certain electronic health care transactions and protecting the security and
privacy of individually identifiable health information maintained or
transmitted by health care providers, health plans and health care
clearinghouses, which are referred to as &#147;covered entities.&#148; Three standards
have been promulgated under HIPAA&#146;s regulations: the Standards for Privacy of
Individually Identifiable Health Information, which restrict the use and
disclosure of certain individually identifiable health information, the
Standards for Electronic Transactions, which establish
standards for common health care transactions, such as claims information, plan
eligibility, payment information and the use of electronic signatures, and the
Security Standards, which require covered entities to implement and maintain
certain security measures to safeguard certain electronic health information.
Because we provide our products directly to patients and bill third-party payers
such as Medicare, Medicaid, and insurance companies, we are a &#147;covered entity&#148;
and must comply with these standards. The government intended this legislation
to reduce administrative expenses and burdens for the health care industry;
however, our compliance with certain provisions of these standards entails
significant costs for us. Although the HIPAA regulations allow disclosure to
medical device companies for purposes of complying with FDA regulations,
treatment, and payment, HIPAA may have a chilling effect on disclosure in some
cases, limiting information that is available to us.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>59</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to federal regulations issued under HIPAA, some states have enacted
privacy and security statutes or regulations that, in some cases, are more
stringent than those issued under HIPAA. In those cases, it may be necessary to
modify our planned operations and procedures to comply with the more stringent
state laws. If we fail to comply with applicable state laws and regulations, we
could be subject to additional sanctions.</FONT></P>

<P><FONT SIZE=2><I><B>Environmental Laws</B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are also subject to various environmental laws and regulations both within and
outside the U.S. Like other medical device companies, our operations involve
the use of substances regulated under environmental laws, primarily
manufacturing and sterilization processes. To the best of our knowledge at this
time, we do not expect that compliance with environmental protection laws will
have a material impact on our consolidated results of operations, financial position,
or cash flows.</FONT></P>

<P><FONT SIZE=2><B>Employees</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December 31, 2009, we employed 62 total employees, 60 of which are full-time
employees. Of our 62 employees, more than 30% are respiratory
therapists, including all of the employees in our Patient Services Department
and nearly all of our sales representatives. In addition, we retain as
independent contractors several expert consultants, who assist with quality
assurance, product development, marketing, and international opportunities. We
also retain over 300 respiratory therapists and health care
professionals on a non-exclusive independent contractor basis to provide
training to our customers in the U.S. We believe this underscores our
commitment to professional service and high quality. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We support an active on-campus program
identified as the Forum On Airway Clearance Therapy (&#147;FACT&#148;). This educational
experience includes training provided by employees of Electromed, Inc. This training is sanctioned by the American Association of
Respiratory Care and  provides continuing education unit (&#147;CEU&#148;) credits to
medical professionals, such as respiratory therapists and nurses, when they
participate fully and complete the course in good standing. We believe this
underscores our commitment to professional service and high quality. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None
of our employees is covered by a collective bargaining agreement. We believe
our relations with our employees are good. </FONT></P>

<P><FONT SIZE=2><B>Properties</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
own our principal headquarters and manufacturing facilities, consisting of
approximately 48,000 total square feet, which are located on an approximately
2.3 acre parcel at 500 Sixth Avenue NW, New Prague, Minnesota 56071 and 502
Sixth Avenue NW, New Prague, Minnesota 56071. Management considers the current
facilities to be satisfactory for our growth plans. In addition, we
believe there is sufficient space within the lot for additions to the most
recently constructed building. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
site has been regularly audited by the FDA, in accordance with FDA practices,
and we maintain our operations in a manner consistent with FDA requirements for
a medical device manufacturer. Our manufacturing processes are maintained in
such a way as to emphasize simplicity, cost-effectiveness, and a capacity to
realize increases in production volume with escalation in demand. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>60</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>Legal
Proceedings</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have been a defendant in a patent infringement action filed in U.S. District
Court by a competitor, Advanced Respiratory, Inc. of St. Paul, Minnesota
(&#147;ARI&#148;). Management and legal counsel took steps to provide an effective
defense. On July 22, 2003, after a jury returned its verdict in our favor, the
court dismissed the infringement action. On September 5, 2003, a Settlement
Agreement was reached and approved by both parties. The terms of this agreement
are confidential. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hill-Rom
Services, Inc., ARI, Hill-Rom Company, Inc. and
Hill-Rom Services Pte. Ltd. (collectively, &#147;Hill-Rom&#148;), subsidiaries of Hill-Rom Holdings, Inc., brought an action on
August 21, 2009, against us in the Southern District of Indiana alleging that
our use of the term &#147;SmartVest&#148; infringes on its alleged trademarks &#147;The Vest&#148; and &#147;Vest.&#148;
We have answered the allegations and brought counter-claims against Hill-Rom
alleging, among other things, defamation and libel. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ARI
filed for registration of a stylized version of &#147;Vest&#148; and &#147;The Vest&#148; with the
United States Patent and Trademark Office (the &#147;PTO&#148;) on November 9, 2001 and
both stylized marks were registered on August 19, 2003, although ARI was
required to disclaim ownership of the words &#147;the&#148; and &#147;vest&#148; apart from the
stylized mark. We filed for trademark protection for the SmartVest mark with
the PTO on April 5, 2004 and began using the SmartVest mark in June 2004. Our
SmartVest mark was added to the Supplemental Register on August 22, 2005, and
the PTO granted us registration for our SmartVest mark on November 15, 2005.
Subsequently, ARI filed for registration of their alleged word mark &#147;The Vest&#148;
on April 20, 2006, and the alleged word mark was registered by the PTO on
February 13, 2007. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the foregoing, we may be party to legal actions, proceedings, or
claims in the ordinary course of business. Corresponding costs are accrued when
it is more likely than not that loss will be incurred and the amount can be
precisely or reasonably estimated. We are not aware of any undisclosed actual
or threatened litigation that would have a material adverse effect on our
financial condition or results of operations. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>61</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>M<A NAME="A1013901A012_V2"></A>ANAGEMENT</B></FONT></P>

<P><FONT SIZE=2><B>Executive
Officers and Directors</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table set forth the names and positions of our directors and
executive officers: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="87%" style="margin-left:5%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="26%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="45%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=top STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=2><BR><B>Name</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=top STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=2><BR><B>Age</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2><B>Years of <BR>
 Service <BR>
 with <BR>
 Electromed</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=top STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2><BR><B>Position</B></FONT></P>
 </TD>
 </TR>
<tr>
<TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</tr>

 <TR>
 <TD VALIGN=TOP  >
 <P><FONT SIZE=2>Robert D. Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP  >
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP  >
 <P ALIGN=CENTER><FONT SIZE=2>69</FONT></P>
 </TD>
 <TD VALIGN=TOP  >
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP  >
 <P ALIGN=CENTER><FONT SIZE=2>17</FONT></P>
 </TD>
 <TD VALIGN=TOP  >
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP  nowrap>
 <P><FONT SIZE=2>Co-Founder, Chairman and Chief
 Executive Officer</FONT></P>
 </TD>
 </TR>
<tr>
<TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</tr>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Terry M. Belford, CPA, CMA</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>59</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Chief Financial Officer</FONT></P>
 </TD>
 </TR>
<tr>
<TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</tr>

 <TR>
 <TD VALIGN=TOP >
 <P><FONT SIZE=2>Craig N. Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P ALIGN=CENTER><FONT SIZE=2>61</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P ALIGN=CENTER><FONT SIZE=2>17</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P><FONT SIZE=2>Co-Founder, Director</FONT></P>
 </TD>
 </TR>
<tr>
<TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</tr>

 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Noel D. Collis, MD</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>58</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>11</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Director</FONT></P>
 </TD>
 </TR>
<tr>
<TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</tr>

 <TR>
 <TD VALIGN=TOP >
 <P><FONT SIZE=2>Thomas M. Hagedorn</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P ALIGN=CENTER><FONT SIZE=2>66</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P ALIGN=CENTER><FONT SIZE=2>13</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP >
 <P><FONT SIZE=2>Director</FONT></P>
 </TD>
 </TR>
<tr>
<TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</tr>

 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>George H. Winn, DDS</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>73</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Director</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
member of our Board of Directors was elected for a two-year term in September
2008 and will serve until the next regular meeting of shareholders of
Electromed, and until a successor is elected and qualified, or until the
earlier death, disqualification, or removal as provided by statute. The officers
of Electromed hold office until the next election of officers or until their
successors are elected or appointed and qualified, provided, however, that any
officer may be removed with or without cause by the affirmative vote of a
majority of the Board present at a meeting of the Board.</FONT></P>

<P><FONT SIZE=2><B>Robert
D. Hansen&#151;Chairman and CEO</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.
Hansen co-founded Electromed in 1992 and is responsible for the strategic
direction and development of the Company. Mr. Hansen is also a co-founder and
is President and Chief Executive Officer of Hansen Engine Corporation, a
research and development company that provides research and development
services to Electromed. Mr. Hansen joined Hansen Engine Corporation in January
1983 and has over forty years of business leadership and investment industry
experience. He was also the founder and CEO of LockerMate Corporation until January 1995. Mr. Hansen received a BA
Degree from Dana College (1964), Masters of Arts Degree from the University of
Cincinnati in U.S. History (1966), and a Masters of Divinity Degree (1976) from
Luther Theological Seminary. He completed additional graduate studies in U.S.
economic history and foreign policy at the University of Cincinnati. In 1996,
Mr. Hansen was awarded a Mini-MBA in &#147;Managing Growing Companies&#148; from the
University of St. Thomas. Among other attributes, skills, experiences and
qualifications, our Board believes that Mr. Hansen&#146;s history with Electromed
and management and investment industry experience allow him to make a valuable
contribution as a director. Mr. Hansen is the brother of Craig Hansen, one of
our directors.</FONT></P>

<P><FONT SIZE=2><B>Terry M.
Belford, CMA&#151;Chief Financial Officer</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.
Belford joined Electromed in January 2004 as its Chief Financial Officer. Before
joining Electromed, Mr. Belford worked for ten years as an independent
accountant and consultant, serving clients in the distributing, importing, and
manufacturing industries. Prior to that he served for several years as a
controller and chief financial officer for both established and start-up
companies in the above mentioned industries. Mr. Belford earned a Bachelor of
Science degree from the University of Missouri and also holds both CPA and CMA
designations. He is a member of the American Institute of Certified Public
Accountants, the Minnesota Society of Certified Public Accountants and the
Institute of Certified Management Accountants.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>62</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>Craig
Hansen&#151;Director</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.
Hansen is the co-founder of Electromed and is the Vice President of Research
and Development at Hansen Engine Corporation. Mr. Hansen has been with Hansen
Engine Corporation since 1977. He is a graduate of Western Iowa Technical
School. He has more than forty patents in several fields with numerous
additional patents pending. The patents that Mr. Hansen has assigned to
Electromed form the technical basis for the SmartVest System. Mr. Hansen is the
brother of Robert Hansen, Electromed&#146;s Chief Executive Officer. Among other attributes,
skills, experiences and qualifications, our Board believes that Mr. Hansen&#146;s
history with Electromed and considerable experience with research and
development in the medical device industry make him uniquely qualified to serve
as a director.</FONT></P>

<P><FONT SIZE=2><B>Dr. Noel
Collis&#151;Director</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.
Collis is currently a self-employed physician and has been since 1990. Dr.
Collis is a graduate of the University of Minnesota School of Medicine and practices
Internal Medicine in Little Falls, Minnesota. Dr. Collis has served on the
faculty of the University of South Dakota School of Medicine. Among other
attributes, skills, experiences and qualifications, our Board believes that, in
addition to the industry relationships that Dr. Collis has developed, his
experience in practicing and teaching medicine give him an understanding of the
needs of physicians and patients, which makes him uniquely qualified to serve
as a director. </FONT></P>

<P><FONT SIZE=2><B>Thomas
Hagedorn&#151;Director</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.
Hagedorn is founder and owner of numerous companies where new technology is a
principal factor. He also manages his own real estate and investment mortgage
company in Northern Virginia, where he maintains his residence. Mr. Hagedorn is
a former member of the Minnesota State Legislature and the U.S. Congress,
representing southwest Minnesota. Among other attributes, skills, experiences
and qualifications, our Board believes that Mr. Hagedorn&#146;s extensive leadership
and management experience, as well as his familiarity with legislative procedures,
allow him to make valuable contributions as a director.</FONT></P>

<P><FONT SIZE=2><B>Dr.
George Winn&#151;Director</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.
Winn has practiced dentistry with emphasis upon oral surgery and orthodontics
in New Prague, MN for more than forty-three years. He is a graduate of the
University of Minnesota School of Dentistry. Dr. Winn has served as an Adjunct
Professor in the School of Dentistry where he has offered studies in medical
ethics. Among other attributes, skills, experiences and qualifications, our
Board believes that, in addition to the industry relationships that Dr. Winn
has developed, his education and experience give him insight into the medical
device industry, which makes him uniquely qualified to serve as a director.</FONT></P>

<P><FONT SIZE=2><B>Director
Independence and Board Composition </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently have five directors. Our Board of Directors has determined that three
of our directors are independent directors, as defined under the applicable
regulations of the SEC and the Nasdaq Capital Market, namely Mr. Thomas
Hagedorn, Dr. Noel Collis, and Dr. George Winn. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
determining independence, our Board of Directors considered that Mr. Hagedorn
is a director and owns approximately 11% of the outstanding equity of Hansen
Engine Corporation, an entity which receives payment from Electromed in
exchange for performing research and development services. In addition, our Board of Directors considered
that Mr. Hagedorn&#146;s son and Mr. Winn&#146;s son are employees of Electromed and that
Electromed purchased a building from Dr. Winn in December 2009 for $555,000.
See &#147;Certain Relationships
and Related Party Transactions.&#148; </FONT></P>

<P><FONT SIZE=2><B>Board
Committees </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have appointed an Audit Committee, a Personnel and Compensation Committee and a
Nominating and Corporate Governance Committee. The membership and
responsibilities of each committee complies with the listing requirements of
the Nasdaq Capital Market, except that Mr. Craig Hansen, who is not
&#147;independent&#148; as defined</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>63</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>under Nasdaq Rule 5605, is a
member of the Nominating and Corporate Governance Committee. In accordance with
the listing requirements of the Nasdaq Capital Market, our director nominees
will be selected by a majority of independent directors of the board in a vote
in which only independent directors participate.</FONT></P>

<P><FONT SIZE=2><B>Director
Compensation</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table provides information regarding compensation paid to and earned
by the non-employee directors during fiscal 2009:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="33%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="19%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="19%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="17%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Name</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>Fees Earned or <BR>
 Paid in Cash<SUP>(1)<BR>
 </SUP>($)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>All Other Compensation<BR>
 <BR>
 ($)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>Total<BR>
 <BR>
 ($)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND:  #D6F3E8'>
 <P><FONT SIZE=2>Craig N. Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND:  #D6F3E8'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND:  #D6F3E8'>
 <P ALIGN=CENTER><FONT SIZE=2>$1,500</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND:  #D6F3E8'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND:  #D6F3E8'>
 <P ALIGN=CENTER><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND:  #D6F3E8'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND:  #D6F3E8'>
 <P ALIGN=CENTER><FONT SIZE=2>$1,500</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Noel D. Collis, MD</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>$1,000</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>$1,000</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR STYLE='BORDER:NONE;BACKGROUND:#D6F3E8'>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Thomas M. Hagedorn</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>$2,000</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>$2,000</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>George H. Winn DDS</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>$2,000</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>$2,000</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(1)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>In fiscal 2009, each
 non-employee director was paid $500 for each Board meeting the director
 attended. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>64</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>E<A NAME="A1013901A013_V2">XECUTIVE
COMPENSATION</A></B></FONT></P>

<P><FONT SIZE=2><B>Executive Compensation Components for Fiscal
2009 </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have two named executive officers, Robert D. Hansen, our Chief Executive Officer, and
Terry M. Belford, our Chief Financial Officer. We provide a compensation
package to our named executive officers that includes base salary and annual
performance-based cash awards. Our named executive officers are also eligible to receive perquisites and to participate in benefit arrangements that are
generally available to all salaried employees, such as group life insurance.
Historically, we have also periodically awarded our named executive officers with long-term
equity incentive grants in the form of warrants. However, we have made changes
to our current executive compensation packages, as described below, and we have
determined based on current circumstances to discontinue long-term equity
incentive grants as a component of our overall executive compensation package. </FONT></P>

<P><FONT SIZE=2><I><B>Base Salary </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
determining the appropriate base salaries for our named executive officers in fiscal 2009,
our Personnel and Compensation Committee reviewed individual and our
performance during the preceding fiscal year and considered compensation data
for medical device manufacturing companies located in the Midwest. The
Personnel and Compensation Committee also considered the Chief Executive
Officer&#146;s recommendations as to compensation for the Chief Financial Officer.
The Personnel and Compensation Committee uses a subjective process to set base
salaries and does not specifically weight any factors. Based upon the
information reviewed by the Personnel and Compensation Committee, it makes a
recommendation with respect to compensation for the Chief Executive Officer and
Chief Financial Officer to the Board of Directors, and the Board of Directors
sets the compensation for the Chief Executive Officer and Chief Financial
Officer based on the information and recommendation provided by the Personnel
and Compensation Committee. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Chief Executive Officer earned a base salary of $159,500 during each of our
2009 and 2008 fiscal years. Our Chief Financial Officer earned a base salary of
$108,500 during each of our 2009 and 2008 fiscal years. </FONT></P>

<P><FONT SIZE=2><I><B>Incentive
Compensation </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to provide motivation to our named executive officers, we provide performance-based incentive
compensation upon achievement of goals established by the Board of Directors on
an annual basis. The incentive component of our executive compensation package
is comprised of short-term cash incentive compensation and long-term equity
compensation in the form of warrants that typically vest in 20% increments over
a 5-year period. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
Incentive Compensation </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
our 2008 fiscal year, our named executive officers were eligible to earn cash incentive
compensation in incremental incentives of $5,000 for the Chief Financial
Officer and $10,000 for the Chief Executive Officer for each increment of $1
million of revenue in excess of the revenue threshold. Our Chief Executive
Officer earned cash incentive compensation of $62,500 for performance during
the 2008 fiscal year, and our Chief Financial Officer earned cash incentive
compensation of $46,875 for performance during the 2008 fiscal year. For our
2009 fiscal year and for the first six months of our 2010 fiscal year, our
named executive officers were eligible to earn cash incentive compensation of $7,500 for the
Chief Financial Officer and $10,000 for the Chief Executive Officer for
achieving threshold performance goals, plus incremental incentives of $1,875
for the Chief Financial Officer and $2,500 for the Chief Executive Officer for
each increment of $250,000 of revenue in excess of the revenue threshold. Our
Chief Financial Officer earned cash incentive compensation of $67,500 for
performance during the 2009 fiscal year and our Chief Executive Officer earned cash
incentive compensation of $90,000 for performance during the 2009 fiscal year.
Cash incentive awards earned by a named executive officer during a fiscal year are paid in
bi-monthly installments for the first ten months of the following fiscal year. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning
January 1, 2010, the cash incentive compensation for Messrs. Hansen and Belford
is set pursuant to the employment agreements entered into by Messrs. Hansen and
Belford, which are both described below. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>65</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to employment agreements executed by our named executive officers in January 2010,
for the 2010 calendar year, our named executive officers are eligible to receive cash
incentive awards upon achievement of sales targets established by the Board of
Directors. Mr. Hansen is eligible to receive a cash incentive award equal to
$2,500 for each increment of $250,000 of revenue in excess of the revenue
threshold. Mr. Belford is eligible to receive a cash incentive award equal to
$1,875 for each increment of $250,000 of revenue in excess of the revenue threshold.
</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Board of Directors will set performance goals and related incentive payments
for future calendar years on an annual basis. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity
Incentive Compensation </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
our 2009 fiscal year, our named executive officers were granted the following warrants: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&#149;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>In November
 2008, we issued warrants to purchase 35,000 shares of Electromed common stock
 to Terry M. Belford, our Chief Financial Officer. The warrants vest in annual
 20% increments, have a ten-year term, and an exercise price of $3.50 per
 share. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2> &#149;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>In November
 2008, we issued warrants to purchase 35,000 shares of Electromed common stock
 to Robert D. Hansen, our Chief Executive Officer. The warrants vest in annual
 20% increments, have a ten-year term, and an exercise price of $3.50 per
 share. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
our 2010 fiscal year, we have not issued any warrants to our named executive officers. Our
current intention is to discontinue long-term equity incentive grants and
provide future incentive compensation solely in the form of cash. </FONT></P>

<P><FONT SIZE=2><I><B>Perquisites and
Other Benefits </B></I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that providing perquisites to our named executive officers is beneficial
because it improves our ability to retain qualified leaders and is consistent
with the practice of similarly-sized companies in our industry. Our named executive officers
are eligible to participate in our group health and life insurance plans and
receive matching contributions to a 401(k) plan, which are benefits that are
generally available to all of our salaried employees. The goal of these
programs is to promote health and welfare benefits. In addition, we provide an
automobile to our Chief Executive Officer and make monthly automobile lease
payments on behalf of our Chief Financial Officer. The aggregate annual value
of these perquisites was less than $10,000 for the last completed fiscal year.
We also provide life insurance policies of at least $1,000,000 for the benefit of
our Chief Executive Officer&#146;s estate. </FONT></P>

<P><FONT SIZE=2><B>Employment Agreements for our Named Executive
Officers </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to January 1, 2010, Robert D. Hansen, our Chief Executive Officer, was employed
pursuant to an Executive Employment Agreement dated January 3, 2005 (the &#147;2005
Employment Agreement&#148;), which was subject to annual renewal by our Board of
Directors. The 2005 Employment Agreement provided for an initial base salary of
$89,500, cash incentive awards upon achievement of annual revenue and net
income goals established by the Board of Directors, and equity incentive awards
in the form of warrants upon achievement of annual revenue goals established by
the Board of Directors. The 2005 Employment Agreement also provided that
Electromed would pay the premiums on health and life insurance policies for Mr.
Hansen for the term of the agreement, and would pay the premiums on life
insurance policies for each of Mr. Hansen&#146;s three adult children, in each case
for the benefit of the recipient&#146;s estate or another beneficiary chosen by the
recipient. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
January 1, 2010, we entered into a new employment agreement with Mr. Hansen
(the &#147;2010 Employment Agreement&#148;), which superseded the 2005 Employment
Agreement. The 2010 Employment Agreement has an initial term of three years
(the &#147;Initial Term&#148;), with automatic renewal for one-year periods (each a
&#147;Renewal Term,&#148; together, the &#147;Renewal Terms&#148;) unless written notice of
non-renewal is provided by us or Mr. Hansen at least 90 days prior to the
anniversary date of agreement, and subject to earlier termination as described
below. Mr. Hansen receives an initial base salary of $209,000 per calendar year
pursuant to the 2010 Employment Agreement, subject to annual review and
adjustment by our Board of Directors. Pursuant to the 2010 Employment
Agreement, Mr. Hansen is also eligible to receive cash and equity incentive
compensation, is entitled to the severance payments described
below upon termination without cause or resignation upon a change of control of
Electromed, and is entitled to maintain, at Electromed&#146;s expense, life
insurance policies of at least $1,000,000 for the benefit of his estate. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>66</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
January 1, 2010, we entered into an employment agreement with Terry M. Belford
to serve as our Chief Financial Officer. Prior to January 1, 2010, the terms of
Mr. Belford&#146;s employment were set by our Board of Directors on an annual basis.
Mr. Belford&#146;s employment agreement has an initial term of three years (the
&#147;Initial Term&#148;), with automatic renewal for one-year periods (each a &#147;Renewal
Term,&#148; together, the &#147;Renewal Terms&#148;) unless written notice of non-renewal is
provided by us or Mr. Belford at least 90 days prior to the anniversary date of
agreement, and subject to earlier termination as described below. Mr. Belford
receives an initial base salary of $146,000 per calendar year pursuant to his
employment agreement, subject to annual review and adjustment by our Board of
Directors. Mr. Belford is also eligible to receive cash and equity incentive
compensation and is entitled to the severance payments described below upon
termination without cause or resignation upon a change of control of
Electromed. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
employment agreements with Messrs. Hansen and Belford are terminable by us at
any time for any reason. If Messrs. Hansen or Belford are terminated by us
without cause prior to the expiration of the Initial Term or any subsequent
Renewal Term or if they resign without cause within six months of a change of
control of the Company, Electromed would be required to pay severance pursuant
to each employment agreement. With respect to a termination without cause, the
amount of the severance payment would be equal to the base salary of the
executive then in effect. With respect to a resignation upon a change in
control, the amount of the severance payment would be equal to the sum of two
times (2x) the annual base salary then in effect. In each instance, the executive
would also be entitled to a pro rata portion of any earned but unpaid incentive
compensation at the time of termination and would, in order to receive the
severance and continued benefits, be required to sign a release of claims
against us, return all property owned by Electromed and agree not to disparage
us. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
employment agreements define &#147;cause&#148; as gross misconduct which damages
Electromed; fraud, misappropriation, or embezzlement by the employee;
conviction of a felony crime or a crime of moral turpitude; unethical conduct
in the course of employment; or a material breach of the employment agreement.
The employment agreements define &#147;change of control&#148; as: (i) a change in
ownership, which is deemed to have occurred in the event one person, or more
than one person acting as a group, acquires more than 50% of the total fair
market value or total voting stock of Electromed; (ii) a change in effective
control, which is deemed to have occurred when one person, or more than one
person acting as a group, acquires ownership of stock of Electromed possessing
30% of more of the total voting power of the stock, or a majority of members of
Electromed&#146;s Board of Directors is replaced during any 12-month period; and/or
(iii) a change in ownership of a substantial portion of the assets of
Electromed, which is deemed to have occurred when one person, or more than one
person acting as a group, acquires assets from Electromed that have a total
gross fair market value equal to or greater then 40% of the total gross fair
market value of all of the assets of Electromed before the acquisition. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
of our executives has also entered into Non-Competition, Non-Solicitation, and
Confidentiality Agreements (the &#147;Confidentiality Agreements&#148;). Pursuant to the
Confidentiality Agreements, each of Messrs. Hansen and Belford agree to protect
confidential information of Electromed and to return all confidential
information and property of Electromed upon termination of employment for any
reason, and that they will not compete with Electromed or solicit customers or
business contacts of Electromed during the term of the agreement and for a
period of 12 months after termination, for any reason. In addition, the
executives agreed that they would inform any potential new employer of their
obligations under the Confidentiality Agreement before accepting new
employment. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>67</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2><B>Summary Compensation Table </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table provides information regarding the compensation earned during
fiscal 2009 and fiscal 2008 by our named executive officers: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="23%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="6%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="6%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="6%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2><B>Name and<BR>
 principal position</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=1>&nbsp;</FONT></P>

 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Year</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=1>&nbsp;</FONT></P>

 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Salary<BR>
 ($)<SUP>(1)</SUP></B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=1>&nbsp;</FONT></P>

 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Option<BR>
 awards<BR>
 ($)</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=1>&nbsp;</FONT></P>

 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Non-equity<BR>
 incentive plan<BR>
 compensation<BR>
 ($)</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=1>&nbsp;</FONT></P>

 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>All other<BR>
 compensation<BR>
 ($)</B></FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=1>&nbsp;</FONT></P>

 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Total<BR>
 ($)</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Robert D.
 Hansen</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>159,500</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>75,529</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2><SUP>(2)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>90,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>15,440</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=LEFT><FONT SIZE=2><SUP>(3)(4)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>340,469</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><I>Chief Executive</I></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><I>Officer</I></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>159,500</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>62,500</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>13,740</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2><SUP> (4)</SUP> <SUP>(5)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>235,740</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Terry
 Belford</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>108,500</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>75,529</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2><SUP> (2)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>67,500</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>6,594</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=LEFT><FONT SIZE=2><SUP>(6)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>258,123</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><I>Chief Financial</I></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><I>Officer</I></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>108,500</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>48,785</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="RIGHT"><FONT SIZE=2>5,140</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=LEFT><FONT SIZE=2><SUP>(7)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>160,515</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(1)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Amounts
 shown are not reduced to reflect the named executive officers&#146; elections, if
 any, to contribute portions of their salaries to 401(k) plans.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(2)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Represents the grant date
 fair value of warrants awarded during the fiscal year ended June 30, 2009, in
 accordance with Financial Accounting Standards Board Accounting Standards
 Codification Topic 718, Compensation &#151; Stock Compensation, for outstanding
 performance-based option awards. The assumptions used to determine the
 valuation of the 2009 warrant awards are discussed in Note 7 to our
 consolidated financial statements. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(3)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Includes a company match of
 $8,880 to Mr. Hansen&#146;s 401(k) plan. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(4)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Includes life insurance
 premiums paid on three separate life insurance policies for the benefit of
 Mr. Hansen&#146;s estate, the premiums of which total $6,560 annually. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(5)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Includes a company match of
 $7,180 to Mr. Hansen&#146;s 401(k) plan. </FONT></P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(6)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Includes a company match of $6,594 to
 Mr. Belford&#146;s 401(k) plan.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(7)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Includes a company match of $5,140 to Mr.
 Belford&#146;s 401(k) plan. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Outstanding Equity Awards at June 30, 2009 </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth certain information regarding equity awards granted
to our named executive officers outstanding as of June 30, 2009:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="45%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" COLSPAN=2 VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="9%" COLSPAN=3 VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" COLSPAN=2 VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" COLSPAN=3 VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" COLSPAN=2 VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="6%" COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" COLSPAN=2 VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" COLSPAN=2 VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=22 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2><B>Option awards</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2><B>Name</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=1>&nbsp;</FONT></P>

 </TD>
 <TD COLSPAN=5 nowrap VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Number of<BR>
 securities<BR>
 underlying<BR>
 unexercised<BR>
 options<BR>
 (#)<BR>
 Exercisable<SUP>(1)</SUP></B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=1>&nbsp;</FONT></P>

 </TD>
 <TD COLSPAN=5 nowrap VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Number of<BR>
 securities<BR>
 underlying<BR>
 unexercised<BR>
 options<BR>
 (#)<BR>
 Unexercisable<SUP>(1)</SUP></B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=1>&nbsp;</FONT></P>

 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Option<BR>
 exercise<BR>
 price<BR>
 ($)</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">

  <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Option<BR>
 expiration date</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Robert D.
 Hansen</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>100,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3.00</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1/17/2011</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,800</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2><SUP>(2)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3.00</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>N/A</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR BGCOLOR="#D6F3E8">
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>35,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2><SUP> (3)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3.50</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>11/24/2018</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Terry
 Belford</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>12,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2><SUP>(4)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=2>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2.00</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>N/A</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>12,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=2>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2.00</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1/3/2011</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>12,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2.00</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1/1/2012</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>35,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2><SUP> (3)</SUP></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3.50</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>11/24/2018</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="20%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="80%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">


 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>


<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="20%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1PX">
 <TD COLSPAN=2 VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">&nbsp;
</TD>
 </TR>
</TABLE>


<P ALIGN=CENTER><FONT SIZE=2>68</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(1)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>The Exercisable and
 Unexercisable options are denominated as warrants to purchase common stock of
 the Company. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(2)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Exercised August 18, 2009
 for a per share price of $2.50, pursuant to an arrangement which allowed all
 warrant holders who had been issued warrants in connection with certain
 convertible notes to exercise such warrants at the reduced price. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(3)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>The option vests ratably on
 November 24 of each year from Fiscal Years 2010 &#150; 2014, and expires on
 November 24, 2018. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(4)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Exercised
 November 17, 2009. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>69</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>C<A NAME="A1013901A014_V2"></A>ERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Described
below are transactions and series of similar transactions that have occurred
during this fiscal year, our last fiscal year, or the two fiscal years
preceding our last fiscal year, to which we were or are a party in which: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>the amounts
involved exceeded the lesser of $120,000 or one percent of the average of our
total assets at year end for our last two completed fiscal years; and </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>a director,
executive officer, beneficial owner of more than 5% of any class of our
voting securities or any member of their immediate family had or will have a
direct or indirect material interest. </FONT></P>
</TD>
</TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
obtain engineering services from Hansen Engine Corporation (d/b/a Hansen Engine
Technologies, Inc.) (&#147;Hansen Engine&#148;) pursuant to a Letter Agreement dated
February 16, 2010 (the &#147;2010 Agreement&#148;). Robert Hansen, our Chief Executive
Officer, is the President, Chief Executive Officer and Chairman of the Board of
Directors of Hansen Engine and owns approximately 11% of that entity&#146;s
outstanding common stock. In addition, Craig Hansen, a member of our Board of
Directors and the brother of Robert Hansen, and Thomas Hagedorn, a member of
our Board of Directors, are each a director of Hansen Engine and own
approximately 12% and 11%, respectively, of that entity&#146;s outstanding common
stock. The 2010 Agreement provides that Hansen Engine will perform 80 hours per
week of research and development work in exchange for a monthly fee of $25,000.
The initial term of the 2010 Agreement expires in June 2010 but may be extended
at the option of Electromed. During our 2009, 2008, and 2007 fiscal years, and
for the six months ended December 31, 2009, expenses incurred to Hansen Engine
approximately $115,000, $70,000, $59,000 and $114,000, respectively, pursuant
to prior agreements for research and development. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
May 2006 through December 2009, we leased a 5,000 square-foot building from
George Winn, a member of our Board of Directors. Our monthly lease payment for
the building was approximately $7,000 until we bought the building for $555,000
on December 9, 2009. We also purchased an approximately 1.25 acre parcel of
land adjacent to our original campus in March 2008, from Wil/Win Investments LLC,
an entity in which Dr. Winn has a 50% equity interest, in exchange for shares
of Electromed common stock valued at approximately $105,000. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2008, we sold 87,000 shares of common stock to Dr. George H. Winn, a
member of our Board of Directors, in a private placement for cash consideration
of $304,500. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
March 2, 2010, we purchased from Robert D. Hansen, our Chief Executive Officer
and a member of our Board of Directors, the non-controlling interest in
Electromed Financial, LLC, a Minnesota limited liability company (&#147;Electromed
Financial&#148;) that was our majority-owned subsidiary. The purchase price for Mr.
Hansen&#146;s interest in Electromed Financial was $125,000. Electromed Financial is
now our wholly-owned subsidiary. Electromed Financial was formed on May 23, 2002 to assist
in raising capital from outside investors.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>70</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>P<A NAME="A1013901A015_V2"></A>RINCIPAL
SHAREHOLDERS AND MANAGEMENT SHAREHOLDINGS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth certain information with respect to the beneficial
ownership of our outstanding common stock by (i) each of our named executive
officers; (ii) each of our directors; and (iii) all of our executive officers
and directors as a group. We are not aware of any beneficial owners of more
than 5% of our common stock who are not executive officers or directors. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
percentage ownership information shown in the table is based upon 6,075,885
shares outstanding as of March 31, 2010, and, with respect to beneficial
ownership after the offering, the issuance of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares in this offering. The
percentage ownership information assumes no exercise of the underwriter&#146;s
over-allotment option. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless
otherwise indicated, the persons or entities identified in this table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them. Except as otherwise noted below, the address for each person or
entity listed in the table is c/o Electromed, Inc., 500 Sixth Avenue NW, New
Prague, Minnesota 56071. </FONT></P>

<TABLE ALIGN="CENTER" BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="90%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="39%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="17%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="10%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="19%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P ALIGN=CENTER><FONT SIZE=2><B>Percentage of the Class Beneficially<BR>
Owned</B></FONT></P>


</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=2><B>Name</B></FONT></P>


</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P ALIGN=CENTER><FONT SIZE=2><B>Number of Shares<BR>
Beneficially Owned</B></FONT></P>


</TD>
<TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P ALIGN=CENTER><FONT SIZE=2><B>Before this<BR>
Offering</B></FONT></P>


</TD>
<TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P ALIGN=CENTER><FONT SIZE=2><B>After this<BR>
Offering</B></FONT></P>


</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD COLSPAN=2 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>Robert D.
Hansen<SUP>(1)</SUP></FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;&nbsp; 602,455</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;9.74%</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD COLSPAN=2 VALIGN=BOTTOM>
<P><FONT SIZE=2>Terry M.
Belford, CPA, CMA<SUP>(2)</SUP></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp; 45,000</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;&nbsp;&nbsp; *</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT></P>

</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD COLSPAN=2 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>Craig N.
Hansen<SUP>(3)</SUP></FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;&nbsp; 551,000</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;9.07%</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD COLSPAN=2 VALIGN=BOTTOM>
<P><FONT SIZE=2>Noel D.
Collis, MD</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;&nbsp; 487,666</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;8.03%</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD COLSPAN=2 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>Thomas M.
Hagedorn</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;&nbsp; 849,250</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=2>13.98%</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD COLSPAN=2 VALIGN=BOTTOM>
<P><FONT SIZE=2>George H.
Winn, DDS</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;&nbsp; 530,208</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;8.73%</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD COLSPAN=2 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>Executive
Officers and Directors as a Group (6 persons)<SUP>(4)</SUP></FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=2>3,065,579</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=2>49.33%</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
</TABLE>

<P><FONT SIZE=2>* Indicates ownership of less
than 1%. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(1)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Includes 107,000 shares
which may be purchased upon exercise of warrants by Mr. Hansen that were exercisable
as of March 31, 2010, or within 60 days of such date, 100,000 shares of
Electromed common stock pledged pursuant to a lending arrangement, 65,000
shares of Electromed common stock pledged as collateral under a secured
promissory note, and 20,000 shares subject to an exchange agreement, which
would require Mr. Hansen to transfer such shares of common stock to a third
party at the third party&#146;s option. </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(2)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Includes 31,000 shares
which may be purchased upon exercise of warrants by Mr. Belford that were
exercisable as of March 31, 2010, or within 60 days of such date. </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(3)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Includes 20,000 shares
subject to an exchange agreement, which would require Mr. Hansen to transfer
such shares of common stock to a third party at the third party&#146;s option. </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(4)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Includes 138,000 shares
which may be purchased upon exercise of warrants that were exercisable as of
March 31, 2010, or within 60 days of such date. </FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>71</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>D<A NAME="A1013901A016_V2"></A>ESCRIPTION OF
CAPITAL STOCK</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March 31, 2010, there were 206 shareholders of record of our common stock.
Our authorized capital stock consists of 10,000,000 shares of common stock. The
common stock has no par value, except for the purpose of taxes or fees based on
par value, in which case it is equal to $0.01 per share. Our Articles of
Incorporation permit us to establish the rights, privileges, preferences and
restrictions, including voting rights, of future series of common stock and to
issue such stock without approval from our shareholders. The rights of holders
of our common stock may suffer as a result of the rights granted to holders of
preferred stock that may be issued in the future. In addition, we could issue
preferred stock to prevent a change in control of our company, depriving common
shareholders of an opportunity to sell their stock at a price in excess of the
prevailing market price. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following summarizes important provisions of our capital stock and describes
all material provisions of our certificate of incorporation and bylaws. This
summary is qualified by our certificate of incorporation and bylaws, copies of
which have been filed as exhibits to the registration statement of which this
prospectus is a part, and by applicable provisions of law, including the
Minnesota Business Corporation Act. </FONT></P>

<P><FONT SIZE=2><B>Common Stock </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
outstanding share of common stock is entitled to preference over any other
share, and each share is equal to any other share in all respects. Holders of
the common stock are entitled to one vote for each share held of record at each
meeting of shareholders. In any distribution of capital assets, such as
liquidation, whether voluntary or involuntary, holders of the common stock are
entitled to receive pro rata the assets remaining after creditors have been
paid in full and after payment of the liquidation preference of all classes and
series of preferred stock outstanding. Holders of shares of common stock have
no preemptive rights. </FONT></P>

<P><FONT SIZE=2><B>Undesignated Shares </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Board of Directors may by resolution and without shareholder approval establish
from the common shares different classes or series of shares (including classes
or series of preferred stock), with such designations, voting power,
preferences, rights qualifications, limitations, restrictions, dividends, time
and prices of redemption, and conversion rights as the Board of Directors may
establish. The issuance of such capital stock could adversely affect the rights
and voting power of holders of common stock, entitle holders to greater
liquidation preferences or Board representation than holders of our common
stock or prevent or delay a change in control. No shares of preferred stock
will be outstanding upon the closing of this offering. </FONT></P>

<P><FONT SIZE=2><B>Warrants </B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=TOP>
<P><FONT SIZE=2>As of March
31, 2010, the following warrants to purchase common stock are outstanding:</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>34,000
shares at $2.00 per share, 22,000 of which expire in 2011 and 12,000 of which expire in 2012; </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>207,767
shares at $3.00, 15,000 of which expire in 2010, 110,000 of which expire in
2011, 37,500 of which expire in 2012, and 45,267 of which expire in 2015; </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>322,800
shares at $3.50, 5,000 of which expire in 2010, 10,000 of which expire in
2011, 20,000 of which expire in 2012, and 287,800 of which expire in 2018;
and </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>25,000
shares at $4.50 per share, 20,000 of which expire in 2013, 5,000 of which expire in 2014.</FONT></P>
</TD>
</TR>
</TABLE>

<P><FONT SIZE=2><B>Registration Rights </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March 31, 2010, there were no holders of common stock entitled to
registration rights. Holders of warrants to purchase an aggregate of 481,800
shares of common stock are entitled to receive notice if our Board of Directors
authorizes us to file a registration statement on Form S-1 under the Securities
Act. Pursuant to the agreements governing these warrants, the holders may
request that the shares underlying their warrants be included in our
registration statement. Other than with respect to shares held by affiliates,
registration of these shares would result in the shares becoming freely
tradable without restriction under the Securities Act immediately upon the
effectiveness of the registration statement. However, the impact of any
registration statement would be minimal, because such shares would also be
freely tradable by non-affiliates under Rule 701 of the Securities Act
beginning ninety days after effectiveness of this registration statement. We
have the discretion to deny any and all requests for participatory registration.
</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>72</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2><B>Anti-Takeover Provisions </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Several
provisions of the Minnesota Business Corporation Act (&#147;MBCA&#148;) and our Articles
of Incorporation and Bylaws may have anti-takeover effects. These provisions
are intended to avoid costly takeover battles, lessen our vulnerability to a
hostile change of control and enhance the ability of our Board of Directors to
maximize shareholder value in connection with any unsolicited offer to acquire
us. However, these anti-takeover provisions, which are summarized below, could
also discourage, delay or prevent the merger or acquisition of our company
by means of a tender offer, a proxy contest or otherwise, that a shareholder
may consider in its best interest; and the removal of incumbent officers and
directors. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuance
of Preferred Stock </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the terms of our Articles of Incorporation, all authorized and unissued shares
of our capital stock are subject to
redesignation by the Board of Directors. Our Board of Directors has the
authority to establish the terms of authorized shares and issue such shares in
one or more classes or series of preferred or other capital stock. Our Board of
Directors may issue shares of preferred stock on terms calculated to discourage,
delay or prevent a change of control of our company or the removal of our
management. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Prohibitions on Business Combinations </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minnesota
law prohibits certain &#147;business combinations&#148; between a Minnesota corporation
with at least 100 shareholders, or a publicly-held corporation that has at
least 50 shareholders, and an &#147;interested shareholder&#148; for a four-year period
following the share acquisition date by the interested shareholder, unless
certain conditions are satisfied or an exemption is found. An &#147;interested
shareholder&#148; is generally defined to include a person who beneficially owns at
least 10% of the votes that all shareholders would be entitled to cast in an
election of directors of the corporation. The MBCA also limits the ability of a
shareholder who acquires beneficial ownership of more than certain thresholds
of the percentage voting power of a Minnesota corporation, starting at 20%,
from voting those shares in excess of the threshold unless such acquisition has
been approved in advance by a majority of the voting power held by shareholders
unaffiliated with such shareholder. Minnesota law provides that during any
tender offer a publicly-held corporation may not enter into or amend an
agreement, whether or not subject to contingencies, that increases the current
or future compensation of any officer or director. In addition, under Minnesota
law, a publicly-held corporation is prohibited from purchasing any voting
shares owned for less than two years from a 5% shareholder for more than the
market value of the shares unless the transaction has been approved by the
affirmative vote of the holders of a majority of the voting power of all shares
entitled to vote or unless the corporation makes a comparable offer to all
holders of shares of the class or series of stock held by the 5% shareholder
and to all holders of any class or series into which such securities may be
converted. We have not opted out of these provisions. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Election and Removal of Directors </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Articles of Incorporation do not provide for cumulative voting in the election
of directors. The MBCA also provides that directors elected by our shareholders
may be removed only upon the affirmative vote of the holders of at least a
majority of the outstanding shares of our common stock entitled to vote for
such directors. These provisions may discourage, delay or prevent the removal
of incumbent officers and directors. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>73</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restriction on Control Share Acquisitions </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
MBCA contains a control share acquisition statute that requires disinterested
shareholder approval for certain transactions. The control share acquisition
statute applies only if: the person acquiring the shares is an &#147;acquiring
person&#148; which is a person (whether an individual or an entity) who acquires,
owns or votes the &#147;issuing public corporation&#146;s&#148; stock;  the acquisition
constitutes a &#147;control share acquisition&#148; which occurs when the &#147;acquiring
person&#146;s&#148; ownership exceeds certain designated percentages; and  the shares
acquired are shares of any &#147;issuing public corporation&#148; which is a corporation
organized under the laws of the state of Minnesota which has at least 100
shareholders of record, or public reporting corporation which has at least 50
shareholders of record. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Minnesota control share acquisition statute applies unless the &#147;issuing public
corporation&#148; opts out of the statute in its articles of incorporation or bylaws
which are approved by its shareholders. We have not opted out of such provisions.
Under Minnesota law, a &#147;control share acquisition&#148; does not include, among
other things, the following: an acquisition under Minnesota Statutes
relating to mergers, statutory share exchanges and sales of substantially all
assets if the issuing public corporation is a party to the transaction; an
acquisition from the issuing public corporation; and an acquisition
pursuant to a cash offer for all of the issuing corporation&#146;s voting stock
which has been approved by a majority vote of the members of a committee
comprised of all of the disinterested members of the Board of Directors which
was formed prior to the commencement or public announcement of the intent to
commence, of the tender offer and pursuant to which the acquiring persons will
become the owner of over 50% of the voting stock of the &#147;issuing public
corporation&#148; outstanding at the time of the transaction. </FONT></P>

<P><FONT SIZE=2><B>Nasdaq Capital Market Listing </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend to apply for listing of our common stock on the Nasdaq Capital Market
under the symbol ELMD. </FONT></P>

<P><FONT SIZE=2><B>Registrar and Transfer Agent </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
transfer agent and registrar for our common stock is Wells Fargo Shareowner
Services. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>74</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>S<A NAME="A1013901A017_V2"></A>HARES ELIGIBLE
FOR FUTURE SALE</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to this offering, there was no public market for our common stock. We cannot
predict the effect, if any, that market sales of shares of our common stock or
the availability of shares of our common stock for sale will have on the market
price of our common stock. Sales of substantial amounts of our common stock in
the public market could adversely affect the market prices of our common stock
and could impair our future ability to raise capital through the sale of our
equity securities. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
completion of this offering, based on our outstanding shares as of March 31,
2010, and assuming no exercise of outstanding warrants, we will have
outstanding an aggregate of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock ( shares if the
underwriter&#146;s over-allotment option is exercised in full). Of these shares, all
of the shares sold in this offering (plus any shares sold as a result of the
underwriter&#146;s exercise of the over-allotment option) will be freely tradable
without restriction or further registration under the Securities Act, unless
those shares are purchased by our affiliates as that term is defined in Rule
144 under the Securities Act. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
remaining 6,075,885 shares of common stock to be outstanding after this
offering will be &#147;restricted securities&#148; under Rule 144. All of these
restricted securities will be subject to transfer restrictions following the
date of this prospectus pursuant to the lock-up agreements described below.
Upon expiration of the transfer restriction period set forth in the lock-up
agreements, we expect that all of the shares will be eligible for resale under
Rule 144, with the shares held by affiliates being subject to volume
limitations. Restricted securities may be sold in the public market only if
they have been registered or if they qualify for an exemption from registration
under Rules 144 or 701 under the Securities Act. </FONT></P>

<P><FONT SIZE=2><B>Lock-up Agreements </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
of our officers, directors, and holders of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock have
entered into lock-up agreements pursuant to which they have agreed, subject to
limited exceptions, not to offer, sell, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or securities convertible
into or exchangeable or exercisable for shares of common stock. The lock-up
agreements executed by our officers, directors, and holders of 5% or more of
our outstanding common stock prior to this offering restrict the foregoing
transactions by such persons for a period of twelve months from the date of
this prospectus. Lock-up agreements executed by holders of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; shares of our common stock
 restrict such transactions for a period of six months from the
date of this prospectus. In each case, exceptions to the lock-up period are
subject to the prior written consent of Feltl and Company, Inc. After the
lock-up period expires, the shares may be sold, subject to applicable
securities laws. See &#147;Underwriting &#150; Lock-Up and Related Agreements.&#148; </FONT></P>

<P><FONT SIZE=2><B>Rule 144 </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
general, under Rule 144 as currently in effect, beginning 90 days after the
date of this prospectus, a person may sell shares of our common stock that are
deemed restricted securities under Rule 144 if the person has beneficially
owned the shares for at least six months and the number of shares sold by that
person within any three-month period does not exceed the greater of: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>1% of the
number of shares of our common stock then outstanding, which will equal
approximately &nbsp;&nbsp;&nbsp;&nbsp; shares immediately after this offering; or </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>the average
weekly trading volume of our common stock on the Nasdaq Capital Market during
the four calendar weeks preceding the filing of a notice on Form 144 with
respect to that sale. </FONT></P>
</TD>
</TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the above requirements, sales under Rule 144 are also subject to
the availability of current public information about us and, for persons who
are or have been affiliates during the three months preceding the sale, manner
of sale provisions and notice requirements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
person who is not deemed to have been one of our affiliates at any time during
the three months preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least one year, including the holding period
of any prior owner other than an &#147;affiliate,&#148; is entitled to sell those shares
without complying with the manner of sale, current public information, volume limitation
or notice provisions of Rule 144. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>75</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2><B>Rule 701 </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rule
701 generally allows a shareholder who purchased shares of our common stock
pursuant to a written compensatory plan or written agreement relating to
compensation and who is not deemed to have been an affiliate of our company to
sell these shares in reliance upon Rule 144, without being required to comply
with the public information or holding period provisions of Rule 144. Rule 701
also permits our affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. All holders
of Rule 701 shares, however, are required to wait 90 days after the date of
this prospectus before selling shares pursuant to Rule 701. We are unable to
estimate the number of shares that will be sold under Rules 144 or 701 because
that number will depend on the market price for the common stock, the personal
circumstances of the sellers and other factors. </FONT></P>

<P><FONT SIZE=2><B>Warrants </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March 31, 2010, warrants to purchase a total of 589,567 shares of our common
stock were outstanding. These warrants have a weighted average exercise price
of $3.28 and expire between May 1, 2010 and November 25, 2018. </FONT></P>

<P><FONT SIZE=2><B>Registration Rights </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March 31, 2010, no holders of our common stock were entitled to obligate us
to register those shares for sale in the public market. Holders of warrants to
purchase an aggregate of 481,800 shares of common stock are entitled to receive
notice if our Board of Directors authorizes us to file a registration statement
on Form S-1 under the Securities Act and may request that the shares underlying
their warrants be included in our registration statement; however, we have the
discretion to deny any and all requests for participatory registration. See
&#147;Description of Capital Stock &#150; Registration Rights.&#148; </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>76</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><A NAME="A1013901A018_V2"></A><FONT SIZE=2><B>UNDERWRITING</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the terms and subject to the conditions in an Underwriting Agreement dated
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2010, we have
agreed to sell to Feltl and Company, Inc., as underwriter,
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the terms and subject to the conditions of such Underwriting Agreement, the
underwriter has agreed to purchase such shares at the public offering price,
less the underwriting discounts and commissions set forth on the cover page of
this prospectus. The Underwriting Agreement provides that the underwriter&#146;s
obligation to purchase such shares is subject to approval of legal matters by
counsel and to the satisfaction of other conditions. The underwriter is
obligated to purchase all of the shares (other than those covered by the
over-allotment option described below) if it purchases any shares.</FONT></P>

<P><FONT SIZE=2><B>Commissions, Discounts and Expenses</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
underwriter proposes to offer the shares to the public at the public offering
price set forth on the cover page of this prospectus. The underwriter may offer
the shares to securities dealers at the price to the public less a concession
of not in excess of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. After the shares
are released for sale to the public, the underwriter may vary the offering
price and other selling terms from time to time.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table shows the per share and total underwriting discounts and
commissions that we are to pay to the underwriter in connection with this
offering. These amounts are shown assuming no exercise and full exercise of the
underwriter&#146;s over-allotment option to purchase additional shares. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="94%" style="margin-left:6%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="60%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="12%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="14%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Payable by Us</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>No Exercise</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Full Exercise</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Per Share</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Total</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
estimate that the total expenses of the offering will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
excluding underwriting discounts, commissions, and a nonaccountable expense
allowance of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
The nonaccountable expense allowance will be increased to $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;if the underwriter exercises the over-allotment
option in full. The non-accountable expense allowance represents an amount
based upon a percentage of the gross offering proceeds that is payable to the
underwriter in respect of expenses that need not be itemized. </FONT></P>

<P><FONT SIZE=2><B>Warrant</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
additional underwriting compensation, we have agreed to issue to the
underwriter a warrant (the &#147;Underwriter&#146;s Warrant&#148;) to purchase up to a total
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our
common stock. The Underwriter&#146;s Warrant is not exercisable during the first
year after the date of the final prospectus related to this offering and
thereafter is exercisable at a price per share equal to &nbsp;&nbsp;&nbsp;% of the offering price
set forth on the cover of this prospectus for a period
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;years. The Underwriter&#146;s Warrant contains
customary anti-dilution provisions and certain demand and participatory
registration rights. The Underwriter&#146;s Warrant also includes a &#147;cashless&#148;
exercise provision entitling the underwriter to surrender a portion of the
underlying common stock that has a value equal to the aggregate exercise price,
in lieu of paying cash upon exercise. The Underwriter&#146;s Warrant may not be
sold, transferred, assigned or hypothecated for a period of one year from the
date of the final prospectus related to this offering, except to officers or
partners of the underwriter and members of the selling group and/or their
officers or partners.</FONT></P>

<P><FONT SIZE=2><B>Over-Allotment Option</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have granted to the underwriter an option, exercisable not later than 45 days
after the date of the final prospectus related to this offering, to purchase up
to an aggregate of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; additional shares at the public
offering price set forth on the cover page of this prospectus less the
underwriting discounts and commissions. The underwriter may exercise this
option only to cover over-allotments, if any, made in connection with the sale
of shares offered hereby.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>77</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2><B>Lock-Up and Related Agreements</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
as noted below, our directors, executive officers and certain shareholders have
agreed with the underwriter that for the duration of a defined lock-up period,
they will not offer, sell, assign, transfer, pledge, contract or sell or
otherwise dispose of or hedge any of our shares of common stock. The lock-up
period is defined as twelve months following the date of the final prospectus
related to this offering for directors, executive officers, and shareholders
who beneficially own 5% or more of our outstanding common stock prior to this
offering, and six months following the date of the final prospectus related to
this offering for all other shareholders who held shares of our common stock
prior to this offering. We have entered into a similar agreement with the
underwriter that we will not issue additional shares of common stock (with the
exception of shares pursuant to the over-allotment option) before the end of
the twelve-month period following the date of the final prospectus related to
this offering, other than with respect to our issuing shares pursuant to
employee benefit plans, qualified option plans or other employee compensation
plans already in existence, or pursuant to currently outstanding warrants or
other rights to acquire shares of our common stock. The underwriter may, in its
sole discretion, at any time without prior notice, release all or any portion
of the shares from the restrictions in such agreements. In determining whether
to release shares from the restrictions, the underwriter may consider, among
other factors, the financial circumstances applicable to a director&#146;s,
executive officer&#146;s or shareholder&#146;s request to release shares and the number
of shares that such director, executive officer or shareholder requests to be
released. There are no agreements between the underwriter and us or any of our
directors, executive officers or the shareholders subject to these agreements
releasing us or them from such agreements before the expiration of the
applicable lock-up period. </FONT></P>

<P><FONT SIZE=2><B>Indemnification Provisions</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have agreed to indemnify the underwriter against certain liabilities, including
civil liabilities under the Securities Act and liabilities arising from
breaches of representations and warranties contained in the Underwriting
Agreement, or to contribute to payments that the underwriter may be required to
make in respect of any such liabilities.</FONT></P>

<P><FONT SIZE=2><B>Offering Price Determination</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to the offering, there was no established trading market for our common stock.
The initial public offering price for the shares of common stock offered by
this prospectus will be arbitrarily determined by negotiations between us and
the underwriter and may bear no relationship to our earnings, book value, net
worth or other financial criteria of value and may not be indicative of the
market price for our common stock after this offering. Among the factors to be
considered in determining the public offering price will be our future
prospects and those of our industry in general and certain financial and
operating information of companies similar to ours. After completion of this
offering, the market price of the common stock will be subject to change as a
result of market conditions and other factors. The estimated initial public
offering price range set forth on the cover page of this preliminary prospectus
is subject to change as a result of market conditions and other factors. </FONT></P>

<P><FONT SIZE=2><B>Stabilization; Short Positions and Penalty
Bids</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with this offering, the underwriter may purchase and sell shares of
common stock in the open market. These transactions may include short sales,
purchases to cover positions created by short sales, stabilizing transactions
and passive market making in accordance with Regulation M under the Exchange
Act. Short sales by the underwriter involve the sale by the underwriter of a
greater number of shares than it is required to purchase in the offering.
&#147;Covered&#148; short sales are sales made in an amount not greater than the
underwriter&#146;s option to purchase additional shares from us in the offering
pursuant to its over-allotment option. The underwriter may close out any
covered short position by either exercising its option to purchase additional
shares through the over-allotment option or purchasing shares in the open
market. In determining the source of shares to close out the covered short
position, the underwriter will consider, among other things, the price of
shares available for purchase in the open market as compared to the price at
which it may purchase additional shares through the over-allotment option.
&#147;Naked&#148; short sales are any short sales of shares in excess of the shares the
underwriter may purchase pursuant to the over-allotment option. The underwriter
must close out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if the underwriter
is concerned that there may be downward pressure on the price of the common
stock in the open market after pricing that could adversely affect investors
who</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>78</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>purchase in
the offering. Stabilizing transactions consist of various bids for or purchases
of common stock made by the underwriter in the open market prior to the
completion of the offering. In passive market making, the underwriter may,
subject to certain limitations, make bids for or purchases of the shares o
common stock until the time, if any, at which a stabilizing bid is made.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stabilizing
transactions to cover short sale positions may cause the price of the shares of
common stock to be higher than it would otherwise be in the absence of these
transactions. These transactions may be commenced and discontinued at any time.
</FONT></P>

<P><FONT SIZE=2><B>Listing of Common
Stock</B></FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </B>We intend to
apply to list our common stock for quotation on the Nasdaq Capital Market under
the symbol &#147;ELMD.&#148;</FONT></P>

<P><FONT SIZE=2><B>Discretionary
Accounts</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
underwriter has advised us that it does not intend to confirm sales of the
shares to discretionary accounts.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>79</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><A NAME="A1013901A019_V2"></A><FONT SIZE=2><B>LEGAL
MATTERS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
validity of the shares of common stock offered hereby and certain other legal
matters will be passed upon for us by Fredrikson &amp; Byron, P.A. The
underwriter has been represented in connection with this offering by Faegre
&amp; Benson LLP.</FONT></P>

<P ALIGN=CENTER><A NAME="A1013901A020_V2"></A><FONT SIZE=2><B>EXPERTS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
financial statements of Electromed, Inc. included in this prospectus for each
of the two fiscal years ended June 30, 2009 and 2008 have been so included in
reliance on the report of McGladrey &amp; Pullen, LLP, an independent
registered public accounting firm, given on the authority of said firm as
experts in auditing and accounting.</FONT></P>

<P ALIGN=CENTER><A NAME="A1013901A021_V2"></A><FONT SIZE=2><B>WHERE
YOU CAN FIND MORE INFORMATION</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all of the information included in
the registration statement, portions of which are omitted as permitted by the
rules and regulations of the SEC. For further information pertaining to us and
the common stock to be sold in this offering, you should refer to the
registration statement and its exhibits. Whenever we make reference in this
prospectus to any of our contracts, agreements or other documents, the
references are not necessarily complete, and you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document filed as an exhibit to the registration statement
or such other document, each such statement being qualified in all respects by
such reference. On the closing of this offering, we will be subject to the
informational requirements of the Securities Exchange Act and will be required
to file annual, quarterly and current reports, proxy statements and other
information with the SEC. We anticipate making these documents publicly
available, free of charge, on our website as soon as reasonably practicable
after filing such documents with the SEC.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
can read the registration statement and our future filings with the SEC over
the Internet at the SEC&#146;s website at www.sec.gov. You may request copies of the
filing, at no cost, by telephone at (952) 758-9299 or by mail at Electromed,
Inc., 500 Sixth Avenue NW, New Prague, Minnesota 56071. You may also read and
copy any document we file with the SEC at its public reference facility at 100
F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section
of the SEC. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference facilities.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>80</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><A NAME="A1013901A022_V2"></A><FONT SIZE=2><B>INDEX
TO FINANCIAL STATEMENTS</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="93%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><A HREF="#A1013901B001_V2">Report of Independent Registered Public Accounting Firm</A></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>F-2</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Financial
 Statements</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><A  HREF="#A1013901B002_V2">Consolidated
 balance sheets as of June 30, 2009 and 2008 and December 31, 2009 (unaudited)</A></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>F-3</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><A  HREF="#A1013901B003_V2">Consolidated
 statements of operations for the fiscal years ended June 30, 2009 and 2008
 and the six months ended December 31, 2009 and 2008 (unaudited)</A></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>F-4</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><A  HREF="#A1013901B004_V2">Consolidated
 statements of stockholders&#146; equity for the fiscal years ended June 30, 2009
 and 2008 and the six months ended December 31, 2009 (unaudited)</A></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>F-5</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><A  HREF="#A1013901B005_V2">Consolidated
 statements of cash flows for the fiscal years ended June 30, 2009 and 2008
 and the six months ended December 31, 2009 and 2008 (unaudited)</A></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>F-6</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:8.65PT'><FONT SIZE=2><A  HREF="#A1013901B006_V2">Notes to
 consolidated financial statements</A></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>F-8</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>F-1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><img src="mcgladrey.jpg" ALT="(FRONT COVER)"></p>

<P><A NAME="A1013901B001_V2"></A><FONT SIZE=2><B>Report of Independent Registered Public
Accounting Firm</B></FONT></P>

<P><FONT SIZE=2>To the Board
of Directors and Stockholders<BR>
Electromed, Inc.</FONT></P>

<P><FONT SIZE=2>We have
audited the accompanying consolidated balance sheets of Electromed, Inc. and
Subsidiary as of June&nbsp;30, 2009 and 2008, and the related consolidated
statements of operations, stockholders&#146; equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company&#146;s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.</FONT></P>

<P><FONT SIZE=2>We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.</FONT></P>

<P><FONT SIZE=2>In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Electromed, Inc.
and subsidiary as of June 30, 2009 and 2008, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.</FONT></P>

<P><FONT SIZE=2>As discussed
in Note 1 to the consolidated financial statements, on July 1, 2009, the
Company changed its method of accounting for noncontrolling interest in its
subsidiary.</FONT></P>

<P><FONT SIZE=2>/s/ McGladrey &amp; Pullen, LLP<BR>
<BR>
Minneapolis,
Minnesota<BR>
April 30, 2010</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2><B>Electromed, Inc.</B></FONT></P>

<P><A NAME="A1013901B002_V2"></A><FONT SIZE=2><B>Consolidated Balance Sheets<BR>
June 30, 2009 and 2008 and December 31, 2009 (Unaudited)</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="56%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>December 31,</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1><B>&nbsp;</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Assets</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Current Assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Cash and cash equivalents</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>361,916</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,441,625</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>350,242 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Accounts receivable (net of allowances for
 doubtful accounts of $45,000, $35,000 and $45,000, respectively)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,348,146</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3,929,481</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,709,177 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Inventories</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,178,689</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>849,508</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,307,480 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Prepaid expenses and other current assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>167,272</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>165,710</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>270,915 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Deferred income taxes</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>357,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>159,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>387,000 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Total current assets</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>8,413,023</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,545,324</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>9,024,814 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Property and equipment, net</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>2,731,269</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>2,275,650</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>2,595,958 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Finite-life intangible assets, net</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>228,783</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>183,658</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>680,277 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Deferred income taxes</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>360,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Other assets</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>88,023</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>30,965</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>129,110 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Total assets</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>11,461,098</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>9,395,597</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>12,430,159 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Liabilities and Stockholders&#146; Equity</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Current Liabilities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Revolving line of credit</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,268,128 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Current maturities of long-term debt</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>392,251</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>370,984</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>384,074 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Accounts payable</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>426,320</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>339,278</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>591,838 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Accrued compensation</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>541,125</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>244,404</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>576,394 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Commissions payable</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>71,002</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,193,866</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>34,816 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Other accrued liabilities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>333,131</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>478,639</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>469,348 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Income tax payable</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>334,031</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>160,904 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Total current liabilities</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>2,097,860</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>2,627,171</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>3,485,502 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Long-term debt, less current maturities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3,167,496</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2,727,407</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2,227,307 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Deferred income taxes</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>137,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>112,000 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Total liabilities</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>5,402,356</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>5,354,578</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>5,824,809 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Commitments and Contingencies</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Stockholders&#146; Equity</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Electromed, Inc. stockholders&#146; equity:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Common stock, $0.01 par value; authorized:
 10,000,000 shares; issued and outstanding: 6,040,152, 5,873,911 and 6,075,885
 shares, respectively</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>60,402</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>58,739</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>60,759 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Additional paid-in capital</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,201,706</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>5,540,992</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,375,107 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Retained earnings (deficit)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(118,465</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(1,451,371</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>252,564 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Common stock subscriptions receivable for
 shares outstanding of 53,500, 47,333 and 48,500, respectively</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(91,500</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(111,999</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(84,000 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Total Electromed, Inc. stockholders&#146; equity</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,052,143</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>4,036,361</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,604,430 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Noncontrolling interest</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>6,599</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>4,658</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>920 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Total stockholders&#146; equity</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>6,058,742</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>4,041,019</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>6,605,350 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Total liabilities and stockholders&#146; equity</B></FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>11,461,098</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>9,395,597</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>12,430,159 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>See Notes to
Consolidated Financial Statements.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="100%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Electromed, Inc.</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2><B>C<A NAME="A1013901B003_V2"></A>onsolidated Statements of Operations</B></FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2><B>Years Ended June 30, 2009 and 2008 and</B></FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2><B>Six Months Ended December 31, 2009 and 2008 (Unaudited)</B></FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="46%" VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="7%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Years
 Ended June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Six
 Months Ended December 31</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Net revenues</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>12,998,627</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>8,752,129</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,451,113</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,119,481
 </FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Cost of revenues</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>3,340,041</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>2,147,045</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,660,739</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,443,463
 </FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Gross profit</B></FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>9,658,586</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>6,605,084</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>4,790,374</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>4,676,018
 </FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Operating expenses</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Selling, general and administrative</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,845,106</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>5,999,620</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>3,773,727</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>3,295,668
 </FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Research and development</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>357,871</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>271,241</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>251,042</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>189,864
 </FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Total operating expenses</B></FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>7,202,977</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>6,270,861</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>4,024,769</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>3,485,532
 </FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Operating income</B></FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2,455,609</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>334,223</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>765,605</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,190,486
 </FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Interest expense, net of interest income of $8,746, $24,816, $4,217
 and $4,635, respectively</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>270,446</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>476,874</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>121,837</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>129,290
 </FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Net income (loss) before income taxes</B></FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2,185,163</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(142,651</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>643,768</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,061,196
 </FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Income tax (expense) benefit</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(830,000</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>427,000</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(260,000</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(400,000
 </FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Net income</B></FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,355,163</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>284,349</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>383,768</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>661,196
 </FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Less: Net income attributable to noncontrolling interest</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(22,257</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(16,497</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(12,739</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(9,739
 </FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Net income attributable to Electromed, Inc.</B></FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,332,906</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>267,852</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>371,029</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>651,457
 </FONT></P>


 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Earnings per share attributable to Electromed, Inc. common
 shareholders:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Basic</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>0.22</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>0.05</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>0.06</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>0.11
 </FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Diluted</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>0.22</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>0.04</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>0.06</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>0.11
 </FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Weighted-average Electromed, Inc. common shares Outstanding:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Basic</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>5,980,383</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>5,430,486</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6,059,158</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>5,937,474
 </FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Diluted</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,013,458</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,447,538</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6,100,334</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>5,944,632
 </FONT></P>
 </TD>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>See Notes to
Consolidated Financial Statements.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="100%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Electromed, Inc.</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2><B>C<A NAME="A1013901B004_V2"></A><A NAME="A101390B005_V2"></A>onsolidated
 Statements of Stockholders&#146; Equity</B></FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2><B>Years Ended June 30, 2008 and 2009 and</B></FONT></P>
 </TD>
 </TR>
 <TR HEIGHT=19 STYLE='HEIGHT:0.2IN'>
 <TD HEIGHT=19 VALIGN=BOTTOM>
 <P><FONT SIZE=2><B>Six Months Ended December 31, 2009 (Unaudited)</B></FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="25%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="6%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="6%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="7%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="9%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="9%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=13 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Electromed,
 Inc.</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Common
 Stock</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Additional
 <BR> Paid-in <BR> Capital</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Retained
 <BR> Earnings <BR> (Deficit)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Common
 Stock<BR>
 Subscriptions<BR>
 Receivable</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Noncontrolling<BR>
 Interest</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Total<BR>
 Stockholders&#146;<BR>
 Equity</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Shares</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>Amount</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>

 <TR>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Balance at June 30, 2007</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>5,186,453</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>$</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>51,865</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>$</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>3,408,602</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>$</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>(1,719,223</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>$</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>$</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>4,861</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>$</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>1,746,105
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Net income</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>267,852</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>16,497</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>284,349
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Issuance of common stock upon conversion of notes payable</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>388,341</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>3,883</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>1,161,117</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>1,165,000
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>


 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>

 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Sale of common stock</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>117,715</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>1,177</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>410,824</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>412,001
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Issuance of common stock for acquisition of land</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>35,000</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>350</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>104,650</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>105,000
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>



 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Issuance of common stock for warrants exercised with subscription
 notes</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>47,333</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>473</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>111,526</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(111,999</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Issuance of common stock upon exercise of warrants</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>99,069</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>991</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>276,413</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>277,404
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Distributions paid to holders of noncontrolling interest</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(16,700</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(16,700
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Share-based compensation expense</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>67,860</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>



 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>



 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>67,860
 </FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Balance at June 30, 2008</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>5,873,911</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>58,739</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>5,540,992</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(1,451,371</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(111,999</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>4,658</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>4,041,019
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Net income</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>1,332,906</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>22,257</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>1,355,163
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Sale of common stock</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>58,572</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>586</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>214,414</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>215,000
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Issuance of common stock for exercise of warrants</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>49,669</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>497</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>148,507</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>149,004
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Issuance of common stock for warrants exercised with subscription
 notes</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>31,000</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>310</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>46,190</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(46,500</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Issuance of common stock for acquisition of property and payment of
 services</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>30,000</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>300</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>104,700</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>105,000
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Proceeds on subscription notes receivable</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>66,999</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>66,999
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Repurchase of common stock</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>(3,000</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>(30</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>(6,330</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>(6,360
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Distributions paid to holders of noncontrolling interest</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(20,316</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(20,316
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 </TR>


 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Share-based compensation expense</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>153,233</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>153,233
 </FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Balance at June 30, 2009</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>6,040,152</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>60,402</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>6,201,706</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(118,465</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(91,500</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>6,599</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>6,058,742
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Activity (Unaudited):</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Net income</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>371,029</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>12,739</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>383,768
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Issuance of common stock upon exercise of warrants</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>30,733</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>307</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>73,025</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>73,332
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Issuance of common stock for payment of services</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>5,000</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>50</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>22,450</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>22,500
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Proceeds from subscription notes receivable</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>7,500</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>7,500
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Distributions paid to holders of noncontrolling interest</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(18,418</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>(18,418
 </FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM>
 <P><FONT SIZE=1>)</FONT></P>
 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Share-based compensation expense</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>77,926</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>-</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=1>77,926
 </FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>

 <TR STYLE="FONT-SIZE:4PX">
<TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>


 <TR >
 <TD  VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=1>Balance at December 31, 2009 (unaudited)</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=1>6,075,885</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>$</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=1>60,759</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>$</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=1>6,375,107</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>$</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=1>252,564</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>$</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=1>(84,000</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>)</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>$</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=1>920</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>$</FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=1>6,605,350
 </FONT></P>


 </TD>
 <TD  VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>See Notes to
Consolidated Financial Statements.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="100%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Electromed, Inc.</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>C<A NAME="A1013901B005_V2"></A>onsolidated Statements of Cash Flows</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Years Ended June 30, 2009 and 2008 and </B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Six Months Ended December 31, 2009 and 2008 (Unaudited)</B></FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="46%" VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="7%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Years
 Ended June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Six
 Months Ended December 31</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Cash Flows From Operating Activities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Net income</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,355,163</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>284,349</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>383,768</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>661,196
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Adjustments to reconcile net income to net cash provided by (used in)
 operating activities:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Depreciation</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>302,162</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>253,746</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>150,361</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>147,693
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Amortization of finite-life intangible assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>16,783</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>14,649</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>17,673</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>7,922
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Amortization of debt issuance costs</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>9,638</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>176,423</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>25,703</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>4,725
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Share-based compensation expense</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>153,233</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>67,860</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>77,926</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>76,261
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Deferred income taxes</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>299,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(459,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(55,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>149,000
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Noncash interest expense from warrants issued with convertible debt</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>49,393</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Loss on disposal of property and equipment</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>56,301</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>28,020</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3,728</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>32,398
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Issuance of common stock for payment of services</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>35,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>22,500</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>35,000
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Changes in operating assets and liabilities:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:0.6IN;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Accounts
 receivable</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(2,418,665</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(629,650</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(361,031</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(1,400,814
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:0.6IN;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Inventories</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(329,181</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(259,361</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(128,791</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>41,164
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:0.6IN;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Prepaid
 expenses and other assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(66,562</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(95,932</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(123,643</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(76,543
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:0.6IN;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Accounts
 payable and accrued liabilities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(570,578</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>812,661</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>65,125</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(784,204
 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:51.85PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Net cash provided by (used in) operating activities</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(1,157,706</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>243,158</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>78,319</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(1,106,202
 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Cash Flows From Investing Activities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Expenditures for property and equipment</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(648,716</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(565,890</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(45,386</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(473,589
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Payments of deferred financing fees</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(1,696</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(33,773</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(46,791</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Expenditures for finite-life intangible assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(61,908</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(45,968</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(406,600</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(16,225
 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:51.85PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Net cash used in investing activities</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(712,320</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(645,631</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(498,777</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(489,814
 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Cash Flows From Financing Activities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Net borrowings on revolving line of credit</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,268,128</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Principal payments on long-term debt including capital lease
 obligations</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(641,409</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(2,004,835</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(3,441,758</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(451,860
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Proceeds from long-term debt</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,027,399</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2,209,508</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2,520,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>900,702
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Noncontrolling interest distributions paid</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(20,316</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(16,700</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(18,418</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Proceeds from sales of common stock</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>364,004</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>689,405</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>73,332</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>239,004
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Proceeds on subscription notes receivable</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>66,999</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>7,500</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>51,999
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Repurchase of common stock</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(6,360</FONT></P>



 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(6,360
 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:51.85PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Net cash provided by financing activities</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>790,317</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>877,378</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>408,784</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>733,485
 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:51.85PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><B>Net increase (decrease) in cash and cash equivalents</B></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(1,079,709</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>474,905</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(11,674</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(862,531
 </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Cash and Cash Equivalents</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Beginning of period</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,441,625</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>966,720</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>361,916</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,441,625
 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>End of period</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>361,916</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,441,625</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>350,242</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>579,094
 </FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>(Continued)</FONT></P>

<P><FONT SIZE=2>See Notes to Consolidated
Financial Statements.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2><B>Electromed, Inc. </B></FONT></P>

<P><FONT SIZE=2><B>Consolidated Statements of Cash Flows
(Continued) <BR>
Years Ended June 30, 2009 and 2008 and <BR>
Six Months Ended December 31, 2009 and 2008 (Unaudited) </B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="45%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Years
 Ended June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Six
 Months Ended December 31</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Supplemental Disclosures of Cash Flow Information</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Cash paid for interest</FONT></P>

  <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>266,265</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>275,566</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>91,809</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>134,545</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Cash paid for income taxes</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>192,703</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>32,056</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>498,342</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Supplemental Disclosures of Noncash Investing and Financing Activities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Common stock issued for acquisition of property and equipment</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>70,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>105,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>70,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Reduction in basis of acquired building formerly under capital lease</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>93,172</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Common stock issued for subscription notes</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>46,500</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>111,999</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>46,500</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Expenditures for finite-life intangible assets included in accounts
 payable</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>62,556</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Expenditures for property and equipment included in accounts payable</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>20,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>273,853</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>41,568</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Common stock issued in payment of convertible notes</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1,165,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Property and equipment financed through capital leases</FONT></P>

  <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>75,366</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>21,547</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>66,564</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>48,253</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>See Notes to
Consolidated Financial Statements.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-7</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
N<A NAME="A1013901B006_V2"></A>otes to Consolidated Financial Statements</B><BR>

(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 1.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Nature of Business and Summary of Significant Accounting Policies </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Nature of business:</B>
Electromed, Inc. (the Company) develops, manufactures and markets innovative
airway clearance products which apply High Frequency Chest Wall Oscillation
(HFCWO) therapy in pulmonary care for patients of all ages. The Company markets
its products in the United States to the home health care and institutional
markets for use by patients in personal residences, hospitals and clinics. The
Company also sells internationally directly and through distributors. The
Company had international sales of approximately $919,000, $727,000, $275,000
and $250,000 for the years ended June 30, 2009 and 2008, and for the six months
ended December 31, 2009 and 2008, respectively. Since its inception, the Company
has operated in a single industry segment: developing, manufacturing and
marketing medical equipment. As a result, the information disclosed herein
materially represents all of the financial information related to the Company&#146;s
operating segment. </FONT></P>

<P><FONT SIZE=2><B>Principles of consolidation:</B>
The accompanying consolidated financial statements include the accounts of
Electromed, Inc. and its 95 percent&#150;owned subsidiary, Electromed Financial,
LLC. Income related to the noncontrolling interest in the subsidiary is
reflected as noncontrolling interest on the consolidated financial statements.
All significant intercompany accounts and transactions have been eliminated in
consolidation. The Company acquired the remaining 5 percent of Electromed
Financial, LLC on March 2, 2010. Electromed Financial, LLC was established by
the Company to assist in raising capital from outside investors. </FONT></P>

<P><FONT SIZE=2><B>Unaudited interim financial information:</B>
The interim financial information of the Company for the six months ended
December 31, 2009 and 2008, and as of December 31, 2009, is unaudited. The
unaudited interim financial information has been prepared on the same basis as
the annual consolidated financial statements and in the opinion of management
reflects all adjustments, consisting of normal recurring adjustments, necessary
to present fairly the results of operations and cash flows of the Company for
the six months ended December 31, 2009 and 2008, and the financial position of
the Company as of December 31, 2009. </FONT></P>

<P><FONT SIZE=2>A summary of
the Company&#146;s significant accounting policies follows: </FONT></P>

<P><FONT SIZE=2><B>Use of estimates:</B>
Management uses estimates and assumptions in preparing the consolidated
financial statements in accordance with accounting principles generally
accepted in the United States of America. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were used. The Company
believes the critical accounting policies that require the most significant
assumptions and judgments in the preparation of its consolidated financial
statements include: revenue recognition and the estimation of contractual
allowances, allowance for doubtful accounts, inventory obsolescence, valuation
allowance for deferred income tax assets and warranty liability. </FONT></P>

<P><FONT SIZE=2><B>Revenue recognition:</B>
The Company recognizes revenue when persuasive evidence of a sales arrangement
exists, delivery of goods occurs through the transfer of title and risks and
rewards of ownership, the selling price is fixed or determinable, and
collectability is reasonably assured. Revenues are primarily recognized upon
shipment. </FONT></P>

<P><FONT SIZE=2>Direct patient
sales are recorded at amounts estimated to be received under reimbursement
arrangements with third-party payers, including private insurers, prepaid
health plans, Medicare and Medicaid. Estimates are required to record revenues
and accounts receivable at their net realizable values. The complexity of
third-party billing arrangements, the uncertainty of approval and the ultimate
reimbursement amounts from third-party payers may result in adjustments to
amounts originally billed. Such adjustments generally occur at the point of
cash application, claim denial or account review. The Company records an
estimate of such potential future adjustments, including potential sales
returns, as a reduction of net revenues in the same period revenue is
recognized. Management has estimated this sales discount based on historical
collection and sales allowance experience with direct patient sales. Management
periodically reviews and makes changes to their estimation process by
considering any changes in recent collection or sales allowance experience.
Other than the installment sales as discussed below, the Company receives
payment of the vast majority of accounts receivables within one year. However,
in some instances, payment for direct patient sales can be delayed or
interrupted resulting in a small portion of collections occurring later than one
year. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-8</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 1.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Nature of Business and Summary of Significant Accounting Policies
 (continued) </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Certain
third-party reimbursement agencies pay the Company on a monthly installment
basis, which can span over several years. Payment can at times be further
delayed or adjusted if, among other things, the insured individual changes
insurance providers or no longer requires treatment. Due to the inherent
uncertainty of collectability with these installment sales, the Company uses
the installment method of revenue recognition for these sales, and accordingly,
does not record accounts receivable or revenue at the time of product shipment.
Under the installment method, the Company defers and amortizes the costs
associated with the sale and, as each installment is received, that amount is
recognized as revenue. Deferred costs associated with the sale are amortized to
cost of revenue ratably over the estimated period in which collections are
scheduled to occur. </FONT></P>

<P><FONT SIZE=2>A summary of
sales made under the installment method are as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="45%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Years Ended June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Six Months Ended December 31</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Revenue
 recognized under installment sales</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>229,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>119,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>314,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>145,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Amortized
 cost of revenues recognized</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>31,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>27,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>49,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>35,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Unrecognized
installment method sales were as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="59%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>December 31,<BR>
 2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Estimated
 unrecognized sales, net of discounts</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>716,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>271,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>800,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Unamortized
 cost of revenues included in prepaids and other current assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>94,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>46,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>122,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Shipping and handling expense:</B>
Shipping and handling charges billed to customers are included as a reduction
to cost of revenues. Shipping and handling charges incurred by the Company are
included in selling, general and administrative expenses and were $174,000,
$112,000, $93,000 and $79,000 for the years ended June 30, 2009 and 2008, and
for the six months ended December 31, 2009 and 2008, respectively. </FONT></P>

<P><FONT SIZE=2><B>Cash and cash equivalents:</B>
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less at the date of acquisition. The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in these
accounts. </FONT></P>

<P><FONT SIZE=2><B>Accounts receivable:</B>
Accounts receivable are carried at amounts estimated to be received under
reimbursement arrangements with third-party payers. Accounts receivable are
also net of an allowance for doubtful accounts. Management determines the
allowance for doubtful accounts by regularly evaluating individual customer
receivables and considering a customer&#146;s financial condition and credit
history. Receivable are written off when deemed uncollectible. Recoveries of
receivables previously written off are recorded when received. The allowance
for doubtful accounts was approximately $45,000, $35,000 and $45,000 as of June
30, 2009 and 2008, and December 31, 2009. </FONT></P>

<P><FONT SIZE=2><B>Inventories:</B>
Inventories, consisting of material, labor and manufacturing overhead are
stated at the lower of cost (first-in, first-out method) or market. Work in
process and finished goods are carried at standard cost, which includes
materials, labor and allocated overhead. The reserve for obsolescence is
determined by analyzing the inventory on hand and comparing it to expected
production requirements. </FONT></P>

<P><FONT SIZE=2><B>Property and equipment:</B>
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements and assets acquired under
capital leases are depreciated over the shorter of their estimated useful lives
or the remaining lease term.
The Company retains ownership of demonstration equipment in the possession of
both inside and outside sales representatives, who use the equipment in the
sales process. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-9</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 1.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Nature of Business and Summary of Significant Accounting Policies
 (continued) </B></FONT></P>
 </TD>
 </TR>
</TABLE>


<P><FONT SIZE=2><B>Finite-life intangible assets:</B>
Finite-life intangible assets include patents and trademarks. These intangible
assets are being amortized on a straight-line basis over their estimated useful
lives, as described in Note 4. </FONT></P>

<P><FONT SIZE=2><B>Long-lived assets:</B>
Long-lived assets, such as property and equipment and finite-life intangible
assets, are evaluated for impairment whenever events or changes in
circumstances indicate the carrying value of an asset may not be recoverable.
In evaluating recoverability, the following factors, among others, are
considered: a significant change in the circumstances used to determine the
amortization period, an adverse change in legal factors or in the business
climate, a transition to a new product or service strategy, a significant
change in customer base, and a realization of failed marketing efforts. The
recoverability of an asset is measured by a comparison of the unamortized
balance of the asset to future undiscounted cash flows. </FONT></P>

<P><FONT SIZE=2>If the Company
believes the unamortized balance is unrecoverable, it would recognize an
impairment charge necessary to reduce the unamortized balance to the estimated
fair value of the asset. The amount of such impairment would be charged to
operations in the current period. The Company has not identified any indicators
of impairment associated with its long-lived assets. </FONT></P>

<P><FONT SIZE=2><B>Warranty liability:</B>
The Company offers a limited warranty on its products. The Company estimates
the costs that may be incurred under its warranty and records a liability in
the amount of such costs at the time the product is sold. Factors that affect
the Company&#146;s warranty liability include the number of units sold, historical
and anticipated rates of warranty claims, and cost per claim. The Company
periodically assesses the adequacy of its recorded warranty liability and
adjusts the amounts as necessary. The warranty liability is included in other
accrued liabilities on the consolidated balance sheet. </FONT></P>

<P><FONT SIZE=2>Changes in the
Company&#146;s warranty liability were approximately as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="60%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Six Months<BR>
 Ended<BR>
 December 31,<BR>
 2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Years Ended June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Beginning warranty reserve</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>195,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>183,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>292,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Warranty expense</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>162,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>34,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>37,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Warranty provision</FONT></P>

  <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(65,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(22,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(40,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Ending warranty reserve</FONT></P>

  <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>292,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>195,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>289,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Income taxes:</B>
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment. </FONT></P>

<P><FONT SIZE=2>The Company
recognizes tax liabilities when the Company believes that certain positions may
not be fully sustained upon review by tax authorities. Benefits from tax
positions are measured at the largest amount of benefit that is greater than 50
percent likely of being realized upon settlement. The current portion of tax
liabilities is included in other liabilities. To the extent that the final tax
outcome of these matters is different than the amounts recorded, such
differences impact income tax expense in the period in which such determination
is made. Interest and penalties, if any, related to accrued liabilities for
potential tax assessments are included in income tax expense. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-10</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 1.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Nature of Business and Summary of Significant Accounting Policies
 (continued)</B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Research and development: </B>Research
and development costs include costs of research activities as well as
engineering and technical efforts required to develop new products or make
improvement to existing products. Research and development costs are expensed
as incurred. </FONT></P>

<P><FONT SIZE=2><B>Advertising costs:</B>
Advertising costs are charged to expense when incurred. Advertising, marketing
and trade show costs for the years ended June 30, 2009 and 2008, and for the
six months ended December 31, 2009 and 2008, were approximately $642,000,
$454,000, $231,000 and $323,000, respectively. </FONT></P>

<P><FONT SIZE=2><B>Share-based payments:</B>
Share-based payment awards consist of warrants issued to employees for
services, and to nonemployees in lieu of payment for products or services.
Expense is estimated using the Black-Scholes pricing model at the date of grant
and is recognized on a straight-line basis over the requisite service or
vesting period of the award. </FONT></P>

<P><FONT SIZE=2><B>Fair value of financial instruments:</B>
The carrying values of cash, accounts receivable, accounts payable and accrued
expenses approximate their fair value due to the short-term nature of these
instruments. The carrying value of long-term debt is the remaining amount due
to debtors under borrowing arrangements. To estimate the fair value of debt,
the Company estimates the interest rate necessary to secure financing to
replace its debt. At December 31, 2009, the fair value of long-term debt was
not significantly different than its carrying value. </FONT></P>

<P><FONT SIZE=2><B>Basic and diluted earnings per share:</B>
Basic per share amounts are computed by dividing net income attributable to
Electromed, Inc. by the weighted-average number of common shares outstanding.
Diluted per share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless their effect is anti-dilutive,
thereby reducing the loss per share or increasing the income per share (see
Notes 5 and 7 for information on convertible debt and stock warrants,
respectively). </FONT></P>

<P><FONT SIZE=2><B>Noncontrolling interest accounting change: </B>In
December 2007, the FASB issued accounting guidance which establishes new
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. Certain provisions of
this guidance indicate that noncontrolling interest, in most cases, be treated
as a separate component of equity, not as a liability, and that increases and
decreases in the parent&#146;s ownership interest that leave control intact be
treated as equity transactions. The new requirements became effective for the Company
beginning on July 1, 2009 and resulted in a change in presentation since the
noncontrolling interest is now shown as a component of equity rather than as a
liability. This change in presentation has been retrospectively applied to all
periods presented within the consolidated financial statements. </FONT></P>

<P><FONT SIZE=2><B>Recently adopted accounting pronouncements:</B>
A summary of new accounting pronouncements that affect the Company is as
follows: </FONT></P>

<P><FONT SIZE=2>In April 2009,
the FASB issued accounting guidance regarding interim disclosures about the
fair value of financial instruments, including the methods and significant
assumptions used to estimate fair value. This guidance increases the frequency
of certain fair value disclosures from annual to quarterly. This guidance was
effective for interim periods ending after June 15, 2009. The Company has
adopted this guidance with no impact on its consolidated financial statements. </FONT></P>

<P><FONT SIZE=2>In May 2009,
the FASB updated its accounting guidance regarding subsequent events,
establishing principles and requirements for disclosures concerning subsequent
events. In particular, it sets forth the period after the balance sheet date
during which management is required to evaluate events or transactions that
have occurred or may occur for potential recognition or disclosure in the
financial statements; the circumstances under which the Company must recognize
events or transactions occurring after the balance sheet date in its
consolidated financial statements, and the disclosures that the Company must
make about events or transactions that occurred after the consolidated balance
sheet date. This updated guidance was effective for annual and interim periods
ending after June 15, 2009. Accordingly, the Company has applied the provisions
of this guidance in the current reporting period. See Note 11 for information
relating to subsequent events. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-11</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 2.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Inventories </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The components
of inventory at June 30, 2009 and 2008, and December 31, 2009, are
approximately as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="54%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="13%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN="CENTER"><FONT SIZE=2>December 31,<BR>2009</FONT></P>

 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Parts
 inventory</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>759,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>483,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>659,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Finished
 goods</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>450,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>397,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>678,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Less:
 Reserve for obsolescence</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(30,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(30,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(30,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=2>Total</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,179,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>850,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,307,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 3.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Property and Equipment </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Property and
equipment, including assets under capital leases, consisted of approximately
the following: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="41%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=BOTTOM>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="12%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD ROWSPAN=3 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Estimated<BR>Useful<BR>Lives (Years)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>December 31,<BR>
 2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
  <TD VALIGN=BOTTOM colspan=2>
 <P ALIGN="CENTER"><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Building and
 building improvements</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=2>15-39</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,920,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,008,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,832,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Land</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>N/A</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>200,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>200,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>200,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Land
 improvements</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=2>15</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>162,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>162,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Equipment</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>3-7</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>755,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>554,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>830,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Demonstration
 equipment</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>396,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>616,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>418,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Vehicles</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>35,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>35,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>35,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Construction
 in progress</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=2>N/A</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>620,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3,468,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3,033,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3,477,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Less:
 Accumulated depreciation</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(737,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(757,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(881,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=2>Total
 property and equipment</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>2,731,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>2,276,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>2,596,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 4.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Finite-Life Intangible Assets </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The carrying
value of patents and trademarks includes the original cost of obtaining the
patents, periodic renewal fees, and other costs associated with maintaining and
defending patent and trademark rights. Patents and trademarks are amortized
over their estimated useful lives, generally 15 and 12 years, respectively.
Accumulated amortization was $61,000, $44,000 and $79,000 at June 30, 2009 and
2008, and at December 31, 2009, respectively. </FONT></P>

<P><FONT SIZE=2>The activity
and balances of finite-life intangible assets were approximately as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="55%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="12%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Six Months<BR>
 Ended<BR>
 December 31,<BR>
 2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Years Ended June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Balance,
 beginning</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>184,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>153,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>229,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Additions</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>62,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>46,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>469,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Amortization
 expense</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(17,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(15,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(18,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Balance,
 ending</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>229,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>184,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>680,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Based on the
carrying value at December 31, 2009, amortization expense is expected to be
approximately $29,000 for the remainder of fiscal 2010 and $58,000 annually
thereafter.</FONT></P>


<P ALIGN=CENTER><FONT SIZE=2>F-12</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 4.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Finite-Life Intangible Assets (continued) </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Additions
during the six-month period ended December 31, 2009 were all legal defense
costs associated with a trademark infringement lawsuit filed against the
Company (see Note 9). Such defense costs are being capitalized by the Company
and amortized over the remaining useful life of the trademark. The future
amortization amount is expected to change as the Company incurs additional
costs associated with its patents and trademarks, including the trademark
defense costs. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 5.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Financing Arrangements </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The Company
entered into a $3,500,000 revolving line of credit on December 9, 2009, which
expires on November 30, 2010, if not renewed. Advances are due at the
expiration date and are secured by substantially all Company assets. The amount
eligible for borrowing is limited to 60 percent of eligible accounts receivable
less the outstanding balance on the Company&#146;s term note. Interest on advances
accrues at LIBOR plus 2.75 percent and is payable monthly. As of December 31,
2009, there was approximately $1,268,000 outstanding on the line of credit and
$1,259,000 available for future borrowing.<sup>(a)</sup></FONT></P>

<P><FONT SIZE=2>Long-term debt
consists of approximately the following as of June 30, 2009 and 2008, and
December 31, 2009: </FONT></P>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="55%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="12%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>December 31,<BR>
 2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN="CENTER"><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Mortgage note payable with bank, due in
 monthly installments of $10,706, including interest at 5.79%, remaining due
 December 2014, secured by land and building<sup>(a)</sup></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,514,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Term note payable with bank, due in monthly
 installments of $29,649, including interest at 4.28%, due in December 2012,
 secured by substantially all assets<sup>(a)</sup></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>973,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Capital lease obligations, due in varying
 monthly installments, including interest ranging from 8.99% to 12.07%, to
 March 2013, secured by equipment</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>78,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>21,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>124,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Capital lease obligation for building,
 implied interest of 11.92%, terminated with the purchase of the building
 subsequent to June 30, 2009</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>654,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>657,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Notes payable with bank, interest ranging
 from 6.75% to 9.0%, paid in full prior to December 31, 2009</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,629,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,940,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Construction and mortgage notes payable
 with bank, interest at 6.0%, paid in full prior to December 31, 2009</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,198,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>480,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Total</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>3,559,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>3,098,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>2,611,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Less: Current portion</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>392,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>371,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>384,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Long-term debt</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>3,167,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>2,727,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>2,227,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>
<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="97%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(a)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>These
instruments have certain financial and nonfinancial covenants which, among
others, require the Company to maintain a minimum fixed charge coverage ratio
and a maximum cash flow leverage ratio, and restrict the payment of dividends.</FONT></P>
 </TD>
 </TR>
</TABLE>


<P ALIGN=CENTER><FONT SIZE=2>F-13</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 5.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Financing Arrangements (continued) </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Approximate
future maturities of long-term debt as of December 31, 2009 are as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="84%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Year ending
 June 30:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>2010 (remainder of year)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>175,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>2011</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>420,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>2012</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>420,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>2013</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>230,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>2014</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>50,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Thereafter</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>1,316,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Total</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>2,611,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Conversion of debt to equity:</B>
At June 30, 2007, the Company had convertible notes outstanding of $3,025,000.
These notes were paid in full during the year ended June 30, 2008, through a
combination of $1,860,000 cash and the issuance of 388,341 shares of common
stock valued at $1,165,000, or approximately $3.00 per share. The remaining
unamortized fair value of warrants issued in conjunction with these convertible
notes was fully amortized upon conversion, resulting in a $49,000 noncash
charge to interest expense for the year ended June 30, 2008. The convertibility
feature of the previously outstanding notes resulted in additional common
equivalent shares outstanding for purposes of diluted earnings per share for
the period ended June 30, 2008. </FONT></P>

<P><FONT SIZE=2><B>Capital leases: </B>The
Company has financed certain office equipment through capital leases. The
Company also had a building capital lease with a director of the Company
through December 2009, at which time the Company purchased the building for
approximately $555,000 using the proceeds from a new mortgage note with a bank.
The net carrying value of the capital lease obligation exceeded the purchase
price by approximately $93,000 which was recognized as a reduction in the net
book value of the acquired building, which had been capitalized at the
inception of the lease. </FONT></P>

<P><FONT SIZE=2>At June 30,
2009 and 2008, and December 31, 2009, carrying value of assets under these
capital leases are approximately as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH=344 VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH=195 VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH=70 VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH=135 COLSPAN=2 VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD WIDTH=344 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD WIDTH=195 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD WIDTH=70 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD WIDTH=37 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD WIDTH=98 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD WIDTH=344 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD WIDTH=195 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD WIDTH=70 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD WIDTH=135 COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="55%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="12%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 ROWSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>December 31,<BR>
 2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(Unaudited)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Building</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>675,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>675,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Fixtures and
 office equipment</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>96,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>22,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>163,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Less:
 Accumulated depreciation</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(67,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(38,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(24,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=2>Total</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>704,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>659,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>139,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Depreciation
expense for these assets was $29,000, $20,000, $12,000 and $13,000 for the
years ended June 30, 2009 and 2008, and the six months ended December 31, 2009
and 2008, respectively. </FONT></P>

<P><FONT SIZE=2>Approximate
future minimum payments under capital leases as of December 31, 2009 are as
follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="84%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Year ending
 June 30:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>2010 (remainder of year)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>32,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>2011</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>60,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>2012</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>38,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>2013</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>9,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Total</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>139,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>Less: Amount
 representing interest</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(15,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=2>Present
 value of future minimum lease payments (included in long term debt above)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>124,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>F-14</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 6.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Common Stock </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Common stock issued for property and
services:</B> In fiscal 2009, the Company issued 20,000
and 10,000 shares for land improvements and services with estimated fair values
of $70,000 and $35,000, respectively. In fiscal 2008, the Company issued 35,000
shares of common stock to a related party as consideration for land purchased
with a fair value of $105,000. During the six months ended December 31, 2009,
the Company issued 5,000 shares for services valued at $22,500. </FONT></P>

<P><FONT SIZE=2><B>Common stock subscription receivables: </B>During
fiscal 2009, the Company issued 31,000 shares of common stock to an employee
upon the exercise of outstanding warrants. The Company agreed to accept a
subscription note receivable from this employee for approximately $47,000. The
note receivable matures in December 2011. The Company revalued the warrants upon
issuance of these subscription notes and recognized additional share-based
expense of approximately $67,000 for the year ended June 30, 2009. </FONT></P>

<P><FONT SIZE=2>During fiscal
2008, the Company issued 47,333 shares of common stock to unrelated third
parties upon the exercise of outstanding warrants. The Company agreed to accept
subscription notes receivable from these individuals for a total of
approximately $112,000. For the year ended June 30, 2009, and for the six
months ended December 30, 2009, cash collected on these notes was approximately
$67,000 and $8,000, respectively. The Company revalued the warrants upon
issuance of these subscription notes and recognized additional share-based
expense of approximately $50,000 for the year ended June 30, 2008. </FONT></P>

<P><FONT SIZE=2><B>Sales of common stock:</B>
The Company from time to time has sold common stock to investors for cash.
During the year ended June 30, 2009, the Company sold 48,572 shares at $3.50
per share and 10,000 shares at $4.50 per share, for total cash proceeds of
approximately $215,000. All shares were sold to unrelated third-party
investors. </FONT></P>

<P><FONT SIZE=2>During the
year ended June 30, 2008, the Company sold 117,715 shares of common stock for
cash proceeds of approximately $412,000, or $3.50 per share. Of this amount,
87,000 shares were sold to a Company director, and the remaining 30,715 shares
were sold to unrelated third-party investors. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 7.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Share-Based Payments </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Employee warrants: </B>The
Company grants stock warrants to employees as long-term incentive compensation.
All warrants are granted at exercise prices equal to or greater than the
estimated fair market value of the Company&#146;s common stock. Warrants generally
expire three to ten years from the grant date and vest over a period of up to
five years. Warrants have not been granted under a formal plan; however, the
number of warrants eligible for issuance is limited to the number of authorized
shares of the Company&#146;s common stock. </FONT></P>

<P><FONT SIZE=2>The Company
recognizes compensation expense related to share-based payment transactions in
the consolidated financial statements based on the estimated fair value of the
award issued. The fair value of each warrant is estimated using the
Black-Scholes pricing model at the time of award grant. The Company estimates
the expected life of warrants based on the expected holding period by the
warrant holder. The risk-free interest rate is based upon observed U.S.
Treasury interest rates for the expected term of the warrants. The Company
makes assumptions with respect to expected stock price volatility based upon
the volatility of similar companies. Forfeitures are estimated at the time of
grant and revised in subsequent periods if actual forfeitures differ from
initial estimates. Forfeitures are estimated based on the percentage of awards
expected to vest, taking into consideration the seniority level of the award
recipient. </FONT></P>

<P><FONT SIZE=2>Share-based
compensation expense for the years ended June 30, 2009 and 2008, and the six
months ended December 31, 2009, was approximately $86,000, $18,000 and $78,000,
respectively. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-15</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 7.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Share-Based Payments (continued) </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The following
weighted-average assumptions were used to estimate the fair value of warrants
granted: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="69%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="13%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Years Ended June 30</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Risk-free
 interest rate</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=2>1.2% - 3.4%</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=2>2.2% - 4.8%</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Expected
 life (years)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>4 - 10</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Expected
 volatility</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=2>46.9%</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP BGCOLOR="#D6F3E8">
 <P ALIGN=CENTER><FONT SIZE=2>21.6%</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Expected
 dividends</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>0%</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>0%</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The following
table presents employee warrant activity for the year ended June 30, 2009, and
the six months ended December 31, 2009: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="42%" VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Number of<BR>
 Shares</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Weighted-<BR>
 Average<BR>
 Grant Date<BR>
 Fair Value</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Weighted-<BR>
 Average<BR>
 Exercise Price</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=4 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Weighted-<BR>
 Average<BR>
 Remaining<BR>
 Contractual<BR>
 Life (in Years)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Warrants outstanding at June 30, 2008</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>272,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1.32</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>2.64</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1.14</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Granted</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>307,800</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2.13</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3.55</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Exercised</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(31,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>0.61</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1.50</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Canceled or forfeited</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(40,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1.06</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2.56</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Warrants outstanding at June 30, 2009</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>508,800</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1.87</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>3.27</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>6.03</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Activity (unaudited):</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Granted</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>5,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1.69</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>4.50</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Exercised</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(17,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>0.86</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>2.29</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Canceled or forfeited</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(5,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1.92</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>3.00</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Warrants outstanding at December 31, 2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>491,800</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>1.90</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>3.31</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>6.17</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Warrants exercisable at December 31, 2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>241,560</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1.67</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>3.04</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>3.79</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>For the years
ended June 30, 2009 and 2008, and for the six months ended December 31, 2009,
net cash proceeds from the exercise of employee warrants was approximately
$47,000, $12,000 and $39,000, respectively. </FONT></P>

<P><FONT SIZE=2>At December
31, 2009, the Company had approximately $507,000 of unrecognized stock-based
compensation, which is expected to be recognized over a weighted-average period
of 2.3 years. The aggregate intrinsic value of warrants outstanding was
approximately $583,000, and the intrinsic value of warrants exercisable was
approximately $352,000 at December 31, 2009. </FONT></P>

<P><FONT SIZE=2><B>Warrants issued for services:</B>
In years prior to fiscal 2008, the Company issued warrants for services in lieu
of cash payments. At June 30, 2009, the Company had warrants outstanding and
exercisable to purchase 25,000 shares of common stock at a weighted-average
exercise price of $3.10 per share. These warrants expire at various dates
through January 3, 2011. </FONT></P>

<P><FONT SIZE=2>All
outstanding warrants issued for services were granted prior to the 2008 fiscal
year. During the years ended June 30, 2009 and 2008, there were 400,000 and
6,000 warrants forfeited, respectively. The warrants canceled during the year
ended June 30, 2009 were forfeited as a result of a termination agreement with
an independent sales representative (see Note 9). Warrants for 40,000 shares
were exercised during the year ended June 30, 2008, for $2.00 per share. </FONT></P>

<P><FONT SIZE=2><B>Warrants issued with convertible debt:</B>
In years prior to fiscal 2008, the Company issued convertible notes payable to
certain individuals. In conjunction with the issuance of these convertible
notes, creditors also received warrants to purchase common stock for an
exercise price of $3.00 per share. At June 30, 2009, the Company had 96,500
warrants outstanding and exercisable at a weighted-average exercise price of
$3.00 per share. These warrants expire in September 2012. During the years
ended June 30, 2009 and 2008, warrant holders exercised 49,669 and </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-16</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 7.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Share-Based Payments (continued) </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>99,002
warrants at a weighted-average exercise price of $3.00. Also during the years
ended June 30, 2009 and 2008, warrants forfeited and canceled were 62,338 and
72,002, respectively. </FONT></P>

<P><FONT SIZE=2>During the six
months ended December 31, 2009, warrant holders exercised 13,733 warrants at an
exercise price of $2.50 per share. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-17</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 8.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Income Taxes </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Components of
the provision (benefit) for income taxes for the years ended June 30, 2009 and
2008, are as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="70%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Years Ended June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>



 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Current</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>531,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>32,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Deferred</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM  STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM  STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>299,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM  STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM  STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM  STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>67,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM  STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Subtotal</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>830,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>99,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>Change in
 valuation allowance</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(526,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=2>Total</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>830,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(427,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The total
income tax expense (benefit) differs from the expected tax expense (benefit),
computed by applying the federal statutory rate to the Company&#146;s income (loss)
before income taxes, as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="70%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>Years Ended June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Tax expense
 (benefit) at statutory federal rate</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>743,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(49,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>State income
 tax benefit, net of federal tax</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>75,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>31,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Change in
 valuation allowance &#150; deferred income tax</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(526,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:1PX">
 <P><FONT SIZE=2>Other
 permanent items</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>12,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>117,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=2>Income tax
 expense (benefit)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>830,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(427,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The
significant components of deferred income taxes are as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="70%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>Deferred tax
 assets (liabilities):</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Revenue recognition and accounts receivable</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>221,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>83,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Accrued liabilities</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>200,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>71,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Net operating loss carryforwards</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>31,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>415,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Property and equipment</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(118,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>1,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Finite-life intangible assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(52,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>(33,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Investment in subsidiary</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(80,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>(54,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Warrants</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>82,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>31,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Other</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(64,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>5,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P><FONT SIZE=2>Net deferred
 tax assets</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>220,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>519,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The components
giving rise to the net deferred income tax assets described above have been
included in the accompanying consolidated balance sheets as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="70%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=5 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>June 30</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2009</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>


 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2>2008</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Current assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>357,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P ALIGN=RIGHT><FONT SIZE=2>159,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Long-term assets</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>360,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="PADDING-BOTTOM:1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Long-term liabilities</FONT></P>

  <P STYLE='MARGIN-LEFT:8.65PT;TEXT-INDENT:-8.65PT'></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>(137,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>)</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=RIGHT><FONT SIZE=2>-</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM STYLE="PADDING-BOTTOM:3PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Net deferred tax assets</FONT></P>

  <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>220,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=2>$</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P ALIGN=RIGHT><FONT SIZE=2>519,000</FONT></P>


 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:DOUBLE BLACK 3PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The Company
has state net operating loss carryforwards at June 30, 2009, of approximately
$321,000 to reduce future income tax liabilities, which will begin to expire in
2024. </FONT></P>

<P><FONT SIZE=2>The gross
deferred tax assets as of June 30, 2007, were reduced by a valuation allowance
of $526,000, relating primarily to operating loss carryforwards and other tax
attributes, as it was determined that more likely than not some portion or all
of these tax attributes would not be realized. The valuation allowance was
fully reversed during the year ended June 30, 2008, due to expected utilization
of the deferred tax assets. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-18</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 8.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Income Taxes (continued) </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The Company
has evaluated its exposure to unrecognized tax benefits as of June 30, 2009 and
2008, and has estimated that there are no unrecognized benefits which would be
material to the consolidated financial statements. The Company&#146;s policy would
be to recognize accrued interest and penalties related to unrecognized tax
benefits as a component of income tax expense.<BR><BR>The Company is subject to U.S.
federal income tax as well as income tax of multiple state jurisdictions. With
limited exceptions, tax years prior to fiscal 2007 are no longer open to
federal, state and local examination by taxing authorities. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 9.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Commitments and Contingencies </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Settlement of sales representation agreement:</B>
In July 2008, the Company settled a lawsuit with an independent sales
representative organization. The terms of the settlement required the Company
pay all commissions upon cash collection for sales through July 31, 2008, in
accordance with the original agreement. Approximately $71,000 and $1,194,000 of
commissions related to this independent sales representative organization were
accrued in the accompanying consolidated financial statements as of June 30,
2009 and 2008, respectively. The period for which commissions would otherwise
be payable to the independent sales representative organization was reduced by
three months from October 31, 2008, to July 31, 2008. As a condition of the
settlement, the independent sales representative organization did not exercise
and forfeited their warrants for 400,000 shares of Company common stock, which
had been previously expensed. Additional conditions of the settlement included
the cancellation of a $1,000,000 contingent payment clause upon a change in
control of the Company and a requirement by the Company to repurchase 3,000
shares of its common stock held by the independent sales representative
organization for $2.12 per share. </FONT></P>

<P><FONT SIZE=2><B>Litigation:</B> Subsidiaries of Hill-Rom
Holdings, Inc., (collectively, &#147;Hill-Rom&#148;)
brought an action on August 21, 2009, against the Company alleging that the
Company&#146;s use of the term &#147;SmartVest&#148; infringes on its alleged trademark &#147;The
Vest.&#148; The Company has answered the allegations and brought counter-claims
against Hill-Rom alleging, among other things, defamation and libel. Although
the Company&#146;s management believes that Hill-Rom&#146;s action is without merit, an
adverse outcome of this matter could have a material adverse effect on the
operating results and financial position of the Company. The Company is
currently and expects to continue incurring costs associated with defending
this trademark. For the six-month period ended December 31, 2009, the company
incurred and capitalized costs of $469,000 in defending this trademark. </FONT></P>

<P><FONT SIZE=2>In the
addition to the trademark matter discussed above, the Company is occasionally
involved in claims and disputes arising in the ordinary course of business. The
Company insures its business risks where possible to mitigate the financial
impact of individual claims, and establishes reserves for an estimate of any
probable cost of settlement or other disposition. In the opinion of management,
the ultimate disposition or resolution of these matters, if any, will not have
a material adverse effect on the Company&#146;s financial position or results of
operations. </FONT></P>

<P><FONT SIZE=2><B>401k profit sharing plan:</B>
Effective January 1, 2007, the Company adopted an employee benefit plan under
Section 401(k) of the Internal Revenue Code covering all employees who are 21
years of age or older and have 1,000 hours of service with the Company. The
Company matches each employee&#146;s salary reduction contribution, not to exceed 4
percent of annual compensation. Total employer contributions to this plan for
the years ended June 30, 2009 and 2008, and for the six months ended December
31, 2009 and 2008, were approximately $108,000, $81,000, $59,000 and $48,000,
respectively. </FONT></P>

<P><FONT SIZE=2><B>Employment Agreements: </B>Effective
January 1, 2010, the Company entered into new employment agreements with its
chief executive officer and chief financial officer. These agreements provide
the officers, with among other things, one year&#146;s salary upon a separation of
service without cause for termination. Also, in the event the employee resigns
within six months of a change in control, the chief executive officer and chief
financial officer are entitled to receive a severance equal to two year&#146;s base
salary. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-19</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>Electromed, Inc. <BR>
Notes to Consolidated Financial Statements &#150; (continued)</B><BR>
(Information with respect to the six-month periods ended December 31, 2009 and 2008, and as of December 31, 2009, is
unaudited)</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 10.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Related Parties </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>The Company
uses a related-party service provider, a director and minority shareholder of
which was the original inventor of the Company&#146;s product, to perform certain
outsourced research and development functions. The Company&#146;s chief executive
officer is also the president, chief executive officer and chairman of the board
of directors of the service provider and owns approximately 11% of that
entity&#146;s outstanding common stock. In addition, two members of the Company&#146;s
board of directors are directors and minority shareholders of the service
provider. The Company has an agreement with the service provider which provides
that the service provider will perform 80 hours per week of research and
development work in exchange for a monthly fee of $25,000. The initial term of
the agreement expires in June 2010 but may be extended at the option of the
Company. For the years ended June 30, 2009 and 2008, and for the six months
ended December 31, 2009 and 2008, research and development expenses for these
services totaled approximately $115,000, $70,000, $114,000 and $30,000,
respectively. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Note 11.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Subsequent Events </B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>In preparing
these consolidated financial statements, the Company has evaluated events and
transactions for potential recognition or disclosure through the date of the
public accounting firm&#146;s report, which is the date these consolidated financial
statements were issued. The following events occurred subsequent to December
31, 2009: </FONT></P>

<P><FONT SIZE=2>On March 2,
2010, the Company acquired the remaining 5 percent noncontrolling interest in
Electromed Financial, LLC for $125,000. The noncontrolling interest holder was
an officer and director of the Company. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>F-20</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<BR>


<P ALIGN=CENTER><FONT SIZE=3><B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><img src="electromed.gif" ALT="(Electromed Inc Logo)"></font></P>

<P ALIGN=CENTER><FONT SIZE=3><B>Common Stock</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3><U><B>PROSPECTUS</B></U></FONT></P>

<P><FONT SIZE=2>Until &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; , 2010 (25 days after the date of this
prospectus), all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers&#146; obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotment or
subscriptions.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><img src="feltl.jpg" ALT="(Felt and Comapany LOGO)"></font></P>

<P ALIGN=CENTER><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2010</B></FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>PART II</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>INFORMATION NOT REQUIRED IN PROSPECTUS</B></FONT></P>

<P><FONT SIZE=2><B>Item 13. Other Expenses of Issuance and
Distribution.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth the costs and expenses, other than the underwriting
discounts and commissions, payable by us in connection with the sale of common
stock being registered. All amounts shown are estimates, except the SEC
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the Nasdaq Capital Market listing fee.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="40%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="20%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="40%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><I>Amount</I></FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">&nbsp;

 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>SEC registration fee</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>FINRA fee</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Nasdaq Capital Market listing fee</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Blue sky fees and expenses</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Legal fees and expenses</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Accounting fees and expenses</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Printing expenses</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Transfer agent and registrar fees and expenses</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Miscellaneous</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">&nbsp;

 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Total</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE="2">$&nbsp;&nbsp;* </FONT> </P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">&nbsp;

 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>* To be
 filed by amendment</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>Item 14. Indemnification of Officers and
Directors</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
302A.521 of the Minnesota Business Corporation Act provides that, unless
prohibited or limited by a corporation&#146;s articles of incorporation or bylaws,
the corporation must indemnify its current and former officers, directors,
employees and agents against expenses (including attorneys&#146; fees), judgments,
penalties, fines and amounts paid in settlement and which were incurred in
connection with actions, suits, or proceedings in which such persons are parties
by reason of the fact that they are or were an officer, director, employee or
agent of the corporation, if they: (i) have not been indemnified by another
organization; (ii) acted in good faith; (iii) received no improper personal
benefit; (iv) in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and (v) reasonably believed that the conduct
was in the best interests of the corporation. Section 302A.521 also permits a
corporation to purchase and maintain insurance on behalf of its officers,
directors, employees and agents against any liability which may be asserted
against, or incurred by, such persons in their capacities as officers,
directors, employees and agents of the corporation, whether or not the corporation
would have been required to indemnify the person against the liability under
the provisions of such section. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Article
6 of our Articles of Incorporation limits our directors&#146; personal liability for
claims of breach of fiduciary duty to the full extent permitted by the
Minnesota Business Corporation Act, and Article 5 of the Bylaws of the Company
provides that we will indemnify and advance expenses to officers, directors and
employees to the full extent permitted by the Minnesota Business Corporation
Act.</FONT></P>

<P><FONT SIZE=2><B>Item 15. Recent Sales of Unregistered
Securities </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the three years preceding the date of this registration statement, we issued
the securities described below that were not registered under the Securities
Act of 1933, as amended (the "Securities Act"). None of the transactions
involved any underwriters, underwriting discounts, or commissions or any public
offering, and we believe each transaction, if deemed to be a sale of a
security, was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2), and Regulation D promulgated
thereunder, or Section 3(a)(9) thereof, or Rule 701 promulgated thereunder as transactions pursuant to
compensatory benefit plans and contracts related to compensation.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>II-1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
March 2008 through November 2009, we issued an aggregate of 54,800
shares of common stock to six employees pursuant to warrant exercises, for
aggregate cash consideration of $97,300. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
June 2007 through September 2008, we issued an aggregate of 161,858 shares of
common stock to 10 accredited investors for aggregate cash consideration of
approximately $553,000. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February 2009, we issued 10,000 shares of common stock to one accredited
investor for aggregate cash consideration of $45,000. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November 2008, we issued warrants to purchase 600 shares of common stock to a
family member of an affiliate. The warrants vest in annual 20% increments, have
a ten-year term, and an exercise price of $3.50 per share. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November 2007, we issued 600 shares of common stock to a family member of
an affiliate pursuant to a warrant exercise, for aggregate cash consideration
of $600.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
February through September 2008, we issued&nbsp;an aggregate of 153,003
shares of common stock to 24 accredited investors pursuant to warrant
exercises, for aggregate cash consideration of approximately $438,000.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2009 and August 2009, we issued an aggregate of 40,401 shares of common
stock to 24 accredited investors pursuant to warrant exercises, for aggregate
cash consideration of approximately $114,000.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
November 2007 through June 2008, we issued an aggregate of 388,341 shares of common stock to
24 accredited investors in exchange for the cancellation of convertible
promissory notes in the aggregate principal amount of approximately $1,165,000, which bore
interest at a rate of 7.0%. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2008, we issued 35,000 shares of common stock to an accredited investor
in exchange for an approximately 1.25 acre parcel of land in New Prague, Minnesota. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September and December 2008, we issued an aggregate of 30,000 shares of common
stock to two accredited investors in exchange for consulting and construction
services. </FONT></P>

<P><FONT SIZE=2><B>Item 16. Exhibits and Financial Statement
Schedules</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="96%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B> (a)</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Exhibits</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 attached Exhibit Index is incorporated herein by reference.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B> (b)</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>Financial Statement Schedules.</B></FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
financial statement schedules are required because the registrant is a smaller
reporting company. </FONT></P>

<P><FONT SIZE=2><B>Item 17. Undertakings</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned registrant hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>II-2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned registrant hereby undertakes that:</FONT></P>

<P><FONT SIZE=2>(1) For
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.</FONT></P>

<P><FONT SIZE=2>(2) For the
purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered, and the
offering of these securities at that time shall be deemed to be the initial bona
fide offering.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>II-3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>SIGNATURES</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant
has duly caused this registration statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
Prague, State of Minnesota on this 3rd day of May, 2010.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="47%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
  <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2><B>ELECTROMED, INC.</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>/s/ Robert
 D. Hansen</FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">&nbsp;

 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Robert D.
 Hansen</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Co-Founder,
 Chairman and Chief Executive Officer</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2><B>POWER OF ATTORNEY</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
been signed by the following persons in the capacities and on the dates
indicated. Each person whose signature to this Registration Statement appears
below hereby constitutes and appoints Robert D. Hansen, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, any registration statement filed
pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and any and
all instruments or documents filed as part of or in connection with any of such
amendments or registration statements, and each of the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue hereof.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="35%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="45%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="15%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1><I>Signature</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1><I>Title</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=1><I>Date</I></FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">&nbsp;

 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">&nbsp;

 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">&nbsp;

 </TD>
 </TR>
<TR>
<TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
<TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
<TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
<TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
<TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>/s/ Robert
 D. Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Co-Founder,
 Chairman and Chief Executive Officer</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>May 3, 2010</FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=BOTTOM><DIV STYLE="BORDER-BOTTOM:SOLID BLACK 1PX;WIDTH:90%">&nbsp;</DIV>

 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Robert D.
 Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>/s/ Terry M.
 Belford</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Chief
 Financial Officer</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>May 3, 2010</FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=BOTTOM> <DIV STYLE="BORDER-BOTTOM:SOLID BLACK 1PX;WIDTH:90%">&nbsp;</DIV>

 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Terry M.
 Belford, CPA, CMA</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>/s/ Craig N.
 Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Co-Founder
 and Director</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>May 3, 2010</FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=BOTTOM> <DIV STYLE="BORDER-BOTTOM:SOLID BLACK 1PX;WIDTH:90%">&nbsp;</DIV>

 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Craig N.
 Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>/s/ Dr. Noel
 D. Collis</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Director</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>May 3, 2010</FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=BOTTOM> <DIV STYLE="BORDER-BOTTOM:SOLID BLACK 1PX;WIDTH:90%">&nbsp;</DIV>

 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Dr. Noel D.
 Collis, MD</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>/s/ Thomas
 M. Hagedorn</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Director</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>May 3, 2010</FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=BOTTOM> <DIV STYLE="BORDER-BOTTOM:SOLID BLACK 1PX;WIDTH:90%">&nbsp;</DIV>

 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Thomas M.
 Hagedorn</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>/s/ Dr. George H. Winn</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Director</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=CENTER><FONT SIZE=2>May 3, 2010</FONT></P>
 </TD>
 </TR>
 <TR STYLE="FONT-SIZE:1 PX">
 <TD VALIGN=BOTTOM> <DIV STYLE="BORDER-BOTTOM:SOLID BLACK 1PX;WIDTH:90%">&nbsp;</DIV>

 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Dr. George H. Winn, DDS</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>II-4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>ELECTROMED, INC.</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>REGISTRATION STATEMENT ON FORM S-1</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>EXHIBIT INDEX</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="8%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="88%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P ALIGN=CENTER><FONT SIZE=2><B>Exhibit<BR>
 Number</B></FONT></P>


 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><B>Description</B></FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>1.1</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Form of Underwriting Agreement between
 Feltl and Company, Inc. and Electromed, Inc.* </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>3.1</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Articles of Incorporation of
 Electromed, Inc., as amended.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>3.2</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Bylaws of Electromed, Inc.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>4.1</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Specimen certificate representing shares of
 common stock of Electromed, Inc.*</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>4.2</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Form of warrant issued to investors.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>4.3</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Form of warrant issued to employees and
 service providers.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>4.4</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Form of warrant issued in connection with
 7% Senior Secured Convertible Notes.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>4.5</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Form of Underwriter&#146;s Warrant.*</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>5.1</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Opinion of Fredrikson &amp; Byron, P.A.
 regarding the legality of the shares.*</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.1</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Credit Agreement, dated December 9, 2009, between
 Electromed, Inc. and U.S. Bank, N.A.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.2</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>$3,500,000 Revolving Note, dated December
 9, 2009, payable to U.S. Bank, N.A.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.3</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>$1,520,000 Term Loan A, dated December 9,
 2009, payable to U.S. Bank N.A.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.4</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>$1,000,000 Term Loan B, dated December 9,
 2009, payable to U.S. Bank N.A.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.5</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Security Agreement, dated December 9, 2009,
 between Electromed, Inc. and U.S. Bank N.A.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.6</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Security Agreement, dated December 9, 2009,
 between Electromed Financial, LLC and U.S. Bank N.A.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.7</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Pledge Agreement, dated December 9, 2009,
 between Electromed, Inc. and U.S. Bank N.A.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.8</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:0.1IN'><FONT SIZE=2>Mortgage, Security Agreement, Assignment of Leases and Rents and
 Fixture Financing Statement, dated December 9, 2009, between Electromed, Inc.
 and U.S. Bank N.A.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.9</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Guaranty, dated December 9, 2009, between
 Electromed Financial, LLC and U.S. Bank, N.A.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.10</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:0.1IN'><FONT SIZE=2>Environmental and ADA Indemnification Agreement dated December 9,
 2009, between Electromed, Inc. and U.S. Bank N.A.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.11</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Form of Assignment of Patent Application.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.12</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Employment Agreement, dated January 1,
 2010, between Electromed, Inc. and Robert D. Hansen.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.13</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Employment Agreement, dated January 1,
 2010, between Electromed, Inc. and Terry Belford.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.14</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:0.1IN'><FONT SIZE=2>Non-Competition, Non-Solicitation, and Confidentiality Agreement
 dated January 1, 2010 between Electromed, Inc. and Robert D. Hansen.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>II-5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="8%" VALIGN=TOP>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="88%" VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'>&nbsp;</P>
 </TD>
 </TR>

 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.15</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:0.1IN'><FONT SIZE=2>Non-Competition, Non-Solicitation, and Confidentiality Agreement
 dated January 1, 2010, between Electromed, Inc. and Terry Belford.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.16</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Purchase Agreement, dated March 2,
 2010, between Electromed, Inc. and Robert D. Hansen.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>10.17</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Letter Agreement dated February 16, 2010,
 between Electromed, Inc. and Hansen Engine Technologies, Inc.*</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>21.1</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Subsidiaries of Electromed, Inc.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>23.1</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Consent of McGladrey &amp; Pullen, LLP.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>23.2</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Consent of Fredrikson &amp; Byron, P.A.
 (included in Exhibit 5.1).*</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>24.1</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P STYLE='MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2>Power of Attorney (included on signature
 page).</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="83%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1><I>&nbsp;</I></FONT></P>


 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><I>*</I></FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2><I>To be provided by amendment.</I></FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>II-6</FONT></P>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>elmd101390s1_ex3-1.htm
<DESCRIPTION>AMENDED ARTICLES OF INCORPORATION OF ELECTROMED, INC.
<TEXT>
<HTML>
<HEAD><TITLE>Exhibit 3.1 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 3.1</B></FONT></P>



<P ALIGN=CENTER><FONT SIZE=3>ARTICLES OF
INCORPORATION</FONT></P>

<P ALIGN=CENTER><FONT SIZE=3>OF</FONT></P>

<P ALIGN=CENTER><FONT SIZE=3>ELECTROMED, INC.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned, being a natural person of full age, for the purpose of forming a
corporation under and pursuant to Chapter 302A of Minnesota Statutes, as
amended, hereby adopts the following Articles of Incorporation:</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><U>ARTICLE 1 - NAME</U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1
The name of the corporation shall be Electromed, Inc.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><U>ARTICLE 2 -
REGISTERED OFFICE</U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1
The location and office address of the registered office of the corporation in
this state shall be 14920 Minnetonka Industrial Road, Minnetonka, Minnesota
55345.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><U>ARTICLE 3 -
CAPITAL STOCK</U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1
<U>Authorized Shares.</U> The aggregate number of shares that the corporation
has authority to issue shall be One Million (1,000,000) shares of common stock.
Such shares shall not have any par value, except that they shall have a par
value of one cent ($.01) per share solely for the purpose of a statute or
regulation imposing a tax or fee based upon the capitalization of a
corporation, and except that they shall have such par value as may be fixed by
the corporation&#146;s Board of Directors for the purpose of a statute or
regulation requiring the shares of the corporation to have a par value.</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2
<U>Issuance of Shares.</U> The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of stock of any class or series of the corporation, and rights
to purchase securities of the corporation, to such persons, at such time, for
such consideration, and upon such terms and conditions as the Board shall
determine.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><U>ARTICLE 4 - RIGHTS OF SHAREHOLDERS</U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1
<U>No Preemptive Rights.</U> No shareholder of the corporation shall have any
preemptive right to subscribe for, purchase or acquire any shares of stock of
any class or series of the corporation now or hereafter authorized or issued by
the corporation.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2
<U>No Cumulative Voting Rights.</U> No shareholder shall have the right to
cumulate votes for the election of directors or for any other purpose.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><U>ARTICLE 5 - WRITTEN ACTION BY DIRECTORS</U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1
Any action required or permitted to be taken at a Board meeting may be taken by
written action signed by all of the directors or, in cases where the action
need not be approved by the shareholders, by written action signed by the
number of directors that would be required to take the same action at a meeting
of the Board at which all directors were present.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><U>ARTICLE 6 - LIMITATION OF DIRECTOR LIABILITY</U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1
A director shall not be personally liable to the corporation or to its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except to the extent that elimination or limitation of liability is
not permitted under Section 302A.251, the Minnesota Business Corporation Act,
as the same exists or may hereafter be amended. Any repeal or modification of
the provisions of this Article shall not adversely affect any right or protection
of a director of the Corporation existing at the time of such repeal or
modification.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><U>ARTICLE 7 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION</U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1
Where approval of shareholders is required by law, the affirmative vote of the
holders of at least a majority of the voting power of all shares entitled to
vote shall be required to authorize the corporation (i) to merge into or with
one or more other corporations, (ii) to exchange its shares for shares of one
or more other corporations, (iii) to sell, lease, transfer or otherwise dispose
of all or substantially all of its property and assets, including its good
will, or (iv) to commence voluntary dissolution.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><U>ARTICLE 8 - AMENDMENT OF ARTICLES OF INCORPORATION</U></FONT></P>

<P ALIGN=JUSTIFY STYLE='MARGIN-RIGHT:0IN; MARGIN-LEFT:0IN; '><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1
Any provision contained in these Articles of Incorporation may be amended,
altered, changed or repealed by the affirmative vote of the holders of at least
a majority of the</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>voting power of the shares present and entitled to
vote at a duly held meeting or such greater percentage as may be otherwise
prescribed by the laws of the State of Minnesota.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><U>ARTICLE 9 -
INCORPORATOR</U></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="47%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="47%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>9.1 The name and post office address of the incorporator
 are as follows:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Robert D. Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>14920 Minnetonka Industrial Road</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Minnetonka, Minnesota 55345</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE="2">IN WITNESS WHEREOF, the undersigned incorporator has
hereunto set his hand this <U>12th</U> day of October, 1992. </FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=2><img  src="a101390001_v4.jpg" ALT="-s- SIGNATURE"></font></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="32%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="67%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Subscribed and sworn to before me </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE="2">this <U>12th</U> day of October, 1992. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=2><img  src="a101390003_v4.jpg" ALT="-s- LINDA K. CAPPELLO"></font></P>


 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Notary Public</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>
<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP >
<P><FONT SIZE=2><img  src="a101390002_v4.jpg" ALT="(STAMP)"></font></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>



<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>



<P ALIGN=CENTER><FONT SIZE=3>AMENDMENT NO. 1</FONT></P>

<P ALIGN=CENTER><FONT SIZE=3>TO THE</FONT></P>

<P ALIGN=CENTER><FONT SIZE=3>ARTICLES OF
INCORPORATION</FONT></P>

<P ALIGN=CENTER><FONT SIZE=3>OF</FONT></P>

<P ALIGN=CENTER><FONT SIZE=3>ELECTROMED, INC.</FONT></P><BR>

<P ALIGN=CENTER><FONT SIZE=2>&#147;<U>ARTICLE 3 - CAPITAL STOCK</U></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1
<U>Authorized Shares.</U> The aggregate number of shares that the corporation has authority to issue shall be
Five Million (5,000,000) shares of common
stock. Such shares shall not have any par value, except that they shall have a par value of one cent ($.01) per share
solely for the purpose of a statute or regulation
imposing a tax or fee based upon the capitalization of a corporation, and except
that they shall have such par value as may be fixed by the corporation&#146;s Board
of Directors for the purpose of a statute or regulation requiring the shares of
the corporation to have a par value.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2
<U>Issuance of Shares.</U> The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of stock of any class or series of the corporation, and rights
to purchase securities of the
corporation, to such persons, at such time, for such consideration,  and upon
such terms and conditions as the Board shall determine.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3
<U>Classes and Series of Shares.</U> The Board of Directors of the corporation is further authorized to establish
from among the authorized shares, by
resolutions adopted and filed in the manner provided by law, one or more classes and/or series of shares, to designate each
such class and/or series, and to fix
the relative rights, preferences, and limitations of any such classes and/or series.&#148;</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="75%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="24%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>STATE OF MINNESOTA</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>DEPARTMENT
 OF STATE</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>FILED</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>JUN 25 1996</FONT></P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><img  src="a1013901001_v3.jpg" ALT="(SECRETARY OF STATE)"></font></P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>Secretary of State</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>



<div ALIGN=RIGHT><FONT SIZE=2><img src="a1013901002_v3.jpg" ALT="(BAR CODE)"></font></div>
<div ALIGN=RIGHT><FONT SIZE=2>6051510002&nbsp;&nbsp;&nbsp;&nbsp;</font></div>
<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLES
OF AMENDMENT<BR>
OF <BR>
ELECTROMED, INC.</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I,
the undersigned, of full age, for the purpose of amending the Articles of
Incorporation for a corporation under and pursuant to the provisions of Chapter
302A of the Minnesota Statutes and laws amendatory thereof and supplementary
thereto, do hereby amend a body corporate and adopt the following Article of
Amendment.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following amendment of articles regulating the above corporation was adopted:</FONT>

<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE III-CAPITAL STOCK</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1
<U>Authorized Shares.</U> The aggregate number of shares that the corporation
has authority to issue
shall be Ten Million (10,000,000) shares of common stock. Such shares shall not
have any par value, except that they shall have a par value of one cent ($.01)
per share solely for the purpose of a statute or regulation imposing a tax or
fee based upon the capitalization
of a corporation, and except that they shall have such par value as may be
fixed by the corporation&#146;s Board of Directors for
the purpose of a statute or regulation requiring the shares of the corporation
to have a par value.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
behalf of the above-named corporation, I have hereunto executed these Articles
of Amendment this 19th day of August, 2003.
I certify that I am authorized to execute this amendment and I further certify that I understand that by
signing this amendment, I am subject to the penalties of perjury as set
forth in Section 609.48 as if I had signed this amendment under oath.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=2><img src="a1013901003_v3.jpg" ALT="-s- Scott A. Becker"></font></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Scott
 A. Becker, Authorized Person</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="74%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="25%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="RIGHT"><FONT SIZE=2><img  src="a1013901004_v3.jpg" ALT="(INITIAL)"></font></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>STATE OF MINNESOTA</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>DEPARTMENT OF STATE</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>FILED</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>AUG 27 2003</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2><img  src="a1013901005_v3.jpg" ALT="(SECRETARY OF STATE)"></font></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>Secretary of State</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>elmd101390s1_ex3-2.htm
<DESCRIPTION>BYLAWS OF ELECTROMED, INC.
<TEXT>
<HTML>
<HEAD><TITLE>Exhibit 3.2 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>


<P ALIGN=right><FONT SIZE=3><B>Exhibit 3.2</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3>BYLAWS<BR>
OF <BR>
ELECTROMED, INC.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>ARTICLE ONE <BR>
OFFICES</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1
<U>Offices</U>. The principal executive office of the corporation shall be
14920 Minnetonka Industrial Road, Minnetonka, Minnesota 55345, and the
corporation may have offices at such other places within or without the State
of Minnesota as the Board of Directors shall from time to time determine or the
business of the corporation requires.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>ARTICLE TWO <BR>
MEETINGS OF SHAREHOLDERS</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1
<U>Regular Meetings</U>. Regular meetings of the shareholders of the
corporation entitled to vote shall be held on an annual or other less frequent
basis as shall be determined by the Board of Directors or by the chief
executive officer; provided, that if a regular meeting has not been held during
the immediately preceding 15 months, a shareholder or shareholders holding 3%
or more of the voting power of all shares entitled to vote may demand a regular
meeting of shareholders by written notice of demand given to an officer of the
corporation. At each regular meeting, the shareholders, voting as provided in
the Articles of Incorporation and these Bylaws, shall elect qualified
successors for directors who serve for an indefinite term or whose terms have
expired or are due to expire within six months after the date of the meeting,
and shall transact such other business as shall come before the meeting. No
meeting shall be considered a regular meeting unless specifically designated as
such in the notice of meeting or unless all shareholders entitled to vote are
present in person or by proxy and none of them objects to such designation.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2
<U>Special Meetings</U>. Special meetings of the shareholders entitled to vote
may be called at any time by the Chairman of the Board, the chief executive
officer, the chief financial officer, two or more directors, or a shareholder
or shareholders holding ten percent (10%) or more of the voting power of all
shares entitled to vote. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3
<U>Place of Meetings</U>. Meetings of the shareholders shall be held at the
principal executive office of the corporation</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>or
at such other place, within or without the State of Minnesota, as is designated
by the Board of Directors, except that a regular meeting called by or at the
demand of a shareholder shall be held in the county where the principal
executive office of the corporation is located.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4
<U>Notice of Meetings</U>. There shall be mailed to each holder of shares
entitled to vote, at his address as shown by the books of the corporation, a
notice setting out the place, date and hour of any regular or special meeting,
which notice shall be mailed not less than ten (10) days nor more than sixty
(60) days prior to the date of the meeting; provided, that notice of a meeting
at which there is to be considered a proposal (i) to dispose of all, or
substantially all, of the property and assets of the corporation or (ii) to
dissolve the corporation shall be mailed to all shareholders of record, whether
or not entitled to vote; and provided further, that notice of a meeting at
which there is to be considered a proposal to adopt a plan of merger or
exchange shall be mailed to all shareholders of record, whether or not entitled
to vote, at least fourteen (14) days prior thereto. Notice of any special
meeting shall state the purpose or purposes of the proposed meeting, and the
business transacted at all special meetings shall be confined to the purposes
stated in the notice, unless all of the shareholders are present in person or
by proxy and none of them objects to consideration of a particular item of business. Attendance
at a meeting by any shareholder, without objection by him, shall constitute his
waiver of notice of the meeting.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5
<U>Quorum and Adjourned Meeting</U>. The holders of a majority of the voting
power of the shares entitled to vote at a meeting, represented either in person
or by proxy, shall constitute a quorum for the transaction of business at any
regular or special meeting of shareholders. If a quorum is present when a duly
called or held meeting is convened, the shareholders present may continue to
transact business until adjournment, even though the withdrawal of a number of
shareholders originally present leaves less than the proportion or number
otherwise required for a quorum. In case a quorum is not present at any
meeting, those present shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until the
requisite number of shares entitled to vote shall be represented. At such
adjourned meeting at which the required amount of shares entitled to vote shall
be represented, any business may be transacted which might</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>have
been transacted at the original meeting.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6
<U>Voting</U>. At each meeting of the shareholders, every shareholder having
the right to vote shall be entitled to vote in person or by proxy duly
appointed by an instrument in writing subscribed by such shareholder. Each
shareholder shall have one (1) vote for each share having voting power standing
in his name on the books of the corporation except as may be otherwise required
to provide for cumulative voting (if not denied by the Articles). Upon the
demand of any shareholder, the vote for directors or the vote upon any question
before the meeting shall be by ballot. All elections shall be determined and
all questions decided by a majority vote of the number of shares entitled to
vote and represented at any meeting at which there is a quorum except in such
cases as shall otherwise be required by statute, the Articles of Incorporation
or these Bylaws. Except as may otherwise be required to conform to cumulative
voting procedures, directors shall be elected by a plurality of the votes cast
by holders of shares entitled to vote thereon.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.7
<U>Record Date</U>. The Board of Directors may fix a time, not exceeding sixty
(60) days preceding the date of any meeting of shareholders, as a record date
for the determination of the shareholders entitled to notice of and entitled to
vote at such meeting, notwithstanding any transfer of any shares on the books
of the corporation after any record date so fixed. In the absence of action by
the Board, only shareholders of record twenty (20) days prior to a meeting may
vote at such meeting.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8
<U>Order of Business</U>. The suggested order of business at any regular
meeting, and, to the extent appropriate, at all other meetings of the
shareholders shall, unless modified by the presiding chairman, be:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:10PT">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>(a)</P>
 </TD>
 <TD WIDTH="85%" VALIGN=TOP>
 <P>Call of roll</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(b)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Proof of due notice of
 meeting or waiver of notice</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(c)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Determination of existence
 of quorum</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(d)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Reading and disposal of
 any unapproved minutes</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(e)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Reports of officers and
 committees</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(f)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Election of directors</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(g)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Unfinished business</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(h)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>New business</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(i)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Adjournment.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2>ARTICLE THREE <BR>
DIRECTORS</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1
<U>General Powers</U>. Except as authorized by the shareholders pursuant to a
shareholder control agreement or unanimous affirmative vote, the business and
affairs of the corporation shall be managed by or under the direction of a
Board of Directors.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2
<U>Number, Term and Qualifications</U>. The Board of Directors shall consist of
one or more members. The number of members of the first Board (if not named in
the Articles of Incorporation) shall be determined by the incorporators or
shareholders. Thereafter, at each regular meeting of shareholders, the
shareholders shall determine the number of directors; provided, that between
regular meetings of shareholders the authorized number of directors may be
increased or decreased by the shareholders or increased by the Board of
Directors. Each director shall serve for an indefinite term that expires at the
next regular meeting of shareholders, and until his successor is elected and
qualified, or until his earlier death, resignation, disqualification, or
removal as provided by statute.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3
<U>Vacancies</U>. Vacancies on the Board of Directors may be filled by the
affirmative vote of a majority of the remaining members of the Board, though
less than a quorum; provided, that newly created directorships resulting from
an increase in the authorized number of directors shall be filled by the
affirmative vote of a majority of the directors serving at the time of such
increase. Persons so elected shall be directors until their successors are
elected by the shareholders, who may make such election at the next regular or
special meeting of the shareholders.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4
<U>Quorum and Voting</U>. A majority of the directors currently holding office
shall constitute a quorum for the transaction of business. Except as otherwise
provided in the Articles of Incorporation or these Bylaws, the acts of a
majority of the directors present at a meeting at which a quorum is present
shall be the acts of the Board of Directors.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.5
<U>Board Meeting; Place and Notice</U>. Meetings of the Board of Directors may
be held from time to time at any place</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>within
or without the State of Minnesota that the Board of Directors may designate. In
the absence of designation by the Board of Directors, Board meetings shall be
held at the principal executive office of the corporation. Any director may
call a Board meeting by giving forty-eight (48) hours notice to all directors
of the date and time of the meeting. The notice need not state the purpose of
the meeting, and may be given by mail, telephone, telegram, or in person. If a
meeting schedule is adopted by the Board, or if the date and time of a Board
meeting has been announced at a previous meeting, no notice is required.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6
<U>Absent Directors</U>. A director may give advance written consent or
opposition to a proposal to be acted on at a Board meeting. If the director is
not present at the meeting, consent or opposition to a proposal does not
constitute presence for purposes of determining the existence of a quorum, but
consent or opposition shall be counted as a vote in favor of or against the
proposal and shall be entered in the minutes of the meeting, if the proposal
acted on at the meeting is substantially the same or has substantially the same
effect as the proposal to which the director has consented or objected.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7
<U>Compensation</U>. Directors who are not salaried officers of the corporation
shall receive such fixed sum per meeting attended or such fixed annual sum or
both as shall be determined from time to time by resolution of the Board of
Directors. Nothing herein contained shall be construed to preclude any director
from serving this corporation in any other capacity and receiving proper
compensation therefor.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.8
<U>Committees</U>. The Board of Directors may, by resolution approved by the
affirmative vote of a majority of the Board, establish committees having the
authority of the Board in the management of the business of the corporation
only to the extent provided in the resolution. Each such committee shall
consist of one or more natural persons (who need not be directors) appointed by
affirmative vote of a majority of the directors present, and shall be subject
at all times to the direction and control of the Board. A majority of the
members of a committee present at a meeting shall constitute a quorum for the
transaction of business.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.9
<U>Committee of Disinterested Persons</U>. The Board may establish a committee
composed of two or more disinterested directors or other disinterested persons
to determine whether it is in the best interests of the corporation to pursue a
particular legal right or remedy of the corporation and whether to cause the
dismissal or discontinuance of a particular proceeding that seeks to assert a
right or remedy on behalf of the corporation. For purposes of this section, a
director or other person is &#147;disinterested&#148; if the director or other person is
not the owner of more than one percent of the outstanding shares of, or a
present or former officer, employee, or agent of, the corporation or of a
related corporation and has not been made or threatened to be made a party to
the proceeding in question. The committee, once established, is not subject to
the direction or control of, or termination by, the Board. A vacancy on the
committee may be filled by a majority vote of the remaining members. The good
faith determinations of the committee are binding upon the corporation and its
directors, officers and shareholders. The committee terminates when it issues a
written report of its determinations to the Board.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.10
<U>Order of Business</U>. The suggested order of business at any meeting of the
Board of Directors shall, to the extent appropriate and unless modified by the
presiding chairman, be:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:10PT">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>(a)</P>
 </TD>
 <TD WIDTH="85%" VALIGN=TOP>
 <P>Roll call</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(b)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>Proof of due notice of
 meeting or waiver of notice, or unanimous presence and declaration by
 presiding chairman</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(c)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Determination of existence
 of quorum</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(d)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Reading and disposal of
 any unapproved minutes</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(e)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Reports of officers and
 committees</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(f)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Election of officers</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(g)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Unfinished business</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(h)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>New business</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(i)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Adjournment</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2>ARTICLE FOUR <BR>
OFFICERS</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1
<U>Number and Designation</U>. The corporation shall have one or more natural
persons exercising the functions of the offices of chief executive officer and
chief financial officer. The Board of Directors may elect or appoint such other
officers or agents as it deems necessary for the operation and management of
the corporation including, but not limited to, a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a Treasurer, each of
whom shall have the powers, rights, duties and responsibilities set forth in
these Bylaws unless otherwise determined by the Board. Any of the offices or
functions of those offices may be held by the same person.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2
<U>Election, Term of Office and Qualification</U>. At the first meeting of the
Board following each election of directors, the Board shall elect officers, who
shall hold office until the next election of officers or until their successors
are elected or appointed and qualify; provided, however, that any officer may
be removed with or without cause by the affirmative vote of a majority of the
Board of Directors present (without prejudice, however, to any contract rights
of such officer).</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3
<U>Resignation</U>. Any officer may resign at any time by giving written notice
to the corporation. The resignation is effective when notice is given to the
corporation, unless a later date is specified in the notice, and acceptance of
the resignation shall not be necessary to make it effective.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4
<U>Vacancies in Office</U>. If there be a vacancy in any office of the
corporation, by reason of death, resignation, removal or otherwise, such
vacancy shall be filled for the unexpired term by the Board of Directors.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5
<U>Chief Executive Officer</U>. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief executive officer (a) shall have
general active management of the business of the corporation; (b) shall, when
present and in the absence of the Chairman of the Board, preside at all meetings
of the shareholders and Board of Directors; (c) shall see that all orders and
resolutions of the Board are carried into effect; (d) shall sign and deliver in
the name of the corporation any deeds, mortgages, bonds, contracts or other
instruments pertaining to the</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>7</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>business of the
corporation, except in cases in which the authority to sign and deliver is
required by law to be exercised by another person or is expressly delegated by
the Articles, these Bylaws or the Board to some other officer or agent of the
corporation; (e) may maintain records of and certify proceedings of the Board
and shareholders; and (f) shall perform such other duties as may from time to
time be assigned to him by the Board.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6
<U>Chief Financial Officer</U>. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief financial officer (a) shall keep
accurate financial records for the corporation; (b) shall deposit all monies,
drafts and checks in the name of and to the credit of the corporation in such banks
and depositories as the Board of Directors shall designate from time to time;
(c) shall endorse for deposit all notes, checks and drafts received by the
corporation as ordered by the Board, making proper vouchers therefor; (d) shall
disburse corporate funds and issue checks and drafts in the name of the
corporation, as ordered by the Board; (e) shall render to the chief executive
officer and the Board of Directors, whenever requested, an account of all of
his transactions as chief financial officer and of the financial condition of
the corporation; and (f) shall perform such other duties as may be prescribed by the Board of
Directors or the chief executive officer from time to time.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7
<U>Chairman of the Board</U>. The Chairman of the Board shall preside at all
meetings of the shareholders and of the Board and shall exercise general
supervision and direction over the more significant matters of policy affecting
the affairs of the corporation, including particularly its financial and fiscal
affairs.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.8
<U>President</U>. Unless otherwise determined by the Board, the President shall
be the chief executive officer. If an officer other than the President is
designated chief executive officer, the President shall perform such duties as
may from time to time be assigned to him by the Board.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.9
<U>Vice president</U>. Each Vice President shall have such powers and shall
perform such duties as may be specified in these Bylaws or prescribed by the
Board of Directors. In the event of absence or disability of the President, the
Board of Directors may</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>8</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>designate a Vice
President or Vice Presidents to succeed to the power and duties of the
President.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.10
<U>Secretary</U>. The Secretary shall, unless otherwise determined by the
Board, be secretary of and attend all meetings of the shareholders and Board of
Directors, and may record the proceedings of such meetings in the minute book
of the corporation and, whenever necessary, certify such proceedings. The
Secretary shall give proper notice of meetings of shareholders and shall
perform such other duties as may be prescribed by the Board of Directors or the
chief executive officer from time to time.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.11
<U>Treasurer</U>. Unless otherwise determined by the Board, the Treasurer shall
be the chief financial officer of the corporation. If an officer other than the
Treasurer is designated chief financial officer, the Treasurer shall perform
such duties as may be prescribed by the Board of Directors or the chief
executive officer from time to time.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.12
<U>Delegation</U>. Unless prohibited by a resolution approved by the
affirmative vote of a majority of the directors present, an officer elected or
appointed by the Board may delegate in writing some or all of the duties and
powers of his office to other persons.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>ARTICLE FIVE <BR>
INDEMNIFICATION</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1
The corporation shall indemnify such persons, for such expenses and
liabilities, in such manner, under such circumstances, and to such extent, as
permitted by Minnesota Statutes, Section 302A.521, as now enacted or hereafter
amended.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>ARTICLE SIX <BR>
SHARES AND THEIR TRANSFER</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1
<U>Certificate of Stock</U>. Every owner of stock of the corporation shall be
entitled to a certificate, in such form as the Board of Directors may
prescribe, certifying the number of shares of stock of the corporation owned by
him. The certificates for such stock shall be numbered (separately for each
class) in the</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>9</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>order in which they are
issued and shall, unless otherwise determined by the Board, be signed by the
chief executive officer, the chief financial officer, or any other officer of
the corporation. A signature upon a certificate may be a facsimile.
Certificates on which a facsimile signature of a former officer, transfer agent
or registrar appears may be issued with the same effect as if such person were
such officer, transfer agent or registrar on the date of issue.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2
<U>Stock Record</U>. As used in these Bylaws, the term &#147;shareholder&#148; shall mean
the person, firm or corporation in whose name outstanding shares of capital
stock of the corporation are currently registered on the stock record books of
the corporation. The corporation shall keep, at its principal executive office
or at another place or places within the United States determined by the Board,
a share register not more than one year old containing the names and addresses
of the shareholders and the number and classes of shares held by each
shareholder. The corporation shall also keep at its principal executive office
or at another place or places within the United States determined by the Board,
a record of the dates on which certificates representing shares were issued.
Every certificate surrendered to the corporation for exchange or transfer shall
be cancelled and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
cancelled (except as provided for in Section 6.4 of this Article Six).</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3
<U>Transfer of Shares</U>. Transfer of shares on the books of the corporation
may be authorized only by the shareholder named in the certificate (or his
legal representative or duly authorized attorney-in-fact) and upon surrender
for cancellation of the certificate or certificates for such shares. The
shareholder in whose name shares of stock stand on the books of the corporation
shall be deemed the owner thereof for all purposes as regards the corporation;
provided, that when any transfer of shares shall be made as collateral security
and not absolutely, such fact, if known to the corporation or to the transfer
agent, shall be so expressed in the entry of transfer; and provided, further,
that the Board of Directors may establish a procedure whereby a shareholder may
certify that all or a portion of the shares registered in the name of the
shareholder are held for the account of one or more beneficial owners.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>10</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.4
<U>Lost Certificate</U>. Any shareholder claiming a certificate of stock to be
lost or destroyed shall make an affidavit or affirmation of that fact in such
form as the Board of Directors may require, and shall, if the directors so
require, give the corporation a bond of indemnity in form and with one or more
sureties satisfactory to the Board of at least double the value, as determined
by the Board, of the stock represented by such certificate in order to
indemnify the corporation against any claim that may be made against it on
account of the alleged loss or destruction of such certificate, whereupon a new
certificate may be issued in the same tenor and for the same number of shares
as the one alleged to have been destroyed or lost.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>ARTICLE SEVEN <BR>
GENERAL PROVISIONS</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1
<U>Distributions; Acquisitions of Shares</U>. Subject to the provisions of law,
the Board of Directors may authorize the acquisition of the corporation&#146;s
shares and may authorize distributions whenever and in such amounts as, in its
opinion, the condition and the affairs of the corporation shall render it
advisable.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2
<U>Fiscal Year</U>. The fiscal year of the corporation shall be established by
the Board of Directors.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3
<U>Seal</U>. The corporation shall have such corporate seal or no corporate
seal as the Board of Directors shall from time to time determine.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4
<U>Securities of Other Corporations</U>.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
<U>Voting Securities Held by the Corporation</U>. Unless otherwise ordered by
the Board of Directors, the chief executive officer shall have full power and
authority on behalf of the corporation (i) to attend and to vote at any meeting
of security holders of other companies in which the corporation may hold
securities; (ii) to execute any proxy for such meeting on behalf of the corporation;
and (iii) to execute a written action in lieu of a meeting of such other
company on behalf of this corporation; provided, however, that any vote cast
shall be in direct proportion to the way in which each director of the
corporation would have</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>11</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>voted on the matter in
question, if given the opportunity so to vote. At such meeting, by such proxy
or by such writing in lieu of meeting, the chief executive officer shall,
subject to the provisions of this section, possess and may exercise any and all
rights and powers incident to the ownership of such securities that the
corporation might have possessed and exercised if it had been present. The
Board of Directors may from time to time confer like powers upon any other
person or persons.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
<U>Purchase and Sale of Securities</U>. Upon unanimous approval of the Board of
Directors, the chief executive officer shall have full power and authority on
behalf of the corporation to purchase, sell, transfer or encumber securities of
any other company owned by the corporation which represent not more than 10% of
the outstanding securities of such issuer, and may execute and deliver such
documents as may be necessary to effectuate such purchase, sale, transfer or
encumbrance. The Board of Directors may from time to time confer like powers
upon any other person or persons.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>ARTICLE EIGHT <BR>
MEETINGS</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1
<U>Waiver of Notice</U>. Whenever any notice whatsoever is required to be given
by these Bylaws, the Articles of Incorporation or any of the laws of the State
of Minnesota, a waiver thereof given by the person or persons entitled to such
notice, whether before, at or after the time stated therein and either in
writing, orally or by attendance, shall be deemed equivalent to the actual
required notice.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2
<U>Conference Meetings and Participation</U>. A conference among directors by
any means of communication through which the directors may simultaneously hear
each other during the conference constitutes a Board meeting, if the same
notice is given of the conference as would be required for a meeting, and if
the number of directors participating in the conference would be sufficient to
constitute a quorum at a meeting. Participation in a meeting by that means
constitutes presence in person at the meeting. A director may participate in a
Board meeting not heretofore described in this paragraph, by any means of
communication through which the director, other directors so participating, and
all directors physically present at the meeting may simultaneously hear</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>12</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>each other during the
meeting. Participation in a meeting by that means constitutes presence in
person at the meeting. The provisions of this section shall apply to committees
and members of committees to the same extent as they apply to the Board and
directors.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3
<U>Authorization Without Meeting</U>. Any action of the shareholders, the Board
of Directors, or any committee of the corporation which may be taken at a
meeting thereof, may be taken without a meeting if authorized by a writing
signed by all of the holders of shares who would be entitled to vote on such
action, by all of the directors (unless less than unanimous action is permitted
by the Articles of Incorporation) , or by all of the members of such committee,
as the case may be.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>ARTICLE NINE <BR>
AMENDMENTS OF BYLAWS</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1
<U>Amendments</U>. Unless the Articles of Incorporation provide otherwise,
these Bylaws may be altered, amended, added to or repealed by the majority vote
of the members of the Board of Directors. Such authority in the Board of
Directors is subject to the power of the shareholders to change or repeal such
Bylaws, and the Board of Directors shall not make or alter any Bylaws fixing a
quorum for meetings of shareholders, prescribing procedures for removing
directors or filling vacancies on the Board, or fixing the number of directors
or their classifications, qualifications or terms of office, but the Board may
adopt or amend a Bylaw to increase the number of directors.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned, Secretary of Electromed, Inc. hereby certifies that the foregoing
Bylaws were duly adopted as the initial Bylaws of the corporation by its Board
of Directors as of February 1, 1993.</FONT></P>

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<DOCUMENT>
<TYPE>EX-4.2
<SEQUENCE>4
<FILENAME>elmd101390s1_ex4-2.htm
<DESCRIPTION>FORM OF WARRANT ISSUED TO INVESTORS
<TEXT>

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   <TITLE>Exhibit 4.2 to Electromed, Inc. Form S1</TITLE>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align=right><B><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">Exhibit 4.2</FONT></B></P>
<P style="MARGIN: 0in 0in 12pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 150%; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">STOCK PURCHASE WARRANT</FONT></P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 150%; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">To Purchase Common Stock of</FONT></P>
<P style="MARGIN: 0in 0in 6pt; LINE-HEIGHT: 150%; TEXT-ALIGN: center" align=center><B><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">ELECTROMED, INC.</FONT></B></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">DATE OF GRANT:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">2003 &#147;Date&#148;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">DATE OF ISSUE: ,</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">2003 &#147;Issue Date&#148;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">NAME OF HOLDER:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-ALIGN: right" align=right><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;</FONT></P>
</TD>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Holder&#148;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">NUMBER OF SHARES PURCHASABLE:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-ALIGN: right" align=right><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Shares</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">TERM:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Thirty-Six (36) months<BR>
(from date of grant)</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Term&#148;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">EXERCISE PRICE:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">$_____ Per Share<BR>
(as of Issue Date)</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Exercise Date&#148;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
</TD>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
</TD>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
</TD>
     <TD style="PADDING-RIGHT: 0in; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in" vAlign=top width="15%">
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
</TD></TR></TABLE></DIV>
<P style="MARGIN: 0in 0in 6pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 150%"><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">THIS CERTIFIES THAT, for value received, the Holder, named above, or registered assigns, is entitled to purchase from ELECTROMED, [ (herein called the &#147;Company&#148;), a Minnesota corporation for the Term, stated above, beginning on the Date, stated above, that number of Shares, stated above, of the Company&#146;s Common Stock, as adjusted as provided in Section 5 below, at the Exercise Price, stated above. This Stock Purchase Warrant is subject to the following provisions, terms and conditions:</FONT></FONT></P>
<P style="MARGIN: 0in 0in 6pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 150%"><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">1.</FONT><FONT lang=EN-US style="FONT-SIZE: 7pt" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></FONT><FONT style="LINE-HEIGHT: 150%"><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Exercise of Warrant</FONT></U></FONT><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.&nbsp; The rights represented by this Warrant may be exercised by the Holder, in whole or in part (but not as fractional shares of Common Stock), by the surrender of this Warrant (properly endorsed if required) and the attached form of exercise at the Company&#146;s registered office, and upon payment to the Company by certified or bank check of the Exercise Price for the Shares. The Shares are deemed to be issued to the Holder as the record owner as of the close of business on 
the date on which this Warrant shall have been surrendered and payment made for the Shares. Certificates for the Shares so purchased shall be delivered to the Holder within a reasonable time, not exceeding fifteen&nbsp;(15)&nbsp;days, after the rights represented by this Warrant shall have been so exercised. Unless this Warrant has expired, a new Warrant representing the number of Shares, if any, with respect to which this Warrant shall not then have been exercised, shall be delivered to the Holder at the same time.</FONT></FONT></P>
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<p style='line-height:150%;margin:0in;margin-bottom:6.0pt;margin-left:0in;margin-right:0in;margin-top:0in;text-indent:0.5in;'><font style='line-height:150%;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>2.</font><font face="Times New Roman" lang=EN-US style='font-size:7.0pt;'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font></font><font style='line-height:150%;'><u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>Transfer of Warrants</font></u></font><font style='line-height:150%;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>.&#160; During the Term of this Warrant, this Warrant may, subject to any applicable securities laws restrictions, be transferred or exchanged with respect to all Warrants, or any number of Warrants, less than all, represented by this Warrant Certificate. If this Warrant is transferred or exchanged in part, the Company shall, upon surrender for transfer, or exchange of this Warrant Certificate, properly endorse, and
, at the Company&#8217;s expense, issue and deliver to the purchaser of said Warrant, a Certificate representing the number of Warrants transferred or exchanged, and a Certificate to the Holder, representing the number of Warrants retained.</font></font></p>
<p style='line-height:150%;margin:0in;margin-bottom:0.0001pt;margin-left:0in;text-indent:0.5in;'><font style='line-height:150%;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>3.</font><font face="Times New Roman" lang=EN-US style='font-size:7.0pt;'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font></font><font style='line-height:150%;'><u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>Certain Covenants of the Company</font></u></font><font style='line-height:150%;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>.&#160; The Company covenants and agrees as follows:</font></font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>a.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>All shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized and issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>b.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>During the Term of this Warrant, the Company will at all times have authorized, and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant.</font></p>
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<p style='line-height:150%;margin:0in;margin-bottom:0.0001pt;margin-top:10.0pt;text-indent:0.5in;'><font style='line-height:150%;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>4.&#160;&#160;&#160;&#160; </font><u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>Participatory Registration Rights</font></u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>.</font></font></p>
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<p style='margin:0in;margin-bottom:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>a.</font></p>
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<p style='margin:0in;margin-bottom:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>The Company agrees that, if at any time prior to the last day of the Term of this Warrant, the Board of Directors of the Company shall authorize under the Securities Act of 1933 (the &#8220;Securities Act&#8221;) or Minnesota Securities Act (the &#8220;Minnesota Act&#8221;) the filing of (i) a Securities Act Registration Statement; or (ii) a Notification on Form 1-A under the Securities Act; (collectively called &#8220;registration forms&#8221;, herein) in connection with the proposed offer of any of its Common Stock by it or any of its shareholders, the Company shall promptly notify the Holder or assigns that a registration form will be filed and that the Shares will, to the extent provided herein, be included in such registration form upon the Holder&#8217;s written request and will cause such registration form to include all shares which it has been so requested to include.</font></p>
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<p style='margin:0in;margin-bottom:6.0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
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<p align=center style='margin:0in;margin-bottom:0.0001pt;text-align:center;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p align=center style='margin:0in;margin-bottom:0.0001pt;text-align:center;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>2</font></p>
<p align=center style='margin:0in;margin-bottom:0.0001pt;text-align:center;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin:0in;margin-bottom:6.0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>b.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>Shares outstanding at the time that the foregoing notice is given may only be included in a registration form, to the extent that the Company does not wish itself to take full advantage of the maximum dollar amount available under such form.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>c.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>The Company agrees that it will also, upon request by any of the Holders, use its best efforts to include the Shares in any registration or similar proceeding undertaken by the Company to qualify its securities for sale in various states selected by the Company.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>d.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>The Company agrees that the expenses incurred in preparing and filing such registration forms (including all amendments thereto) and in complying with the securities acts of such states shall be paid by the Company. However, each Holder shall be responsible for paying the fees and expenses of any attorney retained by Holder, and for paying sales commission or underwriting discounts related to the sale of the Shares.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>e.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>The Company shall indemnify the Holders substantially to the same extent as the Company shall indemnify the underwriter of its own shares, and the Holders shall indemnify the Company with respect to written information furnished by them to the Company for inclusion in any such registration statement.</font></p>
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<p style='line-height:150%;margin:0in;margin-bottom:0.0001pt;margin-top:10.0pt;text-indent:0.5in;'><font style='line-height:150%;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>5.&#160;&#160;&#160;&#160; </font><u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>Adjustment of Exercise Price and Number of Shares</font></u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>.&#160; The above provisions are, however, subject to the following:</font></font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>a.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>The Exercise Price shall be subject to adjustment from time to time as hereinafter provided. Upon each adjustment of the Exercise Price, the Holder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustments by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>b.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>In case at any time the Company shall subdivide its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased.</font></p>
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<p style='margin:0in;margin-bottom:6.0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
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<p align=center style='margin:0in;margin-bottom:0.0001pt;text-align:center;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p align=center style='margin:0in;margin-bottom:0.0001pt;text-align:center;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>3</font></p>
<p align=center style='margin:0in;margin-bottom:0.0001pt;text-align:center;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:12.0pt;'>&nbsp;</font></p>
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<p style='margin:0in;margin-bottom:6.0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>c.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>In case at any time:</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>(1)</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>the Company shall pay any dividend payable in stock upon its Common Stock or make any distribution (other than regular cash dividends) to the holders of its Common Stock; or</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>(2)</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any rights; or</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>(3)</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantial all of its assets to, another corporation; or</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>(4)</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>Then, in any one or more of said cases, the Company shall give written notice, by first class mail, postage prepaid, addressed to the Holder at the address of the Holder as shown on the books of the Company, of the date on which (a) the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights, or (b) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sales, dissolution, liquidation, or winding up, as the case may be. Such written notice shall be given at least 20 days prior to the action in question and not less that 20 days prior to the record date
 on which the Company&#8217;s transfer books are closed in respect thereto.</font></p>
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<p style='line-height:150%;margin:0in;margin-bottom:0.0001pt;margin-top:10.0pt;text-indent:0.5in;'><font style='line-height:150%;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>6.&#160;&#160;&#160;&#160; </font><u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>Term and Assignment</font></u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>.</font></font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>a.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>This Warrant shall be valid and exercisable by the Holder during its Term.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>b.</font></p>
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<p style='margin:0in;margin-bottom:0.0001pt;margin-top:6.0pt;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>During the Term of the Warrant, the holder may assign the rights represented by this Warrant, to the extent not previously exercised, subject to any applicable securities laws restrictions.</font></p>
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<p style='line-height:200%;margin:0in;margin-bottom:6.0pt;'><font style='line-height:200%;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></font></p>
<font face="Times New Roman,serif" style='line-height:200%;'> </font>
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<p align=center style='margin:0in;margin-bottom:0.0001pt;text-align:center;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>4</font></p>
<p align=center style='margin:0in;margin-bottom:0.0001pt;text-align:center;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
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<P style="MARGIN: 0in 0in 6pt; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 6pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">7.&nbsp;&nbsp;&nbsp;&nbsp; </FONT><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">No Rights as Stockholder</FONT></U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.&nbsp; This Warrant shall not entitle the Holder as such to any voting rights or other rights as a stockholder of the Company.</FONT></FONT></P>
<P style="MARGIN: 0in 0in 6pt; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 6pt; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">IN WITNESS WHEREOF, ELECTROMED, INC. has caused this Warrant to be signed by a duly authorized officer as of the Date of Grant stated above.</FONT></FONT></P>
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<P style="MARGIN: 0in 0in 6pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">ELECTROMED, INC.</FONT></P>
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<P style="MARGIN: 0in 0in 6pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">BY:&nbsp;</FONT></P>
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<P style="MARGIN: 0in 0in 6pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Robert D. Hansen, Chairman/CEO</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">5</FONT></P>
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<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>5
<FILENAME>elmd101390s1_ex4-3.htm
<DESCRIPTION>FORM OF WARRANT ISSUED TO EMPLOYEES AND SERVICE PROVIDERS
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   <TITLE>Exhibit 4.3 to Electromed, Inc. Form S1</TITLE>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align=right><B><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">Exhibit 4.3</FONT></B></P>
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<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 150%; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">STOCK PURCHASE WARRANT</FONT></P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 150%; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">To Purchase Common Stock of</FONT></P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 150%; TEXT-ALIGN: center" align=center><B><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">ELECTROMED, INC.</FONT></B></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">DATE OF GRANT:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-ALIGN: right" align=right><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Date&#148;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">DATE OF ISSUE: ,</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-ALIGN: right" align=right><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Issue Date&#148;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">NAME OF HOLDER:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-ALIGN: right" align=right><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Holder&#148;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">NUMBER OF SHARES PURCHASABLE:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-ALIGN: right" align=right><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-ALIGN: right" align=right><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Shares</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">TERM:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">One-Hundred Twenty (120)<BR>
months (from date of grant)</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in; TEXT-ALIGN: right" align=right><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Term&#148;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">EXERCISE PRICE:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">$3.50 Per Share<BR>
(as of Issue Date)</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in; TEXT-ALIGN: right" align=right><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Exercise Date&#148;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">VESTED:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">20% of Warrants vest each<BR>
anniversary after issue date; 100%<BR>
Vested 5 years following issue date</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt; TEXT-INDENT: 0in; TEXT-ALIGN: right" align=right><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;Vested&#148;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 150%"><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">THIS CERTIFIES THAT, for value received, the Holder, named above, or registered assigns, is entitled to purchase from ELECTROMED, (herein called the &#147;Company&#148;), a Minnesota corporation for the Term, stated above, beginning one year following the Date, stated above, that number of Shares vested, stated above, of the Company&#146;s Common Stock, as adjusted as provided in Section 5 below, at the Exercise Price, stated above. This Stock Purchase Warrant is subject to the following provisions, terms and conditions:</FONT></FONT></P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 150%"><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">1.</FONT></FONT><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;&nbsp;&nbsp;</FONT></FONT><FONT style="LINE-HEIGHT: 150%"><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Exercise of Warrant</FONT></U></FONT><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">. The rights represented by this Warrant may be exercised by the Holder, in whole or in part (but not as fractional shares of Common Stock), by the surrender of this Warrant (properly endorsed if required) and the attached form of exercise at the Company&#146;s registered office, and upon payment to the Company by certified or bank check of the Exercise Price for the Shares. The Shares are deemed to be</FONT></FONT><FONT style="LINE-HEIGHT: 150%"><FONT 
lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"> </FONT></FONT><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">issued to the Holder as the record owner as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Shares. Certificates for the Shares so purchased shall be delivered to the Holder within a reasonable time, not exceeding fifteen (15) days, after the rights represented by this Warrant shall have been so exercised. Unless this Warrant has expired, a new Warrant representing the number of Shares, if any, with respect to which this Warrant shall not then have been exercised, shall be delivered to the Holder at the same time.</FONT></FONT></P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 150%"><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT></FONT>&nbsp;</P>
<FONT style="LINE-HEIGHT: 150%" face="Times New Roman,serif"></FONT>
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<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 150%"><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 150%"><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">2.</FONT></FONT><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;&nbsp;&nbsp;</FONT></FONT><FONT style="LINE-HEIGHT: 150%"><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Transfer of Warrants</FONT></U></FONT><FONT style="LINE-HEIGHT: 150%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">. During the Term of this Warrant, this Warrant may, subject to any applicable securities laws restrictions, be transferred or exchanged with respect to all Warrants, or any number of Warrants, less than all, represented by this Warrant Certificate. If this Warrant is transferred or exchanged in part, the Company shall, upon surrender for transfer, or exchange of this Warrant Certificate, properly endorse, and, at the Company&#146;s expense, issue and 
deliver to the purchaser of said Warrant, a Certificate representing the number of Warrants transferred or exchanged, and a Certificate to the Holder, representing the number of Warrants retained.</FONT></FONT></P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">3.</FONT></FONT><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;&nbsp;&nbsp;</FONT></FONT><FONT style="LINE-HEIGHT: 200%"><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Certain Covenants of the Company</FONT></U></FONT><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">. The Company covenants and agrees as follows:</FONT></FONT></P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized and issued, fully paid and non-assessable and free from all taxes. liens and charges with respect to the issue thereof.</FONT></P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; During the Term of this Warrant, the Company will at all times have authorized, and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant.</FONT></P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">4.</FONT></FONT><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;&nbsp;&nbsp;</FONT></FONT><FONT style="LINE-HEIGHT: 200%"><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Participatory Registration Rights</FONT></U></FONT><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></FONT></P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company agrees that, if at any time prior to the last day of the Term of this Warrant, the Board of Directors of the Company shall authorize under the Securities Act of 1933 (the &#147;Securities Act&#148;) or Minnesota Securities Act (the &#147;Minnesota Act&#148;) the filing of (i) a Securities Act Registration Statement; or (ii) a Notification on Form 1-A under the Securities Act; (collectively called &#147;registration forms&#148;, herein) in connection with, the proposed offer of any of its Common Stock by it or any of its shareholders, the Company shall promptly notify the Holder or assigns that a registration form will be filed and that the Shares will to flip to the extent provided herein, be included in such registration form upon the Holder&#146;s written request and will cause such registration form to include all sh
ares which it has been so requested to include.</FONT></P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Shares outstanding at the time that the foregoing notice is given may only be included in a registration form, to the extent that the Company does not wish itself to take full advantage of the maximum dollar amount available under such form.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company agrees that it will also, upon request by any of the Holders, use its best efforts to include the Shares in any registration or similar proceeding undertaken by the Company to qualify its securities for sale in various states selected by the Company.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company agrees that the expenses incurred in preparing and filing such registration forms (including all amendments thereto) and in complying with the securities acts of such states shall be paid by the Company. However, each Holder shall be responsible for paying the fees and expenses of any attorney retained by Holder, and for paying sales commission or underwriting discounts related to the sale of the Shares.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">e.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Company shall indemnify the Holders substantially to the same extent as the Company shall indemnify the underwriter of its own shares, and the Holders shall indemnify the Company with respect to written information furnished by them to the Company for inclusion in any such registration statement.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">5.</FONT></FONT><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;&nbsp;&nbsp;</FONT></FONT><FONT style="LINE-HEIGHT: 200%"><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Adjustment of Exercise Price and Number of Shares</FONT></U></FONT><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">. The above provisions are, however, subject to the following:</FONT></FONT></P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Exercise Price shall be subject to adjustment from time to time as hereinafter provided. Upon each adjustment of the Exercise Price, the Holder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares obtained by multiplying the Exercise Price &#145;in effect immediately prior to such adjustments by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In case at any time the Company shall subdivide its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In case at any time:</FONT></P>
<P style="MARGIN: 0in 0in 0pt 1.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; the Company shall pay any dividend payable in stock upon its Common Stock or make any distribution (other than regular cash dividends) to the holders of its Common Stock; or</FONT></P>
<P style="MARGIN: 0in 0in 0pt 1.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any rights; or</FONT></P>
<P style="MARGIN: 0in 0in 0pt 1.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantial all of its assets to, another corporation; or</FONT></P>
<P style="MARGIN: 0in 0in 0pt 1.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;(4)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; there shall be a change of control of 50% or more of the shares outstanding to a third party that is not already a shareholder of the company; or</FONT></P>
<P style="MARGIN: 0in 0in 0pt 1.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;(5)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Then, in any one or more of said cases, the Company shall give written notice, by first class mail, postage prepaid, addressed to tile, Holder at the address of the Holder as shown on the books of the Company, of the date on which (a) the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights, or (b) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sales, dissolution, liquidation, or winding up, as the case may be. Such written notice shall be given at least 20 days prior to the action in question and not less that 20 days prior to the record date on which the Com
pany&#146;s transfer books are closed in respect thereto.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">6.</FONT></FONT><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;&nbsp;&nbsp;</FONT></FONT><FONT style="LINE-HEIGHT: 200%"><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Term and Assignment</FONT></U></FONT><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></FONT></P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This Warrant shall be valid and exercisable by the Holder during its Term.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; During the Term of the Warrant, the holder may assign the rights represented by this Warrant, to the extent not previously exercised, subject to any applicable securities laws restrictions.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">7.</FONT></FONT><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp;&nbsp;&nbsp;</FONT></FONT><FONT style="LINE-HEIGHT: 200%"><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">No Rights as Stockholder</FONT></U></FONT><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">. This Warrant shall not entitle the Holder as such to any voting rights or other rights as a stockholder of the Company.</FONT></FONT></P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 200%"><FONT style="LINE-HEIGHT: 200%"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">IN WITNESS WHEREOF, ELECTROMED, INC. has caused this Warrant to be signed by a duly authorized officer as of the Date of Grant stated above.</FONT></FONT></P>
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<P style="MARGIN: 0in 0in 6pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">ELECTROMED, INC.</FONT></P>
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<P style="MARGIN: 0in 0in 6pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">BY:&nbsp;</FONT></P>
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<P style="MARGIN: 0in 0in 6pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Robert D. Hansen, Chairman/CEO</FONT></P>
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<TYPE>EX-4.4
<SEQUENCE>6
<FILENAME>elmd101390s1_ex4-4.htm
<DESCRIPTION>FORM OF WARRANT ISSUED IN CONNECTION WITH 7% SENIOR SECURED CONVERTIBLE NOTES
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   <TITLE>Exhibit 4.4 to Electromed, Inc. Form S1</TITLE>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align=right><B><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">Exhibit 4.4</FONT></B></P>
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<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 150%; TEXT-ALIGN: center" align=center><B><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">WARRANT #W- ___ TO PURCHASE COMMON STOCK</FONT></B></P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 150%; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">___ Shares of Common Stock of Electromed, Inc.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align=right><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">[Date]</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">THIS CERTIFIES THAT,</FONT></B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"> Minnesota ______________ (the &#147;Holder&#148;), is entitled to subscribe for and purchase from Electromed, Inc., a Minnesota corporation (the &#147;Company&#148;) from the date hereof through ______________ up to &nbsp;______________&nbsp; (____) fully paid and non-assessable shares (the &#147;Shares&#148;) of the Company&#146;s Common Stock, no par value (the &#147;Common Stock&#148;) at a price of $ ____ per share. </FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">In addition to the aforedescribed conditions of exercise, this Warrant is subject to the following provisions, terms and conditions:</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></B><B><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Exercise of Warrant</FONT></U></B><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp; The purchase rights under this Warrant must be exercised, in whole or in part, by the Holder surrendering this Warrant with the form of subscription attached hereto duly executed by such Holder, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the purchase price payable in respect of the Common Stock being purchased.&nbsp; If less than all of the Common Stock is purchased, the Company will, upon such exercise, exec
ute and deliver to the Holder hereof a new Warrant (dated the date hereof) evidencing the number of shares of Common Stock not so purchased.&nbsp; As soon as practicable after the exercise of this Warrant and payment of the purchase price, the Company will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder may direct, a certificate or certificates representing the Shares purchased upon such exercise.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">The Company may require that such certificate or certificates contain on the face thereof a legend substantially as follows:</FONT></P>
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<P style="MARGIN: 0in 0.5in 0pt 1in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&#147;The securities represented by the within certificate have not been registered under the Securities Act of 1933, as amended, or under the applicable provisions of any State Blue Sky laws, and may not be sold, transferred or otherwise disposed of unless (1) the Company consents in writing to such transfer, or (2) at the time of the proposed transfer, the securities are eligible for public resale under Rule 144 of the General Rules and Regulations of the Securities and Exchange Commission under the Securities Act (or successor rule if Rule 144 is no longer then in effect) and such transfer is made pursuant to Rule 144.&#148;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></B><B><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Negotiability and Transfer</FONT></U></B><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp; This Warrant may not be sold, pledged, gifted or otherwise transferred </FONT><FONT lang=EN-US style="FONT-SIZE: 10pt; LETTER-SPACING: 0pt; TEXT-DECORATION: none" face="Times New Roman,serif">by Holder </FONT><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">without the express written consent of the Company</FONT><FONT lang=EN-US style="FONT-SIZE: 10pt; LETTER-SPACING: 0pt; TEXT-DECORATION: none" face="Times New Roman,serif">&nbsp; except upon transfer of the </FONT><FONT lang=EN-US styl
e="FONT-SIZE: 10pt; LETTER-SPACING: 0pt; TEXT-DECORATION: none" face="Times New Roman,serif">Company&#146;s 7% Senior Secured Convertible Notes due </FONT><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">______________ </FONT><FONT lang=EN-US style="FONT-SIZE: 10pt; LETTER-SPACING: 0pt; TEXT-DECORATION: none" face="Times New Roman,serif">with respect to the purchase of which this Warrant was issued.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></B><B><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Antidilution Adjustments</FONT></U></B><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp; In case the Company shall at any time hereafter subdivide (i.e., stock split) or combine (i.e., reverse stock split) its outstanding shares of Common Stock, or declare a dividend payable in Common Stock, the exercise price in effect immediately prior to the subdivision, combination or record date for such dividend payable in Common Stock shall forthwith be proportionately increased, in the case of combination, or proportionately decreased, in the case of subdivision or declaration of a dividend payable in Comm
on Stock, and each share of Common Stock purchasable upon exercise of the Warrant shall be changed to the number determined by dividing the then current exercise price by the exercise price as adjusted after such subdivision, combination or dividend payable in Common Stock.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">No fractional shares of Common Stock are to be issued upon the exercise of the Warrant, but the Company shall pay a cash adjustment in respect of any fraction of a share which would otherwise be issuable in an amount equal to the same fraction of the per share value of Common Stock on the day of exercise as determined in good faith by the Company.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">In case of any capital reorganization or any reclassification of the shares of Common Stock of the Company, or in the case of any consolidation with or merger of the Company into or with another corporation, or the sale of all or substantially all of its assets to another corporation effected in such manner that the holders of common shares shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a part of such reorganization, reclassification, consolidation, merger or sale, as the case may be, lawful provision shall be made so that the Holder of the Warrant shall have the right thereafter to receive, upon the exercise hereof, the kind and amount of shares of stock or other securities or property which the holder would have been entitled to receive if, immediately prior to such reorganization, reclassification, 
consolidation or merger, the Holder had held the number of shares of Common Stock which were then purchasable upon the exercise of the Warrant.&nbsp; In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interest thereafter of the Holder of the Warrant, to the end that the provisions set forth herein (including provisions with respect to adjustments of the exercise price) shall thereafter be applicable, as nearly as reasonably maybe, in relation to any shares of stock or other property thereafter deliverable upon the exercise of the Warrant.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">When any adjustment is required to be made in the exercise price, initial or adjusted, the Company shall forthwith determine the new exercise price; and</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 0.5in; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Prepare and retain on file a statement describing in reasonable detail the method used in arriving at the new exercise price; and</FONT></P>
<P style="MARGIN: 0in 0in 0pt 0.5in; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 0.5in; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cause a copy of such statement to be mailed to the Holder of the Warrant as of a date within then (10) days after the date when the circumstances giving rise to the adjustment occurred.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></B><B><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">No Registration Rights</FONT></U></B><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp; No Holder of the Warrant shall have any registration rights under the terms of the Warrant with respect to either the Warrant or the securities issuable upon exercise of the Warrant.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></B><B><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Limitation of Rights; Notices</FONT></U></B><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp; The Holder of the Warrant shall have no voting rights or dividend rights with respect to the Shares before exercise and payment therefor.&nbsp; The Company shall mail a notice to the registered Holder of the Warrant, at the Holder&#146;s last known post office address appearing on the books of the Company, not less than fifteen (15) days prior to the date on which (a) a record will be taken for the purpose of determining the holders of Common Stock entitled to dividends, or (b) a record will be taken (of 
in lieu thereof, the transfer books will be closed) for the purpose of determining the holders of Common Stock entitled to notice of and to vote at a meeting of stockholders at which any capital reorganization, reclassification of shares of Common Stock, consolidation, merger, dissolution, liquidation, winding up or sale of substantially all of the Company&#146;s assets shall be considered and acted upon.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times,serif">2</FONT></P>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></B><B><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Reservation of Common Stock</FONT></U></B><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp; A number of shares of Common Stock sufficient to provide for the exercise of the Warrant upon the basis herein set forth shall at all times be reserved for the exercise thereof.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></B><B><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Miscellaneous</FONT></U></B><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp; The representatives, warranties and agreements herein contained shall survive the exercise of the Warrant.&nbsp; References to the &#147;holder of&#148; include the immediate holders of shares purchased on the exercise of the Warrant, and the words &#147;holder&#148; shall include the plural thereof.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">All shares of Common Stock or other securities issued upon the exercise of the Warrant shall be validly issued, fully paid and nonassessable, and the Company will pay all taxes in respect of the issuer thereof.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </FONT></B><B><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Acknowledgement of the Warrant Holder</FONT></U></B><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">&nbsp; The Holder hereby represents and warrants as follows:</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 0.5in; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to the extent requested, the Holder has provided the Company with complete and accurate information concerning its knowledge, experience and financial condition; </FONT></P>
<P style="MARGIN: 0in 0in 0pt 0.5in; TEXT-INDENT: 0.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 0.5in; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; as a sophisticated investor, the Holder has such knowledge and experience in financial business matters that it believes it is capable of evaluating the merits and risks of the prospective investment in the Warrant;</FONT></P>
<P style="MARGIN: 0in 0in 0pt 0.5in; TEXT-INDENT: 0.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 0.5in; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; the Holder recognizes that investment in the Warrant may involve a high degree of risk and immediate substantial dilution, that the purchase of the Warrant maybe a long-term investment, that transferability and resale is restricted and that, in the event of disposition of the underlying capital stock, the undersigned could sustain a loss;</FONT></P>
<P style="MARGIN: 0in 0in 0pt 0.5in; TEXT-INDENT: 0.5in"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 0.5in; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; in connection with the purchase of the Warrant, the Holder represents and warrants that the Holder intends to acquire the Warrant for the Holder&#146;s own account for investment purposes and not with a view to or for resale in connection with any distribution thereof, and agrees that the Holder will not sell or assign the Warrant without registration under all applicable securities law or appropriate exemption therefrom.&nbsp; The undersigned understands and acknowledges that the Warrant has not been registered under the Securities Act of 1933 nor under applicable Blue Sky laws, pursuant to exemption therefrom, which depend upon its investment intention.&nbsp; The undersigned also understands and acknowledges that the underlying capital stock has not been nor will be registered under applicable secu
rities laws and therefore will not be freely transferable and that the shares of capital stock will be marked with an appropriate legend reciting the resale restrictions.</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">IN WITNESS WHEREOF,</FONT></B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"> this Warrant has been duly executed this ___ day of&nbsp; ______________, 20__</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt">&nbsp;</P>
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<P style="MARGIN: 0in 0in 6pt"><B><FONT style="FONT-SIZE: 10pt" face="Times,serif">ELECTROMED, INC.</FONT></B></P>
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<P style="MARGIN: 0in 0in 6pt"><FONT style="FONT-SIZE: 10pt" face="Times,serif">By&nbsp;&nbsp;</FONT></P>
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<P style="MARGIN: 0in 0in 6pt"><FONT style="FONT-SIZE: 10pt" face="Times,serif">Robert D. Hansen<BR>
</FONT><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Its Chief Executive Officer</FONT></P>
</TD></TR></TABLE></DIV>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">The Holder hereby acknowledges the terms and conditions of the transfer restrictions herein contained and only executes this Warrant for that purpose.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times,serif">3</FONT></P>
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<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>7
<FILENAME>elmd101390s1_ex10-1.htm
<DESCRIPTION>CREDIT AGREEMENT
<TEXT>
<HTML>
<HEAD><TITLE>Exhibit 10.1 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 10.1</B></FONT></P>


<P ALIGN=CENTER><FONT SIZE=3><B>CREDIT AGREEMENT</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS
CREDIT AGREEMENT, dated as of December 9, 2009, is by and between ELECTROMED,
INC., a corporation organized under the laws of the State of Minnesota (the
&#147;Borrower&#148;), and U.S. BANK NATIONAL ASSOCIATION, a national banking association
(the &#147;Bank&#148;). </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE I<BR>
DEFINITIONS AND ACCOUNTING TERMS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.1 <U>Defined Terms</U>. As used in this Agreement the following terms shall
have the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural form of the terms defined, as the
context may require): </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
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 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Affiliate</U>&#148;:
 When used with reference to any Person, (a) each Person that, directly or
 indirectly, controls, is controlled by or is under common control with, the
 Person referred to, (b) each Person which beneficially owns or holds,
 directly or indirectly, five percent or more of any class of voting Equity
 Interests of the Person referred to, (c) each Person, five percent or more of
 the voting Equity Interests (or if such Person is not a corporation, five
 percent or more of the equity interest) of which is beneficially owned or
 held, directly or indirectly, by the Person referred to, and (d) each of such
 Person&#146;s officers, directors, joint venturers and partners. The term control
 (including the terms &#147;controlled by&#148; and &#147;under common control with&#148;) means
 the possession, directly, of the power to direct or cause the direction of
 the management and policies of the Person in question. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Applicable
 Margin</U>&#148;: 2.75%. </FONT></P>
 </TD>
 </TR>
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 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Bank</U>&#148;:
 As defined in the opening paragraph hereof. </FONT></P>
 </TD>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Banking
 Day</U>&#148;: Any day (other than a Saturday, Sunday or legal holiday in the
 State of Minnesota) on which banks are permitted to be open in Minneapolis,
 Minnesota. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Board</U>&#148;:
 The Board of Governors of the Federal Reserve System or any successor
 thereto. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Borrower</U>&#148;:
 As defined in the opening paragraph hereof. </FONT></P>
 </TD>
 </TR>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
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 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Borrower
 Loan Documents</U>&#148;: This Agreement, the Notes and any of the Security
 Documents to be executed by the Borrower. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Borrowing
 Base</U>&#148;: As determined in accordance with the formula set forth in Exhibit
 E hereto. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Borrowing
 Base Certificate</U>&#148;: A certificate in the form of Exhibit F hereto. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Borrowing
 Base Deficiency</U>&#148;: At the time of any determination, the amount, if any,
 by which the unpaid principal balance of the Revolving Note exceeds the
 Borrowing Base. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Capital
 Expenditures</U>&#148;: For any period, the sum of all amounts that would, in
 accordance with GAAP, be included as additions to property, plant and
 equipment on a statement of cash flows for the Borrower during such period,
 in respect of (a) the acquisition, construction, improvement, replacement or
 betterment of land, buildings, machinery, equipment or of any other fixed
 assets or leaseholds, (b) to the extent related to and not included in (a)
 above, materials, contract labor (excluding expenditures properly chargeable
 to repairs or maintenance in accordance with GAAP), and (c) other capital
 expenditures and other uses recorded as capital expenditures or similar terms
 having substantially the same effect. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Capitalized
 Lease</U>&#148;: A lease of (or other agreement conveying the right to use) real or
 personal property with respect to which at least a portion of the rent or
 other amounts thereon constitute Capitalized Lease Obligations. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Capitalized
 Lease Obligations</U>&#148;: As to any Person, the obligations of such Person to
 pay rent or other amounts under a lease of (or other agreement conveying the
 right to use) real or personal property which obligations are required to be
 classified and accounted for as a capital lease on a balance sheet of such
 Person under GAAP (including Statement of Financial Accounting Standards No.
 13 of the Financial Accounting Standards Board), and, for purposes of this
 Agreement, the amount of such obligations shall be the capitalized amount
 thereof, determined in accordance with GAAP (including such Statement No.
 13). </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Change
 of Control</U>&#148;: The occurrence, after the Closing Date, of any of the
 following circumstances: (a) any Person or two or more Persons acting in
 concert acquiring beneficial ownership (within the meaning of Rule 13d-3 of
 the Securities and Exchange Commission under the Securities Exchange Act of
 1934), directly or indirectly, of Equity Interests of the Borrower
 representing 50% or more of the combined voting power of all Equity Interests
 of the Borrower entitled to vote in the election of directors; or (b) during
 any period of up to twelve consecutive months, whether commencing before or
 after the Closing Date, individuals who at the beginning of such twelve-month
 period were directors of the Borrower ceasing for any reason to constitute a
 majority of the Board of Directors of the Borrower (other than by reason of
 death, disability or scheduled retirement). </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Charges</U>&#148;:
 As defined in Section 8.20. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Closing
 Date</U>&#148;: Any Banking Day between the date of this Agreement and December 31, 2009 selected by the Borrower for the making of the Term Loan or the first
 Revolving Loan hereunder; provided, that all the conditions precedent to the
 obligation of the Bank to make such Loan, as set forth in Article III, have been,
 or, on such Closing Date, will be, satisfied. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Code</U>&#148;:
 The Internal Revenue Code of 1986, as amended. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Commitments</U>&#148;:
 The Revolving Commitment and the Term Loan Commitments. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Contingent
 Obligation</U>&#148;: With respect to any Person at the time of any determination,
 without duplication, any obligation, contingent or otherwise, of such Person
 guaranteeing or having the economic effect of guaranteeing any Indebtedness
 of any other Person (the &#147;primary obligor&#148;) in any manner, whether directly
 or otherwise: (a) to purchase or pay (or advance or supply funds for the
 purchase or payment of) such Indebtedness or to purchase (or to advance or
 supply funds for the purchase of) any direct or indirect security therefor,
 (b) to purchase property, securities, Equity Interests or services for the
 purpose of assuring the owner of such Indebtedness of the payment of such
 Indebtedness, (c) to maintain working capital, equity capital or other
 financial statement condition of the primary obligor so as to enable the
 primary obligor to pay such Indebtedness or otherwise to protect the owner
 thereof against loss in respect thereof, or (d) entered into for the purpose
 of assuring in any manner the owner of such Indebtedness of the payment of
 such Indebtedness or to protect the owner against loss in respect thereof;
 provided, that the term &#147;Contingent Obligation&#148; shall not include
 endorsements for collection or deposit, in each case in the ordinary course
 of business. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Current
 Liabilities</U>&#148;: As of any date, the current liabilities of the Borrower,
 determined in accordance with GAAP. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Default</U>&#148;:
 Any event which, with the giving of notice (whether such notice is required
 under Section 7.1, or under some other provision of this Agreement, or
 otherwise) or lapse of time, or both, would constitute an Event of Default. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>EBITDA</U>&#148;:
 For any period of determination, the net income of the Borrower before
 deductions for income taxes, Interest Expense, depreciation and amortization,
 all as determined in accordance with GAAP. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>EBITDAR</U>:
 For any period of determination, the net income of the Borrower before
 deductions for income taxes, Interest Expense, depreciation, amortization and
 operating lease expense, all as determined in accordance with GAAP. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Environmental
 </U><U>&amp; ADA
 Indemnity Agreement</U>&#148;: The Environmental &amp; ADA Indemnity Agreement by the Borrower in favor of the
 Bank dated as of the date hereof, as the same may be amended, restated or
 otherwise modified from time to time. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#145;&#145;<U>Equity
 Interests</U>&#148;: All shares, interests, participation or other equivalents,
 however designated, of or in a corporation or limited liability company,
 whether or not voting, including but not limited to common stock, member
 interests, warrants, preferred stock, convertible debentures, and all
 agreements, instruments and documents convertible, in whole or in part, into
 any one or more or all of the foregoing. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>ERISA</U>&#148;:
 The Employee Retirement Income Security Act of 1974, as amended. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>ERISA
 Affiliate</U>&#148;: Any trade or business (whether or not incorporated) that is a
 member of a group of which the Borrower is a member and which is treated as a
 single employer under Section 414 of the Code. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Event
 of Default</U>&#148;: Any event described in Section 7.1. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Fixed
 Charge Coverage Ratio</U>&#148;: For the four consecutive fiscal quarters ending
 on the date of determination, the ratio of </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EBITDA,
 plus operating lease expense, minus the sum of (i) any Restricted Payments,
 (ii) 50% of depreciation and (iii) tax expenses of the Borrower paid in cash,
 </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the
 sum of Interest Expense and all required principal payments with respect to
 Total Liabilities (including but not limited to all payments with respect to
 Capitalized Lease Obligations of the Borrower), plus operating lease expense,
 </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>in each case
 determined for said period in accordance with GAAP. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>GAAP</U>&#148;:
 Generally accepted accounting principles set forth in the opinions and
 pronouncements of the Accounting Principles Board of the American Institute
 of Certified Public Accountants and statements and pronouncements of the
 Financial Accounting Standards Board or in such other statements by such
 other entity as may be approved by a significant segment of the accounting
 profession, which are applicable to the circumstances as of any date of
 determination. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Government
 Receivable </U>&#148; means any account receivable with respect to which the
 obligor is a Governmental Entity. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Governmental
 Entity </U>&#148; means the United States of America, any state, any political
 subdivision of a state and any agency or instrumentality of the United States
 of America or any state or political subdivision thereof and any entity
 exercising executive, legislative, judicial, regulatory or administrative
 functions of or pertaining to government. Payments from Governmental Entities
 shall be deemed to include payments governed under the Social Security Act
 (42 U.S.C. &sect; 1395,
 et seq.), including payments under Medicare, Medicaid and CHAMPUS, and
 payments administered or regulated by CMS. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Governmental
 Entity Receivables Account</U>&#148; means account no. 1-047-9049-1310 or any
 successor thereto at the Bank. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Governmental
 Entity Receivables Account Notice </U>&#148; means a notice pursuant to which the
 Borrower gives revocable standing instructions to the Bank to sweep funds on
 a daily basis from the Governmental Entity Receivables Account to a deposit
 account </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

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<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>satisfactory
 to the Bank in its sole discretion which account is subject to the Bank&#146;s
 &#147;control,&#148; as defined in Section 9-104 of the Uniform Commercial Code. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Immediately
 Available Funds</U>&#148;: Funds with good value on the day and in the city in
 which payment is received. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Indebtedness</U>&#148;:
 With respect to any Person at the time of any determination, without
 duplication, all obligations, contingent or otherwise, of such Person which
 in accordance with GAAP should be classified upon the balance sheet of such
 Person as liabilities, but in any event including: (a) all obligations of
 such Person for borrowed money (including non-recourse obligations), (b) all
 obligations of such Person evidenced by bonds, debentures, notes or other
 similar instruments, (c) all obligations of such Person upon which interest
 charges are customarily paid or accrued, (d) all obligations of such Person
 under conditional sale or other title retention agreements relating to
 property purchased by such Person, (e) all obligations of such Person issued
 or assumed as the deferred purchase price of property or services, (f) all
 obligations of others secured by any Lien on property owned or acquired by
 such Person, whether or not the obligations secured thereby have been
 assumed, (g) all Capitalized Lease Obligations of such Person, (h) all
 obligations of such Person in respect of interest rate swap agreements, cap
 or collar agreements, interest rate futures or option contracts, currency
 swap agreements, currency futures or option agreements and other similar
 contracts (i) all obligations of such Person, actual or contingent, as an
 account party in respect of letters of credit or bankers&#146; acceptances, (j) all obligations of any
 partnership or joint venture as to which such Person is or may become
 personally liable, (k) all obligations of such Person under any Equity
 Interests issued by such Person, and (1) all Contingent Obligations of such
 Person. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Indemnitee</U>&#148;:
 As defined in Section 8.13. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Interest
 Expense</U>&#148;: For any period of determination, the aggregate amount, without
 duplication, of interest paid, accrued or scheduled to be paid in respect of
 any Indebtedness of the Borrower, including (a) all but the principal
 component of payments in respect of conditional sale contracts, Capitalized
 Leases and other title retention agreements, (b) commissions, discounts and other
 fees and charges with respect to letters of credit and bankers&#146; acceptance
 financings and (c) net costs under interest rate protection agreements, in
 each case determined in accordance with GAAP. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Interest
 Differential</U>&#148;: As defined in Section 2.4. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Investment</U>&#148;:
 The acquisition, purchase, making or holding of any Equity Interests or other
 security, any loan, advance, contribution to capital, extension of credit
 (except for trade and customer accounts receivable for inventory sold or
 services rendered in the ordinary course of business and payable in
 accordance with customary trade terms), any acquisitions of real or personal
 property (other than real and personal property acquired in the ordinary
 course of business) and any purchase or commitment or option to purchase
 Equity Interests, securities or other debt of or any interest in another
 Person or any integral part of any business or the assets comprising such
 business or part thereof and the formation of, or entry into, any partnership
 as a limited or general partner </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>or the entry
 into any joint venture. The amount of any Investment shall be the original
 cost of such Investment plus the cost of all additions thereto, without any
 adjustments for increases or decreases in value, or write-ups, write-downs or
 write-offs with respect to such Investment. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Lien</U>&#148;:
 With respect to any Person, any security interest, mortgage, pledge,
 lien, charge, encumbrance, title retention agreement or analogous instrument
 or device (including the interest of each lessor under any Capitalized
 Lease), in, of or on any assets or properties of such Person, now owned or
 hereafter acquired, whether arising by agreement or operation of law. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Loan</U>&#148;:
 A Revolving Loan or a Term Loan. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Loan
 Documents</U>&#148;: This Agreement, the Notes, and the Security Documents. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Material
 Adverse Occurrence</U>&#148;: Any occurrence of whatsoever nature (including,
 without limitation, any adverse determination in any litigation, arbitration,
 or governmental investigation or proceeding) which could reasonably be
 expected to materially and adversely affect (a) the financial condition or
 operations of the Borrower, (b) impair the ability of the Borrower to perform
 its obligations under any Loan Document, or any writing executed pursuant
 thereto, (c) the validity or enforceability of the material obligations of
 the Borrower under any Loan Document, (d) the rights and remedies of the Bank
 against any the Borrower, (e) the timely payment of the principal of and
 interest on the Loans or other amounts payable by the Borrower hereunder, or
 (f) the validity of the joint and several nature of the obligations of the
 Borrower with respect to all of the Obligations. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Maximum
 Rate</U>&#148;: As defined in Section 8.20. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Mortgage</U>&#148;:
 The Mortgage by the Borrower in favor of the Bank dated as of the date
 hereof, as the same may be amended, restated or otherwise modified from time
 to time. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Multiemployer
 Plan</U>&#148;: A multiemployer plan, as such term is defined in Section
 4001(a)(3) of ERISA, which is maintained (on the Closing Date, within the
 five years preceding the Closing Date, or at any time after the Closing Date)
 for employees of the Borrower or any ERISA Affiliate. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Note</U>&#148;:
 A Term Note or the Revolving Note. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Obligations</U>&#148;:
 The Borrower&#146;s obligations in respect of the due and punctual payment of
 principal and interest on the Notes when and as due, whether by acceleration
 or otherwise and all fees, expenses, indemnities, reimbursements and other
 obligations of the Borrower under this Agreement or any other Borrower Loan
 Document, and the Rate Protection Obligations, in all cases whether now
 existing or hereafter arising or incurred. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Other
 Taxes</U>&#148;: As defined in Section 2.25(b). </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Participants</U>&#148;:
 As defined in Section 8.7(b). </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>PBGC</U>&#148;:
 The Pension Benefit Guaranty Corporation, established pursuant to Subtitle A
 of Title IV of ERISA, and any successor thereto or to the functions thereof. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Person</U>&#148;:
 Any natural person, corporation, partnership, limited partnership, limited
 liability company, joint venture, firm, association, trust, unincorporated
 organization, government or governmental agency or political subdivision or
 any other entity, whether acting in an individual, fiduciary or other
 capacity. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Plan</U>&#148;:
 Each employee benefit plan (whether in existence on the Closing Date
 or thereafter instituted), as such term is defined in Section 3 of ERISA,
 maintained for the benefit of employees, officers or directors of the
 Borrower or of any ERISA Affiliate. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Pledge
 Agreement</U>&#148;: The Pledge Agreement by the Borrower in favor of the Bank
 dated as of the date hereof, as the same may be amended, restated or
 otherwise modified from time to time. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Prepayment
 Event</U>&#148;: Means: </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;any
 sale, transfer or other disposition (including pursuant to a sale and leaseback
 transaction) of any property or asset of the Borrower, other than
 dispositions described in clauses (a), (b) and (c) of Section 6.2; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;any
 casualty or other insured damage to, or any taking under power of eminent
 domain or by condemnation or similar proceeding of, any property or asset of
 the Borrower, but only to the extent that the net proceeds therefrom have not
 been applied, or committed pursuant to an agreement (including any purchase
 orders) to be applied, to repair, restore or replace such property or asset
 within 180 days after such event; </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the
issuance by the Borrower of any Equity Interests, or receipt by the Borrower
of any capital contribution, other than (i) stock options, warrants or other
rights to acquire stock awarded to employees, consultants, agents, officers
and directors pursuant to incentive compensation plans or agreements;
<U>provided</U> that all such options, warrants and rights do not exceed, in the
aggregate, $100,000; or </FONT> </P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the
 incurrence by the Borrower of any Indebtedness, other than Indebtedness
 permitted by Section 6.12. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Prohibited
 Transaction</U>&#148;: The respective meanings assigned to such term in Section
 4975 of the Code and Section 406 of ERISA. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Rate
 Protection Agreement</U>&#148;: Any interest rate swap, cap or option agreement,
 or any other agreement pursuant to which the Borrower hedges interest rate
 risk with respect to a portion of the Obligations, entered into by the
 Borrower with a Rate Protection Provider. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>7</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Rate
 Protection Obligations</U>&#148;: The liabilities, indebtedness and obligations of
 the Borrower, if any, to any Rate Protection Provider under a Rate Protection
 Agreement. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Rate
 Protection Provider</U>&#148;: The Bank, or any Affiliate of the Bank, that is the
 counterparty of the Borrower under any Rate Protection Agreement. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Regulatory
 Change</U>&#148;: Any change after the Closing Date in federal, state or foreign
 laws or regulations or the adoption or making after such date of any
 interpretations, directives or requests applying to a class of banks
 including the Bank under any federal, state or foreign laws or regulations
 (whether or not having the force of law) by any court or governmental or
 monetary authority charged with the interpretation or administration thereof.
 </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Reportable
Event</U>&#148;: A reportable event as defined in Section 4043 of ERISA and the
regulations issued under such Section, with respect to a Plan, excluding,
however, such events as to which the PBGC by regulation has waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, <U>provided</U> that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall
be a Reportable Event regardless of the issuance of any waiver in accordance
with Section 412(d) of the Code. </FONT> </P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Restricted
 Payments</U>&#148;: With respect to the Borrower, collectively, all dividends or
 other distributions of any nature (cash, Equity Interests other than common
 stock of the Borrower, assets or otherwise), and all payments on any class of
 Equity Interests (including warrants, options or rights therefor) issued by
 the Borrower, whether such Equity Interests are authorized or outstanding on
 the Closing Date or at any time thereafter and any redemption or purchase of,
 or distribution in respect of, any of the foregoing, whether directly or
 indirectly. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Revolving
 Commitment</U>&#148;: The obligation of the Bank to make Revolving Loans to the
 Borrower. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Revolving
 Commitment Amount</U>&#148;: $3,500,000. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Revolving
 Loan</U>&#148;: As defined in Section 2.1. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Revolving
 Loan Date</U>&#148;: The date of the making of any Revolving Loan hereunder. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Revolving
 Note</U>&#148;: A promissory note of the Borrower in the form of Exhibit A hereto,
 evidencing the obligation of the Borrower to repay the Revolving Loan. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Security
 Agreement</U>&#148;: The Security Agreement by the Borrower in favor of the Bank
 dated as of the date hereof, as the same may be amended, restated or
 otherwise modified from time to time. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Security
 Documents</U>&#148;: The Security Agreement, the Pledge Agreement, the Mortgage
 and the Environmental &amp; ADA Indemnity Agreement. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>8</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Subordinated
 Debt</U>&#148;: Any Indebtedness of the Borrower, now existing or hereafter
 created, incurred or arising, which is subordinated in right of payment to
 the payment of the Obligations in a manner and to an extent (a) that the Bank
 has approved in writing prior to the creation of such Indebtedness, or (b) as
 to any Indebtedness of the Borrower existing on the date of this Agreement,
 that the Bank has approved as Subordinated Debt in a writing delivered by the
 Bank to the Borrower on or prior to the Closing Date. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Subsidiary</U>&#148;:
 Any corporation or other entity of which Equity Interests having ordinary
 voting power for the election of a majority of the board of directors or other
 Persons performing similar functions are owned by the Borrower either
 directly or through one or more Subsidiaries. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Termination
 Date</U>&#148;: The earliest of (a) November 30, 2010, or (b) the date on which the
 Revolving Commitment is terminated pursuant to Section 7.2 hereof. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Term
Loan A</U>&#148;: As defined in Section 2.1. <BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Term Loan B</U>&#148;: As defined in Section
2.1. <BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Term Loan A Maturity Date</U>&#148;: December 9, 2014.
<BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Term Loan B Maturity Date</U>&#148;: December 9, 2012. </FONT> </P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Term
 Loan Commitment</U>&#148;: The agreement of the Bank to make a Term Loan to the
 Borrower in the amount specified in Section 2.1 upon the terms and subject to
 the conditions of this Agreement. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Term
 Note A</U>&#148;: A promissory note of the Borrower in the form of Exhibit B
 hereto, evidencing the obligation of the Borrower to repay the Term Loan A. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Term
 Note B</U>&#148;: A promissory note of the Borrower in the form of Exhibit C
 hereto, evidencing the obligation of the Borrower to repay the Term Loan B. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Total
 Cash Flow Leverage Ratio</U>&#148;: For any period of determination, the ratio of </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the
 sum (without duplication) of the aggregate principal amount of all
 outstanding Capitalized Lease Obligations of the Borrower and that portion of
 Total Liabilities bearing interest determined as of the last day of that
 period, <U>plus</U> six times operating lease expense for such period, </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EBITDAR
 determined for said period in accordance with GAAP. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Total
 Liabilities</U>&#148;: At the time of any determination, the amount of all items
 of Indebtedness of the Borrower that would constitute &#147;liabilities&#148; for
 balance sheet purposes in accordance with GAAP. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>9</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>U.S.
 Taxes</U>&#148;: As defined in Section 2.25(e). </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Accounting Terms and Calculations</U>.
Except as may be expressly provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with GAAP. To the extent any change in
GAAP affects any computation or determination required to be made pursuant to
this Agreement, such computation or determination shall be made as if such
change in GAAP had not occurred unless the Borrower and the Bank agree in
writing on an adjustment to such computation or determination to account for
such change in GAAP. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Computation of Time Periods</U>. In this
Agreement, in the computation of a period of time from a specified date to a later specified date, unless
otherwise stated the word &#147;from&#148; means &#147;from and including&#148; and the word &#147;to&#148;
or &#147;until&#148; each means &#147;to but excluding&#148;. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other Definitional Terms</U>. The words
&#147;hereof,&#148; &#147;herein&#148; and &#147;hereunder&#148; and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. References to Sections, Exhibits,
schedules and like references are to this Agreement unless otherwise expressly
provided. The words &#147;include,&#148; &#147;includes&#148; and &#147;including&#148; shall be deemed to be
followed by the phrase &#147;without limitation.&#148; Unless the context in which used
herein otherwise clearly requires, &#147;or&#148; has the inclusive meaning represented
by the phrase &#147;and/or.&#148; All incorporation by reference of covenants, terms,
definitions or other provisions from other agreements are incorporated into
this Agreement as if such provisions were fully set forth herein, and such
incorporation shall include all necessary definitions and related provisions
from such other agreements but including only amendments thereto agreed to by
the Bank, and shall survive any termination of such other agreements until the
obligations of the Borrower under this Agreement and the Notes are irrevocably
paid in full, and the commitments of the Bank to advance funds to the Borrower
are terminated. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE II<BR>
TERMS OF THE CREDIT FACILITIES</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
2.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Lending Commitments</U>. On the terms and
subject to the conditions hereof, the Bank agrees to make the following lending
facilities available to the Borrower: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Revolving
 Credit</U>. A revolving credit facility available as loans (each, a
 &#147;Revolving Loan&#148; and, collectively, the &#147;Revolving Loans&#148;) to the Borrower on
 a revolving basis at any time and from time to time from the Closing Date to
 the Termination Date, during which period the Borrower may borrow, repay and
 reborrow in accordance with the provisions hereof, <U>provided</U>, the unpaid
 principal amount of outstanding Revolving Loans shall not at any time exceed
 the Revolving Commitment Amount; and <U>provided</U>, <U>further</U>, that no
 Revolving Loan will be made if, after giving effect thereto, the unpaid
 principal balance of all Revolving Loans would exceed the Borrowing Base. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Term
 Loan A</U>. A term loan (the &#147;Term Loan A&#148;) from the Bank to the Borrower on
 the Closing Date in the amount of $1,520,000. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>10</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP colspan=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Term
 Loan B</U>. A term loan (the &#147;Term Loan B&#148;) from the Bank to the Borrower on
 the Closing Date in the amount of $1,000,000.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>Notwithstanding any provision hereof, this Agreement
 and the Revolving Commitment shall terminate
 and the Bank shall have no obligation hereunder if the Term Loans hereunder
 have not been made by December 31, 2009, provided, however, that the
 obligations of the Borrower under Section 8.3 shall survive any such
 termination.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 2.2 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Procedure
 for Loans</U>. This is the procedure for obtaining Loans:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP colspan=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Procedure for Revolving Loans</U>. Any request by the Borrower for a Revolving Loan hereunder shall be in writing or
 by telephone and must be given so as to be received by the Bank not
 later than 2:00 pm (Minneapolis time) on the requested Revolving Loan Date.
 Each request for a Revolving Loan hereunder shall be irrevocable and shall be
 deemed a representation by the Borrower that on the requested Revolving Loan
 Date and after giving effect to the requested Revolving Loan the applicable conditions specified in Article III have been
 and will be satisfied. Each request for a Revolving Loan hereunder
 shall specify (i) the requested Revolving Loan Date, and (ii) the amount of the Revolving Loan to be made on
 such date. The Bank may rely on any telephone request by the Borrower
 for a Revolving Loan hereunder which it believes in good faith to be genuine; and the Borrower hereby waives the right to
 dispute the Bank&#146;s record of the
 terms of such telephone request. Unless the Bank determines that any applicable
 condition specified in Article III has not been satisfied, the Bank will make
 available to the Borrower at the Bank&#146;s
 principal office in Minneapolis, Minnesota in Immediately Available Funds not later than 4:00 pm (Minneapolis time)
 on the requested Revolving Loan Date the amount of the requested
 Revolving Loan.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP colspan=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Procedure for Term Loans</U>. The Borrower shall deliver to the Bank a
 written notice of borrowing. The request for the Term Loans shall be deemed a
 representation by the Borrower that on the Closing Date and after
 giving effect to the Term Loans the applicable conditions specified in
 Article III have been and will be satisfied.
 Unless the Bank determines that any applicable condition specified in Article
 III has not been satisfied, the
 Bank will make the proceeds of the Term Loans available to the Borrower at the Bank&#146;s main office on the
 requested date.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 2.3 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notes</U>.
 The Revolving Loans shall be evidenced by a single Revolving Note payable to the order of the Bank in a
 principal amount equal to the Revolving Commitment Amount originally
 in effect. The Term Loan A shall be evidenced by a Term Note A payable to the order of the Bank in the principal amount
 of the Term Loan A. The Term Loan B shall be evidenced by a Term Note
 B payable to the order of the Bank in the principal amount of the Term Loan
 B. The Bank shall enter in its ledgers and records the amount of the Term
 Loans and each Revolving Loan, converted or continued and the payments made
 thereon, and the Bank is authorized by
 the Borrower to enter on a schedule attached to a Term Note or Revolving
 Note, as appropriate, a record of such Term Loan, Revolving Loans, and
 payments; provided, however that the failure by the Bank to make any such
 entry or any error in making such entry shall not limit or otherwise affect
 the obligation of the Borrower hereunder and on the Notes, and, in all
 events, the principal amounts owing by the Borrower in respect of the
 Revolving Note shall be</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>11</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>the aggregate amount of all Revolving Loans made by
the Bank less all payments of principal thereof
made by the Borrower and the principal amount owing by the Borrower in respect
of the Term Note shall be the aggregate amount of such Term Loan less
all payments of principal thereof made by
the Borrower.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 2.4 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Interest Rates;
 Conversions and Continuations; Etc</U>.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Interest on Revolving Loans</U>. Interest on each advance hereunder shall accrue at an annual rate equal to the
 Applicable Margin plus the one-month LIBOR rate quoted by Bank from
 Reuters Screen LIBOR01 Page or any successor thereto, which shall be that
 one-month LIBOR rate in effect two New York Banking Days prior to the Reprice Date, adjusted for any reserve
 requirement and any subsequent costs arising from a change in
 government regulation, such rate rounded up to the nearest one-sixteenth percent and such rate to be reset monthly on
 each Reprice Date. The term <B>&#147;New York </B><B>Banking Day&#148; </B>means any date (other than a Saturday or
 Sunday) on which commercial banks are open for business in New York,
 New York. The term <B>&#147;Reprice Date&#148; </B>means
 the first day of each month. If the initial
 advance under this Note occurs other than on the Reprice Date, the
 initial one-month LIBOR rate shall be that one-month LIBOR rate in effect two
 New York Banking Days prior to the date of the initial advance, which rate
 plus the percentage described above shall be in effect until the next Reprice
 Date. Bank&#146;s internal records of
 applicable interest rates shall be determinative in the absence of manifest error.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>The
 Term Loan A</U>. The Term Loan A shall bear interest on the unpaid principal
 amount thereof at a per annum rate of 5.79%.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>The
 Term Loan B</U>. The Term Loan B shall bear interest on the unpaid principal
 amount thereof at a per annum rate of 4.28%.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Interest Upon Event of Default</U>. Upon the occurrence of any Event of Default, each Loan shall, at the option of the
 Bank (or, in the case of an Event of Default under Section 7.1(f), (g) or (h), automatically upon the occurrence
 of such Event of Default), bear interest until paid in full at the
 rate otherwise applicable thereto plus 5%.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 2.5 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Repayment</U>.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Revolving
 Loans</U>. Interest and principal upon the Revolving Loans shall be paid as follow:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
 shall be payable (A) on the last day of each month; (B) with respect to all
 Revolving Loans, upon any permitted prepayment (on the amount prepaid); and (C) with respect to all
 Revolving Loans, on the Termination Date; provided that interest under
 Section 2.4(d) shall be payable on demand.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Principal on the Revolving Loans is payable on
 the Termination Date.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>12</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="85%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Term
 Loan</U>. Interest and principal upon the Term Loans shall be paid as follows:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Principal
 and interest on the Term Loan A are payable in installments of $10,706.41 each, beginning December 31, 2009, and on
 the same date of each consecutive month thereafter (except that if a given month
 does not have such a date, the last day of such month), plus a final
 payment equal to all unpaid principal and accrued interest on the Term Loan A
 Maturity Date.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Principal
 and interest on the Term Loan B are payable in installments of $29,648.71 each, beginning December 31, 2009, and on
 the same date of each consecutive month thereafter (except that if a given
 month does not have such a date, the last day of such month), plus a
 final payment equal to all unpaid principal and accrued interest on the Term
 Loan B Maturity Date.</FONT></P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=4 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 2.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Prepayments</U>.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=4 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Mandatory
 Prepayments for Borrowing Base Deficiency</U>. If at any time a Borrowing Base Deficiency exists, the Borrower
 shall immediately pay on the principal of the Advances an amount equal to
 such Borrowing Base Deficiency.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Mandatory Prepayments for a Prepayment Event</U>. If at any time a Prepayment Event
 occurs, the Borrower shall immediately pay to the Bank the net proceeds realized by such Prepayment Event. Any
 such prepayments shall be applied <U>first</U>, to the Term Loan B, <U>second</U>,
 to the Term Loan A, and <U>third</U>, to any outstanding Revolving Loan. All prepayments applied to a
 Term Loan shall be applied to the scheduled
 principal payments on such Term Loan in the inverse order of their
 maturities.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other Mandatory Prepayments</U>. If at any time the aggregate unpaid principal balance of the Revolving Note exceeds
 the Revolving Commitment Amount, the Borrower shall immediately repay
 to the Bank the amount of such excess.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
2.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Computation</U>.
Interest on the Loans shall be computed on the basis of actual days elapsed and a year of 360 days.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
2.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Payments</U>.
Payments and prepayments of principal of, and interest on, the Notes and all
fees, expenses and other obligations under this Agreement payable to the Bank shall be made without setoff or counterclaim in
Immediately Available Funds not later than 3:00 pm (Minneapolis time) on the
dates called for under this Agreement and the Notes to the Bank at its main office in Minneapolis, Minnesota. Funds
received after such time shall be deemed to have been received on the
next Banking Day. Whenever any payment to be made hereunder or on the Notes
shall be stated to be due on a day which is not a Banking Day, such payment
shall be made on the next succeeding Banking Day and such extension of time, in
the case of a payment of principal, shall be included in the computation of any
interest on such principal payment.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>13</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
2.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Use of Loan Proceeds</U>. The proceeds of the Loans shall be used for refinancing existing indebtedness and general
business purposes in a manner not in conflict with any of the Borrower&#146;s
covenants in this Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
2.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Prepayment of Term Note</U>. There shall be no prepayments of a Term Note,
provided that the Bank may consider requests for its consent with respect to
prepayment of a Term Note, without incurring an obligation to do so, and the
Borrower acknowledges that in the event
that such consent is granted, the Borrower shall be required to pay the Bank,
upon prepayment of all or part of the principal amount before final
maturity, a prepayment indemnity (&#147;Prepayment
Fee&#148;) equal to the greater of zero, or that amount, calculated on any date of
prepayment (&#147;Prepayment Date&#148;), which is derived by subtracting: (a) the
principal amount of such Term Note or portion of such Term Note to be
prepaid from (b) the Net Present Value of such
Term Note or portion of such Term Note to be prepaid on such Prepayment Date;
provided, however, that the Prepayment Fee shall not in any event exceed
the maximum prepayment fee permitted by
applicable law. For purposes of this Section:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Net
 Present Value</U>&#148; shall mean the amount which is derived by summing the present values of each prospective payment of
 principal and interest which, without such full or partial prepayment,
 could otherwise have been received by the Bank over the shorter of the
 remaining contractual life of such Term Note or next repricing date if the Bank had instead initially invested such Term
 Note proceeds at the Initial Money Market Rate. The individual discount rate used to present value each
 prospective payment of interest and/or principal shall be the Money
 Market Rate at Prepayment for the maturity matching that of each specific
 payment of principal and/or interest.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Initial
 Money Market Rate</U>&#148; shall mean the rate per annum, determined solely by
 the Bank, on the first day of the term of such Term Note or the most recent
 repricing date or as mutually agreed upon by the Borrower and the
 Bank, as the rate at which the Bank would be able to borrow funds in Money
 Markets for the amount of such Term Note and with an interest payment frequency and principal repayment schedule
 equal to such Term Note and for a term as may be arranged and agreed
 upon by the Borrower and the Bank, adjusted for any reserve requirement and
 any subsequent costs arising from a change in government regulation. The
 Borrower acknowledges that the Bank is under no obligation to actually
 purchase and/or match funds for the Initial Money Market Rate of such Term Note.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Money
 Market Rate At Prepayment</U>&#148; shall mean that zero-coupon rate, calculated
 on the Prepayment Date, and determined solely by the Bank, as the rate at
 which the Bank would be able to borrow funds in Money Markets for the
 prepayment amount matching the maturity
 of a specific prospective Term Note payment or repricing date,
 adjusted for any reserve requirement and any subsequent costs arising from a
 change in government regulation. A separate Money Market Rate at Prepayment
 will be calculated for each prospective interest and/or principal payment
 date.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Money
 Markets</U>&#148; shall mean one or more wholesale funding markets available to
 and selected by the Bank, including negotiable certificates of deposit,
 commercial paper, eurodollar deposits, bank notes, federal funds,
 interest rate swaps or others.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>14</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>In calculating the amount of such Prepayment Fee, the
Bank is hereby authorized by the Borrower
to make such assumptions regarding the source of funding, redeployment of funds
and other related matters, as the
Bank may deem appropriate. If the Borrower fails to pay any Prepayment Fee when due, the amount of such
Prepayment Fee shall thereafter bear interest until paid at the default
rate specified in this Agreement (computed on the basis of a 360-day year, actual days elapsed). Any prepayment of principal
shall be accompanied by a payment of interest accrued to date thereon;
and said prepayment shall be applied to the principal installments in the
inverse order of their maturities. All prepayments shall be in an amount of at
least $100,000 or, if less, the remaining entire principal balance of such Term
Note.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section 2.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Taxes</U>.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any and all payments by the Borrower hereunder
or under the Notes shall be made free and clear of and without deduction
for any and all present or future taxes, levies, imposts, deductions, charges
of withholdings, and all liabilities with respect thereto, <U>excluding</U>, in the case of the Bank, taxes imposed on
its overall net income and franchise taxes imposed on it in lieu of
net income taxes (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities in respect of payments hereunder or
under the Notes being hereinafter referred to as <U>&#147;Taxes&#148;</U>). </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder
or under the Notes or from the execution, delivery or registration of,
performing under, or otherwise with respect to, this Agreement or the Notes
(hereinafter referred to as <U>&#147;Other Taxes&#148;</U>). </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Borrower shall indemnify the for the full amount of Taxes or Other Taxes
 imposed on or paid by the and any penalties, interest and expenses with
 respect thereto. Payments on this
 indemnification shall be made within 30 days from the date the makes written demand therefor.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the case of any payment hereunder or under the Notes by or on behalf of the Borrower through an account or branch
outside the United States or by or on behalf of the Borrower by a pay or that
is not a United States person, if the Borrower determine that no Taxes
are payable in respect thereof, the Borrower shall furnish or shall cause
such payor to furnish, to the Bank, at such address, an opinion of counsel
acceptable to the Bank stating that such
payment is exempt from Taxes. For purposes of this subsection (d), the
terms &#147;<U>United States</U>&#148; and &#147;<U>United States person</U>&#148; shall have the
meanings specified in Section 7701 of the Internal Revenue Code. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the Borrower shall be required by law or regulation to make any deduction,
withholding or backup withholding of any taxes, levies, imposts, duties,
fees, liabilities or similar charges of the United States of America, any
possession or territory of the United States of America (including the
Commonwealth of Puerto Rico) or any area subject to the jurisdiction of the
United States of America (&#147;<U>U.S. Taxes</U>&#148;) from any payments to the Bank pursuant to any Loan Document in respect of the
Obligations payable to the then or thereafter outstanding, the
Borrower shall make such withholdings </FONT></P>
 </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2>15</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>or deductions and pay the full
 amount withheld or deducted to the relevant taxation authority or
 other authority in accordance with applicable law.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE III <BR>
CONDITIONS PRECEDENT</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="85%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=4 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Conditions of Initial Transaction</U>.
 The making of the Term Loan and the initial
 Revolving Loan shall be subject to the prior or simultaneous fulfillment of
 the following conditions:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=4 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(a)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><U>Documents</U>. The Bank shall have received the following:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Revolving Note and the Term Notes executed by a duly authorized officer (or
 officers) of the Borrower and dated the Closing Date.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Security Documents, each duly executed by a duly authorized officer
 (or officers) of the Borrower.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
 copy of the corporate resolution of the Borrower authorizing the execution,
 delivery and performance of the Borrower Loan Documents, certified as of the Closing Date by the Secretary or an
 Assistant Secretary of the Borrower.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
 incumbency certificate showing the names and titles and bearing the signatures of the officers of the
 Borrower authorized to execute the Borrower Loan Documents and to
 request Loans and conversions and continuations of Advances hereunder,
 certified as of the Closing Date by the Secretary or an Assistant Secretary
 of the Borrower.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
 copy of the Articles of Incorporation of the Borrower with all amendments
 thereto, certified by the appropriate governmental official of the jurisdiction of its incorporation as of a date
 not more than 30 days prior to the Closing
 Date.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
 certificate of good standing for the Borrower in the jurisdiction of
 its incorporation or organization certified by the appropriate governmental
 officials as of a date not more than 30 days prior to the Closing Date.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
 copy of the bylaws of the Borrower, certified as of the Closing Date
 by the Secretary or an Assistant Secretary of the Borrower.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
 certificate dated the Closing Date of the chief executive officer or chief
 financial officer of the Borrower certifying as to the matters set forth in
 Sections 3.2(a) and (b) below.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
 Governmental Entity Receivables Account Notice, duly executed by the
 Borrower.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 initial Borrowing Base Certificate required under Section 5.1.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>16</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="94%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="85%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ACORD
 27 certificates of insurance with respect to each of the businesses and real properties of the Borrower
 in such amounts and with such carriers as shall be reasonably
 acceptable to the Bank.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP COLSPAN=2>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
 Guaranty and Security Agreement, each duly executed by a duly authorized
 officer (or officers) of Electromed Financial, LLC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>

 <TD VALIGN=TOP colspan=3>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Opinion</U>. The Borrower shall have
 requested Kelly, Hannaford &amp; Battles, P.A., its counsel, to prepare a
 written opinion, addressed to the Bank and dated the Closing Date, covering
 the matters set forth in Exhibit D hereto, and such opinion shall have been
 delivered to the Bank.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>

 <TD VALIGN=TOP colspan=3>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compliance</U>. The Borrower shall have performed and complied
 with all agreements, terms and conditions contained in this Agreement
 required to be performed or complied with by the Borrower prior to or
 simultaneously with the Closing Date.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>

 <TD VALIGN=TOP colspan=3>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Security Documents</U>. All Security Documents (or financing statements
 with respect thereto) shall have been appropriately filed or recorded
 to the satisfaction of the Bank; any pledged collateral shall have been duly
 delivered to the Bank; any title insurance required by the Bank (with
 endorsements required by the Bank) shall have been obtained and be satisfactory to the Bank; and the priority and
 perfection of the Liens created by the Security Documents shall have
 been established to the satisfaction of the Bank
 and its counsel.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>

 <TD VALIGN=TOP colspan=3>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other Matters</U>. All corporate and legal proceedings relating
 to the Borrower and all instruments and agreements in connection with
 the transactions contemplated by this
 Agreement shall be satisfactory in scope, form and substance to the Bank
 and its counsel, and the Bank shall have received all information and copies
 of all documents, including records of corporate proceedings, as the Bank or
 its counsel may reasonably have requested
 in connection therewith, such documents where appropriate to be
 certified by proper corporate or governmental authorities.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>

 <TD VALIGN=TOP colspan=3>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Fees and Expenses</U>. The Bank shall have received all fees and
 other amounts due and payable by the Borrower on or prior to the
 Closing Date, including (i) an
 origination fee in the amount of $30,100;and (ii) the reasonable fees and
 expenses of counsel to the Bank payable pursuant to Section 8.3.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=4 VALIGN=TOP>
 <P><FONT SIZE=2>Any one or more of the
 conditions set forth above which have not been satisfied by the Borrower on
 or prior to the date of disbursement of the initial Loan under this Agreement
 shall not be deemed permanently waived by the Bank unless the Bank shall
 waive the same in a writing which expressly states that the waiver is
 permanent, and in all cases in which the waiver is not stated to be permanent
 the Bank may at any time subsequent thereto insist upon compliance and
 satisfaction of any such condition as a condition to any subsequent Loan
 hereunder and failure by the Borrower to
 comply with any such condition within five (5) Business Day&#146;s written notice from
 the Bank to the Borrower shall constitute an Event of Default under this
 Agreement.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>17</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="85%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=4 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 3.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Conditions Precedent to all Loans</U>.
 The obligation of the Bank to make any
 Loans hereunder (including the Term Loan and the initial Revolving Loan)
 shall be subject to fulfillment of the following conditions:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=4 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>

 <TD VALIGN=TOP colspan=3>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Representations and
 Warranties</U>. The
 representations and warranties contained
 in Article IV shall be true and correct on and as of the Closing Date and on
 the date of each Revolving Loan with the same force and effect as if
 made on such date.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>

 <TD VALIGN=TOP colspan=3>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No Default</U>. No Default or Event of Default shall have
 occurred and be continuing on the
 Closing Date and on the date of each Revolving Loan or will exist after giving
 effect to the Loans made on such date.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>

 <TD VALIGN=TOP colspan=3>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notices and Requests</U>. The Bank shall have received the Borrower&#148;s request
 for such Loan as required under Section 2.2.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE IV <BR>
REPRESENTATIONS AND WARRANTIES</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
induce the Bank to enter into this Agreement and to make Loans hereunder, the Borrower
represents and warrants to the Bank:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Organization, Standing, Etc</U>. The
Borrower is a corporation duly incorporated and validly existing and in
good standing under the laws of the jurisdiction named in the opening paragraph hereof and has all requisite power and
authority to carry on its business as now conducted, to enter into this
Agreement and to issue the Notes and to perform its obligations under the Borrower Loan Documents. The Borrower (a) holds
all certificates of authority, licenses and permits necessary to carry
on its business as presently conducted in each jurisdiction in which it is
carrying on such business, except where the failure to hold such certificates,
licenses or permits would not constitute a Material Adverse Occurrence and (b)
is duly qualified and in good standing as a foreign corporation (or other
organization) in each jurisdiction in which the character of the properties
owned, leased or operated by it or the business conducted by it makes such
qualification necessary and the failure so to qualify would permanently preclude the Borrower from enforcing
its rights with respect to any assets or expose the Borrower to any
Material Adverse Occurrence.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Authorization and Validity</U>. The
execution, delivery and performance by the Borrower of the Borrower Loan
Documents have been duly authorized by all necessary corporate action by the Borrower. This Agreement constitutes, and the
Notes and other Borrower Loan Documents when executed will constitute,
the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their
respective terms, subject to limitations as to enforceability which might
result from bankruptcy, insolvency, moratorium and other similar laws affecting creditors&#146; rights
generally and subject to limitations on the availability of equitable
remedies.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No Conflict; No Default</U>. The execution,
delivery and performance by the Borrower of
the Borrower Loan Documents will not (a) violate any provision of any law,
statute, rule or regulation or any order, writ, judgment, injunction, decree,
determination or award of any court, governmental agency or arbitrator
presently in effect having applicability to the Borrower,</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>18</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>(b) violate or contravene any provision of the
Articles of Incorporation, bylaws or partnership agreement of the Borrower, or
(c) result in a breach of or constitute a default under any indenture, loan or
credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or any of its
properties may be bound or result in the creation of any Lien thereunder. The Borrower is not in
default under or in violation of any such law, statute, rule or
regulation, order, writ, judgment, injunction, decree, determination or award
or any such indenture, loan or credit
agreement or other agreement, lease or instrument in any case in which
the consequences of such default or violation could constitute a Material
Adverse Occurrence.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Government Consent</U>. No order, consent,
approval, license, authorization or validation of, or filing, recording or
registration with, or exemption by, any governmental or public body or
authority is required on the part of the Borrower to authorize, or is required
in connection with the execution, delivery and performance of, or the legality,
validity, binding effect or enforceability of, the Borrower Loan Documents,
except for any necessary filing or recordation of or with respect to any of the
Security Documents.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Financial Statements and Condition</U>. The
Borrower&#146;s audited financial statements as at June 30, 2009, as
heretofore furnished to the Bank, have been prepared in accordance with GAAP on
a consistent basis (except for the absence of footnotes and subject to year-end audit adjustments as to the interim
statements) and fairly present the financial condition of the Borrower as at
such dates and the results of its operations and changes in financial position for
the respective periods then ended. As of the dates of such financial
statements, the Borrower had no material obligation, contingent liability,
liability for taxes or long-term lease obligation which is not reflected in such financial statements or in the notes
thereto. Since June 30, 2009, there has been no Material Adverse
Occurrence.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Litigation</U>. There are no actions, suits
or proceedings pending or, to the knowledge
of the Borrower, threatened against or affecting the Borrower or any of its
properties before any court or arbitrator, or any governmental
department, board, agency or other instrumentality which, if determined
adversely to the Borrower, would constitute a Material Adverse Occurrence, and
there are no unsatisfied judgments against the Borrower, the satisfaction or
payment of which would constitute a Material Adverse Occurrence.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Environmental, Health and Safety Laws</U>.
There does not exist any violation
by the Borrower of any applicable federal, state or local law, rule or
regulation or order of any government, governmental department, board,
agency or other instrumentality relating to environmental, pollution, health or
safety matters which has, will or threatens to impose a material liability on
the Borrower or which has required or would require a material expenditure by the Borrower to cure. The Borrower has not
received any notice to the effect that any part of its operations or
properties is not in material compliance with any such law, rule, regulation or
order or notice that it or its property is the subject of any governmental
investigation evaluating whether any remedial action is needed to respond to
any release of any toxic or hazardous waste or
substance into the environment, which non-compliance or remedial action could
reasonably be expected to constitute
a Material Adverse Occurrence. The Borrower does not have knowledge that
it or its property will become subject to environmental laws or regulations
during the term of</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>19</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>this Agreement, compliance with
which could reasonably be expected to require Capital Expenditures which
would constitute a Material Adverse Occurrence.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>ERISA</U>. Each Plan is in substantial
compliance with all applicable requirements of ERISA and the Code and
with all material applicable rulings and regulations issued under the provisions of ERISA and the Code setting forth those
requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. All of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
reasonably be expected to result in the institution of proceedings to terminate
any Plan under Section 4042 of ERISA. With respect to each Plan subject to
Title IV of ERISA, as of the most recent valuation date for such Plan, the
present value (determined on the basis of reasonable assumptions employed by
the independent actuary for such Plan and previously furnished in writing to
the Bank) of such Plan&#146;s projected benefit obligations did not exceed the fair
market value of such Plan&#146;s assets.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Federal Reserve Regulations</U>. The
Borrower is not engaged principally or as
one of its important activities in the business of extending credit for the
purpose of purchasing or carrying
margin stock (as defined in Regulation U of the Board). The value of all margin
stock owned by the Borrower does not
constitute more than 25% of the value of the assets of the Borrower.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Title to Property; Leases; Liens;
Subordination</U>. The Borrower has (a) good and marketable title to its
real properties and (b) good and sufficient title to, or valid, subsisting and
enforceable leasehold interest in, its other material properties, including all
real properties, other properties and assets, referred to as owned by the
Borrower in the most recent financial statement referred to in Section 5.1
(other than property disposed of since the date of such financial statements in
the ordinary course of business). None of such properties is subject to a Lien, except as allowed under Section 6.12.
The Borrower has not subordinated any of its rights under any obligation
owing to it to the rights of any other person.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Taxes</U>. The Borrower has filed all
federal, state and local tax returns required
to be filed and has paid or made provision for the payment of all taxes due and
payable pursuant to such returns and pursuant to any assessments made
against it or any of its property and all other taxes, fees and other charges
imposed on it or any of its property by any governmental authority (other than
taxes, fees or charges the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in accordance with GAAP have been provided on the books of the
Borrower). No tax Liens have been filed and no material claims are being
asserted with respect to any such taxes, fees
or charges. The charges, accruals and reserves on the books of the Borrower in
respect of taxes and other governmental charges are adequate and the
Borrower knows of no proposed material tax assessment against it or any basis
therefor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Trademarks, Patents</U>. The Borrower
possesses or has the right to use all of the patents, trademarks, trade names,
service marks and copyrights, and applications therefor, and all technology,
know-how, processes, methods and designs used in or necessary for the conduct
of its business, without known conflict with the rights of others.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>20</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Burdensome
Restrictions</U>. The Borrower is not a party to or otherwise bound by any
indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any charter, corporate or partnership restriction
which would foreseeably constitute a Material Adverse Occurrence.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Force
Majeure</U>. Since the date of the most recent financial statement referred to
in Section 5.1, the business, properties and other assets of the Borrower have
not been materially and adversely affected in any way as the result of any fire
or other casualty, strike, lockout, or other labor trouble, embargo, sabotage,
confiscation, condemnation, riot, civil disturbance, activity of armed forces
or act of God.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Investment
Company Act</U>. The Borrower is not an &#147;investment company&#148; or a company
&#147;controlled&#148; by an investment company within the meaning of the Investment
Company Act of 1940, as amended.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Public
Utility Holding Company Act</U>. The Borrower is not a &#147;holding company&#148; or a
&#147;subsidiary company&#148; of a holding company or an &#147;affiliate&#148; of a holding
company or of a subsidiary company of a holding company within the meaning of
the Public Utility Holding Company Act of 1935, as amended.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Retirement
Benefits</U>. Except as required under Section 4980B of the Code, Section 601
of ERISA or applicable state law, neither the Borrower nor any Subsidiary is
obligated to provide post-retirement medical or insurance benefits with respect
to employees or former employees.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.18&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Full
Disclosure</U>. Subject to the following sentence, neither the financial
statements referred to in Section 5.1 nor any other certificate, written
statement, exhibit or report furnished by or on behalf of the Borrower in
connection with or pursuant to this Agreement contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements contained therein not misleading. Certificates or statements
furnished by or on behalf of the Borrower to the Bank consisting of projections
or forecasts of future results or events have been prepared in good faith and
based on good faith estimates and assumptions of the management of the
Borrower, and the Borrower has no reason to believe that such projections or
forecasts are not reasonable.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.19&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Subsidiaries</U>.
The Borrower has one Subsidiary, Electromed Financial, LLC, a Minnesota limited
liability company.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.20&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Labor
Matters</U>. There are no pending or threatened strikes, lockouts or slowdowns
against the Borrower. The Borrower has not been or is in violation in any
material respect of the Fair Labor Standards Act or any other applicable
Federal, state, local or foreign law dealing with such matters. All payments
due from the Borrower on account of wages and employee health and welfare
insurance and other benefits (in each case, except for de minimus amounts),
have been paid or accrued as a liability on the books of the Borrower. The
consummation of the transactions contemplated under the Loan Documents will not
give rise to any right of termination or right of renegotiation on the part of
any union under any collective bargaining agreement to which the Borrower is
bound.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>21</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.21&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Solvency</U>.
After the making of any Loan and after giving effect thereto, (a) the fair
value of the assets of the Borrower, at a fair valuation, will exceed its debts
and liabilities, subordinated, contingent or otherwise; (b) the present fair
saleable value of the property of the Borrower will be greater than the amount
that will be required to pay the probable liability of its debts and other
liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured; (c) the Borrower will be able to pay
its debts and liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured; and (d) the Borrower will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is proposed to be conducted following the Closing
Date.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE
V <BR>
AFFIRMATIVE COVENANTS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until
any obligation of the Bank hereunder to make the Term Loan and Revolving Loans
shall have expired or been terminated and the Notes and all of the other
Obligations have been paid in full, unless the Bank shall otherwise consent in
writing:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Financial
Statements and Reports</U>. The Borrower will furnish to the Bank:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
 soon as available and in any event within 120 days after the end of each
 fiscal year of the Borrower, the audited financial statements of the Borrower
 consisting of at least statements of income, cash flow and changes in
 stockholders&#146; equity, and a balance sheet as at the end of such year, setting
 forth in each case in comparative form corresponding figures from the
 previous annual audit, certified without qualification by Larson Allen LLC or
 other independent certified public accountants of recognized national
 standing selected by the Borrower and acceptable to the Bank, together with
 any management letters, management reports or other supplementary comments or
 reports to the Borrower or its board of directors furnished by such
 accountants.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
 soon as available and in any event within 30 days after the end of each
 fiscal quarter, unaudited statements of income, cash flow and changes in
 stockholders&#146; equity for the Borrower for such quarter and for the period
 from the beginning of such fiscal year to the end of such quarter, and a
 balance sheet of the Borrower as at the end of such quarter, setting forth in
 comparative form figures for the corresponding period for the preceding
 fiscal year, accompanied by a certificate signed by the chief financial
 officer of the Borrower stating that such financial statements present fairly
 the financial condition of the Borrower and that the same have been prepared
 in accordance with GAAP (except for the absence of footnotes and subject to
 year-end audit adjustments as to the interim statements).</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
 soon as practicable and in any event within 30 days after the end of each
 fiscal quarter, a Compliance Certificate in the form attached hereto as
 Exhibit G signed by the chief financial officer of the Borrower demonstrating
 in reasonable detail compliance (or noncompliance, as the case may be) with
 Sections 6.14 and Section 6.15 as at the end of such quarter and stating that
 as at the end of such quarter there did not</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>22</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>exist any Default or Event of Default or, if such
 Default or Event of Default existed, specifying the nature and period of
 existence thereof and what action the Borrower proposes to take with respect
 thereto.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
 soon as practicable and in any event within 30 days after the end of each
 month, a Borrowing Base Certificate signed by the chief financial officer of
 the Borrower, reporting (i) the Borrowing Base as of the last day of the
 month just ended, (ii) gross monthly A/R billings; and (iii) levels of
 dilutive write-offs to receivables.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
 soon as practicable and in any event within 30 days after the beginning of
 each fiscal year of the Borrower, statements of forecasted income for the
 Borrower for each fiscal month in such fiscal year and a forecasted balance
 sheet of the Borrower, together with supporting assumptions, as at the end of
 each fiscal month, all in reasonable detail and reasonably satisfactory in
 scope to the Bank.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Immediately
 upon any officer of the Borrower becoming aware of any Default or Event of
 Default, a notice describing the nature thereof and what action Borrower
 proposes to take with respect thereto.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Immediately
 upon any officer of the Borrower becoming aware of the occurrence, with
 respect to any Plan, of any Reportable Event or any Prohibited Transaction, a
 notice specifying the nature thereof and what action the Borrower proposes to
 take with respect thereto, and, when received, copies of any notice from PBGC
 of intention to terminate or have a trustee appointed for any Plan.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Immediately
 upon any officer of the Borrower becoming aware of any matter that has
 resulted or is reasonably likely to result in a Material Adverse Occurrence,
 a notice from the Borrower describing the nature thereof and what action
 Borrower proposes to take with respect thereto.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Immediately
 upon any officer of the Borrower becoming aware of (i) the commencement of
 any action, suit, investigation, proceeding or arbitration before any court
 or arbitrator or any governmental department, board, agency or other
 instrumentality affecting the Borrower or any property of such Person, or to
 which the Borrower is a party (other than litigation where the insurance
 insures against the damages claimed and the insurer has assumed defense of
 the litigation without reservation) and in which an adverse determination or
 result could constitute a Material Adverse Occurrence; or (ii) any adverse
 development which occurs in any litigation, arbitration or governmental
 investigation or proceeding previously disclosed by the Borrower which, if
 determined adversely to the Borrower would constitute a Material Adverse
 Occurrence, a notice from the Borrower describing the nature and status
 thereof and what action the Borrower proposes to take with respect thereto.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
 required pursuant to Section 5.3, proof of insurance as requested by the
 Bank.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Promptly
 upon the mailing or filing thereof, copies of all financial statements,
 reports and proxy statements mailed to the Borrower&#146;s shareholders, and</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>23</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>copies of all registration statements, periodic
 reports and other documents filed with the Securities and Exchange Commission
 (or any successor thereto) or any national securities exchange.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
 time to time, such other information regarding the business, operation and
 financial condition of the Borrower as the Bank may reasonably request.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Existence</U>.
The Borrower will maintain its corporate existence in good standing under the
laws of its jurisdiction of organization and its qualification to transact
business in each jurisdiction where failure so to qualify would permanently
preclude the Borrower from enforcing its rights with respect to any material
asset or would expose the Borrower to any material liability.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Insurance</U>.
The Borrower shall maintain with financially sound and reputable insurance
companies such insurance as may be required by law and such other insurance in
such amounts and against such hazards as is customary in the case of reputable
firms engaged in the same or similar business and similarly situated. Without
limiting the generality of the foregoing, with respect to the property covered
by the Mortgage, the Borrower shall obtain, maintain and keep in full force and
effect policies of insurance as described in, and meeting the requirements set
forth in, <U>Exhibit H</U> attached hereto. Upon request of the Bank and in any
event not later than one hundred twenty (120) days after the end of each
calendar year, the Borrower shall furnish to the Bank copies of policies of
insurance meeting the requirements set forth in this Section and shall furnish
to the Bank proof of payment of all premiums for such insurance. At least ten (10)
days prior to the termination of any such coverage, the Borrower shall provide
the Bank with evidence satisfactory to the Bank that such coverage will be
renewed or replaced upon termination with insurance that complies with the
provisions of this Section. The Borrower, at its sole cost and expense, from
time to time when the Bank shall so request, will provide the Bank with
evidence, in a form acceptable to the Bank, of the full insurable replacement
cost of the property covered by the Mortgage. All property (including boiler
and machinery) and liability insurance policies maintained by the Borrower
pursuant to this Section shall (i) include effective waivers by the insurer of
all claims for insurance premiums against the Bank, and (ii) provide that any
losses shall be payable notwithstanding (a) any act of negligence by the
Borrower or the Bank, (b) any foreclosure or other proceedings or notice of
foreclosure sale relating to the property covered by the Mortgage, or (c) any
release from liability or waiver of subrogation rights granted by the insured.
All insurance policies maintained by the Borrower pursuant to the foregoing
provisions shall respond on a primary basis relative to any other insurance
carried by the Bank in the event of loss. Insurance terms not otherwise defined
herein shall be interpreted consistent with insurance industry usage.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Payment of
Taxes and Claims</U>. The Borrower shall file all tax returns and reports which
are required by law to be filed by it and will pay before they become
delinquent all taxes, assessments and governmental charges and levies imposed
upon it or its property and all claims or demands of any kind (including but
not limited to those of suppliers, mechanics, carriers, warehouses, landlords
and other like Persons) which, if unpaid, might result in the creation of a
Lien upon its property; provided that the foregoing items need not be paid if
they are being contested in good faith by appropriate proceedings, and as long
as the Borrower&#146;s title to its property is not materially adversely affected,
its use of such property in the ordinary course</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>24</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>of its business is not materially interfered with and
adequate reserves with respect thereto have been set aside on Borrower&#146;s books
in accordance with GAAP.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Inspection</U>.
The Borrower shall permit any Person designated by the Bank to visit and
inspect any of the properties, books and financial records of the Borrower, to
examine and to make copies of the books of accounts and other financial records
of the Borrower, and to discuss the affairs, finances and accounts of the
Borrower with, and to be advised as to the same by, its officers at such
reasonable times and intervals as the Bank may designate.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Maintenance
of Properties</U>. The Borrower will maintain its properties used or useful in
the conduct of its business in good condition, repair and working order, and
supplied with all necessary equipment, and make all necessary repairs, renewals,
replacements, betterments and improvements thereto, all as may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sections
5.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Books and
Records</U>. The Borrower will keep adequate and proper records and books of
account in which full and correct entries will be made of its dealings,
business and affairs.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compliance</U>.
The Borrower will comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject; provided, however, that failure so to comply shall not be a
breach of this covenant if such failure does not constitute a Material Adverse
Occurrence and the Borrower is acting in good faith and with reasonable
dispatch to cure such noncompliance.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>ERISA</U>.
The Borrower will maintain each Plan in compliance with all material applicable
requirements of ERISA and of the Code and with all applicable rulings and
regulations issued under the provisions of ERISA and of the Code and will not,
and will not permit any of the ERISA Affiliates to (a) engage in any
transaction in connection with which the Borrower or any of the ERISA Affiliates
would be subject to either a civil penalty assessed pursuant to Section 502(i)
of ERISA or a tax imposed by Section 4975 of the Code, in either case in an
amount exceeding $50,000, (b) fail to make full payment when due of all amounts
which, under the provisions of any Plan, the Borrower any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any accumulated
funding deficiency (as such term is defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, with respect to any Plan in an
aggregate amount exceeding $50,000 or (c) fail to make any payments in an
aggregate amount exceeding $50,000 to any Multiemployer Plan that the Borrower
or any of the ERISA Affiliates may be required to make under any agreement
relating to such Multiemployer Plan or any law pertaining thereto.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Environmental Matters;
Reporting</U>. The Borrower will observe and comply with all laws, rules,
regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters
to the extent non-compliance could result in a material liability or otherwise
constitute a Material Adverse Occurrence. The Borrower will give the Bank
prompt written notice of any violation as to any environmental matter by the
Borrower and of the commencement of any judicial or</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>25</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>administrative proceeding relating to health, safety
or environmental matters (a) in which an adverse determination or result could result
in the revocation of or have a material adverse effect on any operating
permits, air emission permits, water discharge permits, hazardous waste permits
or other permits held by the Borrower which are material to the operations of
the Borrower, or (b) which will or threatens to impose a material liability on
the Borrower to any Person or which will require a material expenditure by the
Borrower to cure any alleged problem or violation.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Further Assurances</U>.
The Borrower shall promptly correct any defect or error that may be discovered
in any Loan Document or in the execution, acknowledgment or recordation
thereof. Promptly upon request by the Bank, the Borrower also shall do,
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all deeds, conveyances, mortgages, deeds of trust, trust
deeds, assignments, estoppel certificates, financing statements and
continuations thereof, notices of assignment, transfers, certificates, assurances
and other instruments as the Bank may reasonable require from time to time in
order: (a) to carry out more effectively the. purposes of the Loan Documents;
(b) to perfect and maintain the validity, effectiveness and priority of any
security interests intended to be created by the Loan Documents including,
without limitation, the delivery of a landlord waiver from any landlord
required by the Bank; and (c) to better assure, convey, grant, assign,
transfer, preserve, protect and confirm unto the Bank the rights granted now or
hereafter intended to be granted to the Bank under any Loan Document or under
any other instrument executed in connection with any Loan Document or that the
Borrower may be or become bound to convey, mortgage or assign to the Bank in order
to carry out the intention or facilitate the performance of the provisions of
any Loan Document. The Borrower shall furnish to the Bank evidence satisfactory
to the Bank of every such recording, filing or registration.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compliance with Terms of
Material Contracts</U>. The Borrower shall make all payments and otherwise
perform all material obligations in respect of all material contracts to which
the Borrower is a party.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE VI <BR>
NEGATIVE COVENANTS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until
any obligation of the Bank hereunder to make the Term Loan and Revolving Loans
shall have expired or been terminated and the Notes and all of the other
Obligations have been paid in full, unless the Bank shall otherwise consent in
writing:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Merger</U>.
The Borrower will not merge or consolidate or enter into any analogous
reorganization or transaction with any Person or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution).</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Disposition of
Assets</U>. The Borrower will not directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one transaction or a
series of transactions) any property (including accounts and notes receivable,
with or without recourse) or enter into any agreement to do any of the
foregoing, except:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;dispositions
 of inventory, or used, worn-out or surplus equipment, all in the ordinary
 course of business; and</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>26</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the
 sale of equipment to the extent that such equipment is exchanged for credit
 against the purchase price of similar replacement equipment, or the proceeds
 of such sale are applied with reasonable promptness to the purchase price of
 such replacement equipment.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Plans</U>.
The Borrower will not permit any event to occur or condition to exist which
would permit any Plan to terminate under any circumstances which would cause
the Lien provided for in Section 4068 of ERISA to attach to any assets of the
Borrower; and the Borrower will not permit, as of the most recent valuation
date for any Plan subject to Title IV of ERISA, the present value (determined
on the basis of reasonable assumptions employed by the independent actuary for
such Plan and previously furnished in writing to the Bank) of such Plan&#146;s
projected benefit obligations to exceed the fair market value of such Plan&#146;s
assets.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Change in
Nature of Business</U>. The Borrower will not make any material change in the
nature of the business of the Borrower, as carried on at the date hereof.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Subsidiaries</U>.
The Borrower will not form or acquire any corporation which would thereby
become a Subsidiary.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Negative
Pledges</U>. The Borrower will not enter into any agreement, bond, note or
other instrument with or for the benefit of any Person other than the Bank
which would (i) prohibit the Borrower from granting, or otherwise limit the
ability of the Borrower to grant, to the Bank any Lien on any assets or
properties of the Borrower, or (ii) require the Borrower to grant a Lien to any
other Person if the Borrower grants any Lien to the Bank.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Restricted
Payments</U>. The Borrower will not make any Restricted Payments.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Transactions
with Affiliates</U>. The Borrower will not enter into any transaction with any
Affiliate of the Borrower, except upon fair and reasonable terms no less
favorable than the Borrower would obtain in a comparable arm&#146;s-length
transaction with a Person not an Affiliate.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Accounting
Changes</U>. The Borrower will not make any significant change in accounting
treatment or reporting practices, except as required by GAAP, or change its fiscal
year.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Subordinated Debt</U>.
The Borrower will not (a) make any payment of the principal of or interest on
any Subordinated Debt which would be prohibited by the terms of any
subordination agreement related to such Subordinated Debt; (b) amend or cancel
the subordination provisions applicable to any Subordinated Debt; (c) take or
omit to take any action if as a result of such action or omission the
subordination of such Subordinated Debt, or any part thereof, to the Obligations
might be terminated, impaired or adversely affected; or (d) omit to give the
Bank prompt notice of any notice received from any holder of Subordinated Debt,
or any trustee therefor, or of any default under any agreement or instrument
relating to any Subordinated Debt by reason whereof such Subordinated Debt
might become or be declared to be due or payable.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>27</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Indebtedness</U>. The
Borrower will not incur, create, issue, assume or suffer to exist any
Indebtedness, except:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Obligations.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Current
 Liabilities, other than for borrowed money, incurred in the ordinary course
 of business.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indebtedness
 existing on the date of this Agreement and previously disclosed to the Bank,
 but not including any extension or refinancing thereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subordinated
 Debt in the form of debentures not to exceed $2,500,000 in the aggregate:</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="15%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="80%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(i)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>which U.S. Bank was given a right of first refusal
 to provide on terms and conditions substantially similar to such Indebtedness
 as issued;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(ii)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>which after giving effect to such Subordinated Debt,
 would not cause the Fixed Charge Coverage Ratio, as of the date of issuance
 for the preceding four fiscal quarters, to be less than 1.20 to 1.0;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(iii)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>which after giving effect to such Subordinated Debt,
 would not cause, in the Bank&#146;s reasonable judgment, a projected Default or an
 Event of Default under Sections 6.15 or 6.16 in any of the four fiscal
 quarters ending on or after the date of issuance;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(iv)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>which imposes covenants on the Borrower, financial
 or otherwise, which are no more restrictive than the covenants set forth in
 this Credit Agreement; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(v)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>which was issued at a time when no Default or Event
 of Default has occurred and is continuing.</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indebtedness
 secured by Liens permitted under Section 6.12 hereof.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Liens</U>.
The Borrower will not create, incur, assume or suffer to exist any Lien, or
enter into, or make any commitment to enter into, any arrangement for the
acquisition of any property through conditional sale, lease-purchase or other
title retention agreements, with respect to any property now owned or hereafter
acquired by the Borrower, except:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liens
 granted to the Bank under the Security Documents to secure the Obligations.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liens
 existing on the date of this Agreement and previously disclosed to the Bank.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>28</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deposits
 or pledges to secure payment of workers&#146; compensation, unemployment
 insurance, old age pensions or other social security obligations, in the
 ordinary course of business of the Borrower.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liens
 for taxes, fees, assessments and governmental charges not delinquent or to
 the extent that payment therefor shall not at the time be required to be made
 in accordance with the provisions of Section 5.4.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liens
 of carriers, warehousemen, mechanics and materialmen, and other like Liens
 arising in the ordinary course of business, for sums not due or to the extent
 that payment therefor shall not at the time be required to be made in
 accordance with the provisions of Section 5.4.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liens
 incurred or deposits or pledges made or given in connection with, or to
 secure payment of, indemnity, performance or other similar bonds.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liens
 arising solely by virtue of any statutory or common law provision relating to
 banker&#146;s liens, rights of set-off or similar rights and remedies as to
 deposit accounts or other funds maintained with a creditor depository
 institution; <U>provided</U> <U>that</U> (i) such deposit account is not a dedicated
 cash collateral account and is not subject to restriction against access by
 the Borrower in excess of those set forth by regulations promulgated by the
 Board, and (ii) such deposit account is not intended by the Borrower to
 provide collateral to the depository institution.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Encumbrances
 in the nature of zoning restrictions, easements and rights or restrictions of
 record on the use of real property and landlord&#146;s Liens under leases on the
 premises rented, which do not materially detract from the value of such
 property or impair the use thereof in the business of the Borrower.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 interest of any lessor under any Capitalized Lease entered into after the
 Closing Date or purchase money Liens on property acquired after the Closing
 Date; provided, that, (i) the Indebtedness secured thereby is otherwise
 permitted by this Agreement and (ii) such Liens are limited to the property
 acquired and do not secure Indebtedness other than the related Capitalized
 Lease Obligations or the purchase price of such property.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Contingent
Liabilities</U>. The Borrower will not be or become liable on any Contingent
Obligations.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Fixed Charge
Coverage Ratio</U>. The Borrower will not permit the Fixed Charge Coverage
Ratio, as of the last day of any fiscal quarter for the four consecutive fiscal
quarters ending on that date to be less than 1.2 to 1.0.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Total Cash
Flow Leverage Ratio</U>. The Borrower will not permit the Total Cash Flow
Leverage Ratio, as of the last day of any fiscal quarter, to be more than 3.5
to 1.0.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Loan
Proceeds</U>. The Borrower will not use any part of the proceeds of the Loans
or Advances directly or indirectly, and whether immediately, incidentally or
ultimately,</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>29</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>(a) to purchase or carry margin stock (as defined in
Regulation U of the Board) or to extend credit to others for the purpose of
purchasing or carrying margin stock or to refund Indebtedness originally
incurred for such purpose or (b) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of Regulations U or X of the
Board.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Key-Man Life
Insurance</U>. The Borrower shall have obtained a key-man life insurance policy
on the life of Robert D. Hansen in the face amount of $3,000,000, which policy
shall be in full force and effect as of the Closing Date. Within sixty days
after the date hereof, such insurance policy shall name the Bank as the
beneficiary and shall provide that such insurance policies may not be canceled
unless the insurance carrier gives at least 30 days prior written notice of
such cancellation to the beneficiary.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.18&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Lockbox;
Bank Accounts</U>. As of the Closing Date, the Borrower shall direct each
Account Debtor (as such term is defined in the Security Agreement) that is a
Government Entity to remit payments with respect to Accounts (as such term is
defined in the Security Agreement) to the Governmental Entity Receivables
Account. At the Bank&#146;s sole discretion and direction, the Borrower shall direct
each Account Debtor that is not a Government Entity to remit payments with
respect to Accounts to a lockbox and/or a lockbox account established with the
Bank. The Borrower shall not make any change in its instructions to any Account
Debtor regarding payments to be made to any such box or account.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Borrower, and all of the Borrower&#146;s Subsidiaries, shall maintain the Borrower&#146;s
and such Subsidiaries&#146; primary depository and operating accounts and securities
accounts with the Bank. The Borrower shall identify to the Bank, in writing,
any deposit or securities account opened by the Borrower with any institution
other than the Bank. In addition, for each such account that the Borrower at
any time opens or maintains, the Borrower shall, at the Bank&#146;s request and
option, pursuant to an agreement in form and substance acceptable to the Bank,
cause the depository bank or securities intermediary to agree that such account
is the collateral of the Bank. The provisions of the previous sentence shall
not apply to deposit accounts exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of the
Borrower&#146;s employees.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.19&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Management</U>. In no event shall Robert D. Hansen or Terry M. Belford cease to be chief
executive officer or chief financial officer, respectively.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.20&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Collateral
Exam</U>. The Borrower shall permit the Bank to make annual collateral
examinations as provided in the Security Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.21&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Revolving
Commitment</U>. The Borrower shall not permit the Revolving Commitment to
expire or terminate.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.22&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Medicaid/Medicare
Certification</U>. The Borrower shall remain at all times an enrolled
participating provider or supplier in the Medicare program and any other
federal or state health care programs in which the Borrower is enrolled as a
participating provider or supplier as of the Closing Date, and none of the
Borrower&#146;s enrollments or participating provider or supplier agreements in such
programs, nor its status as a participating provider or supplier in such
programs may terminate, either voluntarily or involuntarily.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>30</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.23&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Sale and
Leaseback Transactions</U>. The Borrower will not enter into any arrangement,
directly or indirectly, whereby it shall sell or transfer any property, real or
personal, and thereafter lease such property for the same or a substantially
similar purpose or purposes as the property sold or transferred.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.24&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Hedging
Agreements</U>. The Borrower will not enter into any hedging arrangements,
other than any Rate Protection Agreements.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE VII<BR>
EVENTS OF DEFAULT AND REMEDIES</B></FONT></P>

<P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
7.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Events of Default</U>. The occurrence of any one or more of the following events shall
constitute an Event of Default: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="96%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Borrower shall fail to make when due, whether by acceleration or otherwise,
 any payment of principal of or interest on either Note or any other
 Obligation required to be made to the Bank pursuant to this Agreement.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 representation or warranty made by or on behalf of the Borrower in this
 Agreement or any other Loan Document or by or on behalf of the Borrower in
 any certificate, statement, report or document herewith or hereafter
 furnished to the Bank pursuant to this Agreement or any other Loan Document
 shall prove to have been false or misleading in any material respect on the
 date as of which the facts set forth are stated or certified.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Borrower shall fail to comply with Sections 5.2 or 5.3 hereof or any Section
 of Article VI hereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Borrower shall fail to comply with any other agreement, covenant, condition,
 provision or term contained in this Agreement (other than those hereinabove
 set forth in this Section 7.1) and such failure to comply shall continue for
 30 calendar days after whichever of the following dates is the earliest: (i)
 the date the Borrower gives notice of such failure to the Bank, (ii) the date
 the Borrower should have given notice of such failure to the Bank pursuant to
 Section 5.1, or (iii) the date the Bank gives notice of such failure to the
 Borrower.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 default (however denominated or defined) shall occur under any Security
 Document.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Borrower shall become insolvent or shall generally not pay its debts as they
 mature or shall apply for, shall consent to, or shall acquiesce in the
 appointment of a custodian, trustee or receiver of the Borrower or for a
 substantial part of the property thereof or, in the absence of such
 application, consent or acquiescence, a custodian, trustee or receiver shall
 be appointed for the Borrower or for a substantial part of the property
 thereof and shall not be discharged within 45 days, or the Borrower shall
 make an assignment for the benefit of creditors.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>31</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 bankruptcy, reorganization, debt arrangement or other proceedings under any
 bankruptcy or insolvency law shall be instituted by or against the Borrower,
 and, if instituted against the Borrower, shall have been consented to or acquiesced
 in by the Borrower, or shall remain undismissed for 60 days, or an order for
 relief shall have been entered against the Borrower.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 dissolution or liquidation proceeding shall be instituted by or against the
 Borrower, and, if instituted against the Borrower, shall be consented to or
 acquiesced in by the Borrower or shall remain for 45 days undismissed.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
 judgment or judgments for the payment of money in excess of the sum of
 $25,000 in the aggregate shall be rendered against the Borrower and either
 (i) the judgment creditor executes on such judgment or (ii) such judgment
 remains unpaid or undischarged for more than 60 days from the date of entry
 thereof or such longer period during which execution of such judgment shall
 be stayed during an appeal from such judgment.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 maturity of any material Indebtedness of the Borrower (other than
 Indebtedness under this Agreement) shall be accelerated, or the Borrower
 shall fail to pay any such material Indebtedness when due (after the lapse of
 any applicable grace period) or, in the case of such Indebtedness payable on
 demand, when demanded (after the lapse of any applicable grace period), or
 any event shall occur or condition shall exist and shall continue for more
 than the period of grace, if any, applicable thereto and shall have the
 effect of causing, or permitting the holder of any such Indebtedness or any
 trustee or other Person acting on behalf of such holder to cause, such
 material Indebtedness to become due prior to its stated maturity or to
 realize upon any collateral given as security therefor. For purposes of this
 Section, Indebtedness of the Borrower shall be deemed &#147;material&#148; if it
 exceeds $25,000 as to any item of Indebtedness or in the aggregate for all
 items of Indebtedness with respect to which any of the events described in
 this Section 7.1(j) has occurred.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 execution or attachment shall be issued whereby any substantial part of the
 property of the Borrower shall be taken or attempted to be taken and the same
 shall not have been vacated or stayed within 30 days after the issuance
 thereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 Security Document shall, at any time, cease to be in full force and effect or
 shall be judicially declared null and void, or the validity or enforceability
 thereof shall be contested by the Borrower, or the Bank shall cease to have a
 valid and perfected security interest having the priority contemplated
 thereunder in all of the collateral described therein, other than by action
 or inaction of the Bank if (i) the aggregate value of the collateral affected
 by any of the foregoing exceeds $25,000 and (ii) any of the foregoing shall
 remain unremedied for ten days or more after receipt of notice thereof by the
 Borrower from the Bank.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 Governmental Entity Receivables Account Notice shall be revoked or revised
 without the written consent of the Bank.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>32</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
 easement or license agreement, in form and substance acceptable to the Bank,
 regarding the pipeline and detention pond encroachment on the Borrower&#146;s land
 onto the adjoining Lot 1, Block 1, New Prague Business Park 1st Addition to
 the north, for which no easements currently appear of record, as shown on the
 survey prepared by Bohlen Surveying &amp; Associates, LLC, dated October 23,
 2009, designated as Job No. H60-05-07B, has not been executed and consented
 to by all appropriate parties and properly recorded in the appropriate county
 recording office no later than 180 days after the date hereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 Change of Control shall occur.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
7.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Remedies</U>. If (a) any Event
of Default described in Sections 7.1 (f), (g) or (h) shall occur, the
Commitments shall automatically terminate and the Notes and all other
Obligations shall automatically become immediately due and payable; or (b) any
other Event of Default shall occur and be continuing, then, the Bank may (i)
declare the Commitments terminated, whereupon the Commitments shall terminate
and (ii) declare the outstanding unpaid principal balance of the Notes, the
accrued and unpaid interest thereon and all other Obligations to be forthwith
due and payable, whereupon the Notes, all accrued and unpaid interest thereon
and all such Obligations shall immediately become due and payable, in each case
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, anything in this Agreement or in the Notes to the
contrary notwithstanding. Upon the occurrence of any of the events described in
clause (a) or (b) of the preceding sentence the Bank may exercise all rights
and remedies under any of the Loan Documents, and enforce all rights and
remedies under any applicable law.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
7.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Deposit Accounts; Offset</U>. The Borrower
hereby grants the Bank a security interest in all deposits, credits and deposit
accounts of the Borrower with the Bank (the &#147;Deposits&#148;). In addition to the
remedies set forth in Section 7.2, upon the occurrence of any Event of Default
and thereafter while the same be continuing, the Borrower hereby irrevocably
authorizes the Bank to (a) set off any Obligations against all Deposits of the
Borrower with, and any and all claims of the Borrower against, the Bank, and
(b) to enforce the security interest granted pursuant to the first sentence
hereof. Such right shall exist whether or not the Bank shall have made any
demand hereunder or under any other Loan Document, whether or not the
Obligations, or any part thereof, or Deposits is or are matured or unmatured,
and regardless of the existence or adequacy of any collateral, guaranty or any
other security, right or remedy available to the Bank. The Bank agrees that, as
promptly as is reasonably possible after the exercise of any such setoff or
enforcement right, it shall notify the Borrower of its exercise of such setoff
or enforcement right; provided, however, that the failure of the Bank to
provide such notice shall not affect the validity of the exercise of such
setoff or enforcement rights. Nothing in this Agreement shall be deemed a
waiver or prohibition of or restriction on the Bank to all rights of banker&#146;s
Lien, setoff and counterclaim available pursuant to law. Notwithstanding
anything contained herein to the contrary, the Bank waives any security
interest or right of setoff in the Governmental Entity Receivables Account.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>33</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE VIII <BR>
MISCELLANEOUS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Modifications</U>.
Notwithstanding any provisions to the contrary herein, any term of this
Agreement may be amended with the written consent of the Borrower; provided
that no amendment, modification or waiver of any provision of this Agreement or
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be in writing and signed by the Bank, and then
such amendment, modification, waiver or consent shall be effective only in the
specific instance and for the purpose for which given.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Expenses</U>.
Whether or not the transactions contemplated hereby are consummated, the
Borrower agrees to pay or reimburse the Bank upon demand for all reasonable
out-of-pocket expenses paid or incurred by the Bank, including filing and
recording costs and fees, charges and disbursements of outside counsel to the
Bank (determined on the basis of such counsel&#146;s generally applicable rates,
which may be higher than the rates such counsel charges the Bank in certain
matters) and/or the allocated costs of in-house counsel incurred from time to
time, in connection with the negotiation, preparation, approval, review,
execution, delivery, administration, amendment, modification, interpretation,
collection and enforcement of this Agreement and the other Loan Documents and
any commitment letters relating thereto paid or incurred by the Bank in
connection with the collection and enforcement of this Agreement and any other
Loan Document. The obligations of the Borrower under this Section shall survive
any termination of this Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waivers, etc</U>.
No failure on the part of the Bank or the holder of a Note to exercise and no
delay in exercising any power or right hereunder or under any other Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude any other or further exercise thereof
or the exercise of any other power or right. The remedies herein and in the
other Loan Documents provided are cumulative and not exclusive of any remedies
provided by law.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notices</U>.
Except when telephonic notice is expressly authorized by this Agreement, any
notice or other communication to any party in connection with this Agreement
shall be in writing and shall be sent by manual delivery, facsimile
transmission, overnight courier or United States mail (postage prepaid)
addressed to such party at the address specified on the signature page hereof,
or at such other address as such party shall have specified to the other party
hereto in writing. All periods of notice shall be measured from the date of
delivery thereof if manually delivered, from the date of sending thereof if
sent by facsimile transmission, from the first Banking Day after the date of
sending if sent by overnight courier, or from four days after the date of
mailing if mailed; provided, however, that any notice to the Bank under Article
II hereof shall be deemed to have been given only when received by the Bank.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Taxes</U>. The
Borrower agrees to pay, and save the Bank harmless from all liability for, any
stamp or other taxes which may be payable with respect to the execution or
delivery of this Agreement or the issuance of the Notes, which obligation of
the Borrower shall survive the termination of this Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Successors
and Assigns; Participations; Purchasing Banks</U>.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>34</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
 Agreement shall be binding upon and inure to the benefit of the Borrower, the
 Bank, all future holders of the Notes, and their respective successors and
 assigns, except that the Borrower may not assign or transfer any of its
 rights or obligations under this Agreement without the prior written consent
 of the Bank.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Bank may, in the ordinary course of its commercial banking business and in
accordance with applicable law, at any time sell to one or more banks or
other financial institutions (&#147;<U>Participants</U>&#148;) participating interests in a
minimum amount of $100,000 in any Revolving Loan or the Term Loan or other
Obligation owing to the Bank, the Revolving Note or the Term Note, and the
Revolving Commitment or the Term Loan Commitment, or any other interest of
the Bank hereunder. In the event of any such sale by the Bank of
participating interests to a Participant, (i) the Bank&#146;s obligations under
this Agreement to the other parties to this Agreement shall remain unchanged,
(ii) the Bank shall remain solely responsible for the performance thereof,
(iii) the Bank shall remain the holder of the Revolving Note or the Term Note
for all purposes under this Agreement, (iv) the Borrower shall continue to
deal solely and directly with the Bank in connection with the Bank&#146;s rights
and obligations under this Agreement and (v) the agreement pursuant to which
such Participant acquires its participating interest herein shall provide
that the Bank shall retain the sole right and responsibility to enforce the
Obligations, including, without limitation the right to consent or agree to
any amendment, modification, consent or waiver with respect to this Agreement
or any other Loan Document, provided that such agreement may provide that the
Bank will not consent or agree to any such amendment, modification, consent
or waiver with respect to the matters set forth in Sections 8.2(a) through
(e) without the prior consent of such Participant. The Borrower agrees that
if amounts outstanding under this Agreement, the Revolving Note, the Term
Note and the Loan Documents are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have, to the extent permitted by
applicable law, the right of setoff in respect of its participating interest
in amounts owing under this Agreement and the Revolving Note, the Term Note
or other Loan Document to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this
Agreement or any the Revolving Note, the Term Note or other Loan Document.
The Borrower also agrees that each Participant shall be entitled to the
benefits of this Credit Agreement with respect to its participation in the
Revolving Commitment, Term Loan Commitment, Revolving Loan and Term Loan;
<U>provided</U>, that no Participant shall be entitled to receive any greater amount
pursuant to such subsections than the Bank would have been entitled to
receive in respect of the amount of the participation transferred by the Bank
to such Participant had no such transfer occurred. </FONT> </P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Borrower shall not be liable for any costs incurred by the Bank in effecting
 any participation under subparagraph (b) of this subsection.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Bank may disclose to any Assignee or Participant and to any prospective
 Assignee or Participant any and all financial information in the Bank&#146;s
 possession concerning the Borrower or any of their Subsidiaries (if any)
 which has been delivered to the Bank by or on behalf of the Borrower or any
 of its Subsidiaries pursuant to this Agreement or which has been delivered to
 the Bank by or on behalf of the</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>35</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE="2">Borrower or
any of their Subsidiaries in connection with the Bank&#146;s credit evaluation of
the Borrower or any of its Subsidiaries prior to entering into this
Agreement, <U>provided</U> that prior to disclosing such information, the Bank shall
first obtain the agreement of such prospective Assignee or Participant to
comply with the provisions of Section 8.7. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
 any other provision in this Agreement, the Bank may at any time create a
 security interest in, or pledge, all or any portion of its rights under and
 interest in this Agreement and any note held by it in favor of any federal
 reserve bank in accordance with Regulation A of the Board or U. S. Treasury
 Regulation 31 CFR &sect; 203.14, and such Federal Reserve Bank may enforce such
 pledge or security interest in any manner permitted under applicable law.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
 connection with this Agreement, the other Loan Documents and the transactions
 and any litigation relating thereto (including in connection with (i) the
 negotiation, preparation and execution of the Loan Documents, (ii) the
 perfection of any security interest, (iii) the completion of any filings or registrations,
 (iv) the obtaining of any consents and (v) any present or future legal
 representation relating to the administration, amendment, modification,
 waiver or enforcement of, or any restructuring or forbearance arrangement
 relating to, any Loan Document), Dorsey &amp; Whitney LLP and any other
 counsel retained by the Bank in connection with any of such matters
 (collectively, the &#147;Bank&#146;s Counsel&#148;) has only represented and shall only
 represent the Bank. Each Borrower and each assignee or participant of the
 Bank (by accepting an assignment or a participation under Section 8.6
 hereof), agrees and acknowledges that the Bank&#146;s Counsel does not represent
 it, and no attorney-client relationship exists between it and the Bank&#146;s
 Counsel, in connection with any of the matters described in the preceding
 sentence.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Confidentiality
of Information</U>. The Bank shall use reasonable efforts to assure that
information about the Borrower and its operations, affairs and financial
condition, not generally disclosed to the public or to trade and other
creditors, which is furnished to the Bank pursuant to the provisions hereof is
used only for the purposes of this Agreement and any other relationship between
the Bank and the Borrower and shall not be divulged to any Person other than
the Bank, its Affiliates and their respective officers, directors, employees
and agents, except: (a) to their attorneys and accountants, (b) in connection
with the enforcement of the rights of the Bank hereunder and under the Loan
Documents or otherwise in connection with applicable litigation, (c) in
connection with assignments and participations and the solicitation of
prospective assignees and participants referred to in the immediately preceding
Section, (d) if such information is generally available to the public other
than as a result of disclosure by the Bank, (e) to any direct or indirect
contractual counterparty in any hedging arrangement or such contractual
counterparty&#146;s professional advisor, (f) to any nationally recognized rating
agency that requires information about the Bank&#146;s investment portfolio in
connection with ratings issued with respect to the Bank, and (g) as may
otherwise be required or requested by any regulatory authority having
jurisdiction over the Bank or by any applicable law, rule, regulation or
judicial process, the opinion of the Bank&#146;s counsel concerning the making of
such disclosure to be binding on the parties hereto. The Bank shall not incur
any liability to the Borrower by reason of any disclosure permitted by this
Section.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>36</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Governing Law
and Construction</U>. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT
GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL
BANKS. Whenever possible, each provision of this Agreement and the other Loan
Documents and any other statement, instrument or transaction contemplated
hereby or thereby or relating hereto or thereto shall be interpreted in such
manner as to be effective and valid under such applicable law, but, if any
provision of this Agreement, the other Loan Documents or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be held to be prohibited or invalid under such applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement, the other Loan Documents or any other
statement, instrument or transaction contemplated hereby or thereby or relating
hereto or thereto.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Consent to
Jurisdiction</U>. AT THE OPTION OF THE BANK, THIS AGREEMENT AND THE OTHER
BORROWER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE
COURT SITTING IN HENNEPIN COUNTY; AND THE BORROWER CONSENTS TO THE JURISDICTION
AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS
IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR
INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANK AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waiver of
Jury Trial</U>. EACH OF THE BORROWER AND THE BANK IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Survival of
Agreement</U>. All representations, warranties, covenants and agreement made by
the Borrower herein or in the other Borrower Loan Documents and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be deemed to have
been relied upon by the Bank and shall survive the making of the Loan by the
Bank and the execution and delivery to the Bank by the Borrower of the Note,
regardless of any investigation made by or on behalf of the Bank, and shall
continue in full force and effect as long as any Obligation is outstanding and
unpaid and so long as the Commitment has not been terminated; provided, however,
that the obligations of the under 8.3, 8.6 and 8.13 shall survive payment in
full of the Obligations and the termination of the Commitment.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>37</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Indemnification</U>.
The Borrower hereby agrees to defend, protect, indemnify and hold harmless the
Bank and its Affiliates and the directors, officers, employees, attorneys and
agents of the Bank and its Affiliates (each of the foregoing being an
&#147;Indemnitee&#148; and all of the foregoing being collectively the &#147;Indemnitees&#148;)
from and against any and all claims, actions, damages, liabilities, judgments,
costs and expenses (including all reasonable fees and disbursements of counsel
which may be incurred in the investigation or defense of any matter) imposed
upon, incurred by or asserted against any Indemnitee, whether direct, indirect
or consequential and whether based on any federal, state, local or foreign laws
or regulations (including securities laws, environmental laws, commercial laws
and regulations), under common law or on equitable cause, or on contract or
otherwise:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;by
 reason of, relating to or in connection with the execution, delivery,
 performance or enforcement of any Loan Document, any commitments relating
 thereto, or any transaction contemplated by any Loan Document; or</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;by
 reason of, relating to or in connection with any credit extended or used
 under the Loan Documents or any act done or omitted by any Person, or the
 exercise of any rights or remedies thereunder, including the acquisition of
 any collateral by the Bank by way of foreclosure of the Lien thereon, deed or
 bill of sale in lieu of such foreclosure or otherwise;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>provided,
however, that the Borrower shall not be liable to any Indemnitee for any
portion of such claims, damages, liabilities and expenses resulting from such
Indemnitee&#146;s gross negligence or willful misconduct. In the event this
indemnity is unenforceable as a matter of law as to a particular matter or
consequence referred to herein, it shall be enforceable to the full extent
permitted by law.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
indemnification applies, without limitation, to any act, omission, event or
circumstance existing or occurring on or prior to the later of the Termination
Date or the date of payment in full of the Obligations, including specifically
Obligations arising under clause (b) of this Section. The indemnification
provisions set forth above shall be in addition to any liability the Borrower
may otherwise have. Without prejudice to the survival of any other obligation
of the Borrower hereunder the indemnities and obligations of the Borrower
contained in this Section shall survive the payment in full of the other
Obligations.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Captions</U>.
The captions or headings herein and any table of contents hereto are for
convenience only and in no way define, limit or describe the scope or intent of
any provision of this Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Entire
Agreement</U>. This Agreement and the other Borrower Loan Documents embody the
entire agreement and understanding between the Borrower and the Bank with
respect to the subject matter hereof and thereof. This Agreement supersedes all
prior agreements and understandings relating to the subject matter hereof.
Nothing contained in this Agreement or in any other Loan Document, expressed or
implied, is intended to confer upon any Persons other than the parties hereto
any rights, remedies, obligations or liabilities hereunder or thereunder.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>38</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts</U>.
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument, and any of the
parties hereto may execute this Agreement by signing any such counterpart.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Borrower
Acknowledgements</U>. The Borrower hereby acknowledges that (a) it has been
advised by counsel in the negotiation, execution and delivery of this Agreement
and the other Loan Documents, (b) the Bank has no fiduciary relationship to the
Borrower, the relationship being solely that of debtor and creditor, (c) no
joint venture exists between the Borrower and the Bank, and (d) the Bank
undertakes no responsibility to the Borrower to review or inform the Borrower
of any matter in connection with any phase of the business or operations of the
Borrower and the Borrower shall rely entirely upon its own judgment with
respect to its business, and any review, inspection or supervision of, or
information supplied to, the Borrower by the Bank is for the protection of the
Bank and neither the Borrower nor any third party is entitled to rely thereon.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Interest
Rate Limitation</U>. Notwithstanding anything herein to the contrary, if at any
time the interest rate applicable to any Loan, together with all fees, charges
and other amounts that are treated as interest on such Loan under applicable
law (collectively, the &#147;Charges&#148;), shall exceed the maximum lawful rate (the
&#147;Maximum Rate&#148;) that may be contracted for, charged, taken, received or reserved
by the Bank in accordance with applicable law, the rate of interest payable in
respect of such Loan hereunder, together with all Charges payable in respect
thereof, shall be limited to the Maximum Rate and, to the extent lawful, the
interest and Charges that would have been payable in respect of such Loan but
were not payable as a result of the operation of this Section shall be
cumulated and the interest and Charges payable to the Bank in respect of other
Loans or periods shall be increased (but not above the Maximum Rate therefor)
until such cumulated amount, together with interest thereon at the Federal
Funds Effective Rate to the date of repayment, shall have been received by the
Bank.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>[The remainder of this page has been left
blank intentionally.]</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>39</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>IN WITNESS WHEREOF,</B> the parties hereto have
caused this Agreement to be executed as of the date first above written.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="95%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="55%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="36%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED,
 INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=bottom >
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD VALIGN=TOP style="border-bottom:solid black 1px">
 <P><FONT SIZE=1><img src="a101390001_v1.jpg" alt="-s- Robert D. Hansen"></FONT></P>
 </TD>
 </TR>

 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Name: Robert D. Hansen</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Title: Chief
 Executive Officer</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Address:</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>500 Sixth
 Avenue NW <BR>
 New Prague, MN 56071 <BR>
 ATTN: Robert D. Hansen <BR>
 Fax Number: 952-758-1941</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>U.S. BANK
 NATIONAL ASSOCIATION</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=bottom >
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD VALIGN=TOP style="border-bottom:solid black 1px">
 <P><FONT SIZE=1><img src="a101390002_v1.jpg" alt="-s- Gregory J. Guttormsson"></FONT></P>
 </TD>
 </TR>

</TABLE>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="95%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="55%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="35%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Name:</FONT></P>
 </TD>
 <TD VALIGN=TOP style="border-bottom:solid black 1px">
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gregory
 J. Guttormsson</FONT></P>
 </TD>
 </TR>
 </TABLE>



<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="95%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="55%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="36%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Title:</FONT></P>
 </TD>
 <TD VALIGN=TOP style="border-bottom:solid black 1px">
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vice
 President</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">


 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Address for
 Bank:</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>U.S. Bank
 National Association <BR>
 BC-MN-H03W</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>800 Nicollet
 Mall</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Minneapolis,
 MN 55402-4302 <BR>
 ATTN: Daniel J. Miller <BR>
 Fax Number: 612-303-2252</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>[Signature Page to Credit Agreement]</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P ALIGN=RIGHT><FONT SIZE=2>EXHIBIT A TO<BR>
CREDIT AGREEMENT</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>REVOLVING NOTE</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>$3,500,000</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>December
 [&nbsp;&nbsp;&nbsp;], 2009</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>Minneapolis, Minnesota</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR
VALUE RECEIVED, ELECTROMED, INC., a corporation organized under the laws of the
State of Minnesota hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the &#147;Bank&#148;) at its main office in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) on the Termination Date the principal amount
of THREE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,500,000.00) or,
if less, the aggregate unpaid principal amount of all Advances made by the Bank
under the Credit Agreement, and to pay interest (computed on the basis of
actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times
set forth in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
note is the Revolving Note referred to in the Credit Agreement dated as of
December [&nbsp;&nbsp;&nbsp;], 2009 (as the same may hereafter be from time to
time amended, restated or otherwise modified, the &#147;Credit Agreement&#148;) between
the undersigned and the Bank. This note is secured, it is subject to certain
mandatory prepayments and its maturity is subject to acceleration, in each case
upon the terms provided in said Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of default hereunder, the undersigned agrees to pay all costs and expenses
of collection, including reasonable attorneys&#146; fees. The undersigned waives
demand, presentment, notice of nonpayment, protest, notice of protest and
notice of dishonor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="38%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>By:&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Name: Robert D. Hansen </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Title: Chief Executive Officer </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=RIGHT><FONT SIZE=2>EXHIBIT B TO<BR>
CREDIT AGREEMENT</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>TERM NOTE A</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>$1,520,000</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>December
 [&nbsp;&nbsp;&nbsp;], 2009</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>Minneapolis, Minnesota</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR
VALUE RECEIVED, ELECTROMED, INC., a corporation organized under the laws of the
State of Minnesota hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the &#147;Bank&#148;) at its main office in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) the principal amount of ONE MILLION FIVE
HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS ($1,520,000.00) and to pay interest
(computed on the basis of actual days elapsed and a year of 360 days) in like
funds on the unpaid principal amount hereof from time to time outstanding at
the rates and times set forth in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
principal hereof is payable as provided in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
note is the Term Note A referred to in the Credit Agreement dated as of
December [&nbsp;&nbsp;&nbsp;], 2009 (as the same may hereafter be from time to
time amended, restated or otherwise modified, the &#147;Credit Agreement&#148;) between
the undersigned and the Bank. This note is secured and its maturity is subject
to acceleration, in each case upon the terms provided in said Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of default hereunder, the undersigned agrees to pay all costs and
expenses of collection, including reasonable attorneys&#146; fees. The undersigned
waives demand, presentment, notice of nonpayment, protest, notice of protest
and notice of dishonor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF,, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="38%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>By:&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Name: Robert D. Hansen </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Title: Chief Executive Officer </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=RIGHT><FONT SIZE=2>EXHIBIT C TO<BR>
CREDIT AGREEMENT</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>TERM NOTE B</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>$1,000,000</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>December
 [&nbsp;&nbsp;&nbsp;], 2009</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>Minneapolis, Minnesota</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR
VALUE RECEIVED, ELECTROMED, INC., a corporation organized under the laws of the
State of Minnesota hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the &#147;Bank&#148;) at its main office in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) the principal amount of ONE MILLION AND
NO/100 DOLLARS ($1,000,000.00) and to pay interest (computed on the basis of
actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times
set forth in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
principal hereof is payable as provided in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
note is the Term Note B referred to in the Credit Agreement dated as of
December [&nbsp;&nbsp;&nbsp;], 2009 (as the same may hereafter be from time to
time amended, restated or otherwise modified, the &#147;Credit Agreement&#148;) between
the undersigned and the Bank. This note is secured and its maturity is subject
to acceleration, in each case upon the terms provided in said Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of default hereunder, the undersigned agrees to pay all costs and
expenses of collection, including reasonable attorneys&#146; fees. The undersigned
waives demand, presentment, notice of nonpayment, protest, notice of protest
and notice of dishonor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF,, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="38%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="8%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=1>&nbsp;</FONT></P>


 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Name: Robert D. Hansen </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Title: Chief Executive Officer </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=RIGHT><FONT SIZE=2>EXHIBIT D TO<BR>
CREDIT AGREEMENT</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>MATTERS TO BE
COVERED BY<BR>
OPINION OF COUNSEL<BR>
TO THE BORROWER</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
opinion of counsel to the Borrower which is called for by Article III of the
Credit Agreement (the &#147;Credit Agreement&#148;) shall be addressed to the Bank and
dated the Closing Date. It shall be satisfactory in form and substance to the
Bank and shall cover the matters set forth below, subject to such assumptions,
exceptions and qualifications as may be acceptable to the Bank and counsel to
the Bank. Capitalized terms used herein have the respective meanings given such
terms in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Borrower is a corporation duly incorporated and validly existing and in good
standing under the laws of the State of Minnesota and has all requisite
corporate power and authority to carry on its business as now conducted, to
enter into the Borrower Loan Documents and to perform all of its obligations
under each and all of the foregoing. The Borrower is duly qualified and in good
standing as a foreign corporation in all of the jurisdictions in which the
character of the properties owned or leased by it or the business conducted by
it makes such qualification necessary and the failure to so qualify would
permanently preclude the Borrower from enforcing its rights with respect to any
material asset or expose the Borrower to any material liability.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
execution, delivery and performance by the Borrower of the Borrower Loan
Documents have been duly authorized by all necessary corporate action by the
Borrower.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Borrower Loan Documents constitute the legal, valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
execution, delivery and performance by the Borrower of the Borrower Loan Documents
will not (i) violate any provision of any law, statute, rule or regulation or,
to the best knowledge of such counsel, any order, writ, judgment, injunction,
decree, determination or award of any court, governmental agency or arbitrator
presently in effect having applicability to the Borrower, (ii) violate or
contravene any provision of the Articles of Incorporation or bylaws of the
Borrower of the Borrower, or (iii) result in a breach of or constitute a
default under any indenture, loan or credit agreement or any other agreement,
lease or instrument known to such counsel to which the Borrower is a party or
by which it or any of its properties may be bound or result in the creation of
any Lien thereunder.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
order, consent, approval, license, authorization or validation of, or filing,
recording or registration with, or exemption by, any governmental or public
body or authority is required on the part of the Borrower to authorize, or is
required in connection with the execution, delivery and performance of, or the
legality, validity, binding effect or enforceability of, the Borrower Loan
Documents, except for any necessary filing or recordation of or with respect to
any of the Security Documents.</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
the best knowledge of such counsel, there are no actions, suits or proceedings
pending or threatened against or affecting the Borrower or any of its
properties before any court or arbitrator, or any governmental department,
board, agency or other instrumentality which (i) challenge the legality,
validity or enforceability of the Borrower Loan Documents, or (ii) if
determined adversely to the Borrower, would constitute a Material Adverse
Occurrence.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
Security Document creates the Lien it purports to create upon the properties
and interests specifically described therein. The descriptions of properties
and interests in the Security Documents and any related financing statements
are adequate for the purpose of such instruments and for perfection of the
Liens of the Bank. As to any Security Documents which are Security Agreements,
the filing of the Uniform Commercial Code financing statements delivered by the
Borrower to the Bank in the filing offices listed thereon will perfect Liens
created under such Security Agreements to the extent such Liens are capable of
being perfected by filing financing statements under the Uniform Commercial
Code.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Mortgage is in proper form for recording in the State of Minnesota in order to create
a lien upon the real property included within the Mortgaged Property (&#147;Real
Property&#148;) and in order to assign the leases and rents evidenced thereby to the
Bank as security for the Loan. Upon the proper recording of the Mortgage in the
office(s) of the ___________________ [and of the ___________________ <I>(if both
Torrens and Abstract Property)] </I>in and for ________________ County(ies),
Minnesota, and payment of mortgage registry tax in the proper amount, the
Mortgage will, subject to the assumptions and qualifications herein set forth,
create a valid lien upon the Real Property and a valid assignment of the leases
of and the rents from the Real Property, and will impart constructive notice to
third parties of the existence of said lien and assignment as of the date and
time of recording (&#147;Recording Date&#148;).</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Mortgage is
effective as a grant by the Borrower to the Bank of a security interest in the
fixtures which form a part of the Real Property (&#147;Fixtures&#148;) to secure the
obligations secured by the Mortgage. [Upon proper recording of the Mortgage in
the office(s) of the
________________ [ and of the _______________________________________ <I>(if both Torrens and </I><I>Abstract Property)</I>] in and for
_____________ County(ies), Minnesota, the Mortgage will be effective as a
fixture filing and a fixture financing statement, the security interest in the
Fixtures granted by the Mortgage will be perfected, and no other filing,
registration or recording in the State of Minnesota will be required to perfect
such security interest in the Fixtures <I>(if
requested)</I>]<I>. </I>The
Mortgage [Security Agreement] is effective as a grant by the Borrower to the
Bank of a security interest in the portion of the Mortgaged Property in which a
security interest may be granted pursuant to the UCC.</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=RIGHT><FONT SIZE=2>EXHIBIT E TO<BR>
CREDIT AGREEMENT</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>FORMULA FOR<BR>
BORROWING BASE</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Borrowing
 Base. The &#147;Borrowing Base&#148; as of any date of determination shall be 60% of
 the face amount of Eligible Accounts.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Definitions.
 Capitalized terms use herein which are defined in the Credit Agreement are
 used herein with the respective meanings attributed thereto in the Credit
 Agreement. In addition, for the purposes of this Exhibit and for determining
 the Borrowing Base, the following terms shall have the following respective
 meanings:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Eligible
Accounts</U>&#148;: the right of the Borrower to receive payment for goods sold or
services rendered, including any such right evidenced by instruments or
chattel paper, provided such right to payment: </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;has
 arisen out of the sale of goods or the performance of services by the
 Borrower within the United States, or, if such goods are sold or services
 performed outside the United States, is backed by a letter of credit issued
 or confirmed by a bank chartered under the laws of the United States or of
 any State;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is
 the valid, binding and legally enforceable obligation of the obligor and such
 right to payment has not been subordinated by the Borrower to any other claim
 against the obligor and such obligor is not (i) the Borrower or an Affiliate
 of the Borrower (ii) a Person who is a shareholder, director, officer or
 employee of the Borrower, (iii) the United States or any department, agency
 or instrumentality thereof unless the Borrower shall have complied with
 Section 6.18(a) with respect to such account, (iv) a debtor under any
 proceeding under the Bankruptcy Code or comparable provision of state or
 foreign law or (v) an assignor for the benefit of creditors;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is
 assignable;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is
 subject to a perfected first security interest in favor of the Bank and is
 free and clear of any other Lien;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is
 not subject to any claimed offset, counterclaim or other defense with respect
 thereto;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is
 not unpaid more than 90 days from the due date of the relevant invoice;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is
 not conditioned upon the approval of the obligor obligated thereon or subject
 to any repurchase obligations on the part of the Borrower or any return
 privilege on the part of such obligor; and</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is
 not, as reasonably determined by the Bank in its discretion, uncollectible,
 difficult to collect or otherwise disqualified;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><U>provided</U>, that the Bank shall,
notwithstanding the foregoing, have the right, in the reasonable exercise of
its discretion, to establish reserves against the aggregate amount of Eligible
Accounts.</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>EXHIBIT
 F TO </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>CREDIT AGREEMENT</FONT></P>
 </TD>
 </TR>

 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</tr>
 <TR>
 <TD VALIGN=TOP colspan=2>
 <P ALIGN="CENTER"><FONT SIZE=2>FORM OF BORROWING BASE
 CERTIFICATE</FONT></P>
 </TD>
  </TR>
</TABLE>

<BR>

<TABLE BORDER=0 ALIGN=CENTER CELLSPACING=0 CELLPADDING=0 WIDTH="8%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="100%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>Date</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:SOLID BLACK 1px;BORDER-TOP:NONE'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="58%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="18%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=TOP>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>TOTAL
 ACCOUNTS RECEIVABLE</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>1)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>A/R
 balance as of date above</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>$4,000,000</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>2)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>Minus
 Ineligibles (from Schedule A) </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>$0</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>3)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>ELIGIBLE
 ACCOUNTS RECEIVABLE: (Line 1 minus Line 2 times advance rate):</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-left:SOLID BLACK 1px;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>60%</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>$2,400,000</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=CENTER><FONT SIZE=1>(Advance rate)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>4)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>MAXIMUM
 AVAILABLE: (lesser of line 3 or $3,500,000)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-left:SOLID BLACK 1px;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=1>$3,500,000</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>$2,400,000</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>

 <TD VALIGN=TOP STYLE='BORDER:NONE' colspan=2>
 <P ALIGN=CENTER><FONT SIZE=1>(Maximum Line Amount)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1><B>LOAN DETAIL</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>5)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>Line
 of Credit Outstanding: </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P><FONT SIZE=1>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>0&nbsp;&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>6)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>Term
 Loan Outstanding </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P><FONT SIZE=1>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>0&nbsp;&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>7)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1><B>TOTAL LOANS OUTSTANDING:</B> (Line 5 plus Line 6)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>$0</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>8)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1><B>Amount to
 be (Repaid)/Available:</B>
 (Line 4 minus Line 7)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=1>$2,400,000</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><I><B>The undersigned represents and warrants
that:</B></I><BR>
The foregoing
information is true, complete and correct, and that the collateral, designated
as eligible, hereby complies fully with the conditions, terms, warranties,
representations and covenants set forth in the Loan Agreement (&#147;Agreement&#148;)
between the undersigned and U.S. Bank National Association(&#147;Lender&#148;).</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="30%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="14%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=CENTER><FONT SIZE=2>ELECTROMED,
 INC.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=CENTER><FONT SIZE=2>Borrower</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=CENTER><FONT SIZE=2>Authorized signature</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=CENTER><FONT SIZE=2>Date</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>SCHEDULE A <BR>COMPUTATION OF INELIGIBLES</B></FONT></P>



<TABLE BORDER=0 CELLSPACING=0 ALIGN=CENTER CELLPADDING=0 WIDTH="16%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="33%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="66%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=2><B>Date:</B></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1px;BORDER-RIGHT:SOLID BLACK 1px'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>


<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="54%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="24%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=TOP>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="11%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2><B>INELIGIBLE ACCOUNTS RECEIVABLE:</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>a) Over 90 days past
 due date</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>b) Aged Credits **</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>c) Contra accounts</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>d) Co-op Advertising
 Accrual</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>e) Foreign accounts
 receivable</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>f) Employee/intercompany
 accounts receivable</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>g) Cash/COD accounts</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>h) Finance/service
 charges</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>i) Debit
 memos/charge-backs</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>j) Other ineligible
 accounts receivable (describe)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>&#151;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>TOTAL INELIGIBLE ACCOUNTS RECEIVABLE</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(Transfer
 to line 2, page 1)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>$</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1px'>
 <P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>**
 Credit balances over 60 days past due need to be added to ineligibles</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P ALIGN=RIGHT><FONT SIZE=2>EXHIBIT G TO<BR>
CREDIT AGREEMENT</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>FORM OF COMPLIANCE
CERTIFICATE</FONT></P>

<P><FONT SIZE=2>To: U.S. Bank National Association:</FONT></P>

<P><FONT SIZE=2>THE UNDERSIGNED HEREBY CERTIFIES THAT:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I
am the duly elected chief financial officer of Electromed, Inc. (the
&#147;Borrower&#148;);</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I
have reviewed the terms of the Credit Agreement dated as of December [&nbsp;&nbsp;], 2009
between the Borrower and U.S. Bank National Association (the &#147;Credit
Agreement&#148;) and I have made, or have caused to be made under my supervision, a
detailed review of the transactions and conditions of the Borrower during the
accounting period covered by the Attachment hereto;</FONT></P>

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

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="100%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
</TR>
<TR>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
<TR>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The foregoing certification, together with the
computations in the Attachment hereto and the financial statements delivered
with this Certificate in support hereof, are made and delivered this ___ day
of _______________, _______ pursuant to Section 5.1(d) of the Credit Agreement.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="53%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="42%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=BOTTOM>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>By</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=2>Title</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2>ATTACHMENT TO
COMPLIANCE CERTIFICATE</FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>This Compliance Certificate is delivered under the Credit
Agreement dated as of ________________, 2009, between Electromed and U.S. Bank
National Association (the &#147;Credit Agreement&#148;).</FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>All terms used in this Compliance Certificate shall
have the meanings given them in the Credit Agreement.</FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>The figures used in this Compliance Certificate were
determined as of____________________.</FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>I certify that the following amounts were correctly
determined according to the Credit Agreement as of the date set forth above:</FONT></P>

<P><FONT SIZE=2><B>1. Total
Cash Flow Leverage (Tested Quarterly) In Compliance Yes______ No______</B></FONT></P>

<TABLE ALIGN=CENTER BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="80%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="59%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="18%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2><I>Long Term Interest Bearing Debt</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2><I>Plus Short Term Interest Bearing
 Debt</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2><I>Plus Capital Leases</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2><I>Plus 6 times Annual Rent Expense </I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2><I>Total
 (A)</I></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1PX;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2 COLOR=BLACK><I>EBITDAR for LTM (B)</I></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1PX;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2 COLOR=BLACK><I>Ratio of (A) to (B)</I></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1PX;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2><B>2. Fixed
Charge Coverage Ratio (Tested Quarterly) In Compliance Yes______ No______</B></FONT></P>

<TABLE ALIGN=CENTER BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="80%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="59%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="18%" VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1PX;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P ALIGN=CENTER><FONT SIZE=2><I>For
 LTM</I></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2 COLOR=BLACK><I>EBITDAR</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2 COLOR=BLACK><I>Less: </I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2 COLOR=BLACK><I>Cash Taxes</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2 COLOR=BLACK><I>Cash Dividends/Cash distributions</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2 COLOR=BLACK><I>Maintenance CAPEX (50% of Depreciation
 Expense) </I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:25.9PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2 COLOR=BLACK><I>Total (A)</I></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1PX;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2 COLOR=BLACK><I>Required Principal
 Payments</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>&nbsp;
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2 COLOR=BLACK><I>Plus Interest Expense</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>&nbsp;

 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2 COLOR=BLACK><I>Plus Rental or Lease
 Expense</I></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT  SIZE=2 COLOR=BLACK><I>Total (B)</I></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1PX;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2 COLOR=BLACK><I>Ratio of (A) to (B)</I></FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 1PX;BORDER-RIGHT:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>3. No
Additional Interest Bearing Debt (except for S2.5MM</B> <B>debentures, if approved by US</B> <B>Bank) (Tested Quarterly)</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="94%" VALIGN=BOTTOM>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN=RIGHT>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2><B>In
 Compliance Yes ______ No______</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>I further certify that
the Borrower is in compliance with all other terms and conditions of the
Agreement and that no Event of Default or event that with notice or lapse of
time would be an Event of Default has occurred since the last Compliance
Certificate provided to the Bank.</FONT></P>

<P><FONT SIZE=2><B>Electromed,
Inc.</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="2%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="34%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="61%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>By</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Title</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 1PX'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=RIGHT><FONT SIZE=2>EXHIBIT H TO<BR>
CREDIT AGREEMENT</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>INSURANCE
REQUIREMENTS</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>I.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><U><B>PROPERTY INSURANCE</B></U></FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="85%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>An ORIGINAL (or certified copy) All-Risk Hazard
 Insurance Policy or ORIGINAL Acord 27 Certificate of Insurance naming the
 borrowing entity as an insured, reflecting coverage of 100% of the
 replacement cost, and written by a carrier approved by the Bank with a
 current Best&#146;s Insurance Guide Rating of at least A- IX (which is authorized
 to do business in the state in which the property is located) that
 affirmatively includes the following:</FONT></P>
 </TD>
 </TR>

 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</tr>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>1.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Mortgagee Clause naming U.S. Bank National
 Association as Mortgagee with a 30-day notice to the Bank in the event of
 cancellation, non-renewal or material change.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>2.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>The Bank&#146;s Loss Payable Endorsement with a
 Severability of Interest Clause with a 30-day notice to the Bank in the event
 of cancellation, non-renewal or material change.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>3.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Replacement Cost Endorsement.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>4.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>No Exclusion for Acts of Terrorism.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>5.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>No Coinsurance Clause.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>6.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Boiler and Machinery Coverage.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>7.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Sprinkler Leakage Coverage.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>8.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Vandalism and Malicious Mischief Coverage.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>9.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>If applicable, Loss of Rents Insurance in an amount
 of not less than 100% of one year&#146;s Rental Value of the Project. &#147;Rental
 Value&#148; shall include:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>a)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>The total projected gross rental income from tenant
 occupancy of the property,</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>b)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>The amount of all charges which are the legal
 obligation of tenants and which would otherwise be the obligation of the
 Borrower, and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>c)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>The fair rental value of any portion of the property
 which is occupied by the Borrower.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>10.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>One year&#146;s business interruption insurance in an
 amount acceptable to the Bank.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>11.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Extra Expense Coverage.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=2>12.</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>The Borrower&#146;s coverage is primary and
 non-contributory with any insurance or self-insurance carried by U.S. Bank
 National Association.</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN=CENTER>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>13. Waiver of Subrogation against any party whose
 interests are covered in the policy.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>II.</B></FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2><U><B>LIABILITY INSURANCE</B></U></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>An ORIGINAL Acord 25 Certificate of General
 Comprehensive Liability Insurance naming the borrowing entity as an insured,
 providing coverage on an &#147;occurrence&#148; rather than a &#147;claims made&#148; basis and
 written by a carrier approved by the Bank with a current A.M. Best&#146;s
 Insurance Guide Rating of at least A- IX (which is authorized to do business
 in the state in which the property is located) that affirmatively includes
 the following:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>1.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Combined general liability policy limit of at least $5,000,000.00
 each occurrence, applying liability for Bodily Injury, Personal Injury,
 Property Damage, Contractual, Products and Completed Operations which
 combined limit may be satisfied by the limit afforded under the Commercial
 General Liability Policy, or by such Policy in combination with the limits
 afforded by an Umbrella or Excess Liability Policy (or policies); provided
 the coverage afforded under any such Umbrella or Excess Liability Policy is
 at least as broad in all material respects as that afforded by the underlying
 Commercial General Liability Policy.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>No Exclusion for Acts of Terrorism.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>3.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Aggregate limit to apply per location.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>4.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>The Borrower&#146;s coverage is primary and
 non-contributory with any insurance or self-insurance carried by U.S. Bank
 National Association.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>5.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Waiver of Subrogation against any party whose
 interests are covered in the policy.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>

 <TD VALIGN=TOP colspan=2>
 <P><FONT SIZE=2>Additional Insured Endorsement naming U.S. Bank
 National Association as an additional insured with a 30-day notice to the
 Bank in the event of cancellation, non-renewal or material change. A
 Severability of Interests provision should be included.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>III.</B></FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2><U><B>WORKER&#146;S COMPENSATION</B></U></FONT></P>
 </TD>
 </TR>

 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>An ORIGINAL Certificate of Worker&#146;s Compensation
 coverage in the statutory amount and Employer&#146;s Liability Coverage with
 minimum limits of $500,000 / $500,000 / $500,000, naming the Borrower and
 written by a carrier approved by the Bank.</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>8
<FILENAME>elmd101390s1_ex10-2.htm
<DESCRIPTION>$3,500,000 REVOLVING NOTE
<TEXT>

<HTML>
<HEAD><TITLE>Exhibit 10.2 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 10.2</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3>REVOLVING NOTE</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>$3,500,000</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>December 9, 2009<BR>
 Minneapolis, Minnesota</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR
VALUE RECEIVED, ELECTROMED, INC., a corporation organized under the laws of the
State of Minnesota hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the &#147;Bank&#148;) at its main office in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) on the Termination Date the principal amount
of THREE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,500,000.00) or,
if less, the aggregate unpaid principal amount of all Advances made by the Bank
under the Credit Agreement, and to pay interest (computed on the basis of
actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times
set forth in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
note is the Revolving Note referred to in the Credit Agreement dated as of
December 9, 2009 (as the same may hereafter be from time to time amended,
restated or otherwise modified, the &#147;Credit Agreement&#148;) between the undersigned
and the Bank. This note is secured, it is subject to certain mandatory
prepayments and its maturity is subject to acceleration, in each case upon the
terms provided in said Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of default hereunder, the undersigned agrees to pay all costs and
expenses of collection, including reasonable attorneys&#146; fees. The undersigned
waives demand, presentment, notice of nonpayment, protest, notice of protest
and notice of dishonor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="90%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="47%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1><img src="a101390001_v1.jpg" alt="-s- Robert D. Hansen"></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Name: Robert D. Hansen</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Title: Chief Executive Officer</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>9
<FILENAME>elmd101390s1_ex10-3.htm
<DESCRIPTION>$1,520,000 TERM LOAN A
<TEXT>

<HTML>
<HEAD><TITLE>Exhibit 10.3 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 10.3</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3>TERM NOTE A</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>$1,520,000</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>December 9, 2009<BR>
 Minneapolis, Minnesota</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR
VALUE RECEIVED, ELECTROMED, INC., a corporation organized under the laws of the
State of Minnesota hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the &#147;Bank&#148;) at its main office in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) the principal amount of ONE MILLION FIVE
HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS ($1,520,000.00) and to pay interest
(computed on the basis of actual days elapsed and a year of 360 days) in like
funds on the unpaid principal amount hereof from time to time outstanding at
the rates and times set forth in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
principal hereof is payable as provided in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
note is the Term Note A referred to in the Credit Agreement dated as of
December 9, 2009 (as the same may hereafter be from time to time amended,
restated or otherwise modified, the &#147;Credit Agreement&#148;) between the undersigned
and the Bank. This note is secured and its maturity is subject to acceleration,
in each case upon the terms provided in said Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of default hereunder, the undersigned agrees to pay all costs and
expenses of collection, including reasonable attorneys' fees. The undersigned
waives demand, presentment, notice of nonpayment, protest, notice of protest
and notice of dishonor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF,, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="90%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="46%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=bottom>
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1><img src="a101390001_v1.jpg" alt="-s- Robert D. Hansen"></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Name: Robert D. Hansen</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Title: Chief Executive Officer</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>10
<FILENAME>elmd101390s1_ex10-4.htm
<DESCRIPTION>$1,000,000 TERM LOAN B
<TEXT>

<HTML>
<HEAD><TITLE>Exhibit 10.4 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 10.4</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3>TERM NOTE B</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>$1,000,000</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN=RIGHT><FONT SIZE=2>December 9, 2009<BR>
 Minneapolis, Minnesota</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FOR
VALUE RECEIVED, ELECTROMED, INC., a corporation organized under the laws of the
State of Minnesota hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the &#147;Bank&#148;) at its main office in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to) the principal amount of ONE MILLION AND
NO/100 DOLLARS ($1,000,000.00) and to pay interest (computed on the basis of
actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rates and times
set forth in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
principal hereof is payable as provided in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
note is the Term Note B referred to in the Credit Agreement dated as of
December 9, 2009 (as the same may hereafter be from time to time amended,
restated or otherwise modified, the &#147;Credit Agreement&#148;) between the undersigned
and the Bank. This note is secured and its maturity is subject to acceleration,
in each case upon the terms provided in said Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of default hereunder, the undersigned agrees to pay all costs and
expenses of collection, including reasonable attorneys&#146; fees. The undersigned
waives demand, presentment, notice of nonpayment, protest, notice of protest
and notice of dishonor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THE
VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF,, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="90%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="4%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="46%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1><img src="a101390001_v1.jpg" alt="-s- Robert D. Hansen"></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=2>Name: Robert D. Hansen</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P><FONT SIZE=2>Title: Chief Executive Officer</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>11
<FILENAME>elmd101390s1_ex10-5.htm
<DESCRIPTION>SECURITY AGREEMENT BETWEEN ELECTROMED, INC. AND U.S. BANK N.A.
<TEXT>

<HTML>
<HEAD><TITLE>Exhibit 10.5 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 10.5</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3><B>SECURITY
AGREEMENT</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS
SECURITY 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 &#147;Grantor&#148;), to U.S. BANK NATIONAL ASSOCIATION, a national banking
association (the &#147;Secured Party&#148;).</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>RECITALS</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Grantor and the Secured Party have entered into a Credit Agreement dated as of
December 9, 2009 (as the same may hereafter be amended, supplemented, extended,
restated, or otherwise modified from time to time, the &#147;Credit Agreement&#148;)
pursuant to which the Secured Party has agreed to extend to the Grantor certain
credit accommodations consisting of a revolving credit facility and two term
loan facilities.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 Grantor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Grantor finds it advantageous, desirable and in its best interests to comply
with the requirement that it execute and deliver this Security Agreement to the
Secured Party.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 Grantor thereunder, the Grantor hereby agrees with the Secured Party for
the Secured Party&#146;s benefit as follows:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Section 1.
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Defined Terms</U>.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;l (a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
 used in this Agreement, the following terms shall have the meanings
 indicated:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Account</U>&#148;
 means a right to payment of a monetary obligation, whether or not earned by
 performance, (i) for property that has been or is to be sold, leased,
 licensed, assigned, or otherwise disposed of, (ii) for services rendered or
 to be rendered, (iii) for a policy of insurance issued or to be issued, (iv)
 for a secondary obligation incurred or to be incurred, (v) for energy
 provided or to be provided, (vi) for the use or hire of a vessel under a
 charter or other contract, (vii) arising out of the use of a credit or charge
 card or information contained on or for use with the card, or (viii) as
 winnings in a lottery or other game of chance operated, sponsored, licensed
 or authorized by a State or governmental unit of a State, or person licensed
 or authorized to operate the game by a State or governmental unit of a State.
 The term includes health-care insurance receivables.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Account
 Debtor</U>&#148; shall mean a Person who is obligated on or under any Account,
 Chattel Paper, Instrument or General Intangible.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Chattel
 Paper</U>&#148; shall mean a record or records that evidence both a monetary
 obligation and a security interest in specific goods, a security interest in
 specific goods and software used in the goods, a security interest in
 specific goods and license of software used in the goods, a lease of specific
 goods, or a lease of specific goods and license of software used in the
 goods.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Collateral</U>&#148;
 shall mean all property and rights in property now owned or hereafter at any
 time acquired by the Grantor in or upon which a Security Interest is granted
 to the Secured Party by the Grantor under this Agreement.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Deposit
 Account</U>&#148; shall mean any demand, time, savings, passbook or similar
 account maintained with a bank.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Document</U>&#148;
 shall mean a document of title or a warehouse receipt.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Equipment</U>&#148;
 shall mean all machinery, equipment, motor vehicles, furniture, furnishings
 and fixtures, including all accessions, accessories and attachments thereto,
 and any guaranties, warranties, indemnities and other agreements of
 manufacturers, vendors and others with respect to such Equipment.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Event
 of Default</U>&#148; shall have the meaning given to such term in Section 18
 hereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Financing
 Statement</U>&#148; shall have the meaning given to such term in Section 4 hereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Fixtures</U>&#148;
 shall mean goods that have become so related to particular real property that
 an interest in them arises under real property law.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>General
 Intangibles</U>&#148; shall mean any personal property (other than goods,
 Accounts, Chattel Paper, Deposit Accounts, Documents, Instruments, Investment
 Property, Letter of Credit Rights and money) including things in action,
 contract rights, payment intangibles, software, corporate and other business
 records, inventions, designs, patents, patent applications, service marks,
 trademarks, tradenames, trade secrets, internet domain names, engineering
 drawings, good will, registrations, copyrights, licenses, franchises,
 customer lists, tax refund claims, royalties, licensing and product rights,
 rights to the retrieval from third parties of electronically processed and recorded
 data and all rights to payment resulting from an order of any court.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Instrument</U>&#148;
 shall mean a negotiable instrument or any other writing which evidences a
 right to the payment of a monetary obligation and is not itself a security
 agreement or lease and is of a type which is transferred in the ordinary
 course of business by delivery with any necessary endorsement or assignment.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Inventory</U>&#148;
 shall mean goods, other than farm products, which are leased by a person as
 lessor, are held by a person for sale or lease or to be furnished under a
 contract of service, are furnished by a person under a contract of service,</FONT></P>
 </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>or consist of raw materials, work in process, or
 materials used or consumed in a business or incorporated or consumed in the
 production of any of the foregoing and supplies, in each case wherever the
 same shall be located, whether in transit, on consignment, in retail outlets,
 warehouses, terminals or otherwise, and all property the sale, lease or other
 disposition of which has given rise to an Account and which has been returned
 to the Grantor or repossessed by the Grantor or stopped in transit.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Investment
 Property</U>&#148; shall mean a security, whether certificated or uncertificated,
 a security entitlement, a securities account and all financial assets
 therein, a commodity contract or a commodity account.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Letter
 of Credit Right</U>&#148; shall mean a right to payment or performance under a
 letter of credit, whether or not the beneficiary has demanded or is at the
 time entitled to demand payment or performance.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Lien</U>&#148;
 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Obligations</U>&#148;
 shall mean (a) all indebtedness, liabilities and obligations of the Grantor
 to the Secured Party of every kind, nature or description under the Credit
 Agreement, including the Grantor&#146;s obligation on any promissory note or notes
 under the Credit Agreement and any note or notes hereafter issued in
 substitution or replacement thereof, (b) all liabilities of the Grantor under
 this Agreement, and (c) any and all other liabilities and obligations of the
 Grantor 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Person</U>&#148;
 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Security
 Interest</U>&#148; shall have the meaning given such term in Section 2 hereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1
 (b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All other terms used in this Agreement which
 are not specifically defined herein shall have the meaning assigned to such
 terms in Article 9 of the Uniform Commercial Code as in effect in the State
 of Minnesota</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1
 (c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless the context of this Agreement
 otherwise clearly requires, references to the plural include the singular,
 the singular, the plural and &#147;or&#148; has the</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="85%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>inclusive meaning represented by the phrase
 &#147;and/or.&#148; The words &#147;include,&#148; &#147;includes&#148; and &#147;including&#148; shall be deemed to
 be followed by the phrase &#147;without limitation.&#148; The words &#147;hereof,&#148; &#147;herein,&#148;
 &#147;hereunder&#148; 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 Security Agreement unless
 otherwise provided.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=4 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Grant of Security Interest</U>. As
 security for the payment and performance of all of the Obligations, the
 Grantor hereby grants to the Secured Party a security interest (the &#147;Security
 Interest&#148;) in all of the Grantor&#146;s right, title, and interest in and to the
 following, whether now or hereafter owned, existing, arising or acquired and
 wherever located:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(a)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Accounts.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(b)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Chattel Paper.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(c)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Deposit Accounts</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(d)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Documents.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(e)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Equipment.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(f)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Fixtures</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(g)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All General Intangibles.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(h)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Instruments.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(i)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Inventory.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(j)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Investment Property</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(k)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Letter of Credit Rights</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>2(1)&nbsp;&nbsp;&nbsp;&nbsp;To the extent not
 otherwise included in the foregoing, all other rights to the payment of
 money, including rents and other sums payable to the Grantor under leases,
 rental agreements and other Chattel Paper; all books, correspondence, credit
 files, records, invoices, bills of lading, and other documents relating to
 any of the foregoing, including, without limitation, all tapes, cards, disks,
 computer software, computer runs, and other papers and documents in the
 possession or control of the Grantor or any computer bureau from time to time
 acting for the Grantor; all rights in, to and under all policies insuring the
 life of any officer, director, stockholder or employee of the Grantor, the
 proceeds of which are payable to the Grantor; all accessions and additions
 to, parts and appurtenances of, substitutions for and replacements of any of
 the foregoing; and all proceeds (including insurance proceeds) and products
 thereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>Section 3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Grantor
 Remains Liable</U>. Anything herein to the contrary notwithstanding, (a) the
 Grantor shall remain liable under the Accounts, Chattel Paper, General
 Intangibles and</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>other items included in the Collateral to the extent
set forth therein to perform all of its duties and obligations thereunder to
the same extent as if this Agreement had not been executed, (b) the exercise by
the Secured Party of any of the rights hereunder shall not release the Grantor
from any of its duties or obligations under the Accounts or any other items
included in the Collateral, and (c) the Secured Party shall have no obligation
or liability under Accounts, Chattel Paper, General Intangibles and other items
included in the Collateral by reason of this Agreement, nor shall the Secured
Party be obligated to perform any of the obligations or duties of the Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Title to
Collateral</U>. The Grantor has (or will have at the time it acquires rights in
Collateral hereafter acquired or arising) and will maintain so long as the
Security Interest may remain outstanding, title to each item of Collateral
(including the proceeds and products thereof), free and clear of all Liens
except the Security Interest and except Liens permitted by the Credit
Agreement. The Grantor will not license any Collateral. The Grantor will defend
the Collateral against all claims or demands of all Persons (other than the
Secured Party) claiming the Collateral or any interest therein. As of the date
of execution of this Security Agreement, no effective financing statement or
other similar document used to perfect and preserve a security interest under
the laws of any jurisdiction (a &#147;Financing Statement&#148;) covering all or any part
of the Collateral is on file in any recording office, except such as may have
been filed (a) in favor of the Secured Party relating to this Agreement, or (b)
to perfect Liens permitted by the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Disposition of
Collateral</U>. The Grantor will not sell, lease or otherwise dispose of, or
discount or factor with or without recourse, any Collateral, except for sales
of items of Inventory in the ordinary course of business and dispositions of
Equipment which are immediately replaced with comparable replacement equipment.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Names,
Offices, Locations, Jurisdiction of Organization</U>. The Grantor&#146;s legal name
(as set forth in its constituent documents filed with the appropriate
governmental official or agency) is as set forth in the opening paragraph
hereof. The jurisdiction of organization of the Grantor is the state of
Minnesota, and the organizational number of the Grantor is set forth on the
signature page of this Agreement. The Grantor will from time to time at the
request of the Secured Party provide the Secured Party with current good
standing certificates and/or state-certified constituent documents from the
appropriate governmental officials. The chief place of business and chief
executive office of Grantor are located at its address set forth on the
signature page hereof. The Grantor will not locate or relocate any item of Collateral
into any jurisdiction in which an additional Financing Statement would be
required to be filed to maintain the Secured Party&#146;s perfected security
interest in such Collateral. The Grantor will not change its name, the location
of its chief place of business and chief executive office or its corporate
structure (including without limitation, its jurisdiction of organization)
unless the Secured Party has been given at least 30 days prior written notice
thereof and the Grantor has executed and delivered to the Secured Party such
Financing Statements and other instruments required or appropriate to continue
the perfection of the Security Interest.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Rights to
Payment</U>. Except as the Grantor may otherwise advise the Secured Party in
writing, each Account, Chattel Paper, Document, General Intangible and
Instrument constituting or evidencing Collateral is (or, in the case of all
future Collateral, will be</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>when arising or issued) the valid, genuine and legally
enforceable obligation of the Account Debtor or other obligor named therein or
in the Grantor&#146;s records pertaining thereto as being obligated to pay or
perform such obligation. Without the Secured Party&#146;s prior written consent, the
Grantor will not agree to any modifications, amendments, subordinations,
cancellations or terminations of the obligations of any such Account Debtors or
other obligors except in the ordinary course of business and in amounts not
exceeding $25,000 per Account Debtor or other obligor in any calendar year. The
Grantor will perform and comply in all material respects with all its
obligations under any items included in the Collateral and exercise promptly
and diligently its rights thereunder.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Further
Assurances; Attorney-in-Fact</U>.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Grantor agrees that from time to time, at its expense, it 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 granted or
 purported to be granted hereby 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 Grantor execute and deliver such
 instrument 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).
 Without limiting the generality of the foregoing, the Grantor will, promptly
 and from time to time at the request of the Secured Party: (i) execute and
 file such Financing Statements or continuation statements in respect thereof,
 or amendments thereto, and such other instruments or notices (including
 fixture filings with any necessary legal descriptions as to any goods
 included in the Collateral which the Secured Party determines might be deemed
 to be fixtures, and instruments and notices with respect to vehicle titles),
 as may be necessary or desirable, or as the Secured Party may request, in
 order to perfect, preserve, and enhance the Security Interest granted or
 purported to be granted hereby; (ii) obtain from any bailee holding any item
 of Collateral an acknowledgement, in form satisfactory to the Secured Party
 that such bailee holds such collateral for the benefit of the Secured Party;
 (iii) obtain from any securities intermediary, or other party holding any
 item of Collateral, control agreements in form satisfactory to the Secured
 Party (iv) and deliver and pledge to the Secured Party, all Instruments and
 Documents, duly indorsed or accompanied by duly executed instruments of
 transfer or assignment, with full recourse to the Grantor, all in form and
 substance satisfactory to the Secured Party; (v) obtain waivers, in form
 satisfactory to the Secured Party, of any claim to any Collateral from any
 landlords or mortgagees of any property where any Inventory or Equipment is
 located.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Grantor hereby authorizes the Secured Party to file one or more Financing
 Statements or continuation statements in respect thereof, and amendments thereto,
 relating to all or any part of the Collateral without the signature of the
 Grantor where permitted by law. The Grantor irrevocably waives any right to
 notice of any such filing. A photocopy or other reproduction of this
 Agreement or any Financing Statement covering the Collateral or any part
 thereof shall be sufficient as a Financing Statement where permitted by law.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Grantor will furnish to the Secured Party from time to time statements and
 schedules further identifying and describing the Collateral and such other
 reports in connection with the Collateral as the Secured Party may reasonably
 request, all in reasonable detail and in form and substance reasonably
 satisfactory to the Secured Party.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
 furtherance, and not in limitation, of the other rights, powers and remedies
 granted to the Secured Party in this Agreement, the Grantor hereby appoints
 the Secured Party the Grantor&#146;s attorney-in-fact, with full authority in the
 place and stead of Grantor and in the name of Grantor or otherwise, from time
 to time in the Secured Party&#146;s good faith discretion, to take any action
 (including the right to collect on any Collateral) and to execute any
 instrument that the Secured Party may reasonably believe is necessary or
 advisable to accomplish the purposes of this Agreement, in a manner
 consistent with the terms hereof.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Taxes and
Claims</U>. The Grantor will promptly pay all taxes and other governmental
charges levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest, as well as
all other claims of any kind (including claims for labor, material and
supplies) against or with respect to the Collateral, except to the extent (a)
such taxes, charges or claims are being contested in good faith by appropriate
proceedings, (b) such proceedings do not involve any material danger of the
sale, forfeiture or loss of any of the Collateral or any interest therein and
(c) such taxes, charges or claims are adequately reserved against on the
Grantor&#146;s books in accordance with generally accepted accounting principles.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Books and
Records</U>. The Grantor will keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral, including a record of all
payments received and credits granted with respect to all Accounts, Chattel
Paper and other items included in the Collateral.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Inspection,
Reports, Verifications</U>. The Grantor will at all reasonable times permit the
Secured Party or its representatives to examine or inspect any Collateral, any
evidence of Collateral and the Grantor&#146;s books and records concerning the
Collateral, wherever located. The Borrower shall pay for (a) one collateral
exam per calendar year and (b) any expenses incurred by the Bank pursuant to
its rights of examination and inspection under the preceding sentence at the
time an Event of Default has occurred and is continuing. The Grantor will from
time to time when requested by the Secured Party furnish to the Secured Party a
report on its Accounts, Chattel Paper, General Intangibles and Instruments,
naming the Account Debtors or other obligors thereon, the amount due and the
aging thereof. The Secured Party or its designee is authorized to contact
Account Debtors and other Persons obligated on any such Collateral from time to
time to verify the existence, amount and/or terms of such Collateral.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notice of
Loss</U>. The Grantor will promptly notify the Secured Party of any loss of or
material damage to any material item of Collateral or of any substantial
adverse change, known to Grantor, in any material item of Collateral or the
prospect of payment or performance thereof.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>7</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>



<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Insurance.</U> The Grantor will keep the
Collateral insured as required in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Lawful Use; Fair Labor Standards Act.</U>
The Grantor will use and keep the Collateral, and will require that others use
and keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance. All Inventory of the Grantor
as of the date of this Agreement that was produced by the Grantor or with
respect to which the Grantor performed any manufacturing or assembly process
was produced by the Grantor (or such manufacturing or assembly process was
conducted) in compliance in all material respects with all requirements of the
Fair Labor Standards Act, and all Inventory produced, manufactured or assembled
by the Grantor after the date of this Agreement will be so produced,
manufactured or assembled, as the case may be.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Action by the Secured Party.</U> If the
Grantor at any time fails to perform or observe any of the foregoing
agreements, the Secured Party shall have (and the Grantor hereby grants to the
Secured Party) the right, power and authority (but not the duty) to perform or
observe such agreement on behalf and in the name, place and stead of the
Grantor (or, at the Secured Party&#146;s option, in the Secured Party&#146;s name) and to
take any and all other actions which the Secured Party may reasonably deem
necessary to cure or correct such failure (including, without limitation, the
payment of taxes, the satisfaction of Liens, the procurement and maintenance of
insurance, the execution of assignments, security agreements and Financing
Statements, and the indorsement of instruments); and the Grantor shall
thereupon pay to the Secured Party on demand the amount of all monies expended
and all costs and expenses (including reasonable attorneys&#146; fees and legal
expenses) incurred by the Secured Party in connection with or as a result of
the performance or observance of such agreements or the taking of such action
by the Secured Party, together with interest thereon from the date expended or
incurred at the highest lawful rate then applicable to any of the Obligations,
and all such monies expended, costs and expenses and interest thereon shall be
part of the Obligations secured by the Security Interest.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
16.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Insurance Claims.</U> As additional
security for the payment and performance of the Obligations, the Grantor hereby
assigns to the Secured Party any and all monies (including proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Grantor with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto. At any time, whether
before or after the occurrence of any Event of Default, the Secured Party may
(but need not), in the Secured Party&#146;s name or in Grantor&#146;s name, execute and
deliver proofs of claim, receive all such monies, indorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Notwithstanding any of the foregoing, so long as no Event of Default exists the
Grantor shall be entitled to all insurance proceeds with respect to Equipment
or Inventory provided that such proceeds are applied to the cost of replacement
Equipment or Inventory.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>The Secured Party&#146;s Duties.</U> 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</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>8</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>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, redemptions, tenders and the like
requested in writing by the Grantor with respect to the Collateral in the
Secured Party&#146;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
with respect to the taking of any necessary steps to preserve rights against
any Persons or any other rights pertaining to any Collateral.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
18.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Default.</U> Each of the following
occurrences shall constitute an &#147;<U>Event of Default</U>&#148; under this Agreement:
(a) the Grantor shall fail to observe or perform any covenant or agreement
applicable to the Grantor under this Agreement; or (b) any representation or
warranty made by the Grantor in this Agreement or any schedule, exhibit,
supplement or attachment hereto or in any financial statements, or reports or
certificates heretofore or at any time hereafter submitted by or on behalf of
the Grantor to the Secured Party shall prove to have been false or materially
misleading when made; or (c) any Event of Default shall occur under the Credit
Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
19.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Remedies on Default.</U> Upon the
occurrence of an Event of Default and at any time thereafter:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Secured Party may exercise and enforce any and all rights and remedies
 available upon default to a secured party under Article 9 of the Uniform
 Commercial Code as in effect in the State of Minnesota</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Secured Party shall have the right to enter upon and into and take possession
 of all or such part or parts of the properties of the Grantor, including
 lands, plants, buildings, Equipment, Inventory and other property as may be
 necessary or appropriate in the judgment of the Secured Party to permit or
 enable the Secured Party to manufacture, produce, process, store or sell or
 complete the manufacture, production, processing, storing or sale of all or
 any part of the Collateral, as the Secured Party may elect, and to use and
 operate said properties for said purposes and for such length of time as the
 Secured Party may deem necessary or appropriate for said purposes without the
 payment of any compensation to Grantor therefor. The Secured Party may
 require the Grantor to, and the Grantor hereby agrees that it will, at its
 expense and upon request of the Secured Party forthwith, assemble all or part
 of the Collateral as directed by the Secured Party and make it available to
 the Secured Party at a place or places to be designated by the Secured Party.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>9</FONT></P>

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<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 disposition of Collateral may be in one or more parcels at public or private
 sale, at any of the Secured Party&#146;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 Secured Party
 shall not be obligated to dispose of Collateral regardless of notice of sale
 having been given, and the Secured Party may adjourn any public or private
 sale from time to time by announcement made at the time and place fixed
 therefor, and such disposition may, without further notice, be made at the
 time and place to which it was so adjourned.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Secured Party is hereby granted a license or other right to use, without
 charge, all of the Grantor&#146;s property, including, without limitation, all of
 the Grantor&#146;s labels, trademarks, copyrights, patents and advertising matter,
 or any property of a similar nature, as it pertains to the Collateral, in
 completing production of, advertising for sale and selling any Collateral,
 and the Grantor&#146;s rights under all licenses and all franchise agreements
 shall inure to the Secured Party&#146;s benefit until the Obligations are paid in
 full.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
 notice to the Grantor of any intended disposition of Collateral or any other
 intended action is required by law in a particular instance, such notice
 shall be deemed commercially reasonable if given in the manner specified for
 the giving of notice in Section 24 hereof at least ten calendar days prior to
 the date of intended disposition or other action, and the Secured Party may
 exercise or enforce any and all other rights or remedies available by law or
 agreement against the Collateral, against the Grantor, or against any other
 Person or property. The Secured Party (i) may dispose of the Collateral in
 its then present condition or following such preparation and processing as
 the Secured Party deems commercially reasonable, (ii) shall have no duty to
 prepare or process the Collateral prior to sale, (iii) may disclaim
 warranties of title, possession, quiet enjoyment and the like, and (iv) may
 comply with any applicable state or federal law requirements in connection
 with a disposition of the Collateral and none of the foregoing actions shall
 be deemed to adversely affect the commercial reasonableness of the
 disposition of the Collateral.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
20.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Remedies as to Certain Rights to Payment.</U>
Upon the occurrence of an Event of Default and at any time thereafter the
Secured Party may notify any Account Debtor or other Person obligated on any
Accounts or other Collateral that the same have 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 Grantor shall join
in giving such notice, if the Secured Party so requests. The Secured Party may,
in the Secured Party&#146;s name or in the Grantor&#146;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 Account Debtor or other Person. If any
payments on any such Collateral are received by the Grantor after an Event of
Default has occurred, such payments shall be held in trust by the Grantor as
the property of the Secured Party and shall not be commingled with any funds or
property of the Grantor and shall be forthwith remitted to the Secured Party
for application on the Obligations.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>10</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
21.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Application of Proceeds.</U> 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, without
limitation, any expenses of the Secured Party payable pursuant to Section 22
hereof).</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
22.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Costs and Expenses; Indemnity.</U> The
Grantor 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, taxes, charges and disbursements
of outside counsel to the Secured Party (determined on the basis of such
counsel&#146;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, collection or
enforcement of the Security Interest and the preparation, administration,
continuance, amendment or enforcement of this Agreement, and all such costs and
expenses shall be part of the Obligations secured by the Security Interest. The
Grantor shall indemnify and hold the Secured Party harmless from and against
any and all claims, losses and liabilities (including reasonable attorneys&#146;
fees) growing out of or resulting from this Agreement and the Security Interest
hereby created (including enforcement of this Agreement) or the Secured Party&#146;s
actions pursuant hereto, except claims, losses or liabilities resulting from
the Secured Party&#146;s gross negligence or willful misconduct as determined by a
final judgment of a court of competent jurisdiction. Any liability of the
Grantor to indemnify and hold the Secured Party harmless pursuant to the
preceding sentence shall be part of the Obligations secured by the Security
Interest. The obligations of the Grantor under this Section shall survive any
termination of this Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
23.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waivers; Remedies; Marshalling.</U> 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&#146;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. The Grantor 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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
24.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notices.</U> Any notice or other
communication to any party in connection with this Agreement shall be in
writing and shall be sent by manual delivery, facsimile transmission, overnight
courier or United States mail (postage prepaid) addressed to such party at the
address specified on the signature page hereof, or at such other address as
such party shall have specified to the other party hereto in writing. All
periods of notice shall be measured from the date of delivery thereof if
manually delivered, from the date of sending thereof if sent by facsimile
transmission, from the first business day after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>11</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
25.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Grantor Acknowledgments.</U> The Grantor
hereby acknowledges that (a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement, (b) the Secured Party has no
fiduciary relationship to the Grantor, the relationship being solely that of
debtor and creditor, and (c) no joint venture exists between the Grantor and
the Secured Party.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
26.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Continuing Security Interest; Assignments
under Credit Agreement.</U> This Agreement shall (a) create a continuing
security interest in the Collateral and shall remain in full force and effect
until payment in full of the Obligations and the expiration of the obligations,
if any, of the Secured Party to extend credit accommodations to the Grantor,
(b) be binding upon the Grantor, its successors and assigns, and (c) inure 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
Persons 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 Security
Agreement to such Persons.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
27.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination of Security Interest.</U> Upon
payment in full of the Obligations and the expiration of any obligation of the
Secured Party to extend credit accommodations to the Grantor, the Security
Interest granted hereby shall terminate. Upon any such termination, the Secured
Party will return to the Grantor such of the Collateral then in the possession
of the Secured Party as shall not have been sold or otherwise applied pursuant
to the terms hereof and execute and deliver to the Grantor such documents as
the Grantor shall reasonably request to evidence such termination. Any
reversion or return of Collateral upon termination of this Agreement and any
instruments of transfer or termination shall be at the expense of the Grantor
and shall be without warranty by, or recourse on, the Secured Party. As used in
this Section, &#147;Grantor&#148; includes any assigns of Grantor, any Person holding a
subordinate security interest in any of the Collateral or whoever else may be
lawfully entitled to any part of the Collateral.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
28.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Governing
Law and Construction.</U> THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA,
WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, 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. </B>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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
29.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Consent
to Jurisdiction.</U> AT THE OPTION OF THE SECURED PARTY, THIS AGREEMENT
MAY BE ENFORCED IN ANY FEDERAL COURT OR</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>12</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>MINNESOTA
STATE COURT SITTING IN HENNEPIN COUNTY; AND THE GRANTOR 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 GRANTOR 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.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
30.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Waiver of
Notice and Hearing.</U> THE GRANTOR HEREBY WAIVES ALL RIGHTS TO A
JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE SECURED PARTY OF ITS
RIGHTS TO POSSESSION OF THE COLLATERAL WITHOUT JUDICIAL PROCESS OR OF ITS
RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR
HEARING. THE GRANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS
CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
31.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Waiver of
Jury Trial.</U> EACH OF THE GRANTOR 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.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
32.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts.</U> 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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
33.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>General.</U> All representations and
warranties contained in this Agreement or in any other agreement between the
Grantor and the Secured Party shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the Obligations.
The Grantor 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.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>[The remainder of
this page has been left blank intentionally.]</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>13</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, the Grantor has caused this Security Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="90%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="67%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="29%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=bottom>
 <P><FONT SIZE=2>By:&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=bottom STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
  <P>&nbsp;<img src="a101390001a_v1.jpg" alt="-s- Robert D. Hansen"></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Name: Robert D. Hansen </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Title: Chief Executive Officer</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Address:</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>500 Sixth Avenue NW <BR>
 New Prague, MN 56071 <BR>
 ATTN: Robert D. Hansen <BR>
 Fax Number: 952-758-1941</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Address for the Lender:</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>U.S. Bank National Association <BR>
 BC-MN-H03W <BR>
 800 Nicollet Mall <BR>
 Minneapolis, MN 55402-4302 <BR>
 ATTN: Daniel J. Miller <BR>
 Fax Number: 612-303-2252</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>[Signature Page to
Security Agreement]</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>12
<FILENAME>elmd101390s1_ex10-6.htm
<DESCRIPTION>SECURITY AGREEMENT BETWEEN ELECTROMED FINANCIAL, LLC AND U.S. BANK N.A.
<TEXT>

<HTML>
<HEAD><TITLE>Exhibit 10.6 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 10.6</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3><B>SECURITY
AGREEMENT</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS
SECURITY AGREEMENT, dated as of December 9, 2009, is made and given by
ELECTROMED FINANCIAL, LLC, a limited liability company organized under the laws
of the State of Minnesota (the &#147;Grantor&#148;), to U.S. BANK NATIONAL ASSOCIATION, a
national banking association (the &#147;Secured Party&#148;).</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>RECITALS</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Electromed,
Inc., a Minnesota corporation (the &#147;Debtor&#148;), and the Secured Party have
entered into a Credit Agreement dated as of December 9, 2009 (as the same may hereafter
be amended, restated, or otherwise modified from time to time, the &#147;Credit
Agreement&#148;) pursuant to which the Secured Party has agreed to extend to the
Debtor certain credit accommodations consisting of a revolving facility and two
term loan facilities.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 Grantor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Grantor is a majority-owned subsidiary of the Debtor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Grantor expects to derive benefits from the extension of credit accommodations
to the Debtor by the Secured Party and finds it advantageous, desirable and in
its best interests to execute and deliver this Security Agreement to the
Secured Party.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW,
THEREFORE, in consideration of the premises and in order to induce the Secured
Party to extend or continue credit accommodations to the Debtor, the Grantor
hereby agrees with the Secured Party for the Secured Party&#146;s benefit as
follows:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Defined Terms</U>.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="6%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="89%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As used in this Agreement, the following terms shall have the meanings
 indicated:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Account</U>&#148;
 means a right to payment of a monetary obligation, whether or not earned by
 performance, (i) for property that has been or is to be sold, leased,
 licensed, assigned, or otherwise disposed of, (ii) for services rendered or
 to be rendered, (iii) for a policy of insurance issued or to be issued, (iv)
 for a secondary obligation incurred or to be incurred, (v) for energy
 provided or to be provided, (vi) for the use or hire of a vessel under a
 charter or other contract, (vii) arising out of the use of a credit or charge
 card or information contained on or for use with the card, or (viii) as
 winnings in a lottery or other game of chance operated, sponsored, licensed
 or authorized by a State or governmental unit of a State, or person licensed
 or authorized to operate the game by a State or governmental unit of a State.
 The term includes health-care insurance receivables.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Account
 Debtor</U>&#148; shall mean a Person who is obligated on or under any Account,
 Chattel Paper, Instrument or General Intangible.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="6%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="89%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Chattel
 Paper</U>&#148; shall mean a record or records that evidence both a monetary
 obligation and a security interest in specific goods, a security interest in
 specific goods and software used in the goods, a security interest in
 specific goods and license of software used in the goods, a lease of specific
 goods, or a lease of specific goods and license of software used in the
 goods.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Collateral</U>&#148;
 shall mean all property and rights in property now owned or hereafter at any
 time acquired by the Grantor in or upon which a Security Interest is granted
 to the Secured Party by the Grantor under this Agreement.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Deposit
 Account</U>&#148; shall mean any demand, time, savings, passbook or similar
 account maintained with a bank.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Document</U>&#148;
 shall mean a document of title or a warehouse receipt.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Equipment</U>&#148;
 shall mean all machinery, equipment, motor vehicles, furniture, furnishings
 and fixtures, including all accessions, accessories and attachments thereto,
 and any guaranties, warranties, indemnities and other agreements of
 manufacturers, vendors and others with respect to such Equipment.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Event
 of Default</U>&#148; shall have the meaning given to such term in Section 18
 hereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Financing
 Statement</U>&#148; shall have the meaning given to such term in Section 4 hereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Fixtures</U>&#148;
 shall mean goods that have become so related to particular real property that
 an interest in them arises under real property law.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>General
 Intangibles</U>&#148; shall mean any personal property (other than goods,
 Accounts, Chattel Paper, Deposit Accounts, Documents, Instruments, Investment
 Property, Letter of Credit Rights and money) including things in action,
 contract rights, payment intangibles, software, corporate and other business
 records, inventions, designs, patents, patent applications, service marks,
 trademarks, tradenames, trade secrets, internet domain names, engineering
 drawings, good will, registrations, copyrights, licenses, franchises,
 customer lists, tax refund claims, royalties, licensing and product rights,
 rights to the retrieval from third parties of electronically processed and
 recorded data and all rights to payment resulting from an order of any court.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Instrument</U>&#148;
 shall mean a negotiable instrument or any other writing which evidences a
 right to the payment of a monetary obligation and is not itself a security
 agreement or lease and is of a type which is transferred in the ordinary
 course of business by delivery with any necessary endorsement or assignment.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Inventory</U>&#148;
 shall mean goods, other than farm products, which are leased by a person as
 lessor, are held by a person for sale or lease or to be furnished under a
 contract of service, are furnished by a person under a contract of service,</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="6%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="89%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>or consist of raw materials, work in process, or
 materials used or consumed in a business or incorporated or consumed in the
 production of any of the foregoing and supplies, in each case wherever the
 same shall be located, whether in transit, on consignment, in retail outlets,
 warehouses, terminals or otherwise, and all property the sale, lease or other
 disposition of which has given rise to an Account and which has been returned
 to the Grantor or repossessed by the Grantor or stopped in transit.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Investment
 Property</U>&#148; shall mean a security, whether certificated or uncertificated,
 a security entitlement, a securities account and all financial assets
 therein, a commodity contract or a commodity account.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Letter
 of Credit Right</U>&#148; shall mean a right to payment or performance under a
 letter of credit, whether or not the beneficiary has demanded or is at the
 time entitled to demand payment or performance.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Lien</U>&#148;
 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Obligations</U>&#148;
 shall mean (a) all indebtedness, liabilities and obligations of the Debtor to
 the Secured Party of every kind, nature or description under the Credit
 Agreement, including the Debtor&#146;s obligation on any promissory note or notes
 under the Credit Agreement and any note or notes hereafter issued in
 substitution or replacement thereof, (b) any and all other liabilities and
 obligations of the Debtor 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 (c) all liabilities of the Grantor under this Agreement, and in all of
 the foregoing cases whether due or to become due, and whether now existing or
 hereafter arising or incurred.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Person</U>&#148;
 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Security
 Interest</U>&#148; shall have the meaning given such term in Section 2 hereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;l(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
 other terms used in this Agreement which are not specifically defined herein
 shall have the meaning assigned to such terms in Article 9 of the Uniform
 Commercial Code as in effect in the State of Minnesota</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless
 the context of this Agreement otherwise clearly requires, references to the
 plural include the singular, the singular, the plural and &#147;or&#148; has the</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>inclusive meaning represented by the phrase
 &#147;and/or.&#148; The words &#147;include,&#148; &#147;includes&#148; and &#147;including&#148; shall be deemed to
 be followed by the phrase &#147;without limitation.&#148; The words &#147;hereof,&#148; &#147;herein,&#148;
 &#147;hereunder&#148; 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 Security Agreement unless
 otherwise provided.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Grant of
 Security Interest</U>. As security for the payment and performance of all of
 the Obligations, the Grantor hereby grants to the Secured Party a security
 interest (the &#147;Security Interest&#148;) in all of the Grantor&#146;s right, title, and
 interest in and to the following, whether now or hereafter owned, existing,
 arising or acquired and wherever located:</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="7%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="83%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(a)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Accounts.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(b)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Chattel Paper.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(c)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Deposit Accounts</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(d)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Documents.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(e)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Equipment.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(f)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Fixtures</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(g)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All General Intangibles.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(h)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Instruments.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(i)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Inventory.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(j)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Investment Property</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>2(k)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>All Letter of Credit Rights</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>2(l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the
 extent not otherwise included in the foregoing, all other rights to the
 payment of money, including rents and other sums payable to the Grantor under
 leases, rental agreements and other Chattel Paper; all books, correspondence,
 credit files, records, invoices, bills of lading, and other documents
 relating to any of the foregoing, including, without limitation, all tapes,
 cards, disks, computer software, computer runs, and other papers and
 documents in the possession or control of the Grantor or any computer bureau
 from time to time acting for the Grantor; all rights in, to and under all
 policies insuring the life of any manager, governor, member or employee of
 the Grantor, the proceeds of which are payable to the Grantor; all accessions
 and additions to, parts and appurtenances of, substitutions for and
 replacements of any of the foregoing; and all proceeds (including insurance
 proceeds) and products thereof.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sections.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Grantor
Remains Liable</U>. Anything herein to the contrary notwithstanding, (a) the
Grantor shall remain liable under the Accounts, Chattel Paper, General
Intangibles and</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>other items included in the Collateral to the extent
set forth therein to perform all of its duties and obligations thereunder to
the same extent as if this Agreement had not been executed, (b) the exercise by
the Secured Party of any of the rights hereunder shall not release the Grantor
from any of its duties or obligations under the Accounts or any other items
included in the Collateral, and (c) the Secured Party shall have no obligation
or liability under Accounts, Chattel Paper, General Intangibles and other items
included in the Collateral by reason of this Agreement, nor shall the Secured
Party be obligated to perform any of the obligations or duties of the Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Title to
Collateral</U>. The Grantor has (or will have at the time it acquires rights in
Collateral hereafter acquired or arising) and will maintain so long as the
Security Interest may remain outstanding, title to each item of Collateral
(including the proceeds and products thereof), free and clear of all Liens
except the Security Interest and except Liens permitted by the Credit
Agreement. The Grantor will not license any Collateral. The Grantor will defend
the Collateral against all claims or demands of all Persons (other than the
Secured Party) claiming the Collateral or any interest therein. As of the date
of execution of this Security Agreement, no effective financing statement or
other similar document used to perfect and preserve a security interest under
the laws of any jurisdiction (a &#147;Financing Statement&#148;) covering all or any part
of the Collateral is on file in any recording office, except such as may have
been filed (a) in favor of the Secured Party relating to this Agreement, or (b)
to perfect Liens permitted by the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Disposition of
Collateral</U>. The Grantor will not sell, lease or otherwise dispose of, or
discount or factor with or without recourse, any Collateral, except for sales
of items of Inventory in the ordinary course of business and dispositions of
Equipment which are immediately replaced with comparable replacement equipment.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Names,
Offices, Locations, Jurisdiction of Organization</U>. The Grantor&#146;s legal name
(as set forth in its constituent documents filed with the appropriate
governmental official or agency) is as set forth in the opening paragraph
hereof. The jurisdiction of organization of the Grantor is the state of
Minnesota, and the organizational number of the Grantor is set forth on the
signature page of this Agreement. The Grantor will from time to time at the
request of the Secured Party provide the Secured Party with current good
standing certificates and/or state-certified constituent documents from the
appropriate governmental officials. The chief place of business and chief
executive office of Grantor are located at his address set forth on the
signature page hereof. The Grantor will not locate or relocate any item of Collateral
into any jurisdiction in which an additional Financing Statement would be
required to be filed to maintain the Secured Party&#146;s perfected security
interest in such Collateral. The Grantor will not change his name, the location
of his chief place of business and chief executive office or its corporate
structure (including without limitation, its jurisdiction of organization)
unless the Secured Party has been given at least 30 days prior written notice
thereof and the Grantor has executed and delivered to the Secured Party such
Financing Statements and other instruments required or appropriate to continue
the perfection of the Security Interest.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Rights to
Payment</U>. Except as the Grantor may otherwise advise the Secured Party in
writing, each Account, Chattel Paper, Document, General Intangible and
Instrument constituting or evidencing Collateral is (or, in the case of all
future Collateral, will be</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>when arising or issued) the valid, genuine and legally
enforceable obligation of the Account Debtor or other obligor named therein or
in the Grantor&#146;s records pertaining thereto as being obligated to pay or
perform such obligation. Without the Secured Party&#146;s prior written consent, the
Grantor will not agree to any modifications, amendments, subordinations,
cancellations or terminations of the obligations of any such Account Debtors or
other obligors except in the ordinary course of business and in amounts not
exceeding $25,000 per Account debtor or other obligor in any calendar year. The
Grantor will perform and comply in all material respects with all its
obligations under any items included in the Collateral and exercise promptly
and diligently its rights thereunder.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Section
 8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Further
 Assurances; Attorney-in-Fact</U>.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Grantor agrees that from time to time, at his expense, it 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
 granted or purported to be granted hereby 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 Grantor execute and
 deliver such instrument 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). Without limiting the generality of the foregoing, the Grantor
 will, promptly and from time to time at the request of the Secured Party: (i)
 execute and file such Financing Statements or continuation statements in
 respect thereof, or amendments thereto, and such other instruments or notices
 (including fixture filings with any necessary legal descriptions as to any
 goods included in the Collateral which the Secured Party determines might be
 deemed to be fixtures, and instruments and notices with respect to vehicle
 titles), as may be necessary or desirable, or as the Secured Party may
 request, in order to perfect, preserve, and enhance the Security Interest
 granted or purported to be granted hereby; (ii) obtain from any bailee
 holding any item of Collateral an acknowledgement, in form satisfactory to
 the Secured Party that such bailee holds such collateral for the benefit of
 the Secured Party; (iii) obtain from any securities intermediary, or other
 party holding any item of Collateral, control agreements in form satisfactory
 to the Secured Party (iv) and deliver and pledge to the Secured Party, all
 Instruments and Documents, duly indorsed or accompanied by duly executed instruments
 of transfer or assignment, with full recourse to the Grantor, all in form and
 substance satisfactory to the Secured Party; (v) obtain waivers, in form
 satisfactory to the Secured Party, of any claim to any Collateral from any
 landlords or mortgagees of any property where any Inventory or Equipment is
 located.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Grantor hereby authorizes the Secured Party to file one or more Financing
 Statements or continuation statements in respect thereof, and amendments
 thereto, relating to all or any part of the Collateral without the signature
 of the Grantor where permitted by law. The Grantor irrevocably waives any
 right to notice of any such filing. A photocopy or other reproduction of this
 Agreement or any Financing Statement covering the Collateral or any part
 thereof shall be sufficient as a Financing Statement where permitted by law.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Grantor will furnish to the Secured Party from time to time statements and
 schedules further identifying and describing the Collateral and such other
 reports in connection with the Collateral as the Secured Party may reasonably
 request, all in reasonable detail and in form and substance reasonably
 satisfactory to the Secured Party.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
 furtherance, and not in limitation, of the other rights, powers and remedies
 granted to the Secured Party in this Agreement, the Grantor hereby appoints
 the Secured Party the Grantor&#146;s attorney-in-fact, with full authority in the
 place and stead of Grantor and in the name of Grantor or otherwise, from time
 to time in the Secured Party&#146;s good faith discretion, to take any action
 (including the right to collect on any Collateral) and to execute any
 instrument that the Secured Party may reasonably believe is necessary or
 advisable to accomplish the purposes of this Agreement, in a manner
 consistent with the terms hereof.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Taxes and
Claims</U>. The Grantor will promptly pay all taxes and other governmental
charges levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest, as well as
all other claims of any kind (including claims for labor, material and
supplies) against or with respect to the Collateral, except to the extent (a)
such taxes, charges or claims are being contested in good faith by appropriate
proceedings, (b) such proceedings do not involve any material danger of the
sale, forfeiture or loss of any of the Collateral or any interest therein and
(c) such taxes, charges or claims are adequately reserved against on the
Grantor&#146;s books in accordance with generally accepted accounting principles.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Books and
Records</U>. The Grantor will keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral, including a record of all
payments received and credits granted with respect to all Accounts, Chattel
Paper and other items included in the Collateral.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Inspection,
Reports, Verifications</U>. The Grantor will at all reasonable times permit the
Secured Party or its representatives to examine or inspect any Collateral, any
evidence of Collateral and the Grantor&#146;s books and records concerning the
Collateral, wherever located. The Grantor will from time to time when requested
by the Secured Party furnish to the Secured Party a report on his Accounts,
Chattel Paper, General Intangibles and Instruments, naming the Account Debtors
or other obligors thereon, the amount due and the aging thereof. The Secured
Party or its designee is authorized to contact Account Debtors and other
Persons obligated on any such Collateral from time to time to verify the
existence, amount and/or terms of such Collateral.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notice of
Loss</U>. The Grantor will promptly notify the Secured Party of any loss of or
material damage to any material item of Collateral or of any substantial
adverse change, known to Grantor, in any material item of Collateral or the
prospect of payment or performance thereof.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Insurance</U>.
The Grantor will keep the Inventory and Equipment insured against &#147;all risks&#148;
for the full replacement cost thereof subject to a deductible not exceeding
$100,000 and with an insurance company or companies satisfactory to the Secured
Party, the</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>7</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2>policies to protect the Secured Party as its interests
may appear, with such policies or certificates with respect thereto to be
delivered to the Secured Party at its request. Each such policy or the
certificate with respect thereto shall provide that such policy shall not be
canceled or allowed to lapse unless at least 30 days prior written notice is
given to the Secured Party.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Lawful Use;
Fair Labor Standards Act</U>. The Grantor will use and keep the Collateral, and
will require that others use and keep the Collateral, only for lawful purposes,
without violation of any federal, state or local law, statute or ordinance. All
Inventory of the Grantor as of the date of this Agreement that was produced by
the Grantor or with respect to which the Grantor performed any manufacturing or
assembly process was produced by the Grantor (or such manufacturing or assembly
process was conducted) in compliance in all material respects with all
requirements of the Fair Labor Standards Act, and all Inventory produced,
manufactured or assembled by the Grantor after the date of this Agreement will
be so produced, manufactured or assembled, as the case may be.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Action by the
Secured Party</U>. If the Grantor at any time fails to perform or observe any
of the foregoing agreements, the Secured Party shall have (and the Grantor
hereby grants to the Secured Party) the right, power and authority (but not the
duty) to perform or observe such agreement on behalf and in the name, place and
stead of the Grantor (or, at the Secured Party&#146;s option, in the Secured Party&#146;s
name) and to take any and all other actions which the Secured Party may
reasonably deem necessary to cure or correct such failure (including, without
limitation, the payment of taxes, the satisfaction of Liens, the procurement
and maintenance of insurance, the execution of assignments, security agreements
and Financing Statements, and the indorsement of instruments); and the Grantor
shall thereupon pay to the Secured Party on demand the amount of all monies
expended and all costs and expenses (including reasonable attorneys&#146; fees and
legal expenses) incurred by the Secured Party in connection with or as a result
of the performance or observance of such agreements or the taking of such
action by the Secured Party, together with interest thereon from the date
expended or incurred at the highest lawful rate then applicable to any of the
Obligations, and all such monies expended, costs and expenses and interest
thereon shall be part of the Obligations secured by the Security Interest.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
16.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Insurance
Claims</U>. As additional security for the payment and performance of the
Obligations, the Grantor hereby assigns to the Secured Party any and all monies
(including proceeds of insurance and refunds of unearned premiums) due or to
become due under, and all other rights of the Grantor with respect to, any and
all policies of insurance now or at any time hereafter covering the Collateral
or any evidence thereof or any business records or valuable papers pertaining
thereto. At any time, whether before or after the occurrence of any Event of
Default, the Secured Party may (but need not), in the Secured Party&#146;s name or
in Grantor&#146;s name, execute and deliver proofs of claim, receive all such
monies, indorse checks and other instruments representing payment of such
monies, and adjust, litigate, compromise or release any claim against the
issuer of any such policy. Notwithstanding any of the foregoing, so long as no
Event of Default exists the Grantor shall be entitled to all insurance proceeds
with respect to Equipment or Inventory provided that such proceeds are applied
to the cost of replacement Equipment or Inventory.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>8</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>The Secured
Party&#146;s Duties</U>. 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, redemptions, tenders and the like
requested in writing by the Grantor with respect to the Collateral in the
Secured Party&#146;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
with respect to the taking of any necessary steps to preserve rights against
any Persons or any other rights pertaining to any Collateral.</FONT></P>

<P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
18.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Default</U>.
Each of the following occurrences shall constitute an &#147;<U>Event of Default</U>&#148; under
this Agreement: (a) the Grantor shall fail to observe or perform any covenant
or agreement applicable to the Grantor under this Agreement; or (b) any
representation or warranty made by the Grantor in this Agreement or any
schedule, exhibit, supplement or attachment hereto or in any financial
statements, or reports or certificates heretofore or at any time hereafter
submitted by or on behalf of the Grantor to the Secured Party shall prove to
have been false or materially misleading when made; or (c) any Event of Default
shall occur under the Credit Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
19.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Remedies on
Default</U>. Upon the occurrence of an Event of Default and at any time
thereafter:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Secured Party may exercise and enforce any and all rights and remedies
 available upon default to a secured party under Article 9 of the Uniform
 Commercial Code as in effect in the State of Minnesota</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Secured Party shall have the right to enter upon and into and take possession
 of all or such part or parts of the properties of the Grantor, including
 lands, plants, buildings, Equipment, Inventory and other property as may be
 necessary or appropriate in the judgment of the Secured Party to permit or
 enable the Secured Party to manufacture, produce, process, store or sell or
 complete the manufacture, production, processing, storing or sale of all or
 any part of the Collateral, as the Secured Party may elect, and to use and
 operate said properties for said purposes and for such length of time as the
 Secured Party may deem necessary or appropriate for said purposes without the
 payment of any compensation to Grantor therefor. The Secured Party may
 require the Grantor to, and the Grantor hereby agrees that it will, at his
 expense and upon request of the Secured Party forthwith, assemble all or part
 of the Collateral as directed by the</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>9</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Secured Party and make it available to the Secured
 Party at a place or places to be designated by the Secured Party.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 disposition of Collateral may be in one or more parcels at public or private
 sale, at any of the Secured Party&#146;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 Secured Party
 shall not be obligated to dispose of Collateral regardless of notice of sale
 having been given, and the Secured Party may adjourn any public or private
 sale from time to time by announcement made at the time and place fixed
 therefor, and such disposition may, without further notice, be made at the
 time and place to which it was so adjourned.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Secured Party is hereby granted a license or other right to use, without
 charge, all of the Grantor&#146;s property, including, without limitation, all of
 the Grantor&#146;s labels, trademarks, copyrights, patents and advertising matter,
 or any property of a similar nature, as it pertains to the Collateral, in
 completing production of, advertising for sale and selling any Collateral,
 and the Grantor&#146;s rights under all licenses and all franchise agreements
 shall inure to the Secured Party&#146;s benefit until the Obligations are paid in
 full.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
 notice to the Grantor of any intended disposition of Collateral or any other
 intended action is required by law in a particular instance, such notice
 shall be deemed commercially reasonable if given in the manner specified for
 the giving of notice in Section 19 hereof at least ten calendar days prior to
 the date of intended disposition or other action, and the Secured Party may
 exercise or enforce any and all other rights or remedies available by law or
 agreement against the Collateral, against the Grantor, or against any other
 Person or property. The Secured Party (i) may dispose of the Collateral in
 its then present condition or following such preparation and processing as
 the Secured Party deems commercially reasonable, (ii) shall have no duty to
 prepare or process the Collateral prior to sale, (iii) may disclaim
 warranties of title, possession, quiet enjoyment and the like, and (iv) may
 comply with any applicable state or federal law requirements in connection
 with a disposition of the Collateral and none of the foregoing actions shall
 be deemed to adversely affect the commercial reasonableness of the
 disposition of the Collateral.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
20.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Remedies as
to Certain Rights to Payment</U>. Upon the occurrence of an Event of Default
and at any time thereafter the Secured Party may notify any Account Debtor or
other Person obligated on any Accounts or other Collateral that the same have
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 Grantor shall join in giving such notice, if the Secured Party so
requests. The Secured Party may, in the Secured Party&#146;s name or in the
Grantor&#146;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 Account
Debtor or other Person. If any payments on any such Collateral are received by
the Grantor after an Event of Default has occurred, such payments shall be held
in trust by the Grantor as the property of the Secured Party and shall not be
commingled with any</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>10</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>funds or property of the Grantor and shall be forthwith
remitted to the Secured Party for application on the Obligations.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
21.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Application
of Proceeds</U>. 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, without limitation, any expenses of the Secured Party payable
pursuant to Section 22 hereof).</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
22.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Costs and
Expenses; Indemnity</U>. The Grantor 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,
taxes, charges and disbursements of outside counsel to the Secured Party
(determined on the basis of such counsel&#146;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, collection or enforcement of the Security Interest and the
preparation, administration, continuance, amendment or enforcement of this
Agreement, and all such costs and expenses shall be part of the Obligations
secured by the Security Interest. The Grantor shall indemnify and hold the
Secured Party harmless from and against any and all claims, losses and
liabilities (including reasonable attorneys&#146; fees) growing out of or resulting
from this Agreement and the Security Interest hereby created (including enforcement
of this Agreement) or the Secured Party&#146;s actions pursuant hereto, except
claims, losses or liabilities resulting from the Secured Party&#146;s gross
negligence or willful misconduct as determined by a final judgment of a court
of competent jurisdiction. Any liability of the Grantor to indemnify and hold
the Secured Party harmless pursuant to the preceding sentence shall be part of
the Obligations secured by the Security Interest. The obligations of the
Grantor under this Section shall survive any termination of this Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
23.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waivers;
Remedies; Marshalling</U>. 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&#146;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. The Grantor
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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
24.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waiver of
Defenses</U>. The Grantor waives the benefit of any and all defenses and
discharges available to a guarantor, surety, indorser or accommodation party,
dependent on its character as such. Without limiting the generality of the
foregoing, the Grantor (in such capacity) waives presentment, demand for
payment, and notice of nonpayment or protest of any note or any other
instrument evidencing any of the Obligations; and the Grantor</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>11</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>agrees that his liability hereunder and the Security
Interest hereby created shall not be affected or impaired in any way by any of
the following acts and things (which the Secured Party may do from time to time
without notice to the Grantor): (a) by any sale, pledge, surrender, compromise,
settlement, release, renewal, extension, indulgence, alteration, substitution,
exchange, change in, modification, or other disposition of any of the
Obligations or any evidence thereof or any collateral therefor, (b) by any
acceptance or release of collateral for or guarantors of any of the
Obligations, (c) by any failure, neglect or omission to realize upon or protect
any of the Obligations, or to obtain, perfect, enforce or realize upon any
collateral therefor, or to exercise any Lien upon or right of appropriation of
any moneys, credits or property toward the liquidation of any of the
Obligations, or (d) by any application of payments or credits upon any of the
Obligations. The Secured Party shall not be required, before exercising its
rights under this Agreement, to first resort for payment of any of the
Obligations to the Debtor or any other Persons, its or their properties or
estates, or any collateral, property, Liens or other rights or remedies
whatsoever. The Grantor agrees not to exercise any right of contribution,
recourse, subrogation or reimbursement available to the Grantor against the
Debtor or any other Person or property, unless and until all Obligations and
all other debts, liabilities and obligations owed by the Debtor and the Grantor
to the Secured Party have been paid and discharged. The Grantor expects to
derive benefits from the transactions resulting in the creation of the
Obligations. The Secured Party may rely conclusively on the continuing
warranty, hereby made, that the Grantor continues to be benefited by the
Secured Party&#146;s extension of credit accommodations to the Debtor and the
Secured Party shall have no duty to inquire into or confirm the receipt of any
such benefits, and this Agreement shall be effective and enforceable by the
Secured Party without regard to the receipt, nature or value of any such
benefits.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
25.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notices</U>.
Any notice or other communication to any party in connection with this
Agreement shall be in writing and shall be sent by manual delivery, facsimile
transmission, overnight courier or United States mail (postage prepaid)
addressed to such party at the address specified on the signature page hereof,
or at such other address as such party shall have specified to the other party
hereto in writing. All periods of notice shall be measured from the date of
delivery thereof if manually delivered, from the date of sending thereof if
sent by facsimile transmission, from the first business day after the date of
sending if sent by overnight courier, or from four days after the date of
mailing if mailed.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
26.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Grantor
Acknowledgments</U>. The Grantor hereby acknowledges that (a) it has been
advised by counsel in the negotiation, execution and delivery of this
Agreement, (b) the Secured Party has no fiduciary relationship to the Grantor,
the relationship being solely that of debtor and creditor, and (c) no joint
venture exists between the Grantor and the Secured Party.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
27.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Representations
and Warranties</U>. The Grantor hereby represents and warrants to the Secured
Party that:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Grantor is a limited liability company duly organized, validly existing and
 in good standing under the laws of the jurisdiction of its organization and
 has the corporate power and authority and the legal right to own and operate
 its properties and to conduct the business in which it is currently engaged.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>12</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Grantor has the power and authority and the legal right to execute and
 deliver, and to perform its obligations under, this Agreement and has taken
 all necessary action to authorize such execution, delivery and performance.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
 Agreement constitutes a legal, valid and binding obligation of the Grantor
 enforceable in accordance with its terms, except as enforceability may be
 limited by applicable bankruptcy, insolvency, reorganization, moratorium or
 similar laws affecting the enforcement of creditors&#146; rights generally and by
 general equitable principles (whether enforcement is sought by proceedings in
 equity or at law).</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 execution, delivery and performance of this Agreement will not (i) violate
 any provision of any law, statute, rale or regulation or any order, writ,
 judgment, injunction, decree, determination or award of any court,
 governmental agency or arbitrator presently in effect having applicability to
 the Grantor, (ii) violate or contravene any provision of the articles of
 organization of the Grantor, or (iii) result in a breach of or constitute a
 default under any indenture, loan or credit agreement or any other agreement,
 lease or instrument to which the Grantor is a party or by which it or any of
 its properties may be bound or result in the creation of any Lien thereunder.
 The Grantor is not in default under or in violation of any such law, statute,
 rule or regulation, order, writ, judgment, injunction, decree, determination
 or award or any such indenture, loan or credit agreement or other agreement,
 lease or instrument in any case in which the consequences of such default or
 violation could have a material adverse effect on the business, operations,
 properties, assets or condition (financial or otherwise) of the Grantor.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
 for filings, recordings and registrations to perfect the Security Interest,
 no order, consent, approval, license, authorization or validation of, or
 filing, recording or registration with, or exemption by, any governmental or
 public body or authority is required on the part of the Grantor to authorize,
 or is required in connection with the execution, delivery and performance of,
 or the legality, validity, binding effect or enforceability of, this
 Agreement.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
 are no actions, suits or proceedings pending or, to the knowledge of the
 Grantor, threatened against or affecting the Grantor or any of its properties
 before any court or arbitrator, or any governmental department, board, agency
 or other instrumentality which, if determined adversely to the Grantor, would
 have a material adverse effect on the business, operations, property or
 condition (financial or otherwise) of the Grantor or on the ability of the
 Grantor to perform its obligations hereunder.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
28.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Continuing
Security Interest; Assignments under Credit Agreement</U>. This Agreement shall
(a) create a continuing security interest in the Collateral and shall remain in
full force and effect until payment in full of the Obligations and the expiration
of the obligations, if any, of the Secured Party to extend credit
accommodations to the Debtor, (b) be binding upon the Grantor, its successors
and assigns, and (c) inure 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 Persons to the extent and in the</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>13</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>manner provided in the Credit Agreement and may
similarly transfer all or any portion of its rights under this Security
Agreement to such Persons.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
29.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination
of Security Interest</U>. Upon payment in full of the Obligations and the
expiration of any obligation of the Secured Party to extend credit
accommodations to the Debtor, the Security Interest granted hereby shall
terminate. Upon any such termination, the Secured Party will return to the
Grantor such of the Collateral then in the possession of the Secured Party as
shall not have been sold or otherwise applied pursuant to the terms hereof and
execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such termination. Any reversion or return of
Collateral upon termination of this Agreement and any instruments of transfer
or termination shall be at the expense of the Grantor and shall be without
warranty by, or recourse on, the Secured Party. As used in this Section, &#147;Grantor&#148;
includes any assigns of Grantor, any Person holding a subordinate security
interest in any of the Collateral or whoever else may be lawfully entitled to
any part of the Collateral.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
30.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Governing Law and Construction</U>. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, 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. </B>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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
31.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Consent to Jurisdiction</U>. 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 GRANTOR 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 GRANTOR 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.</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>14</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
32.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Waiver of Notice and Hearing</U>. THE GRANTOR
HEREBY WAIVES ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE
EXERCISE BY THE SECURED PARTY OF ITS RIGHTS TO POSSESSION OF THE COLLATERAL
WITHOUT JUDICIAL PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE
COLLATERAL WITHOUT PRIOR NOTICE OR HEARING. THE GRANTOR ACKNOWLEDGES THAT IT
HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND
THIS AGREEMENT.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
33<B>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waiver
of Jury Trial</U>. EACH OF THE GRANTOR 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.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
34.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts</U>.
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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
35.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>General</U>.
All representations and warranties contained in this Agreement or in any other
agreement between the Grantor and the Secured Party shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations. The Grantor 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.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>[The remainder of this page has been left blank intentionally.]</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>15</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, the Grantor has caused this Security Agreement to be duly
executed and delivered by its manager thereunto duly authorized as of the date
first above written.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="49%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="48%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED FINANCIAL, LLC</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>By</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2><img src="a101390001_v2.jpg" ALT="-s- Robert D. Hansen"></font></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Name: Robert D. Hansen</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Title:&nbsp;&nbsp;&nbsp;Chief Manager and Chief
 Executive Officer</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="100%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Address:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>500 Sixth Avenue NW</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>New Prague, MN 56071</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>ATTN: Robert D. Hansen</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Fax Number: 952-758-1941 </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Address for the Lender: </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>U.S. Bank National Association</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>BC-MN-H03W</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>800 Nicollet Mall </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Minneapolis, MN 55402-4302 </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>ATTN: Daniel J. Miller </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Fax Number: 612-303-2252 </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=1>[Signature Page to Security Agreement (Guarantor)]</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>13
<FILENAME>elmd101390s1_ex10-7.htm
<DESCRIPTION>PLEDGE AGREEMENT
<TEXT>
<HTML>
<HEAD><TITLE>Exhibit 10.7 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 10.7</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3><B>PLEDGE
AGREEMENT</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 &#147;Pledgor&#148;) to U.S. BANK NATIONAL ASSOCIATION (the &#147;Secured
Party&#148;).</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>RECITALS</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 &#147;Credit Agreement&#148;) 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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Pledgor is the owner of the member interests (the &#147;Pledged Member Interests&#148;)
described in Schedule I hereto issued by the limited liability company named
therein.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;s benefit as follows:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Defined Terms</U>.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="85%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
 used in this Agreement, the following terms shall have the meanings
 indicated:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Collateral</U>&#148;
 shall have the meaning given to such term in Section 2.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Event
 of Default</U>&#148; shall have the meaning given to such term in Section 11.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Lien</U>&#148;
 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Obligations</U>&#148;
 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&#146;s obligation on any promissory note or</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=4><P ALIGN=LEFT STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Person</U>&#148;
 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Pledged
 Member Interests</U>&#148; shall have the meaning given to such term in Recital B
 above.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Security
 Interest</U>&#148; shall have the meaning given to such term in Section 2.</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Terms
 Defined in Uniform Commercial Code</U>. 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Singular/Plural,
 Etc</U>. Unless the context of this Agreement otherwise clearly requires,
 references to the plural include the singular, the singular, the plural and
 &#147;or&#148; has the inclusive meaning represented by the phrase &#147;and/or.&#148; The words
 &#147;include,&#148; &#147;includes&#148; and &#147;including&#148; shall be deemed to be followed by the
 phrase &#147;without limitation.&#148; The words &#147;hereof,&#148; &#147;herein,&#148; &#147;hereunder,&#148; 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Pledge</U>. 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
 &#147;Security Interest&#148;) in the following, including any securities account
 containing a securities entitlement with respect to the following (the
 &#147;Collateral&#148;):</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=4><P ALIGN=LEFT STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
 proceeds of any and all of the foregoing (including proceeds that constitute
 property of types described above).</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>Delivery of Collateral</U>. 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&#146;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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Certain Warranties and Covenants</U>. The
Pledgor makes the following warranties and covenants:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4(a)&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4(b)&nbsp;&nbsp;&nbsp;&nbsp;The
 Pledgor has full power and authority to execute this Pledge Agreement, to
 perform the Pledgor&#146;s obligations hereunder and to subject the Collateral to
 the Security Interest created hereby.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4(c)&nbsp;&nbsp;&nbsp;&nbsp;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).</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4(d)&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=4><P ALIGN=LEFT STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4(e)&nbsp;&nbsp;&nbsp;&nbsp;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).</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Further Assurances</U>. 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).</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Voting Rights; Dividends; Etc</U>.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6(a)&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6(b)&nbsp;&nbsp;&nbsp;&nbsp;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; <U>provided</U>, <u>however</U>,
 that any and all</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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,</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;cash
 paid, payable or otherwise distributed in redemption of, or in exchange for,
 any Collateral,</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>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.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

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<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6(c)&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6(d)&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6(e)&nbsp;&nbsp;&nbsp;&nbsp;Upon
 the occurrence and during the continuance of any Event of Default:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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).</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Section 7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Transfers
 and Other Liens; Additional Member Interests</U>.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

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<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Secured Party Appointed Attorney-in-Fact</U>.
 As additional security for the Obligations, the Pledgor hereby irrevocably
 appoints the Secured Party the Pledgor&#146;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&#146;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Secured Party May Perform</U>. 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>The Secured Party&#146;s Duties</U>. 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&#146;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Default</U> 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</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>


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<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>shall occur under the Credit Agreement; (d) the
 Secured Party receives at any time any information indicating that the
 Secured Party&#146;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>Remedies upon Default</U>. If any Event
 of Default shall have occurred and be continuing:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 &#147;Code&#148;)
 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&#146;s board or at any of the Secured
 Party&#146;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&#146; 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;s
 name or in the Pledgor&#146;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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).</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waiver of Certain Claims</U>. The Pledgor
 acknowledges that because of present or future circumstances, a question may
 arise under the Securities Act of 1933, as from</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>7</FONT></P>

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<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>time to time amended (the &#147;Securities Act&#148;), 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Costs and Expenses; Indemnity</U>. 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&#146;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&#146; fees) growing out of or
 resulting from this Agreement (including enforcement of this Agreement) or
 the Secured Party&#146;s actions pursuant hereto, except claims, losses or
 liabilities resulting from the Secured Party&#146;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.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>8</FONT></P>

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<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waivers and Amendments; Remedies</U>.
 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&#146;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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 16.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notices</U>. 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Pledgor Acknowledgments</U>. 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 18.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Continuing Security Interest; Assignments
 under Credit Agreement</U>. 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 19.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination of Security Interest</U><I>. </I>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, &#147;Pledgor&#148; includes any assigns of Pledgor, any Person
 holding a subordinate security</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>9</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=4><P ALIGN=LEFT STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>interest in any part of the Collateral or whoever
 else may be lawfully entitled to any part of the Collateral.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 20.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Governing
 Law and Construction</U>. 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.</B> 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 21.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Consent
 to Jurisdiction</U>. 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.</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 22.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Waiver
 of Jury Trial</U>. 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.</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 23.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts</U>. 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.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
 24.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>General</U>. All representations and
 warranties contained in this Agreement or in any other agreement between the
 Pledgor and the Secured Party shall survive the execution,</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>10</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=4><P ALIGN=LEFT STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>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.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>[The remainder of
this page has been left blank intentionally.]</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>11</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=4><P ALIGN=LEFT STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="37%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="9%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>PLEDGOR:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=bottom>
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD VALIGN=TOP style="border-bottom:solid black 1px">
 <P><FONT SIZE=1><img src="a101390001_v1.jpg" alt="-s- Robert D. Hansen"></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
  <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>Name:&nbsp;&nbsp;&nbsp;Robert D. Hansen</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2>Title: &nbsp;&nbsp;&nbsp;Chief Executive Officer</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Address:</FONT></P>

<P><FONT SIZE=2>500 Sixth Avenue NW <BR>
New Prague, MN 56071 <BR>
ATTN: Robert D. Hansen <BR>
Fax Number: 952-758-1941</FONT></P>

<P><FONT SIZE=2>Address for the Lender:</FONT></P>

<P><FONT SIZE=2>U.S. Bank National Association <BR>
BC-MN-H03W <BR>
800 Nicollet Mall <BR>
Minneapolis, MN 55402-4302 <BR>
ATTN: Daniel J. Miller <BR>
Fax Number: 612-303-2252</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>[Signature Page to Pledge Agreement]</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=4><P ALIGN=LEFT STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2>SCHEDULE I</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><U>PLEDGED STOCK</U></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="20%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="80%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Stock Issuer:</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Electromed Financial, LLC</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Percentage Ownership:</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>95%</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=4>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>14
<FILENAME>elmd101390s1_ex10-8.htm
<DESCRIPTION>MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FINANCING STATEMENT
<TEXT>
<HTML>
<HEAD><TITLE>Exhibit 10.8 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 10.8</B></FONT></P>

<P><FONT SIZE=2>THIS INSTRUMENT WAS PREPARED BY,<BR>
AND WHEN RECORDED SHOULD BE<BR>
RETURNED TO:<BR>
Dorsey &amp; Whitney LLP
(CHMH)<BR>
Suite 1500<BR>
50 South Sixth Street<BR>
Minneapolis, Minnesota 55402-1498</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>MORTGAGE, SECURITY AGREEMENT,<BR>
ASSIGNMENT OF LEASES AND RENTS<BR>
AND FIXTURE FINANCING STATEMENT</B></FONT></P>

<P><FONT SIZE=2>NOTWITHSTANDING ANYTHING TO
THE CONTRARY HEREIN, ENFORCEMENT OF THIS MORTGAGE IS LIMITED TO A DEBT AMOUNT
OF $1,520,000 UNDER CHAPTER 287 OF MINNESOTA STATUTES.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FINANCING
STATEMENT (this &#147;Mortgage,&#148; which term shall include any amendment,
modification, supplement, extension, renewal, replacement, or restatement
hereof) is made as of December 9, 2009, by Electromed, Inc., a Minnesota
corporation (&#147;Mortgagor&#148;), having its principal offices at 500 6th Avenue NW,
New Prague, Minnesota 56071, in favor of U.S. Bank National Association, a
national banking association (&#147;Lender&#148;), having its principal offices at
Minneapolis, Minnesota.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>RECITALS</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;&nbsp;&nbsp;
Lender has made loans, or agreed to make loans, to Mortgagor in the aggregate
maximum principal amount of Six Million Twenty Thousand and No/100 Dollars
($6,020,000.00) and made and other credit extensions to Mortgagor
(collectively, the &#147;Loan&#148;), to be repaid with interest thereon, pursuant to
that certain Credit Agreement of even date herewith (the &#147;Credit Agreement,&#148;
which term shall include any amendment, modification, supplement, extension,
renewal, replacement, or restatement thereof), and certain notes described therein
(collectively, the &#147;Notes,&#148; which term shall include any amendment,
modification, supplement, extension, renewal, replacement, or restatement
thereof). The Notes, the Credit Agreement and any other Loan Document (as
defined in the Credit Agreement) are each dated the same date as this Mortgage,
are hereby incorporated by reference, and, together with this Mortgage, as any
of the same may be amended, modified, supplemented, extended, renewed, replaced
or restated, are</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>sometimes collectively
referred to as the &#147;Loan Documents.&#148; Capitalized terms used in this Mortgage
have the meanings set forth herein; capitalized terms used in this Mortgage but
not defined herein have the meanings assigned to such terms in the Credit
Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Mortgage secures the following (collectively, as used herein, the
&#147;Obligations&#148;): (i) the Obligations, as defined in the Credit Agreement, which
include, without limitation, the principal amount of $6,020,000.00 or so much
thereof as may be advanced by Lender pursuant to the Notes or the Credit
Agreement; plus interest on the amount advanced and unrepaid, at the interest
rate or rates provided in the Notes or the Credit Agreement; and (ii) all other
amounts payable by Mortgagor and all other agreements of Mortgagor under this
Mortgage and the other the Loan Documents as the same now exist or may
hereafter be amended.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Obligations shall mature on or before December 9, 2014 (the &#147;Maturity Date&#148;).</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
any provision herein to the contrary, the maximum principal indebtedness
secured hereby is $1,520,000.00 plus amounts which may be advanced by Lender in
protection of the Mortgaged Property or this Mortgage. This Mortgage secures
only a portion of the Obligations owing or which may become owing by Mortgagor
to Lender. In the event that the amount secured by this Mortgage is less than the Obligations, then all
amounts paid upon the Obligations shall be first applied to the Obligations not
secured hereby, and the amount secured hereby shall be reduced only by the last
and final sums that Mortgagor repays with respect to the Obligations after the
amount of the Obligations is reduced to an amount equal to or less than the
amount secured hereby, and shall not be reduced by any intervening repayments
of the Obligations unless arising from the Mortgaged Property, it being the
parties&#146; intent that the portion of the Obligations last remaining unpaid shall
be secured hereby. So long as the balance of the Obligations exceeds the amount
secured hereby, any payments of the Obligations shall not be deemed to be
applied against, or to reduce, the portion of the Obligations secured by this
Mortgage unless owing from the Mortgaged Property. Such payments shall instead
be deemed to reduce only such portions of the Obligations as are secured by
other non-real estate collateral
or by real estate collateral located outside the State of Minnesota or as are
unsecured.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW,
THEREFORE, Mortgagor, in consideration of Lender making the Loan, and to secure
the Loan and payment and performance of the Obligations, hereby grants,
bargains, sells, conveys and mortgages to Lender, its successors and assigns,
forever, with power of sale, and grants to Lender, its successors and assigns,
a security interest in, the following, all of which is called the &#147;Mortgaged
Property&#148;:</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>A. LAND AND IMPROVEMENTS</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
land described in Exhibit A attached hereto and all mineral rights,
hereditaments, easements and appurtenances thereto (collectively the &#147;Land&#148;),
and all improvements and structures thereon (the &#147;Improvements&#148;); and</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2>B. FIXTURES AND PERSONAL PROPERTY</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
fixtures (the &#147;Fixtures&#148;), and all machinery, equipment and personal property
(collectively the &#147;Personal Property&#148;) now or hereafter located on, in or under
the Land and the Improvements, or usable in connection with the Land or the
Improvements, and which are owned by Mortgagor or in which Mortgagor has an
interest, including any construction and building materials stored on and to be
included in the Improvements, plus any repairs, replacements and betterments to
any of the foregoing and the proceeds and products thereof; and</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C. LEASES AND RENTS</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
rights of Mortgagor with respect to tenants or occupants now or hereafter
occupying any part of the Land or the Improvements, if any, including all
leases and licenses and rights in connection therewith, whether oral or written
(collectively the &#147;Leases&#148;), and all rents, income, both from services and
occupation, royalties, revenues and payments, including prepayments and
security deposits (collectively the &#147;Rents&#148;), which are now or hereafter due or
to be paid in connection with the Land, the Improvements, the Fixtures or the
Personal Property; and</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>D. GENERAL INTANGIBLES</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
general intangibles of Mortgagor which relate to any of the Land, the
Improvements, the Fixtures, the Personal Property, the Leases or the Rents,
including proceeds of insurance and condemnation or conveyance of the Land and
the Improvements, accounts, trade names, contract rights, accounts receivable
and bank accounts; and</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>E. AFTER ACQUIRED PROPERTY AND PROCEEDS</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
after acquired property similar to the property herein described and conveyed
which may be subsequently acquired by Mortgagor and used in connection with the
Land, the Improvements, the Fixtures, the Personal Property and other property;
and all cash and non-cash proceeds and products of all of the foregoing
property.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TO
HAVE AND TO HOLD the same, and all estate therein, together with all the
rights, privileges and appurtenances thereunto belonging, to the use and
benefit of Lender, its successors and assigns, forever.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PROVIDED
NEVERTHELESS, should Mortgagor pay and perform all the Obligations, then these
presents will be of no further force and effect, and this Mortgage shall be
satisfied by Lender, at the expense of Mortgagor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Mortgage constitutes an assignment of rents and profits within the meaning of
Minnesota Statutes, Sections 559.17 and 576.01, and is intended to comply fully
with the provisions thereof, and to afford Lender, to the fullest extent
allowed by law, the rights and remedies of a mortgage lender or secured lender
pursuant thereto.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Mortgage also constitutes a security agreement within the meaning of the
Uniform Commercial Code as in effect in the State of Minnesota (the &#147;UCC&#148;),
with respect to all property described herein as to which a security interest
may be granted and/or perfected pursuant to the</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>UCC, and is intended to
afford Lender, to the fullest extent allowed by law, the rights and remedies of
a secured party under the UCC.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;MORTGAGOR
FURTHER agrees as follows:</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE I <BR>
AGREEMENTS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance of Obligations; Incorporation by
Reference. Mortgagor shall pay and perform the Obligations owing by it or him.
Time is of the essence hereof. All of the covenants, obligations, agreements,
warranties and representations of Mortgagor contained in the Credit Agreement and
the other Loan Documents and all of the terms and provisions thereof, are
hereby incorporated herein and made a part hereof by reference as if fully set
forth herein.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further Assurances. If Lender requests,
Mortgagor shall sign and deliver and cause to be recorded as Lender shall
direct any further mortgages, instruments of further assurance, certificates
and other documents as Lender reasonably may consider necessary or desirable in
order to perfect, continue and preserve the Obligations and Lender&#146;s rights,
title, estate, liens and interests under the Loan Documents. Further, the
Mortgagor shall pay all reasonable out-of-pocket expenses incurred by the
Lender, including title insurance costs and the reasonable fees, charges and disbursements
of outside counsel for the Lender (determined on the basis of such counsel&#146;s
generally applicable rates, which may be higher than the rates such counsel
charges the Lender in certain matters) and/or the allocated costs of in-house
counsel incurred from time to time, in connection with the preparation,
execution, recording, filing and refiling of any such documents.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sale, Transfer, Encumbrance. An immediate
default and Event of Default shall occur hereunder if Mortgagor sells, conveys,
transfers or otherwise disposes of, or encumbers, any part of its interest in
the Mortgaged Property, whether voluntarily, involuntarily or by operation of
law, without the prior written consent of Lender, and Lender shall have the
option to declare the Obligations immediately due and payable without notice.
Included within the foregoing actions requiring prior written consent of Lender
are: (a) sale by deed or contract for deed; (b) mortgaging or granting a lien
on the Mortgaged Property; and (c) a Change of Control Occurs. Mortgagor shall
give notice of any proposed action to Lender at least thirty (30) days prior to
taking such action. Mortgagor shall pay all costs and expenses incurred by
Lender in evaluating any such action. Lender may condition such consent upon
modification of the Loan Documents or payment of fees. No such action shall
relieve Mortgagor from liability for the Obligations. The consent by Lender to
any action shall not constitute a waiver of the necessity of such consent to
any subsequent action.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insurance. Mortgagor shall obtain, maintain
and keep in full force and effect (and upon request of Lender shall furnish to
Lender copies of) policies of insurance as described in, and meeting the
requirements set forth in the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxes, Liens and Claims, Utilities. Mortgagor,
at least five (5) days before any penalty attaches thereto, shall pay and
discharge, or cause to be paid and discharged, all taxes, assessments and
governmental charges and levies (collectively &#147;Impositions&#148;) imposed</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>upon or against the
Mortgaged Property or the Rents, or upon or against the Obligations, or upon or
against the interest of Lender in the Mortgaged Property or the Obligations, except
Impositions measured by the income of Lender. Mortgagor shall provide evidence
of such payment at Lender&#146;s request. Mortgagor shall keep the Mortgaged
Property free and clear of all liens, encumbrances, easements, covenants,
conditions, restrictions and reservations (collectively &#147;Liens&#148;) except those
listed on Exhibit A attached hereto (the &#147;Permitted Encumbrances&#148;). Mortgagor
shall pay or cause to be paid when due all charges or fees for utilities and
services supplied to the Mortgaged Property. Notwithstanding anything to the
contrary contained in this Section, Mortgagor shall not be required to pay or
discharge any Imposition or Lien so long as Mortgagor shall in good faith, and
after giving notice to Lender, contest the same by appropriate legal proceedings.
If Mortgagor contests any Imposition or Lien against the Mortgaged Property,
Mortgagor shall provide such security to Lender as Lender shall reasonably
require against loss or impairment of Mortgagor&#146;s ownership of or Lender&#146;s lien
on the Mortgaged Property and shall in any event pay such Imposition or Lien
before loss or impairment occurs.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Escrow Payments. If requested by Lender,
Mortgagor shall deposit with Lender monthly on the same date as payments are
due under the Notes and the Credit Agreement the amount reasonably estimated by
Lender to be necessary to enable Lender to pay, at least five (5) days before
they become due, all Impositions against the Mortgaged Property and the
premiums upon all insurance required hereby to be maintained with respect to
the Mortgaged Property. All funds so deposited shall secure the Obligations.
Such deposits shall be held by Lender, or its nominee, in a non-interest
bearing account and may be commingled with other funds. Such deposits shall be
used to pay such Impositions and insurance premiums when due. Any excess sums
so deposited shall be retained by Lender and shall be applied to pay said items
in the future, unless the Obligations have been paid and performed in full, in
which case all excess sums so paid shall be refunded to Mortgagor. Upon the
occurrence of an Event of Default, Lender may apply any funds in said account
against the Obligations in such order as Lender may determine.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintenance and Repair; Compliance with Laws.
Mortgagor shall cause the Mortgaged Property to be operated, maintained and
repaired in safe and good repair, working order and condition, reasonable wear
and tear excepted; shall not commit or permit waste thereof; except as provided
in any Loan Document, shall not remove, demolish or substantially alter the
design or structural character of any Improvements without the prior written
consent of Lender; shall complete or cause to be completed forthwith any
Improvements which are now or may hereafter be under construction upon the
Land; shall comply or cause compliance with all laws, statutes, ordinances and
codes, and governmental rules, regulations and requirements, applicable to the
Mortgaged Property or the manner of using or operating the same, and with any
covenants, conditions, restrictions and reservations affecting the title to the
Mortgaged Property, and with the terms of all insurance policies relating to
the Mortgaged Property; and shall obtain and maintain in full force and effect
all consents, permits and licenses necessary for the use and operation of the
Mortgaged Property.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leases.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgagor
shall not enter into or amend any Lease without Lender&#146;s prior written consent,
and shall furnish to Lender, upon execution, a complete and fully executed copy
of each</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>Lease. Mortgagor shall
provide Lender with a copy of each proposed Lease requiring the consent of
Lender and with any information requested by Lender regarding the proposed
Tenant thereunder. Lender may declare each Lease to be prior or subordinate to
this Mortgage, at Lender&#146;s option.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgagor
shall, at its cost and expense, perform each obligation to be performed by it
under each Lease; not borrow against, pledge or further assign any rents or
other payments due thereunder; not permit the prepayment of any rents or other
payments due for more than thirty (30) days in advance; and not permit any
Tenant to assign its Lease or sublet the premises covered by its Lease.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any Tenant shall default under its Lease, Mortgagor shall, in the ordinary
course of business, exercise sound business judgment with respect to such
default, but Mortgagor may not discount, compromise, forgive or waive claims or
discharge the Tenant from its obligations under the Lease or terminate or
accept a surrender of the Lease without Lender&#146;s written consent.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
Mortgagor fails to perform any obligations of Mortgagor under any Lease or if
Lender becomes aware of or is notified by any Tenant of a failure on the part
of Mortgagor to so perform, Lender may, but shall not be obligated to, without
waiving or releasing Mortgagor from any obligation in this Mortgage or any of
the other Loan Documents, remedy such failure, and Mortgagor agrees to repay
upon demand all sums incurred by Lender in remedying any such failure, together
with interest thereon from the date incurred at the default rate specified in
the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
purposes of this Mortgage, the following terms shall have the following meanings:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="7%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="88%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
<TD VALIGN=TOP>
 <P><FONT SIZE=2>(i)</FONT></P>
 </TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#147;Lease&#148;: Any lease
or other document or agreement, written or oral, permitting any Person to use
or occupy any part of the Mortgaged Property.</FONT></P>
 </TD>
</tr>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</tr>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
<TD VALIGN=TOP>
 <P><FONT SIZE=2>(ii)</FONT></P>
 </TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#147;Person&#148;:
Any natural person, corporation, partnership, limited partnership, 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.</FONT></P>
 </TD>
</tr>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
</tr>
<TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
<TD VALIGN=TOP>
 <P><FONT SIZE=2>(iii)</FONT></P>
 </TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#147;Tenant&#148;:
Any person or party using or occupying any part of the Mortgaged Property
pursuant to a Lease.</FONT></P>
 </TD>
</tr>
</table>





<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indemnity. Mortgagor shall indemnify Lender
and its directors, officers, agents and employees (collectively the
&#147;Indemnified Parties&#148;) against, and hold the Indemnified Parties harmless from,
all losses, damages, suits, claims, judgments, penalties, fines, liabilities,
costs and expenses by reason of, or on account of, or in connection with the
construction, reconstruction or alteration of the Mortgaged Property, or any
accident, injury, death or damage to any person or property occurring in, on or
about the Mortgaged Property or any street, drive, sidewalk, curb or passageway
adjacent thereto. The indemnity contained in this Section shall include costs
of defense of any such claim asserted against an Indemnified Party, including
attorneys&#146; fees. The indemnity contained in this Section shall survive payment
and performance</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>of the Obligations and
satisfaction and release of this Mortgage and any foreclosure thereof or
acquisition of title by deed in lieu of foreclosure.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Appraisals. Lender shall have the right from time
to time, but not more often than once during any twelve (12)-month period, to
obtain an appraisal of the Mortgaged Property in form and substance
satisfactory to Lender and prepared by an independent MAI appraiser selected by
Lender. Mortgagor shall reimburse Lender for the cost incurred for any such
appraisal within ten (10) days following demand therefor by Lender.</FONT></P>

<P ALIGN=CENTER STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:34.55PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2><B>ARTICLE II<BR> REPRESENTATIONS AND WARRANTIES</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgagor
makes the following representations and warranties:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
2.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ownership, Liens, Compliance with Laws.
Mortgagor owns the Mortgaged Property in fee, free from all Liens, except the
Permitted Encumbrances. All applicable zoning, environmental, land use,
subdivision, building, fire, safety and health laws, statutes, ordinances,
codes, rules, regulations and requirements affecting the Mortgaged Property
permit the current use and occupancy thereof, and Mortgagor has obtained all
consents, permits and licenses required for such use. Mortgagor has examined
and is familiar with all applicable covenants, conditions, restrictions and
reservations, and with all applicable laws, statutes, ordinances, codes and
governmental rules, regulations and requirements affecting the Mortgaged
Property, and the Mortgaged Property complies with all of the foregoing.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
2.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Use. The Mortgaged Property is not homestead
property nor is it agricultural property or in agricultural use.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
2.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Utilities; Services. The Mortgaged Property is
serviced by all necessary public utilities, and all such utilities are
operational and have sufficient capacity. There is no contract or agreement
providing for services to or maintenance of the Mortgaged Property which cannot
be canceled upon 30 days&#146; or less notice.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE III<BR>
CASUALTY; CONDEMNATION</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Casualty, Repair, Proof of Loss. If any
portion of the Mortgaged Property shall be damaged or destroyed by any cause (a
&#147;Casualty&#148;), Mortgagor shall:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;give
immediate notice to the Lender; and</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;promptly
commence and diligently pursue to completion (in accordance with plans and
specifications approved by Lender) the restoration, repair and rebuilding of
the Mortgaged Property as nearly as possible to its value, condition and
character immediately prior to the Casualty; and</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;if
the Casualty is covered by insurance, immediately make proof of loss and collect
all insurance proceeds, all such proceeds to be payable to Lender or as Lender
shall direct. If an Event of Default shall be in existence, or if Mortgagor
shall fail to provide notice to</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>7</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P><FONT SIZE=2>Lender of filing proof of loss, or if Mortgagor shall
not be diligently proceeding, in Lender&#146;s reasonable
opinion, to collect such insurance proceeds, then Lender may, but is not
obligated to, make proof of loss, and is authorized, but is not
obligated, to settle any claim with respect thereto, and to collect the
proceeds thereof. Mortgagor shall not accept any settlement of an insurance
claim, the result of which shall be a payment which is $10,000 or more less
than the full amount of the claim, without
the prior written consent of Lender.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
3.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Use of Insurance Proceeds. Lender shall make
the net insurance proceeds received by it (after reimbursement of Lender&#146;s
out-of pocket costs of collecting and disbursing the same) available to
Mortgagor to pay the cost of restoration, repair and rebuilding of the Mortgaged Property, subject to the following
conditions:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There shall be no Event of Default in existence
at the time of any disbursement of the insurance proceeds.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lender
shall have determined, in its reasonable discretion, that the cost of restoration, repair and rebuilding is and will be
equal to or less than the amount of insurance proceeds and other funds
deposited by Mortgagor with Lender.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lender
shall have determined, in its reasonable discretion, that the restoration, repair and rebuilding can be completed in
accordance with plans and specifications approved by Lender (such
approval not to be unreasonably withheld), in accordance with codes and
ordinances, and in accordance with the terms, and within the time requirements
in order to prevent termination, of any Lease, and in any event not less than
six (6) months prior to the Maturity Date.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
funds shall be disbursed, at Lender&#146;s option, in accordance with Lender&#146;s customary disbursement procedures for
construction loans.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Casualty shall have occurred more than twelve
(12) months prior to the Maturity
Date.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Tenant shall have the right to terminate its
Lease or their Leases as a result of the
Casualty.</FONT></P>

<P><FONT SIZE=2>If any of these conditions shall not be satisfied,
then Lender shall have the right to use the insurance proceeds to prepay the
Loan in accordance with the Credit Agreement. If any insurance proceeds shall remain after completion of the restoration,
repair and rebuilding of the Mortgaged Property, they shall be disbursed to
Mortgagor, or at the Lender&#146;s discretion, used to prepay the Loan in accordance
with the Credit Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
3.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Condemnation. If any portion of the Mortgaged
Property shall be taken, condemned or acquired pursuant to exercise of the
power of eminent domain or threat thereof (a &#147;Condemnation&#148;), Mortgagor
shall:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;give
immediate notice thereof to Lender, and send a copy of each document received by Mortgagor in connection with the
Condemnation to Lender promptly after receipt; and</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>8</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;diligently
pursue any negotiation and prosecute any proceeding in connection with the Condemnation at Mortgagor&#146;s expense. If
an Event of Default shall be in existence, or if Mortgagor, in Lender&#146;s
reasonable opinion, shall not be diligently negotiating or prosecuting the claim, Lender is authorized, but not
required, to negotiate and prosecute the claim and appear at any hearing
for itself and on behalf of Mortgagor and to compromise or settle all
compensation for the Condemnation. Lender shall not be liable to Mortgagor for
any failure by Lender to collect or to exercise diligence in collecting any
such compensation. Mortgagor shall not compromise or settle any claim resulting
from the Condemnation if such settlement shall result in payment of $10,000 or
more less than Lender&#146;s reasonable estimate of the damages therefrom. All awards shall be paid to Lender.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
3.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Use of Condemnation Proceeds. Lender shall
make the net proceeds of any Condemnation received by it (after
reimbursement of Lender&#146;s out-of-pocket costs of collecting and disbursing the same) available to Mortgagor for
restoration, repair and rebuilding of the Mortgaged Property, subject to the
following conditions:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There shall be no Event of Default in existence
at the time of any disbursement of the condemnation proceeds.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lender
shall have determined, in its reasonable discretion, that the cost of restoration, repair and rebuilding is and will be
equal to or less than the amount of condemnation proceeds and other funds
deposited by Mortgagor with Lender.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lender
shall have determined, in its reasonable discretion, that the restoration, repair and rebuilding can be completed in
accordance with plans and specifications approved by Lender (such
approval not to be unreasonably withheld), in accordance with codes and
ordinances, and in accordance with the terms, and within the time requirements
in order to prevent termination, of any Lease, and in any event not less than
six (6) months prior to the Maturity Date.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
funds shall be disbursed, at Lender&#146;s option, in accordance with Lender&#146;s customary disbursement procedures for
construction loans.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Condemnation shall have occurred more than
twelve (12) months prior to the Maturity
Date.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No Tenant shall have the right to terminate its
Lease or their Leases as a result of the Condemnation.</FONT></P>

<P><FONT SIZE=2>If any of these conditions shall not be satisfied,
then Lender shall have the right to use the condemnation proceeds to prepay the
Loan in accordance with the Credit Agreement. If any condemnation proceeds shall remain after completion of the restoration,
repair and rebuilding of the Mortgaged Property, they shall be disbursed to
Mortgagor, or at Lender&#146;s discretion, used to prepay the Loan in accordance
with the Credit Agreement.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>9</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE IV<BR>
DEFAULTS AND REMEDIES</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Events of Default. The occurrence of any one
or more of the following events shall constitute an Event of Default hereunder:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
Event of Default, as defined in the Credit Agreement; or</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgagor fails to comply with any agreement,
covenant, condition, provision or term contained in this Mortgage.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remedies.
Upon the occurrence of certain Event of Default, as described more fully
in the Credit Agreement, all of the Obligations shall be accelerated and become
immediately due and payable without notice or declaration to Mortgagor. Upon
the occurrence of one or more other Events of Default, as described more fully
in the Credit Agreement, all of the Obligations, at the option of Lender, shall
be accelerated and become immediately due
and payable upon notice to Mortgagor. In either event, the Obligations shall be
due and payable without presentment, demand or further notice of any
kind. Lender shall have the right to proceed to protect and enforce its rights
by one or more of the following remedies:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LENDER SHALL HAVE THE RIGHT TO BRING SUIT either
for damages, for specific performance of any agreement contained in any
Loan Document, for the foreclosure of this Mortgage, or for the enforcement of
any other appropriate legal or equitable remedy.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LENDER SHALL HAVE THE RIGHT TO SELL THE MORTGAGED PROPERTY AT PUBLIC AUCTION AND CONVEY THE SAME TO
THE PURCHASER IN FEE SIMPLE, as
provided by law, Mortgagor to remain liable for any deficiency. Said sale may be as one tract or otherwise, at the sole option
of Lender. In the event of any sale of the Mortgaged Property pursuant
to any judgment or decree of any court or at public auction or otherwise in
connection with the enforcement of any of the terms of this Mortgage, Lender,
its successors or assigns, may become the purchaser, and for the purpose of
making settlement for or payment of the purchase price, shall be entitled to
deliver over and use the Credit Agreement or Notes and any claims for interest
accrued and unpaid thereon, together with all other sums, with interest,
advanced or secured hereby and unpaid hereunder, in order that there may be
credited as paid on the purchase price the total amount of the Obligations then
due, including principal and interest on the Loan and all other sums, with
interest, advanced or secured hereby and
unpaid hereunder or under any of the other Loan Documents.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LENDER SHALL HAVE THE RIGHT TO OBTAIN THE
APPOINTMENT OF A RECEIVER at any
time after the occurrence of an Event of Default. Lender may apply for the appointment
of a receiver to the district court for the county where the Mortgaged Property
or any part thereof is located, by an
action separate from any foreclosure of this Mortgage pursuant to Minnesota
Statutes Chapter 580 or pursuant to Minnesota Statutes Chapter 581, or as a
part of the foreclosure action under said Chapter 581 (it being agreed that the
existence of a foreclosure pursuant to said Chapter 580 or a foreclosure
action pursuant to said Chapter 581 is not a prerequisite
to any action for a receiver hereunder). Lender shall be entitled to the
appointment of a receiver without regard to waste, adequacy of the
security or solvency of Mortgagor. The</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>10</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>receiver, who shall be an experienced property
manager, shall collect (until the Obligations are fully paid and satisfied and, in the case of a foreclosure sale, during
the entire redemption period) the Rents, and shall manage the Mortgaged
Property, execute Leases within or beyond the period of the receivership
if approved by the court and apply all rents, profits and other income collected by him in the following order:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(i)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>to the payment of all
 reasonable fees of the receiver, if any, approved by the court;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(ii)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>to the repayment of tenant
 security deposits, with interest thereon, as required by Minnesota Statutes,
 Section 504B.178;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(iii)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>to the payment when due of
 delinquent or current real estate taxes or special assessments with respect to the Mortgaged
 Property, or the periodic escrow for the payment of the same;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(iv)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>to the payment when due of
 premiums for insurance of the type required by this Mortgage, or the periodic
 escrow for the payment of the same;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(v)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>to the payment for the keeping
 of the covenants required of a lessor or licensor pursuant to
 Minnesota Statutes, Section 504B.161, subdivision 1;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(vi)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>to the payment of all expenses
 for normal maintenance of the Mortgaged Property; and</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(vii)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>the balance to Lender (a) if
 received prior to the commencement of a foreclosure, to be applied to
 the Obligations, in such order as Lender may elect and (b) if received after
 the commencement of a foreclosure, to be applied to the amount required to be
 paid to effect a reinstatement prior to foreclosure sale, or, after a foreclosure sale to any deficiency and
 thereafter to the amount required to be paid to effect a redemption,
 all pursuant to Minnesota Statutes, Sections 580.30, 580.23 and 581.10, with any excess to be paid to Mortgagor. Provided,
 that if this Mortgage is not reinstated nor the Mortgaged Property
 redeemed as provided by said Sections
 580.30, 580.23 or 581.10, the entire amount paid to Lender pursuant hereto
 shall be the property of Lender together with all or any part of the Mortgaged Property acquired through
 foreclosure.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lender
shall have the right, at any time and without limitation, as provided in
Minnesota Statutes, Section 582.03, to advance money to the receiver to
pay any part or all of the items which the
receiver should otherwise pay if cash were available from the Mortgaged
Property and sums so advanced, with interest at the default rate
specified in the Credit Agreement, shall be secured
hereby, or if advanced during the period of redemption shall be part of the sum
required to be paid to redeem from the sale.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LENDER
SHALL HAVE THE RIGHT TO COLLECT THE RENTS from the Mortgaged Property
and apply the same in the manner hereinbefore provided with respect to a receiver. For that purpose, Lender may enter and
take possession of the Mortgaged Property and manage and operate the
same and take any action which, in Lender&#146;s judgment, is necessary or</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>11</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>proper to collect the Rents and to conserve the value
of the Mortgaged Property. Lender may also take possession of, and for these
purposes use, any and all of the Personal Property. The expense (including any
receiver&#146;s fees, attorneys&#146; fees, costs and agent&#146;s compensation) incurred
pursuant to the powers herein contained shall be secured by this Mortgage.
Lender shall not be liable to account to
Mortgagor for any action taken pursuant hereto other than to account for any Rents
actually received by Lender. Enforcement hereof shall not cause Lender to be
deemed a mortgagee in possession unless
Lender elects in writing to be a mortgagee in possession.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LENDER SHALL HAVE THE RIGHT TO ENTER AND TAKE
POSSESSION of the Mortgaged Property
and manage and operate the same in conformity with all applicable laws
and take any action which, in Lender&#146;s judgment, is necessary or proper to
conserve the value of the Mortgaged
Property.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LENDER SHALL HAVE ALL OF THE RIGHTS AND REMEDIES PROVIDED IN THE UNIFORM COMMERCIAL CODE including
the right to proceed under the Uniform Commercial Code provisions governing
default as to any Personal Property separately from the real estate included
within the Mortgaged Property, or to proceed as to all of the Mortgaged
Property in accordance with its rights and remedies in respect of said real
estate. If Lender should elect to proceed separately as to such Personal
Property, Mortgagor agrees to make such
Personal Property available to Lender at a place or places acceptable to
Lender, and if any notification of intended disposition of any of such Personal
Property is required by law, such notification shall be deemed
reasonably and properly given if given at least ten (10) days before such disposition in the manner hereinafter
provided.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LENDER SHALL HAVE THE RIGHT TO FILE PROOF OF
CLAIM and other documents as may be necessary or advisable in order to
have its claims allowed in any receivership, insolvency, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial proceedings affecting Mortgagor, its creditors or its
property, for the entire amount due and payable by Mortgagor in respect
of the Obligations at the date of the institution of such proceedings, and for any additional amounts which
may become due and payable by Mortgagor after such date.</FONT></P>

<P><FONT SIZE=2>Each remedy herein specifically given shall be in
addition to every other right now or hereafter given or existing at law or in
equity, and each and every right may be exercised from time to time and as
often and in such order as may be deemed expedient by Lender and the exercise
or the beginning of the exercise of one
right shall not be deemed a waiver of the right to exercise at the same
time or thereafter any other right. Lender shall have all rights and remedies
available under the law in effect now and/or at the time such rights and
remedies are sought to be enforced, whether or not they are available under the
law in effect on the date hereof.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expenses of Exercising Rights Powers and
Remedies. The reasonable expenses
(including any receiver&#146;s fees, attorneys&#146; fees, appraisers&#146; fees,
environmental engineers&#146; and/or consultants&#146; fees, costs incurred for
documentary and expert evidence, stenographers&#146; charges, publication costs,
costs (which may be estimated as to items to be expended after entry of the decree of foreclosure) of procuring all
abstracts of title, continuations of abstracts of title, title searches
and examinations, title insurance policies and commitments and extensions
therefor, UCC and chattel lien searches, and similar data and assurances with</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>12</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>respect to title as Lender may deem reasonably
necessary either to prosecute any foreclosure action
or to evidence to bidders at any sale which may be had pursuant to any
foreclosure decree the true condition of the title to or the value of
the Mortgaged Property, and agent&#146;s compensation) incurred by Lender after the
occurrence of any Event of Default and/or in pursuing the rights, powers and
remedies contained in this Mortgage shall be immediately due and payable by
Mortgagor, with interest thereon from the date incurred at the default rate
specified in the Credit Agreement, and shall be added to the indebtedness
secured by this Mortgage.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restoration of Position. In case Lender shall
have proceeded to enforce any right under this Mortgage by foreclosure,
sale, entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely, then, and in every such case, Mortgagor and Lender shall be
restored to their former positions and rights hereunder with respect to the
Mortgaged Property subject to the lien hereof.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marshalling. Mortgagor, for itself and on
behalf of all Persons which may claim under Mortgagor, hereby waives all
requirements of law relating to the marshalling of assets, if any, which would
be applicable in connection with the enforcement by Lender of its remedies for
an Event of Default hereunder, absent this waiver. Lender shall not be required
to sell or realize upon any portion of the Mortgaged Property before selling or
realizing upon any other portion thereof.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Waivers. No waiver of any provision hereof
shall be implied from the conduct of the parties. Any such waiver must be in
writing and must be signed by the party against which such waiver is sought to
be enforced. The waiver or release of any breach of the provisions set forth herein
to be kept and performed shall not be a waiver or release of any preceding or
subsequent breach of the same or any other provision. No receipt of partial
payment after acceleration of any of the Obligations shall waive the
acceleration. No payment by Mortgagor or receipt by Lender of a lesser amount
than the full amount secured hereby shall be deemed to be other than on account
of the sums due and payable hereunder, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment be deemed an
accord and satisfaction, and Lender may accept any check or payment without
prejudice to Lender&#146;s right to recover the balance of such sums or to pursue
any other remedy provided in this Mortgage.
The consent by Lender to any matter or event requiring such consent shall not
constitute a waiver of the necessity for such consent to any subsequent matter
or event.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lender&#146;s Right to Cure Defaults. If Mortgagor
shall fail to comply with any of the terms of the Loan Documents with
respect to the procuring of insurance, the payment of taxes, assessments and
other charges, the keeping of the Mortgaged Property in repair, or any other
term contained herein or in any of the other Loan Documents, Lender may make
advances to perform the same without
releasing Mortgagor from any of the Obligations. Mortgagor agrees to repay upon
demand all sums so advanced and all sums expended by Lender in connection with such
performance, including without limitation attorneys&#146; fees, with interest at the
default rate specified in the Credit
Agreement from the dates such advances are made, and all sums so advanced
and/or expenses incurred, with interest, shall be secured hereby, but no such
advance and/or incurring of expense by Lender, shall be deemed to relieve
Mortgagor from any default</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>13</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>hereunder or under any of the
other Loan Documents, or to release Mortgagor from any of the Obligations.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Suits and Proceedings. Lender shall have the
power and authority, upon prior notice to Mortgagor, to institute and maintain
any suits and proceedings as Lender may deem advisable to (i) prevent any
impairment of the Mortgaged Property by any act which may be unlawful or by any
violation of this Mortgage, (ii) preserve or protect its interest in the
Mortgaged Property, or (iii) restrain the enforcement of or compliance with any
legislation or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid, if,
in the sole opinion of Lender, the enforcement of or compliance with
such enactment, rule or order might impair the security hereunder or be
prejudicial to Lender&#146;s interest.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>ARTICLE V<BR>
MISCELLANEOUS</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Binding Effect; Survival; Number; Gender. This
Mortgage shall be binding on and inure to the benefit of the parties hereto,
and their respective heirs, legal representatives,
successors and assigns. All agreements, representations and warranties contained
herein or otherwise heretofore made by Mortgagor to Lender shall survive the
execution, delivery and foreclosure hereof. The singular of all terms used
herein shall include the plural, the plural
shall include the singular, and the use of any gender herein shall include all
other genders, where the context so requires or permits.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Severability. The unenforceability or
invalidity of any provision of this Mortgage as to any person or
circumstance shall not render that provision unenforceable or invalid as to any other person or circumstance.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notices. Except when telephonic notice is
expressly authorized by this Mortgage, any notice or other communication to any
party in connection with this Mortgage shall
be in writing and shall be sent by manual delivery, facsimile transmission,
overnight courier or United States mail (postage prepaid) addressed to such
party at the address specified below, or at such other address as such party shall have specified to the other
party hereto in writing. All periods
of notice shall be measured from the date of delivery thereof if manually
delivered, from the date of sending thereof if sent by facsimile transmission,
from the first Banking Day after the date of sending if sent by overnight
courier, or from four days after the date of mailing if mailed. Notices
shall be given to or made upon the respective parties hereto at their
respective addresses set forth below:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="32%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="42%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="19%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>If to Mortgagor:</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Electromed, Inc.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>500 6th Avenue NW</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>New Prague, MN 56071</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Attn: Robert D. Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Telecopy No. 952-758-1941</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>14</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="4%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="32%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="42%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="19%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>If to Lender:</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>U.S. Bank National Association</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>800 Second Avenue South</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Minneapolis, MN 55402</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>BC-MN-H03W</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Attention: Daniel Miller</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Telecopy No. 612-303-2252</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Either party may change its
address for notices by a notice given not less than five (5) Banking days
prior to the effective date of the change.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Governing Law and Construction. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF
THIS MORTGAGE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA,
WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT
TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision of this
Mortgage and the other Loan Documents and any other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto shall be interpreted in such manner as to be
effective and valid under such applicable law, but, if any provision of this
Mortgage, the other Loan Documents or any other statement, instrument or transaction
contemplated hereby or thereby or relating hereto or thereto shall be held to
be prohibited or invalid under such applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Mortgage, the other Loan Documents or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consent to Jurisdiction. AT THE OPTION OF
LENDER, THIS MORTGAGE MAY BE ENFORCED IN ANY
FEDERAL COURT OR MINNESOTA STATE COURT
SITTING IN HENNEPIN COUNTY; AND MORTGAGOR 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 MORTGAGOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY
OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS MORTGAGE, LENDER 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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Waiver of Jury Trial. EACH OF MORTGAGOR AND
LENDER IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS MORTGAGE OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>15</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effect. This Mortgage is in addition and not
in substitution for any other guarantees,
covenants, obligations or other rights now or hereafter held by Lender from any
other person or entity in connection with the Obligations.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assignability. Lender shall have the right to
assign this Mortgage, in whole or in part,
or sell participation interests herein, to any person obtaining an interest in
the Obligations.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Headings. Headings of the Sections of this
Mortgage are inserted for convenience only and shall not be deemed to
constitute a part hereof.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fixture Filing. This instrument shall be
deemed to be a Fixture Filing within the meaning of the Minnesota Uniform
Commercial Code, and for such purpose, the following information is given:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="7%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="39%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="52%" VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:  SOLID BLACK 0.5PT'>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-LEFT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Name and address of Debtor:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Electromed, Inc.<BR>
 500 6th Avenue NW<BR>
 New Prague, MN 56071<BR>
 Attention: Robert D. Hansen</FONT></P>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-LEFT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Type of Organization:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Mortgagor is a corporation.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-LEFT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Jurisdiction of
 Organization:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Mortgagor is organized under the laws of Minnesota.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-LEFT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Organizational ID No.:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Mortgagor&#146;s organizational ID
 is 7O-794.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-LEFT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;e.</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Name and Address of Secured Party:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>U.S. Bank National Association<BR>
 800 Second Avenue South<BR>
 Minneapolis, MN 55402</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-LEFT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;f.</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Description of the
 types (or<BR>
 items) of property covered by<BR>
 this Financing Statement:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>See Pages 2 and 3 hereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-LEFT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;g</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>Legal Description of Land to<BR>
 which the collateral is attached<BR>
 or upon which is or will be<BR>
 fixtures:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE'>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD STYLE='BORDER:NONE;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=2>See <U>Exhibit A</U> hereto.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  SOLID BLACK 0.5PT;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:NONE'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE='BORDER-TOP:NONE;BORDER-LEFT:  NONE;BORDER-BOTTOM:SOLID BLACK 0.5PT;BORDER-RIGHT:SOLID BLACK 0.5PT'>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Some of the above-described collateral is or is to
become fixtures upon the above-described real estate,
which Mortgagor owns in fee, and this Financing Statement is to be filed in the
public real estate records. The above-stated address of Secured Party is the
address from which information concerning the security interest may be
obtained.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>16</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Revolving Credit</U>. The maximum
principal indebtedness secured by this Mortgage is $1,520,000 (&#147;Maximum
Principal Amount&#148;), a portion of which, for the purposes of Minnesota Statutes &sect; 287.05, subd. 3, and
Section 507.324, is and shall be a revolving line of credit under which
advances, payments and readvances may be made from time to time, in accordance
with the Loan Documents (subject always to the provisions of the Credit Agreement). The maximum amount of said line of
credit that may be secured by this Mortgage at any one time is the
Maximum Principal Amount. Mortgagor hereby agrees that, if the outstanding,
unpaid balance of the revolving line of credit under the Loan Documents is ever
reduced to zero, or if at any time no
property is subject to the lien and/or security interest of this Mortgage,
novation shall not be deemed to have occurred, and the lien and security
interest hereof shall be deemed to remain in full force and effect to secure
any future advances made under said revolving line of credit and against any
property thereafter added to the Mortgaged Property
by amendment hereof.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>MRT</U>. Mortgagor agrees to pay upon
demand, or upon demand to promptly
reimburse Mortgagee for the payment of, the amount of the mortgage registry tax
payable with respect to and upon the recording of this Mortgage, and of any
amendment or modification hereof in accordance with Minnesota Statutes, Chapter
287.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>[The remainder of this page has been left blank intentionally.]</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>17</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the date first
written above.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="30%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="21%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="6%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="42%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
  <TD VALIGN=bottom >
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD VALIGN=TOP style="border-bottom:solid black 1px">
 <P><FONT SIZE=1><img src="a101390001_v1.jpg" alt="-s- Robert D. Hansen"></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Name:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Robert D. Hansen</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Title:</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>Chief Executive Officer</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>STATE OF MINNESOTA</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>) ss.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>COUNTY OF HENNEPIN</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>)</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
foregoing instrument was acknowledged before me December 9, 2009, by Robert D. Hansen, the Chief Executive Officer of
Electromed, Inc., a Minnesota corporation, on behalf of the corporation.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="50%" VALIGN=BOTTOM>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP style="border-bottom:solid black 1px">
 <P><FONT SIZE=1><img src="a101390003_v1.jpg" alt="-s- JAMIE LEA ERICKSON"></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Notary
 Public</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
<P><FONT SIZE=1><img src="a101390004_v1.jpg" alt="(STAMP)"></FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT SIZE=2>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2> [Signature
Page to Mortgage, Security Agreement, Assignment of Leases
and Rents<BR>and Fixture Financing Statement]</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><U>EXHIBIT A</U></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><U>Legal Description</U></FONT></P>

<P><FONT SIZE=2>Lot 1, Block 1, New Prague
Business Park 9<SUP>th</SUP> Addition, Scott County, Minnesota.</FONT></P>

<P><FONT SIZE=2>Together with the benefit of the
easement for utility purposes dated April 30, 2008, filed May 5, 2008, as
Document No. A799662.</FONT></P>

<P><FONT SIZE=2>Together with the benefit of the easement for ingress
and egress dated August 29, 2008, filed November 3, 2009 as Document No.
A839579.</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>15
<FILENAME>elmd101390s1_ex10-9.htm
<DESCRIPTION>GUARANTY BETWEEN ELECTROMED FINANCIAL, LLC AND U.S. BANK,N.A.
<TEXT>
<HTML>
<HEAD><TITLE>Exhibit 10.9 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 10.9</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3><B>GUARANTY</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS
GUARANTY, dated as of December 9, 2009, is made and given by ELECTROMED
FINANCIAL, LLC, a limited liability company organized under the laws of the
State of Minnesota (the &#147;Guarantor&#148;), in favor of U.S. BANK NATIONAL
ASSOCIATION, a national banking association (the &#147;Lender&#148;).</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>RECITALS</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Electromed,
Inc., a Minnesota corporation (the &#147;Borrower&#148;), and the Lender have entered
into a Credit Agreement dated as of December 9, 2009 (as the same may hereafter
be amended, restated, or otherwise modified from time to time, the &#147;Credit
Agreement&#148;) pursuant to which the Lender has agreed to extend to the Borrower
certain credit accommodations consisting of a revolving facility and two term
loan facilities.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It
is a condition precedent to the obligation of the Lender to extend credit
accommodations pursuant to the terms of the Credit Agreement that this Guaranty
be executed and delivered by the Guarantor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Guarantor is the majority-owned subsidiary of the Borrower.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Guarantor expects to derive benefits from the extension of credit
accommodations to the Borrower by the Lender and find Guarantor it
advantageous, desirable and in its their best interests to execute and deliver
this Guaranty to the Lender.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW,
THEREFORE, In consideration of the credit accommodations to be extended to the
Borrower and for other good and valuable consideration, the Guarantor hereby
covenants and agrees with the Lender as follows:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Defined Terms</U>. As used in this Guaranty,
the following terms shall have the meaning indicated:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Borrower</U>&#148;
 shall have the meaning indicated in Recital A. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Credit
 Agreement</U>&#148; shall have the meaning indicated in Recital A. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Guarantor</U>&#148;
 shall have the meaning indicated in the opening paragraph hereof. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Lender</U>&#148;
 shall have the meaning indicated in the opening paragraph hereof.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Obligations</U>&#148; shall mean (a) all indebtedness, liabilities and
 obligations of the Borrower to the Lender of every kind, nature or
 description under the Credit Agreement, including the Borrower&#146;s obligation
 on any promissory note or notes under the Credit Agreement and any note or
 notes hereafter issued in substitution or replacement thereof, (b) any and
 all liabilities and obligations of the Borrower to the Lender of every kind,
 nature and description, whether direct or indirect or hereafter acquired by
 the Lender from any Person, absolute or contingent, regardless of how such
 liabilities arise or by what agreement or instrument they may be evidenced,
 and (c) in all of the foregoing</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>cases whether due or to become due, and whether now existing or
 hereafter arising or incurred.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Person</U>&#148;
 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.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>The Guaranty</U>. Subject always to the
following Section, the Guarantor hereby absolutely and unconditionally
guarantees to the Lender the payment when due (whether at a stated maturity or
earlier by reason of acceleration or otherwise) and performance of the
Obligations.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Limitation; Insolvency Laws</U>. As used in
this Section: (a) the term &#147;Applicable Insolvency Laws&#148; means the laws of the
United States of America or of any State, province, nation or other
governmental unit relating to bankruptcy, reorganization, arrangement,
adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent
transfers or conveyances or other similar laws (including, without limitation,
11 U. S. C. &sect;547, &sect;548, &sect;550 and other &#147;avoidance&#148; provisions of Title 11 of
the United Stated Code) as applicable in any proceeding in which the validity
and/or enforceability of this Guaranty or any Specified Lien is in issue; and
(b) &#147;Specified Lien&#148; means any security interest, mortgage, lien or encumbrance
securing this Guaranty, in whole or in part. Notwithstanding any other
provision of this Guaranty, if, in any proceeding, a court of competent
jurisdiction determines that this Guaranty or any Specified Lien would, but for
the operation of this Section, be subject to avoidance and/or recovery or be
unenforceable by reason of Applicable Insolvency Laws, this Guaranty and each
such Specified Lien shall be valid and enforceable only to the maximum extent
that would not cause this Guaranty or such Specified Lien to be subject to
avoidance, recovery or unenforceability. To the extent that any payment to, or
realization by, the Lender on the guaranteed Obligations exceeds the
limitations of this Section and is otherwise subject to avoidance and recovery
in any such proceeding, the amount subject to avoidance shall in all events be
limited to the amount by which such actual payment or realization exceeds such
limitation, and this Guaranty as limited shall in all events remain in full
force and effect and be fully enforceable against the Guarantor This Section is
intended solely to reserve the rights of the Lender hereunder against the
Guarantor in such proceeding to the maximum extent permitted by Applicable
Insolvency Laws and neither the Guarantor the Borrower, any other guarantor of
the Obligations nor any Person shall have any right, claim or defense under
this Section that would not otherwise be available under Applicable Insolvency
Laws in such proceeding.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Continuing Guaranty</U>. This Guaranty is an
absolute, unconditional and continuing guaranty of payment and performance of
the Obligations, and the obligations of the Guarantor. hereunder shall not be
released, in whole or in part, by any action or thing which might, but for this
provision of this Guaranty, be deemed a legal or equitable discharge of a
surety or guarantor, other than irrevocable payment and performance in full of
the Obligations. No notice of the Obligations to which this Guaranty may apply,
or of any renewal or extension thereof need be given to the Guarantor and none
of the foregoing acts shall release the Guarantor from liability hereunder. The
Guarantor hereby expressly waives (a) demand of payment, presentment, protest,
notice of dishonor, nonpayment or nonperformance on any and all forms of</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>the
Obligations; (b) notice of acceptance of this Guaranty and notice of any
liability to which it may apply; (c) all other notices and demands of any kind
and description relating to the Obligations now or hereafter provided for by
any agreement, statute, law, rule or regulation; and (d) any and all defenses
of the Borrower pertaining to the Obligations except for the defense of
discharge by payment. The Guarantor shall not be exonerated with respect to the
Guarantor&#146;s liabilities under this Guaranty by any act or thing except
irrevocable payment and performance of the Obligations, it being the purpose
and intent of this Guaranty that the Obligations constitute the direct and
primary obligations of the Guarantor and that the covenants, agreements and all
obligations of the Guarantor hereunder be absolute, unconditional and
irrevocable. The Guarantor shall be and remain liable for any deficiency
remaining after foreclosure of any mortgage, deed of trust or security
agreement securing all or any part of the Obligations, whether or not the
liability of the Borrower or any other Person for such deficiency is discharged
pursuant to statute, judicial decision or otherwise. The acceptance of this
Guaranty by the Lender is not intended and does not release any liability
previously existing of any guarantor or surety of any indebtedness of the
Borrower to the Lender.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other Transactions</U>. The Lender is
expressly authorized (a) to exchange, surrender or release with or without
consideration any or all collateral and security which may at any time be
placed with it by the Borrower or by any other Person, or to forward or deliver
any or all such collateral and security directly to the Borrower for collection
and remittance or for credit, or to collect the same in any other manner
without notice to the Guarantor and (b) to amend, modify, extend or supplement
the Credit Agreement, any note or other instrument evidencing the Obligations
or any part thereof and any other agreement with respect to the Obligations,
waive compliance by the Borrower or any other Person with the respective terms
thereof and settle or compromise any of the Obligations without notice to the
Guarantor and without in any manner affecting the absolute liabilities of the
Guarantor hereunder. No invalidity, irregularity or unenforceability of all or
any part of the Obligations or of any security therefor or other recourse with
respect thereto shall affect, impair or be a defense to this Guaranty. The
liabilities of the Guarantor hereunder shall not be affected or impaired by any
failure, delay, neglect or omission on the part of the Lender to realize upon
any of the Obligations of the Borrower to the Lender, or upon any collateral or
security for any or all of the Obligations, nor by the taking by the Lender of
(or the failure to take) any other guaranty or guaranties to secure the
Obligations, nor by the taking by the Lender of (or the failure to take or the
failure to perfect its security interest in or other lien on) collateral or
security of any kind. No act or omission of the Lender, whether or not such
action or failure to act varies or increases the risk of, or affects the rights
or remedies of the Guarantor shall affect or impair the obligations of the
Guarantor hereunder. The Guarantor acknowledges that this Guaranty is in effect
and binding without reference to whether this Guaranty is signed by any other
Person or Persons, that possession of this Guaranty by the Lender shall be
conclusive evidence of due delivery hereof by the Guarantor and that this
Guaranty shall continue in full force and effect, both as to the Obligations
then existing and/or thereafter created, notwithstanding the release of or
extension of time to any other guarantor of the Obligations or any part
thereof.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Actions Not Required</U>. The Guarantor
hereby waives any and all right to cause a marshalling of the assets of the
Borrower or any other action by any court or other governmental body with
respect thereto or to cause the Lender to proceed against any security for the
Obligations or any other recourse which the Lender may have with respect
thereto and</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>further
waives any and all requirements that the Lender institute any action or
proceeding at law or in equity, or obtain any judgment, against the Borrower or
any other Person, or with respect to any collateral security for the
Obligations, as a condition precedent to making demand on or bringing an action
or obtaining and/or enforcing a judgment against, the Guarantor upon this
Guaranty. The Guarantor further acknowledges that time is of the essence with
respect to the Guarantor&#146;s obligations under this Guaranty. Any remedy or right
hereby granted which shall be found to be unenforceable as to any Person or
under any circumstance, for any reason, shall in no way limit or prevent the
enforcement of such remedy or right as to any other Person or circumstance, nor
shall such unenforceability limit or prevent enforcement of any other remedy or
right hereby granted.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No Subrogation</U>. Notwithstanding any
payment or payments made by the Guarantor hereunder, the Guarantor waives all
rights of subrogation to any of the rights of the Lender against the Borrower
or any other Person liable for payment of any of the Obligations or any
collateral security or guaranty or right of offset held by the Lender for the
payment of the Obligations, and the Guarantor waives all rights to seek any
recourse to or contribution or reimbursement from the Borrower or any other
Person liable for payment of any of the Obligations in respect of payments made
by the Guarantor hereunder.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Application of Payments</U>. Any and all
payments upon the Obligations made by the Guarantor or by any other Person,
and/or the proceeds of any or all collateral or security for any of the
Obligations, may be applied by the Lender on such items of the Obligations as
the Lender may elect.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Recovery of Payment</U>. If any payment
received by the Lender and applied to the Obligations is subsequently set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
the Borrower or any other obligor), the Obligations to which such payment was
applied shall for the purposes of this Guaranty be deemed to have continued in
existence, notwithstanding such application, and this Guaranty shall be
enforceable as to such Obligations as fully as if such application had never
been made. References in this Guaranty to amounts &#147;irrevocably paid&#148; or to
&#147;irrevocable payment&#148; refer to payments that cannot be set aside, recovered,
rescinded or required to be returned for any reason.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Borrower&#146;s Financial Condition</U>. The
Guarantor is familiar with the financial condition of the Borrower, and the
Guarantor has executed and delivered this Guaranty based on the Guarantor&#146;s own
judgment and not in reliance upon any statement or representation of the
Lender. The Lender shall have no obligation to provide the Guarantor with any
advice whatsoever or to inform the Guarantor at any time of the Lender&#146;s
actions, evaluations or conclusions on the financial condition or any other
matter concerning the Borrower.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Remedies</U>. All remedies afforded to the
Lender by reason of this Guaranty are separate and cumulative remedies and it
is agreed that no one of such remedies, whether or not exercised by the Lender,
shall be deemed to be in exclusion of any of the other remedies available to
the Lender and no one of such remedies shall in any way limit or prejudice any
other legal or equitable remedy which the Lender may have hereunder and with
respect to the</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>Obligations.
Mere delay or failure to act shall not preclude the exercise or enforcement of
any rights and remedies available to the Lender.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Bankruptcy of the Borrower</U>. The
Guarantor expressly agrees that the liabilities and obligations of the
Guarantor under this Guaranty shall not in any way be impaired or otherwise
affected by the institution by or against the Borrower or any other Person of
any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or any other similar proceedings for relief under any bankruptcy law or similar
law for the relief of debtors and that any discharge of any of the Obligations
pursuant to any such bankruptcy or similar law or other law shall not diminish,
discharge or otherwise affect in any way the obligations of the Guarantor under
this Guaranty, and that upon the institution of any of the above actions, such
obligations shall be enforceable against the Guarantor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Costs and Expenses</U>. The Guarantor will
pay or reimburse the Lender on demand for all reasonable out-of-pocket expenses
paid or incurred by the Lender, including in each case filing and recording
costs and fees, charges and disbursements of outside counsel to the Lender
(determined on the basis of such counsel&#146;s generally applicable rates, which
may be higher than the rates such counsel charges the Lender in certain
matters) and/or the allocated costs of in-house counsel incurred from time to
time, arising out of or in connection with the collection and enforcement of
this Guaranty against the Guarantor or arising out of or in connection with any
failure of the Guarantor to fully and timely perform the obligations of the
Guarantor hereunder.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waivers and Amendments</U>. This Guaranty
can be waived, modified, amended, terminated or discharged only explicitly in a
writing signed by the Lender. A waiver so signed shall be effective only in the
specific instance and for the specific purpose given.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notices</U>. Any notice or other
communication to any party in connection with this Guaranty 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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
16.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Guarantor Acknowledgements</U>. The
Guarantor hereby acknowledges that (a) counsel has advised the Guarantor in the
negotiation, execution and delivery of this Guaranty, (b) the Lender has no
fiduciary relationship to the Guarantor the relationship being solely that of
debtor and creditor, and (c) no joint venture exists between the Guarantor and
the Lender.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Representations and Warranties</U>.
Electromed Financial, LLC hereby represents and warrants to the Lender that it
is a limited liability company organized, validly existing and in good standing
under the laws of the State of Minnesota and has the power and authority and
the legal right to own and operate its properties and to conduct the business
in which it is currently engaged. Electromed Financial, LLC further represents
and warrants to the Lender that:</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It
 has the power and authority and the legal right to execute and deliver, and
 to perform its obligations under, this Guaranty and has taken all necessary
 action required by its form of organization to authorize such execution,
 delivery and performance.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
 Guaranty constitutes its legal, valid and binding obligation enforceable in
 accordance with its terms, except as enforceability may be limited by
 applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
 affecting the enforcement of creditors&#146; rights generally and by general
 equitable principles (whether enforcement is sought by proceedings in equity
 or at law).</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 execution, delivery and performance of this Guaranty will not (i) violate any
 provision of any law, statute, rule or regulation or any order, writ,
 judgment, injunction, decree, determination or award of any court, governmental
 agency or arbitrator presently in effect having applicability to it, (ii)
 violate or contravene any provision of its organizational documents, or (iii)
 result in a breach of or constitute a default under any indenture, loan or
 credit agreement or any other agreement, lease or instrument to which it is a
 party or by which it or any of its properties may be bound or result in the
 creation of any lien thereunder. It is not in default under or in violation
 of any such law, statute, rule or regulation, order, writ, judgment,
 injunction, decree, determination or award or any such indenture, loan or
 credit agreement or other agreement, lease or instrument in any case in which
 the consequences of such default or violation could have a material adverse
 effect on its business, operations, properties, assets or condition
 (financial or otherwise).</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
 order, consent, approval, license, authorization or validation of, or filing,
 recording or registration with, or exemption by, any governmental or public
 body or authority is required on its part to authorize, or is required in
 connection with the execution, delivery and performance of, or the legality,
 validity, binding effect or enforceability of, this Guaranty.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
 are no actions, suits or proceedings pending or, to its knowledge, threatened
 against or affecting it or any of its properties before any court or
 arbitrator, or any governmental department, board, agency or other
 instrumentality which, if determined adversely to it, would have a material
 adverse effect on its business, operations, property or condition (financial
 or otherwise) or on its ability to perform its obligations hereunder.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT  SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It
 expects to derive benefits from the transactions resulting in the creation of
 the Obligations. The Lender may rely conclusively on the continuing warranty,
 hereby made, that it continues to be benefited by the Lender&#146;s extension of
 credit accommodations to the Borrower and the Lender shall have no duty to
 inquire into or confirm the receipt of any such benefits, and this Guaranty
 shall be effective and enforceable by the Lender without regard to the
 receipt, nature or value of any such benefits.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
18.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Continuing Guaranty; Assignments under
Credit Agreement</U>. This Guaranty shall (a) remain in full force and effect
until irrevocable payment in full of the Obligations and the expiration of the
obligations, if any, of the Lender to extend credit accommodations to the
Borrower, (b) be binding upon the Guarantor, its successors and assigns and (c)
inure to the benefit of, and be enforceable by, the Lender and its successors,
transferees, and assigns. Without limiting the generality of the foregoing
clause (c), the Lender may assign or otherwise transfer all or any portion of
its rights and obligations under the Credit Agreement to any other Persons 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 Guaranty to such Persons.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
19.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Reaffirmation</U>. The Guarantor agrees
that when so requested by the Lender from time to time it will promptly execute
and deliver to the Lender a written reaffirmation of this Guaranty in such form
as the Lender may require.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
20.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Revocation</U>. Notwithstanding any other
provision hereof, the Guarantor may revoke this Guaranty prospectively as to
future transactions by written notice to that effect actually received by the
Lender. No such revocation shall release, impair or affect in any manner any
liability hereunder with respect to Obligations created, contracted, assumed or
incurred prior to receipt by the Lender of written notice of revocation, or
Obligations created, contracted, assumed or incurred after receipt of such
notice pursuant to any contract entered into by the Lender prior to receipt of
such notice, or any renewals or extensions thereof, theretofore or thereafter
made, or any interest accrued or accruing on such Obligations, or all other
costs, expenses and attorneys&#146; fees arising from such Obligations.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
21.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Governing
Law and Construction</U>. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY
OF THIS GUARANTY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA,
WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT
TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.</B> Whenever
possible, each provision of this Guaranty 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 Guaranty 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 Guaranty or any
other statement, instrument or transaction contemplated hereby or relating
hereto.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
22.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Consent
to Jurisdiction</U>. AT THE OPTION OF THE LENDER, THIS GUARANTY MAY BE
ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY,
MINNESOTA; AND THE GUARANTOR 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 GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE
UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS GUARANTY, THE LENDER AT ITS OPTION SHALL BE</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>7</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>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.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
23.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Waiver of
Jury Trial</U>. EACH OF THE GUARANTOR AND THE LENDER, BY ITS ACCEPTANCE
OF THIS GUARANTY, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE
TRANSACTIONS CONTEMPLATED HEREBY.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
24.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts</U>. This Guaranty 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.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
25.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>General</U>. All representations and
warranties contained in this Guaranty or in any other agreement between the Guarantor
and the Lender shall survive the execution, delivery and performance of this
Guaranty and the creation and payment of the Obligations. Captions in this
Guaranty are for reference and convenience only and shall not affect the
interpretation or meaning of any provision of this Guaranty.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>[The remainder of this page has been left blank intentionally.]</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>8</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the date first
above written.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="49%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="48%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT  SIZE=2>GUARANTOR:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT  SIZE=2>ELECTROMED FINANCIAL, LLC</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P><FONT  SIZE=2>By</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2><img src="a101390001_v1.jpg"  ALT="-s- Robert D. Hansen"></font></P>

 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT  SIZE=2>Name: Robert D. Hansen</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT  SIZE=2>Title: Chief Manager and Chief Executive Officer </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>Address:</FONT></P>

<P><FONT SIZE=2>500
Sixth Avenue NW <BR>
New Prague, MN 56071 <BR>
ATTN: Robert D. Hansen <BR>
Fax Number: 952-758-1941</FONT></P>

<P><FONT SIZE=2>Address
for the Lender<FONT SIZE=1>:</FONT></FONT></P>

<P><FONT SIZE=2>U.S.
Bank National Association <BR>
BC-MN-H03W <BR>
800 Nicollet Mall <BR>
Minneapolis, MN 55402-4302 <BR>
ATTN: Daniel J. Miller <BR>
Fax Number: 612-303-2252</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>[Signature Page to Guaranty]</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>16
<FILENAME>elmd101390s1_ex10-10.htm
<DESCRIPTION>ENVIRONMENTAL AND ADA INDEMNIFICATION AGREEMENT
<TEXT>
<HTML>
<HEAD><TITLE>Exhibit 10.10 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=right><FONT SIZE=3><B>Exhibit 10.10</B></FONT></P>

<P align=center><FONT SIZE=3><B>ENVIRONMENTAL
AND ADA INDEMNIFICATION AGREEMENT</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
ENVIRONMENTAL AND ADA INDEMNIFICATION AGREEMENT (this &#147;Agreement,&#148; which term
shall include any amendment, modification, supplement, extension, renewal,
replacement, or restatement hereof)is made as of December 9, 2009, by
ELECTROMED, INC., a corporation organized under the laws of the State of
Minnesota (&#147;Mortgagor&#148;), in favor of U.S. BANK NATIONAL ASSOCIATION, a national
banking association (&#147;Lender&#148;).</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>RECITALS</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lender
and Mortgagor have entered into that certain Credit Agreement of even date
herewith (the &#147;Credit Agreement,&#148; which term shall include any amendment,
modification, supplement, extension, renewal, replacement, or restatement
thereof), pursuant to which Lender has agreed to extend certain credit
accommodations to Mortgagor, which are secured in part by a Mortgage, Security
Agreement, Assignment of Leases and Rents and Fixture Financing Statement of
even date herewith (the &#147;Mortgage,&#148; which term shall include any amendment,
modification, supplement, extension, renewal, replacement, or restatement
thereof) pertaining to certain land described in the Mortgage and improvements
thereon (collectively the &#147;Property&#148;) owned by Mortgagor and located in Scott
County, Minnesota.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lender
has refused to extend the credit accommodations to Mortgagor unless this
Agreement is executed and delivered by Mortgagor.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW,
THEREFORE, in consideration of Lender&#146;s agreement to extend certain credit
accommodations to Mortgagor, Mortgagor hereby warrants and represents to, and
covenants and agrees with, Lender as follows:</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Definitions</U>.
As used in this Agreement, the following terms shall have the following
meanings:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Accessibility
 Regulation&#148; means a Law relating to accessibility of facilities or properties
 for disabled, handicapped and/or physically challenged persons, including,
 without limitation, the Americans With Disabilities Act of 1991, as amended.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Environmental
 Regulation&#148; means a Law relating to the environment and/or to human health or
 safety, or governing, regulating or pertaining to the generation, treatment,
 storage, handling, transportation, use or disposal of any Hazardous
 Substance.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Hazardous
 Substance&#148; means any substance or material defined in or governed or
 regulated by any Environmental Regulation as a dangerous, toxic or hazardous
 pollutant, contaminant, chemical, waste, material or substance, and also
 expressly includes urea-formaldehyde, polychlorinated biphenyls, dioxin,
 radon, lead-based paint, asbestos, asbestos containing materials, nuclear
 fuel or waste, radioactive materials, explosives, carcinogens and petroleum
 products, including but not limited to crude oil or any fraction thereof,
 natural gas, natural gas liquids, gasoline and synthetic gas, and any other
 waste, material, substance, pollutant or contaminant the presence of which
 on, in,</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>about or under the Property would subject the
 owner or operator thereof to any damages, penalties, fines or liabilities
 under any applicable Environmental Regulation.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Law&#148; means any federal, state or local law,
 statute, code, ordinance, rule, regulation or requirement.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
capitalized terms used in this Agreement but not defined herein shall have the
meanings assigned to such terms in the Credit Agreement.</FONT></P>

<P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Warranties
and Representations</U>. Mortgagor warrants and represents to Lender that to
Mortgagor&#146;s knowledge, and except as otherwise described in documents
identified on <U>Exhibit A</U> attached hereto: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
 is not located on, in, about or under the Property any Hazardous Substances
 except for Hazardous Substances of the type ordinarily used, stored or
 manufactured in connection with the operation of the Property as it is
 presently operated, and such existing Hazardous Substances have been and are
 used, stored and manufactured in compliance with all Environmental
 Regulations. The Property is operated as manufacturing facility.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Property is not presently used, and has not in the past been used, as a
 landfill, dump, disposal facility or gasoline station, or for industrial,
 manufacturing or military purposes, or for the storage, generation, production,
 manufacture, processing, treatment, disposal, handling, transportation or
 deposit of any Hazardous Substances.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
 has not in the past been, and no present threat now exists of, a spill,
 discharge, emission or release of a Hazardous Substance in, upon, under, over
 or from the Property or from any other property which would have an impact on
 the Property.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Property is in compliance with, and there are no past or present
 investigations, administrative proceedings, litigation, regulatory hearings
 or other actions completed, proposed, threatened or pending, alleging
 noncompliance with or violation of, any Environmental Regulations respecting
 the Property, or relating to any required environmental permits covering the
 Property.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgagor
 has disclosed to Lender all reports and investigations commissioned by or in
 the possession or control of Mortgagor and relating to Hazardous Substances
 and the Property.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE="2">(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
are not now, nor have there ever been, any above ground or underground
storage tanks located in or under the Property. All storage tanks identified
on <U>Exhibit A</U> have been registered and/or permitted as required by
Environmental Regulations, and evidence of such registration and/or permitting
has been given to Lender. There are no wells on or under the Property. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Covenants
and Agreements</U>. Mortgagor covenants and agrees as follows:</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
 for substances normally used for maintenance or operation of the Property
 which are used, stored and disposed of in accordance with all applicable
 Environmental Regulations, Mortgagor shall not, nor shall it permit others
 to, place, store, locate, generate, produce, create, process, treat, handle,
 transport, incorporate, discharge, emit, spill, release, deposit or dispose
 of any Hazardous Substance in, upon, under, over or from the Property.
 Mortgagor shall cause all Hazardous Substances found on or under the
 Property, which are not permitted under the foregoing sentence, to be
 properly removed therefrom and properly disposed of at Mortgagor&#146;s cost and
 expense. Mortgagor shall not install or permit to be installed any
 underground storage tank on or under the Property. Mortgagor shall give
 written notice to Lender prior to a change in the operations on the Property.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
 the event that (i) Lender reasonably believes that a violation of an
 Environmental Regulation may have occurred in connection with the Property;
 (ii) Lender receives notice from Mortgagor or otherwise has knowledge that an
 event described in subparagraph 3(d) has occurred; (iii) Lender reasonably
 believes that a representation or warranty of Mortgagor in Paragraph 2 was
 untrue in any material respect when made or has become untrue in any material
 respect; (iv) Lender receives notice from Mortgagor or otherwise has
 knowledge of a change in operations on the Property and Lender reasonably
 believes that the new operations may entail the presence of more or different
 Hazardous Substances on the Property; or (v) Lender reasonably believes that
 Hazardous Substances are present on the Property which were not previously
 known by Lender to be present on the Property; then, in any such event,
 Mortgagor shall at its cost obtain and deliver to Lender an environmental
 review, audit, assessment and/or report relating to the Property or shall
 have any previously delivered materials updated and/or amplified, by an
 engineer or scientist selected by Mortgagor and acceptable to Lender; if
 Mortgagor fails to do so within forty-five (45) days after such request is
 made, Lender shall have the right to do so, in which event Mortgagor shall
 reimburse Lender for the cost incurred by Lender in doing so within ten (10)
 days following demand therefor by Lender.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgagor
 shall comply with all Accessibility Regulations which are applicable to the
 Property. In the event that (i) Lender reasonably believes that a material
 violation of an Accessibility Regulation may have occurred in connection with
 the Property; or (ii) Lender receives notice from Mortgagor or otherwise has
 knowledge that an event described in subparagraph 3(d) and pertaining to
 Accessibility Regulations has occurred; then, in any such event, Mortgagor
 shall at its cost obtain and deliver to Lender an Accessibility Regulation
 compliance report relating to the Property or shall have any previously
 delivered materials updated and/or amplified, by a qualified consultant
 selected by Mortgagor and acceptable to Lender; if Mortgagor fails to do so within
 forty- five (45) days after such request is made, Lender shall have the right
 to do so, in which event Mortgagor shall reimburse Lender for the cost
 incurred by Lender in doing so within ten (10) days following demand therefor
 by Lender.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgagor
 shall, promptly after obtaining actual knowledge thereof, give notice to
 Lender of: (i) any activity in violation of any applicable Environmental
 Regulations relating to the Property, (ii) any governmental or regulatory
 actions instituted or</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>threatened under any Environmental Regulations or
 any Accessibility Regulations affecting the Property, (iii) all claims made
 or threatened by any third party against the Mortgagor or the Property
 relating to any Hazardous Substance or a violation of any Environmental
 Regulations or any Accessibility Regulations, (iv) discovery by Mortgagor of
 any occurrence or condition on or under the Property or on or under any real
 property adjoining or in the vicinity of the Property which could subject
 Mortgagor, Lender or the Property to a claim under any Environmental
 Regulations or Accessibility Regulations. Any such notice shall include
 copies of any written materials received by Mortgagor.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
 investigation or any remedial or corrective action taken with respect to the
 Property shall be done under the supervision of a qualified consultant,
 engineer, or scientist acceptable to Lender who shall, at Mortgagor&#146;s cost
 and at the completion of such investigation or action, provide a written report
 of such investigation or action to Lender. Mortgagor shall also provide
 Lender with a copy of any interim reports prepared in connection with any
 such investigation or action.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
 the Property has, or is suspected to have, asbestos or asbestos containing
 materials (&#147;ACM&#148;) which, due to its condition or location or due to any
 planned building renovation or demolition, is recommended to be abated by
 repair, encapsulation, removal or other action, Mortgagor shall promptly
 carry out the recommended abatement action. If the recommended abatement
 includes removal of ACM, Mortgagor shall cause the same to be removed and
 disposed of offsite by a licensed and experienced asbestos removal
 contractor, all in accordance with Environmental Regulations. Upon completion
 of the recommended abatement action, Mortgagor shall deliver to Lender a
 certificate, signed by an officer of Mortgagor and the consultant overseeing
 the abatement action, certifying to Lender that the work has been completed
 in compliance with all applicable laws, ordinances, codes and regulations
 (including without limitation those regarding notification, removal and
 disposal) and that no airborne fibers beyond permissible exposure limits
 remain on site. Mortgagor shall develop and implement an Operations and
 Maintenance Program (as contemplated by Environmental Protection Agency
 guidance document entitled &#147;Managing Asbestos In Place; A Building Owner&#146;s
 Guide to Operations and Maintenance Programs for Asbestos-Containing
 Materials&#148;) for managing in place any ACM at or in the Property. Mortgagor
 shall deliver a complete copy of such Operations and Maintenance Program to
 Lender and certify to Lender that such Program has been implemented.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After
 an Event of Default (as defined in the Credit Agreement), Lender shall have
 the right, after ten (10) days&#146; prior written notice to Mortgagor, to have an
 environmental review, audit, assessment, testing program and/or report with
 respect to the Property performed or prepared by an environmental engineering
 firm selected by Lender. Mortgagor shall reimburse Lender for the cost
 incurred for each such action within ten (10) days following demand therefor
 by Lender.</FONT></P>
 </TD>
 </TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Indemnity</U>.
Mortgagor shall indemnify Lender, any participant of Lender, its and their
directors, officers, employees, agents, contractors, licensees, invitees, and
the respective heirs, legal representatives, successors and assigns of all such
persons and parties (hereinafter</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>collectively referred to as &#147;Indemnified Parties&#148;)
against, shall hold the Indemnified Parties harmless from, and shall reimburse
the Indemnified Parties for, any and all loss, damage, liability, cost and
expense directly or indirectly incurred by the Indemnified Parties, including
reasonable attorneys&#146; and consultants&#146; fees, resulting from: (a) the presence
or discovery of any Hazardous Substance in, upon, under or over, or emanating
from, the Property, whether or not Mortgagor is responsible therefor, and
whether or not it was placed, located, deposited or released by Mortgagor;
and/or (b) any violation of any Environmental Regulation or any Accessibility
Regulation. Mortgagor agrees that the Indemnified Parties shall have no
responsibility for, and Mortgagor hereby releases the Indemnified Parties from
responsibility for, damage or injury to human health, property, the environment
or natural resources caused by Hazardous Substances and for abatement,
clean-up, detoxification, removal or disposal of, or otherwise with respect to,
Hazardous Substances. The indemnity contained in this paragraph 4 shall be
deemed continuing for the benefit of the Indemnified Parties, including any
purchaser at a foreclosure or other sale under the Mortgage, any transferee of
the title from Lender, and any subsequent owner of the Property, and shall
survive the satisfaction or release of the Mortgage, any foreclosure of or
other sale under the Mortgage and/or any acquisition of title to the Property
or any part thereof by Lender, or anyone claiming by, through or under Lender,
by deed in lieu of foreclosure or otherwise, and also shall survive the
repayment or any other satisfaction of the Obligations. Notwithstanding the
foregoing, the indemnity contained in this paragraph 4 shall not apply with
respect to any loss, damage, liability, cost or expense which Mortgagor proves
by a preponderance of the evidence was caused solely by or resulted solely from
any act or omission of any Person (as defined in the Credit Agreement), other
than the Mortgagor or an agent, employee, invitee or contractor of the
Mortgagor, which occurred after Lender or anyone claiming by, through or under
Lender acquired title to the Property by foreclosure of the Mortgage or deed in
lieu of foreclosure or otherwise and control of the Property. Any amounts
covered by the foregoing indemnification shall bear interest from the date
incurred at the default rate set forth in the Credit Agreement), and shall be
payable on demand. Mortgagor agrees that its obligations under this Agreement
are separate from, independent of, and in addition to its obligations under the
Mortgage and other documents which secure the Obligations.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Liability</U>.
The liability of Mortgagor under this Agreement shall not be subject to any
limitations on liability set forth in the Mortgage or any other document
evidencing or securing the Obligations. Without limitation, the obligations and
liability of Mortgagor under this Agreement shall in no way be waived,
released, discharged, reduced, mitigated or otherwise affected by Lender&#146;s
extending credit accommodations with knowledge of the matters described in
documents identified on Exhibit A attached hereto, or of the presence of any
Hazardous Substance on, in, about or under the Property or any property adjoining
or in the vicinity of the Property, or of any violation of any Environmental
Regulation or any Accessibility Regulation or any condition or state of facts
or circumstances which with notice or lapse of time or both might ripen into
such a violation, or by any neglect, delay or forbearance of Lender in
demanding, requiring or enforcing payment or performance of the obligations and
liability of Mortgagor hereunder, or by the receivership, bankruptcy,
insolvency or dissolution of Mortgagor or any affiliate thereof. No action or
proceeding brought or instituted under this Agreement, and no recovery made as
a result thereof, shall be a bar or a defense to any further action or
proceeding under any other agreement. Mortgagor shall pay all reasonable
out-of-pocket expenses incurred by the Lender and the other Indemnified
Parties, including the reasonable fees, charges and disbursements of outside
counsel for the Lender (determined on the basis of such counsel&#146;s</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>generally applicable rates, which may be higher than
the rates such counsel charges the Lender in certain matters) and/or the
allocated costs of in-house counsel incurred from time to time, in connection
with the enforcement of the Indemnified Parties&#146; rights under this Agreement,
including those incurred in any case, action, proceeding or claim under the
Federal Bankruptcy Code or any successor statute.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notices</U>.
Any notice or other communication to any party in connection with this
Agreement shall be in writing and shall be sent in accordance with the
provisions of the Mortgage.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Governing
Law and Construction</U>. The validity, construction and enforceability of this
Agreement shall be governed by the laws of the State of Minnesota, without
giving effect to conflict of laws or principles thereof, but giving effect to
federal laws of the United States applicable to national banks. 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.</FONT></P>

<P><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Consent to Jurisdiction</U>. At the option of Lender, this Agreement may be enforced in any
Federal Court or Minnesota State Court sitting in Minneapolis or St. Paul,
Minnesota; and Mortgagor 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 Mortgagor 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, Lender 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. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waiver
of Jury Trial</U>. Mortgagor and Lender irrevocably waives any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Agreement or any of the Loan Documents (as defined in the Credit Agreement) or
the transactions contemplated hereby or thereby.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Binding
Effect; Gender</U>. This Agreement shall inure to the benefit of Lender, and
the Indemnified Parties, and shall bind Mortgagor and Mortgagor&#146;s successors
and assigns. The obligations of Mortgagor under this Agreement shall be
enforceable in all events against Mortgagor, and Mortgagor&#146;s successors and
assigns, and each of them, jointly and severally. The use of any gender herein
shall include all other genders.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>[The remainder of this page has been left blank intentionally.]</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, Mortgagor has executed this Agreement as of the date first
above written.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="50%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="1%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="33%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="14%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>ELECTROMED, INC.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=bottom nowrap>
 <P><FONT SIZE=2>By:&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2><img src="a101390001_v1.jpg"  ALT="-s- Robert D. Hansen"></font></P>


 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Name: Robert D. Hansen </FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2>Title: Chief Executive Officer</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P align=center><FONT SIZE=2>[Signature Page to Environmental and ADA Indemnification Agreement]</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P align=center><FONT SIZE=2><U>EXHIBIT A</U></FONT></P>

<P align=center><FONT SIZE=2>(Description of Environmental Reports)</FONT></P>

<P><FONT SIZE=2>Phase I Environmental Site Assessment Report prepared
by Vieau Associates Inc., dated September 8, 2009.</FONT></P>

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</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>17
<FILENAME>elmd101390s1_ex10-11.htm
<DESCRIPTION>FORM OF ASSIGNMENT OF PATENT APPLICATION
<TEXT>

<HTML>
<HEAD>
   <TITLE>Exhibit 10.11 to Electromed, Inc. Form S1</TITLE>
</HEAD>

<BODY bgcolor="#ffffff">

<a name="page_1"></a>
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<DIV>
<p align=right style='margin:0in;margin-bottom:0pt;text-align:right;'><b><font face="TmsRmn 12pt,serif" lang=EN-US style='font-size:12.0pt;'>Exhibit 10.11</font></b></p>
<p align=right style='margin:0in;margin-bottom:0pt;text-align:right;'><font face="TmsRmn 12pt,serif" lang=EN-US style='font-size:12.0pt;'>&nbsp;</font></p>
</DIV>
<p align=center style='margin:0in;margin-bottom:0pt;text-align:center;'><b><u><font face="TmsRmn 12pt,serif" lang=EN-US style='font-size:12.0pt;'>ASSIGNMENT</font></u></b></p>
<p style='margin:0in;margin-bottom:0pt;'><font face="TmsRmn 12pt,serif" lang=EN-US style='font-size:12.0pt;'>&nbsp;</font></p>
<p style='margin:0in;margin-bottom:0pt;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>WHEREAS, we, _____________________ (hereinafter &#8220;ASSIGNOR&#8221;), have invented, and are the joint owners of, _____________________ having certain novel features and various configurations disclosed and claimed in United States patent application &#160;_____________________ &#160;filed &#160;_____________________, referred to as the &#8220;the Application&#8221;; and</font></p>
<p style='margin:0in;margin-bottom:0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin:0in;margin-bottom:0pt;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>WHEREAS, Electromed, Inc. (hereinafter &#8220;ASSIGNEE&#8221;), a corporation organized and existing under and by virtue of the laws of the State of Minnesota, and having its principal place of business at 502 Sixth Avenue NW, New Prague, Minnesota, is desirous of acquiring the entire interest in the invention and the Application and in any improvements thereto;</font></p>
<p style='margin:0in;margin-bottom:0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin:0in;margin-bottom:0pt;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ASSIGNOR by these presents does sell, assign and transfer unto ASSIGNEE, its successors, assigns and legal representatives, the full and exclusive right to the invention as described in the aforesaid Application and to any and all patents, registrations, and the like, resulting from the Application, in the United States and all foreign countries, together with the right of priority under the International Convention for the Protection of Industrial Property, Inter-American Convention Relating to Patents, Designs and Industrial Models, and any other international agreements to which the United States adheres, and hereby authorize and request the Commissioner for Patents to issue to ASSIGNEE Letters Patent on the pending App
lication for the sole use and benefit of ASSIGNEE, its successors, assigns and legal representatives,</font></p>
<p style='margin:0in;margin-bottom:0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin:0in;margin-bottom:0pt;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>AND HEREBY AGREES to transfer a like interest upon request of ASSIGNEE, its successors, assigns and legal representatives, and without further remuneration, in and to any improvements and applications for patents based thereon, growing out of or relating to the invention; and to provide all reasonable assistance and execute any papers deemed essential by ASSIGNEE, its successors, assigns and legal representatives, to ASSIGNEE's full protection and title to the invention hereby transferred,</font></p>
<p style='margin:0in;margin-bottom:0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin:0in;margin-bottom:0pt;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>AGREEING, FURTHERMORE, upon request of ASSIGNEE, and without further remuneration, to execute any and all papers desired by ASSIGNEE for the filing and granting of foreign applications and the perfecting of title thereto in ASSIGNEE.</font></p>
<p style='margin:0in;margin-bottom:0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin:0in;margin-bottom:0pt;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>EXECUTED this _____ day of __________________________________________.</font></p>
<p style='margin:0in;margin-bottom:0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin:0in;margin-bottom:0pt;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<div align=left>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>18
<FILENAME>elmd101390s1_ex10-12.htm
<DESCRIPTION>EMPLOYMENT AGREEMENT, ROBERT D. HANSEN
<TEXT>

<HTML>
<HEAD><TITLE>Exhibit 10.12 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=RIGHT><FONT SIZE=3><B>Exhibit 10.12</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3><U><B>NEW EMPLOYMENT AGREEMENT</B></U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This New
Employment Agreement (&#147;Agreement&#148;) is effective as of January 1, 2010 (the
&#147;Effective Date&#148;), by and among Electromed, Inc., a Minnesota corporation (the
&#147;Corporation&#148;), and Robert D. Hansen (&#147;Employee&#148;). </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>RECITALS</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>A.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>Employee is the co-founder of the Corporation and has been employed
 since the Corporation&#146;s inception in 1992. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>B.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>Employee is currently employed by the Corporation in the capacity of
 Chairman and Chief Executive Officer. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>C.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>The Corporation highly values the efforts, abilities, and
 accomplishments of the Employee on behalf of the Corporation and recognizes
 that his future services are vital to the Corporation&#146;s continued growth and
 profits and that the loss of his services would be a substantial loss for the
 Corporation and, as such, the Corporation wishes to provide incentives for
 the Employee to continue to remain with the Corporation.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>D.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>The Corporation and Employee desire to enter into this Agreement, and
 it is the intention of the Corporation and Employee that this Agreement
 entirely supersedes any prior agreements with respect hereto. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2><B>AGREEMENT</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
consideration of the above recitals and the mutual promises set forth in this
Agreement, the parties agree as follows: </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Nature
and Capacity of Employment</U>. The Corporation hereby agrees to employ the
Employee as its Chief Executive Officer, subject to the direction of the Board
of Directors of the Corporation and pursuant to the terms and conditions set
forth in this Agreement. The Employee hereby accepts employment under the terms
and conditions set forth in this Agreement. The Employee agrees to perform or
be available to perform the functions of this position, pursuant to the terms
of this Agreement. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Term
of Employment</U>. The term of the Employee&#146;s employment hereunder shall commence on the Effective
Date of this Agreement and shall continue thereafter through the last day of
Calendar Year 2013 (&#147;<U>Initial Expiration Date</U>&#148;), unless terminated
earlier in accordance with Paragraph 4 of this Agreement. The term of this
Agreement and the Employee&#146;s employment hereunder shall automatically renew for
successive one year periods beyond the Initial Expiration Date, unless at least
ninety (90) days prior to the
anniversary date of this Agreement either party hereto gives written notice to
the other party that it does not intend to renew this Agreement for the coming
Calendar Year. During any Renewal Term, this Agreement may be terminated
pursuant to the terms of Paragraph 4 of this Agreement. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=RIGHT><FONT SIZE=2>Exhibit 10.12 </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compensation
 and Benefits.</U></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Base
 Salary</U>. As of the Effective Date, the Corporation agrees to pay the
 Employee an annualized base salary of $209,000.00, which amount shall be
 earned by the Employee on a pro rata basis as the Employee performs services
 and which shall be paid according to the Corporation&#146;s normal payroll
 practices. For the Calendar Year ending in December 31, 2011 and thereafter
 during the term of this Agreement or any Renewal Term, the Board of Directors
 acting reasonably shall determine the amount of Base Salary payable pursuant
 to this Paragraph 3.1. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Annual
 Bonus</U>. For the Calendar Year ending December 31, 2010, provided that the
 gross sales revenue of the Corporation reaches at least $10,000,000, the
 Employee shall receive an Annual Bonus as follows: For every $250,000 above
 $10,000,000 of gross sales revenue reached by the Corporation for the Calendar
 Year ending December 31, 2010, the Employee shall receive an additional
 amount of $2,500. Notwithstanding anything to the contrary set forth herein,
 the Employee shall not be entitled to any Annual Bonus if the gross sales
 revenue for the Calendar Year ending December 31, 2010, is less than
 $10,000,000. Unless an exception is approved by the Board of Directors, the
 Employee&#146;s Annual Bonus, if any, will be paid to the Employee in equal
 bi-monthly installments throughout the first ten months of the subsequent
 Calendar Year according to the Corporation&#146;s normal payroll practices. For
 the Calendar Year ending December 31, 2011 and thereafter during the term of
 this Agreement or any Renewal Term, the Board of Directors acting reasonably
 shall determine the amount of, and related gross sales revenue levels for,
 the Annual Bonus payable pursuant to this Paragraph 3.2. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Deferred
 Compensation</U>. Employee shall not be entitled to deferred compensation and
 by signing this Agreement, Employee knowingly waives and forfeits any
 existing rights to deferred compensation under the Corporation&#146;s Deferred
 Compensation Plan effective January 1, 2010. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Employee
 Benefits</U>. During the Employee&#146;s employment with the Corporation, the
 Employee shall be entitled to participate in the retirement plans, health
 plans, and all other employee benefits made available by the Corporation, as
 they may be changed from time to time. The Employee acknowledges and agrees
 that he will be subject to all eligibility requirements and all other
 provisions of these benefits plans, and that the Corporation is under no
 obligation to the Employee to establish and maintain any employee benefit
 plan in which the Employee may participate. The terms and provisions of any
 employee benefit plan of the Corporation are matters within the exclusive
 province of the Corporation&#146;s Board of Directors, subject to applicable law. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Paid
 Time Off</U>. The Corporation agrees that the Employee shall be entitled to Paid
 Time Off (&#147;PTO&#148;) of up to six (6) weeks per year without reduction of the
 minimum annual base salary payable to the Employee pursuant to Paragraph 3.1
 of this Agreement. PTO which is unused at the end of any Calendar year will carry over to the next Calendar
 year. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Life
 Insurance</U>: The Corporation shall maintain a term life insurance policy on the Employee&#146;s life in a
 principal amount equal to at least $1,000,000.00. The Corporation </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=RIGHT><FONT SIZE=2>Exhibit 10.12 </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>shall pay all annual premiums on the policy during the Term or any
 Renewal Term and the Employee will have the right to designate and change
 beneficiaries in his discretion. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other
 Benefits</U>: During the Term or Renewal Term, the Corporation shall directly
 provide an automobile and a cell phone or wireless handheld device for the
 Employee&#146;s use. The Corporation shall also provide a corporate credit card
 for approved business expenses and shall otherwise reimburse the Employee
 for, or pay directly, all reasonable business expenses incurred by the
 Employee in the performance of his duties under this Agreement, provided that
 the Employee incurs and accounts for such expenses in accordance with all
 Corporation policies and directives in effect from time to time. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination
 of Employment Prior to the End of the Term or Renewal Term</U>. The
 Employee&#146;s employment may be terminated prior to the expiration of the Term
 or a Renewal Term as follows: </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=3 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>For
 Cause Termination, Without Severance</U>. Notwithstanding anything contained
 herein to the contrary, the Corporation may discharge the Employee for Cause
 and terminate this Agreement immediately upon written notice to the Employee.
 For the purposes of this Agreement, &#147;Cause&#148; shall mean the occurrence of any
 of the following: </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;gross misconduct by the
 Employee which the Corporation&#146;s Board of Directors determines is (or will be
 if continued) demonstrably and materially damaging to the Corporation; or </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;fraud, misappropriation, or
 embezzlement by the Employee; or </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>(iii)&nbsp;&nbsp;&nbsp;&nbsp;conviction of a felony crime or a crime
 of moral turpitude; or </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>(iv)&nbsp;&nbsp;&nbsp;&nbsp;conduct in the course of employment that
 the Corporation&#146;s Board of Directors determines is unethical; or </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>(v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the material breach of this
 Agreement by the Employee. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the
 Corporation terminates the Employee&#146;s employment for Cause pursuant to this
 Paragraph 4.1, the Employee shall not be entitled to severance pay under Paragraph
 4.2 or to any bonus or incentive compensation of any kind. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2. <U>Without
 Cause, With Severance</U>. The Corporation may terminate the Employee&#146;s
 employment immediately at any time and for any reason without Cause upon
 providing notice to the Employee. However, in such event the Corporation
 shall pay the Employee any earned and unpaid bonus, if any, on a pro rata
 basis for the period through the Employee&#146;s termination date. The amount of
 such bonus, if any, shall be calculated based on the Corporation&#146;s annualized
 gross sales revenue as of the last day of Employee&#146;s employment and shall be
 paid in a lump sum approximately sixty (60) days after termination. In
 addition, provided that the Employee meets all of the conditions set forth in
 this paragraph for receiving severance pay, the Corporation shall pay the
 Employee severance pay in a lump sum equal to one year&#146;s base salary within
 sixty (60) days after termination. The Employee shall only be entitled to
 receive the severance pay described herein if the Employee signs and does not
 rescind a Confidential Separation Agreement at the time of termination in a
 form prepared by </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=RIGHT><FONT SIZE=2>Exhibit 10.12 </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="10%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="85%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>the Corporation that includes: (i) agreement to a general release of
 any and all legal claims; (ii) return of all of the Corporation&#146;s property in
 the Employee&#146;s possession; and (iii) agreement not to disparage the
 Corporation and its representatives. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>4.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Resignation by The Employee Due
 to Change of Control, With Severance</U>.<BR>For purposes of this Agreement,
 &#147;Change of Control&#148; means: </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>i.&nbsp;&nbsp;&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>A &#147;change in ownership,&#148; as described in Section 1.409A-3(i)(5)(v) of
 the Treasury Regulations. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>ii.&nbsp;&nbsp;&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>A &#147;change in effective control,&#148; as described in Section
 1.409A-3(i)(5)(vi) of the Treasury Regulations. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=RIGHT><FONT SIZE=2>iii.&nbsp;&nbsp;&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>A &#147;change in ownership of a substantial portion of the assets,&#148; as
 described in Section 1.409A-3(i)(5)(vii) of the Treasury Regulations. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
 Employee shall have the right to terminate the Employee&#146;s employment for any
 reason within six (6) months following a Change of Control in the Corporation
 upon providing thirty (30) days advance written notice to the Corporation.
 The Corporation may then elect either (a) to have the Employee continue
 performing work for the Corporation throughout the 30 day notice period; or
 (b) to accept the Employee&#146;s resignation effective immediately. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the
 event of the Employee&#146;s termination of employment with the Corporation
 following a Change of Control under this Paragraph 4.3, the Corporation shall
 pay the Employee any earned and unpaid bonus or incentive compensation, if
 any, on a pro rata basis for the period through the Employee&#146;s termination
 date. The amount of such bonus, if any, shall be calculated based on the
 Corporation&#146;s annualized gross sales revenue as of the last day of Employee&#146;s
 employment and shall be paid in a lump sum approximately sixty (60) days
 after termination. In addition, provided that the Employee meets all of the
 conditions set forth in this paragraph for receiving severance pay, the
 Corporation shall pay the Employee severance pay in a lump sum equal to two
 year&#146;s base salary within sixty (60) days after termination. The Employee
 shall only be entitled to receive the severance pay described herein if the
 Employee signs and does not rescind a Confidential Separation Agreement at
 the time of termination in a form prepared by the Corporation that includes:
 (i) agreement to a general release of any and all legal claims; (ii) return
 of all of the Corporation&#146;s property in the Employee&#146;s possession; and (iii)
 agreement not to disparage the Corporation and its representatives. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4. <U>Other
 Resignation by Employee, Without Severance</U>. The Employee may resign the
 Employee&#146;s position upon providing ninety (90) days advance, written notice
 to the Corporation. The Corporation may then elect either (a) to have the
 Employee continue performing work for the Corporation throughout the 90 day
 notice period; or (b) to accept the Employee&#146;s resignation effective
 immediately. In the event of the Employee&#146;s termination of employment with
 the Corporation under this Paragraph 4.4, the Employee shall not be paid any
 severance pay as provided in Paragraph 4.2, but shall be paid any earned and
 unpaid bonus, if any, on a pro rata basis for the period through the
 Employee&#146;s termination date. The amount of such bonus, if any, shall be
 calculated based on the Corporation&#146;s annualized gross sales </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=RIGHT><FONT SIZE=2>Exhibit 10.12 </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>revenue as of the last day of Employee&#146;s employment and shall be paid
 in a lump sum approximately sixty (60) days after termination. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Because
 of Death, Disability or Incapacity of The Employee, Without Severance</U>. In
 the event of the Employee&#146;s death, this Agreement shall terminate
 immediately. If the Employee is unable to perform the Employee&#146;s duties and
 responsibilities for more than ninety (90) days in any consecutive twelve
 (12) month period by reason of physical or mental disability or incapacity,
 the Corporation may terminate the Employee&#146;s employment upon thirty (30) days
 advance written notice to the Employee. This Paragraph does not relieve the
 Corporation of any duty to reasonably accommodate a qualifying disability
 under the Americans with Disabilities Act, any legal duty under the Family
 Medical Leave Act, or any of its other duties pursuant to applicable law. If
 the Employee&#146;s employment is terminated pursuant to this Paragraph, the
 Employee shall not be entitled to severance pay under Paragraph 4.2, but shall
 be paid any earned and unpaid bonus, if any, on a pro rata basis for the
 period through the Employee&#146;s termination date. The amount of such bonus, if
 any, shall be calculated based on the Corporation&#146;s annualized gross sales
 revenue as of the last day of Employee&#146;s employment and shall be paid in a
 lump sum approximately sixty (60) days after termination. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Miscellaneous. </U></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Integration</U>.
 This Agreement embodies the entire agreement and understanding among the
 parties relative to subject matter hereof and supersedes all prior agreements
 and understandings relating to such subject matter. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Applicable
 Law</U>. This Agreement and the rights of the parties shall be governed by
 and construed and enforced in accordance with the laws of the state of
 Minnesota. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Payments</U>.
 All amounts paid under this Agreement shall be subject to normal withholdings
 or such other treatment as required by law. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts</U>.
 This Agreement may be executed in several counterparts and as so executed
 shall constitute one agreement binding on the parties hereto. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Binding
 Effect</U>. Except as herein or otherwise provided to the contrary, this
 Agreement shall be binding upon and inure to the benefit of the Corporation
 and its successors, assigns and personal representatives without any
 requirement of the consent of the Employee for assignment of its rights or
 obligations hereunder. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Modification</U>.
 This Agreement shall not be modified or amended except by a written
 instrument signed by the parties. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Severability</U>.
 The invalidity or partial invalidity of any portion of this Agreement shall
 not invalidate the remainder thereof, and said remainder shall remain in
 fully force and effect. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Opportunity
 to Obtain Advice of Counsel</U>. The Employee acknowledges that the Employee
 has been advised by the Corporation to obtain legal advice prior to executing
 this </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=RIGHT><FONT SIZE=2>Exhibit 10.12 </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>Agreement, and that the Employee had sufficient opportunity to do so
 prior to signing this Agreement. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Public
 Company Savings Clause</U>. Notwithstanding anything in this Agreement to the
 contrary, if any of the payments described in this Agreement are subject to
 the requirements of Code Section 409A and the Corporation determines that
 Employee is a &#147;specified employee&#148; as defined in Code Section 409A as of the
 date of Employee&#146;s termination of employment, such payments shall not be paid
 or commence earlier than the first day of the seventh month following the
 date of Employee&#146;s termination of employment. In addition, notwithstanding
 anything in this Agreement to the contrary, the Corporation expressly
 reserves the right to amend this Agreement to the extent necessary to comply
 with Code Section 409A, as it may be amended from time to time, and the
 regulations, notices and other guidance of general applicability issued
 thereunder. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2><B>THIS AGREEMENT</B> was
voluntarily and knowingly executed by the parties as of date and year first set
forth above. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="3%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="35%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="18%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="39%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=TOP>
 <P><FONT SIZE=2><B>ELECTROMED, INC.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2><B>EMPLOYEE:</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM: SOLID BLACK 1PX">

<P><FONT SIZE=2>/s/ Terry Belford</FONT></P>

 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM: SOLID BLACK 1PX">

 <P><FONT SIZE=2>/s/ Robert D.
 Hansen</FONT></P>

 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>&nbsp;&nbsp;Robert D.
 Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>19
<FILENAME>elmd101390s1_ex10-13.htm
<DESCRIPTION>EMPLOYMENT AGREEMENT, TERRY BELFORD
<TEXT>
<HTML>
<HEAD><TITLE>Exhibit 10.13 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=RIGHT><FONT SIZE=3><B>Exhibit 10.13</B> </FONT></P>

<P ALIGN=CENTER><FONT SIZE=3><B><u>NEW EMPLOYMENT AGREEMENT</u></B></FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
New Employment Agreement (&#147;Agreement&#148;) is effective as of January 1, 2010 (the
&#147;Effective Date&#148;), by and among Electromed, Inc., a Minnesota corporation (the
&#147;Corporation&#148;), and Terry Belford (&#147;Employee&#148;). </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>RECITALS</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>A.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>Employee is
 currently employed by the Corporation in the capacity of Chief Financial
 Officer. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>B.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>The
 Corporation wishes to provide incentives for the Employee to continue to
 remain with the Corporation.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>C.</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>The
 Corporation and Employee desire to enter into this Agreement, and it is the
 intention of the Corporation and Employee that this Agreement entirely
 supersedes any prior agreements with respect hereto. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2><B>AGREEMENT</B></FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
consideration of the above recitals and the mutual promises set forth in this
Agreement, the parties agree as follows: </FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Nature and Capacity of Employment</U>. The
Corporation hereby agrees to employ the Employee as its Chief Financial
Officer, subject to the direction of the Board of Directors of the Corporation
and pursuant to the terms and conditions set forth in this Agreement. The
Employee hereby accepts employment under the terms and conditions set forth in
this Agreement. The Employee agrees to perform or be available to perform the functions
of this position, pursuant to the terms of this Agreement. </FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Term of Employment</U>. The term of the
Employee&#146;s employment hereunder
shall commence on the Effective Date of this Agreement and shall continue
thereafter through the last day of Calendar Year 2013 (&#147;<U>Initial Expiration
Date</U>&#148;), unless terminated earlier in accordance with Paragraph 4 of this
Agreement. The term of this Agreement and the Employee&#146;s employment hereunder
shall automatically renew for successive one year periods beyond the Initial
Expiration Date, unless at least ninety (90) days prior to the anniversary date
of this Agreement either party hereto gives written notice to the other party
that it does not intend to renew this Agreement for the coming Calendar Year.
During any Renewal Term, this Agreement may be terminated pursuant to the terms
of Paragraph 4 of this Agreement. </FONT> </P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compensation
and Benefits</U>. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Base
 Salary</U>. As of the Effective Date, the Corporation agrees to pay the
 Employee an annualized base salary of $146,000.00, which amount shall be
 earned by the Employee on a pro rata basis as the Employee performs services
 and which shall be paid according to the Corporation&#146;s normal payroll
 practices. For the Calendar Year ending in December 31, 2011 and thereafter
 during the term of this Agreement or any Renewal Term, the </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=RIGHT><FONT SIZE=2>Exhibit 10.13 </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>Board of
 Directors acting reasonably shall determine the amount of Base Salary payable
 pursuant to this Paragraph 3.1.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Annual
 Bonus</U>. For the Calendar Year ending December 31, 2010, provided that the
 gross sales revenue of the Corporation reaches at least $10,000,000, the
 Employee shall receive an Annual Bonus as follows: For every $250,000 above
 $10,000,000 of gross sales revenue reached by the Corporation for the
 Calendar Year ending December 31, 2010, the Employee shall receive an
 additional $1,875. Notwithstanding anything to the contrary set forth herein,
 the Employee shall not be entitled to any Annual Bonus if the gross sales
 revenue for the Calendar Year ending December 31, 2010, is less than
 $10,000,000. Unless an exception is approved by the Board of Directors, the
 Employee&#146;s Annual Bonus, if any, will be paid to the Employee in equal
 bi-monthly installments throughout the first ten months of the subsequent
 Calendar Year according to the Corporation&#146;s normal payroll practices. For
 the Calendar Year ending December 31, 2011 and thereafter during the term of
 this Agreement or any Renewal Term, the Board of Directors acting reasonably
 shall determine the amount of, and related gross sales revenue levels for,
 the Annual Bonus payable pursuant to this Paragraph 3.2.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Deferred
 Compensation</U>. The Employee shall not be entitled to deferred compensation
 and by signing this Agreement, Employee knowingly waives and forfeits any
 existing rights to deferred compensation under the Corporation&#146;s Deferred
 Compensation Plan effective January 1, 2010.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Employee
 Benefits</U>. During the Employee&#146;s employment with the Corporation, the
 Employee shall be entitled to participate in the retirement plans, health
 plans, and all other employee benefits made available by the Corporation, and
 as they may be changed from time to time. The Employee acknowledges and
 agrees that he will be subject to all eligibility requirements and all other
 provisions of these benefits plans, and that the Corporation is under no
 obligation to the Employee to establish and maintain any employee benefit
 plan in which the Employee may participate. The terms and provisions of any
 employee benefit plan of the Corporation are matters within the exclusive
 province of the Corporation&#146;s Board of Directors, subject to applicable law. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Paid
 Time Off</U>. The Corporation agrees that the Employee shall be entitled to
 Paid Time Off (&#147;PTO&#148;) of up to three (3) weeks per year without reduction of
 the minimum annual base salary payable to the Employee pursuant to Paragraph
 3.1 of this Agreement. PTO which is unused at the end of any Calendar year will carry over to
 the next Calendar year. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other
 Benefits</U>: During the Term or Renewal Term, the Corporation shall directly
 pay the cost of a cell phone or wireless handheld device for the Employee&#146;s use.
 Additionally, during the Term or any Renewal Term, the Corporation shall
 promptly reimburse the Employee, upon receipt of appropriate documentation,
 for any reasonable automobile lease payments up to an amount of $375 per
 month. The Corporation shall also provide a corporate credit card for
 approved business expenses and shall otherwise reimburse the Employee for, or
 pay directly, all reasonable business expenses incurred by the Employee in
 the performance of his duties under this Agreement, provided that the
 Employee incurs and accounts for such expenses in accordance with all
 Corporation policies and directives in effect from time to time.</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=RIGHT><FONT SIZE=2>Exhibit 10.13 </FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination of Employment Prior to the End of
the Term or Renewal Term</U>. The Employee&#146;s employment may be terminated prior
to the expiration of the Term or a Renewal Term as follows: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>For
 Cause Termination, Without Severance</U>. Notwithstanding anything contained
 herein to the contrary, the Corporation may discharge the Employee for Cause
 and terminate this Agreement immediately upon written notice to the Employee.
 For the purposes of this Agreement, &#147;Cause&#148; shall mean the occurrence of any
 of the following:</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;gross
 misconduct by the Employee which the Corporation&#146;s Board of Directors
 determines is (or will be if continued) demonstrably and materially damaging
 to the Corporation; or </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;fraud,
 misappropriation, or embezzlement by the Employee; or </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;conviction
 of a felony crime or a crime of moral turpitude; or </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;&nbsp;&nbsp;conduct
 in the course of employment that the Corporation&#146;s Board of Directors
 determines is unethical; or </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the
 material breach of this Agreement by the Employee. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
 the Corporation terminates the Employee&#146;s employment for Cause pursuant to
 this Paragraph 4.1, the Employee shall not be entitled to severance pay under
 Paragraph 4.2 or to any bonus or incentive compensation of any kind. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Without
 Cause, With Severance</U>. The Corporation may terminate the Employee&#146;s
 employment immediately at any time and for any reason without Cause upon
 providing notice to the Employee. However, in such event the Corporation
 shall pay the Employee any earned and unpaid bonus, if any, on a pro rata
 basis for the period through the Employee&#146;s termination date. The amount of
 such bonus, if any, shall be calculated based on the Corporation&#146;s annualized
 gross sales revenue as of the last day of Employee&#146;s employment and shall be
 paid in a lump sum approximately sixty (60) days after termination. In
 addition, provided that the Employee meets all of the conditions set forth in
 this paragraph for receiving severance pay, the Corporation shall pay the
 Employee severance pay in a lump sum equal to one year&#146;s base salary within
 sixty (60) days after termination. The Employee shall only be entitled to
 receive the severance pay described herein if the Employee signs and does not
 rescind a Confidential Separation Agreement at the time of termination in a
 form prepared by the Corporation that includes: (i) agreement to a general
 release of any and all legal claims; (ii) return of all of the Corporation&#146;s
 property in the Employee&#146;s possession; and (iii) agreement not to disparage
 the Corporation and its representatives.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Resignation
 by the Employee Due to Change of Control, With Severance</U>.<BR>For purposes of
 this Agreement, &#147;Change of Control&#148; means:</FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;i.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
 &#147;change in ownership,&#148; as described in Section 1.409A-3(i)(5)(v) of the
 Treasury Regulations. </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=RIGHT><FONT SIZE=2>Exhibit 10.13 </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ii.&nbsp;&nbsp;&nbsp;A
 &#147;change in effective control,&#148; as described in Section 1.409A-3(i)(5)(vi) of
 the Treasury Regulations. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;iii.&nbsp;&nbsp;&nbsp;A
 &#147;change in ownership of a substantial portion of the assets,&#148; as described in
 Section 1.409A-3(i)(5)(vii) of the
 Treasury Regulations. </FONT></P>
 </TD>
 </TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="95%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee
 shall have the right to terminate the Employee&#146;s employment for any reason
 within six (6) months following a Change of Control in the Corporation upon
 providing thirty (30) days advance written notice to the Corporation. The
 Corporation may then elect either (a) to have the Employee continue
 performing work for the Corporation throughout the 30 day notice period; or
 (b) to accept the Employee&#146;s resignation effective immediately. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
 the event of the Employee&#146;s termination of employment with the Corporation
 following a Change of Control under this Paragraph 4.3, the Corporation shall
 pay the Employee any earned and unpaid bonus or incentive compensation, if
 any, on a pro rata basis for the period through the Employee&#146;s termination
 date. The amount of such bonus, if any, shall be calculated based on the
 Corporation&#146;s annualized gross sales revenue as of the last day of Employee&#146;s
 employment and shall be paid in a lump sum approximately sixty (60) days
 after termination. In addition, provided that the Employee meets all of the
 conditions set forth in this paragraph for receiving severance pay, the
 Corporation shall pay the Employee severance pay in a lump sum equal to two
 years&#146; base salary within sixty (60) days after termination. The Employee
 shall only be entitled to receive the severance pay described herein if the
 Employee signs and does not rescind a Confidential Separation Agreement at
 the time of termination in a form prepared by the Corporation that includes:
 (i) agreement to a general release of any and all legal claims; (ii) return
 of all of the Corporation&#146;s property in the Employee&#146;s possession; and (iii)
 agreement not to disparage the Corporation and its representatives. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other
 Resignation by the Employee, Without Severance.</U> The Employee may resign
 the Employee&#146;s position upon providing ninety (90) days advance, written
 notice to the Corporation. The Corporation may then elect either (a) to have
 the Employee continue performing work for the Corporation throughout the 90
 day notice period; or (b) to accept the Employee&#146;s resignation effective
 immediately. In the event of the Employee&#146;s termination of employment with
 the Corporation under this Paragraph 4.4, the Employee shall not be paid any
 severance pay as provided in Paragraph 4.2, but shall be paid any earned and
 unpaid bonus, if any, on a pro rata basis for the period through the
 Employee&#146;s termination date. The amount of such bonus, if any, shall be
 calculated based on the Corporation&#146;s annualized gross sales revenue as of
 the last day of Employee&#146;s employment and shall be paid in a lump sum
 approximately sixty (60) days after termination. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Because
 of Death, Disability or Incapacity of the Employee, Without Severance</U>. In
 the event of the Employee&#146;s death, this Agreement shall terminate
 immediately. If the Employee is unable to perform the Employee&#146;s duties and
 responsibilities for more than ninety (90) days in any consecutive twelve
 (12) month period by reason of physical or mental disability or incapacity,
 the Corporation may terminate the Employee&#146;s employment upon thirty (30) days
 advance written notice to the Employee. This Paragraph does not relieve the
 Corporation of any duty to reasonably accommodate a qualifying disability
 under the Americans with Disabilities Act, any legal duty under the Family
 Medical Leave Act, or any of its other duties pursuant to applicable law. If
 the Employee&#146;s employment is terminated </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=RIGHT><FONT SIZE=2>Exhibit 10.13 </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>pursuant to
 this Paragraph, the Employee shall not be entitled to severance pay under
 Paragraph 4.2, but shall be paid any earned and unpaid bonus, if any, on a
 pro rata basis for the period through the Employee&#146;s termination date. The
 amount of such bonus, if any, shall be calculated based on the Corporation&#146;s
 annualized gross sales revenue as of the last day of Employee&#146;s employment
 and shall be paid in a lump sum approximately sixty (60) days after
 termination.</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Miscellaneous.</U></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Integration</U>.
 This Agreement embodies the entire agreement and understanding among the
 parties relative to subject matter hereof and supersedes all prior agreements
 and understandings relating to such subject matter, including but not limited
 to any earlier employment agreements of the Employee. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Applicable
 Law</U>. This Agreement and the rights of the parties shall be governed by
 and construed and enforced in accordance with the laws of the state of
 Minnesota. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Payments</U>.
 All amounts paid under this Agreement shall be subject to normal withholdings
 or such other treatment as required by law. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts</U>.
 This Agreement may be executed in several counterparts and as so executed
 shall constitute one agreement binding on the parties hereto. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Binding
 Effect</U>. Except as herein or otherwise provided to the contrary, this
 Agreement shall be binding upon and inure to the benefit of the Corporation
 and its successors, assigns and personal representatives without any
 requirement of the consent of the Employee for assignment of its rights or
 obligations hereunder. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Modification</U>.
 This Agreement shall not be modified or amended except by a written
 instrument signed by the parties. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Severability</U>.
The invalidity or partial invalidity of any portion of this Agreement shall
not invalidate the remainder thereof, and said remainder shall remain in
fully force and effect. </FONT> </P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Opportunity
 to Obtain Advice of Counsel</U>. The Employee acknowledges that the Employee
 has been advised by the Corporation to obtain legal advice prior to executing
 this Agreement, and that the Employee had sufficient opportunity to do so
 prior to signing this Agreement. </FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Public
 Company Savings Clause</U>. Notwithstanding anything in this Agreement to the
 contrary, if any of the payments described in this Agreement are subject to
 the requirements of Code Section 409A and the Corporation determines that
 Employee is a &#147;specified employee&#148; as defined in Code Section 409A as of the
 date of Employee&#146;s termination of employment, such payments shall not be paid
 or commence earlier than the first day of the seventh month following the
 date of Employee&#146;s termination of employment. In addition, notwithstanding
 anything in this Agreement to the contrary, the Corporation expressly
 reserves the right to amend this Agreement to the extent necessary to comply
 with Code </FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=RIGHT><FONT SIZE=2>Exhibit 10.13 </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="5%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="90%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>Section
 409A, as it may be amended from time to time, and the regulations, notices
 and other guidance of general applicability issued thereunder. </FONT></P>
 </TD>
 </TR>
</TABLE>

<P ALIGN="JUSTIFY"><FONT SIZE=2><B>THIS AGREEMENT</B> was
voluntarily and knowingly executed by the parties as of date and year first set
forth above. </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="3%" VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="32%" VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="24%" VALIGN=TOP>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 <TD WIDTH="39%" VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY">&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD COLSPAN=2 VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY"><FONT SIZE=2><B>ELECTROMED, INC.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY"><FONT SIZE=2><B>EMPLOYEE:</B></FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>By: </FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=2>/s/ Robert D. Hansen</FONT></P>


 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=2>/s/ Terry Belford</FONT></P>


 </TD>
 </TR>
 <TR>
 <TD VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P ALIGN="JUSTIFY"><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=BOTTOM>
 <P ALIGN="JUSTIFY"><FONT SIZE=2>Terry
 Belford</FONT></P>
 </TD>
 </TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>20
<FILENAME>elmd101390s1_ex10-14.htm
<DESCRIPTION>NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT, ROBERT D. HANSEN
<TEXT>
<HTML>
<HEAD><TITLE>Exhibit 10.14 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=RIGHT><FONT SIZE=3><B>Exhibit 10.14</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3><B><U>NON-COMPETITION,
NON-SOLICITATION, AND CONFIDENTIALITY<BR>
AGREEMENT</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT (the &#147;<U>Agreement</U>&#148;)
is effective as of the 1<SUP>st</SUP> day of January, 2010, by and between
Electromed, Inc. (the &#147;<U>Corporation</U>&#148;) and Robert Hansen (the &#147;<U>Employee</U>&#148;).</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>RECITALS</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Employee is currently employed by
the Corporation in a capacity in which the Employee may create or have access
to proprietary confidential and/or trade secret information of the Corporation;
and </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation has expended
substantial time and resources to develop proprietary confidential and/or trade
secret information and to develop valuable relationships and goodwill within
its industry; and</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Employee recognizes that the
Corporation operates in a highly competitive environment and the importance to
the Corporation of ensuring the Employee&#146;s loyalty and protecting the
Corporation&#146;s actual and prospective customers, business relations, employees,
and confidential information; and</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Employee has entered into this
Agreement in consideration of the Corporation and Employee entering into the
New Employment Agreement of even date which provides, among other things, for
continued employment, added compensation, training and benefits, added
severance in the event of a change of control as defined in the New Employment
Agreement, and in consideration of being given access to Corporation&#146;s
proprietary confidential and/or trade secret information, the receipt and sufficiency
of which consideration is hereby acknowledged by the Employee.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>AGREEMENT</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
consideration of the above recitals and the promises set forth in this
Agreement, the parties agree as follows:</FONT></P>

<P><FONT SIZE=2><B>1.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Protection of Confidential Information</U>.</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Definition
of Confidential Information</U>. </B>As
used in this Agreement, the term &#147;Confidential Information&#148; shall mean any
information which the Employee learns or develops during the Employee&#146;s
employment with the Corporation that derives independent economic value from
being not generally known or readily ascertainable by other persons who could
obtain economic value from its disclosure or use, and includes, but is not
limited to, trade secrets, financial information, personnel information, and
information relating to such matters as existing or contemplated products,
services, profit margins, fee schedules, pricing, design, processes, formulae,
business plans, sales techniques, marketing techniques, training manuals and
materials, policies or practices related to the Corporation&#146;s business,
personnel or other matters, computer databases, computer programs, software and
other technology, customer lists</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>and requirements, vendor lists, or supply information. Confidential
Information includes such information of the Corporation, its customers,
vendors, and other third parties or entities with whom the Corporation does
business. Any information disclosed to the Employee or to which the Employee
has access during the time of the Employee&#146;s employment that the Employee
reasonably considers to be Confidential Information, or which the Corporation
treats as Confidential Information, will be presumed Confidential Information.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Restrictions
on Use or Disclosure of Confidential Information</U>.</B> The Employee shall keep the Confidential
Information in absolute confidence both during the Employee&#146;s employment with
the Corporation and after the termination of the Employee&#146;s employment,
regardless of the reason for such termination. The Employee agrees that the
Employee will not, at any time, disclose to others, use for the benefit of any
entity or person other than the Corporation, or otherwise take or copy any such
Confidential Information, whether or not developed by the Employee, except as
required in the Employee&#146;s duties to the Corporation.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Return of
Confidential Information and the Corporation&#146;s Property</U>. </B>When
the Employee&#146;s employment terminates with the Corporation, regardless of the
reason for such termination, the Employee will promptly turn over to the
Corporation in good condition all Corporation property in the Employee&#146;s
possession or control, including but not limited to all originals, copies of,
or electronically stored documents or other materials containing Confidential
Information, regardless of who prepared them. In the case of electronically
stored information retained by the Employee outside of the Corporation&#146;s
electronic systems, the Employee will promptly make a hard copy of such
information in paper, audio recording, disc format, or other format as
appropriate, turn that hard copy over to the Corporation, and then destroy the
Employee&#146;s electronically stored information. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Noncompetition/Non-Solicitation</U>.
</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1.</B><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Acknowledgement by the Employee</U>. </B>The
Employee acknowledges that (a) the Employee&#146;s services to be performed for the
Corporation are of a special and unique nature; (b) the Corporation operates in
a highly competitive environment and would be substantially harmed if the
Employee were to compete with the Corporation or divulge its confidential
information; (c) the Employee has received valuable and sufficient
consideration for entering into this Agreement, including but not limited to
employment with the Corporation, and the receipt of Confidential Information;
and (d) the provisions of this Section 2, including all of its subparts, are
reasonable and necessary to protect the Corporation&#146;s business.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&#147;Corporate
Product&#148; Defined</U>.</B> For purposes of this Agreement, &#147;Corporate Product&#148; means any product or
service (including any component thereof and any research to develop
information useful in connection with a product or service) that has been or is
being designed, developed, manufactured, marketed, or sold by the Corporation
or with respect to which the Employee has acquired Confidential Information.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Employee understands and acknowledges that, at the present time, Corporate
Products includes the SmartVest&reg;
Airway Clearance System and related products. The Employee understands and
acknowledges that the foregoing description of Corporate Products</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>-2-</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>may change, and the provisions of this Section 2 and all of its
subparts shall apply to the Corporate Products of the Corporation in effect
upon the termination of the Employee&#146; s employment with the Corporation.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&#147;Competitive
Product&#148; Defined</U>.</B> For
purposes hereof, &#147;Competitive Product&#148; means any product or service (including
any components thereof and any research to develop information useful in
connection with the product or service) that is being designed, developed,
manufactured, marketed, or sold by any person or entity other than the
Corporation that is of the same general type, performs similar functions, or is
used for the same purpose as a Corporate Product or about which the Employee
has acquired Confidential Information.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Noncompete
Obligations</U>.</B> The
Employee agrees that, during the Employee&#146;s employment with the Corporation and
for a period of twelve (12) months following the Employee&#146;s termination of
employment with the Corporation, regardless of the reason for termination, the
Employee will not, directly or indirectly, render services to any person or
entity that designs, develops, manufactures, markets, or sells a Competitive
Product in any geographic area where the Corporation designs, develops,
manufactures, markets, or sells a Corporate Product. It is expressly
understood, however, that the Employee is free to work for a competitor of the
Corporation provided that such employment does not include any responsibilities
for or in connection with a Competitive Product.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Employee understands and acknowledges that, at the present time, the geographic
market of the Corporation includes North America. The Employee understands and
acknowledges that the foregoing description of the Corporation&#146;s geographic
market may change, and the provisions of this Section 2 and all of its subparts
shall apply to the geographic market of the Corporation in effect upon the
termination of the Employee&#146;s employment with the Corporation.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Solicitation of Customers</U>.</B> During
the Employee&#146;s employment with the Corporation and for a period of twelve (12)
months after the Employee&#146;s termination of employment with the Corporation,
regardless of the reason for such termination, the Employee agrees that the
Employee shall not, directly or indirectly, solicit business from, work for, or
otherwise interfere with or attempt to interfere with the Corporation&#146;s
relationship with any customer or prospective customer of the Corporation.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Solicitation of Employees or Business Contacts</U>.</B> During the Employee&#146;s employment with
the Corporation and for a period of twelve (12) months after the Employee&#146;s
termination of employment with the Corporation, regardless of the reason for
such termination, the Employee agrees that the Employee shall not, directly or
indirectly, take any action to encourage, solicit or recruit any current or
former employee, consultant, independent contractor, subcontractor, supplier,
vendor, or other business relation of the Corporation to terminate their
relationship with the Corporation.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>-3-</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Disclosure
of Obligations</U>.</B> The
Employee agrees that, during the Employee&#146;s employment with the Corporation and
for a period of twelve (12) months after the Employee&#146;s termination of
employment with the Corporation, regardless of the reason for such termination,
the Employee shall, prior to accepting employment or any other business
relationship with any other person or entity, inform that person or entity of
the Employee&#146;s obligations under this Section 2, including all of its subparts.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compliance and Remedies</U>.</B> The
Employee recognizes that if the Employee violates this Agreement, including but
not limited to Paragraphs 1 and 2 of this Agreement, irreparable damage will
result to the Corporation that could not adequately be remedied by monetary
damages. As a result, the Employee hereby agrees that notwithstanding any other
dispute resolution provisions of this Agreement, in the event of any breach by
the Employee of this Agreement, including but not limited to Paragraphs 1 and 2
of this Agreement, the Corporation shall be entitled, in addition to any other
legal or equitable remedies available to it, to an injunction to restrain the
Employee&#146;s violation of any portion of this Agreement.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>4.&nbsp;&nbsp;&nbsp;</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Miscellaneous</U></B>.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Integration</U></B>.
This Agreement embodies the entire agreement and understanding among the
parties relative to subject matter hereof and supersedes all prior agreements, understandings, or past practices,
whether written or oral, relating to such subject matter.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Survival
of Sections 1 and 2</U></B>. Employee&#146;s obligations set
forth in Sections 1 and 2 of this Agreement, including all of these sections&#146;
subparts, shall survive the termination of this Agreement and Employee&#146;s
termination of employment with the Corporation, regardless of the reason for
such terminations.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Applicable
Law; Venue</U>.</B> This Agreement and the rights of the
parties shall be governed by and construed and enforced in accordance with the
laws of the state of Minnesota, without regard to any state&#146;s choice of law
principles or rules. The venue for any action hereunder shall be in the state
of Minnesota, whether or not such venue is or subsequently becomes
inconvenient, and the parties consent to the jurisdiction of the courts of the
state of Minnesota, county of Hennepin, and the federal district courts of
Minnesota.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts</U>.</B>
This Agreement may be executed in several counterparts and as so executed shall
constitute one agreement binding on the parties hereto.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Modification
by the Parties</U>.</B> This Agreement shall not be
modified or amended except by a written instrument signed by the parties. In
addition, no waiver of any provision of this Agreement shall be binding unless
set forth in a writing signed by the party effecting the waiver. Any waiver
shall be limited to the circumstance or event specifically referenced in the
written waiver document and shall not be deemed a waiver of any other term of
this Agreement or of the same circumstance or event upon any recurrence
thereof. </FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Severability;
Blue Pencil</U>.</B> The invalidity or partial invalidity
of any portion of this Agreement shall not invalidate the remainder thereof,
and said remainder shall remain in full force and effect. Moreover, if one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be excessively broad as to scope, activity, subject or otherwise, so as
to</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>-4-</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>be
unenforceable at law, such provision or provisions shall be construed by the
appropriate judicial body by limiting or reducing it or them, so as to be
enforceable to the maximum extent compatible with then applicable law.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Headings</U>.</B>
The section headings contained in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date herein
first above written.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
 <TR STYLE="FONT-SIZE:1PX">
 <TD WIDTH="59%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="2%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="28%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 <TD WIDTH="6%" VALIGN=TOP>
 <P>&nbsp;</P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2><B>ELECTROMED, INC.</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
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 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=2>/s/ Terry Belford</FONT></P>


 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>By:</FONT></P>
 </TD>
 <TD COLSPAN=2 VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=2>Terry Belford</FONT></P>


 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=2>Its:</FONT></P>
 </TD>
 <TD VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
 <P><FONT SIZE=2>CFO</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>
 <TR>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 </TD>
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 </TD>
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 </TD>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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 </TD>
 <TD COLSPAN=3 VALIGN=TOP>
 <P><FONT SIZE=2><B>EMPLOYEE:</B></FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
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  <TR>
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 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 <TD COLSPAN=3 VALIGN=TOP STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P><FONT SIZE=2>/s/ Robert D. Hansen</FONT></P>
 </TD>
 <TD VALIGN=TOP>
 <P><FONT SIZE=1>&nbsp;</FONT></P>
 </TD>
 </TR>

</TABLE>

<P ALIGN=CENTER><FONT SIZE=2>-5-</FONT></P>

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</HTML>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>21
<FILENAME>elmd101390s1_ex10-15.htm
<DESCRIPTION>NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT, TERRY BELFORD
<TEXT>
<HTML>
<HEAD><TITLE>Exhibit 10.15 to Electromed, Inc. Form S1</TITLE></HEAD>
<BODY>

<P ALIGN=RIGHT><FONT SIZE=3><B>Exhibit 10.15</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=3><B><U>NON-COMPETITION,
NON-SOLICITATION, AND CONFIDENTIALITY<BR>
AGREEMENT</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT (the &#147;<U>Agreement</U>&#148;)
is effective as of the 1<SUP>st</SUP> day of January, 2010, by and between
Electromed, Inc. (the &#147;<U>Corporation</U>&#148;) and Terry Belford (the &#147;<U>Employee</U>&#148;).</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>RECITALS</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Employee is currently employed by the Corporation in a capacity in which the
Employee may create or have access to proprietary confidential and/or trade
secret information of the Corporation; and </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Corporation has expended substantial time and resources to develop proprietary
confidential and/or trade secret information and to develop valuable
relationships and goodwill within its industry; and</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Employee
recognizes that the Corporation operates in a highly competitive environment
and the importance to the Corporation of ensuring the Employee&#146;s loyalty and
protecting the Corporation&#146;s actual and prospective customers, business
relations, employees, and confidential information; and</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Employee has entered into this Agreement in consideration of the Corporation
and Employee entering into the New Employment Agreement of even date which
provides, among other things, for continued employment, added compensation,
training and benefits, added severance in the event of a change of control as
defined in the New Employment Agreement, and in consideration of being given
access to Corporation&#146;s proprietary confidential and/or trade secret information,
the receipt and sufficiency of which consideration is hereby acknowledged by
the Employee.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>AGREEMENT</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
consideration of the above recitals and the promises set forth in this
Agreement, the parties agree as follows:</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>1.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Protection of Confidential Information</U>.</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Definition
of Confidential Information</U>. </B>As
used in this Agreement, the term &#147;Confidential Information&#148; shall mean any
information which the Employee learns or develops during the Employee&#146;s employment
with the Corporation that derives independent economic value from being not
generally known or readily ascertainable by other persons who could obtain
economic value from its disclosure or use, and includes, but is not limited to,
trade secrets, financial information, personnel information, and information
relating to such matters as existing or contemplated products, services, profit
margins, fee schedules, pricing, design, processes, formulae, business plans,
sales techniques, marketing techniques, training manuals and materials,
policies or practices related to the Corporation&#146;s business, personnel or other
matters, computer databases, computer programs, software and other technology,
customer lists </FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>and requirements, vendor lists, or supply information. Confidential
Information includes such information of the Corporation, its customers,
vendors, and other third parties or entities with whom the Corporation does
business. Any information disclosed to the Employee or to which the Employee
has access during the time of the Employee&#146;s employment that the Employee
reasonably considers to be Confidential Information, or which the Corporation
treats as Confidential Information, will be presumed Confidential Information.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Restrictions
on Use or Disclosure of Confidential Information</U>.</B> The Employee shall keep the Confidential
Information in absolute confidence both during the Employee&#146;s employment with
the Corporation and after the termination of the Employee&#146;s employment, regardless
of the reason for such termination. The Employee agrees that the Employee will
not, at any time, disclose to others, use for the benefit of any entity or
person other than the Corporation, or otherwise take or copy any such
Confidential Information, whether or not developed by the Employee, except as
required in the Employee&#146;s duties to the Corporation.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Return
of Confidential Information and the Corporation&#146;s Property</U>. </B>When
the Employee&#146;s employment terminates with the Corporation, regardless of the
reason for such termination, the Employee will promptly turn over to the
Corporation in good condition all Corporation property in the Employee&#146;s
possession or control, including but not limited to all originals, copies of, or
electronically stored documents or other materials containing Confidential
Information, regardless of who prepared them. In the case of electronically
stored information retained by the Employee outside of the Corporation&#146;s
electronic systems, the Employee will promptly make a hard copy of such
information in paper, audio recording, disc format, or other format as
appropriate, turn that hard copy over to the Corporation, and then destroy the
Employee&#146;s electronically stored information. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Noncompetition/Non-Solicitation</U>.
</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1.</B><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Acknowledgement by the Employee</U>. </B>The
Employee acknowledges that (a) the Employee&#146;s services to be performed for the
Corporation are of a special and unique nature; (b) the Corporation operates in
a highly competitive environment and would be substantially harmed if the
Employee were to compete with the Corporation or divulge its confidential
information; (c) the Employee has received valuable and sufficient
consideration for entering into this Agreement, including but not limited to
employment with the Corporation, and the receipt of Confidential Information;
and (d) the provisions of this Section 2, including all of its subparts, are
reasonable and necessary to protect the Corporation&#146;s business.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&#147;Corporate
Product&#148; Defined</U>.</B> For purposes of this Agreement, &#147;Corporate Product&#148; means any product or
service (including any component thereof and any research to develop
information useful in connection with a product or service) that has been or is
being designed, developed, manufactured, marketed, or sold by the Corporation
or with respect to which the Employee has acquired Confidential Information.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Employee understands and acknowledges that, at the present time, Corporate
Products includes the SmartVest&reg; Airway
Clearance System and related products. The Employee understands and
acknowledges that the foregoing description of Corporate Products </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>-2-</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>may change, and the provisions of this Section 2 and all of its
subparts shall apply to the Corporate Products of the Corporation in effect
upon the termination of the Employee&#146; s employment with the Corporation.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&#147;Competitive
Product&#148; Defined</U>.</B> For
purposes hereof, &#147;Competitive Product&#148; means any product or service (including
any components thereof and any research to develop information useful in
connection with the product or service) that is being designed, developed,
manufactured, marketed, or sold by any person or entity other than the
Corporation that is of the same general type, performs similar functions, or is
used for the same purpose as a Corporate Product or about which the Employee
has acquired Confidential Information.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Noncompete
Obligations</U>.</B> The
Employee agrees that, during the Employee&#146;s employment with the Corporation and
for a period of twelve (12) months following the Employee&#146;s termination of
employment with the Corporation, regardless of the reason for termination, the
Employee will not, directly or indirectly, render services to any person or
entity that designs, develops, manufactures, markets, or sells a Competitive
Product in any geographic area where the Corporation designs, develops,
manufactures, markets, or sells a Corporate Product. It is expressly
understood, however, that the Employee is free to work for a competitor of the
Corporation provided that such employment does not include any responsibilities
for or in connection with a Competitive Product.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Employee understands and acknowledges that, at the present time, the geographic
market of the Corporation includes North America. The Employee understands and
acknowledges that the foregoing description of the Corporation&#146;s geographic
market may change, and the provisions of this Section 2 and all of its subparts
shall apply to the geographic market of the Corporation in effect upon the
termination of the Employee&#146;s employment with the Corporation.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Solicitation of Customers</U>.</B> During
the Employee&#146;s employment with the Corporation and for a period of twelve (12)
months after the Employee&#146;s termination of employment with the Corporation,
regardless of the reason for such termination, the Employee agrees that the
Employee shall not, directly or indirectly, solicit business from, work for, or
otherwise interfere with or attempt to interfere with the Corporation&#146;s
relationship with any customer or prospective customer of the Corporation.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Solicitation of Employees or Business Contacts</U>.</B> During the Employee&#146;s employment with
the Corporation and for a period of twelve (12) months after the Employee&#146;s
termination of employment with the Corporation, regardless of the reason for
such termination, the Employee agrees that the Employee shall not, directly or
indirectly, take any action to encourage, solicit or recruit any current or
former employee, consultant, independent contractor, subcontractor, supplier,
vendor, or other business relation of the Corporation to terminate their
relationship with the Corporation.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>-3-</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Disclosure
of Obligations</U>.</B> The
Employee agrees that, during the Employee&#146;s employment with the Corporation and
for a period of twelve (12) months after the Employee&#146;s termination of
employment with the Corporation, regardless of the reason for such termination,
the Employee shall, prior to accepting employment or any other business
relationship with any other person or entity, inform that person or entity of
the Employee&#146;s obligations under this Section 2, including all of its subparts.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compliance and Remedies</U>.</B> The
Employee recognizes that if the Employee violates this Agreement, including but
not limited to Paragraphs 1 and 2 of this Agreement, irreparable damage will
result to the Corporation that could not adequately be remedied by monetary
damages. As a result, the Employee hereby agrees that notwithstanding any other
dispute resolution provisions of this Agreement, in the event of any breach by
the Employee of this Agreement, including but not limited to Paragraphs 1 and 2
of this Agreement, the Corporation shall be entitled, in addition to any other
legal or equitable remedies available to it, to an injunction to restrain the Employee&#146;s
violation of any portion of this Agreement.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>4.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U><B>Miscellaneous</B></U>.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Integration</U></B>.
This Agreement embodies the entire agreement and understanding among the
parties relative to subject matter hereof and supersedes all prior agreements, understandings, or past practices,
whether written or oral, relating to such subject matter.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Survival
of Sections 1 and 2</U></B>. Employee&#146;s obligations set
forth in Sections 1 and 2 of this Agreement, including all of these sections&#146;
subparts, shall survive the termination of this Agreement and Employee&#146;s
termination of employment with the Corporation, regardless of the reason for
such terminations.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Applicable
Law; Venue</U>.</B> This Agreement and the rights of the
parties shall be governed by and construed and enforced in accordance with the
laws of the state of Minnesota, without regard to any state&#146;s choice of law
principles or rules. The venue for any action hereunder shall be in the state
of Minnesota, whether or not such venue is or subsequently becomes
inconvenient, and the parties consent to the jurisdiction of the courts of the
state of Minnesota, county of Hennepin, and the federal district courts of
Minnesota.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Counterparts</U>.</B>
This Agreement may be executed in several counterparts and as so executed shall
constitute one agreement binding on the parties hereto.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Modification
by the Parties</U>.</B> This Agreement shall not be
modified or amended except by a written instrument signed by the parties. In
addition, no waiver of any provision of this Agreement shall be binding unless
set forth in a writing signed by the party effecting the waiver. Any waiver
shall be limited to the circumstance or event specifically referenced in the
written waiver document and shall not be deemed a waiver of any other term of
this Agreement or of the same circumstance or event upon any recurrence
thereof. </FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Severability;
Blue Pencil</U>.</B> The invalidity or partial invalidity
of any portion of this Agreement shall not invalidate the remainder thereof,
and said remainder shall remain in full force and effect. Moreover, if one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be excessively broad as to scope, activity, subject or otherwise, so as
to </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>-4-</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>be unenforceable at law, such provision or provisions shall be
construed by the appropriate judicial body by limiting or reducing it or them,
so as to be enforceable to the maximum extent compatible with then applicable
law.</FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Headings</U>.</B>
The section headings contained in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS
WHEREOF, the parties have executed this Agreement as of the date herein first
above written.</FONT></P>

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 <P><FONT SIZE=2><B>ELECTROMED, INC.</B></FONT></P>
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<P><FONT SIZE=2>/s/ Robert D. Hansen</FONT></P>


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<P><FONT SIZE=2>Robert D. Hansen</FONT></P>


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 <P><FONT SIZE=2>Chairman and CEO</FONT></P>
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<P><FONT SIZE=2>/s/ Terry Belford</FONT></P>
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<P ALIGN=CENTER><FONT SIZE=2>-5-</FONT></P>

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<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>22
<FILENAME>elmd101390s1_ex10-16.htm
<DESCRIPTION>UNIT PURCHASE AGREEMENT, ROBERT D. HANSEN
<TEXT>

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   <TITLE>Exhibit 10.16 to Electromed, Inc. Form S1</TITLE>
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<p align=right style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:right;'><b><font face="Times New Roman,serif" lang=EN-US style='font-size:12.0pt;'>Exhibit 10.16</font></b></p>
<p align=right style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:right;'><b><font face="Times New Roman,serif" lang=EN-US style='font-size:12.0pt;'>&nbsp;</font></b></p>
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<p align=center style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:center;'><b><font face="Times New Roman,serif" lang=EN-US style='font-size:12.0pt;'>PURCHASE AGREEMENT</font></b></p>
<p align=center style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:center;'><b><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></b></p>
<p align=center style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:center;'><b><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></b></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>THIS PURCHASE AGREEMENT, dated as of March 2, 2010, is between Robert D. Hansen, whose business address is 500 Sixth Avenue Northwest, New Prague, MN 56071 (&#8220;Seller&#8221;) and Electromed, Inc. a Minnesota corporation, whose business address is also 500 Sixth Avenue Northwest, New Prague, MN 56071 (&#8220;Buyer&#8221;).</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p align=center style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:center;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>RECITALS:</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>A.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; The Seller owns a five percent (5%) interest (the &#8220;5% Interest&#8221;) in Electromed Financial, LLC, a Minnesota limited liability company (the &#8220;LLC&#8221;).</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>B.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; The Buyer owns a ninety-five percent (95%) interest in the LLC and desires to acquire Seller&#8217;s 5% Interest thereby making Buyer the 100% owner.</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>C.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; As majority owner of the LLC, the Buyer is thoroughly familiar with the financial condition, business and affairs of the LLC.</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>Accordingly, the parties agree as follows:</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>Sale of Interest</font></u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>.&#160; The Seller agrees to sell the 5% Interest to the Buyer, and the Buyer agrees to purchase the 5% Interest from the Seller, as of the date hereof, for the sum of $125,000.00.</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>No Certificate of Ownership</font></u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>.&#160; Buyer and Seller each acknowledge that there are no certificates representing ownership interests of the LLC.&#160; Accordingly, this Agreement alone represents the sale and transfer of the 5% Interest.</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>Closing</font></u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>.&#160; The Buyer and Seller acknowledge that the closing has occurred as of the above date at the above address, and execution of this Agreement by the parties is complete evidence thereof.&#160; </font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;text-indent:0.5in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>Representations and Warranties of the Seller</font></u><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>.&#160; The Seller hereby represents and warrants to the Buyer as follows:</font></p>
<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>(a)</font></p>
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<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><u><font face="Times New Roman,serif" style='font-size:10.0pt;'>Title to Interest</font></u><font face="Times New Roman,serif" style='font-size:10.0pt;'>.&#160; The Seller is the beneficial owner of the 5% Interest, free and clear of all liens, encumbrances and claims of every kind, and the delivery of the 5% Interest by the Seller to the Buyer will transfer valid title to the 5% Interest, free and clear of all liens, charges, encumbrances and claims of every kind.</font></p>
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<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;'><font face="Times New Roman,serif" style='font-size:10.0pt;'>(b)</font></p>
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<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><u><font face="Times New Roman,serif" style='font-size:10.0pt;'>Authority</font></u><font face="Times New Roman,serif" style='font-size:10.0pt;'>.&#160; The Seller has the full legal right, power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby.</font></p>
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<p style='margin-bottom:0.0001pt;margin-left:0in;margin-right:0in;margin-top:0in;text-align:justify;'><font face="Times New Roman,serif" lang=EN-US style='font-size:10.0pt;'>&nbsp;</font></p>
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<p style='margin-bottom:10.0pt;margin-left:0in;margin-right:0in;margin-top:0in;'><font face="Times New Roman,serif" lang=EN-US style='font-size:12.0pt;'>&nbsp;</font></p>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Representations and Warranties of the Buyer</FONT></U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.&nbsp; The Buyer represents and warrants to the Seller as follows:</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">(a)</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Authority</FONT></U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">.&nbsp; The Buyer has the full legal right, power and authority to execute, deliver and perform this Agreement and consummate the transactions contemplated hereby. This Agreement has been duly authorized and validly executed and delivered by, and constitutes the valid and binding agreement of the Buyer, enforceable against the Buyer in accordance with its terms.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">(b)</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Information</FONT></U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">.&nbsp; The Buyer has been the majority owner of the LLC since its inception and is thoroughly familiar with the financial, business and affairs of the LLC.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt 1in; TEXT-INDENT: -0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt 1in; TEXT-INDENT: -0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">Miscellaneous</FONT></U><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">.</FONT></P>
<P style="MARGIN: 0in 0in 0pt 1in; TEXT-INDENT: -0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">(a)</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Governing Law</FONT></U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">.&nbsp; This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">(b)</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Entire Agreement; Successors and Assignment</FONT></U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">.&nbsp; This Agreement sets forth the entire agreement and understanding of the parties in respect of the transactions contemplated hereby.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">(c)</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Further Assurances</FONT></U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">.&nbsp; Each party to this Agreement will execute such further documents or instruments and take such further actions as may reasonably be requested by the other party to this Agreement to effect the purposes of this Agreement.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">(d)</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Counterparts</FONT></U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">.&nbsp; This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute one instrument.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">(e)</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Notice</FONT></U><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">.&nbsp; Any notice under this Agreement may be delivered at the address first written above for each party.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">2</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">IN WITNESS WHEREOF, the parties duly executed this Agreement as of the day and year first written above.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">SELLER:</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">/s/ Robert D. Hansen</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Robert D. Hansen</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">/s/ Terry M. Belford</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Electromed, Inc.</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">By:&nbsp;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Terry M. Belford</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT style="FONT-SIZE: 10pt" face="Times New Roman,serif">Chief Financial Officer</FONT></P>
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<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<DIV>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif">3</FONT></P>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: center" align=center><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
</DIV></DIV>
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<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>23
<FILENAME>elmd101390s1_ex21-1.htm
<DESCRIPTION>SUBSIDIARIES OF ELECTROMED, INC.
<TEXT>

<HTML>
<HEAD>
   <TITLE>Exhibit 21.1 to Electromed, Inc. Form S1</TITLE>
</HEAD>

<BODY bgcolor="#ffffff">

<A name="page_1"></A>
<DIV style="PADDING-RIGHT: 0%; PADDING-LEFT: 0%">
<DIV>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
</DIV>
<P style="MARGIN: 0in 5.4pt 0pt 0in; LINE-HEIGHT: 115%; TEXT-ALIGN: right" align=right><FONT style="LINE-HEIGHT: 115%"><B><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">Exhibit 21.1</FONT></B></FONT></P>
<P style="MARGIN: 27pt 0in 0pt; LINE-HEIGHT: 126%; TEXT-ALIGN: center" align=center><FONT style="LINE-HEIGHT: 126%"><B><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">SUBSIDIARIES OF ELECTROMED, INC.</FONT></B></FONT></P>
<P style="MARGIN: 0.3in 0.35in 16.2pt 0in"><FONT lang=EN-US style="FONT-SIZE: 11pt; LETTER-SPACING: -0.1pt" face="Times New Roman,serif">The table below sets forth all subsidiaries of Electromed, Inc. and the state of organization of </FONT><FONT lang=EN-US style="FONT-SIZE: 11pt" face="Times New Roman,serif">each.</FONT></P>
<DIV align=left>
<TABLE style="BORDER-RIGHT: medium none; BORDER-TOP: medium none; BORDER-LEFT: medium none; WIDTH: 100%; BORDER-BOTTOM: medium none" cellSpacing=0 cellPadding=0 border=0>
<TR style="HEIGHT: 0.5in">
     <TD style="BORDER-RIGHT: black 1.5pt solid; PADDING-RIGHT: 0in; BORDER-TOP: black 1.5pt solid; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; BORDER-LEFT: black 1.5pt solid; PADDING-TOP: 0in; BORDER-BOTTOM: black 1.5pt solid; HEIGHT: 0.5in" width="50%">
<P style="MARGIN: 0in 0.35in 0pt 0in; TEXT-ALIGN: center" align=center><B><FONT style="FONT-SIZE: 11pt" face="Times New Roman,serif">Subsidiary</FONT></B></P>
</TD>
     <TD style="BORDER-RIGHT: black 1.5pt solid; PADDING-RIGHT: 0in; BORDER-TOP: black 1.5pt solid; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in; BORDER-BOTTOM: black 1.5pt solid; HEIGHT: 0.5in" width="50%">
<P style="MARGIN: 0in 0.35in 0pt 0in; TEXT-ALIGN: center" align=center><B><FONT style="FONT-SIZE: 11pt" face="Times New Roman,serif">State of Incorporation</FONT></B></P>
</TD></TR>
<TR style="HEIGHT: 0.5in">
     <TD style="BORDER-RIGHT: black 1.5pt solid; PADDING-RIGHT: 0in; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; BORDER-LEFT: black 1.5pt solid; PADDING-TOP: 0in; BORDER-BOTTOM: black 1.5pt solid; HEIGHT: 0.5in" width="50%">
<P style="MARGIN: 0in 0.35in 0pt 0in; TEXT-ALIGN: center" align=center><FONT style="FONT-SIZE: 11pt" face="Times New Roman,serif">Electromed Financial, LLC</FONT></P>
</TD>
     <TD style="BORDER-RIGHT: black 1.5pt solid; PADDING-RIGHT: 0in; PADDING-LEFT: 0in; PADDING-BOTTOM: 0in; PADDING-TOP: 0in; BORDER-BOTTOM: black 1.5pt solid; HEIGHT: 0.5in" width="50%">
<P style="MARGIN: 0in 0.35in 0pt 0in; TEXT-ALIGN: center" align=center><FONT style="FONT-SIZE: 11pt" face="Times New Roman,serif">Minnesota</FONT></P>
</TD></TR></TABLE></DIV>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
<DIV>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
</DIV></DIV>
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<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>24
<FILENAME>elmd101390s1_ex23-1.htm
<DESCRIPTION>CONSENT OF MCGLADREY & PULLEN, LLP
<TEXT>

<HTML>
<HEAD>
   <TITLE>Exhibit 23.1 to Electromed, Inc. Form S1</TITLE>
</HEAD>

<BODY bgcolor="#ffffff">

<A name="page_1"></A>
<DIV style="PADDING-RIGHT: 0%; PADDING-LEFT: 0%">
<DIV>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif"></FONT>&nbsp;</P>
</DIV>
<P style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: right" align=right><B><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif">Exhibit 23.1</FONT></B></P>
<P style="MARGIN: 0in 0in 6pt; LINE-HEIGHT: 12pt"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black></FONT></B>&nbsp;</P>
<P style="MARGIN: 0in 0in 6pt; LINE-HEIGHT: 12pt"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black></FONT></B>&nbsp;</P>
<P style="MARGIN: 0in 0in 6pt; LINE-HEIGHT: 12pt"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black></FONT></B>&nbsp;</P>
<P style="MARGIN: 0in 0in 6pt; LINE-HEIGHT: 12pt"><B><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Times New Roman,serif" color=black>Consent of Independent Registered Public Accounting Firm</FONT></B></P>
<P style="MARGIN: 0in 0in 6pt; LINE-HEIGHT: 12pt"><B><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black></FONT></B>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 12pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black>We consent to the use in this
 Registration Statement on Form S-1 of Electromed, Inc. and Subsidiary of our report
dated April 30, 2010, relating to our audits of the consolidated financial statements, appearing in the Prospectus, which is part of this Registration Statement.</FONT></P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 12pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 12pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black>We also consent to the reference to our firm under the captions &#147;Experts&#148; in such Prospectus.</FONT></P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 12pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 12pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 12pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black>/s/ McGladrey &amp; Pullen, LLP</FONT></P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 12pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black>Minneapolis, MN</FONT></P>
<P style="MARGIN: 0in 0in 0pt; LINE-HEIGHT: 12pt"><FONT lang=EN-US style="FONT-SIZE: 10pt" face="Times New Roman,serif" color=black>
April 30, 2010</FONT></P>
<DIV>
<P style="MARGIN: 0in 0in 0pt"><FONT lang=EN-US style="FONT-SIZE: 12pt" face="Arial Narrow,sans-serif"></FONT>&nbsp;</P>
</DIV></DIV>
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<SEQUENCE>25
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