Exhibit 10.1
**Employment Agreement between Uroplasty, Inc. and Sam B. Humphries dated January 1, 2005**
**EMPLOYMENT AGREEMENT**
     **THIS EMPLOYMENT AGREEMENT**(the “Agreement”) is made and entered into by and between Uroplasty,Inc., a Minnesota corporation (“the Company”), and Sam B. Humphries (the “Executive”) effective asof the 1st day of January, 2005.
**R E C I T A L S :**
     **WHEREAS**, Uroplasty manufactures and currently markets outside of the United States a family ofinjectable implant products used for soft-tissue augmentation for specific indications in urology,urogynecology, colon and rectal, otolaryngology and plastic surgery markets; and
     **WHEREAS**, the Company and the Executive desire to set forth in this Agreement the terms underwhich Executive will serve as President and Chief Executive Officer of the Company;
     **NOW, THEREFORE**, the parties hereto agree as follows:
1. **Employment and Duties**. The Company hereby agrees to employ the Executive, and theExecutive hereby accepts the Company’s offer to serve, as President and Chief Executive Officer ofthe Company. As such, the Executive shall have responsibilities, duties and authority reasonablyaccorded to and expected of such an officer of the Company and will report directly to theCompany’s Board of Directors. The Executive agrees to devote the Executive’s full business time,attention and efforts to promote and further the business of the Company. The Executive willfaithfully adhere to, execute and fulfill all policies established by the Company’s Board ofDirectors. The Executive also agrees to continue service as a director of the Company until theExecutive’s successor is duly elected and qualified or until the Executive’s earlier resignation,removal or death.
     The Executive will not, during the Term of Executive’s employment hereunder, be engaged in anyother business activity pursued for gain, profit or other pecuniary advantage if such activityinterferes with the Executive’s duties and responsibilities hereunder. The foregoing limitationswill not be construed to prohibit the Executive from making personal investments in such form ormanner as will neither require the Executive’s services in the operation or affairs of thecompanies or enterprises in which such investments are made nor violate the terms of Section 4hereof. The Executive may also continue to serve as a board member for the three outside companieson whose boards he currently serves.
2. **Compensation**. For all services rendered by the Executive on and after the date hereof,the Company will compensate the Executive as follows:
     (a) **Base Salary**. Commencing on the date hereof, the base salary payable to theExecutive shall be $239,000 per year, payable on a regular basis in accordance with the Company’sstandard payroll procedures but not less than semi-monthly. Such base salary will be subject toannual review and adjustment by the Company’s Compensation Committee.
     (b) **Incentive Bonus Plan**. During the Term, the Executive is entitled to quarterlycash bonuses based on attainment of particular financial milestones (“Quarterly Bonuses”).Quarterly Bonuses are computed as a percentage of the Executive’s base salary for the fiscalquarter for which achievement of the financial milestones relate. Except for the Quarterly Bonusdescribed below relating to the Company’s quarter ending on March 31, 2005 (the “Special Fiscal2005 Quarterly Bonus”), Quarterly Bonuses are predicated upon the Company’s achieving at least 90%of its quarterly targeted net sales and/or quarterly targeted operating income (loss) levels, ascomputed below. The Executive will independently earn the Quarterly Bonus amounts described insubsections (i) and (ii) based on the separate achievement of the financial milestones to whicheach such subsection relate. If during one or more quarters, the Executive does not earn anyQuarterly Bonus because the Company does not achieve at least 90% of the relevant quarterly targetlevel or levels, the Executive may make-up the Quarterly Bonus or Bonuses not earned (a “True-UpBonus”) in a single payment at the end of the fiscal year if the Company has achieved at least 90%of the cumulative target level for the full fiscal year.
     The following is an example applying the Executive’s initial annual base salary and assumingapplication of the chart in subsection (i) below (without consideration of the Special Fiscal 2005Quarterly Bonus):
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                                                   **Actual Net**   **Quarterly**                         **Sales As**   **Bonus As**        **Net Sales**   **Fiscal**  **Net Sales**   **Actual Net**   **Percentage**   **Percentage**   **Base Salary**   **Bonus**   **Quarter**  **Budget**   **Sales**   **Of Budget**   **Of Base**   **To Apply**   **Amount**   First  $1,000,000   $1,100,000   110%      42%  $59,750   $25,095                        Second  $2,000,000   $1,600,000     80%  —  $59,750    —                        Third  $3,000,000   $4,500,000   150%      60%  $59,750   $35,850                        Fourth  $4,000,000   $2,800,000     70%  —  $59,750    —                                                       Full Year  $10,000,000   $10,000,000   100%      36%  $239,000   $86,040                                                                                        Aggregate ofQuarters                           $(60,945)                                                                                        True-Up Bonus                           $25,095                                                       
     If the True-Up Bonus is zero or less, there is no True-Up Bonus, nor is the Executive obligedto reimburse the Company for the shortfall against the aggregate of Quarterly Bonuses computed forsuch fiscal year. No True-Up Bonus is due if the Executive earns a Quarterly Bonus for each fiscalquarter during such fiscal year.
          (i) **Net Sales Quarterly Bonus**. A portion of the Executive’s total Quarterly Bonus isbased on the Company’s achievement during a fiscal quarter of particular net sales levels in thechart below (the “Net Sales Quarterly Bonus”). For this purpose, “net sales” are the Company’sconsolidated net sales in U.S. dollars as computed in accordance with generally accepted accountingprinciples, subject to the following. In applying foreign currency translation to non-U.S. dollardenominated net sales, the Company shall make the computation using the same average exchange ratesused for creation of the annual budget referred to below. It is intended by this provision thatthe Executive shall neither profit from, nor be penalized by, foreign currency translationadjustments in determining whether the milestones for a Net Sales Quarterly Bonus are met.
          Example: Assume that the Company’s U.S. dollar-denominated consolidated net salesbudget for a particular fiscal quarter is $2.0 million,consisting of €1,126,820 at an averageexchange rate of €1.00-to-$1.33118 (i.e., $1.5 million) and £260,050 at an average exchange rateof £1.00-to-$1.92271. If actual net sales for that fiscal quarter are €1,300,000 and £200,000,the U.S.-denominated “net sales” for purposes of determining whether a Quarterly Bonus is earnedwould be $2,115,076 ($1,730,534 + $384,542) based on the above exchange rates, regardless of theactual average exchange rates during the quarter.
     Except with respect to the Special Fiscal 2005 Quarterly Bonus, the net sales targets for therelevant quarter will be set by the Board of Directors based on a annual budget (broken down byfiscal quarter and currency and specifying the applicable foreign currency exchange rates used forcreating the budget) recommended by management. The net sales budget must be approved prior to thebeginning of the relevant fiscal year by (i) a majority of the members of the Board of Directorsand (ii) all non-employee members of the Board of Directors. If management does not timely receivethe required approvals of the annual net sales budget, then the net sales targets per quarter willautomatically increase by 20% over the prior year’s budget.
   Net Sales Quarterly BonusPercentage of Percentage of QuarterlyQuarterly Net Sales BaseCompensation Target Achieved Payable as Bonus90% 30%100% 36%110% 42%120% 48%130% 54%140% 60%
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     If the Company achieves a net sales goal between two specified percentages above, the relatedNet Sales Quarterly Bonus will increase proportionally between the two percentage levels.
          Example: If the Company achieves 114% of the quarterly net sales target, theQuarterly Bonus is 42.4% of quarterly base compensation (114% is 40% towards the 120% target levelover the 110% level; the 120% target level pays out at 6% over the 110% target level; so the 114%target level pays out 2.4% (40% of 6%) over the 110% level).
          (ii) **Operating Income (Loss) Quarterly Bonus**. The other portion of the Executive’stotal Quarterly Bonus is based on the Company’s achievement during a fiscal quarter of particularoperating income (loss) levels in the chart below (the “Operating Income (Loss) Quarterly Bonus”).For this purpose, “operating income (loss)” is the Company’s consolidated operating income or lossas publicly reported for the relevant fiscal quarter in the Company’s quarterly or annual report onForm 10-QSB or 10-KSB, as applicable (the “SEC Reports”). Except with respect to the SpecialFiscal 2005 Quarterly Bonus, the operating income (loss) targets for the relevant quarter will beset by the Board of Directors based on an annual budget (broken down by fiscal quarter) recommendedby management. The operating income (loss) budget must be approved prior to the beginning of therelevant fiscal year by (i) a majority of the members of the Board of Directors and (ii) allnon-employee members of the Board of Directors. If management does not timely receive the requiredapprovals of the annual operating income (loss) budget, then the operating income (loss) targetsper quarter will automatically increase by 20% over the prior year’s budget.
   Operating Income (Loss)Quarterly BonusPercentage of  Quarterly Operating Percentage of Quarterly Income (Loss)  Compensation Base Target Achieved Payable as Bonus  90% 20%100% 24%110% 28%120% 32%130% 36%140% 40%
     Similarly to the Net Sales Quarterly Bonus computation above, if the Company achieves anoperating income (loss) goal between two specified percentages above, the related Operating Income(Loss) Quarterly Bonus will increase proportionally between the two percentage levels.
          (iii) **Special Fiscal 2005 Quarterly Bonus**. On a one-time basis, the Executive isentitled to a Quarterly Bonus for the fiscal quarter ending March 31, 2005 of the greater of (a)$29,875 or (b) the total Quarterly Bonus computed by applying subsections (i) and (ii) above. Forpurposes of this subsection (iii), the net sales and operating income (loss) targets for thequarter ending March 31, 2005 will be based on the Board-approved budget for such quarter in effectimmediately prior to the date of this Agreement.
          (iv) **Special Excise Tax Reimbursement Bonus**. In the event that the vesting of stockoptions upon a “Change of Control” as described in Section 3(b) below results in the imposition ofa federal excise tax on the Executive pursuant to Section 4999 of the Internal Revenue Code of1986, as amended (the “Code”), the Company will reimburse the Executive (the “Excise Tax Bonus”)for the amount of the federal excise tax (but not any interest or penalties thereon) paid by theExecutive that is attributable to such stock option vesting.
          (v) **Payment and Limitations**. Each Quarterly Bonus amount (including the SpecialFiscal 2005 Quarterly Bonus) is payable within 15 days after the Company files the SEC Report forthe related fiscal quarter (the annual report, as to the fourth fiscal quarter). Any True-Up Bonusis payable within 15 days after the Company files the annual SEC Report for the related fiscalyear. The Excise Tax Bonus is payable within 15 days after the Company’s receipt of writtenevidence from the Executive as to the payment of the federal excise tax. However, no QuarterlyBonus amount (including any Special Fiscal 2005 Quarterly Bonus), and no Excise Tax Bonus orTrue-Up Bonus, is payable unless and until the Company raises a minimum of $5.0 million from thesale of its equity securities after the date of this Agreement (the “Minimum Equity Sale”).
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     (c) **Executive Perquisites, Benefits and Other Compensation**. Commencing on the datehereof, the Executive shall be entitled to receive additional benefits and compensation from theCompany in such form and to such extent as specified below:
          (i) Payment of premiums for coverage for the Executive and the Executive’s dependent familymembers under health, hospitalization, disability, dental, life and other insurance plans that theCompany may have in effect from time to time, at the levels, and with the co-payments, asestablished by the Company under such plans.
          (ii) Reimbursement for all business travel and other out-of-pocket expenses reasonablyincurred by the Executive in the performance of the Executive’s services pursuant to thisAgreement. All reimbursable expenses shall be appropriately documented in reasonable detail by theExecutive upon submission of any request for reimbursement, and in a format and manner consistentwith the Company’s expense reporting policy.
          (iii) Four weeks of paid vacation during each calendar year. If the Executive does notutilize all vacation time during a year, it is forfeited.
3. **Stock Options**. The Company hereby grants to the Executive options (the “Options”), toacquire 400,000 shares of the Company’s Common Stock, par value $.01 per share (the “CommonStock”), at an exercise price per share (the “Exercise Price”) equal to the average of the closingprices of the Company’s Common Stock on the OTC Bulletin Board as reported by bigcharts.com for the30 trading days immediately preceding the date that the Company publicly files a report on Form 8-Kannouncing the signing of this Agreement and the Executive’s employment hereunder. The Options arenot pursuant to the Company’s 1995, 1997 or 2002 Stock Option Plans. The Options will not betreated as “incentive options” within the meaning of Section 422 of the Code.
     (a) **Anti-Dilution Adjustments**. The Options are subject to adjustment as provided inthis subsection (a).
          (i) **Exercise Price Adjustments**. The Exercise Price shall be adjusted from time totime such that in case the Company shall hereafter:
               (A) pay any dividends on any class of stock of the Company payable in Common Stock orsecurities convertible into Common Stock;
               (B) subdivide its then outstanding shares of Common Stock into a greater number of shares; or
               (C) combine outstanding shares of Common Stock, by reclassification or otherwise;
then, in any such event, the Exercise Price in effect immediately prior to such event shall (untiladjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated tothe nearest full cent) determined by dividing (A) the number of shares of Common Stock outstandingimmediately prior to such event, multiplied by the then existing Exercise Price, by (B) the totalnumber of shares of Common Stock outstanding immediately after such event (including in each casethe maximum number of shares of Common Stock issuable in respect of any securities convertible intoCommon Stock), and the resulting quotient shall be the adjusted Exercise Price per share. Anadjustment made pursuant to this subsection shall become effective immediately after the recorddate in the case of a dividend or distribution and shall become effective immediately after theeffective date in the case of a subdivision, combination or reclassification. If, as a result ofan adjustment made pursuant to this subsection, the Executive shall become entitled to receiveshares of two or more classes of capital stock or shares of Common Stock and other capital stock ofthe Company, the Board of Directors (whose determination shall be conclusive) shall determine theallocation of the adjusted Exercise Price between or among shares of such classes of capital stockor shares of Common Stock and other capital stock. All calculations under this subsection shall bemade to the nearest cent or to the nearest 1/100 of a share, as the case may be. In the event thatat any time as a result of an adjustment made pursuant to this subsection, the Executive shallbecome entitled to receive any shares of the Company other than shares of Common Stock, thereafterthe Exercise Price of such other shares so receivable upon exercise of any Options shall be subjectto adjustment from time to time in a manner and on terms as nearly equivalent as practicable to theprovisions with respect to Common Stock contained in this subsection.
          (ii) **Share Adjustments**. Upon each adjustment of the Exercise Price pursuant tosubsection (a)(i) above, the Executive shall thereafter (until another such adjustment) be entitledto purchase at the adjusted Exercise Price the number of shares, calculated to the nearest fullshare, obtained by multiplying the number of shares covered by the Options
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(as adjusted as a result of all adjustments in the Exercise Price in effect prior to suchadjustment) by the Exercise Price in effect prior to such adjustment and dividing the product soobtained by the adjusted Exercise Price.
          (iii) **Reorganization Events**. In case of any consolidation or merger to which theCompany is a party other than a merger or consolidation in which the Company is the continuingcorporation, or in case of any sale or conveyance to another corporation of the property of theCompany as an entirety or substantially as an entirety, or in the case of any statutory exchange ofsecurities with another corporation (including any exchange effected in connection with a merger ofa third corporation into the Company), there shall be no adjustment under subsection (a)(i) above;but the Executive shall have the right thereafter to convert the Options into the kind and amountof shares of stock and other securities and property which the Executive would have owned or havebeen entitled to receive immediately after such consolidation, merger, statutory exchange, sale orconveyance had the Options been converted immediately prior to the effective date of suchconsolidation, merger, statutory exchange, sale or conveyance and, in any such case, if necessary,appropriate adjustment shall be made in the application of the provisions set forth in thissubsection with respect to the rights and interests thereafter of the Executive, to the end thatthe provisions set forth in this subsection shall thereafter correspondingly be made applicable, asnearly as may reasonably be, in relation to any shares of stock and other securities and propertythereafter deliverable on the exercise of the Options. The provisions of this subsection shallsimilarly apply to successive consolidations, mergers, statutory exchanges, sales or conveyances.
          (iv) **Notice of Adjustments**. Upon any adjustment of the Exercise Price, then and ineach such case, the Company shall give written notice thereof, by first-class mail, postageprepaid, addressed to the Executive, which notice shall state the Exercise Price resulting fromsuch adjustment and the increase or decrease, if any, in the number of shares of Common Stockpurchasable at such price upon the exercise of the Options, setting forth in reasonable detail themethod of calculation and the facts upon which such calculation is based.
     (b) **Vesting; Change of Control**. Notwithstanding anything else, the Executive mayexercise the Options only to the extent that the Executive is vested in them. Vested Options willbe exercisable for ten (10) years from the date hereof. The Options will vest in installments of25% on each of the date hereof and the first, second and third anniversaries of the date hereof;provided, however, that the Executive must continue in the employ of the Company through theapplicable anniversary date in order to vest in the Options for such anniversary date. Despite theforegoing, the Options will fully vest upon a “Change of Control,” which will be deemed to occur asof the first day after the date hereof that any one or more of the following conditions issatisfied (the “Change of Control Date”):
          (i) any person or entity, or group of persons or entities acting together, other than theCompany or an employee benefit plan of the Company, acquires directly or indirectly the beneficialownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended)of any voting security of the Company and, immediately after such acquisition, such person, entityor group is, directly or indirectly, the beneficial owner of voting securities representing amajority of the total voting power of all of the then-outstanding voting securities of the Companyand has a larger percentage of voting securities of the Company than any other person, entity orgroup holding voting securities of the Company;
          (ii) the following individuals no longer constitute a majority of the members of the Board:(A) Daniel G. Holman, Joel R. Pitlor, Thomas E. Jamison, R. Patrick Maxwell and the Executive (the“Original Directors”); (B) the individuals who thereafter are elected to the Company’s Board ofDirectors and whose election, or nomination for election, to the Board of Directors was approved bya vote of at least a majority of the Original Directors then still in office (such directorsbecoming “Additional Original Directors” immediately following their election); and (C) theindividuals who are elected to the Board of Directors and whose election, or nomination forelection, to the Board of Directors was approved by a vote of at least a majority of the OriginalDirectors and Additional Original Directors then still in office (such directors also becoming“Additional Original Directors” immediately following their election);
          (iii) the stockholders of the Company approve a merger, consolidation, recapitalization orreorganization of the Company, or a reverse stock split of outstanding voting securities, otherthan any such transaction which results in at least a majority of the total voting powerrepresented by the voting securities of the surviving entity outstanding immediately after suchtransaction being beneficially owned by at least a majority of the holders of outstanding votingsecurities of the Company immediately prior to the transaction, with the voting power of each suchcontinuing holder relative to other such continuing holders not substantially altered in thetransaction; or
          (iv) the stockholders of the Company approve a plan of complete liquidation of the Company oran agreement for the sale or disposition by the Company of all or a substantial portion of theCompany’s assets (i.e., 50% or more of the total assets of the Company).
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     However, no “Change in Control” will be deemed to have occurred with respect to Executive ifExecutive is part of a purchasing group which consummates the Change in Control transaction. TheExecutive will be deemed “part of a purchasing group” for purposes of the preceding sentence if theExecutive is an equity participant in the purchasing company or group except for (i) passiveownership of less than three percent (3%) of the stock of the purchasing company or (ii) ownershipof an equity participation in the purchasing company or group which is otherwise not significant,as determined prior to the Change in Control by a majority of the Original and Additional OriginalDirectors.
     (c) **Payment of Exercise Price; Cashless Exercise**. The Executive may exercise theOptions by cash payment (including by check or wire transfer). In the alternative, the Executivemay exercise the Options by instructing the Company to withhold from the shares of Common Stockotherwise to be issued upon the exercise of the Options a number of whole or fractional shares ofCommon Stock equal to the number of shares for which the Options are being exercised (including anyOptions to be surrendered) multiplied by the Exercise Price per share, and then divided by the“Market Price” (as defined below) of a share of Common Stock as of the close of business on thedate of exercise (a “Cashless Exercise”). The Company may condition the Cashless Exercise upon theExecutive’s payment of any required withholding taxes.
     The term “Market Price” with respect to shares of Common Stock of any class or series meansthe last reported sale price or, if none, the average of the last reported closing bid and askedprices on any national or regional securities exchange or quoted in the National Association ofSecurities Dealers, Inc.’s Automated Quotations System (“Nasdaq”), or if not listed on a nationalor regional securities exchange or quoted in Nasdaq, the closing price as reported by bigcharts.com(or if this service is discontinued, such other reporting service acceptable to the Holder), or ifno quotations in such Common Stock are available, the fair market value of the shares as determinedin good faith by the Board of Directors of the Company.
     (d) **Subscription Representations; Transfer Restrictions**. The Executive understandsthat the Options, and the shares of Common Stock issuable upon their exercise, are and will be“restricted securities” within the meaning of the Securities Act of 1933, as amended (the “Act”).Accordingly, even if the Executive is fully vested in the Options, the Executive may never be ableto resell the underlying shares for a profit, or at all. In any event, the Executive will be ableto resell or otherwise transfer the underlying shares only if the sale or other transfer isregistered under the Act and applicable state securities laws or there is an available exemptionfrom this registration. The Executive confirms that Executive can bear the loss of Executive’sentire investment in the Company.
     The Executive agrees and acknowledges that (i) none of the Options may be sold, transferred,pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws ofdecent and distribution and then only to Executive’s spouse and/or children (or a trust for theirbenefit) and (ii) the vested Options may be exercised during the Executive’s lifetime only by theExecutive or the Executive’s legal representative.
     (e) **Lock-Up Agreement**. The Executive agrees that, in the event of each future publicoffering of the Company’s equity securities (an “Offering”), the Executive will agree to suchrestrictions on the resale of any shares of the Company’s Common Stock (including the sharesunderlying the Options) then beneficially owned by Executive as requested by the managingunderwriter or underwriters of the Offering; provided, however, that such restrictions run nolonger than the period of resale restriction imposed by such underwriters on the Company’s otherexecutive officers and directors. The Executive agrees not to sell or otherwise transfer(including upon death) any of the shares underlying the Options, or any other shares beneficiallyowned by the Executive, unless the purchaser or recipient agrees in writing to be bound by theforegoing lock-up agreement.
     (f) **Stock Certificate Restrictions**. The Executive acknowledges that the Company willplace a restrictive legend on any certificate representing the shares underlying the Options, and a“stop transfer order” with any transfer agent of the Company’s securities, barring the sale orother transfer of such shares without registration under the Act or an exemption therefrom, andnoting the existence of the lock-up agreement above.
     (g) **Registration of Shares Underlying the Options**. Notwithstanding the aboveprovisions, the Company shall use its best efforts, at its expense, to register the issuance orresale of the shares underlying the Options on Form S-8 under the Act and under applicable statesecurities laws, and to maintain the effectiveness of the Form S-8 registration statement duringthe Term of this Agreement and for two years thereafter.
4. **Non-Competition and Non-Solicitation**.
     (a) **Basic Terms**. The Executive will not, during the period of the Executive’semployment with the Company and for a period of one (1) year immediately following the terminationof the Executive’s employment under this Agreement, for any reason whatsoever, directly orindirectly, for the Executive or on behalf of or in conjunction with any other person,
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persons, entity, company, business, partnership, corporation, limited liability company orlimited liability partnership of whatever nature:
     (i) engage, as an officer, director, shareholder, owner, partner, joint venturer or in amanagerial capacity, whether as an employee, independent contractor, consultant or advisor or as asales representative, in any business in competition with the Company anywhere worldwide (the“Territory”);
     (ii) call upon or solicit any person who is at that time within the Territory an employee ofthe Company for the purpose or with the intent of enticing such employee away from or out of theemploy of the Company;
     (iii) call upon or solicit any person or entity which is, at that time, or which has been,within one (1) year prior to that time, a customer or prospective customer (such prospective statusbeing determined by whether the Company within the prior year solicited such person or entity’sbusiness) of the Company within the Territory for the purpose of selling products or services incompetition with the Company within the Territory; or
     (iv) call upon or solicit any prospective acquisition candidate, on the Executive’s own behalfor on behalf of any competitor, which candidate was, to the Executive’s actual knowledge after dueinquiry, either called upon by the Company or for which the Company made an acquisition analysis,for the purpose of acquiring such entity or its assets.
     Notwithstanding the above, the Executive may acquire as a passive investment not more than twopercent (2%) of the capital stock of a competing business, whose stock is traded on a nationalsecurities exchange or over-the-counter.
     (b) **Equitable Relief**. Because of the difficulty of measuring economic losses to theCompany as a result of a breach of the foregoing covenants, and because of the immediate andirreparable damage that could be caused to the Company for which it would have no other adequateremedy, the Executive agrees that the foregoing covenants may be enforced by the Company in theevent of breach by the Executive by injunctions and restraining orders.
     (c) **Severability and/or Reformation**. The covenants in this Section 4 are severableand separate, and the unenforceability of any specific covenant shall not affect the provisions ofany other covenant. Moreover, in the event any court of competent jurisdiction determines that thescope, time or territorial restrictions set forth are unreasonable, then it is the intention of theparties that such restrictions be enforced to the fullest extent which the court deems reasonable,and the Agreement shall be reformed in accordance therewith.
     (d) **Independently Enforceable**. All of the covenants in this Section 4 shall beconstrued as an agreement independent of any other provision in this Agreement, and the existenceof any claim or cause of action of the Executive against the Company, whether predicated on thisAgreement or otherwise, shall not constitute a defense to the enforcement by the Company of suchcovenants. It is specifically agreed that the period of one (1) year following termination ofemployment stated at the beginning of this Section 4, during which the agreements and covenants ofthe Executive made in this Section 4 shall be effective, shall be computed by excluding from suchcomputation any time during which the Executive is in violation of any provision of this Section 4.
5. **Term; Termination; Rights on Termination**.
     The term of Executive’s employment under this Agreement begins on the date hereof andcontinues for one (1) year, and, unless terminated sooner as herein provided, will continuethereafter on a year-to-year basis on the same terms and conditions contained herein in effect asof the time of renewal. As used herein, the word “Term” means (i) during the one-year periodreferred to in the preceding sentence, such one-year period and (ii) during any one-year renewalpursuant to the terms hereof, such one-year period. This Agreement and the Executive’s employmentmay be terminated in any one of the following ways:
     (a) **Death**. The Executive’s death will immediately terminate this Agreement. TheCompany will pay the Executive’s estate any of Executive’s accrued base salary and any earned, butunpaid, Quarterly Bonuses (at the time otherwise payable under this Agreement) through the date oftermination and reimbursement of expenses.
     (b) **Disability**. If, as a result of incapacity due to physical or mental illness orinjury, as reasonably determined by the Executive’s physician, the Executive is absent from theExecutive’s full-time duties hereunder for four (4) consecutive months, then thirty (30) days afterreceiving written notice (which notice may occur before or after the end of such four (4) monthperiod, but which will not be effective earlier than the last day of such four (4) month period),the Company may terminate the Executive’s employment hereunder; provided that the Executive isunable to resume the Executive’s full-time
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duties at the conclusion of such notice period. The Company will pay the Executive any of theExecutive’s accrued base salary and any earned, but unpaid, Quarterly Bonuses (at the timeotherwise payable under this Agreement) through the date of termination and reimbursement ofexpenses.
     (c) **Good Cause**. The Company may terminate this Agreement ten (10) days afterdelivery of written notice to the Executive for “good cause,” which is (i) the Executive’s willful,material and irreparable breach of this Agreement; (ii) the Executive’s gross negligence in theperformance or intentional nonperformance (continuing for thirty (30) days after receipt of writtennotice of need to cure) of any of the Executive’s material duties and responsibilities under thisAgreement; (iii) the Executive’s willful dishonesty, fraud or misconduct with respect to thebusiness or affairs of the Company which materially and adversely affects the operations orreputation of the Company; (iv) the Executive’s conviction of a felony crime which materially andadversely affects the operations or reputation of the Company; (v) the Company’s failure tocomplete the Minimum Equity Sale within two years from the date of this Agreement; or (vi) theCompany’s failure to achieve 100% of the budgeted targets for both net sales and operating income(loss) for five consecutive fiscal quarters. Upon any termination for good cause described insubsections (i) through (v) above, the Executive will receive no severance compensation other thanbase salary accrued through the date of termination and reimbursement of expenses. Upon anytermination for good cause described in subsection (vi) above, and conditioned on the Executive’scontinuing compliance with the other provisions of this Agreement, including Section 4 above, theCompany shall pay the Executive, as severance pay, an aggregate amount equal to 50% of Executive’sbase salary in effect at the time of termination. These severance payments will be subject tocustomary tax withholdings and will be payable in equal monthly installments on the first day ofeach month over the first six months after the date of termination.
     (d) **Without Good Cause**. At any time, either the Executive or the Company mayterminate this Agreement and the Executive’s employment, effective thirty (30) days after writtennotice is provided to the other. If (i) the Company terminates the Executive’s employment withoutgood cause during or at the end of any Term, (ii) this Agreement expires or otherwise terminates atthe end of a Term without renewal, (iii) the Executive voluntarily terminates employment with theCompany as a result of the Company’s imposition of material and adverse changes, without theExecutive’s consent, in the Executive’s principal duties or (iv) the Executive voluntarilyterminates employment after the Company moves its principal executive offices more than 100 milesfrom its current location without the Executive’s consent, the Executive will receive from theCompany any base salary accrued through the date of termination and reimbursement of expenses. Inaddition, in any of these four circumstances, and conditioned on the Executive’s continuingcompliance with the other provisions of this Agreement, including Section 4 above, the Companyshall pay the Executive, as severance pay, an aggregate amount equal to 160% of Executive’s basesalary in effect at the time of termination. The severance payments will be subject to customarytax withholdings and will be payable in equal monthly installments on the first day of each monthover the first year after the date of termination.
6. **Return of Company Property**. All records, designs, tradenames and trademarks, servicenames and service marks, patents, business plans, financial statements, manuals, memoranda,customer and other lists and other property delivered to or compiled by the Executive by or onbehalf of the Company, or its representatives, vendors or customers which pertain to the businessof the Company are and will remain the property of the Company, and be subject at all times to itsdiscretion and control. Likewise, all correspondence, reports, records, charts, advertising andmarketing materials and other similar data pertaining to the business, activities or future plansof the Company which is collected by or in the possession of the Executive shall be deliveredpromptly to the Company without request by it upon termination of the Executive’s employment.
7. **Inventions**. The Executive will disclose promptly to the Company any and all significantconceptions and ideas for inventions, improvements and valuable discoveries, whether patentable ornot, which are conceived or made by the Executive, solely or jointly with another, during theperiod of employment, and which are directly related to the business or activities of the Companyand which the Executive conceives as a result of the Executive’s employment by the Company. TheExecutive hereby assigns and agrees to assign all of the Executive’s interests therein to theCompany or its nominee. Whenever requested to do so by the Company, the Executive will execute anyand all applications, assignments or other instruments that the Company shall deem necessary toapply for and obtain letters patent of the United States or any foreign country or to otherwiseprotect the Company’s interest therein. Nothing in this Agreement shall apply to an invention forwhich no equipment, supplies, facility or trade secret information of the Company was used andwhich was developed entirely on the Executive’s own time and (i) which does not relate (a) directlyto the business of the Company or (b) to the Company’s actual or demonstrably anticipated researchor development or (ii) which does not result from any work performed by the Executive for theCompany.
8. **Trade Secrets**. The Executive will not, other than as required by court order, during orafter employment with the Company, disclose the confidential terms of the Company’s relationshipsor agreements with its significant vendors or
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customers or any other significant and material trade secret of the Company to any person, firm,partnership, corporation or business for any reason or purpose whatsoever.
9. **Complete Agreement**. This Agreement supersedes any other agreements or understandings,written or oral, between the Company and the Executive and the Executive’s affiliates, includingExecutive Advisory Group (“EAG”), and the Executive has no oral representations, understandings oragreements with the Company or any of its officers, directors, employees or representativescovering the same subject matter as this Agreement; provided, however, that EAG may continue tohold and exercise its 50,000 stock options granted under the Consulting Agreement dated April 1,2003. This document is the final, complete and exclusive statement and expression of the agreementbetween the Company and the Executive and of all the terms of this Agreement, and it cannot bevaried, contradicted or supplemented by evidence of any prior or contemporaneous oral or writtenagreements. This document may not be later modified except by a written instrument signed by aduly authorized officer of the Company and the Executive, and no term of this Agreement may bewaived except by a written instrument signed by the party waiving the benefit of such term.
10. **Notice**. Whenever any notice is required hereunder, it shall be given in writingaddressed as follows:   To the Company: Uroplasty, Inc. 2718 Summer Street N.E. Minneapolis, Minnesota 55413 Attention: Daniel G. Holman, Chairman   To the Executive: Sam B. Humphries 7913 Wyoming Court