**EXHIBIT10.31****PROMISSORY NOTE**                          **Principal** **Loan Date** **Maturity** **Loan No** **Call / Coll****Account****Officer** **Initials****$1,000,000.00** **05-31-2006** **06-02-2007**  **11808**       **10022**   References in the shaded area are for Lender’s use only and do not limit the applicability ofthis document to any particular loan or item.Any item above containing “***” has been omitted due to text length limitations.       **Borrower:** **Uroplasty, Inc.** **Lender:** **Venture Bank**  **5420 Feltl Road**   **5601 Green Valley Drive, Suite 120**  **Minnetonka, MN 55343**   **Bloomington, MN 55437****Principal Amount: $1,000,000.00** **Initial Rate: 9.000%** **Date of Note: May 31, 2006****PROMISE TO PAY.**Uroplasty, Inc. (“Borrower”) promises to pay to Venture Bank (“Lender”), ororder, in lawful money of the United States of America, the principal amount of One Million &00/100 Dollars ($1,000,000.00) or so much as may be outstanding, together with Interest on theunpaid outstanding principal balance of each advance. Interest shall be calculated from the date ofeach advance until repayment of each advance.**PAYMENT.**Borrower will pay this loan in one payment of all outstanding principal plus all accruedunpaid interest on June 2, 2007. In addition, Borrower will pay regular monthly payments of allaccrued unpaid interest due as of each payment date, beginning July 2, 2006, with all subsequentinterest payments to be due on the same day of each month after that. Unless otherwise agreed orrequired by applicable law, payments will be applied first to any accrued unpaid interest; then toprincipal; then to any unpaid collection costs; and then to any late charges. The annual interestrate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annualinterest rate over a year of 360 days, multiplied by the outstanding principal balance, multipliedby the actual number of days the principal balance is outstanding. Borrower will pay Lender atLender’s address shown above or at such other place as Lender may designate in writing.**VARIABLE INTEREST RATE.**The interest rate on this Note is subject to change from time to time basedon changes in an independent index which is the Prime rate of interest as published each businessday in the money rates section of The Wall Street Journal (the “Index”). The Index is notnecessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable duringthe term of this loan, Lender may designate a substitute index after notice to Borrower. Lenderwill tell Borrower the current Index rate upon Borrower’s request. The interest rate change willnot occur more often than each day. Borrower understands that Lender may make loans based on otherrates as well. The Index currently is 8.000% per annum. The interest rate to be applied to theunpaid principal balance of this Note will be at a rate of 1.000 percentage point over the index,resulting in an initial rate of 9.000% par annum. Notwithstanding the foregoing, the variableinterest rate or rates provided for in this Note will be subject to the following minimum andmaximum rates. NOTICE: Under no circumstances will the interest rate on this Note be less than7.000% per annum or more than the maximum rate allowed by applicable law.**PREPAYMENT.**Borrower agrees that all loan fees and other prepaid finance charges are earned fullyas of the date of the loan and will not be subject to refund upon early payment (whether voluntaryor as a result of default), except as otherwise required by law. Except for the foregoing, Borrowermay pay without penalty all or a portion of the amount owed earlier than it is due. Early paymentswill not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation tocontinue to make payments of accrued unpaid interest. Rather, early payments will reduce theprincipal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “withoutrecourse”, or similar language. If Borrower sends such a payment, Lender may accept it withoutlosing any of Lender’s rights under this Note, and Borrower will remain obligated to pay anyfurther amount owed to Lender. All written communications concerning disputed amounts, includingany check or other payment instrument that indicates that the payment constitutes “payment in full”of the amount owed or that is tendered with other conditions or limitations or as full satisfactionof a disputed amount must be mailed or delivered to: Venture Bank, 5601 Green Valley DriveBloomington, MN 55437.**LATECHARGE.**If a payment is 10 days or more late, Borrower will be charged 5.000% of the unpaidportion of the regularly scheduled payment.**INTEREST AFTER DEFAULT.**Upon default, including failure to pay upon final maturity, Lender, at itsoption, may, if permitted under applicable law, increase the variable interest rate on this Note to5.000 percentage points over the Index. The interest rate will not exceed the maximum ratepermitted by applicable law.**DEFAULT.**Each of the following shall constitute an event of default (“Event of Default”) underthis Note:**Payment Default.**Borrower fails to make any payment when due under this Note.**Other Defaults.**Borrower fails to comply with or to perform any other term, obligation, covenant orcondition contained in this Note or in any of the related documents or to comply with or to performany term, obligation, covenant or condition contained in any other agreement between Lender andBorrower.**False Statements.**Any warranty, representation or statement made or furnished to Lender by Borroweror on Borrower’s behalf under this Note or the related documents is false or misleading in anymaterial respect, either now or at the time made or furnished or becomes false or misleading at anytime thereafter.**Insolvency.**The dissolution or termination of Borrower’s existence as a going business, theinsolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, anyassignment for the benefit of creditors, any type of creditor workout, or the commencement of anyproceeding under any bankruptcy or insolvency laws by or against Borrower.**Creditor or Forfeiture Proceedings.**Commencement of foreclosure or forfeiture proceedings, whetherby judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower orby any governmental agency against any collateral securing the loan. This includes a garnishment ofany of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Defaultshall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of theclaim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lenderwritten notice of the creditor or forfeiture proceeding and deposits with Lender monies or a suretybond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its solediscretion, as being an adequate reserve or bond for the dispute.**Events Affecting Guarantor.**Any of the preceding events occurs with respect to any guarantor,endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser,surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of,or liability under, any guaranty of the indebtedness evidenced by this Note. In the event of adeath, Lender, at its option, may, but shall not be required to, permit the guarantor’s estate toassume unconditionally the obligations arising under the guaranty in a manner satisfactory toLender, and, in doing so, cure any Event of Default.**Change In Ownership.**Any change in ownership of Fifty percent (50%) or more of the common stock ofBorrower.**Adverse Change.**A material adverse change occurs in Borrower’s financial condition, orLender believes the prospect of payment or
 

 
**PROMISSORY NOTE****Loan No: 11808** **(Continued)** **Page 2**performance of this Note is impaired.**Insecurity.**Lender in good faith believes itself insecure.**Cure Provisions.**If any default, other than a default in payment is curable and if Borrower has notbeen given a notice of a breach of the same provision of this Note within the preceding twelve (12)months, it may be cured if Borrower, after receiving written notice from Lender demanding cure ofsuch default: (1) cures the default within fifteen (15) days; or (2) if the cure requires morethan fifteen (15) days, immediately initiates steps which Lender deems in Lender’s sole discretionto be sufficient to cure the default and thereafter continues and completes all reasonable andnecessary steps sufficient to produce compliance as soon as reasonably practical.**LENDER’S RIGHTS.**Upon default, Lender may declare the entire unpaid principal balance on this Noteand all accrued unpaid interest immediately due, and then Borrower will pay that amount.**ATTORNEYS’ FEES; EXPENSES.**Lender may hire or pay someone else to help collect this Note ifBorrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limitsunder applicable law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses, whether ornot there is a lawsuit, including reasonable attorneys’ fees, expenses for bankruptcy proceedings(including efforts to modify or vacate any automatic stay or injunction), and appeals. If notprohibited by applicable law, Borrower also will pay any court costs, in addition to all other sumsprovided by law.**GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to theextent not preempted by federal law, the laws of the State of Minnesota without regard to itsconflicts of law provisions. This Note has been accepted by Lender in the State of Minnesota.****RIGHTOF SETOFF.**To the extent permitted by applicable law, Lender reserves a right of setoffin all Borrower’s accounts with Lender (whether checking, savings, or some other account). Thisincludes all accounts Borrower holds jointly with someone else and all accounts Borrower may openin the future. However, this does not include any IRA or Keogh accounts, or any trust accounts forwhich setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted byapplicable law, to charge or setoff all sums owing on the indebtedness against any and all suchaccounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender toprotect Lender’s charge and setoff rights provided in this paragraph.**COLLATERAL.**Borrower acknowledges this Note is secured by All Business Assets per CommercialSecurity Agreement dated 5/31/06.**LINE OF CREDIT.**This Note evidences a revolving line of credit. Advances under this Note, as wellas directions for payment from Borrower’s accounts, may be requested orally or in writing byBorrower or by an authorized person. Lender may, but need not, require that all oral requests beconfirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordancewith the instructions of an authorized person or (B) credited to any of Borrower’s accounts withLender. The unpaid principal balance owing on this Note at any time may be evidenced byendorsements on this Note or by Lender’s internal records, including daily computer print-outs.Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantoris in default under the terms of this Note or any agreement that Borrower or any guarantor has withLender, including any agreement made in connection with the signing of this Note; (B) Borrower orany guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwiseattempts to limit, modify or revoke such guarantor’s guarantee of this Note or any other loan withLender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than thoseauthorized by Lender; or (E) Lender in good faith believes itself insecure.**LOAN AGREEMENT.**A document titled, “Loan Agreement”, is attached to this Promissory Note.**PRIOR NOTE.**This note amends and restates the note # 11307 dated 3/24/05, in the original amount of$500,000.00 given by Uroplasty, Inc. to Venture Bank and is not intended to discharge theindebtedness evidenced by such other note.**SUCCESSOR INTERESTS.**The terms of this Note shall be binding upon Borrower, and upon Borrower’sheirs, personal representatives, successors and assigns, and shall inure to the benefit of Lenderand its successors and assigns.**GENERAL PROVISIONS.**If any part of this Note cannot be enforced, this fact will not affect the restof the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Notewithout losing them. In addition, Lender shall have all the rights and remedies provided in therelated documents or available at law, in equity, or otherwise. Except as may be prohibited byapplicable law, all of Lender’s rights and remedies shall be cumulative and may be exercisedsingularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election tomake expenditures or to take action to perform an obligation of Borrower shall not affect Lender’sright to declare a default and to exercise its rights and remedies. Borrower and any other personwho signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment,demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unlessotherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor,accommodation maker or endorser, shall be released from liability. All such parties agree thatLender may renew or extend (repeatedly and for any length of time) this loan or release any partyor guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interestin the collateral; and take any other action deemed necessary by Lender without the consent of ornotice to anyone. All such parties also agree that Lender may modify this loan without the consentof or notice to anyone other than the party with whom the modification is made. The obligationsunder this Note are joint and several.**SECTION DISCLOSURE.**To the extent not preempted by federal law, this loan is made under MinnesotaStatutes, Section 47.59.**PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE,INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.****BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.****BORROWER:****UROPLASTY, INC.**     By: /s/ Mahedi A. Jiwani Mahedi A. Jiwani, CFO/Treasurer of Uroplasty, Inc.  
 

 
**COMMERCIAL SECURITY AGREEMENT**                   Principal Loan Date Maturity Loan No. Call/Coll Account Officer Initials$1,000,000.00 05-25-2006 05-25-2007  11808       10022   References in the shaded area are for Lender’s use only and do not limit the applicability ofthis document to any particular loan or item.Any item above containing “* * *” has been omitted due to text length limitations.       **Grantor:** **Uroplasty, Inc.** **Lender:** **Venture Bank**  **5420 Feltl Road**   **5601 Green Valley Drive, Suite 120**  **Minnetonka, MN 55343**   **Bloomington, MN 55437****THIS COMMERCIAL SECURITY AGREEMENT**dated May 25, 2006, is made and executed between Uroplasty, Inc.(“Grantor”) and Venture Bank (“Lender”).**GRANT OF SECURITY INTEREST.**For valuable consideration, Grantor grants to Lender a securityinterest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rightsstated in this Agreement with respect to the Collateral, in addition to all other rights whichLender may have by law.**COLLATERAL DESCRIPTION.**The word “Collateral” as used in this Agreement means the followingdescribed property, whether now owned or hereafter acquired, whether now existing or hereafterarising, and wherever located, in which Grantor is giving to Lender a security interest for thepayment of the Indebtedness and performance of all other obligations under the Note and thisAgreement:All inventory, equipment, accounts (Including but not limited to all health-care-insurancereceivables), chattel paper, instruments (including but not limited to all promissory notes),letter-of-credit rights, letters of credit, documents, deposit accounts, investment property,money, other rights to payment and performance, and general intangibles (including but not limitedto all software and all payment intangibles); all oil, gas and other minerals before extraction;all oil, gas, other minerals and accounts constituting as-extracted collateral; all fixtures; alltimber to be cut; all attachments, accessions, accessories, fittings, increases, tools, parts,repairs, supplies, and commingled goods relating to the foregoing property, and all additions,replacements of and substitutions for all or any part of the foregoing property; all insurancerefunds relating to the foregoing property; all good will relating to the foregoing property; allrecords and data and embedded software relating to the foregoing property, and all equipment,inventory and software to utilize, create, maintain and process any such records and data onelectronic media; and all supporting obligations relating to the foregoing property; all whethernow existing or hereafter arising, whether now owned or hereafter acquired or whether now orhereafter subject to any rights in the foregoing property; and all products and proceeds (includingbut not limited to all insurance payments) of or relating to the foregoing property.In addition, the word “Collateral” also includes all the following, whether now owned or hereafteracquired, whether now existing or hereafter arising, and wherever located:(A) All accessions, attachments, accessories, tools, parts, supplies, replacements of and additionsto any of the collateral described herein, whether added now or later.(B) All products and produce of any of the property described in this Collateral section.(C) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights,arising out of a sale, lease, consignment or other disposition of any of the property described inthis Collateral section.(D) All proceeds, (including insurance proceeds) from the sale, destruction, loss, or otherdisposition of any of the property described in this Collateral section, and sums due from a thirdparty who has damaged or destroyed the Collateral or from that party’s insurer, whether due tojudgment, settlement or other process.(E) All records and data relating to any of the property described in this Collateral section,whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, togetherwith all of Grantor’s right, title, and interest in and to all computer software required toutilize, create, maintain, and process any such records or data on electronic media.**CROSS-COLLATERALIZATION.**In addition to the Note, this Agreement secures all obligations, debts andliabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well asall claims by Lender against Grantor or any one or more of them, whether now existing or hereafterarising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise,whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated orunliquidated, whether Grantor may be liable individually or jointly with others, whether obligatedas guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts maybe or hereafter may become barred by any statute of limitations, and whether the obligation torepay such amounts may be or hereafter may become otherwise unenforceable.**RIGHT OF SETOFF.**To the extent permitted by applicable law, Lender reserves a right of setoff inall Grantor’s accounts with Lender (whether checking, savings, or some other account). Thisincludes all accounts Grantor holds jointly with someone else and all accounts Grantor may open inthe future. However, this does not include any IRA or Keogh accounts, or any trust accounts forwhich setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted byapplicable law, to charge or setoff all sums owing on the Indebtedness against any and all suchaccounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender toprotect Lender’s charge and setoff rights provided in this paragraph.**GRANTOR’S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL.**With respect to theCollateral, Grantor represents and promises to Lender that:**Perfection of Security Interest.**Grantor agrees to take whatever actions are requested by Lender toperfect and continue Lender’s security interest in the Collateral. Upon request of Lender, Grantorwill deliver to Lender any and all of the documents evidencing or constituting the Collateral, andGrantor will note Lender’s interest upon any and all chattel paper and instruments if not deliveredto Lender for possession by Lender. This is a continuing Security Agreement and will continue ineffect even though all or any part of the Indebtedness is paid in full and even though for a periodof time Grantor may not be indebted to Lender.**Notices to Lender.**Grantor will promptly notify Lender in writing at Lender’s address shown above(or such other addresses as Lender may designate from time to time) prior to any (1) change inGrantor’s name; (2) change in Grantor’s assumed business name(s): (3) change in the management ofthe Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor’s principaloffice address; (6) change in Grantor’s state of organization; (7) conversion of Grantor to a newor different type of business entity; or (8) change in any other aspect of Grantor that directly orindirectly relates to any agreements between Grantor and Lender. No change in Grantor’s name orstate of organization will take effect until after Lender has received notice.**No Violation.**The execution and delivery of this Agreement will not violate any law or agreementgoverning Grantor or to which Grantor is
 

 
**COMMERCIAL SECURITY AGREEMENT****Loan No: 11808** **(Continued)** **Page 2**a party, and its certificate or articles of incorporation and bylaws do not prohibit any termor condition of this Agreement.**Enforceability of Collateral.**To the extent the Collateral consists of accounts, chattel paper, orgeneral intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable inaccordance with its terms, is genuine, and fully complies with all applicable laws and regulationsconcerning form, content and manner of preparation and execution, and all persons appearing to beobligated on the Collateral have authority and capacity to contract and are in fact obligated asthey appear to be on the Collateral. At the time any account becomes subject to a security interestin favor of Lender, the account shall be a good and valid account representing an undisputed, bonafide indebtedness incurred by the account debtor, for merchandise held subject to deliveryinstructions or previously shipped or delivered pursuant to a contract of sale, or for servicespreviously performed by Grantor with or for the account debtor. So long as this Agreement remainsin effect, Grantor shall not, without Lender’s prior written consent, compromise, settle, adjust,or extend payment under or with regard to any such Accounts. There shall be no setoffs orcounterclaims against any of the Collateral, and no agreement shall have been made under which anydeductions or discounts may be claimed concerning the Collateral except those disclosed to Lenderin writing.**Location of the Collateral.**Except in the ordinary course of Grantor’s business, Grantor agrees tokeep the Collateral (or to the extent the Collateral consists of intangible property such asaccounts or general intangibles, the records concerning the Collateral) at Grantor’s address shownabove or at such other locations as are acceptable to Lender. Upon Lender’s request, Grantor willdeliver to Lender in form satisfactory to Lender a schedule of real properties and Collaterallocations relating to Grantor’s operations, including without limitation the following: (1) allreal property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing;(3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties whereCollateral is or may be located.**Removal of the Collateral.**Except in the ordinary course of Grantor’s business, including the salesof inventory, Grantor shall not remove the Collateral from its existing location without Lender’sprior written consent. To the extent that the Collateral consists of vehicles, or other titledproperty, Grantor shall not take or permit any action which would require application forcertificates of title for the vehicles outside the State of Minnesota, without Lender’s priorwritten consent. Grantor shall, whenever requested, advise Lender of the exact location of theCollateral.**Transactions Involving Collateral.**Except for inventory sold or accounts collected in the ordinarycourse of Grantor’s business, or as otherwise provided for in this Agreement, Grantor shall notsell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not indefault under this Agreement, Grantor may sell inventory, but only in the ordinary course of itsbusiness and only to buyers who qualify as a buyer in the ordinary course of business. A sale inthe ordinary course of Grantor’s business does not include a transfer in partial or totalsatisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwisepermit the Collateral to be subject to any lien, security interest, encumbrance, or charge, otherthan the security interest provided for in this Agreement, without the prior written consent ofLender. This includes security interests even if junior in right to the security interests granted under this Agreement, Unless waived by Lender, all proceeds from any disposition of theCollateral. (for whatever reason) shall be held in trust for Lender and shall not be commingled withany other funds; provided however, this requirement shall not constitute consent by Lender to anysale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds toLender.**Title.**Grantor represents and warrants to Lender that Grantor holds good and marketable title tothe Collateral, free and clear of all liens and encumbrances except for the lien of this AgreementNo financing statement covering any of the Collateral is on file in any public office, other thanthose which reflect the security interest created by this Agreement or to which Lender hasspecifically consented. Grantor shall defend Lender’s rights in the Collateral against the claimsand demands of all other persons.**Repairs and Maintenance.**Grantor agrees to keep and maintain, and to cause others to keep andmaintain, the Collateral in good order, repair and condition at all times while this Agreementremains in effect. Grantor further agrees to pay when due all claims for work done on, or servicesrendered or material furnished in connection with the Collateral so that no lien or encumbrance mayever attach to or be filed against the Collateral.**Inspection of Collateral.**Lender and Lender’s designated representatives and agents shall have theright at all reasonable times to examine and inspect the Collateral wherever located.**Taxes, Assessments and Liens.**Grantor will pay when due all taxes, assessments and liens upon theCollateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencingthe Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such paymentor may elect to contest any lien if Grantor is in good faith conducting an appropriate proceedingto contest the obligation to pay and so long as Lender’s interest in the Collateral is notjeopardized in Lender’s sole opinion. If the Collateral is subjected to a lien which is notdischarged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporatesurety bond or other security satisfactory to Lender in an amount adequate to provide for thedischarge of the lien plus any interest, costs, reasonable attorneys’ fees or other charges thatcould accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shalldefend itself and Lender and shall satisfy any final adverse judgment before enforcement againstthe Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnishedin the contest proceedings. Grantor further agrees to furnish Lender with evidence that such taxes,assessments, and governmental and other charges have been paid in full and in a timely manner.Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faithconducting an appropriate proceeding to contest the obligation to pay and so long as Lender’sinterest in the Collateral is not jeopardized.**Compliance with Governmental Requirements.**Grantor shall comply promptly with all laws, ordinances,rules and regulations of all governmental authorities, now or hereafter in effect, applicable tothe ownership, production, disposition, or use of the Collateral, including all laws or regulationsrelating to the undue erosion of highly-erodible land or relating to the conversion of wetlands forthe production of an agricultural product or commodity. Grantor may contest in good faith any suchlaw, ordinance or regulation and withhold compliance during any proceeding, including appropriateappeals, so long as Lender’s interest in the Collateral, in Lender’s opinion, is not jeopardized.**Hazardous Substances.**Grantor represents and warrants that the Collateral never has been, and neverwill be so long as this Agreement remains a lien on the Collateral, used in violation of anyEnvironmental Laws or for the generation, manufacture, storage, transportation, treatment,disposal, release or threatened release of any Hazardous Substance. The representations andwarranties contained herein are based on Grantor’s due diligence in investigating the Collateralfor Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lenderfor indemnity or contribution in the event Grantor becomes liable for cleanup or other costs underany Environmental Laws, and (2) agrees to indemnify and hold harmless Lender against any and allclaims and losses resulting from a breach of this provision of this Agreement. This obligation toindemnify shall survive the payment of the Indebtedness and the satisfaction of this Agreement.**Maintenance of Casualty Insurance.**Grantor shall procure and maintain all risks insurance,including without limitation fire, theft and liability coverage together with such other insuranceas Lender may require with respect to the Collateral, in form, amounts, coverages and basisreasonably acceptable to Lender and issued by a company or companies reasonably acceptable toLender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies orcertificates of insurance in form satisfactory to Lender, including stipulations that coverageswill not be cancelled or diminished without at least ten (10) days’ prior written notice to Lenderand not including any disclaimer of the insurer’s liability for failure to give such a notice. Eachinsurance policy also shall include an endorsement providing that
 

 
**COMMERCIAL SECURITY AGREEMENT****Loan No: 11808** **(Continued)** **Page 3**coverage in favor of Lender will not be impaired in any way by any act, omission or default ofGrantor or any other person. In connection with all policies covering assets in which Lender holdsor is offered a security interest. Grantor will provide Lender with such loss payable or otherendorsements as Lender may require. If Grantor at any time fails to obtain or maintain anyinsurance as required under this Agreement, Lender may (but shall not be obligated to) obtain suchinsurance as Lender deems appropriate, including if Lender so chooses “single interest insurance,”which will cover only Lender’s interest in the Collateral.**Application of Insurance Proceeds.**Grantor shall promptly notify Lender of any loss or damage tothe Collateral if the estimated cost of repair or replacement exceeds $$1,000.00, whether or notsuch casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to doso within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral,including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lenderconsents to repair or replacement of the damaged or destroyed Collateral, Lender shall, uponsatisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonablecost of repair or restoration. If Lender does not consent to repair or replacement of theCollateral, Lender shall retain a sufficient amount of the proceeds to pay all of the indebtedness,and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6)months after their receipt and which Grantor has not committed to the repair or restoration of theCollateral shall be used to prepay the indebtedness.**Insurance Reserves.**Lender may require Grantor to maintain with Lender reserves for payment ofinsurance premiums, which reserves shall be created by monthly payments from Grantor of a sumestimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium duedate, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days beforepayment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency toLender. The reserve funds shall be held by Lender as a general deposit and shall constitute anon-interest-bearing account which Lender may satisfy by payment of the insurance premiums requiredto be paid by Grantor as they become due. Lender does not hold the reserve funds in trust forGrantor, and Lender is not the agent of Grantor for payment of the insurance premiums required tobe paid by Grantor. The responsibility for the payment of premiums shall remain Grantor’s soleresponsibility.**Insurance Reports.**Grantor, upon request of Lender, shall furnish to Lender reports on eachexisting policy of insurance showing such information as Lender may reasonably request includingthe following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy;(4) the property insured; (5) the then current value on the basis of which insurance has beenobtained and the manner of determining that value; and (6) the expiration date of the policy. Inaddition, Grantor shall upon request by Lender (however not more often than annually) have anindependent appraiser satisfactory to Lender determine, as applicable, the cash value orreplacement cost of the Collateral.**Financing Statements.**Grantor authorizes Lender to file a UCC financing statement, oralternatively, a copy of this Agreement to perfect Lender’s security interest. At Lender’s request,Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, andcontinue Lender’s security interest in the Property. Grantor will pay all filing fees, titletransfer fees, and other fees and costs involved unless prohibited by law or unless Lender isrequired by law to pay such fees and costs. Grantor irrevocably appoints Lender to executedocuments necessary to transfer title if there is a default. Lender may file a copy of thisAgreement as a financing statement. If Grantor changes Grantor’s name or address, or the name oraddress of any person granting a security interest under this Agreement changes, Grantor willpromptly notify the Lender of such change.**GRANTOR’S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS.**Until default and except as otherwiseprovided below with respect to accounts, Grantor may have possession of the tangible personalproperty and beneficial use of all the Collateral and may use it in any lawful manner notinconsistent with this Agreement or the Related Documents, provided that Grantor’s right topossession and beneficial use shall not apply to any Collateral where possession of the Collateralby Lender is required by law to perfect Lender’s security interest in such Collateral. Untilotherwise notified by Lender, Grantor may.collect any of the Collateral consisting of accounts. Atany time and even though no Event of Default exists, Lender may exercise its rights to collect theaccounts and to notify account debtors to make payments directly to Lender for application to theIndebtedness. If Lender at any time has possession of any Collateral, whether before or after anEvent of Default, Lender shall be deemed to have exercised reasonable care in the custody andpreservation of the Collateral if Lender takes such action for that purpose as Grantor shallrequest or as Lender, in Lender’s sole discretion, shall deem appropriate under the circumstances,but failure to honor any request by Grantor shall not of itself be deemed to be a failure toexercise reasonable care. Lender shall not be required to take any steps necessary to preserve anyrights in the Collateral against prior parties, nor to protect, preserve or maintain any securityinterest given to secure the Indebtedness.**LENDER’S EXPENDITURES.**If any action or proceeding is commenced that would materially affectLender’s interest in the Collateral or if Grantor fails to comply with any provision of thisAgreement or any Related Documents, including but not limited to Grantor’s failure to discharge orpay when due any amounts Grantor is required to discharge or pay under this Agreement or anyRelated Documents, Lender on Grantor’s behalf may (but shall not be obligated to) take any actionthat Lender deems appropriate, including but not limited to discharging or paying all taxes, liens,security interests, encumbrances and other claims, at any time levied or placed on the Collateraland paying all costs for insuring, maintaining and preserving theCollateral. All such expendituresincurred or paid by Lender for such purposes will then bear interest at the rate charged under theNote from the date incurred or paid by Lender to the date of repayment by Grantor. All suchexpenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable ondemand; (B) be added to the balance of the Note and be apportioned among and be payable with anyinstallment payments to become due during either (1) the term of any applicable insurance policy;or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due andpayable at the Note’s maturity. The Agreement also will secure payment of these amounts. Such rightshall be in addition to all other rights and remedies to which Lender may be entitled upon Default.**DEFAULT.**Each of the following shall constitute an Event of Default under this Agreement:**Payment Default.**Grantor fails to make any payment when due under the Indebtedness.**Other Defaults.**Grantor fails to comply with or to perform any other term, obligation, covenant orcondition contained in this Agreement or in any of the Related Documents or to comply with or toperform any term, obligation, covenant or condition contained in any other agreement between Lenderand Grantor.**False Statements.**Any warranty, representation or statement made or furnished to Lender by Grantoror on Grantor’s behalf under this Agreement or the Related Documents is false or misleading in anymaterial respect, either now or at the time made or furnished or becomes false or misleading at anytime thereafter.**Defective Collateralization.**This Agreement or any of the Related Documents ceases to be in fullforce and effect (including failure of any collateral document to create a valid and perfectedsecurity interest or lien) at any time and for any reason.**Insolvency.**The dissolution or termination of Grantor’s existence as a going business, theinsolvency of Grantor, the appointment of a receiver for any part of Grantor’s property, anyassignment for the benefit of creditors, any type of creditor workout, or the commencement of anyproceeding under any bankruptcy or insolvency laws by or against Grantor.
 

 
**COMMERCIAL SECURITY AGREEMENT****Loan No: 11808** **(Continued)** **Page 4****Creditor of Forfeiture Proceedings.**Commencement of foreclosure or forfeiture proceedings,whether by judicial proceeding, self-help, repossession or any other method, by any creditor ofGrantor or by any governmental agency against any collateral securing the Indebtedness. Thisincludes a garnishment of any of Grantor’s accounts, including deposit accounts, with Lender.However, this Event of Default shall not apply if there is a good faith dispute by Grantor as tothe validity or reasonableness of the claim which is the basis of the creditor or forfeitureproceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding anddeposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in anamount determined by Lender, in its sole discretion, as being an adequate reserve or bond for thedispute.**Events Affecting Guarantor.**Any of the preceding events occurs with respect to any guarantor,endorser, surety, or accommodation party of any of the Indebtedness or guarantor, endorser, surety,or accommodation party dies or becomes incompetent or revokes or disputes the validity of, orliability under, any Guaranty of the indebtedness.**Adverse Change.**A material adverse change occurs in Grantor’s financial condition, or Lenderbelieves the prospect of payment or performance of the indebtedness is impaired.**Insecurity.**Lender in good faith believes itself insecure.**Cure Provisions.**If any default, other than a default in payment is curable and if Grantor has notbeen given a notice of a breach of the same provision of this Agreement within the preceding twelve(12) months, it may be cured if Grantor, after receiving written notice from Lender demanding cureof such default: (1) cures the default within fifteen (15) days: or (2) if the cure requires morethan fifteen (15) days, immediately initiates steps which Lender deems in Lender’s sole discretionto be sufficient to cure the default and thereafter continues and completes all reasonable andnecessary steps sufficient to produce compliance as soon as reasonably practical.**RIGHTS AND REMEDIES ON DEFAULT.**If an Event of Default occurs under this Agreement, at any timethereafter, Lender shall have all the rights of a secured party under the Minnesota Uniform Commercial Code. In addition and withoutlimitation, Lender may exercise any one or more of the following rights and remedies:**Accelerate Indebtedness.** Lender may declare the entire Indebtedness, including any prepaymentpenalty which Grantor would be required to pay, immediately due and payable, without notice of anykind to Grantor.**Assemble Collateral.**Lender may require Grantor to deliver to Lender all or any portion of theCollateral and any and all certificates of title and other documents relating to the Collateral.Lender may require Grantor to assemble the Collateral and make it available to Lender at a place tobe designated by Lender. Lender also shall have full power to enter upon the property of Grantor totake possession of and remove the Collateral. If the Collateral contains other goods not covered bythis Agreement at the time of repossession, Grantor agrees Lender may take such other goods,provided that Lender makes reasonable efforts to return them to Grantor after repossession.**Sell the Collateral.**Lender shall have full power to sell, lease, transfer, or otherwise deal withthe Collateral or proceeds thereof in Lender’s own name or that of Grantor. Lender may sell the Collateral at public auction or private sale.Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will giveGrantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any privatesale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs,enters into and authenticates an agreement waiving that person’s right to notification of sale. The Requirements of reasonablenotice shall be met if such notice is given atleast ten (10) days before the time of the sale or disposition. All expenses relating to thedisposition of the Collateral, including withoutlimitation the expenses of retaking, holding, insuring, preparing for sale and selling theCollateral, shall become a part of the Indebtednesssecured by this Agreement and shall be payable on demand, with interest at the Note rate from dateof expenditure until repaid.**Appoint Receiver.**Lender shall have the right to have a receiver appointed to take possession ofall or any part of the Collateral, with the power to protect and preserve the Collateral, tooperate the Collateral preceding foreclosure or sale, and to collect the Rents from the Collateraland apply the proceeds, over and above the cost of the receivership, against the Indebtedness. Thereceiver may serve without bond if permitted by law. Lender’s right to the appointment of areceiver shall exist, whether or not the apparent value of the Collateral exceeds the Indebtednessby a substantial amount. Employment by Lender shall not disqualify a person from serving as areceiver.**Collect Revenues, Apply Accounts.**Lender, either itself or through a receiver, may collect thepayments, rents, income, and revenues from the Collateral. Lender may at any time in Lender’sdiscretion transfer any Collateral into Lender’s own name or that of Lender’s nominee and receivethe payments, rents, income, and revenues therefrom and hold the same as security for theIndebtedness or apply it to payment of the indebtedness in such order of preference as Lender maydetermine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies,instruments, chattel paper, choses in action, or similar property, Lender may demand, collect,receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lendermay determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lendermay, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed toGrantor; change any address to which mail and payments are to be sent; and endorse notes, checks,drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, orstorage of any Collateral. To facilitate collection, Lender may notify account debtors and obligorson any Collateral to make payments directly to Lander.**Obtain Deficiency.**If Lender chooses to sell any or all of the Collateral, Lender may obtain ajudgment against Grantor for any deficiency remaining on the Indebtedness due to Lender afterapplication of all amounts received from the exercise of the rights provided in this Agreement.Grantor shall be liable for a deficiency even if the transaction described in this subsection is asale of accounts or chattel paper,**Other Rights and Remedies.**Lender shall have all the rights and remedies of a secured creditorunder the provisions of the Uniform Commercial Code, as may be amended from time to time, inaddition, Lender shall have and may exercise any or all other rights and remedies it may haveavailable at law, in equity, or otherwise.**Election of Remedies.**Except as may be prohibited by applicable law, all of Lender’s rights andremedies, whether evidenced by this Agreement, the Related Documents, or by any other writing,shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursueany remedy shall not exclude pursuit of any other remedy, arid an election to make expenditures orto take action to perform an obligation of Grantor under this Agreement, after Grantor’s failure toperform, shall not affect Lender’s right to declare a default and exercise its remedies.**MISCELLANEOUS PROVISIONS.**The following miscellaneous provisions are a part of this Agreement:**Amendments.**This Agreement, together with any Related Documents, constitutes the entireunderstanding and agreement of the parties as to the matters set forth in this Agreement. Noalteration of or amendment to this Agreement shall be effective unless given in writing and signedby the party or parties sought to be charged or bound by the alteration or amendment.**Attorneys’ Fees; Expenses.**Grantor agrees to pay upon demand all of Lender’s costs and expenses,including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connectionwith the enforcement of this Agreement. Lender may hire or pay
 

 
**COMMERCIAL SECURITY AGREEMENT****Loan No: 11808** **(Continued)** **Page 5**someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses ofsuch enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and legal expenseswhether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses forbankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction),appeals, and any anticipated post-judgment collection services. Grantor also shall pay all courtcosts and such additional fees as may be directed by the court.**Caption Headings.**Caption headings in this Agreement are for convenience purposes only and are notto be used to interpret or define the provisions of this Agreement.**Governing Law. This Agreement will be governed by federal law applicable to Lender and, tothe extent not preempted by federal law, the laws of the State of Minnesota without regard to itsconflicts of law provisions. This Agreement has been accepted by Lender in the State ofMinnesota.****No Waiver by Lender.**Lender shall not be deemed to have waived any rights under this Agreementunless such waiver is given in writing and signed by Lender. No delay or omission on the part ofLender in exercising any right shall operate as a waiver of such right or any other right. A waiverby Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’sright otherwise to demand strict compliance with that provision or any other provision of thisAgreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shallconstitute a waiver of any of Lender’s rights or of any of Grantor’s obligations as to any futuretransactions. Whenever the consent of Lender is required under this Agreement, the granting of suchconsent by Lender in any instance shall not constitute continuing consent to subsequent instanceswhere such consent is required and in all cases such consent may be granted or withheld in the solediscretion of Lender.**Notices.**Any notice required to be given under this Agreement shall be given in writing, and shallbe effective when actually delivered, when actually received bytelefacsimile (unless otherwiserequired by law), when deposited with a nationally recognized overnight courier, or, if mailed,when deposited in the United States mail, as first class, certified or registered mail postageprepaid, directed to the addresses shown near the beginning of this Agreement. Any party may changeits address for notices under this Agreement by giving formal written notice to the other parties,specifying that the purpose of the notice is to change the party’s address. For notice purposes,Grantor agrees to keep Lender informed at all times of Grantor’s current address. Unless otherwiseprovided or required by law, if there is more than one Grantor, any notice given by Lender to anyGrantor is deemed to be notice given to all Grantors.**Power of Attorney.**Grantor hereby appoints Lender as Grantor’s irrevocable attorney-in-fact for thepurpose of executing any documents necessary to perfect, amend, or to continue the securityinterest granted in this Agreement or to demand termination of filings of other secured parties.Lender may at any time, and without further authorization from Grantor, file a carbon, photographicor other reproduction of any financing statement or of this Agreement for use as a financingstatement. Grantor will reimburse Lender for all expenses for the perfection and the continuationof the perfection of Lender’s security interest in the Collateral.**Saverability.**If a court of competent jurisdiction finds any provision of this Agreement to beillegal, invalid, or unenforceable as to any circumstance, that finding shall not make theoffending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible,the offending provision shall be considered modified so that it becomes legal, valid andenforceable. If the offending provision cannot be so modified, it shall be considered deleted fromthis Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceabilityof any provision of this Agreement shall not affect the legality, validity or enforceability of anyother provision of this Agreement.**Successorsand Assigns.**Subject to any limitations stated in this Agreement on transfer ofGrantor’s interest, this Agreement shall be binding upon and inure to the benefit of the parties,their successors and assigns. If ownership of the Collateral becomes vested in a person other thanGrantor, Lender, without notice to Grantor, may deal with Grantor’s successors with reference tothis Agreement and the Indebtedness by way of forbearance or extension without releasing Grantorfrom the obligations of this Agreement or liability under the Indebtedness.**Survival of Representations and Warranties.**All representations, warranties, and agreements made byGrantor in this Agreement shall survive the execution and delivery of this Agreement, shall becontinuing in nature, and shall remain in full force and effect until such time as Grantor’sIndebtedness shall be paid in full.**Time is of the Essence.**Time is of the essence in the performance of this Agreement.**DEFINITIONS.**The following capitalized words and terms shall have the following meanings when usedin this Agreement. Unless specifically stated to the contrary, all references to dollar amountsshall mean amounts in lawful money of the United States of America. Words and terms used in thesingular shall include the plural, and the plural shall include the singular, as the context mayrequire. Words and terms not otherwise defined in this Agreement shall have the meanings attributedto such terms in the Uniform Commercial Code:**Agreement.**The word “Agreement” means this Commercial Security Agreement, as this CommercialSecurity Agreement may be amended or modified from time to time, together with all exhibits andschedules attached to this Commercial Security Agreement from time to time.**Borrower.**The word “Borrower” means Uroplasty, Inc. and includes all co-signers and co-makerssigning the Note and all their successors and assigns.**Collateral.**The word “Collateral” means all of Grantor’s right, title and interest in and to allthe Collateral as described in the Collateral Description section ofthis Agreement.**Default.**The word “Default” means the Default set forth in this Agreement in the section titled“Default”.**Environmental Laws.**The words “Environmental Laws” mean any and all state, federal and localstatutes, regulations and ordinances relating to the protection of human health or the environment,including without limitation the Comprehensive Environmental Response, Compensation, and LiabilityAct of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments andReauthorization Act of 1986, Pub. L. No. .99-499 (“SARA”), the Hazardous Materials TransportationAct, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuantthereto or common law, and shall also include pollutants, contaminants, polychlorinated biphenyls,asbestos, urea formaldehyde, petroleum and petroleum products, and agricultural chemicals.**Event of Default.**The words “Event of Default” mean any of the events of default set forth in thisAgreement in the default section of this Agreement.**Grantor.**The word “Grantor” means Uroplasty, Inc..**Guaranty.** The word “Guaranty” means the guaranty from guarantor, endorser, surety, or accommodationparty to Lender, including without limitation a guaranty of all or part of the Note.**Hazardous Substances.**The words “Hazardous Substances” mean materials that, because of theirquantity, concentration or physical, chemical or infectious characteristics, may cause or pose apresent or potential hazard to human health or the environment when
 

 
**COMMERCIAL SECURITY AGREEMENT****Loan No: 11808** **(Continued)** **Page 6**improperly used, treated, stored, disposed of, generated, manufactured, transported orotherwise handled. The words “Hazardous Substances” are used in their very broadest sense andinclude without limitation any and all hazardous or toxic substances, materials or waste as definedby or listed under the Environmental Laws. The term “Hazardous Substances” also includes, withoutlimitation, petroleum and petroleum by-products or any fraction thereof and asbestos.**Indebtedness.**The word “Indebtedness” means the indebtedness evidenced by the Note or RelatedDocuments, including all principal and interest together with all other indebtedness and costs andexpenses for which Grantor is responsible under this Agreement or under any of the RelatedDocuments. Specifically, without limitation, Indebtedness includes all amounts that may beindirectly secured by the Cross-Collateralization provision of this Agreement.**Lender.**The word “Lender” means Venture Bank, its successors and assigns.**Note.**The word “Note” means the Note executed by Uroplasty, Inc. in the principal amount of$1,000,000.00 dated May 31, 2006, together with all renewals of, extensions of, modifications of,refinancings of, consolidations of, and substitutions for the note or credit agreement.**Property.**The word “Property” means all of Grantor’s right, title and interest in and to all theProperty as described in the “Collateral Description” section of this Agreement.**Related Documents.**The words “Related Documents” mean all promissory notes, credit agreements, loanagreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust,security deeds, collateral mortgages, and all other instruments, agreements and documents, whethernow or hereafter existing, executed in connection with the Indebtedness.**GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREESTO ITS TERMS. THIS AGREEMENT IS DATED MAY 31, 2006.****GRANTOR:****UROPLASTY, INC.**     By: /s/ Mahedi A. Jiwani Mahedi A. Jiwani, CFO/Treasurer of Uroplasty, Inc.  LASERPRO Lending, Ver. 5.30.10.001 Copr. Harland Financial Solutions,Inc.1997, 2006. All Rights Reserved. -MN c:\APPS\CFI\CFI\LPL\E40.FC TR-2211 PR-20
 

 
**Attachment**Attachment to loan documents dated 5-31-2006 and any renewals or extensions thereof. All termsused in this attachment are as defined in the commercial security agreement dated 5-31-2006.The foregoing loan documents reference “hazardous substances.” Lender hereby acknowledges that fromtime to time, in the normal course of business, the borrower may have substances on its premiseswhich would be considered “hazardous substances.” Borrower warrants that these hazardous substancesare handled, stored, transported and disposed of according to applicable environmental laws.This acknowledgment does not change any warranties or releases provided by the borrower/grantor tothe lender in the foregoing loan documents.   /s/ Christine Young /s/ Mahedi A. Jiwani   Christine Young, Mahedi A. Jiwani,AVP/Commercial Loan Officer CFO/TreasurerVenture Bank Uroplasty
 

 
**BUSINESS LOAN AGREEMENT (ASSET BASED)**                                 **Principal** **Loan Date**  **Maturity**   **Loan No.**  **Call / Coll**  **Account**   **Officer**  **Initials** **$1,000,000.00**  **05-25-2006**   **05-25-2007**   **11808**           **10022**     Referencesin the shaded area are for Lender’s use only and do not limitthe applicability of this document to any particular loan or item. Any item above containing “***” has been omitted due totext length limitations.        **Borrower:** **Uroplasty, Inc.** **Lender:** **Venture Bank**  **5420 Feltl Road**   **5601 Green Valley Drive, Suite 120**  **Minnetonka, MN 55343**   **Bloomington, MN 55437****THISBUSINESS LOAN AGREEMENT (ASSET BASED)**dated May 25, 2006, is made and executed between Uroplasty, Inc. (“Borrower”) and Venture Bank (“Lender”) on thefollowing terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or otherfinancial accommodations, including those which may be described onany exhibit or schedule attached to this Agreement (“Loan”). Borrower understands and agreesthat: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower’s representations, warranties, and agreements as set forth in thisAgreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender’s sole judgment and discretion; and (C) allsuch Loans shall be and remain subject to the terms and conditions of this Agreement.**TERM.**This Agreement shall be effective as of May 25, 2006, and shall continue in full force and effect until such time as all of Borrower’s Loans in favor ofLender have been paid in full, including principal, interest, costs, expenses, attorneys’ fees, and other fees and charges, or until such time as the parties mayagree in writing to terminate this Agreement.**LINE OF CREDIT.**Lender agrees to make Advances to Borrower from time to time from the date of this Agreement to the Expiration Date, provided the aggregateamount of such Advances outstanding at any time does not exceed theBorrowing Base. Within the foregoing limits, Borrower may borrow, partially or wholly prepay,and reborrow under this Agreement as follows:**Conditions Precedent to Each Advance.**Lender’s obligation to make any Advance to or for the account of Borrower under this Agreement is subject to the followingconditions precedent, with all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory toLender:(1) Lender shall have received evidence that this Agreement and all Related Documents have been duly authorized, executed, and delivered by Borrower to Lender.(2) Lender shall have received such opinions of counsel, supplemental opinions, and documents as Lender may request.(3) Thesecurity interests in the Collateral shall have been duly authorized, created, and perfected with first lien priority and shall be in full force and effect.(4) All guaranties required by Lender for the credit facility(ies) shall have been executed by each Guarantor, delivered to Lender, and be in full force andeffect.(5) Lender, at its option and for its sole benefit, shall have conducted an audit of Borrower’s Accounts, Inventory, books, records, and operations, and Lendershall be satisfied as to their condition.(6) Borrowershall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable.(7) There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, and Borrower shall have deliveredto Lender the compliance certificate catted for in the paragraph below titled “Compliance Certificate.”**MakingLoan Advances.**Advances under this credit facility, as well as directions for payment from Borrower’s accounts, may be requested orally or in writing byauthorized persons. Lender may, but need not, require that all oral requests be confirmed in writing. Each Advance shall be conclusively deemed to have been madeat the request of and for the benefit of Borrower (1) when credited to any deposit account of Borrower maintained with Lender or (2) when advanced in accordancewith the instructions of an authorized person. Lender, at its option,may set a cutoff time, after which all requests for Advances will be treated as having beenrequested on the next succeeding Business Day.**Mandatory Loan Repayments.**If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, Borrower,immediately upon written or oral notice from Lender, shall pay to Lender an amount equal to the difference between the outstanding principal balance of theAdvances and the Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid principal amount of all Advances thenoutstanding and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid.**Loan Account.**Lender shall maintain on its books a record of account in which Lender shall make entries for each Advance and such other debits and credits as shallbe appropriate in connection with the credit facility. Lender shall provide Borrower with periodic statements of Borrower’s account, which statements shall beconsidered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within thirty (30) days after Borrower’s receipt ofany such statement which Borrower deems to be incorrect.**COLLATERAL.**To secure payment of the Primary Credit Facility and performance of all other Loans, obligations and duties owed by Borrower to Lender, Borrower (andothers, if required) shall grant to Lender Security Interests in such property and assets as Lender may require. Lender’s Security Interests in the Collateralshall be continuing liens and shall include the proceeds and products of the Collateral, including without limitation the proceeds of any insurance. With respectto the Collateral, Borrower agrees and represents and warrants to Lender:**Perfection of Security Interests.**Borrower agrees to execute all documents perfecting Lender’s Security Interest and to take whatever actions are requested byLender to perfect and continue Lender’s Security Interests in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the documentsevidencing or constituting the Collateral, and Borrower will note Lender’s interest upon any and all chattel paper and instruments if not delivered to Lender forpossession by Lender. Contemporaneous with the execution of this Agreement, Borrower will execute one or more UCC financing statements and any similar statementsas may be required by applicable law, and Lender will file such financing statements and all such similar statements in the appropriate location or locations.Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue any SecurityInterest. Lender may at any time, and without further authorization from Borrower, file a carbon, photograph, facsimile, or other reproduction of any financingstatement for use as a financing statement. Borrower will reimburse Lender for all expenses for the perfection, termination, and the continuation of theperfection of Lender’s security interest in the Collateral. Borrower promptly will notify Lender before any change in Borrower’s name including any change to theassumed business names of Borrower. Borrower also promptly will notify Lender before any change in Borrower’s Social Security Number or Employer IdentificationNumber. Borrower further agrees to notify Lender in writing prior to any change in address or location of Borrower’s principal governance office or shouldBorrower merge or
 

 
**BUSINESS LOAN AGREEMENT (ASSET BASED)****Loan No: 11808** **(Continued)** **Page 2**consolidate With any other entity.**Collateral Records.**Borrower does now, and at all times hereafter shall, keep correct and accuraterecords of the Collateral, all of which records shall be available to Lender or Lender’srepresentative upon demand for inspection and copying at any reasonable time. With respect to theAccounts, Borrower agrees to keep and maintain such records as Lender may require, includingwithout limitation information concerning Eligible Accounts and Account balances and agings.Records related to Accounts (Receivables) are or will belocated at. With respect to the Inventory, Borrower agrees to keep and maintain such records asLender may require, including without limitation information concerning Eligible Inventory andrecords itemizing and describing the kind, type, quality, andquantity of Inventory, Borrower’sInventory costs and selling prices, and the daily withdrawals and additions to Inventory. Recordsrelated to Inventory are or will be located at. The above is an accurate and complete list of alllocations at which Borrower keeps or maintains business records concerning Borrower’s collateral.