Document:

exv10w31

 

EXHIBIT
10.31

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 of
this 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”), or
order, 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 the
unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of
each advance until repayment of each advance.

PAYMENT.
Borrower will pay this loan in one payment of all outstanding principal plus all accrued
unpaid interest on June 2, 2007. In addition, Borrower will pay regular monthly payments of all
accrued unpaid interest due as of each payment date, beginning July 2, 2006, with all subsequent
interest payments to be due on the same day of each month after that. Unless otherwise agreed or
required by applicable law, payments will be applied first to any accrued unpaid interest; then to
principal; then to any unpaid collection costs; and then to any late charges. The annual interest
rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding. Borrower will pay Lender at
Lender’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 based
on changes in an independent index which is the Prime rate of interest as published each business
day in the money rates section of The Wall Street Journal (the “Index”). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during
the term of this loan, Lender may designate a substitute index after notice to Borrower. Lender
will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will
not occur more often than each day. Borrower understands that Lender may make loans based on other
rates as well. The Index currently is 8.000% per annum. The interest rate to be applied to the
unpaid 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 variable
interest rate or rates provided for in this Note will be subject to the following minimum and
maximum rates. NOTICE: Under no circumstances will the interest rate on this Note be less than
7.000% 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 fully
as of the date of the loan and will not be subject to refund upon early payment (whether voluntary
or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower
may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments
will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to
continue to make payments of accrued unpaid interest. Rather, early payments will reduce the
principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “without
recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without
losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any
further amount owed to Lender. All written communications concerning disputed amounts, including
any 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 satisfaction
of a disputed amount must be mailed or delivered to: Venture Bank, 5601 Green Valley Drive
Bloomington, MN 55437.

LATE
CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the unpaid
portion of the regularly scheduled payment.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, Lender, at its
option, may, if permitted under applicable law, increase the variable interest rate on this Note to
5.000 percentage points over the Index. The interest rate will not exceed the maximum rate
permitted by applicable law.

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under
this 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 or
condition contained in this Note or in any of the related documents or to comply with or to perform
any term, obligation, covenant or condition contained in any other agreement between Lender and
Borrower.

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

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

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

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor,
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 a
death, Lender, at its option, may, but shall not be required to, permit the guarantor’s estate to
assume unconditionally the obligations arising under the guaranty in a manner satisfactory to
Lender, 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 of
Borrower.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or
Lender 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 not
been 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 of
such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more
than fifteen (15) days, immediately initiates steps which Lender deems in Lender’s sole discretion
to be sufficient to cure the default and thereafter continues and completes all reasonable and
necessary 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 Note
and 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 if
Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses, whether or
not 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 not
prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums
provided by law.

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

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

COLLATERAL. Borrower acknowledges this Note is secured by All Business Assets per Commercial
Security Agreement dated 5/31/06.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note, as well
as directions for payment from Borrower’s accounts, may be requested orally or in writing by
Borrower or by an authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordance
with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with
Lender. The unpaid principal balance owing on this Note at any time may be evidenced by
endorsements 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 guarantor
is in default under the terms of this Note or any agreement that Borrower or any guarantor has with
Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or
any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor’s guarantee of this Note or any other loan with
Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those
authorized 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 the
indebtedness evidenced by such other note.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s
heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender
and its successors and assigns.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest
of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note
without losing them. In addition, Lender shall have all the rights and remedies provided in the
related documents or available at law, in equity, or otherwise. Except as may be prohibited by
applicable law, all of Lender’s rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to
make expenditures or to take action to perform an obligation of Borrower shall not affect Lender’s
right to declare a default and to exercise its rights and remedies. Borrower and any other person
who 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 unless
otherwise 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 that
Lender may renew or extend (repeatedly and for any length of time) this loan or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest
in the collateral; and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is made. The obligations
under this Note are joint and several.

SECTION DISCLOSURE. To the extent not preempted by federal law, this loan is made under Minnesota
Statutes, 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 of
this 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 security
interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights
stated in this Agreement with respect to the Collateral, in addition to all other rights which
Lender may have by law.

COLLATERAL DESCRIPTION. The word “Collateral” as used in this Agreement means the following
described property, whether now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located, in which Grantor is giving to Lender a security interest for the
payment of the Indebtedness and performance of all other obligations under the Note and this
Agreement:

All inventory, equipment, accounts (Including but not limited to all health-care-insurance
receivables), 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 limited
to 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; all
timber 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 insurance
refunds relating to the foregoing property; all good will relating to the foregoing property; all
records 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 on
electronic media; and all supporting obligations relating to the foregoing property; all whether
now existing or hereafter arising, whether now owned or hereafter acquired or whether now or
hereafter subject to any rights in the foregoing property; and all products and proceeds (including
but 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 hereafter
acquired, whether now existing or hereafter arising, and wherever located:

(A) All accessions, attachments, accessories, tools, parts, supplies, replacements of and additions
to 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 in
this Collateral section.

(D) All proceeds, (including insurance proceeds) from the sale, destruction, loss, or other
disposition of any of the property described in this Collateral section, and sums due from a third
party who has damaged or destroyed the Collateral or from that party’s insurer, whether due to
judgment, 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, together
with all of Grantor’s right, title, and interest in and to all computer software required to
utilize, 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 and
liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as
all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter
arising, 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 or
unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated
as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may
be or hereafter may become barred by any statute of limitations, and whether the obligation to
repay 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 in
all Grantor’s accounts with Lender (whether checking, savings, or some other account). This
includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in
the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for
which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such
accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to
protect Lender’s charge and setoff rights provided in this paragraph.

GRANTOR’S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the
Collateral, Grantor represents and promises to Lender that:

Perfection of Security Interest. Grantor agrees to take whatever actions are requested by Lender to
perfect and continue Lender’s security interest in the Collateral. Upon request of Lender, Grantor
will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and
Grantor will note Lender’s interest upon any and all chattel paper and instruments if not delivered
to Lender for possession by Lender. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and even though for a period
of 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 in
Grantor’s name; (2) change in Grantor’s assumed business name(s): (3) change in the management of
the Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor’s principal
office address; (6) change in Grantor’s state of organization; (7) conversion of Grantor to a new
or different type of business entity; or (8) change in any other aspect of Grantor that directly or
indirectly relates to any agreements between Grantor and Lender. No change in Grantor’s name or
state 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 agreement
governing 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 term
or condition of this Agreement.

Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or
general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in
accordance with its terms, is genuine, and fully complies with all applicable laws and regulations
concerning form, content and manner of preparation and execution, and all persons appearing to be
obligated on the Collateral have authority and capacity to contract and are in fact obligated as
they appear to be on the Collateral. At the time any account becomes subject to a security interest
in favor of Lender, the account shall be a good and valid account representing an undisputed, bona
fide indebtedness incurred by the account debtor, for merchandise held subject to delivery
instructions or previously shipped or delivered pursuant to a contract of sale, or for services
previously performed by Grantor with or for the account debtor. So long as this Agreement remains
in 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 or
counterclaims against any of the Collateral, and no agreement shall have been made under which any
deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender
in writing.

Location of the Collateral. Except in the ordinary course of Grantor’s business, Grantor agrees to
keep the Collateral (or to the extent the Collateral consists of intangible property such as
accounts or general intangibles, the records concerning the Collateral) at Grantor’s address shown
above or at such other locations as are acceptable to Lender. Upon Lender’s request, Grantor will
deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral
locations relating to Grantor’s operations, including without limitation the following: (1) all
real 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 where
Collateral is or may be located.

Removal of the Collateral. Except in the ordinary course of Grantor’s business, including the sales
of inventory, Grantor shall not remove the Collateral from its existing location without Lender’s
prior written consent. To the extent that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any action which would require application for
certificates of title for the vehicles outside the State of Minnesota, without Lender’s prior
written consent. Grantor shall, whenever requested, advise Lender of the exact location of the
Collateral.

Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary
course of Grantor’s business, or as otherwise provided for in this Agreement, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in
default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its
business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor’s business does not include a transfer in partial or total
satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other
than the security interest provided for in this Agreement, without the prior written consent of
Lender. 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 the
Collateral. (for whatever reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute consent by Lender to any
sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to
Lender.

Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to
the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement
No financing statement covering any of the Collateral is on file in any public office, other than
those which reflect the security interest created by this Agreement or to which Lender has
specifically consented. Grantor shall defend Lender’s rights in the Collateral against the claims
and demands of all other persons.

Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and
maintain, the Collateral in good order, repair and condition at all times while this Agreement
remains in effect. Grantor further agrees to pay when due all claims for work done on, or services
rendered or material furnished in connection with the Collateral so that no lien or encumbrance may
ever attach to or be filed against the Collateral.

Inspection of Collateral. Lender and Lender’s designated representatives and agents shall have the
right 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 the
Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing
the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment
or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding
to contest the obligation to pay and so long as Lender’s interest in the Collateral is not
jeopardized in Lender’s sole opinion. If the Collateral is subjected to a lien which is not
discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate
surety bond or other security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, reasonable attorneys’ fees or other charges that
could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment before enforcement against
the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished
in 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 faith
conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s
interest 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 to
the ownership, production, disposition, or use of the Collateral, including all laws or regulations
relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for
the production of an agricultural product or commodity. Grantor may contest in good faith any such
law, ordinance or regulation and withhold compliance during any proceeding, including appropriate
appeals, 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 never
will be so long as this Agreement remains a lien on the Collateral, used in violation of any
Environmental Laws or for the generation, manufacture, storage, transportation, treatment,
disposal, release or threatened release of any Hazardous Substance. The representations and
warranties contained herein are based on Grantor’s due diligence in investigating the Collateral
for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender
for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under
any Environmental Laws, and (2) agrees to indemnify and hold harmless Lender against any and all
claims and losses resulting from a breach of this provision of this Agreement. This obligation to
indemnify 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 insurance
as Lender may require with respect to the Collateral, in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to
Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including stipulations that coverages
will not be cancelled or diminished without at least ten (10) days’ prior written notice to Lender
and not including any disclaimer of the insurer’s liability for failure to give such a notice. Each
insurance 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 of
Grantor or any other person. In connection with all policies covering assets in which Lender holds
or is offered a security interest. Grantor will provide Lender with such loss payable or other
endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such
insurance 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 to
the Collateral if the estimated cost of repair or replacement exceeds $$1,000.00, whether or not
such casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to do
so 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 Lender
consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon
satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable
cost of repair or restoration. If Lender does not consent to repair or replacement of the
Collateral, 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 the
Collateral shall be used to prepay the indebtedness.

Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of
insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum
estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before
payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to
Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a
non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required
to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for
Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to
be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor’s sole
responsibility.

Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each
existing policy of insurance showing such information as Lender may reasonably request including
the 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 been
obtained and the manner of determining that value; and (6) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the cash value or
replacement cost of the Collateral.

Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or
alternatively, 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, and
continue Lender’s security interest in the Property. Grantor will pay all filing fees, title
transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is
required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute
documents necessary to transfer title if there is a default. Lender may file a copy of this
Agreement as a financing statement. If Grantor changes Grantor’s name or address, or the name or
address of any person granting a security interest under this Agreement changes, Grantor will
promptly notify the Lender of such change.

GRANTOR’S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise
provided below with respect to accounts, Grantor may have possession of the tangible personal
property and beneficial use of all the Collateral and may use it in any lawful manner not
inconsistent with this Agreement or the Related Documents, provided that Grantor’s right to
possession and beneficial use shall not apply to any Collateral where possession of the Collateral
by Lender is required by law to perfect Lender’s security interest in such Collateral. Until
otherwise notified by Lender, Grantor may.collect any of the Collateral consisting of accounts. At
any time and even though no Event of Default exists, Lender may exercise its rights to collect the
accounts and to notify account debtors to make payments directly to Lender for application to the
Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose as Grantor shall
request 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 to
exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or maintain any security
interest given to secure the Indebtedness.

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

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

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

Insolvency. The dissolution or termination of Grantor’s existence as a going business, the
insolvency of Grantor, the appointment of a receiver for any part of Grantor’s property, any
assignment for the benefit of creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against 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 of
Grantor or by any governmental agency against any collateral securing the Indebtedness. This
includes 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 to
the validity or reasonableness of the claim which is the basis of the creditor or forfeiture
proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and
deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an
amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor,
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, or
liability under, any Guaranty of the indebtedness.

Adverse Change. A material adverse change occurs in Grantor’s financial condition, or Lender
believes 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 not
been 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 cure
of such default: (1) cures the default within fifteen (15) days: or (2) if the cure requires more
than fifteen (15) days, immediately initiates steps which Lender deems in Lender’s sole discretion
to be sufficient to cure the default and thereafter continues and completes all reasonable and
necessary 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 time
thereafter, Lender shall have all the rights of a secured party under the Minnesota Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and remedies:

Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment
penalty which Grantor would be required to pay, immediately due and payable, without notice of any
kind to Grantor.

Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the
Collateral 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 to
be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to
take possession of and remove the Collateral. If the Collateral contains other goods not covered by
this 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 with
the 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 give
Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private
sale 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 reasonable
notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale and selling the
Collateral, shall become a part of the Indebtedness
secured by this Agreement and shall be payable on demand, with interest at the Note rate from date
of expenditure until repaid.

Appoint Receiver. Lender shall have the right to have a receiver appointed to take possession of
all or any part of the Collateral, with the power to protect and preserve the Collateral, to
operate the Collateral preceding foreclosure or sale, and to collect the Rents from the Collateral
and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The
receiver may serve without bond if permitted by law. Lender’s right to the appointment of a
receiver shall exist, whether or not the apparent value of the Collateral exceeds the Indebtedness
by a substantial amount. Employment by Lender shall not disqualify a person from serving as a
receiver.

Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the
payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender’s
discretion transfer any Collateral into Lender’s own name or that of Lender’s nominee and receive
the payments, rents, income, and revenues therefrom and hold the same as security for the
Indebtedness or apply it to payment of the indebtedness in such order of preference as Lender may
determine. 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 Lender
may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to
Grantor; 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, or
storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors
on any Collateral to make payments directly to Lander.

Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a
judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after
application 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 a
sale of accounts or chattel paper,

Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor
under the provisions of the Uniform Commercial Code, as may be amended from time to time, in
addition, Lender shall have and may exercise any or all other rights and remedies it may have
available at law, in equity, or otherwise.

Election of Remedies. Except as may be prohibited by applicable law, all of Lender’s rights and
remedies, 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 pursue
any remedy shall not exclude pursuit of any other remedy, arid an election to make expenditures or
to take action to perform an obligation of Grantor under this Agreement, after Grantor’s failure to
perform, 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 entire
understanding and agreement of the parties as to the matters set forth in this Agreement. No
alteration of or amendment to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration or amendment.

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

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

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

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

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

Power of Attorney. Grantor hereby appoints Lender as Grantor’s irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect, amend, or to continue the security
interest 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, photographic
or other reproduction of any financing statement or of this Agreement for use as a financing
statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation
of the perfection of Lender’s security interest in the Collateral.

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

Successors
and Assigns. Subject to any limitations stated in this Agreement on transfer of
Grantor’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 than
Grantor, Lender, without notice to Grantor, may deal with Grantor’s successors with reference to
this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor
from the obligations of this Agreement or liability under the Indebtedness.

Survival of Representations and Warranties. All representations, warranties, and agreements made by
Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be
continuing in nature, and shall remain in full force and effect until such time as Grantor’s
Indebtedness 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 used
in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts
shall mean amounts in lawful money of the United States of America. Words and terms used in the
singular shall include the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed
to such terms in the Uniform Commercial Code:

Agreement. The word “Agreement” means this Commercial Security Agreement, as this Commercial
Security Agreement may be amended or modified from time to time, together with all exhibits and
schedules attached to this Commercial Security Agreement from time to time.

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

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

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

Grantor. The word “Grantor” means Uroplasty, Inc..

Guaranty. The word “Guaranty” means the guaranty from guarantor, endorser, surety, or accommodation
party 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 their
quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a
present or potential hazard to human health or the environment when

 

 

COMMERCIAL SECURITY AGREEMENT

					
	Loan No: 11808
	 	(Continued)
	 	Page 6

improperly used, treated, stored, disposed of, generated, manufactured, transported or
otherwise handled. The words “Hazardous Substances” are used in their very broadest sense and
include without limitation any and all hazardous or toxic substances, materials or waste as defined
by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without
limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related
Documents, including all principal and interest together with all other indebtedness and costs and
expenses for which Grantor is responsible under this Agreement or under any of the Related
Documents. Specifically, without limitation, Indebtedness includes all amounts that may be
indirectly 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 the
Property as described in the “Collateral Description” section of this Agreement.

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

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES
TO 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.
	 	 

LASER
PRO 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 terms
used 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 from
time to time, in the normal course of business, the borrower may have substances on its premises
which would be considered “hazardous substances.” Borrower warrants that these hazardous substances
are 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 to
the lender in the foregoing loan documents.

	 	 	 
	/s/ Christine Young

	 	/s/ Mahedi A. Jiwani
	 

	 	 
	Christine Young,

	 	Mahedi A. Jiwani,
	AVP/Commercial Loan Officer

	 	CFO/Treasurer
	Venture 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	 	 	 	 	 

References
in the shaded area are for Lender’s use only and do not limit
the applicability of this document to any particular loan or item. Any item above containing “***” has been omitted due to
text length limitations. 

	 	 	 	 	 	 	 
	Borrower:

	 	Uroplasty, Inc.
	 	Lender:
	 	Venture Bank
	 

	 	5420 Feltl Road
	 	 	 	5601 Green Valley Drive, Suite 120
	 

	 	Minnetonka, MN 55343
	 	 	 	Bloomington, MN 55437

THIS
BUSINESS LOAN AGREEMENT (ASSET BASED) dated May 25, 2006, is made and executed between Uroplasty, Inc. (“Borrower”) and Venture Bank (“Lender”) on the
following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other
financial accommodations, including those which may be described on
any exhibit or schedule attached to this Agreement (“Loan”). Borrower understands and agrees
that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower’s representations, warranties, and agreements as set forth in this
Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender’s sole judgment and discretion; and (C) all
such Loans shall be and remain subject to the terms and conditions of this Agreement.

TERM. This Agreement shall be effective as of May 25, 2006, and shall continue in full force and effect until such time as all of Borrower’s Loans in favor of
Lender have been paid in full, including principal, interest, costs, expenses, attorneys’ fees, and other fees and charges, or until such time as the parties may
agree in writing to terminate this Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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	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 accurate
records of the Collateral, all of which records shall be available to Lender or Lender’s
representative upon demand for inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may require, including
without limitation information concerning Eligible Accounts and Account balances and agings.
Records related to Accounts (Receivables) are or will be
located at. With respect to the Inventory, Borrower agrees to keep and maintain such records as
Lender may require, including without limitation information concerning Eligible Inventory and
records itemizing and describing the kind, type, quality, and
quantity of Inventory, Borrower’s
Inventory costs and selling prices, and the daily withdrawals and additions to Inventory. Records
related to Inventory are or will be located at. The above is an accurate and complete list of all
locations at which Borrower keeps or maintains business records concerning Borrower’s collateral.

Collateral Schedules. Concurrently with the execution and delivery of this Agreement, Borrower
shall execute and deliver to Lender schedules of Accounts and Inventory and schedules of Eligible
Accounts and Eligible Inventory in form and substance satisfactory to the Lender. Thereafter
supplemental schedules shall be delivered according to the following schedule:

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

Representations and Warranties Concerning Inventory. With respect to the Inventory, Borrower
represents and warrants to Lender: (1) All Inventory represented by Borrower to be Eligible
Inventory for purposes of this Agreement conforms to the requirements of the definition of Eligible
Inventory; (2) All Inventory values listed on schedules delivered to Lender will be true and
correct, subject to immaterial variance; (3) The value of the Inventory will be determined on a
consistent accounting basis; (4) Except as agreed to the contrary by Lender in writing, all
Eligible Inventory is now and at all times hereafter will be in Borrower’s physical possession and
shall not be held by others on consignment, sale on approval, or sale or return; (5) Except as
reflected in the Inventory schedules delivered to Lender, all Eligible Inventory is now and at all
times hereafter will be of good and merchantable quality, free from defects; (6) Eligible Inventory
is not now and will not at any time hereafter be stored with a bailee, warehouseman, or similar
party without Lender’s prior written consent, and, in such event. Borrower will concurrently at the
time of bailment cause any such bailee, warehouseman, or similar party to issue and deliver to
Lender, in form acceptable to Lender, warehouse receipts in Lender name evidencing the storage of
Inventory; and (7) Lender, its assigns, or agents shall have the right at any time and at
Borrower’s expense to inspect and examine the Inventory and to check and test the same as to
quality, quantity, Value, and condition.

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

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

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

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

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

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

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

Organization. Borrower is a corporation for profit which is, and at all times shall be, duly
organized, validity existing, and in good standing under and by virtue of the laws of the State of
Minnesota. Borrower is duly authorized to transact business in all other states in which Borrower
is doing business, having obtained all necessary filings, governmental licenses and approvals for
each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall
be, duly qualified as a foreign corporation in all states in which the failure to so qualify would
have a material adverse effect on its business or financial condition. Borrower has the full power
and authority to own its properties and to transact the business in which it is presently engaged
or presently proposes to engage. Borrower maintains an office at 5420 Felti Road, Minnetonka, MN
55343. Unless Borrower has designated otherwise in writing, the principal office is the office at
which Borrower keeps its books and records its including its records concerning the Collateral.
Borrower will notify Lender prior to any change in the location of Borrower’s state of organization
or any change in Borrower’s name. Borrower shall do all things necessary to preserve and to keep in
full force and effect its existence, rights and privileges, and shall comply with all regulations,
rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority
or court applicable to Borrower and Borrower’s business activities.

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

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

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

 

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

					
	Loan No: 11808
	 	(Continued)
	 	Page 3

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

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

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

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

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

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

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

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

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

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

Financial Statements. Furnish Lender with the following:

Additional Requirements.

1. As soon as available, but in no event later than thirty (30) days after the end of each
quarter the Borrower’s Accounts Receivable Aging.

2. As soon as available, but in no event later than one-hundred-thirty five (135)days after the
end of each fiscal year, Borrower’s 10-K for the year ended.

3. As soon as available, but in no event later than sixty (60)days after end of each quarter,
Borrower’s 10-Q for the period ended, prepared by Borrower.

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

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

Financial Covenants and Ratios. Comply with the following covenants and ratios:

Other Requirements.

1. Inventory cap of $500,000.00 on Advances

2. Line advances up to $250,000.00, minimum equity of $500,000.00

3. Line advances greater than $250,000.00, minimum equity $1,000,000.00

4. Primary deposit relationship to be held at Venture Bank.

Except as provided above, all computations made to determine compliance with the requirements
contained in this paragraph shall be

 

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

					
	Loan No: 11808
	 	(Continued)
	 	Page 4

made in accordance with generally accepted accounting principles, applied on a consistent
basis, and certified by Borrower as being true and correct.

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

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

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

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

Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations,
including without limitation all assessments, taxes, governmental charges, levies and liens, of
every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or
charge upon any of Borrower’s properties, income, or profits.

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

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

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

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

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

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

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

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

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

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

 

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

					
	Loan No: 11808
	 	(Continued)
	 	Page 5

prior written consent of Lender:

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

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

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

Agreements. Borrower will not enter into any agreement containing any provisions which would be
violated or breached by the performance of Borrower’s obligations under this Agreement or in
connection herewith.

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

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

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

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

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

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

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

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

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

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any
of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the
validity of, or liability under, any Guaranty of the indebtedness. In the event of a death, Lender,
at its option, may, but shall not be required to, permit the
Guarantor’s estate to assumes
unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and,
in doing so, cure any Event of Default.

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

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

Insecurity. Lender in good faith believes itself insecure.

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

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise
provided in this Agreement or the Related Documents, all commitments and obligations of Lender
under this Agreement or the Related Documents or any other agreement immediately will

 

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

					
	Loan No: 11808
	 	(Continued)
	 	Page 6

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

					
	Loan No: 11808
	 	(Continued)
	 	Page 7

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

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

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

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

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

Borrowing Base. The words “Borrowing Base” mean, as determined by Lender from time to time, the
lesser of (1) $1,000,000.00 or (2) the sum of (a) 80.000% of the aggregate amount of Eligible
Accounts, plus (b) 50.000% of the aggregate amount of Eligible Inventory.

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

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

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

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

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

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

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

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

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

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

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

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

(10) Domestic.

Eligible Inventory. The words “Eligible Inventory” mean, at any time, all of Borrower’s Inventory
as defined below, except:

(1) Inventory which is not owned by Borrower free and clear of all security interests, liens,
encumbrances, and claims of third parties.

(2) Inventory which Lender, in its sole discretion, deems to be obsolete, unsalable, damaged,
defective, or unfit for further processing.

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

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

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

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

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

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

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

 

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

					
	Loan No: 11808
	 	(Continued)
	 	Page 8

Note.

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

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

Inventory. The word “Inventory” means all of Borrower’s raw materials, work in process, finished
goods, merchandise, parts and supplies, of every kind and description, and goods held for sale or
lease or furnished under contracts of service in which Borrower now has or hereafter acquires any
right, whether held by Borrower or others, and all documents of title, warehouse receipts, bills of
lading, and all other documents of every type covering all or any part of the foregoing. Inventory
includes inventory temporarily out of Borrower’s custody or possession and all returns on Accounts.

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

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

Note. The word “Note” means the Note 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.

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

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

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

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

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

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT (ASSET BASED) AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT
(ASSET BASED) IS DATED MAY 31, 2006.

BORROWER:

UROPLASTY, INC.

	 	 	 
	By:

	 	/s/ Mahedi A. Jiwani
 
 Mahedi
A. Jiwani, CFO/Treasurer of Uroplasty, Inc.
	 
	 	 
	LENDER:
	 
	 	 
	VENTURE BANK
	 
	 	 
	 
	 	 
	By:

	 	/s/ Christine Young
 
 Authorized
Signer

LASER
PRO Lending, Ver. 5.300.10.001 Copr. Harland Financial Solutions,
Inc. 1997, 2006. All Rights Reserved. —MN C:\APPS\CFI\LPL\C 40.FC
TR-2211 PR-20

 

 

DISBURSEMENT REQUEST AND AUTHORIZATION

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Principal	 	Loan Date	 	 	Maturity	 	 	Loan No	 	 	Call / Cell	 	 	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 of
this 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

LOAN TYPE. This is a Variable Rate Nondisclosable Revolving Line of Credit Loan to a Corporation
for $1,000,000.00 due on June 2, 2007. The reference rate (Prime rate of interest as published each
business day in the money rates section of The Wall Street Journal, with an interest rate floor of
7.000% currently 8.000%) is added to the margin of 1.000%, resulting in an initial rate of 9.000.

PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:

     o Maintenance of Borrower’s Primary Residence.

     o Personal, Family or Household Purposes or Personal Investment.

     o Agricultural Purposes.

     þ Business Purposes.

SPECIFIC PURPOSE. The specific purpose of this loan is: Working Capital.

DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all
of Lender’s conditions for making the loan have been satisfied. Please disburse the loan proceeds
of $1,000,000.00 as follows:

	 	 	 	 	 
	Undisbursed Funds:
	 	$	1,000,000.00	 
	 
	 	 	 
	Note Principal:.
	 	$	1,000,000.00	 

CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges:

	 	 	 	 	 
	Prepaid Finance Charges Paid in Cash:
	 	$	5,000.00	 
	$5,000.00 Loan Origination Fee
	 	 	 	 
	Other Charges Paid in Cash:
	 	$	100.00	 
	$100.00 Loan Documentation Fee
	 	 	 	 
	 
	 	 	 
	Total Charges Paid in Cash:
	 	$	5,100.00	 

FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT
THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO MATERIAL ADVERSE
CHANGE IN BORROWER’S FINANCIAL CONDITION AS DISCLOSED IN BORROWER’S MOST RECENT FINANCIAL STATEMENT
TO LENDER. THIS AUTHORIZATION IS DATED MAY 31, 2006.

BORROWER:

UROPLASTY, INC.

	 	 	 	 	 
	 
	 	 	 	 
	By:

	 	/s/ Mahedi A. Jiwani
 

Mahedi A. Jiwani, CFO/Treasurer of Uroplasty, Inc.
	 	 

LASER PRO Lending, Ver. 5.30.10.001 Copr. Harland Financial Solutions, Inc. 1997, 2006. All Rights Reserved. -MN
c:\APPS\CFI\CFI\LPL\I20.FC TR-2211 PR-20exv10w2

 

 Exhibit
10.2

ESCROW AGREEMENT

     This Escrow Agreement (herein so called), dated ___, made by and between Mewbourne
Development Corporation, a Delaware Corporation (“MD”), and Regions Bank — Tyler (“Escrow Agent”);

     WHEREAS, MD will serve as the Managing Partner of Mewbourne Energy Partners 06-A, L.P. and
Mewbourne Energy Partners 07-A, L.P., (the “Partnerships”), in which general and limited
partnership interests (collectively, the “Interests”) are to be offered and sold in an offering
pursuant to the Securities Act of 1933 as amended;

     WHEREAS, the Partnership(s) will participate with MD and Mewbourne Oil Company (“MOC”), in a
program for the purpose of developing oil and gas prospects through drilling and producing oil and
gas thereon (the “Programs”);

     WHEREAS, the Form S-1 Registration Statement (the “Statement”) dated ___, relating
to the interests to be sold provides that subscription proceeds for such Interests (“Subscription
Proceeds”) from investors who are initially approved by MD will be deposited in an escrow account
with Escrow Agent and may not be contributed to the capital of a Partnership unless at the end of
the subscription period the aggregate Subscription Proceeds of over $15,000,000 have been received
and accepted for a Partnership and certain other conditions have been met;

     WHEREAS, the Statement relating to the Interests to be sold provides that investors desiring
to purchase Interests in a Partnership shall provide MD with certain information concerning their
suitability for investment in the Partnership by completing the Subscription Agreement (the
“Subscription Agreement”); and

     WHEREAS, MD desires that Escrow Agent provide procedures for the deposit and safekeeping of
the Subscription Proceeds and delivery of the Subscription Agreement to MD subject to the terms of
this Escrow Agreement;

     NOW, THEREFORE, in consideration of the mutual promises herein set forth, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:

     1. Escrow Period. The term of this Escrow Agreement shall begin on the effective date
of the Statement and shall terminate in accordance with Section 7 below.

     2. Escrow Account and Deposit of Escrow Funds. For each Partnership, Escrow Agent
shall open a special trust account (the “Account”) at Regions Bank — Tyler for and in the name of
Regions Bank — Tyler as Escrow Agent under this Escrow Agreement. Subscription proceeds will be
transmitted to the Account by noon of the next business day after receipt by broker/dealers.
Following receipt by Escrow Agent of the Subscription Agreement and Subscription Proceeds for the
purchase of Interests in a Partnership,
the Subscription Agreement shall be promptly delivered to MD and the instruments representing the
Subscription Proceeds shall be deposited and maintained by Escrow Agent in accordance with the
terms of this Escrow

1

 

Agreement. The Subscription Proceeds so deposited, together with any and all
interest earned thereon, are referred to as the “Escrow Funds”.

     3. Duties of Escrow Agent. The Escrow Agent shall have the following general duties:
(a) to promptly deliver the Subscription Agreement to MD; (b) to deposit and safely maintain the
Escrow Funds in the Account, guarding at all times against the commingling thereof with any funds
of MD or its affiliates during the term of this Escrow Agreement; (c) at the direction of MD, to
invest the Escrow Funds in investments that are permissible under rule 15c2-4 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended,
including, without limitation (if permissible), time deposits, short-term bank certificates of
deposit, short-term governmental obligations and bank money market accounts to be held by Escrow
Agent; (d) to prepare and maintain true and complete records with respect to the Escrow Funds,
including the name of each subscriber and the portion of the Escrow Funds from time to time
attributable to him; and (e) to disburse the Escrow Funds in accordance with the terms of this
Escrow Agreement.

     4. Payment of Escrow Funds. The Escrow Funds, or portions thereof, shall be paid out
by Escrow Agent in accordance with written instructions from MD as follows: (a) to each
subscriber, if any, whose subscription has been rejected by MD within five business days after the
clearance of those Escrow Funds, that portion of the Escrow Funds attributable to that subscriber
as shown on Escrow Agent’s records, including any interest earned thereon; (b) to each subscriber,
if any, whose Subscription Proceeds have not been contributed to the Partnership prior to the
termination of the offering period for Interests in the Partnership, and any subscriber who may be
rejected as an Investor Partner subsequent to the period described in Subsection (a) of this
Section 4, that portion of the Escrow Funds attributable to the rejected subscriber as shown on
Escrow Agent’s records together with any interest attributable thereto (as calculated by MD); (c)
to each subscriber, if any, whose subscription has been reduced, that portion of the Escrow Funds
equal to the amount of such reduction attributable thereto as shown on Escrow Agent’s records; (d)
to MD for distribution to each subscriber within 60 days of closing of the Partnership, that
portion of accrued and unpaid interest on the Escrow Funds relating to such Partnership, which
Escrow Funds were deposited no fewer than five business days prior to the termination of the
offering of Interests in the Partnership, attributable to that subscriber as shown on Escrow
Agent’s records; and (e) to an account for the Partnership all remaining Escrow Funds attributable
to the Partnership. Notwithstanding the foregoing, no portion of the Escrow Funds may be paid to
the Partnership unless the Escrow Agent shall have in excess of $15,000,000 in Escrow Funds with
respect to the Partnership and MD informs the Escrow Agent in writing that aggregate Subscription
Proceeds for Interests in the Partnership of $15,000,000 or more have been received and cleared
from subscribers that MD initially approves as suitable to be Investor Partners (as such term is
defined in the Statement) in that Partnership. Notwithstanding the provisions of this Section 4,
or any other provision of this Escrow Agreement, after the Escrow Agent shall have in excess of
$15,000,000 in Escrow Funds with respect to that Partnership and MD informs
the Escrow Agent in writing that aggregate Subscription Proceeds for Interests in such Partnership
of $15,000,000 or more have been received and cleared by Escrow Agent, upon the written request of
MD, Escrow Agent shall disburse all or any portion of the Escrow Funds to an account established by
MD for the Partnership.

2

 

     Notwithstanding anything contained herein to the contrary, it is expressly contemplated by MD
and the Escrow Agent that MD shall be solely responsible for all computations and disbursements of
interest and the preparation and mailing of all forms with respect thereto, including without
limitation Form 1099 as is contemplated in Subsections (b), (c), and (d) of this Section 4.

     The Escrow Agent shall deliver to MD from time to time such records and information which are
available to Escrow Agent and are necessary to make the computations of interest contemplated
herein.

     5. Expenses and Compensation. All expenses incurred by Escrow Agent in connection
with this Escrow Agreement and the compensation of Escrow Agent set forth in Exhibit 1
hereto shall be charged to MD and MD agrees to pay promptly all such expenses and compensation
following receipt of an invoice therefor.

     6. Escrow Agent. MD and Escrow Agent agree that the following provisions shall
control with respect to the rights, duties, liabilities, privileges and immunities of Escrow Agent:
(a) Escrow Agent is not a party to, and is not bound by, any agreement or other document out of
which this Escrow Agreement may arise; (b) Escrow Agent is not responsible or liable in any manner
whatsoever for the sufficiency, correctness, genuineness, or validity of the subject matter of this
Escrow Agreement; (c) Escrow Agent shall be protected in acting upon any written notice, request,
waiver, consent, certificate, receipt, authorization, agreement, power of attorney, or other
instrument that Escrow Agent in good faith believes to be genuine and what it purports to be.

     As between MD and the Escrow Agent, MD agrees to indemnify the Escrow Agent and its officers,
directors, employees, agents and attorneys (collectively, the “Indemnified Parties”) against and
hold the Indemnified Parties harmless from any and all losses, costs, damages, expenses, claims,
and attorney’s fees suffered or incurred by the Indemnified Parties as a result of, in connection
with or arising from or out of the acts or omissions of any Indemnified Party in performance of or
pursuant to this Escrow Agreement, except such acts or omissions as may result from such
Indemnified Party’s willful misconduct or gross negligence.

     All protections and indemnities benefitting the Escrow Agent (and any other Indemnified Party)
are cumulative of any other rights it (or they) may have by law or otherwise, and shall survive the
termination of the Escrow Agreement or the resignation or removal of the Escrow Agent.

     7. Termination. This Escrow Agreement shall terminate upon the first to occur of any one of the following:
December 31, 2007; (a) the full disbursement of the Escrow Funds with respect to the final
Partnership; (b) the written agreement of termination by MD and Escrow Agent; or (c) the
dissolution, insolvency, or involuntary bankruptcy of MD or an affiliate thereof.

     8. Miscellaneous.

          (a) All notices, demands, requests, and other communications required or permitted hereunder
shall be in writing and shall be deemed to be delivered when actually received at the address of
the addressee set forth below its name on the signature page of this

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Escrow Agreement. The rights
and obligations under this Escrow Agreement may not be assigned or delegated by any party hereto
without the prior written consent of the other party hereto. This Escrow Agreement constitutes the
entire agreement and supersedes all other prior agreements and understandings, whether oral or
written, between the parties hereto with respect to the subject matter hereof;

     (b) The Escrow Agent may consult with and rely on the advice of counsel satisfactory to it at
any time in respect to any question relating to its duties or responsibilities hereunder or
otherwise in connection herewith, and shall not be liable for any action taken suffered, or omitted
by the Escrow Agent in good faith upon the advice of such counsel, and shall be fully protected in
doing so, and shall be fully compensated for all costs and expenses in doing so. The Escrow Agent
may act through its officers, employees, agents and attorneys;

          (c) Any check included in the Escrow Funds shall be collected by the Escrow Agent and the
proceeds held as part of the Escrow Funds. No monies shall be disbursed by the Escrow Agent until
it has collected funds. The Escrow Agent may pay out monies held in escrow by its check. The
Escrow Agent shall not be obligated to take any legal action to enforce payment of any item
deposited with it in escrow;

          (d) The Escrow Agent shall not be liable for any action that it may do or refrain from doing
in connection herewith, except on account of its own gross negligence or willful misconduct;

          (e) The Escrow Agent’s only duty, liability and responsibility shall be to deliver the
Subscription Agreements to MD and to hold the property as herein directed and to pay and deliver
the same to such persons and under such conditions as are herein set forth;

          (f) Should any controversy arise between any party with respect to this agreement, the Escrow
Agent shall have the right to institute a bill of interpleader in any court of competent
jurisdiction to determine the rights of the parties. Should a bill of interpleader be instituted,
or should the Escrow Agent become involved in litigation in any manner whatsoever on account of
this Agreement or the escrow deposit made hereunder, the obligor, its successors and assigns shall
pay the Escrow Agent reasonable attorneys’ fees incurred by the Escrow Agent and shall indemnify
and save the Escrow Agent harmless from any other disbursements, expenses, losses, costs and
damages in connection with and resulting from such litigation, except
such amounts as shall have been caused by the Escrow Agent’s gross negligence or willful
misconduct;

          (g) The Escrow Agent shall be obligated to perform only such duties as are expressly set forth
herein, and no implied covenants or obligations shall be inferred from this Agreement;

          (h) The Escrow Agent, or any successor to it hereafter appointed, may at any time resign by
giving prior written notice in writing to the other parties hereto and shall be discharged from its
duties hereunder upon the appointment of a successor Escrow Agent as hereinafter provided. In the
event of any such resignation, a successor Escrow Agent shall be appointed by the written consent
of the parties hereto. In the event that the parties hereto fail to

4

 

appoint a successor Escrow
Agent within 30 days of the Escrow Agent’s resignation, the Escrow agent shall have the right to
petition a court of competent jurisdiction to appoint a successor Escrow Agent. Any successor
Escrow Agent shall deliver to the parties hereto a written instrument accepting the appointment
hereunder, and thereupon it shall succeed to all the rights and duties of the Escrow Agent
hereunder and shall be entitled to receive all of the Escrow Funds then held by the predecessor
Escrow Agent hereunder;

          (i) THIS ESCROW AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS, EXCEPT THAT THE PORTIONS OF THE TEXAS TRUST CODE, SECTION 111.001, ET
SEQ. OF THE PROPERTY CODE, V.A.T.S. CONCERNING FIDUCIARY DUTIES AND LIABILITIES OF TRUSTEES
SHALL NOT APPLY TO THIS AGREEMENT. THE PARTIES EXPRESSLY WAIVE SUCH DUTIES AND LIABILITIES, IT
BEING THEIR INTENT TO CREATE SOLELY AN AGENCY RELATIONSHIP AND HOLD ESCROW AGENT LIABLE ONLY IN THE
EVENT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT IN ORDER TO OBTAIN THE LOWER FEE SCHEDULE RATES
AS SPECIFICALLY NEGOTIATED WITH ESCROW AGENT. ANY LITIGATION CONCERNING THE SUBJECT MATTER OF THIS
AGREEMENT SHALL BE EXCLUSIVELY PROSECUTED IN THE COURTS OF DALLAS COUNTY, TEXAS, AND ALL PARTIES
CONSENT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THOSE COURTS.

     IN WITNESS WHEREOF, the undersigned parties have caused this Escrow Agreement to be signed and
attested to by its duly authorized officers, all as of the date first written above.

	 	 	 	 	 
	 	 	ESCROW AGENT:
	 
	 	 	 	 
	 	 	REGIONS BANK — TYLER
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Raymond W. Cozby III,

Vice President and Trust Officer

	 	 	 	 	 
	 

	 	Address:
	 	Regions Bank — Trust
	 

	 	 	 	P.O. Box 2020
	 

	 	 	 	Tyler, TX 75710
	 

	 	 	 	Telephone No.: (903) 535-4200
	 

	 	 	 	Fax No.: (903) 535-4327

	 	 	 	 	 
	 	 	MEWBOURNE DEVELOPMENT CORPORATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	John Roe Buckley

Treasurer

	 	 	 	 	 
	 

	 	Address:
	 	3901 South Broadway
	 

	 	 	 	Tyler, Texas 75701
	 

	 	 	 	Telephone No.: (903) 561-2900
	 

	 	 	 	Fax No.: (903) 561-1515

5

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