Document:

exv10w37

 

Exhibit 10.37

DISBURSEMENT REQUEST AND AUTHORIZATION

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Principal	 	Loan Date	 	Maturity	 	Loan No	 	Call / Coll	 	Account	 	Officer	 	Initials
	$1,000,000.00

	 	05-01-2007
	 	05-05-2008
	 	 	12300	 	 	 	 	 	 	 	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 limitation.

	 	 	 	 	 	 	 	 	 
	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 May 5, 2008. 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 7.500% currently 8.250%) is added to the margin of 1.000%, resulting in
an initial rate of 9.250.

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:
	 	$	3,500.00	 
	     $3,500.00 Loan Origination Fee
	 	 	 	 
	 
	 	 	 	 
	Other Charges Paid in Cash:
	 	$	100.00	 
	     $100.00 Loan Documentation Fee
	 	 	 	 
	 
	 	 	 	 
	Total Charges Paid in Cash:
	 	$	3,600.00	 

AUTOMATIC PAYMENTS. Borrower hereby authorizes Lender automatically to deduct from
Borrower’s Demand Deposit — Checking account, numbered 009589, the amount of any loan payment.
If the funds in the account are insufficient to cover any payment, Lender shall not be
obligated to advance funds to cover the payment. At any time and for
any reason, Borrower or
Lender may voluntarily terminate Automatic Payments.

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 1, 2007.

BORROWER:

UROPLASTY, INC.

	 	 	 	 	 	 	 
	 

		By:

	 	/s/ Mahedi Jiwani
 

Mahedi Jiwani, CFO/treasurer of Uroplasty, Inc.
	 	 

LASER
PRO Lending, Ver. 5.35.00.004 Copr. Harland Financial Solutions, Inc.
1997, 2007. All Rights Reserved. - MN c:\APPS\CFI\CFI\LPL\120.FC TR-2787 PR-20

 

 

CORPORATE RESOLUTION TO BORROW / GRANT COLLATERAL

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Principal	 	Loan Date	 	Maturity	 	Loan No	 	Call / Coll	 	Account	 	Officer	 	Initials
	$1,000,000,00

	 	05-01-2007
	 	05-05-2008
	 	 	12300	 	 	 	 	 	 	 	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.

	 	 	 	 	 	 	 	 	 
	Corporation:

	 	Uroplasty, Inc.
	 	 	 	Lender:
	 	Venture Bank
	 

	 	5420 Feltl Road
	 	 	 	 	 	5601 Green Valley Drive, Suite 120
	 

	 	Minnetonka, MN 55343
	 	 	 	 	 	Bloomington, MN 55437

I, THE UNDERSIGNED, DO HEREBY CERTIFY THAT:

THE CORPORATION’S EXISTENCE. The complete and correct name of the Corporation is Uroplasty,
Inc. (“Corporation”). The Corporation is a corporation for profit which is, and at all times
shall be, duly organized, validly existing, and in good standing under and by virtue of the
laws of the State of Minnesota. The Corporation is duly authorized to transact business in all
other states in which the Corporation is doing business, having obtained all necessary filings,
governmental licenses and approvals for each state in which the Corporation is doing business.
Specifically, the Corporation 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. The Corporation 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. The Corporation maintains an office at 5420 Feltl Road,
Minnetonka, MN 55343. Unless the Corporation has designated otherwise in writing, the principal
office is the office at which the Corporation keeps its books and records. The Corporation will
notify Lender prior to any change in the location of the Corporation’s state of organization or
any change in the Corporation’s name. The Corporation 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 the Corporation and the Corporation’s
business activities.

RESOLUTIONS ADOPTED. At a meeting of the Directors of the Corporation, or if the Corporation is
a close corporation having no Board of Directors then at a meeting of the Corporation’s
shareholders, duly called and held on May 16, 2006, at which a quorum was present and voting,
or by other duly authorized action in lieu of a meeting, the resolutions set forth in this
Resolution were adopted.

OFFICER. The following named person is an officer of Uroplasty, Inc.:

	 	 	 	 	 	 	 	 	 	 	 
	NAMES	 	TITLES	 	AUTHORIZED	 	 	 	ACTUAL SIGNATURES	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Mahedi Jiwani

	 	CFO/Treasurer
	 	Y
	 	X
	 	/s/ Mahedi Jiwani	 	 
	 

	 	 	 	 	 	 	 	 	 	 

ACTIONS AUTHORIZED. The authorized person listed above may enter into any agreements of any
nature with Lender, and those agreements will bind the Corporation. Specifically, but without
limitation, the authorized person is authorized, empowered, and directed to do the following
for and on behalf of the Corporation:

Borrow Money. To borrow, as a cosigner or otherwise, from time to time from Lender, on such
terms as may be agreed upon between the Corporation and Lender, such sum or sums of money as
in his or her judgment should be borrowed, without limitation.

Execute Notes. To execute and deliver to Lender the promissory note or notes, or other
evidence of the Corporation’s credit accommodations, on Lender’s forms, at such rates of
interest and on such terms as may be agreed upon, evidencing the sums of money so borrowed
or any of the Corporation’s indebtedness to Lender, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings, consolidations, or
substitutions for one or more of the notes, any portion of the notes, or any other evidence
of credit accommodations.

Grant Security. To mortgage, pledge, transfer, endorse, hypothecate, or otherwise encumber
and deliver to Lender any property now or hereafter belonging to the Corporation or in which
the Corporation now or hereafter may have an interest, including without limitation all of
the Corporation’s real property and all of the Corporation’s personal property (tangible or
intangible), as security for the payment of any loans or credit accommodations so obtained,
any promissory notes so executed (including any amendments to or modifications, renewals,
and extensions of such promissory notes), or any other or further indebtedness of the
Corporation to Lender at any time owing, however the same may be evidenced. Such property
may be mortgaged, pledged, transferred, endorsed, hypothecated or encumbered at the time
such loans are obtained or such indebtedness is incurred, or at any other time or times, and
may be either in addition to or in lieu of any property theretofore mortgaged, pledged,
transferred, endorsed, hypothecated or encumbered.

Execute Security Documents. To execute and deliver to Lender the forms of mortgage, deed of
trust, pledge agreement, hypothecation agreement, and other security agreements and
financing statements which Lender may require and which shall evidence the terms and
conditions under and pursuant to which such liens and encumbrances, or any of them, are
given; and also to execute and deliver to Lender any other written instruments, any chattel
paper, or any other collateral, of any kind or nature, which Lender may deem necessary or
proper in connection with or pertaining to the giving of the liens and encumbrances.

Negotiate Items. To draw, endorse, and discount with Lender all drafts, trade acceptances,
promissory notes, or other evidences of indebtedness payable to or belonging to the
Corporation or in which the Corporation may have an interest, and either to receive cash
for the same or to cause such proceeds to be credited to the Corporation’s account with
Lender, or to cause such other disposition of the proceeds derived therefrom as he or she
may deem advisable.

Further Acts. In the case of lines of credit, to designate additional or alternate
individuals as being authorized to request advances under such lines, and in all cases, to
do and perform such other acts and things, to pay any and all fees and costs, and to
execute and deliver such other documents and agreements as the officer may in his or her
discretion deem reasonably necessary or proper in order to carry into effect the provisions
of this Resolution.

ASSUMED BUSINESS NAMES. The Corporation has filed or recorded all documents or filings
required by law relating to all assumed business names used by the Corporation. Excluding the
name of the Corporation, the following is a complete list of all assumed business names under
which the Corporation does business: None.

NOTICES TO LENDER. The Corporation 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
(A) change in the Corporation’s name; (B) change in the Corporation’s assumed business
name(s); (C) change in the management of the Corporation; (D) change in the authorized
signer(s); (E) change in the Corporation’s principal office address; (F) change in the
Corporation’s state of organization; (G) conversion of the Corporation to a new or different
type of business entity; or (H) change in any other aspect of the Corporation that directly or
indirectly relates to any agreements between the Corporation and Lender. No change in the
Corporation’s name or state of organization will take effect until after Lender has received
notice.

 

 

CORPORATE RESOLUTION TO BORROW / GRANT COLLATERAL

					
	Loan No: 12300
	 	(Continued)
	 	Page 2

CERTIFICATION CONCERNING OFFICERS AND RESOLUTIONS. The officer named above is duly elected,
appointed, or employed by or for the Corporation, as the case may be, and occupies the position
set opposite his or her respective name. This Resolution now stands of record on the books of the
Corporation, is in full force and effect, and has not been modified or revoked in any manner
whatsoever.

NO CORPORATE SEAL. The Corporation has no corporate seal, and therefore, no seal is affixed to
this Resolution.

CONTINUING VALIDITY. Any and all acts authorized pursuant to this Resolution and performed prior
to the passage of this Resolution are hereby ratified and approved. This Resolution shall be
continuing, shall remain in full force and effect and Lender may rely on it until written notice
of its revocation shall have been delivered to and received by Lender at Lender’s address shown
above (or such addresses as Lender may designate from time to time). Any such notice shall not
affect any of the Corporation’s agreements or commitments in effect at the time notice is given.

IN TESTIMONY WHEREOF, I have hereunto set my hand and attest that the signature set opposite the
name listed above is his or her genuine signature.

I have read all the provisions of this Resolution, and I personally and on behalf of the
Corporation certify that all statements and representations made in this Resolution are true and
correct. This Corporate Resolution to Borrow / Grant Collateral is dated May 16, 2006.

	 	 	 	 	 	 	 
	 	 	CERTIFIED TO AND ATTESTED BY:	 	 
	 
	 	 	 	 	 	 
	 

	 	X
	 	/s/ Mahedi Jiwani
 

Mahedi Jiwani, CFO/Treasurer of Uroplasty,
Inc.
	 	 

NOTE: If the officer signing this Resolution is designated by the foregoing document as one
of the officers authorized to act on the Corporation’s behalf, it is advisable to have this
Resolution signed by at least one non-authorized officer of the Corporation.

LASER
PRO Lending, Ver. 5.35.00.004 Copr. Harland Financial Solutions, Inc.
1997, 2007. All Rights Reserved. - MN c:\APPS\CFI\CFI\LPL\C10.FC TR-2787 PR-20

 

 

PROMISSORY NOTE

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Principal	 	Loan Date	 	Maturity	 	Loan No	 	Call / Coll	 	Account	 	Officer	 	Initials
	$1,000,000.00

	 	05-01-2007
	 	05-05-2008
	 	 	12300	 	 	 	 	 	 	 	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: 9.250%
	 	Date of Note: May 1, 2007

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 May 5, 2008. In addition, Borrower will pay regular monthly
payments of all accrued unpaid interest due as of each payment date, beginning June 5, 2007,
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 notifying 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
8.250% per annum. The interest rate to be applied to the unpaid principal balance during this
Note will be at a rate of 1.000 percentage point over the Index, adjusted if necessary for
any minimum and maximum rate limitations described below, resulting in an initial rate of
9.250% per annum. NOTICE: Under no circumstances will the interest rate on this Note be less
than 7.500% 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, the
interest rate on this Note shall be increased by adding a 4.000 percentage point margin
(“Default Rate Margin”). The Default Rate Margin shall also apply to each succeeding interest
rate change that would have applied had there been no default. However, in no event will the
interest rate exceed the maximum interest rate limitations under 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.

 

 

PROMISSORY NOTE

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Principal	 	Loan Date	 	Maturity	 	Loan No	 	Call / Coll	 	Account	 	Officer	 	Initials
	$1,000,000.00

	 	05-01-2007
	 	05-05-2008
	 	 	12300	 	 	 	 	 	 	 	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: 9.250%
	 	Date of Note: May 1, 2007

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 May 5, 2008. In addition, Borrower will pay regular monthly payments
of all accrued unpaid interest due as of each payment date, beginning June 5, 2007, 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
notifying 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 8.250% per annum.
The interest rate to be applied to the unpaid principal balance during this Note will be at a
rate of 1.000 percentage point over the Index, adjusted if necessary for any minimum and
maximum rate limitations described below, resulting in an initial rate of 9.250% per annum.
NOTICE: Under no circumstances will the interest rate on this Note be less than 7.500% 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, the
interest rate on this Note shall be increased by adding a 4.000 percentage point margin
(“Default Rate Margin”). The Default Rate Margin shall also apply to each succeeding interest
rate change that would have applied had there been no default. However, in no event will the
interest rate exceed the maximum interest rate limitations under 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.

 

 

COMMERCIAL SECURITY AGREEMENT

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Principal	 	Loan Date	 	Maturity	 	Loan No	 	Call / Coll	 	Account	 	Officer	 	Initials
	$1,000,000.00
	 	05-01-2007	 	05-05-2008	 	12300	 	 	 	 	 	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 1, 2007, 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

 

 

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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, defend, 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 and defend 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

 

 

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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.

 

 

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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
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
Lender.

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, and 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

 

 

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	 	(Continued)
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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.

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.

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: 12300
	 	(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 1, 2007, 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 1, 2007.

GRANTOR:

UROPLASTY, INC.

	 	 	 	 	 
	By:

	 	/s/ Mahedi Jiwani
 

Mahedi Jiwani, CFO/Treasurer of Uroplasty, Inc.
	 	 

LASER
PRO Lending, Ver. 5.35.00.004 Copr. Harland Financial Solutions, Inc.
1997, 2007. All Rights Reserved. -MN c:\APPS\CFI\CFI\LPL\E40.FC TR-2787 PR-20

 

 

Attachment

Attachment to loan documents dated May 1, 2007 and any renewals or extensions thereof. All
terms used in this attachment are defined in the commercial security agreement dated May 1,
2007.

The foregoing loan documents reference ‘hazardous substances.’ Lender herby 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, stores, 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
 

Christine Young

	 	 
	 	/s/ Mahedi Jiwana
 

Mahedi Jiwana
	 	 
	Vice President

	 	 	 	CFO/Treasurer	 	 
	Venture Bank

	 	 	 	Uroplasty, Inc.	 	 

 

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Principal

	 	Loan Date
	 	Maturity
	 	Loan No
	 	Call / Coll
	 	Account
	 	Officer
	 	Initials
	$1,000,000.00

	 	05-01-2007
	 	05-05-2008
	 	 	12300	 	 	 	 	 	 	 	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 1, 2007, 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 1, 2007, 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 called for in the paragraph below titled “Compliance Certificate.”

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

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

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

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

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

 

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

					
	Loan No: 12300
	 	(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, validly existing, and in good standing under and by virtue of the laws of the State
of Minnesota. Borrower is duly authorized to transact business in all other states in which
Borrower is doing business, having obtained all necessary filings, governmental licenses and
approvals for each state in which Borrower is doing business. Specifically, Borrower is, and
at all times shall be, duly qualified as a foreign corporation in all states in which the
failure to so qualify would have a material adverse effect on its business or financial
condition. Borrower has the full power and authority to own its properties and to transact the
business in which it is presently engaged or presently proposes to engage. Borrower maintains
an office at 5420 Feltl 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
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: 12300
	 	(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. All of Borrower’s
properties are titled in Borrower’s legal name, and Borrower has not used or filed a financing
statement under any other name for at least the last five (5) years.

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

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

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

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

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

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

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

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

Financial Statements. Furnish Lender with the following:

Additional Requirements. 1. As soon as available, but in no event later than thirty (30)
days after the end of each month, Borrower’s Accounts Receivable Aging, and Borrowing Base
Certificate.

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 the end of each
quarter, Borrower’s 10-Q for the period ended, prepared by Borrower.

4. Accounts Receivable (Domestic) and Borrowing Base Certificate only required when
borrowing.

5. Inventory capped at $500,000.00.

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. Deposit Relationship rerquired with Venture Bank.

2. Minimum Total Net Worth measured Quarterly of $3,500,000.00.

3. Maximum Debt to Total Net Worth of 1:1 measured quarterly.

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

 

 

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	Loan No: 12300
	 	(Continued)
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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

 

 

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	Loan No: 12300
	 	(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, lease,
grant a security interest in, or encumber any of Borrower’s assets (except as allowed as
Permitted Liens), or (3) sell with recourse any of Borrower’s accounts, except to Lender.

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

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

Agreements. 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 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 twenty-five 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 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 (1 5) 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

 

 

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	Loan No: 12300
	 	(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 Lender and any Grantor, shall constitute a waiver of any of
Lender’s rights or of any of Borrower’s or any Grantor’s obligations as to any future
transactions. Whenever the consent of Lender is required under this Agreement, the granting of
such consent by Lender in any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.

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

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

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

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

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

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

 

 

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	Loan No: 12300
	 	(Continued)
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DEFINITIONS. The following capitalized words and terms shall have the following meanings when used
in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts
shall mean amounts in lawful money of the United States of America. Words and terms used in the
singular shall include the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the meanings
attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise
defined in this Agreement shall have the meanings assigned to them in accordance with generally
accepted accounting principles as in effect on the date of this Agreement:

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

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

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

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

Borrower. The word “Borrower” means 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) 80.00% of the aggregate amount of Eligible Accounts, plus
(b) 50.00% 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, federal and local
statutes, regulations and ordinances relating to the protection of human health or the
environment, including without limitation the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
(“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
(“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable
state or federal laws, rules, or regulations adopted pursuant thereto or common law, and shall
also include pollutants, contaminants, polychlorinated biphenyls, asbestos, urea formaldehyde,
petroleum and petroleum products, and agricultural chemicals.

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

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

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

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

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

 

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

					
	Loan No: 12300
	 	(Continued)
	 	Page 8

Guaranty. The word “Guaranty” means the guaranty from Guarantor 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 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 1, 2007, 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 1, 2007.

	 	 	 	 	 
	BORROWER:	 	 
	 
	 	 	 	 
	UROPLASTY, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Mahedi Jiwani
	 	 
	 

	 	 	 	 
	 

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

	 	/s/ Christine Young
	 	 
	 

	 	 	 	 
	 

	 	Authorized Signer	 	 

LASER
PRO Lending, Ver. 5.35.00.004 Copr. Harland Financial Solutions, Inc.
1997, 2007. All Rights Reserved. - MN c:\APPS\CFI\CFI\LPL\C.40.FC TR-2787 PR-20

 

 

AGREEMENT TO PROVIDE INSURANCE

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Principal

	 	Loan Date
	 	Maturity
	 	Loan No
	 	Call / Coll
	 	Account
	 	Officer
	 	Initials
	$1,000,000.00

	 	05-01-2007
	 	05-05-2008
	 	 	12300	 	 	 	 	 	 	 	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

INSURANCE REQUIREMENTS. Grantor, Uroplasty, Inc. (“Grantor”), understands that insurance
coverage is required in connection with the extending of a loan or the providing of other
financial accommodations to Grantor by Lender. These requirements are set forth in the security
documents for the loan. The following minimum insurance coverages must be provided on the
following described collateral (the “Collateral”):

			
	Collateral:	 	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..

			
		 	Type: All risks, including fire, theft and liability.

			
		 	Amount: Full Insurable Value.

			
		 	Basis: Replacement value.

			
		 	Endorsements: Lender loss payable clause with stipulation that coverage will not be
cancelled or diminished without a minimum of 10 days prior written notice to Lender.

			
		 	Deductibles: $5,000.00.

			
		 	Latest Delivery Date: By the loan closing date.

INSURANCE COMPANY. Grantor may obtain insurance from any insurance company Grantor may choose
that is reasonably acceptable to Lender. Grantor understands that credit may not be denied
solely because insurance was not purchased through Lender.

INSURANCE MAILING ADDRESS. All documents and other materials relating to insurance for this
loan should be mailed, delivered or directed to the following address:

Venture Bank

5601 Green Valley Drive

Bloomington, MN 55437

FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, on the latest delivery date
stated above, proof of the required insurance as provided above, with an effective date of May
1, 2007, or earlier. Grantor acknowledges and agrees that if Grantor fails to provide any
required insurance or fails to continue such insurance in force, Lender may do so at Grantor’s
expense as provided in the applicable security document. The cost of any such insurance, at the
option of Lender, shall be added to the indebtedness as provided in the security document.
GRANTOR ACKNOWLEDGES THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE
LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO AN AMOUNT EQUAL TO THE
LESSER OF (1) THE UNPAID BALANCE OF THE DEBT, EXCLUDING ANY UNEARNED FINANCE CHARGES, OR (2)
THE VALUE OF THE COLLATERAL; HOWEVER, GRANTOR’S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION
AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.

AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor authorizes Lender
to provide to any person (including any insurance agent or company) all information Lender
deems appropriate, whether regarding the Collateral, the loan or other financial
accommodations, or both.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND
AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 1, 2007.

	 	 	 	 	 
	GRANTOR:	 	 
	 
	 	 	 	 
	UROPLASTY, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Mahedi Jiwani
	 	 
	 

	 	 	 	 
	 

	 	Mahedi Jiwani, CFO/Treasurer of Uroplasty, Inc.	 	 

 

 

AGREEMENT TO PROVIDE INSURANCE

					
	Loan No: 12300
	 	(Continued)
	 	Page 2

FOR LENDER USE ONLY

INSURANCE VERIFICATION

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	DATE:

	 	 	 	 	 	 	 	 	 	 	 	 	PHONE	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	AGENT’S NAME:	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	AGENCY:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	ADDRESS:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 
	INSURANCE COMPANY:	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	POLICY NUMBER:	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 
	EFFECTIVE DATES:	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 
	 
	COMMENTS:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 
	 

LASER PRO Lending, Ver. 5.35.00.004 Copr. Harland Financial Solutions, Inc. 1997, 2007.
All Rights Reserved. - MN c:\APPS\CFI\CFI\LPL\110.FC TR-2787 PR-20exv10w1

 

Exhibit 10.1

PIPER JAFFRAY COMPANIES

DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

(As Amended and Restated Effective April 1, 2007)

 

 

PIPER JAFFRAY COMPANIES

DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

(As Amended and Restated Effective April 1, 2007)

Table of Contents

	 	 	 	 	 
	 	 	Page
	SECTION 1. Purpose and History
	 	 	1	 
	 
	 	 	 	 
	SECTION 2. Definitions
	 	 	1	 
	2.01. “Account”
	 	 	1	 
	2.02. “Beneficiary” or “Beneficiaries”
	 	 	1	 
	2.03. “Board”
	 	 	1	 
	2.04. “Committee”
	 	 	1	 
	2.05. “Company”
	 	 	1	 
	2.06. “Director”
	 	 	1	 
	2.07. “Effective Date”
	 	 	1	 
	2.08. “Fair Market Value”
	 	 	1	 
	2.09. “Fee”
	 	 	2	 
	2.10 “Grant”
	 	 	2	 
	2.11. “Non-Employee Director”
	 	 	2	 
	2.12. “Participant”
	 	 	2	 
	2.13. “Plan”
	 	 	2	 
	2.14. “Share” or “Shares”
	 	 	2	 
	2.15. “Year”
	 	 	2	 
	 
	 	 	 	 
	SECTION 3. Participation
	 	 	2	 
	3.01. Eligibility for Participation
	 	 	2	 
	3.02. Election to Defer Fees
	 	 	2	 
	3.03. Election to Defer Grants
	 	 	2	 
	3.04. Rules Applicable to All Deferral Elections
	 	 	3	 
	3.05. Duration of Participation
	 	 	3	 
	 
	 	 	 	 
	SECTION 4. Accounts
	 	 	3	 
	4.01. Separate Accounts
	 	 	3	 
	4.02. Investment of Accounts
	 	 	3	 
	4.03. Valuation of Accounts
	 	 	4	 
	4.04. No Use of Shares
	 	 	4	 
	 
	 	 	 	 
	SECTION 5. Benefits
	 	 	4	 
	5.01. Benefits for a Participant
	 	 	4	 
	5.02. Benefits for a Beneficiary
	 	 	5	 
	5.03. Beneficiary Designation
	 	 	5	 
	5.04. Incapacity
	 	 	5	 
	5.05. Withholding and Taxes
	 	 	6	 
	5.06. Benefits Not Transferable
	 	 	6	 

-i-

 

	 	 	 	 	 
	 	 	Page
	5.07. Benefits Not Secured
	 	 	6	 
	5.08. Company’s Obligations
	 	 	6	 
	 
	 	 	 	 
	SECTION 6. Administration
	 	 	6	 
	6.01. Administrative Authority
	 	 	6	 
	6.02. Exercise of Authority
	 	 	7	 
	6.03. Conflict of Interest
	 	 	7	 
	 
	 	 	 	 
	SECTION 7. Amendment and Termination
	 	 	7	 
	7.01. Amendment
	 	 	7	 
	7.02. Termination
	 	 	7	 
	 
	 	 	 	 
	SECTION 8. General Provisions
	 	 	7	 
	8.01. Successors
	 	 	7	 
	8.02. Service on Board
	 	 	7	 
	8.03. Notices
	 	 	8	 
	8.04. Governing Law
	 	 	8	 
	8.05. Rules of Interpretation
	 	 	8	 

-ii-

 

PIPER JAFFRAY COMPANIES

DEFERRED COMPENSATION PLAN

FOR NON-EMPLOYEE DIRECTORS

(As Amended and Restated Effective April 1, 2007)

SECTION 1. Purpose and History

     The purpose of the Plan is to promote the interests of the Company and its stockholders by
facilitating increased equity ownership in the Company by its Non-Employee Directors. The Plan was
originally adopted effective January 1, 2005. It is hereby amended and restated effective April 1,
2007.

SECTION 2. Definitions

     As used in the Plan, the following terms shall have the meanings set forth below.

2.01. “Account” means the separate recordkeeping account (unfunded and unsecured)
maintained for each Participant in connection with his or her participation in the Plan. An
Account may be either a “Fee Account” or a “Grant Account.”

2.02. “Beneficiary” or “Beneficiaries” means the person or persons designated as
such under Section 5.03.

2.03. “Board” means the Board of Directors of the Company.

2.04. “Committee” means a committee of Directors designated by the Board to exercise the
Company’s administrative authority under the Plan. Initially, the Committee shall be the
Compensation Committee of the Board.

2.05. “Company” means Piper Jaffray Companies, a Delaware corporation.

2.06. “Director” means a member of the Board.

2.07. “Effective Date” means April 1, 2007.

2.08. “Fair Market Value” means, with respect to any property (including, without
limitation, any Shares or other securities), the fair market value of such property determined by
such methods or procedures as shall be established from time to time by the Company.
Notwithstanding the foregoing and except as otherwise provided by the Company, the Fair Market
Value of a Share as of a given date shall be the closing sales price for one Share on the New York
Stock Exchange or such other national securities market or exchange as may at the time be the
principal market for the Shares, or if the Shares were not traded on such national securities
market or exchange on such date, then on the next preceding date on which the Shares are traded,
all as reported by such source as the Company may select.

2.09. “Fee” means the dollar amount of the cash fee payable to a Non-Employee Director for
service as a Non-Employee Director.

 

 

2.10 “Grant” means the Shares awarded to a Non-Employee Director for service as a
Non-Employee Director.

2.11. “Non-Employee Director” means a Director who is not an employee of the Company and
its subsidiaries.

2.12. “Participant” means an individual described as such in Section 3.01.

2.13. “Plan” means this Piper Jaffray Companies Deferred Compensation Plan for Non-Employee
Directors, as set forth herein and as hereafter amended from time to time.

2.14. “Share” or “Shares” means a share or shares of common stock, par value $.01
per share, of the Company.

2.15. “Year” means the calendar year.

SECTION 3. Participation

3.01. Eligibility for Participation. An individual shall become eligible to participate in
the Plan on the earliest date (on or after the Effective Date) on which he or she is a Non-Employee
Director, and a Non-Employee Director shall become a Participant in the Plan on the earliest date
(on or after the Effective Date) on which he or she has elected to defer Fees and/or Grants under
the Plan.

3.02. Election to Defer Fees. Prior to the first day of any Year beginning on or after the
Effective Date, a Non-Employee Director may elect to have a percentage (up to 100%) of the Fee
payable to the Non-Employee Director with respect to that Year deferred under the Plan rather than
being paid in cash. The Fee actually payable for the Year to a Non-Employee Director who makes a
deferral election under the Plan shall be reduced by the percentage so elected, subject to Section
3.04.

3.03. Election to Defer Grants.

     (a) Shares Awarded in 2007. Any Non-Employee Director who was eligible to participate
in the Plan before 2007 and who receives a Grant in 2007 will be deemed to have elected to defer
100% of such Grant. Any individual who first becomes a Non-Employee Director in 2007 may file an
election under the Plan with respect to the 2007 Grant, as provided in Section 3.04(a).

     (b) Shares Awarded in 2008 and Future Years. Prior to the first day of any Year
beginning on or after January 1, 2008, a Non-Employee Director may elect to have a percentage (up
to 100%) of the Grant made to the Non-Employee Director with respect to that Year deferred under
the Plan rather than being issued in Shares. Any election of a percentage that would result
in a fractional Share being deferred will be automatically rounded up to the next whole
number, so that only full Shares will be deferred. The Grant actually issued for the Year to a
Non-Employee Director who makes a deferral election under the Plan shall be reduced by the
percentage so elected, subject to Section 3.04.

-2-

 

3.04. Rules Applicable to All Deferral Elections.

     (a) Elections for a particular Year must be filed by the preceding December 31. However, an
election by an individual who first becomes a Non-Employee Director during a Year may be filed on
the date he or she becomes a Non-Employee Director and shall apply to the Fee payable and/or Grant
awarded to the Non-Employee Director with respect to that Year.

     (b) The election filed prior to the beginning of each Year shall apply to the Fee payable
and/or Grant awarded during that Year.

     (c) Elections shall be made on forms specified by the Company for purposes of the Plan.

     (d) The Non-Employee Director must file a separate election with the Company for each Year for
which deferrals are to be made under the Plan. An election for a Year shall become irrevocable on
the first day of that Year, or for an individual who first becomes a Non-Employee Director during a
Year, an election for the initial Year shall become irrevocable on the date the individual becomes
a Non-Employee Director. Elections will not carry over into subsequent Years.

3.05. Duration of Participation. A Participant shall continue to be eligible to make
elections under Sections 3.02 and 3.03 until the date on which the Participant ceases to be a
Non-Employee Director. No deferrals under Sections 3.02 and 3.03 shall be made from any Fee that
is payable or any Grant that is awarded to the Participant for a Year beginning after the date he
or she ceases to be a Non-Employee Director. However, an individual shall continue to be a
Participant for purposes of the provisions of the Plan other than Sections 3.02 and 3.03 until the
date his or her benefit under the Plan has been paid.

SECTION 4. Accounts

4.01. Separate Accounts. The Company shall establish and maintain a separate Fee Account
and/or a separate Grant Account for each Participant. The Accounts shall be for recordkeeping
purposes only and shall not represent a trust fund or other segregation of assets for the benefit
of the Participant.

4.02. Investment of Accounts. Each Participant’s Account shall be deemed to be invested in
Shares, as specified below:

     (a) Deferred Fees. The Fee that the Participant has elected to defer under the Plan
shall be applied to acquire Shares for the Fee Account as of the date that the Fee would otherwise
have been paid to the Participant in cash. The number of Shares credited to the Fee Account shall
be determined by dividing the amount of the deferred Fee by the Fair Market Value of a Share
as of the Fee payment date.

     (b) Deferred Grants. The number of Shares of the Grant that the Participant has
elected to defer under the Plan shall be credited to the Grant Account as of the date the Shares
would otherwise have been issued to the Participant under the Grant.

-3-

 

     (c) Dividends. Any cash dividend on Shares shall be applied to acquire additional
Shares for the Account as of the dividend payment date. The number of Shares credited to the
Account shall be determined by dividing the amount of the dividend payable on the number of Shares
credited to the Account on the dividend record date by the Fair Market Value of a Share as of the
dividend payment date.

     (d) Adjustments. In the event of any change in corporate capitalization (including,
but not limited to, a change in the number of Shares outstanding), such as a stock split or a
corporate transaction, such as any merger, consolidation, separation, including a spin-off, or
other distribution of stock or property of the Company, any reorganization, or any partial or
complete liquidation of the Company, the Committee shall make such adjustments or substitution in
the aggregate number and kind of Shares credited to each Participant’s Account as it may determine
to be appropriate in its sole discretion.

4.03. Valuation of Accounts. The Participant’s Accounts shall be valued when a Plan
benefit is to be paid to the Participant or his or her Beneficiary or Beneficiaries as provided in
Section 5. The value of each Account shall be the Fair Market Value of the Shares credited to the
Account as of the date specified in Section 5. Upon payment of the benefit, the value of the
Account shall be reduced to zero.

4.04. No Use of Shares. Notwithstanding anything in the Plan to the contrary, the Company
shall not reserve, repurchase or issue any Shares for or to the Participant’s Accounts. Shares are
credited to the Participant’s Accounts solely for the recordkeeping purpose of determining the
amount of benefit payable under the Plan, and the Participant’s Accounts are not actually being
invested in Shares.

SECTION 5. Benefits

5.01. Benefits for a Participant.

     (a) Fee Account. Upon a Participant’s cessation of service as a Non-Employee Director
for any reason other than death, the Company shall pay the Participant’s Fee Account in a single
lump sum cash benefit to the Participant as soon as administratively feasible after the end of the
Year in which the cessation of service occurred. The amount of the benefit shall be equal to the
value of the Participant’s Fee Account as of the last day of the Year in which the cessation of
service occurred.

     (b) Grant Account. Upon a Participant’s cessation of service as a Non-Employee
Director for any reason other than death, the Company shall issue to or cause to be purchased for
the Participant a number of Shares equal to the full number of Shares credited to the Participant’s
Grant Account as of the last day of the Year in which the cessation of service occurred. Such
Shares, and cash for any fractional Share, shall be distributed to the Participant as soon as
administratively feasible after the end of the Year in which the cessation of service occurred.

	5.02.	 	Benefits for a Beneficiary.

-4-

 

     (a) Fee Account. If the Participant has an unpaid Fee Account balance at his or her
death, the Company shall pay a single lump sum cash benefit to the Participant’s Beneficiary or
Beneficiaries as soon as administratively feasible after the end of the Year in which the
Participant’s death occurred. The amount of the benefit shall be equal to the value of the
Participant’s Fee Account as of the last day of the Year in which the Participant’s death occurred.

     (b) Grant Account. If the Participant has an unpaid Grant Account balance at his or
her death, the Company shall issue to or cause to be purchased for the Beneficiary or Beneficiaries
a number of Shares equal to the full number of Shares credited to the Participant’s Grant Account
as of the last day of the Year in which the Participant’s death occurred. Such Shares, and cash for
any fractional Share, shall be distributed to the Beneficiary or Beneficiaries as soon as
administratively feasible after the end of the Year in which the Participant’s death occurred.

5.03. Beneficiary Designation.

     (a) Right to Designate. Each Participant may designate, upon forms to be furnished by
and filed with the Company, one or more primary Beneficiaries or alternative Beneficiaries to
receive all or a specified part of unpaid balance of the Participant’s Accounts in the event of the
Participant’s death. The Participant may change or revoke any such designation from time to time
without notice to or consent from any Beneficiary or spouse. No such designation, change or
revocation shall be effective unless signed by the Participant and received by the Company during
the Participant’s lifetime.

     (b) Failure of Designation. If a Participant: (i) fails to designate a Beneficiary,
(ii) designates a Beneficiary and thereafter such designation is revoked without another
Beneficiary being named, or (iii) designates one or more Beneficiaries and all such Beneficiaries
so designated fail to survive the Participant, the unpaid balance of such Participant’s Accounts,
or the part thereof as to which such Participant’s designation fails, as the case may be, shall be
payable to the representative of the Participant’s estate.

5.04. Incapacity. Every person claiming or receiving benefits under the Plan shall be
conclusively presumed to be mentally competent until the date on which the Company receives a
written notice in a form and manner acceptable to the Company that such person is incompetent and
that a guardian, conservator or other person legally vested with the care of his or her estate has
been appointed. In such event, the Committee may direct the Company to pay the benefits to such
guardian, conservator or other person legally vested with the care of the person’s estate and any
such payments so made shall be a complete discharge of the Company to the extent so made.

5.05. Withholding and Taxes. The benefits payable under this Plan shall be subject to the
deduction of any federal, state, or local income taxes or other taxes which are required to be
withheld from such payments by applicable laws and regulations. The Company provides no assurances
or guarantees regarding the tax treatment of amounts deferred under the Plan. Each Participant is
solely responsible for any applicable taxes, penalties or interest.

-5-

 

5.06. Benefits Not Transferable. No Participant or Beneficiary shall have the power to
transmit, alienate, dispose of, pledge or encumber any benefit payable under the Plan before its
actual payment to the Participant or Beneficiary. Any such effort by a Participant or Beneficiary
to convey any interest in the Plan shall not be given effect under the Plan. No benefit payable
under the Plan shall be subject to attachment, garnishment, execution following judgment or other
legal process before its actual payment to the Participant or Beneficiary.

5.07. Benefits Not Secured. The rights of each Participant and Beneficiary shall be solely
those of an unsecured, general creditor of the Company. No Participant or Beneficiary shall have
any lien, prior claim or other security interest in the property of the Company.

5.08. Company’s Obligations. The Company shall provide the benefits under the Plan. The
Company’s obligation may be satisfied by distributions from a trust fund created and maintained by
the Company, in its sole discretion, for such purpose. However, the assets of any such trust fund
shall be subject to claims by the general creditors of the Company in the event the Company is (i)
unable to pay its debts as they become due, or (ii) is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code, or (iii) is determined to be insolvent by a federal or
state regulatory agency having authority to do so.

SECTION 6. Administration

6.01. Administrative Authority.

     (a) Administrator. The Company is the administrator of the Plan, with authority to
control and manage the administration and operation of the Plan and to make all decisions and
determinations incident thereto.

     (b) Committee. Except as otherwise provided herein, action on behalf of the Company
as administrator of the Plan shall be taken by the Committee.

     (c) Board. Notwithstanding anything to the contrary contained herein, the Board may,
at any time and from time to time, without any further action of the Committee, exercise the powers
and duties of the Committee under the Plan. To the extent that any permitted action taken by the
Board conflicts with action taken by the Committee, the Board action shall control.

6.02. Exercise of Authority. The Company (including any Board or Committee members acting
on its behalf) may exercise its authority under the Plan in its full discretion. This
discretionary authority includes, but is not limited to, the authority to establish or revise such
rules and regulations as it may deem necessary or advisable for the administration of the Plan, to
interpret the provisions of the Plan and all relevant documents, and to determine all factual and
legal
questions related to its responsibilities under the Plan (including, but not limited to, the
entitlement of all persons to benefits and the amounts of their benefits). The interpretations and
determinations of the Company shall be binding on all parties. It is intended that the Company’s
exercise of authority be given deference in all courts to the greatest extent allowed under law,
and that it not be overturned or set aside by any court unless found to be arbitrary and
capricious, or made in bad faith.

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6.03. Conflict of Interest. If any Board or Committee member is also a Participant in the
Plan, that individual shall have no authority as such member with respect to any matter
specifically affecting the Participant’s individual interest under the Plan (as distinguished from
the interests of all Participants and Beneficiaries or a broad class of Participants and
Beneficiaries), all such authority being reserved exclusively to the other members to the exclusion
of such Participant, and such Participant shall act only in the Participant’s individual capacity
in connection with any such matter.

SECTION 7. Amendment and Termination

7.01. Amendment. The Plan may be amended in whole or in part at any time for any reason by
the Board. No amendment shall decrease the benefits under the Plan which have accrued prior to the
date of such amendment.

7.02. Termination. The Board may terminate the Plan at any time. After such termination,
no further amounts shall be deferred under the Plan, and the Account balances shall be paid in
accordance with Section 5.

SECTION 8. General Provisions

8.01. Successors. The Plan shall be binding upon and inure to the benefit of the
successors and assigns of the Company, and the Beneficiaries, personal representatives and heirs of
the Participant.

8.02. Service on Board. Nothing in the Plan shall confer upon any Non-Employee Director
the right to continue service as a member of the Board, nor shall it create any obligation on the
part of the Board to nominate any Non-Employee Director for reelection by the Company’s
stockholders.

8.03. Notices. Any notice required or permitted to be given to the Company or a
Participant under the Plan shall be in writing and shall be considered to have been duly given if
personally delivered or sent by first class mail as follows:

	 	(i)	 	in the case of the Company, to the principal office of the Company, directed to
the attention of the Corporate Secretary, and
	 
	 	(ii)	 	in the case of the Participant, to the last known address of the Participant
indicated on the records of the Company.

Such notice will be deemed given as of the date of delivery or, if delivery is made by mail, as of
the date shown on the postmark. Notices to the Company may be permitted by electronic
communication according to specifications established by the Company.

8.04. Governing Law. The Plan and actions taken thereunder shall be governed by and
construed in accordance with the laws of the State of Delaware, without reference to principles of
conflict of laws thereof.

8.05. Rules of Interpretation.

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     (a) Headings. Headings are given to the sections and subsections of the Plan solely
as a convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.

     (b) Severability. If any provision of the Plan is or becomes or is deemed to be
invalid, illegal or unenforceable in any jurisdiction under any law deemed applicable by the
Company, such provision shall be construed or deemed amended to conform to applicable laws, or if
it cannot be so construed or deemed amended without, in the determination of the Company,
materially altering the purpose or intent of the Plan, such provision shall be stricken as to such
jurisdiction, and the remainder of the Plan shall remain in full force and effect.

     (c) Construed as a Whole. The provisions of the Plan shall be construed as a whole in
such manner as to carry out the provisions hereof and shall not be construed separately without
relation to the context.

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