Document:

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Exhibit 4.2

AEHR TEST SYSTEMS

2006 EMPLOYEE STOCK PURCHASE PLAN

1. Purpose. The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock through accumulated payroll
deductions. It is the intention of the Company to have the Plan qualify as an “employee stock
purchase plan” under Section 423 of the Code. The provisions of the Plan, accordingly, will be
construed so as to extend and limit Plan participation in a uniform and nondiscriminatory basis
consistent with the requirements of Section 423 of the Code.

2. Definitions.

	 	a)	 	“Administrator” means the Board or any Committee designated by the Board to
administer the Plan pursuant to Section 14.
	 
	 	b)	 	“Applicable Laws” means the requirements relating to the administration of
equity-based awards under U.S. state corporate laws, U.S. federal and state securities
laws, the Code, any stock exchange or quotation system on which the Common Stock is listed
or quoted and the applicable laws of any foreign country or jurisdiction where Awards are,
or will be, granted under the Plan.
	 
	 	c)	 	“Board” means the Board of Directors of the Company.
	 
	 	d)	 	“Change in Control” means the occurrence of any of the following events:

	 	i.	 	Any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the total voting power represented by the Company’s
then outstanding voting securities; or
	 
	 	ii.	 	The consummation of the sale or disposition by the Company of all or
substantially all of the Company’s assets; or
	 
	 	iii.	 	The consummation of a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or its parent) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or such
surviving entity or its parent outstanding immediately after such merger or
consolidation; or
	 
	 	iv.	 	A change in the composition of the Board occurring within a two
(2)-year period, as a result of which less than a majority of the Directors are
Incumbent Directors. “Incumbent Directors” means Directors who either (A) are
Directors as of the effective date of the Plan, or (B) are elected, or nominated
for election, to the Board with the affirmative votes of at least a majority of the
Directors at the time of such election or nomination (but will not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of Directors to the Company).

	 	e)	 	“Code” means the Internal Revenue Code of 1986, as amended. Any reference to a
section of the Code herein will be a reference to any successor or amended section of the
Code.
	 
	 	f)	 	“Committee” means a committee of the Board appointed in accordance with Section
14 hereof.

 

 

	 	g)	 	“Common Stock” means the common stock of the Company.
	 
	 	h)	 	“Company” means Aehr Test Systems, a California corporation.
	 
	 	i)	 	“Compensation” means an Employee’s base straight time gross earnings,
commissions (to the extent such commissions are an integral, recurring part of
compensation), but exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
	 
	 	j)	 	“Designated Subsidiary” means any Subsidiary that has been designated by the
Administrator from time to time in its sole discretion as eligible to participate in the
Plan.
	 
	 	k)	 	“Director” means a member of the Board.
	 
	 	l)	 	“Eligible Employee” means any individual who is a common law employee of an
Employer and is customarily employed for at least twenty (20) hours per week and more than
five (5) months in any calendar year by the Employer. For purposes of the Plan, the
employment relationship will be treated as continuing intact while the individual is on
sick leave or other leave of absence that the Employer approves. Where the period of leave
exceeds ninety (90) days and the individual’s right to reemployment is not guaranteed
either by statute or by contract, the employment relationship will be deemed to have
terminated on the ninety-first (91st) day of such leave. The Administrator, in
its discretion, from time to time may, prior to an Offering Date for all options to be
granted on such Offering Date, determine (on a uniform and nondiscriminatory basis) that
the definition of Eligible Employee will or will not include an individual if he or she:
(i) has not completed at least two (2) years of service since his or her last hire date (or
such lesser period of time as may be determined by the Administrator in its discretion),
(ii) customarily works not more than twenty (20) hours per week (or such lesser period of
time as may be determined by the Administrator in its discretion), (iii) customarily works
not more than five (5) months per calendar year (or such lesser period of time as may be
determined by the Administrator in its discretion), (iv) is an officer or other manager, or
(v) is a highly compensated employee under Section 414(q) of the Code.
	 
	 	m)	 	“Employer” means any one or all of the Company and its Designated Subsidiaries.
	 
	 	n)	 	“Exchange Act” means the Securities Exchange Act of 1934, as amended, including
the rules and regulations promulgated thereunder.
	 
	 	o)	 	“Exercise Date” means the first Trading Day on or after April 1 and October 1
of each year. The first Exercise Date under the Plan will be April 1, 2007. The
Administrator, in its discretion, from time to time may, prior to an Offering Date for all
options to be granted on such Offering Date, determine (on a uniform and nondiscriminatory
basis) when the Exercise Dates will occur during an Offering Period.
	 
	 	p)	 	“Fair Market Value” means, as of any date and unless the Administrator
determines otherwise, the value of Common Stock determined as follows:

	 	i.	 	If the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market, its Fair Market
Value will be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such exchange or system on the date of determination, as
reported in The Wall Street Journal or such other source as the Administrator deems
reliable;
	 
	 	ii.	 	If the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value will be the mean of the closing
bid and asked prices for the

 

 

	 	 	 	Common Stock on the date of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems reliable; or
	 
	 	iii.	 	In the absence of an established market for the Common Stock, the Fair Market
Value thereof will be determined in good faith by the Administrator.

	 	q)	 	“Offering Date” means the first Trading Day of each Offering Period.
	 
	 	r)	 	“Offering Periods” means the period of time the Administrator may determine
prior to Offering Date, for options to be granted on such Offering Date, during which an
option granted under the Plan may be exercised, not to exceed twenty-seven (27) months.
Unless the Administrator provides otherwise, Offering Periods will have a duration of
approximately twenty-four (24) months (i) commencing on the first Trading Day on or after
April 1 of each year and terminating on the first Trading Day on or following April 1,
approximately twenty-four (24) months later, and (ii) commencing on the first Trading Day
on or after October 1 of each year and terminating on the first Trading Day on or following
October 1, approximately twenty-four (24) months later. The duration and timing of
Offering Periods may be changed pursuant to Sections 4 and 20.
	 
	 	s)	 	“Parent” means a “parent corporation,” whether now or hereafter existing, as
defined in Section 424(e) of the Code.
	 
	 	t)	 	“Plan” means this Aehr Test Systems 2006 Employee Stock Purchase Plan.
	 
	 	u)	 	“Purchase Period” means the period during an Offering Period which shares of
Common Stock may be purchased on a participant’s behalf in accordance with the terms of the
Plan. Unless and until the Administrator provides otherwise, the Purchase Period will mean
the approximately six (6) month period commencing on one Exercise Date and ending with the
next Exercise Date, except that the first Purchase Period of any Offering Period will
commence on the Enrollment Date and end with the next Exercise Date.
	 
	 	v)	 	“Purchase Price” shall be determined by the Administrator (on a uniform and
nondiscriminatory basis) prior to an Offering Date for all options to be granted on such
Offering Date, subject to compliance with Section 423 of the Code (or any successor rule or
provision or any other applicable law, regulation or stock exchange rule) or pursuant to
Section 20. Unless and until the Administrator provides otherwise, the Purchase Price will
equal to eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on
the Offering Date or the Exercise Date, whichever is lower.
	 
	 	w)	 	“Subsidiary” means a “subsidiary corporation,” whether now or hereafter
existing, as defined in Section 424(f) of the Code.
	 
	 	x)	 	“Trading Day” means a day on which the national stock exchange upon which the
Common Stock is listed is open for trading.

3. Eligibility.

	 	a)	 	Offering Periods. Any Eligible Employee on a given Offering Date will be
eligible to participate in the Plan, subject to the requirements of Section 5.
	 
	 	b)	 	Limitations. Any provisions of the Plan to the contrary notwithstanding, no
Eligible Employee will be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Eligible Employee (or any other person whose stock would
be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own
capital stock of the Company or any Parent or 

 

 

	 	 	 	Subsidiary of the Company and/or hold
outstanding options to purchase such stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of the capital stock of the Company or
of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans (as defined in Section 423 of the
Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate which
exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair
Market Value of the stock at the time such option is granted) for each calendar year in
which such option is outstanding at any time.

4. Offering Periods. The Plan will be implemented by consecutive, overlapping Offering
Periods with a new Offering Period commencing on the first Trading Day on or after April 1 and
October 1 each year, or on such other date as the Administrator will determine. The Administrator
will have the power to change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without stockholder approval if such change is announced
prior to the scheduled beginning of the first Offering Period to be affected thereafter.

5. Participation. An Eligible Employee may participate in the Plan pursuant to Section
3(a) by (i) submitting to the Company’s payroll office (or its designee), on or before a date
prescribed by the Administrator prior to an applicable Offering Date, a properly completed
subscription agreement authorizing payroll deductions in the form provided by the Administrator for
such purpose, or (ii) following an electronic or other enrollment procedure prescribed by the
Administrator.

6. Payroll Deductions.

	 	a)	 	At the time a participant enrolls in the Plan pursuant to Section 5, he or she will
elect to have payroll deductions made on each pay day during the Offering Period in an
amount not exceeding ten percent (10%) of the Compensation which he or she receives on each
pay day during the Offering Period; provided, however, that should a pay day occur on an
Exercise Date, a participant will have the payroll deductions made on such day applied to
his or her account under the subsequent Purchase or Offering Period. A participant’s
subscription agreement will remain in effect for successive Offering Periods unless
terminated as provided in Section 10 hereof.
	 
	 	b)	 	Payroll deductions authorized by a participant will commence on the first pay day
following the Offering Date and will end on the last pay day prior to the Exercise Date of
such Offering Period to which such authorization is applicable, unless sooner terminated by
the participant as provided in Section 10 hereof.
	 
	 	c)	 	All payroll deductions made for a participant will be credited to his or her account
under the Plan and will be withheld in whole percentages only. A participant may not make
any additional payments into such account.
	 
	 	d)	 	A participant may discontinue his or her participation in the Plan as provided in
Section 10, or may increase or decrease the rate of his or her payroll deductions during
the Offering Period by (i) properly completing and submitting to the Company’s payroll
office (or its designee), on or before a date prescribed by the Administrator prior to an
applicable Exercise Date, a new subscription agreement authorizing the change in payroll
deduction rate in the form provided by the Administrator for such purpose, or (ii)
following an electronic or other procedure prescribed by the Administrator. If a
participant has not followed such procedures to change the rate of payroll deductions, the
rate of his or her payroll deductions will continue at the originally elected rate
throughout the Offering Period and future Offering Periods (unless terminated as provided
in Section 10). The Administrator may, in its sole discretion, limit the nature and/or
number of payroll deduction rate changes that may be made by participants during any
Offering Period. Any change in payroll deduction rate made pursuant to this Section 6(d)
will be effective as of the first 

 

 

	 	 	 	full payroll period following five (5) business days
after the date on which the change is made by the participant (unless the Administrator, in
its sole discretion, elects to process a given change in payroll deduction rate more
quickly).
	 
	 	e)	 	Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8)
of the Code and Section 3(b), or if the Administrator reasonably anticipates a participant
has contributed a sufficient amount to purchase a number of shares of Common Stock equal to
or in excess of the applicable limit for such Purchase or Offering Period (as set forth in
Section 7 or as established by the Administrator), a participant’s payroll deductions may
be decreased to zero percent (0%) at any time during a Purchase Period. Subject to Section
423(b)(8) of the Code and Section 3(c) hereof, or for participants who have had there
contributions reduced due to the applicable limits on the maximum number of shares that may
be purchased in any Purchase or Offering Period, payroll deductions will recommence at the
rate originally elected by the participant effective as of the beginning of the first
Purchase Period which is scheduled to end in the following calendar year, unless terminated
by the participant as provided in Section 10.
	 
	 	f)	 	At the time the option is exercised, in whole or in part, or at the time some or all of
the Common Stock issued under the Plan is disposed of, the participant must make adequate
provision for the Company’s or Employer’s federal, state, or any other tax liability
payable to any authority, national insurance, social security or other tax withholding
obligations, if any, which arise upon the exercise of the option or the disposition of the
Common Stock. At any time, the Company or the Employer may, but will not be obligated to,
withhold from the participant’s compensation the amount necessary for the Company or the
Employer to meet applicable withholding obligations, including any withholding required to
make available to the Company or the Employer any tax deductions or benefits attributable
to sale or early disposition of Common Stock by the Eligible Employee.

7. Grant of Option. On the Offering Date of each Offering Period, each Eligible Employee
participating in such Offering Period will be granted an option to purchase on each Exercise Date
during such Offering Period (at the applicable Purchase Price) up to a number of shares of Common
Stock determined by dividing such Eligible Employee’s payroll deductions accumulated prior to such
Exercise Date and retained in the Eligible Employee’s account as of the Exercise Date by the
applicable Purchase Price; provided that in no event will an Eligible Employee be permitted to
purchase during each Purchase Period more than three thousand (3,000) shares of the Common Stock
(subject to any adjustment pursuant to Section 19), and provided further that such purchase will be
subject to the limitations set forth in Sections 3(c) and 13. The Eligible Employee may accept the
grant of such option with respect to any Offering Period under the Plan, by electing to participate
in the Plan in accordance with the requirements of Section 5. The Administrator may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of
Common Stock that a participant may purchase during each Purchase Period of an Offering Period.
Exercise of the option will occur as provided in Section 8, unless the participant has withdrawn
pursuant to Section 10. The option will expire on the last day of the Offering Period.

8. Exercise of Option.

	 	a)	 	Unless a participant withdraws from the Plan as provided in Section 10, his or her
option for the purchase of shares of Common Stock will be exercised automatically on the
Exercise Date, and the maximum number of full shares subject to the option will be
purchased for such participant at the applicable Purchase Price with the accumulated
payroll deductions in his or her account. No fractional shares of Common Stock will be
purchased; any payroll deductions accumulated in a participant’s account which are not
sufficient to purchase a full share will be retained in the participant’s account for the
subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10. Any other funds left over in a participant’s
account after the Exercise Date will be returned to the participant. During a

 

 

	 	 	 	participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable
only by him or her.
	 
	 	b)	 	Notwithstanding any contrary Plan provision, if the Administrator determines that, on a
given Exercise Date, the number of shares of Common Stock with respect to which options are
to be exercised may exceed (i) the number of shares of Common Stock that were available for
sale under the Plan on the Offering Date of the applicable Offering Period, or (ii) the
number of shares of Common Stock available for sale under the Plan on such Exercise Date,
the Administrator may in its sole discretion provide that the Company will make a pro rata
allocation of the shares of Common Stock available for purchase on such Offering Date or
Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will
determine in its sole discretion to be equitable among all participants exercising options
to purchase Common Stock on such Exercise Date, and either (x) continue all Offering
Periods then in effect or (y) terminate any or all Offering Periods then in effect pursuant
to Section 20. The Company may make a pro rata allocation of the shares available on the
Offering Date of any applicable Offering Period pursuant to the preceding sentence,
notwithstanding any authorization of additional shares for issuance under the Plan by the
Company’s stockholders subsequent to such Offering Date.

9. Delivery. As soon as administratively practicable after each Exercise Date on which a
purchase of shares of Common Stock occurs, the Company will arrange the delivery to each
participant, as appropriate, the shares purchased upon exercise of his or her option in a form
determined by the Administrator (in its sole discretion) and pursuant to rules established by the
Administrator. The Company may permit or require that shares be deposited directly with a broker
designated by the Company or to a designated agent of the Company, and the Company may utilize
electronic or automated methods of share transfer. The Company may require that shares be retained
with such broker or agent for a designated period of time and/or may establish other procedures to
permit tracking of disqualifying dispositions of such shares. No participant will have any voting,
dividend, or other stockholder rights with respect to shares of Common Stock subject to any option
granted under the Plan until such shares have been purchased and delivered to the participant as
provided in this Section 9.

10. Withdrawal.

	 	a)	 	Pursuant to procedures established by the Administrator, a participant may withdraw all
but not less than all the payroll deductions credited to his or her account and not yet
used to exercise his or her option under the Plan at any time by (i) submitting to the
Company’s payroll office (or its designee) a written notice of withdrawal in the form
prescribed by the Administrator for such purpose, or (ii) following an electronic or other
withdrawal procedure prescribed by the Administrator. All of the participant’s payroll
deductions credited to his or her account will be paid to such participant as promptly as
practicable after the effective date of his or her withdrawal and such participant’s option
for the Offering Period will be automatically terminated, and no further payroll deductions
for the purchase of shares will be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions will not resume at the beginning of
the succeeding Offering Period unless the participant re-enrolls in the Plan in accordance
with the provisions of Section 5.
	 
	 	b)	 	A participant’s withdrawal from an Offering Period will not have any effect upon his or
her eligibility to participate in any similar plan which may hereafter be adopted by the
Company or in succeeding Offering Periods which commence after the termination of the
Offering Period from which the participant withdraws.

 

 

11. Termination of Employment. Upon a participant’s ceasing to be an Eligible Employee,
for any reason, he or she will be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant’s account during the Offering Period but not yet used to
purchase shares of Common Stock under the Plan will be returned to such participant or, in the case
of his or her death, to the person or persons entitled thereto under Section 15, and such
participant’s option will be automatically terminated.

12. Interest. No interest will accrue on the payroll deductions of a participant in the
Plan.

13. Stock.

	 	a)	 	Subject to adjustment upon changes in capitalization of the Company as provided in
Section 19 hereof, the maximum number of shares of Common Stock which will be made
available for sale under the Plan will be 200,000 shares.
	 
	 	b)	 	Until the shares are issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), a participant will only
have the rights of an unsecured creditor with respect to such shares, and no right to vote
or receive dividends or any other rights as a stockholder will exist with respect to such
shares.
	 
	 	c)	 	Shares of Common Stock to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and his or her
spouse.

14. Administration. The Plan will be administered by the Board or a Committee appointed
by the Board, which Committee will be constituted to comply with Applicable Laws. The
Administrator will have full and exclusive discretionary authority to construe, interpret and apply
the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under
the Plan. Every finding, decision and determination made by the Administrator will, to the full
extent permitted by law, be final and binding upon all parties. Notwithstanding any provision to
the contrary in this Plan, the Administrator may adopt rules or procedures relating to the
operation and administration of the Plan to accommodate the specific requirements of local laws and
procedures for jurisdictions outside of the United States. Without limiting the generality of the
foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding
eligibility to participate, the definition of Compensation, handling of payroll deductions, making
of contributions to the Plan (including, without limitation, in forms other than payroll
deductions), establishment of bank or trust accounts to hold payroll deductions, payment of
interest, conversion of local currency, obligations to pay payroll tax, determination of
beneficiary designation requirements, withholding procedures and handling of stock certificates
which vary with local requirements.

15. Designation of Beneficiary.

	 	a)	 	A participant may designate a beneficiary who is to receive any shares of Common Stock
and cash, if any, from the participant’s account under the Plan in the event of such
participant’s death subsequent to an Exercise Date on which the option is exercised but
prior to delivery to such participant of such shares and cash. In addition, a participant
may designate a beneficiary who is to receive any cash from the participant’s account under
the Plan in the event of such participant’s death prior to exercise of the option. If a
participant is married and the designated beneficiary is not the spouse, spousal consent
will be required for such designation to be effective.
	 
	 	b)	 	Such designation of beneficiary may be changed by the participant at any time by notice
in a form determined by the Administrator. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living at the time
of such participant’s death, the Company will deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the 

 

 

	 	 	 	Company), the Company, in its
discretion, may deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or relative is known
to the Company, then to such other person as the Company may designate.
	 
	 	c)	 	All beneficiary designations under this Section 15 will be made in such form and manner
as the Administrator may prescribe from time to time.

16. Transferability. Neither payroll deductions credited to a participant’s account nor
any rights with regard to the exercise of an option or to receive shares of Common Stock under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will,
the laws of descent and distribution or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition will be without effect, except that
the Company may treat such act as an election to withdraw from an Offering Period in accordance
with Section 10.

17. Use of Funds. The Company may use all payroll deductions received or held by it under
the Plan for any corporate purpose, and the Company will not be obligated to segregate such payroll
deductions. Until shares of Common Stock are issued, participants will only have the rights of an
unsecured creditor with respect to such shares.

18. Reports. Individual accounts will be maintained for each participant in the Plan.
Statements of account will be given to participating Eligible Employees at least annually, which
statements will set forth the amounts of payroll deductions, the Purchase Price, the number of
shares of Common Stock purchased and the remaining cash balance, if any.

19. Adjustments, Dissolution, Liquidation, Merger or Change in Control.

	 	a)	 	Adjustments. In the event that any dividend or other distribution (whether in
the form of cash, Common Stock, other securities, or other property), recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of Common Stock or other securities of the
Company, or other change in the corporate structure of the Company affecting the Common
Stock occurs, the Administrator, in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan, shall, in such
manner as it may deem equitable, adjust the number and class of Common Stock which may be
delivered under the Plan, the Purchase Price per share and the number of shares of Common
Stock covered by each option under the Plan which has not yet been exercised, and the
numerical limits of Section 7.
	 
	 	b)	 	Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, any Offering Period then in progress will be shortened by
setting a new Exercise Date (the “New Exercise Date”), and will terminate
immediately prior to the consummation of such proposed dissolution or liquidation, unless
provided otherwise by the Administrator. The New Exercise Date will be before the date of
the Company’s proposed dissolution or liquidation. The Administrator will notify each
participant in writing, at least ten (10) business days prior to the New Exercise Date,
that the Exercise Date for the participant’s option has been changed to the New Exercise
Date and that the participant’s option will be exercised automatically on the New Exercise
Date, unless prior to such date the participant has withdrawn from the Offering Period as
provided in Section 10.
	 
	 	c)	 	Merger or Change in Control. In the event of a merger or Change in Control,
each outstanding option will be assumed or an equivalent option substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the option, the Offering
Period with respect to which such option relates will be shortened by setting a new
Exercise Date (the “New Exercise Date”) and will end on the 

 

 

	 	 	 	New Exercise Date. The
New Exercise Date will occur before the date of the Company’s proposed merger or Change in
Control. The Administrator will notify each participant in writing prior to the New
Exercise Date, that the Exercise Date for the participant’s option has been changed to the
New Exercise Date and that the participant’s option will be exercised automatically on the
New Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10.

20. Amendment or Termination.

	 	a)	 	The Administrator, in its sole discretion, may amend, suspend, or terminate the Plan,
or any part thereof, at any time and for any reason. If the Plan is terminated, the
Administrator, in its discretion, may elect to terminate all outstanding Offering Periods
either immediately or upon completion of the purchase of shares of Common Stock on the next
Exercise Date (which may be sooner than originally scheduled, if determined by the
Administrator in its discretion), or may elect to permit Offering Periods to expire in
accordance with their terms (and subject to any adjustment pursuant to Section 19). If the
Offering Periods are terminated prior to expiration, all amounts then credited to
participants’ accounts which have not been used to purchase shares of Common Stock will be
returned to the participants (without interest thereon, except as otherwise required under
local laws) as soon as administratively practicable.
	 
	 	b)	 	Without stockholder consent and without limiting Section 20(a), the Administrator will
be entitled to change the Offering Periods, limit the frequency and/or number of changes in
the amount withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays or mistakes
in the Company’s processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each participant
properly correspond with amounts withheld from the participant’s Compensation, and
establish such other limitations or procedures as the Administrator determines in its sole
discretion advisable which are consistent with the Plan.
	 
	 	c)	 	In the event the Administrator determines that the ongoing operation of the Plan may
result in unfavorable financial accounting consequences, the Administrator may, in its
discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan
to reduce or eliminate such accounting consequence including, but not limited to:

	 	i.	 	amending the Plan to conform with the safe harbor definition under
Statement of Financial Accounting Standards 123(R), including with respect to an
Offering Period underway at the time;
	 
	 	ii.	 	altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
	 
	 	iii.	 	shortening any Offering Period so that Offering Period ends on a new
Exercise Date, including an Offering Period underway at the time of the Board
action;
	 
	 	iv.	 	reducing the maximum percentage of Compensation a participant may elect
to set aside as payroll deductions; and

 

 

	 	v.	 	reducing the maximum number of Shares a participant may purchase during
any Offering Period or Purchase Period.

Such modifications or amendments will not require stockholder approval or the consent of any Plan
participants.

21. Notices. All notices or other communications by a participant to the Company under or
in connection with the Plan will be deemed to have been duly given when received in the form and
manner specified by the Company at the location, or by the person, designated by the Company for
the receipt thereof.

22. Conditions Upon Issuance of Shares. Shares of Common Stock will not be issued with
respect to an option unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock exchange upon which the
shares may then be listed, and will be further subject to the approval of counsel for the Company
with respect to such compliance.

                  As a condition to the exercise of an option, the Company may require the person exercising
such option to represent and warrant at the time of any such exercise that the shares are being
purchased only for investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.

23. Term of Plan. The Plan will become effective upon the earlier to occur of its
adoption by the Board or its approval by the stockholders of the Company. It will continue in
effect for a term of ten (10) years, unless sooner terminated under Section 20.

24. Stockholder Approval. The Plan will be subject to approval by the stockholders of the
Company within twelve (12) months after the date the Plan is adopted by the Board. Such
stockholder approval will be obtained in the manner and to the degree required under Applicable
Laws.

25. Automatic Transfer to Low Price Offering Period. To the extent permitted by
Applicable Laws, if the Fair Market Value of the Common Stock on any Exercise Date in an Offering
Period is lower than the Fair Market Value of the Common Stock on the Offering Date of such
Offering Period, then all participants in such Offering Period will be automatically withdrawn from
such Offering Period immediately after the exercise of their option on such Exercise Date and
automatically re-enrolled in the immediately following Offering Period.exv4w3

 

Exhibit 4.3

AGENT’S WARRANT AGREEMENT

          WARRANT AGREEMENT dated as of                      between Uroplasty, Inc., a Minnesota corporation
(“Company”), and Craig-Hallum Capital Group LLC (“Agent”).

Recitals:

          The Company proposes to issue to the Agent warrants (the “Warrants”) to purchase up to
an aggregate of                      [five percent of the shares sold in the offering] (as such number may be
adjusted from time to time pursuant to Article 7 of this Warrant Agreement) shares (the
“Shares”) of common stock, $0.01 par value per share (the “Common Stock”), of the
Company; and

          The Agent has agreed, pursuant to the Agency Agreement (the “Agency Agreement”) dated
                                         between the Agent and the Company, to act as agent in connection with the
Company’s proposed public offering (the “Public Offering”) of                                         shares of
Common Stock (the “Public Shares”) at an public offering price of $                    per Public Share
(“Share Price”); and

          The Warrants issued pursuant to this Agreement are being issued by the Company to the Agent or
to its designees who are officers or partners of Agent (collectively, the “Designees”), in
consideration for, and as part of Agent’s compensation in services performed pursuant to the Agency
Agreement;

NOW, THEREFORE, in consideration of the premises, the payment by the Agent to the Company of the
aggregate amount of $50.00, the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

          1. Grant. The Agent or the Designees are hereby granted the right to purchase up to
an aggregate of                      fully-paid and non-assessable Shares at an initial exercise price (subject
to adjustment as provided in Article 6 hereof) of $                     [120 percent of Share Price] at any
time from [one year after closing] until 5:00 P.M., Minneapolis, Minnesota time, [five years after
closing] (the “Agent’s Underlying Share Warrant Term”). The Shares are in all respects
identical to the Public Shares being sold to the public pursuant to the terms of the Agency
Agreement.

          2. Exercise of Warrant.

               2.1 Cash Exercise. The Warrants initially are exercisable at a price of $                    per
Share, payable in cash or by check to the order of the Company, or any combination thereof, subject
to adjustment as provided in Article 7 hereof.

               2.2 Cashless Exercise. If an Exercise Notice is delivered at a time when a
registration statement permitting the Holder to resell the Shares is not then effective or the
prospectus forming a part thereof is not then available to the Holder for the resale of the Shares,
then the Holder may notify the Company in an Exercise Notice of its election to use cashless
exercise, in which event the Company must issue to the Holder the number of Shares determined as
follows:

     X = Y [(A-B)/A]

     where:

     X = the number of Shares to be issued to the Holder.

     Y = the number of Shares with respect to which this Warrant is being exercised.

     A = the average of the closing prices for the five Trading Days immediately prior to
(but not including) the Exercise Date.

     B = the Exercise Price.

 

 

For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and
acknowledged that the Shares issued in a cashless exercise transaction will be deemed to have been
acquired by the Holder, and the holding period for the Shares will be deemed to have commenced, on
the date this Warrant was originally issued.

               2.3 Issuance of Shares. Upon surrender of the Warrant Certificate(s) with the annexed
Form of Election to Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Shares, at the Company’s principal office (located at 5420 Feltl Road,
Minnetonka, Minnesota 55343), the registered holder of a Warrant Certificate (“Holder” or
“Holders”) will be entitled to receive a certificate or certificates for the Shares so
purchased. The purchase rights represented by the Warrant Certificate are exercisable at the
option of the Holder hereof, in whole or in part. In the case of the purchase of less than all of
the Shares purchasable under any Warrant Certificate, the Company will cancel the Warrant
Certificate upon surrender and execute and deliver a new Warrant Certificate of like tenor for the
balance of the Shares.

               2.4 Call of Warrant. If at any time following the one-year anniversary of the date of
issaunce,

                    (a) The
average of the closing prices of the Common Stock for each of the 20 consecutive
Trading Days immediately prior to delivery of a Call Notice (the
“Call Condition Period”) is greater than $___[150 % of the
Exercise Price](subject to equitable adjustment as a result of the events set forth in Section 9),
and

                    (b) the Warrant Shares are either

                         (A) registered for resale pursuant to an effective registration statement naming the Holder as
a selling shareholder thereunder (and the prospectus thereunder is available for use by the Holder
as to all Warrant Shares) or

                         (B) freely transferable without volume restrictions pursuant to Rule 144(k) under the
Securities Act, as a result of cashless exercise or otherwise as determined by counsel to the
Company pursuant to a written opinion letter addressed and in form and substance reasonably
acceptable to the Holder and the transfer agent for the Common Stock, and

                    (c) the Common Stock is listed or quoted on the American Stock Exchange during the entire Call
Condition Period,

then the Company may in its sole discretion, elect to require the exercise of all (but not less
than all) of the then unexercised portion of this Warrant at the Exercise Price, on the date that
is the 10th day after written notice thereof (a “Call Notice”) is received by the Holder (the “Call
Date”) at the address last shown on the records of the Company for the Holder or given by the
Holder to the Company for the purpose of notice; provided, that the conditions to giving such
notice must be in effect at all times during the Call Condition Period or any Call Notice will be
null and void.

                    2.5 Automatic Exercise of Warrant on Expiration Date

     If the price of the Common Stock on the Expiration Date is equal to or greater than the
Exercise Price, then, without any action on the part of the Holder, the Warrant will automatically
be exercised using the cashless exercise provisions of Section 2.2.

          3. Issuance of Certificates.

          Upon the exercise of the Warrants, the issuance of certificates for the Shares purchased will
be made no later than three business days thereafter without charge to the Holder thereof
including, without limitation, any tax that may be payable in respect of the issuance thereof, and
the certificates will (subject to the provisions of Article 4 hereof) be issued in the name of, or
in such names as may be directed by, the Holder thereof;

          The certificates representing the Shares will be executed on behalf of the Company by the
manual or facsimile signature of the present or any future Chief Executive Officer or President of
the Company under its corporate seal (if any) reproduced thereon, attested to by the manual or
facsimile signature of the present or any future Secretary or Assistant Secretary of the Company.
Warrant Certificates will be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.

-2-

 

          Upon exercise, in part or in whole, of the Warrants, certificates representing the Shares
purchased (the “Warrant Securities”), will bear a legend substantially similar to the
following:

“The securities represented by this certificate and the other securities
issuable upon exercise thereof have not been registered for purposes of public
distribution under the Securities Act of 1933, as amended (the “Act”),
and may not be offered or sold except (i) pursuant to an effective registration
statement under the Act or (ii) upon the delivery by the holder to the Company
of an opinion of counsel, reasonably satisfactory to counsel to the Company,
stating that an exemption from registration under such Act is available.”

          4. Restriction on Transfer of Warrants. The Holder of a Warrant Certificate, by the Holder’s
acceptance thereof, covenants and agrees that the Warrants may not be sold during the Public
Offering, or sold, transferred, assigned, pledged or hypothecated, or be the subject of any
hedging, short sale, derivative, put or call transaction that would result in the effective
economic disposition of the Warrants for a period of one year from
December ___, 2006, except to the
Agent or the Designees, and that any portion of the Warrant so transferred will remain subject to
the above restriction for the remainder of the restriction period.

          5. Price.

               5.1 Initial and Adjusted Exercise Price. The initial exercise price of each Warrant
will be $  per Share. The adjusted Exercise Price per Share will be the prices that will
result from time to time from any and all adjustments of the initial Exercise Price per Share in
accordance with the provisions of Article 7 hereof.

               5.2 Exercise Price. The term “Exercise Price” herein will mean the initial
exercise price or the adjusted exercise price, depending upon the context.

          6. Registration Rights.

               6.1 Registrable Securities. As used herein, the term “Registrable Security”
means each of the Warrants, the Shares, and any shares of Common Stock issued upon any stock split
or stock dividend in respect of such Shares. Any particular Registrable Security, will cease to be
a Registrable Security when, as of the date of determination:

                    (a) it has been effectively registered under the Act and disposed of pursuant thereto,

                    (b) registration under the Act is no longer required for the Holder for subsequent public
distribution of such security under Rule 144(k) promulgated under the Act or otherwise, or

                    (c) it has ceased to be outstanding.

The term “Registrable Securities” means any or all of the securities falling within the
foregoing definition of a “Registrable Security.” In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment will be made in the definition of “Registrable Security”
as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to
this Article 6.

               6.2 Piggyback Registration. If, within seven years following the effective date of
the Public Offering, the Company proposes to prepare and file one or more post-effective amendments
to the registration statement filed in connection with the Public Offering or any new registration
statement or post-effective amendments thereto covering equity or debt securities of the Company,
or any such securities of the Company held by its shareholders (in any such case, other than in
connection with a merger, acquisition or pursuant to Form S-8 or successor form)(for purposes of
this Article 6, collectively, the “Registration Statement”), it will give written notice of
its intention to do so by certified mail, return receipt requested (“Notice”), at least
thirty days prior to the filing of each such Registration Statement, to all Holders of the
Registrable Securities. Upon the written request of such a Holder (a “Requesting Holder”),
made within twenty days after receipt by the Holder of the Notice, that the Company include any of
the Requesting Holder’s Registrable Securities in the proposed Registration Statement, the Company
will, as to each such Requesting Holder, use its best efforts to effect the registration under the
Act of the

-3-

 

Registrable Securities that it has been so requested to register (“Piggyback
Registration”), at the Company’s sole cost and expense and at no cost or expense to the
Requesting Holders (except as provided in Section 6.5(b) hereof).

               Notwithstanding the provisions of this Section 6.2, the Company will have the right at any
time after it will have given written notice pursuant to this Section 6.2 (irrespective of whether
any written request for inclusion of Registrable Securities will have already been made) to elect
not to file any such proposed Registration Statement, or to withdraw the same after the filing but
prior to the effective date thereof, without incurring any liability to any holder of Registrable
Securities.

               6.3 Demand Registration.

                    (a) At any time within five years following the effective date of the Public Offering, any
“Majority Holder” (as such term is defined in Section 6.3(c) below) of the Registrable
Securities will have the right (which right is in addition to the piggyback registration rights
provided for under Section 6.2 hereof), exercisable by written notice to the Company (the
“Demand Registration Request”), to have the Company prepare and file with the Securities
and Exchange Commission (the “Commission”) on one occasion, at the sole expense of the
Company, a Registration Statement and such other documents, including a prospectus, as may be
necessary (in the opinion of both counsel for the Company and counsel for such Majority Holder) in
order to comply with the provisions of the Act, so as to permit a public offering and sale of the
Registrable Securities by the Holders thereof. The Company will use its best efforts to cause the
Registration Statement to become effective under the Act so as to permit a public offering and sale
of the Registrable Securities by the Holders thereof. Once effective, the Company will use its
best efforts to maintain the effectiveness of the Registration Statement until the earlier of (i)
the date that all of the Registrable Securities have been sold or (ii) the date the Holders thereof
receive an opinion of counsel to the Company that all of the Registrable Securities may be freely
traded without registration under the Act under Rule 144(k) promulgated under the Act or otherwise.

                    (b) The Company covenants and agrees to give written notice of any Demand Registration Request
to all Holders of the Registrable Securities within 10 business days from the date of the Company’s
receipt of any such Demand Registration Request. After receiving notice from the Company as
provided in this Section 6.3(b), holders of Registrable Securities may request the Company to
include their Registrable Securities in the Registration Statement to be filed pursuant to Section
6.3(a) hereof by notifying the Company of their decision to have such securities included within 15
business days of their receipt of the Company’s notice.

                    (c) The term “Majority Holder” as used in Section 6.3 hereof will mean any Holder or
any combination of Holders of Registrable Securities, if included in such Holders’ Registrable
Securities, that hold an aggregate number of shares of Common Stock (including Shares already
issued, Shares issuable pursuant to the exercise of outstanding Warrants) as would constitute a
majority of the aggregate number of shares of Common Stock outstanding (including Shares already
issued and Shares issuable pursuant to the exercise of outstanding Warrants) that are Registrable
Securities.

               6.4 Covenants of the Company With Respect to Registration. The Company covenants and
agrees as follows:

                    (a) In connection with any registration under Section 6.3 hereof, the Company will file the
Registration Statement as expeditiously as possible, but in any event no later than 30 days
following receipt of any demand therefor, will use its best efforts to have any such Registration
Statement declared effective at the earliest possible time, and will furnish each Holder of
Registrable Securities such number of prospectuses as will reasonably be requested.

                    (b) The Company will pay all costs, fees and expenses (other than underwriting fees, discounts
and nonaccountable expense allowance applicable to the Registrable Securities and fees and expenses
of counsel retained by the Holders of Registrable Securities) in connection with all Registration
Statements filed pursuant to Sections 6.2 and 6.3 hereof including, without limitation, the
Company’s legal and accounting fees, printing expenses, and blue sky fees and expenses and any fees
due to the National Association of Securities Dealers, Inc (“NASD”) related to such registration or
sale of any of the Registrable Securities.

-4-

 

                    (c) The Company will take all necessary action that may be required in qualifying or
registering the Registrable Securities included in the Registration Statement for offering and sale
under the securities or blue sky laws of such states as are requested by the Holders of such
securities and for obtaining the clearance of NASD member firms to participate in the distribution
of such Registrable Securities.

                    (d) The Company will indemnify any Holder of the Registrable Securities to be sold pursuant to
any Registration Statement and any Agent or person deemed to be an underwriter under the Act and
each person, if any, who controls such Holder or underwriter or person deemed to be an underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended (“Exchange Act”), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or defending against any
claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the Underwriter as set forth
in Section 8 of the Underwriting Agreement and to provide for just and equitable contribution as
set forth in Section 9 of the Underwriting Agreement.

                    (e) Any Holder of Registrable Securities to be sold pursuant to a registration statement, and
such Holder’s successors and assigns, will severally, and not jointly, indemnify the Company, its
officers and directors and each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from information furnished by or on behalf of such Holder, or
such Holder’s successors or assigns, for specific inclusion in such Registration Statement to the
same extent and with the same effect as the provisions pursuant to which the Underwriters have
agreed to indemnify the Company as set forth in the Agency Agreement and to provide for just and
equitable contribution as set forth in the Agency Agreement.

                    (f) Nothing contained in this Agreement may be construed as requiring any Holder to exercise
the Warrants held by the Holder prior to the initial filing of any registration statement or the
effectiveness thereof.

                    (g) If the Company fails to comply with the provisions of this Article 6, the Company will, in
addition to any other equitable or other relief available to the Holders of Registrable Securities,
be liable for any or all incidental, special and consequential damages sustained by the Holders of
Registrable Securities requesting registration of their Registrable Securities.

                    (h) The Company will not permit the inclusion of any securities other than the Registrable
Securities to be included in any Registration Statement filed pursuant to Section 6.3 hereof,
without the prior written consent of the Majority Holders, which consent may not be unreasonably
withheld.

-5-

 

                    (i) The Company will promptly deliver copies of all correspondence between the Commission and
the Company, its counsel or its auditors with respect to the Registration Statement to each Holder
of Registrable Securities included for registration in such Registration Statement pursuant to
Section 6.2 hereof or Section 6.3 hereof requesting such correspondence and to the managing
underwriter, if any, of the offering in connection with which such Holder’s Registrable Securities
are being registered and will permit each Holder of Registrable Securities and such underwriter to
do such reasonable investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the Registration Statement as it deems reasonably necessary to comply
with applicable securities laws or rules of the NASD. This investigation will include access to
books, records and properties and opportunities necessary or helpful to discuss the business of the
Company with its officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder of Registrable Securities or underwriter may
reasonably request. The Company may require each Holder or underwriter to enter into reasonable
confidentiality and non-disclosure agreements with respect to the information contained in or
derived from the investigations.

          6.5
Termination of Registration Rights. All registration rights
under this warrant terminate if in the reasoned opinion of counsel to
the Company, Agent and all other Holders have the ability to sell all
shares issuable under the warrant under Rule 144(k), through
cashless exercise or otherwise.

          7. Adjustments of Exercise Price and Number of Securities. The following adjustments
apply to the Exercise Price of the Warrants with respect to the Shares and the number of Shares
purchasable upon exercise of the Warrants.

               7.1 Computation of Adjusted Price. In case the Company at any time after the date
hereof pays a dividend in shares of Common Stock or makes a distribution in shares of Common Stock,
then upon such dividend or distribution, the Exercise Price in effect immediately prior to such
dividend or distribution will forthwith be reduced to a price determined by dividing:

                    (a) an amount equal to the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution multiplied by the Exercise Price in effect immediately prior
to such dividend or distribution, by

                    (b) the total number of shares of Common Stock outstanding immediately after such issuance or
sale.

                    For the purposes of any computation to be made in accordance with the provisions of this
Section 8.1, the Common Stock issuable by way of dividend or other distribution on any stock of the
Company will be deemed to have been issued immediately after the opening of business on the date
following the date fixed for the determination of shareholders entitled to receive the dividend or
other distribution.

               7.2 Subdivision and Combination. In case the Company at any time subdivides or
combines the outstanding shares of Common Stock, the Exercise Price will forthwith be
proportionately decreased in the case of subdivision or proportionately increased in the case of
combination.

               7.3 Adjustment in Number of Securities. Upon each adjustment of the Exercise Price
pursuant to the provisions of this Article 7, the number of Shares issuable upon the exercise of
each Warrant will be adjusted to the nearest full number by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained
by the adjusted Exercise Price.

               7.4 Reclassification, Consolidation, Merger. In case of any reclassification or
change of the outstanding shares of Common Stock (other than a change in par value to no par value,
or from no par value to par value, or as a result of a subdivision or combination), or in the case
of any consolidation of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation and that does not
result in any reclassification or change of the outstanding shares of Common Stock, except a change
as a result of a subdivision or combination of such shares or a change in par value, as aforesaid),
or in the case of a sale or conveyance to another corporation of all or substantially all of the
assets of the Company, the Holders will thereafter have the right to purchase the kind and number
of shares of stock and other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holders were the owners of the Shares
immediately prior to any such events, at a price equal to the product of (x) the number of shares
of Common Stock issuable upon exercise of the Holders’ Warrants and (y) the exercise prices for the
Warrants in effect immediately prior to the record date for such reclassification, change,
consolidation,

-6-

 

merger, sale or conveyance as if such Holders had exercised the Warrants.

               7.5 Determination of Outstanding Common Shares. The number of Common Shares at any
one time outstanding shall include the aggregate number of shares issued and the aggregate number
of shares issuable upon the exercise of options, rights, warrants and upon the conversion or
exchange of convertible or exchangeable securities.

               7.6 Dividends and Other Distributions with Respect to Outstanding Securities. In the
event that the Company at any time prior to the exercise of all Warrants makes any distribution of
its assets to holders of its Common Stock as a liquidating or a partial liquidating dividend, then
the Holder of Warrants who exercises its Warrants after the record date for the determination of
those Holders of Common Stock entitled to such distribution of assets as a liquidating or partial
liquidating dividend will be entitled to receive for the exercise price per Warrant, in addition to
each share of Common Stock, the amount of such distribution (or, at the option of the Company, a
sum equal to the value of any such assets at the time of such distribution as determined by the
Board of Directors of the Company in good faith) that would have been payable to such Holder had he
been the Holder of record of the Common Stock receivable upon exercise of his Warrant on the record
date for the determination of those entitled to such distribution. At the time of any such
dividend or distribution, the Company will make appropriate reserves to ensure the timely
performance of the provisions of this Subsection 7.6.

               7.7 Subscription Rights for Shares of Common Stock or Other Securities. In the case
that the Company or an affiliate of the Company at any time after the date hereof and prior to the
exercise of all the Warrants issue any rights, warrants or options to subscribe for shares of
Common Stock or any other securities of the Company or of such affiliate to all the shareholders of
the Company, the Holders of unexercised Warrants on the record date set by the Company or affiliate
in connection with such issuance of rights, warrants or options will be entitled, in addition to
the shares of Common Stock or other securities receivable upon the exercise of the Warrants, to
receive such rights, warrants or options that such Holders would have been entitled to receive had
they been, on such record date, the holders of record of the number of whole shares of Common Stock
then issuable upon exercise of their outstanding Warrants (assuming for purposes of this Section
7.7, that the exercise of the Warrants is permissible immediately upon issuance).

          8. Exchange and Replacement of Warrant Certificates.

     Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new Warrant Certificate
of like tenor and date representing in the aggregate the right to purchase the same number of
securities in such denominations as may be designated by the Holder thereof at the time of such
surrender.

          Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of any Warrant Certificate and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrant
Certificate, if mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor in lieu thereof.

          9. Elimination of Fractional Interests.

          The Company will not be required to issue certificates representing fractions of Shares upon
the exercise of the Warrants, nor will it be required to issue scrip or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of Shares.

          10. Reservation and Listing of Securities.

          The Company will at all times reserve and keep available out of its authorized shares of
Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, that number of
shares of Common Stock as are issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor, all Shares issuable
upon such exercise will be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any shareholder. As long as the Warrants are

-7-

 

outstanding, the Company will use its best efforts to cause all shares of Common Stock
issuable upon the exercise of the Warrants to be listed on the American Stock Exchange, or any
successor trading market on which the Common Stock may be listed.

          11. Notices to Warrant Holders.

          Nothing contained in this Agreement may be construed as conferring upon the Holder or Holders
the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having any rights whatsoever
as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants
and their exercise, any of the following events occur:

                    (a) the Company takes a record of the holders of its shares of Common Stock for the purpose of
entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or retained earnings, as indicated
by the accounting treatment of such dividend or distribution on the books of the Company; or

                    (b) the Company offers to all the holders of its Common Stock any additional shares of capital
stock of the Company or securities convertible into or exchangeable for shares of capital stock of
the Company, or any option, right or warrant to subscribe therefor; or

                    (c) a dissolution, liquidation or winding up of the Company (other than in connection with a
consolidation or merger) or a sale of all or substantially all of its property, assets and business
as an entirety is proposed; or

                    (d) reclassification or change of the outstanding shares of Common Stock (other than a change
in par value to no par value, or from no par value to par value, or as a result of a subdivision or
combination), consolidation of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger in which the Company is the surviving corporation and which
does not result in any reclassification or change of the outstanding shares of Common Stock, except
a change as a result of a subdivision or combination of such shares or a change in par value, as
aforesaid), or a sale or conveyance to another corporation of the property of the Company as an
entirety is proposed; or

                    (e) The Company or an affiliate of the Company proposes to issue any rights to subscribe for
shares of Common Stock or any other securities of the Company or of such affiliate to all the
shareholders of the Company;

               then, in any one or more of said events, the Company must give written notice to the Holder or
Holders of such event at least 15 business days prior to the date fixed as a record date or the
date of closing the transfer books for the determination of the shareholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. The
notice must specify the record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein will not affect the validity of any action taken
in connection with the declaration or payment of any dividend or distribution, or the issuance of
any convertible or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.

          12. Notices.

          All notices, requests, consents and other communications hereunder must be in writing and will
be deemed to have been duly made when delivered, or mailed by registered or certified mail, return
receipt requested:

                    (a) If to a registered Holder of the Warrants, to the address of such Holder as shown on the
books of the Company; or

                    (b) If to the Company, to the address set forth in Section 3 of this Agreement or to such
other address as the Company may designate by notice to the Holders given pursuant to this section.

-8-

 

          13. Supplements and Amendments.

          The Company and the Agent may from time to time supplement or amend this Agreement without the
approval of any Holders of the Warrants or Warrant Securities in order to cure any ambiguity, to
correct or supplement any provision contained herein that may be defective or inconsistent with any
other provisions herein, or to make any other provisions in regard to matters or questions arising
hereunder which the Company and the Agent may deem mutually necessary or desirable and which the
Company and the Agent mutually deem not to adversely affect the interests of the Holders of Warrant
Certificates.

          14. Successors.

          All the covenants and provisions of this Agreement by or for the benefit of the Company and
the Holders inure to the benefit of their respective successors and assigns hereunder.

          15. Governing Law.

          This Agreement and each Warrant Certificate issued hereunder will be deemed to be a contract
made under the laws of the State of Minnesota and for all purposes shall be construed in accordance
with the laws of said State, other than its conflicts of laws provisions.

          16. Benefits of this Agreement.

          Nothing in this Agreement may be construed to give to any person or corporation other than the
Company and the Agent and any other registered Holder or Holders of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this Agreement. This
Agreement is for the sole and exclusive benefit of the Company and the Agent and any other Holder
or Holders of the Warrant Certificates or Warrant Securities.

          17. Counterparts.

          This Agreement may be executed in any number of counterparts, and each of such counterparts
will for all purposes be deemed to be an original, and such counterparts will together constitute
but one and the same instrument.

-9-

 

               IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.

	 	 	 	 	 	 	 	 	 
	 	 	UROPLASTY, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Its:	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	CRAIG-HALLUM CAPITAL GROUP LLC
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Director of Capital Markets
	 	 

-10-

 

EXHIBIT A

THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN
ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

EXERCISABLE ON OR BEFORE

5:00 P.M., MINNEAPOLIS TIME,                     

	 	 	 	 	 	 	 	 	 
	 

	 	No. W-1
	 	 	 	                     Warrants
	 	 

A-1

 

WARRANT CERTIFICATE

          This Warrant Certificate certifies that Craig-Hallum Capital Group LLP or his, her or its
registered assigns, is the registered holder of                      Warrants to purchase, at any time from
                     until 5:00 P.M. Minneapolis, Minnesota time on                      (“Expiration Date”), up to
                     fully-paid and non-assessable shares (the “Shares”) of the common stock, $.01 par value
per share (the “Common Stock”), of Uroplasty, Inc., a Minnesota corporation (the
“Company”), at an initial exercise price, subject to adjustment in certain events (the
“Exercise Price”), of $                      per Share, upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, but subject to the conditions
set forth herein and in the Agent’s Warrant Agreement dated as of                      between the Company
and Craig-Hallum Capital Group LLP (the “Warrant Agreement”). Payment of the Exercise
Price may be made in cash or by check payable to the order of the Company, or any combination
thereof.

          No Warrant may be exercised after 5:00 P.M., Minneapolis, Minnesota time, on the Expiration
Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, will thereafter
be void.

          The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of
Warrants issued pursuant to the Warrant Agreement, which is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the Company and the holders
(the words “holders” or “holder” means the registered holders or registered holder)
of the Warrants.

          The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price
and the type and number of the Company’s securities issuable thereupon may, subject to certain
conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a
new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and type of
securities issuable upon the exercise of the Warrants. The failure of the Company to issue such
new Warrant Certificates will not, however, in any way change, alter, or otherwise impair the
rights of the holder as set forth in the Warrant Agreement.

          Upon due presentment for registration of transfer of this Warrant Certificate at an office or
agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and
evidencing in the aggregate a like number of Warrants must be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax or other governmental charge imposed in
connection therewith.

          Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company
will forthwith issue to the holder hereof a new Warrant Certificate representing such number of
unexercised Warrants.

          The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of
this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof,
and for all other purposes, and the Company will not be affected by any notice to the contrary.

          All terms used in this Warrant Certificate which are defined in the Warrant Agreement have the
meanings assigned to them in the Warrant Agreement.

          IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed.

	 	 	 	 	 	 	 	 	 
	Dated:                     	 	UROPLASTY, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

A-2

 

[FORM OF ELECTION TO PURCHASE]

     The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant
Certificate, to purchase                      Shares of Common Stock and herewith tenders in payment for such
securities, cash or check payable to the order of Uroplasty, Inc. in the amount of $                    , all
in accordance with the terms hereof. The undersigned requests that a certificate for such
securities be registered in the name of                                                             , whose address is
                                        , and that such Certificate be delivered to
                                                            ,
 whose address is                                                                                 .

	 	 	 	 	 
	Dated:                                                            

	 	 	 	Signature:                                                             
	 

	 	 	 	(Signature must conform in all respects
to the name of holder as specified on the
face of the Warrant Certificate or with
the name of the assignee appearing in the
assignment form, if any.)
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	(Insert Social Security or Tax
Identification Number of Holder)

 

 

[FORM OF ASSIGNMENT]

(To be executed by the registered holder if such holder

desires to transfer the Warrant Certificate.)

                    FOR VALUE RECEIVED,                                             
               
               
               
           hereby sells, assigns and transfers unto                                                             
                                                                                   
                                                                                                                                                                                                                                                                                    

(Please print name, address and social security or tax identification number of assignee)

this Warrant Certificate, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint                     , Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of substitution.

	 	 	 	 	 
	 

	 	 	 	Signature:                                                             
	Dated:                                        

	 	 	 	(Signature must conform in all respects to the name of holder as
specified on the face of the Warrant Certificate or with the name
of the assignee appearing in the assignment form, if any.)
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	(Insert Social Security or Tax Identification Number of Holder)

 

 

[CASHLESS EXERCISE FORM]

(To be executed upon exercise of Warrant
pursuant to Section 2.2 )

To:      UROPLASTY, INC.

     The undersigned hereby irrevocably elects a cashless exercise of the right to purchase
represented by the attached Warrant Certificate for, and to purchase thereunder,                     
Shares, as provided for in Section 2.2 therein.

     Please issue a certificate or certificates for such Shares in the names of:

	 	 	 	 	 	 	 	 	 
	Name

	 	 	 	 	 	Address	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	(Please print name)	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 

     and deliver such certificate or certificates to (if different from above):

	 	 	 	 	 	 	 	 	 
	Name

	 	 	 	 	 	Address	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	(Please print name)	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 	 	Signature	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	(Insert Social Security or Tax Identification Number
of Holder)

NOTE: The above signature should correspond exactly with the name on the first page of this Warrant
Certificate or with the name of the assignee appearing in the assignment form, if any.

     And if said number of shares shall not be all the shares purchasable under the attached
Warrant Certificate, a new Warrant Certificate is to be issued in the name of the undersigned for
the remaining balance of the shares purchasable thereunder.

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