Document:

exv10w20

 

Exhibit 10.20

SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this “Agreement”) is dated as of April 21, 2005, among
Uroplasty, Inc., a Minnesota corporation (the “Company”), and the investors identified on the
signature pages hereto (each, an “Investor” and collectively, the “Investors”).

     WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the
Company desires to issue and sell to each Investor, and each Investor, severally and not jointly,
desires to purchase from the Company certain securities of the Company, as more fully described in
this Agreement.

     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and the Investors agree as follows:

ARTICLE I.

DEFINITIONS

     1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for
all purposes of this Agreement, the following terms shall have the meanings indicated in this
Section 1.1:

          “Action” means any action, claim, suit, inquiry, notice of violation, proceeding (including,
without limitation, any investigation or partial proceeding such as a deposition) or investigation
pending or threatened in writing against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or administrative agency,
regulatory authority (Federal, state, provincial, county, local or foreign), stock market, stock
exchange or trading facility.

          “Additional Shares” has the meaning set forth in Section 4.6.

          “Affiliate” means any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such terms are used in
and construed under Rule 144.

          “Business Day” means any day except Saturday, Sunday and any day which is a Federal legal
holiday or a day on which banking institutions in the State of New York are authorized or required
by law or other governmental action to close.

          “Closing” means the closing of the purchase and sale of the Securities pursuant to Article II
of this Agreement.

          “Closing Date” means the Business Day immediately following the date on which all of the
conditions set forth in Sections 5.1 and 5.2 hereof are satisfied, or such other date as the
parties may agree.

 

 

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” means the common stock of the Company, par value $.01 per share, and any
securities into which such common stock may hereafter be reclassified, converted or exchanged.

          “Common Stock Equivalents” means any securities of the Company or any Subsidiary which entitle
the holder thereof to acquire Common Stock at any time, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any time convertible into
or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common Stock.

          “Company Counsel” means Messerli & Kramer P.A.

          “Company Deliverables” has the meaning set forth in Section 2.2(a).

          “Disclosure Materials” has the meaning set forth in Section 3.1(h).

          “Effective Date” means the date that the initial Registration Statement required by Section
2(a) of the Registration Rights Agreement is first declared effective by the Commission.

          “Evaluation Date” has the meaning set forth in Section 3.1(s).

          “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          “GAAP” means U.S. generally accepted accounting principles.

          “Intellectual Property Rights” has the meaning set forth in Section 3.1(p).

          “Investment Amount” means, with respect to each Investor, the dollar amount that such Investor
is investing in the Securities at Closing, as indicated on such Investor’s signature page to this
Agreement under the line “Investment Amount”.

          “Investor Deliverables” has the meaning set forth in Section 2.2(b).

          “Investor Party” has the meaning set forth in Section 4.7.

          “Lien” means any lien, charge, encumbrance, security interest, right of first refusal or other
restrictions of any kind, other than restrictions applicable to the resale of the Securities under
the Securities Act and applicable state securities laws.

          “Losses” has the meaning set forth in Section 4.7.

          “Material Adverse Effect” means any of (i) a material and adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material and adverse

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effect on the results of operations, assets, prospects, business or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to
the Company’s ability to perform on a timely basis any of its obligations under any Transaction
Document.

          “New York Courts” means the state and Federal courts sitting in the City of New York, Borough
of Manhattan.

          “Outside Date” means May 2, 2005.

          “Per Share Purchase Price” equals $3.50.

          “Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.

          “Registration Rights Agreement” means the Registration Rights Agreement, dated as of the
Closing Date, among the Company and the Investors, in the form of Exhibit B hereto.

          “Registration Statement” means a registration statement meeting the requirements set forth in
the Registration Rights Agreement and covering the resale by the Investors of the Shares and the
Warrant Shares.

          “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.

          “SEC Reports” has the meaning set forth in Section 3.1(h).

          “Securities” means the Shares, the Warrants and the Warrant Shares.

          “Securities Act” means the Securities Act of 1933, as amended.

          “Shares” means the shares of Common Stock issued or issuable to the Investors pursuant to this
Agreement, including any Additional Shares.

          “Short Sales” include, without limitation, all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on
a total return basis), and sales and other transactions through non-US broker dealers or foreign
regulated brokers.

          “Subsidiary” means any subsidiary of the Company required to be identified in Schedule
3.1(a).

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          “Threshold Price” means the Per Share Purchase Price (subject to equitable adjustment for
stock splits, recombinations and similar events that may occur following the Closing Date and prior
to the date in question).

          “Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii)
if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted
in the over-the-counter market as reported by the Pink Sheets, LLC (or any similar organization or
agency succeeding to its functions of reporting prices); provided, that in the event that the
Common Stock is not listed or quoted as set forth in (i) and (ii) hereof, then Trading Day shall
mean a Business Day.

          “Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange,
the NASDAQ National Market, the NASDAQ SmallCap Market or OTC Bulletin Board on which the Common
Stock is listed or quoted for trading on the date in question.

          “Transaction Documents” means this Agreement, the Warrants, the Registration Rights Agreement,
and any other documents or agreements executed in connection with the transactions contemplated
hereunder.

          “Warrants” means the Common Stock purchase warrants in the form of Exhibit A, which
are issuable to the Investors at the Closing.

          “Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE II.

PURCHASE AND SALE

     2.1 Closing. The Closing shall take place at the offices of Bryan Cave LLP, 1290
Avenue of the Americas, New York, NY 10104 at 4:30 p.m. (New York time) on the Closing Date or at
such other location or time as the parties may agree.

     2.2 Closing Deliveries. (a) At the Closing, the Company shall deliver or cause to be
delivered to each Investor the following (the “Company Deliverables”):

               (i) a certificate evidencing a number of Shares equal to such Investor’s Investment Amount
divided by the Per Share Purchase Price, registered in the name of such Investor;

               (ii) a Warrant, registered in the name of such Investor, pursuant to which such Investor shall
have the right to acquire 50% (rounded up to the nearest whole share) of the number of Shares
issuable to such Investor pursuant to Section 2.2(a)(i);

               (iii) the legal opinion of Company Counsel, in agreed form, addressed to the Investors;

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               (iv) the Registration Rights Agreement, duly executed by the Company; and

               (v) an officer’s certificate, pursuant to Section 5.1(g) herein.

          (b) At the Closing, each Investor shall deliver or cause to be delivered to the Company the
following (the “Investor Deliverables”):

               (i) to the Company, its Investment Amount, in United States dollars and in immediately
available funds, by wire transfer to an account designated in writing by the Company for such
purpose; and

               (ii) the Registration Rights Agreement, duly executed by such Investor.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. The Company hereby makes the
following representations and warranties to each Investor:

          (a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than as
specified in Schedule 3.1(a). Except as disclosed in Schedule 3.1(a), the Company
owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any and
all Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive and similar rights.

          (b) Organization and Qualification. The Company and each Subsidiary are duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other organizational or charter
documents. The Company and each Subsidiary are duly qualified to conduct its respective businesses
and are in good standing as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.

          (c) Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution and delivery of
each of the Transaction Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company in connection

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therewith. Each Transaction Document has been (or upon delivery will have been) duly executed
by the Company and, when delivered in accordance with the terms hereof, will constitute the valid
and binding obligation of the Company enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of,
creditors’ rights and remedies or by other equitable principles of general application.

          (d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by which any property or
asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not,
individually or in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.

          (e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or registration
with, any court or other Federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing with the Commission of one or more Registration Statements in
accordance with the requirements Registration Rights Agreement, (ii) filings required by state
securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the Commission
under Regulation D of the Securities Act, (iv) the filings required in accordance with Section 4.5
and 4.10, and (v) those that have been made or obtained prior to the date of this Agreement.

          (f) Issuance of the Securities. The Securities have been duly authorized and, when
issued and paid for in accordance with the Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens. The Company has reserved from its duly
authorized capital stock the shares of Common Stock issuable pursuant to this Agreement and the
Warrants in order to issue the Shares and the Warrant Shares.

          (g) Capitalization. The number of shares and type of all authorized, issued and
outstanding capital stock of the Company, and all shares of Common Stock reserved for issuance
under the Company’s various option and incentive plans, is specified in the SEC

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Reports and on Schedule 3.1(g). Except as specified in the SEC Reports and on
Schedule 3.1(g), no securities of the Company are entitled to preemptive or similar rights,
and no Person has any right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the Transaction Documents. Except
as specified in the SEC Reports and on Schedule 3.1(g), there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating
to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of capital stock of the Company, or contracts,
commitments, understandings or arrangements by which the Company or any Subsidiary is or may become
bound to issue additional shares of capital stock of the Company, or securities or rights
convertible or exchangeable into shares of capital stock of the Company. The issue and sale of the
Securities will not, immediately or with the passage of time, obligate the Company to issue shares
of capital stock of the Company or other securities to any Person (other than the Investors under
the Transaction Documents) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under such securities.

          (h) SEC Reports; Financial Statements. The Company has filed all reports, forms or
other information required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date
hereof (or such shorter period as the Company was required by law to file such reports, forms or
other information) (the foregoing materials being collectively referred to herein as the “SEC
Reports” and, together with the Schedules to this Agreement (if any), the “Disclosure Materials”).
As of their respective dates (except as to SEC Reports amended by the Company, as of the respective
dates of such amendment filings), the SEC Reports (as amended) complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules and regulations of
the Commission promulgated thereunder, and none of the SEC Reports (as amended), when filed (except
for amended SEC Reports, when they were so filed), contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports (as amended)
comply in all material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of filing (being the
time of SEC Report amendment filings, if applicable). Such financial statements (as amended) have
been prepared in accordance with GAAP applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the notes thereto, and fairly
present in all material respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments. For purposes of this Agreement, any reports, forms or other information
provided to the Commission, whether by filing, furnishing or otherwise providing, is included in
the term “filed” (or any derivations thereof).

          (i) Press Releases. The press releases disseminated by the Company during the twelve
months preceding the date of this Agreement do not individually or taken as a whole contain any
untrue statement of a material fact or omit to state a material fact required to be

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stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made and when made, not misleading.

          (j) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has
been no event, occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent
or otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the
ordinary course of business consistent with past practice and (B) liabilities (not to exceed
$100,000) not required to be reflected in the Company’s financial statements pursuant to GAAP or
required to be disclosed in filings made with the Commission, (iii) the Company has not altered its
method of accounting or the identity of its auditors, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its shareholders or purchased, redeemed or
made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has
not issued any equity securities, except pursuant to existing Company stock option plans and
consistent with past practice. The Company does not have pending before the Commission any request
for confidential treatment of information.

          (k) Litigation. There is no Action which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii)
except as specifically disclosed in the SEC Reports, could, if there were an unfavorable decision,
individually or in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof (in his or her
capacity as such), is or within the past ten years has been the subject of any Action involving a
claim of violation of or liability under Federal or state securities laws or a claim of breach of
fiduciary duty, except as specifically disclosed in the SEC Reports. There has not been, and to
the knowledge of the Company, there is not pending any investigation by the Commission involving
the Company or any current or former director or officer of the Company (in his or her capacity as
such). The Commission has not issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.

          (l) Labor Relations. No material labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company.

          (m) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such default or violation
has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body,
or (iii) is or has been in violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, Federal, state and local laws relating to
taxes, environmental protection, occupational health and safety, product quality and

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safety and employment and labor matters, except in each case as could not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse Effect. The Company
is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and
the rules and regulations thereunder, that are applicable to it, except where such noncompliance
could not have or reasonably be expected to result in a Material Adverse Effect.

          (n) Regulatory Permits. The Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate Federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect, and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or modification of any
such permits.

          (o) Title to Assets. The Company and the Subsidiaries have good and marketable title
in fee simple to all real property owned by them that is material to their respective businesses
and good and marketable title in all personal property owned by them that is material to their
respective businesses, in each case free and clear of all Liens, except for Liens as do not
materially affect the value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance,
except as could not, individually or in the aggregate, have or reasonably be expected to result in
a Material Adverse Effect.

          (p) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports and which the failure
to so have could, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company
nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person. Except as set forth
in the SEC Reports, to the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of the Intellectual
Property Rights.

          (q) Insurance. The Company and the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as are prudent and
customary in the businesses in which the Company and the Subsidiaries are engaged. The Company has
no reason to believe that it will not be able to renew its and the Subsidiaries’ existing insurance
coverage as and when such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business on terms consistent with market for the Company’s and
such Subsidiaries’ respective lines of business.

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          (r) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.

          (s) Internal Accounting Controls. The Company and the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management’s general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in conformity with GAAP and
to maintain asset accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act rules 13a-15(e) and 15(d)-15(e) for the Company and designed such
disclosure controls and procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s Form 10-KSB or 10-QSB, as the case
may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of the last day of the period covered by the Form 10-QSB
for the Company’s most recently ended fiscal quarter (such date, the “Evaluation Date”). The
Company presented in its most recently filed Form 10-KSB or Form 10-QSB the conclusions of the
certifying officers about the effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no
significant changes in the Company’s internal controls (as described in Item 308(c) of Regulation
S-K under the Exchange Act) or, to the Company’s knowledge, without inquiry, in other factors that
could significantly affect the Company’s internal controls.

          (t) Solvency. Based on the financial condition of the Company as of the Closing Date
(and assuming that the Closing shall have occurred), (i) the Company’s fair saleable value of its
assets exceeds the amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known contingent liabilities) as they mature; (ii)
the Company’s assets do not constitute unreasonably small capital to carry on its business for the
current fiscal year as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii) the current cash
flow of the Company, together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would be sufficient to
pay all amounts on or in respect of its debts when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such debts as they

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mature (taking into account the timing and amounts of cash to be payable on or in respect of
its debts).

          (u) Certain Fees. Except as described in Schedule 3.1(u), no brokerage or
finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by this Agreement. The Investors shall have no obligation with respect
to any fees or with respect to any claims (other than such fees or commissions owed by an Investor
pursuant to written agreements executed by such Investor which fees or commissions shall be the
sole responsibility of such Investor) made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the transactions contemplated by
this Agreement.

          (v) Certain Registration Matters. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 3.2(b)-(e), no registration under the
Securities Act is required for the offer and sale of the Shares, Warrants and Warrant Shares by the
Company to the Investors under the Transaction Documents. The Company is eligible to register the
resale of its Common Stock by the Investors on Form SB-2 promulgated under the Securities Act.
Except as specified in Schedule 3.1(v), the Company has not granted or agreed to grant to
any Person any rights (including “piggy-back” registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority that have not been
satisfied or exercised.

          (w) Listing and Maintenance Requirements. Except as specified in the SEC Reports, the
Company has not, in the two years preceding the date hereof, received notice from any Trading
Market to the effect that the Company is not in compliance with the listing or maintenance
requirements thereof. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with the listing and maintenance requirements for
continued listing of the Common Stock on the Trading Market on which the Common Stock is currently
listed or quoted. The issuance and sale of the Securities under the Transaction Documents
(including the issuance of Additional Shares) does not contravene the rules and regulations of the
Trading Market on which the Common Stock is currently listed or quoted, and no approval of the
shareholders of the Company thereunder is required for the Company to issue and deliver to the
Investors the Securities contemplated by the Transaction Documents.

          (x) Investment Company. The Company is not, and is not an Affiliate of, and
immediately following the Closing will not have become, an “investment company” within the meaning
of the Investment Company Act of 1940, as amended.

          (y) Application of Takeover Protections. The Company has taken all necessary action,
if any, in order to render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s Articles of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the

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Investors or shareholders of the Company prior to the Closing Date as a result of the
Investors and the Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company’s issuance of the Securities and
the Investors’ ownership of the Securities.

          (z) No Additional Agreements. The Company does not have any agreement or
understanding with any Investor with respect to the transactions contemplated by the Transaction
Documents other than as specified in the Transaction Documents.

          (aa) Disclosure. The Company confirms that neither it nor any Person acting on its
behalf has provided any Investor or its respective agents or counsel with any information that the
Company believes constitutes material, non-public information except insofar as the existence and
terms of the proposed transactions hereunder may constitute such information. The Company
understands and confirms that the Investors will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. Except as corrected by a
subsequent disclosure prior to the date hereof made in the SEC Reports, all disclosure provided to
the Investors regarding the Company, its business and the transactions contemplated hereby,
furnished by or on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were made, not misleading.

     3.2 Representations and Warranties of the Investors. Each Investor hereby, for itself
and for no other Investor, represents and warrants to the Company as follows:

          (a) Organization; Authority. If applicable, such Investor is an entity duly
organized, validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the applicable Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and performance by such Investor of
the transactions contemplated by this Agreement has been duly authorized by all necessary corporate
or, if such Investor is not a corporation, such partnership, limited liability company or other
applicable like action, on the part of such Investor. Each of this Agreement and the Registration
Rights Agreement has been duly executed by such Investor, and when delivered by such Investor in
accordance with terms hereof, will constitute the valid and legally binding obligation of such
Investor, enforceable against it in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.

          (b) Investment Intent. Such Investor is acquiring the Securities as principal for its
own account for investment purposes only and not with a view to or for distributing or reselling
such Securities or any part thereof, without prejudice, however, to such Investor’s right at all
times to sell or otherwise dispose of all or any part of such Securities in compliance with
applicable Federal and state securities laws. Subject to the immediately preceding sentence,

12

 

nothing contained herein shall be deemed a representation or warranty by such Investor to hold
the Securities for any period of time. Such Investor is acquiring the Securities hereunder in the
ordinary course of its business. Such Investor does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.

          (c) Investor Status. At the time such Investor was offered the Securities, it was,
and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the
Securities Act. Such Investor is not a registered broker-dealer under Section 15 of the Exchange
Act.

          (d) General Solicitation. Such Investor is not purchasing the Securities as a result
of any advertisement, article, notice or other communication regarding the Securities published in
any newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.

          (e) Access to Information. Such Investor acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has
deemed necessary of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Shares and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries and their respective
financial condition, results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision with respect to the investment.
Neither such inquiries nor any other investigation conducted by or on behalf of such Investor or
its representatives or counsel shall modify, amend or affect such Investor’s right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company’s representations and
warranties contained in the Transaction Documents.

          (f) Certain Trading Activities. Such Investor has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such Investor, engaged in any
transactions in the securities of the Company (including, without limitations, any Short Sales
involving the Company’s securities) since the earlier to occur of (1) the time that such Investor
was first contacted by the Company or any other Person regarding an investment in the Company and
(2) the 20th day prior to the public announcement of the transactions contemplated by
this Agreement. Such Investor covenants that neither it nor any Person acting on its behalf or
pursuant to any understanding with it will engage in any transactions in the securities of the
Company (including Short Sales) prior to the time that the transactions contemplated by this
Agreement are publicly disclosed.

          (g) Independent Investment Decision. Such Investor has independently evaluated the
merits of its decision to purchase Securities pursuant to this Agreement, and such Investor
confirms that it has not relied on the advice of any other Investor’s business and/or legal counsel
in making such decision. If such Investor is other than SF Capital Partners Ltd., such

13

 

Investor represents and warrants that Bryan Cave LLP has not acted as its legal counsel in
connection with the transactions contemplated by this Agreement.

The Company acknowledges and agrees that no Investor has made or makes any representations or
warranties with respect to the transactions contemplated hereby other than those specifically set
forth in this Section 3.2.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

     4.1 (a) Securities may only be disposed of in compliance with state and Federal securities
laws. In connection with any transfer of the Securities other than pursuant to an effective
registration statement, to the Company, to an Affiliate of an Investor or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide
to the Company an opinion of counsel selected by the transferor, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the Securities Act.

          (b) Certificates evidencing the Securities will contain the following legend, until such time
as they are not required under Section 4.1(c):

[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED] WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
[THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES]
[THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
SECURED BY SUCH SECURITIES.

          The Company acknowledges and agrees that an Investor may from time to time pledge, and/or
grant a security interest in some or all of the Securities pursuant to a bona fide margin agreement
in connection with a bona fide margin account and, if required under the terms of such agreement or
account, such Investor may transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval or

14

 

consent of the Company and no legal opinion of legal counsel to the pledgee, secured party or
pledgor shall be required in connection with the pledge, but such legal opinion may be required in
connection with a subsequent transfer following default by the Investor transferee of the pledge.
No notice shall be required of such pledge. At the appropriate Investor’s expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured party of Securities
may reasonably request in connection with a pledge or transfer of the Securities including the
preparation and filing of any required prospectus supplement under Rule 424(b)(3) of the Securities
Act or other applicable provision of the Securities Act to appropriately amend the list of selling
shareholders thereunder.

          (c) Certificates evidencing the Shares and Warrant Shares shall not contain any legend
(including the legend set forth in Section 4.1(b)): (i) following a sale of such Securities
pursuant to an effective registration statement (including the Registration Statement), (ii)
following a sale of such Shares or Warrant Shares pursuant to Rule 144 (assuming the transferor is
not an Affiliate of the Company), or (iii) while such Shares or Warrant Shares are eligible for
sale under Rule 144(k). Following such time as restrictive legends are not required to be placed
on certificates representing Shares or Warrant Shares pursuant to the preceding sentence, the
Company will, no later than three Trading Days following the delivery by an Investor to the Company
or the Company’s transfer agent of a certificate representing Shares or Warrant Shares containing a
restrictive legend, deliver or cause to be delivered to such Investor a certificate representing
such Shares or Warrant Shares that is free from all restrictive and other legends. The Company may
not make any notation on its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section.

     4.2 Furnishing of Information. As long as any Investor owns the Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as any Investor owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to the Investors and
make publicly available in accordance with Rule 144(c) such information as is required for the
Investors to sell the Shares and Warrant Shares under Rule 144. The Company further covenants that
it will take such further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell the Shares and Warrant Shares
without registration under the Securities Act within the limitation of the exemptions provided by
Rule 144.

     4.3 Integration. The Company shall not, and shall use its best efforts to ensure that
no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Investors, or that would be
integrated with the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market in a manner that would require shareholder approval of the sale of the
Securities to the Investors.

15

 

     4.4 Subsequent Registrations. Other than pursuant to the Registration Statement,
prior to the Effective Date, the Company may not file any registration statement (other than on
Form S-8) with the Commission with respect to any securities of the Company.

     4.5 Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York time) on the
Trading Day following the execution of this Agreement, and by 9:00 a.m. (New York time) on the
Trading Day following the Closing Date, the Company shall issue press releases in a form approved
by the Investors disclosing the transactions contemplated hereby and the Closing. On the Trading
Day following the execution of this Agreement, the Company will file a Current Report on Form 8-K
disclosing the material terms of the Transaction Documents (and attach as exhibits thereto the
Transaction Documents), and on the Trading Day following the Closing Date the Company will file an
additional Current Report on Form 8-K to disclose the Closing. In addition, the Company will make
such other filings and notices in the manner and time required by the Commission and the Trading
Market on which the Common Stock is listed. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Investor, or include the name of any Investor in any filing with
the Commission (other than the Registration Statement and any exhibits to filings made in respect
of this transaction in accordance with periodic filing requirements under the Exchange Act) or any
regulatory agency or Trading Market, without the prior written consent of such Investor, except to
the extent such disclosure is required by law or Trading Market regulations.

     4.6 Additional Shares.

          (a) If, prior to the one-year anniversary of the Closing Date (such one-year period being the
“Anti-Dilution Testing Period”), the Company issues (or agrees to issue) any shares of Common Stock
or if the Company or any Subsidiary issues (or agrees to issue) any Common Stock Equivalents
entitling any Person to acquire shares of Common Stock at a price per share less than the Threshold
Price (if the holder of the Common Stock or Common Stock Equivalent so issued shall at any time
during the Anti-Dilution Testing Period, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights issued in connection with such issuance, be entitled to receive shares of Common
Stock at a price less than the Threshold Price, such issuance shall be deemed to have occurred for
less than the Threshold Price), then, with each such issuance of Common Stock or Common Stock
Equivalents for a purchase price that is less than the Threshold Price, the Company shall
immediately issue additional shares of Common Stock (the “Additional Shares”) to each Investor for
no additional consideration. The number of Additional Shares issuable to each Investor will equal
the number of shares of Common Stock that such Investor’s Investment Amount would have purchased at
the Adjusted Per Share Purchase Price (as defined below) minus the number of shares of Common Stock
issued to such Investor pursuant to Section 2.2(a)(i) herein. The “Adjusted Per Share Purchase
Price” shall equal:

PSPP x [(N+v)/(N+n)]

where:

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PSPP = the Per Share Purchase Price.

N = the number of shares of Common Stock outstanding immediately
prior to the issuance of such shares of Common Stock or such Common
Stock Equivalents.

v = the number of shares of Common Stock which the aggregate
consideration receivable by the Company (determined in accordance
with subsection (c) below) would purchase at the Per Share Purchase
Price.

n = the number of shares of Common Stock issuable in connection with
such subsequent issuance.

The Company shall notify the Investors in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalent subject to this section, indicating therein
the applicable issuance price. The Additional Shares shall be entitled to the registration and
other rights set forth in the Registration Rights Agreement and any Additional Shares not
registered for resale shall also be afforded general piggyback registration rights (until such time
as the affected Investor can resell its Additional Shares pursuant to Rule 144(k)) such that such
Additional Shares may be included in any registration statement (other than on Form S-8) filed by
the Company. Notwithstanding the foregoing, no issuances of Additional Shares will be made under
this Section as a result of: (i) the issuance of Warrant Shares, (ii) to the extent consistent
with past practice, the grant of options or warrants, or the issuance of additional securities,
under any duly authorized Company stock option, restricted stock plan or stock purchase plan
whether now existing or approved by the Company and its shareholders in the future (but not as to
any amendments or other modifications to the number of Common Stock issuable thereunder, the terms
set forth therein, or the exercise price set forth therein, unless such amendments or other
modifications are approved by the Company’s shareholders), (iii) the issuance and sale by the
Company of shares of Common Stock or Common Stock Equivalents issued as consideration for the
acquisition of another company or business (including the grant of up to 100,000 options or
warrants to officers, employees and directors in connection with such an acquisition) if no
executive officer, director or 10% beneficial shareholder of the Company is an executive officer,
director or 10% beneficial shareholder of such other company or business, and if the acquisition
has been approved by the Board of Directors of the Company, (iv) the issuance of up to 200,000
shares of Common Stock or Common Stock Equivalents to a financial institution or leasing company
primarily in connection with any debt or lease financing transaction or the establishment or
maintenance of any line of credit (other than equity lines or similar transactions) or (v) the
issuance of any Common Stock or Common Stock Equivalents upon the exercise, conversion or exchange
of Options or Convertible Securities (as those terms are defined in subsection (c)(i) below)
outstanding on the date hereof. If during the Anti-Dilution Testing Period, the Company enters
into any understanding or agreement to issue or sell securities that would, if such issuance or
sale were to occur during the Anti-Dilution Testing Period, trigger an obligation to issue
Additional Shares, then notwithstanding the fact that such actual issuance of Common Stock or
Common Stock Equivalents occurs after the Anti-Dilution

17

 

Testing Period, such issuance will obligate the Company to issue Additional Shares under this
Section.

          (b) Certain Limitations.

               (i) Notwithstanding anything to the contrary contained herein, the number of Additional Shares
that may be acquired at any given time by an Investor pursuant to this Section shall be limited to
the extent necessary to insure that, following such issuance, the total number of shares of Common
Stock then beneficially owned by such Investor and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section
13(d) of the Exchange Act, does not exceed 4.9% of the total number of issued and outstanding
shares of Common Stock (including for such purpose the issuance of Additional Shares). For such
purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. By written notice to the Company, an
Investor may waive the provisions of this Section 4.6(b) as to itself but any such waiver will not
be effective until the 61st day after delivery thereof and such waiver shall have no
effect on any other Investor.

               (ii) Notwithstanding anything to the contrary contained herein, the number of Additional
Shares that may be acquired by an Investor pursuant to this Section shall be limited to the extent
necessary to insure that, following such issuance, the total number of shares of Common Stock then
beneficially owned by such Investor and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of
the Exchange Act, does not exceed 9.9% of the total number of issued and outstanding shares of
Common Stock (including for such purpose the issuance of Additional Shares). For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder. This restriction may not be waived.

               (iii) The Company and each Investor agree that, if and to the extent Sections 4.6(b)(i)-(ii)
would restrict the ability of an Investor to receive any Additional Shares, then notwithstanding
anything to the contrary set forth herein, the Company shall deliver those Additional Shares as may
be acquired by such Investor in accordance with Sections 4.6(b)(i)-(ii). An Investor will promptly
notify the Company in writing if the issuance of Additional Shares would be restricted by Sections
4.6(b)(i)-(ii), specifying therein the Additional Shares so restricted. Such Investor shall
deliver a notice to the Company when it is able to acquire any remaining Additional Shares not
previously deliverable to such Investor due to the applicability of Sections 4.6(b)(i)-(ii),
however, such notice shall not take effect until the 61st day following delivery
thereof.

          (c) For purposes of this Section 4.6, the following subsections (c)(i) to (c)(vi) shall also
be applicable:

               (i) Issuance of Rights or Options. If at any time the Company shall in any manner
grant (directly and not by assumption in a merger or otherwise) any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of, Common Stock or

18

 

any stock or security convertible into or exchangeable for Common Stock (such warrants, rights
or options being called “Options” and such convertible or exchangeable stock or securities being
called “Convertible Securities”) whether or not such Options or the right to convert or exchange
any such Convertible Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (i) the sum (which sum shall constitute the
applicable consideration) of (x) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus (y) the aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options, plus (z), in the case
of such Options which relate to Convertible Securities, the aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than the Threshold Price in
effect immediately prior to the time of the granting of such Options, then the total number of
shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of
the total amount of such Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of granting of such Options or
the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding for
purposes of adjusting the Per Share Purchase Price. Except as otherwise provided in subsection
4.6(c)(iii), no adjustment of the Per Share Purchase Price shall be made upon the actual issue of
such Common Stock or of such Convertible Securities upon exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of such Convertible Securities.

               (ii) Issuance of Convertible Securities. If the Company shall in any manner issue
(directly and not by assumption in a merger or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the
total number of shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Threshold Price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding for purposes of calculating the Per Share Purchase
Price, provided that (a) except as otherwise provided in subsection 4.6(c)(iii), no adjustment of
the Per Share Purchase Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities and (b) no further adjustment of the Per
Share Purchase Price shall be made by reason of the issue or sale of Convertible Securities upon
exercise of any Options to purchase any such

19

 

Convertible Securities for which adjustments of the Per Share Purchase Price have been made
pursuant to the other provisions of subsection 4.6(c).

               (iii) Change in Option Price or Conversion Rate. Upon the happening of any of the
following events, namely, if the purchase price provided for in any Option referred to in
subsection 4.6(c)(i) hereof, the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subsections 4.6(c)(i) or 4.6(c)(ii), or the
rate at which Convertible Securities referred to in subsections 4.6(c)(i) or 4.6(c)(ii) are
convertible into or exchangeable for Common Stock shall change at any time (including, but not
limited to, changes under or by reason of provisions designed to protect against dilution), the Per
Share Purchase Price in effect at the time of such event shall forthwith be readjusted to the Per
Share Purchase Price which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued or sold. On the
termination of any Option for which any adjustment was made pursuant to this subsection 4.6(c) or
any right to convert or exchange Convertible Securities for which any adjustment was made pursuant
to this subsection 4.6(c) (including without limitation upon the redemption or purchase for
consideration of such Convertible Securities by the Company), the Per Share Purchase Price then in
effect hereunder shall forthwith be changed to the Per Share Purchase Price which would have been
in effect at the time of such termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never been issued.

               (iv) Stock Dividends. Subject to the provisions of this Section 4.6(c), if the
Company shall declare a dividend or make any other distribution upon any stock of the Company
(other than the Common Stock) payable in Common Stock, Options or Convertible Securities, then any
Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold without consideration.

               (v) Consideration for Stock. If any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor, after deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the Company in
connection therewith. If any shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Company, after deduction of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Company in connection therewith.
If any Options shall be issued in connection with the issue and sale of other securities of the
Company, together comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed to have been issued
for such consideration as determined in good faith by the Board of Directors of the Company. If
Common Stock, Options or Convertible Securities shall be issued or sold by the Company and, in
connection therewith,

20

 

other Options or Convertible Securities (the “Additional Rights”) are issued, then the
consideration received or deemed to be received by the Company shall be reduced by the fair market
value of the Additional Rights (as determined using the Black-Scholes option pricing model or
another method mutually agreed to by the Company and the Investors). The Board of Directors of the
Company shall respond promptly, in writing, to an inquiry by the Investors as to the fair market
value of the Additional Rights. In the event that the Board of Directors of the Company and the
Investors are unable to agree upon the fair market value of the Additional Rights, the Company and
the Investors shall jointly select an appraiser, who is experienced in such matters. The decision
of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne
evenly by the Company and the Investors.

               (vi) Record Date. If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the granting of such right
of subscription or purchase, as the case may be.

     4.7 Limitation on Issuance of Future Priced Securities. During the six months
following the Closing Date, the Company shall not issue any “Future Priced Securities” as such term
is described by NASD IM-4350-1.

     4.8 Indemnification of Investors. In addition to the indemnity provided in the
Registration Rights Agreement, the Company will indemnify and hold the Investors and their
directors, officers, shareholders, partners, employees and agents (each, an “Investor Party”)
harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs
and expenses, including all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation (collectively, “Losses”) that any such Investor Party
may suffer or incur as a result of or relating to any misrepresentation, breach or inaccuracy of
any representation, warranty, covenant or agreement made by the Company in any Transaction
Document. In addition to the indemnity contained herein, the Company will reimburse each Investor
Party for its reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection therewith, as such expenses
are incurred.

     4.9 Non-Public Information. The Company covenants and agrees that neither it nor any
other Person acting on its behalf will provide any Investor or its agents or counsel with any
information that the Company believes constitutes material non-public information, unless prior
thereto such Investor shall have executed a written agreement regarding the confidentiality and use
of such information. The Company understands and confirms that each Investor shall be relying on
the foregoing representations in effecting transactions in securities of the Company.

     4.10 Listing of Securities. The Company agrees, (i) if the Company applies to have
the Common Stock traded on any other Trading Market, it will include in such application the

21

 

Shares and Warrant Shares, and will take such other action as is necessary or desirable to
cause the Shares and Warrant Shares to be listed on such other Trading Market as promptly as
possible, and (ii) it will take all action reasonably necessary to continue the listing and trading
of its Common Stock on a Trading Market and will comply in all material respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the Trading Market.

     4.11 Use of Proceeds. The Company will use the net proceeds from the sale of the
Securities hereunder for working capital purposes and not for the satisfaction of any portion of
the Company’s debt (other than payment of trade payables and accrued expenses in the ordinary
course of the Company’s business and consistent with prior practices), or to redeem any Common
Stock or Common Stock Equivalents.

ARTICLE V.

CONDITIONS PRECEDENT TO CLOSINGS

     5.1 Conditions Precedent to the Obligations of the Investors to Purchase Securities.
The obligation of each Investor to acquire Securities at the Closing is subject to the satisfaction
or waiver by such Investor, at or before such Closing, of each of the following conditions:

          (a) Representations and Warranties. The representations and warranties of the Company
contained herein shall be true and correct in all material respects as of the date when made and as
of such Closing as though made on and as of such date;

          (b) Performance. The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by it at or prior to such Closing;

          (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;

          (d) Adverse Changes. Since the date of execution of this Agreement, no event or
series of events shall have occurred that reasonably could have or result in a Material Adverse
Effect;

          (e) No Suspensions of Trading in Common Stock; Listing. Trading in the Common Stock
shall not have been suspended by the Commission or any Trading Market (except for any suspensions
of trading of not more than one Trading Day solely to permit dissemination of material information
regarding the Company) at any time since the date of execution of this Agreement, and the Common
Stock shall have been at all times since such date listed for trading on a Trading Market;

          (f) Company Deliverables. The Company shall have delivered the Company Deliverables
in accordance with Section 2.2(a); and

22

 

          (g) Closing Officer’s Certificate. At the Closing, the Company shall have delivered
to each Investor an officer’s certificate to the effect that each of the conditions specified in
Sections 5.1(a) — 5.1(e) is satisfied in all respects.

     5.2 Conditions Precedent to the Obligations of the Company to sell Securities. The
obligation of the Company to sell Securities at the Closing is subject to the satisfaction or
waiver by the Company, at or before such Closing, of each of the following conditions:

          (a) Representations and Warranties. The representations and warranties of each
Investor contained herein shall be true and correct in all material respects as of the date when
made and as of such Closing as though made on and as of such date;

          (b) Performance. Each Investor shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Investor at or prior to such Closing;

          (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents; and

          (d) Investors Deliverables. Each Investor shall have delivered its Investors
Deliverables in accordance with Section 2.2(b).

ARTICLE VI.

MISCELLANEOUS

     6.1 Fees and Expenses. At the Closing, the Company shall reimburse SF Capital
Partners Ltd. $25,000 in connection with its legal fees concerning the transactions contemplated by
the Transaction Documents (SF Capital Partners Ltd. may deduct such amount from the portion of its
Investment Amount deliverable to the Company at the Closing), it being understood that Bryan Cave
LLP has only rendered legal advice to SF Capital Partners Ltd., and not to the Company or any
Investor in connection with the transactions contemplated hereby, and that each of the Company and
each Investor has relied for such matters on the advice of its own respective counsel. Except as
specified in the immediately preceding sentence and in the Registration Rights Agreement, each
party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of the Transaction Documents. The Company shall pay all stamp
and other taxes and duties levied in connection with the sale of the Securities.

     6.2 Entire Agreement. The Transaction Documents, together with the Schedules thereto,
contain the entire understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements, understandings, discussions and representations, oral or

23

 

written, with respect to such matters, which the parties acknowledge have been merged into
such documents, exhibits and schedules.

     6.3 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of (a) the date of transmission, if such notice or communication is delivered via
facsimile (provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section on a day
that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the
Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as follows:

	 	 	 
	     If to the Company:

	 	Uroplasty, Inc.

2718 Summer Street NE

Minneapolis, MN 55413

Facsimile: (612) 378-2027

Attn.: Sam B. Humphries, President and CEO
	 
	 	 
	     With a copy to:

	 	Messerli & Kramer P.A.

150 South Fifth Street, Suite 1800

Minneapolis, MN 55402

Facsimile: (612) 672-3777

Attn.: Jeffrey C. Robbins, Esq.
	 
	 	 
	     If to an Investor:

	 	To the address set forth under such Investor’s name
on the signature pages hereof; or such other address as may be
designated in writing hereafter, in the same manner, by such
Person.

     6.4 Amendments; Waivers; No Additional Consideration. No provision of this Agreement
may be waived or amended except in a written instrument signed by the Company and the Investors
holding a majority of the Shares. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future
or a waiver of any subsequent default or a waiver of any other provision, condition or requirement
hereof, nor shall any delay or omission of either party to exercise any right hereunder in any
manner impair the exercise of any such right. No consideration shall be offered or paid to any
Investor to amend or consent to a waiver or modification of any provision of any Transaction
Document unless the same consideration is also offered to all Investors who then hold Shares.

     6.5 Termination. This Agreement may be terminated prior to Closing:

24

 

          (a) by written agreement of the Investors and the Company;

          (b) by the Company or an Investor (as to itself but no other Investor) upon written notice to
the other, if the Closing shall not have taken place by 6:30 p.m. Eastern time on the Outside Date;
provided, that the right to terminate this Agreement under this Section 6.5(b) shall not be
available to any Person whose failure to comply with its obligations under this Agreement has been
the cause of or resulted in the failure of the Closing to occur on or before such time; or

          (c) by an Investor (as to itself but no other Investor) if it concludes in good faith that any
of the conditions precedent contained in Section 5.1(c), (d) or (e) shall have been breached or
shall not be capable of being satisfied by the Outside Date despite the assumed best efforts of the
Company.

     In the event of a termination pursuant to this Section, the Company shall promptly notify all
non-terminating Investors and shall pay to SF Capital Partners Ltd. all of the fees and expenses
incurred by SF Capital Partners Ltd. (including reasonable legal fees and expenses) in connection
with this Agreement and the transactions contemplated by this Agreement through the termination
date (provided, that the aggregate of such fees payable to SF Capital Partners Ltd. does
not exceed the total reimburseable amount pursuant to Section 6.1). Other than as to the foregoing
fees and expenses, upon a termination in accordance with this Section 6.5, the Company and the
terminating Investor(s) shall not have any further obligation or liability (including as arising
from such termination) to the other and no Investor will have any liability to any other Investor
under the Transaction Documents as a result therefrom.

     6.6 Construction. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
The language used in this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied against any party.
This Agreement shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement or any of the Transaction Documents.

     6.7 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of the
Investors. Any Investor may assign any or all of its rights under this Agreement to any Person to
whom such Investor assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the
“Investors.”

     6.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.7 (as to each Investor Party).

25

 

     6.9 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party agrees that all Actions concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the New York Courts. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of the any of the Transaction Documents), and hereby irrevocably waives,
and agrees not to assert in any Action, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Action has been commenced in an improper or
inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such Action by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law. Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence an Action to enforce any
provisions of a Transaction Document, then the prevailing party in such Action shall be reimbursed
by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such Action.

     6.10 Survival. The representations, warranties, agreements and covenants contained
herein shall survive the Closing and the delivery of the Securities.

     6.11 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid and binding obligation
of the party executing (or on whose behalf such signature is executed) with the same force and
effect as if such facsimile signature page were an original thereof.

     6.12 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt
to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.

     6.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction Documents,

26

 

whenever any Investor exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within the periods therein
provided, then such Investor may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

     6.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with the issuance of such
replacement Securities. If a replacement certificate or instrument evidencing any Securities is
requested due to a mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a replacement.

     6.15 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, each of the Investors and the Company will be
entitled to specific performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law would be adequate.

     6.16 Payment Set Aside. To the extent that the Company makes a payment or payments to
any Investor pursuant to any Transaction Document or an Investor enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any
part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or Federal law, common law or equitable cause of action), then to the extent
of any such restoration the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

     6.17 Independent Nature of Investors’ Obligations and Rights. The obligations of each
Investor under any Transaction Document are several and not joint with the obligations of any other
Investor, and no Investor shall be responsible in any way for the performance of the obligations of
any other Investor under any Transaction Document. The decision of each Investor to purchase
Securities pursuant to the Transaction Documents has been made by such Investor independently of
any other Investor. Nothing contained herein or in any Transaction Document, and no action taken
by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to

27

 

such obligations or the transactions contemplated by the Transaction Documents. Each Investor
acknowledges that no other Investor has acted as agent for such Investor in connection with making
its investment hereunder and that no Investor will be acting as agent of such Investor in
connection with monitoring its investment in the Securities or enforcing its rights under the
Transaction Documents. Each Investor shall be entitled to independently protect and enforce its
rights, including without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Investor to be joined as an
additional party in any proceeding for such purpose. The Company acknowledges that each of the
Investors has been provided with the same Transaction Documents for the purpose of closing a
transaction with multiple Investors and not because it was required or requested to do so by any
Investor.

     6.18 Limitation of Liability. Notwithstanding anything herein to the contrary, the
Company acknowledges and agrees that the liability of an Investor arising directly or indirectly,
under any Transaction Document of any and every nature whatsoever shall be satisfied solely out of
the assets of such Investor, and that no trustee, officer, other investment vehicle or any other
Affiliate of such Investor or any investor, shareholder or holder of shares of beneficial interest
of such a Investor shall be personally liable for any liabilities of such Investor.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOLLOW]

28

 

     IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be
duly executed by their respective authorized signatories as of the date first indicated above.

	 	 	 	 	 
	 	UROPLASTY, INC.

 	 
	 	By:  	
 	 
	 	 	Sam B. Humphries, President 	 
	 	 	and Chief Executive Officer 	 
	 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR INVESTORS FOLLOW]

29

 

     IN WITNESS WHEREOF, the parties have executed this Security Purchase Agreement as of the date
first written above.

	 	 	 	 	 
	 	 	NAME OF INVESTOR
	 
	 	 	 	 
	 	 	                                                                                                    
	

	 	By:
	 	Name:
	

	 	 	 	Title:
	 
	 	 	 	 
	 	 	Investment Amount: $                                                            
	 
	 	 	 	 
	 	 	Tax ID No.:                                                                                
	 
	 	 	 	 
	 	 	ADDRESS FOR NOTICE
	 
	 	 	 	 
	 	 	c/o:                                                                                                    
	 
	 	 	 	 
	 	 	Street:                                                                                
	 
	 	 	 	 
	 	 	City/State/Zip:                                                                                
	 
	 	 	 	 
	 	 	Attention:                                                                                
	 
	 	 	 	 
	 	 	Tel:                                                                                                    
	 
	 	 	 	 
	 	 	Fax:                                                                                                    
	 
	 	 	 	 
	 	 	DELIVERY INSTRUCTIONS

(if different from above)
	 
	 	 	 	 
	 	 	c/o:                                                                                                    
	 
	 	 	 	 
	 	 	Street:                                                                                
	 
	 	 	 	 
	 	 	City/State/Zip:                                                                                
	 
	 	 	 	 
	 	 	Attention:                                                                                
	 
	 	 	 	 
	 	 	Tel:                                                                                

30exv10w21

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

UROPLASTY, INC.

WARRANT

	 	 	 
	Warrant No. [    ]

	 	Original Issue Date: April [    ], 2005

     Uroplasty, Inc., a Minnesota corporation (the “Company”), hereby certifies that, for value
received, [ ] or its registered assigns (the “Holder”), is entitled to purchase from the
Company up to a total of [
]1 shares of Common Stock (each such share, a
“Warrant Share” and all such shares, the “Warrant Shares”), at any time and from time to time on
and after the Original Issue Date and through and including April [ ], 2010 (the “Expiration
Date”), and subject to the following terms and conditions:

     1. Definitions. As used in this Warrant, the following terms shall have the
respective definitions set forth in this Section 1. Capitalized terms that are used and not
defined in this Warrant that are defined in the Purchase Agreement (as defined below) shall have
the respective definitions set forth in the Purchase Agreement.

     “Business Day” means any day except Saturday, Sunday and any day which is a Federal legal
holiday or a day on which banking institutions in the State of New York or Minnesota are authorized
or required by law or other governmental action to close.

	1 A number of shares equal to 50% of the number
of shares of Common Stock issued or issuable to the Holder at Closing in
accordance with Section 2.2(a)(i) of the Purchase Agreement (without regard to
any conversion caps or other limitations thereunder).

 

 

     “Common Stock” means the common stock of the Company, par value $.01 per share, and any
securities into which such common stock may hereafter be reclassified.

     “Exercise Price” means $4.75, subject to adjustment in accordance with Section 9.

     “Fundamental Transaction” means any of the following: (1) the Company effects any merger or
consolidation of the Company with or into another Person, (2) the Company effects any sale of all
or substantially all of its assets in one or a series of related transactions, (3) any tender offer
or exchange offer (whether by the Company or another Person) is completed pursuant to which holders
of Common Stock are permitted to tender or exchange their shares for other securities, cash or
property, or (4) the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into or exchanged for
other securities, cash or property.

     “Original Issue Date” means the Original Issue Date first set forth on the first page of this
Warrant.

     “New York Courts” means the state and Federal courts sitting in the City of New York, Borough
of Manhattan.

     “Purchase Agreement” means the Securities Purchase Agreement, dated April [ ], 2005, to which
the Company and the original Holder are parties.

     “Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market, or (ii)
if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted
in the over-the-counter market as reported by the Pink Sheets, LLC (or any similar organization or
agency succeeding to its functions of reporting prices); provided, that in the event that the
Common Stock is not listed or quoted as set forth in (i) and (ii) hereof, then Trading Day shall
mean a Business Day.

     2. Registration of Warrant. The Company shall register this Warrant upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary.

     3. Registration of Transfers. The Company shall register the transfer of any portion
of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the Company at its address specified
herein. Upon any such registration or transfer, a new Warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the
portion of this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed
the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.

2

 

     4. Exercise and Duration of Warrants.

          (a) This Warrant shall be exercisable by the registered Holder at any time and from time to
time on or after the Original Issue Date and through and including the Expiration Date. At 6:30
p.m. (New York City time) on the Expiration Date, the portion of this Warrant not exercised prior
thereto shall be and become void and of no value. Except as set forth below in Section 4(b), the
Company may not call or redeem any portion of this Warrant without the prior written consent of the
affected Holder.

          (b) Subject to the provisions of this Section 4(b), if at any time following the two-year
anniversary of the Original Issue Date, (i) the closing price of the Common Stock for each of the
30 consecutive Trading Days immediately prior to delivery of a Call Notice is greater than $9.00
(subject to equitable adjustment as a result of the events set forth in Section 9), (ii) the
average daily trading volume of the Common Stock during the entire 30 Trading Day period referenced
in clause (i) above through the expiration of the Call Date (as defined below) as set forth in the
Company’s notice pursuant to this Section (the “Call Condition Period”) shall be at least 5,000
shares (subject to equitable adjustment as a result of intervening stock splits and reverse stock
splits), (iii) the Warrant Shares are either registered for resale pursuant to an effective
registration statement naming the Holder as a selling stockholder thereunder (and the prospectus
thereunder is available for use by the Holder as to all Warrant Shares) or freely transferable
without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act, 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, during
the entire Call Condition Period, and (iv) the Company shall have complied in all material respects
with its obligations under this Warrant and the Transaction Documents and the Common Stock shall at
all times be listed or quoted on a Trading Market 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 fifth
(5th) 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 such Call Notice
shall be null and void. The Company and the Holder agree that, if and to the extent Section 11 of
this Warrant would restrict the ability of the Holder to exercise this Warrant in the event of a
delivery of a Call Notice, then notwithstanding anything to the contrary set forth in the Call
Notice, the Call Notice shall be deemed automatically amended to apply only to such portion of this
Warrant as may be exercised by the Holder by the Call Date in accordance with such Sections as are
then in effect. The Holder will promptly (and, in any event, prior to the Call Date) notify the
Company in writing following receipt of a Call Notice if Section 11 would restrict its exercise of
the Warrant, specifying therein the number of Warrant Shares so restricted. The Company covenants
and agrees that it will honor all Exercise Notices tendered through 6:30 p.m. (New York City time)
on the Call Date.

3

 

     5. Delivery of Warrant Shares.

          (a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant unless the aggregate Warrant Shares represented by this Warrant is being exercised.
Upon delivery of the Exercise Notice (in the form attached hereto) to the Company (with the
attached Warrant Shares Exercise Log) at its address for notice set forth herein and upon payment
of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to
purchase hereunder, the Company shall promptly (but in no event later than three Trading Days after
the Date of Exercise (as defined herein)) issue and deliver to the Holder, a certificate for the
Warrant Shares issuable upon such exercise, which, unless otherwise required by the Purchase
Agreement, shall be free of restrictive legends. The Company shall, upon request of the Holder and
subsequent to the date on which a registration statement covering the resale of the Warrant Shares
has been declared effective by the Securities and Exchange Commission, use its reasonable best
efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions, if available,
provided, that, the Company may, but will not be required to change its transfer agent if
its current transfer agent cannot deliver Warrant Shares electronically through the Depository
Trust Corporation. A “Date of Exercise” means the date on which the Holder shall have delivered to
the Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) if such Holder is not utilizing the cashless exercise provisions
set forth in this Warrant, payment of the Exercise Price for the number of Warrant Shares so
indicated by the Holder to be purchased.

          (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

          (c) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after
such third Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale
by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a
“Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares
that the Company was required to deliver to the Holder in connection with the exercise at issue by
(B) the closing bid price of the Common Stock on the Date of Exercise and (2) at the option of the
Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its exercise and delivery
obligations hereunder. The Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In.

          (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision

4

 

hereof, the recovery of any judgment against any Person or any action to enforce the same, or
any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by
the Holder or any other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in connection with the
issuance of Warrant Shares. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s failure to timely
deliver certificates representing Warrant Shares upon exercise of the Warrant as required pursuant
to the terms hereof.

     6. Charges, Taxes and Expenses. Issuance and delivery of Warrant Shares upon exercise
of this Warrant shall be made without charge to the Holder for any issue or transfer tax,
withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance
of such certificates, all of which taxes and expenses shall be paid by the Company; provided,
however, that the Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a
name other than that of the Holder. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon
exercise hereof.

     7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity (which shall not include a surety bond), if requested.
Applicants for a New Warrant under such circumstances shall also comply with such other reasonable
regulations and procedures and pay such other reasonable third-party costs as the Company may
prescribe. If a New Warrant is requested as a result of a mutilation of this Warrant, then the
Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the
Company’s obligation to issue the New Warrant.

     8. Reservation of Warrant Shares. The Company covenants that it will at all times
reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of Persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

     9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time as set forth in this
Section 9.

5

 

          (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is
outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of
Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to
clause (i) of this paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution, and any adjustment
pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the
effective date of such subdivision or combination.

          (b) Fundamental Transactions. If, at any time while this Warrant is outstanding there
is a Fundamental Transaction, then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the same amount and kind of securities, cash or property as it would have
been entitled to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the “Alternate Consideration”). For purposes of
any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative
value of any different components of the Alternate Consideration. If holders of Common Stock are
given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder’s
option and request, any successor to the Company or surviving entity in such Fundamental
Transaction shall, either (1) issue to the Holder a new warrant substantially in the form of this
Warrant and consistent with the foregoing provisions and evidencing the Holder’s right to purchase
the Alternate Consideration for the aggregate Exercise Price upon exercise thereof, or (2) purchase
the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after
such request (or, if later, on the effective date of the Fundamental Transaction), equal to the
Black Scholes value of the remaining unexercised portion of this Warrant on the date of such
request; provided, that the second choice is unavailable if the Fundamental Transaction is
a merger effected solely for the purpose of reincorporating the Company in a different
jurisdiction. The terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply with the provisions
of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

          (c) Subsequent Equity Sales.

               (i) If during the Anti-Dilution Testing Period, the Company issues (or agrees to issue) any
shares of Common Stock or if the Company or any Subsidiary issues (or agrees to issue) any Common
Stock Equivalents entitling any Person to acquire shares of

6

 

Common Stock at a price per share less than the Threshold Price (if the holder of the Common
Stock or Common Stock Equivalent so issued shall at any time during the Anti-Dilution Testing
Period, whether by operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights issued in
connection with such issuance, be entitled to receive shares of Common Stock at a price less than
the Threshold Price, such issuance shall be deemed to have occurred for less than the Threshold
Price), then, the Exercise Price (“EP”) shall be adjusted as follows:

	 	 	 
	

	 	AEP = EP x [(N+v)/(N+n)]
	 
	 	 
	

	 	where:

	 	 	 
	

	 	AEP = the Adjusted Exercise Price.
	 
	 	 
	

	 	N = the number of shares of Common Stock outstanding immediately
prior to the issuance of such shares of Common Stock or such Common
Stock Equivalents.
	 
	 	 
	

	 	v = the number of shares of Common Stock which the aggregate
consideration receivable by the Company (determined in accordance
with subsection 9(c)(ii) below) would purchase at the Per Share
Purchase Price.
	 
	 	 
	

	 	n = the number of shares of Common Stock issuable in connection with
such subsequent issuance.

Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.
The Company shall notify the Holder in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalent subject to this section, indicating therein
the applicable issuance price, or of applicable reset price, exchange price, conversion price and
other pricing terms. If during the Anti-Dilution Testing Period, the Company enters into any
understanding or agreement to issue or sell securities that would, if such issuance were to occur
during the Anti-Dilution Testing Period, trigger an adjustment to the Exercise Price, then
notwithstanding the fact that such actual issuance of Common Stock or Common Stock Equivalents
occurs after the Anti-Dilution Testing Period, such issuance will be treated as if it had occurred
during the Anti-Dilution Testing Period.

               (ii) For purposes of this subsection 9(c), the following subsections (c)(ii)(l) to (c)(ii)(6)
shall also be applicable:

                    (1) Issuance of Rights or Options. If at any time the Company shall in any manner
grant (directly and not by assumption in a merger or otherwise) any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants, rights or options being
called “Options” and such convertible or exchangeable stock or securities being called “Convertible
Securities”) whether or not such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which Common Stock is issuable
upon the exercise of such Options or upon the

7

 

conversion or exchange of such Convertible Securities (determined by dividing (i) the sum
(which sum shall constitute the applicable consideration) of (x) the total amount, if any, received
or receivable by the Company as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Company upon the exercise of all such
Options, plus (z), in the case of such Options which relate to Convertible Securities, the
aggregate amount of additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be
less than the Threshold Price in effect immediately prior to the time of the granting of such
Options, then the total number of shares of Common Stock issuable upon the exercise of such Options
or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such price per share as of the
date of granting of such Options or the issuance of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Exercise Price. Except as
otherwise provided in subsection 9(c)(ii)(3), no adjustment of the Exercise Price shall be made
upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such
Options or upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.

                    (2) Issuance of Convertible Securities. If the Company shall in any manner issue
(directly and not by assumption in a merger or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount received or receivable by the Company as consideration for
the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the
total number of shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Threshold Price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding for purposes of adjusting the Exercise Price, provided
that (a) except as otherwise provided in subsection 9(c)(ii)(3), no adjustment of the Exercise
Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities and (b) no further adjustment of the Exercise Price shall be made by
reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of the Exercise Price have been made pursuant to
the other provisions of subsection 9(c).

                    (3) Change in Option Price or Conversion Rate. Upon the happening of any of the
following events, namely, if the purchase price provided for in any Option referred to in
subsection 9(c)(ii)(l) hereof, the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subsections 9(c)(ii)(l) or 9(c)(ii)(2), or
the rate at which Convertible Securities referred to in subsections

8

 

9(c)(ii)(l) or 9(c)(ii)(2) are convertible into or exchangeable for Common Stock shall change
at any time (including, but not limited to, changes under or by reason of provisions designed to
protect against dilution), the Exercise Price in effect at the time of such event shall forthwith
be readjusted to the Exercise Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially granted, issued or
sold. On the termination of any Option for which any adjustment was made pursuant to this
subsection 9(c) or any right to convert or exchange Convertible Securities for which any adjustment
was made pursuant to this subsection 9(c) (including without limitation upon the redemption or
purchase for consideration of such Convertible Securities by the Company), the Exercise Price then
in effect hereunder shall forthwith be changed to the Exercise Price which would have been in
effect at the time of such termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never been issued.

                    (4) Stock Dividends. Subject to the provisions of this Section 9(c), if the Company
shall declare a dividend or make any other distribution upon any stock of the Company (other than
the Common Stock) payable in Common Stock, Options or Convertible Securities, then any Common
Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without consideration.

                    (5) Consideration for Stock. If any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor, after deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the Company in
connection therewith. If any shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Company, after deduction of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Company in connection therewith.
If any Options shall be issued in connection with the issue and sale of other securities of the
Company, together comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed to have been issued
for such consideration as determined in good faith by the Board of Directors of the Company. If
Common Stock, Options or Convertible Securities shall be issued or sold by the Company and, in
connection therewith, other Options or Convertible Securities (the “Additional Rights”) are issued,
then the consideration received or deemed to be received by the Company shall be reduced by the
fair market value of the Additional Rights (as determined using the Black-Scholes option pricing
model or another method mutually agreed to by the Company and the Holder). The Board of Directors
of the Company shall respond promptly, in writing, to an inquiry by the Holders as to the fair
market value of the Additional Rights. In the event that the Board of Directors of the Company and
the Holders are unable to agree upon the fair market value of the Additional Rights, the Company
and the Holders shall jointly select an appraiser, who is experienced in such matters. The
decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be
borne evenly by the Company and the Holder.

9

 

                    (6) Record Date. If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the granting of such right
of subscription or purchase, as the case may be.

               (iii) Notwithstanding the foregoing, no adjustment will be made under this paragraph (c) in
respect of: (i) the issuance of Warrant Shares, (ii) to the extent consistent with past practice,
the grant of options or warrants, or the issuance of additional securities, under any duly
authorized Company stock option, restricted stock plan or stock purchase plan whether now existing
or approved by the Company and its shareholders in the future (but not as to any amendments or
other modifications to the number of Common Stock issuable thereunder, the terms set forth therein,
or the exercise price set forth therein, unless such amendments or other modifications are approved
by the Company’s shareholders), (iii) the issuance and sale by the Company of shares of Common
Stock or Common Stock Equivalents issued as consideration for the acquisition of another company or
business (including the grant of up to 100,000 options or warrants to officers, employees and
directors in connection with such an acquisition) if no executive officer, director or 10%
beneficial shareholder of the Company is an executive officer, director or 10% beneficial
shareholder of such other company or business, and if the acquisition has been approved by the
Board of Directors of the Company, (iv) the issuance of up to 200,000 shares of Common Stock or
Common Stock Equivalents to a financial institution or leasing company primarily in connection with
any debt or lease financing transaction or the establishment or maintenance of any line of credit
(other than equity lines or similar transactions) or (v) the issuance of any Common Stock or Common
Stock Equivalents upon the exercise, conversion or exchange of Options or Convertible Securities
(as those terms are defined in Section 9(c)(ii)(1) above) outstanding on the date hereof.

          (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to this Section 9, the number of Warrant Shares that may be purchased upon exercise
of this Warrant shall be increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant Shares shall be the
same as the aggregate Exercise Price in effect immediately prior to such adjustment.

          (e) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of
Common Stock outstanding at any given time shall not include shares owned or held by or for the
account of the Company, and the disposition of any such shares shall be considered an issue or sale
of Common Stock.

          (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company at its expense will promptly compute such adjustment in accordance
with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the

10

 

transactions giving rise to such adjustments and showing in detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s Transfer Agent.

          (g) Notice of Corporate Events. If the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Common Stock, including
without limitation any granting of rights or warrants to subscribe for or purchase any capital
stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement
contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes
the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall deliver to the Holder a notice describing the material terms and conditions of such
transaction (but only to the extent such disclosure would not result in the dissemination of
material, non-public information to the Holder) at least 10 calendar days prior to the applicable
record or effective date on which a Person would need to hold Common Stock in order to participate
in or vote with respect to such transaction, and the Company will take all steps reasonably
necessary in order to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such transaction;
provided, however, that the failure to deliver such notice or any defect therein shall not affect
the validity of the corporate action required to be described in such notice.

     10. Payment of Exercise Price. The Holder may pay the Exercise Price in one of the
following manners:

          (a) Cash Exercise. The Holder may deliver immediately available funds; or

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

	 	 	 
	

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

	 	 	 
	

	 	where:

	 	 	 
	

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

	 	Y = the number of Warrant 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 Warrant Shares issued in a cashless exercise transaction shall be deemed

11

 

to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed
to have commenced, on the date this Warrant was originally issued.

     11. Limitations on Exercise.

          (a) Notwithstanding anything to the contrary contained herein, the number of Warrant Shares
that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by such Holder and
its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed 4.9% of the
total number of issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. This provision shall not restrict the number of shares of Common Stock
which a Holder may receive or beneficially own in order to determine the amount of securities or
other consideration that such Holder may receive in the event of a Fundamental Transaction as
contemplated in Section 9 of this Warrant. By written notice to the Company, an Investor may waive
the provisions of this Section 11(a) as to itself but any such waiver will not be effective until
the 61st day after delivery thereof and such waiver shall have no effect on any other
Investor.

          (b) Notwithstanding anything to the contrary contained herein, the number of Warrant Shares
that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by such Holder and
its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed 9.9% of the
total number of issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall
be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. This provision shall not restrict the number of shares of Common Stock
which a Holder may receive or beneficially own in order to determine the amount of securities or
other consideration that such Holder may receive in the event of a Fundamental Transaction as
contemplated in Section 9 of this Warrant. This restriction may not be waived.

     12. No Fractional Shares. No fractional shares of Warrant Shares will be issued in
connection with any exercise of this Warrant. In lieu of any fractional shares which would,
otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied
by the closing price of one Warrant Share as reported by the applicable Trading Market on the date
of exercise.

     13. Notices. Any and all notices or other communications or deliveries hereunder
(including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section prior

12

 

to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date
of transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City
time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given. The addresses for such communications shall be: (i) if to
the Company, to Uroplasty, Inc., 2718 Summer Street NE, Minneapolis, MN 55413, Attn: Sam B.
Humphries, President and Chief Executive Officer, or to Facsimile No.: (612) 378-2027 (or such
other address as the Company shall indicate in writing in accordance with this Section), or (ii) if
to the Holder, to the address or facsimile number appearing on the Warrant Register or such other
address or facsimile number as the Holder may provide to the Company in accordance with this
Section.

     14. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon
10 days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into
which the Company or any new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s
last address as shown on the Warrant Register.

     15. Miscellaneous.

          (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their
respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant
shall be construed to give to any Person other than the Company and the Holder any legal or
equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in
writing signed by the Company and the Holder and their successors and assigns.

          (b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of New York (except for matters governed by corporate law in the State of Minnesota),
without regard to the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of this Warrant and the
transactions herein contemplated (“Proceedings”) (whether brought against a party hereto or its
respective Affiliates, employees or agents) shall be commenced exclusively in the New York Courts.
Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York
Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party
hereto hereby irrevocably waives personal service of process and consents to process being served
in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such

13

 

party at the address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

          (c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

          (d) If any one or more of the provisions of this Warrant shall be invalid or unenforceable in
any respect, the validity and enforceability of the remaining terms and provisions of this Warrant
shall not in any way be affected or impaired thereby and the parties will attempt in good faith to
agree upon a valid and enforceable provision which shall be a commercially reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

          (e) Prior to exercise of this Warrant, the Holder hereof shall not, by reason of being a
Holder, be entitled to any rights of a stockholder with respect to the Warrant Shares.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

14

 

     IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.

	 	 	 	 	 
	 	 	UROPLASTY, INC.
	 
	 	 	 	 
	

	 	By:	 	 
	 	 	 	 	 
	

	 	 	 	Name:
	

	 	 	 	Title:

15

 

EXERCISE NOTICE

UROPLASTY, INC.

WARRANT DATED APRIL [   ], 2005

The undersigned Holder hereby irrevocably elects to purchase                                 shares of Common Stock
pursuant to the above referenced Warrant. Capitalized terms used herein and not otherwise defined
have the respective meanings set forth in the Warrant.

(1) The undersigned Holder hereby exercises its right to purchase                      Warrant Shares
pursuant to the Warrant.

(2) The Holder intends that payment of the Exercise Price shall be made as (check one):

	 	 	 
	___

	 	“Cash Exercise” under Section 10
	 
	 	 
	___

	 	“Cashless Exercise” under Section 10

(3) If the holder has elected a Cash Exercise, the holder shall pay the sum of $                     to the
Company in accordance with the terms of the Warrant.

(4) Pursuant to this Exercise Notice, the Company shall deliver to the holder                     
Warrant Shares in accordance with the terms of the Warrant.

(5) By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company
that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in
excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934) permitted to be owned under Section 11 of this Warrant to which
this notice relates.

	 	 	 	 	 
	Dated:                     ,                    	 	Name of Holder:
	 
	 	 	 	 
	

	 	(Print)	 	 
	 	 	 	 	 
	 
	 	 	 	 
	

	 	By:	 	 
	 	 	 	 	 
	

	 	Name:	 	 
	 	 	 	 	 
	

	 	Title:	 	 
	 	 	 	 	 
	 
	 	 	 	 
	 	 	(Signature must conform in all respects to name of holder as
specified on the face of the Warrant)

16

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	 	 	 	 	 	 	 	 	 	 	Number of	 
	 	 	 	 	Number of Warrant	 	 	Number of Warrant	 	 	Warrant Shares	 
	 	 	 	 	Shares Available to be	 	 	Shares	 	 	Remaining to	 
	 	Date	 	 	Exercised	 	 	Exercised	 	 	be Exercised	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	

	 	 	 
	 	 	 
	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 

17

 

UROPLASTY, INC.

WARRANT ORIGINALLY ISSUED APRIL [   ], 2005

WARRANT NO. [  ]

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                                                            the right represented by the above-captioned Warrant to purchase
                                shares of Common Stock to which such Warrant relates and appoints                     
attorney to transfer said right on the books of the Company with full power of substitution in the
premises.

Dated:                                         ,                     

	 	 	 
	 	 	 
	 	 	(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
	 
	 	 
	 	 	 
	

	 	Address of Transferee
	 
	 	 
	 	 	 
	 
	 	 
	 	 	 
	In
the presence of:

	 	 
	 	 	 

18

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00083-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00083-of-00352.parquet"}]]