Document:

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                                                                   EXHIBIT 10.42

                  ---------------------------------------------

                          PRIVATE EQUITY LINE AGREEMENT
                                 by and between

                           KINGSBRIDGE CAPITAL LIMITED

                                       and

                             SOMANETICS CORPORATION

                  --------------------------------------------

                            dated as of March 6, 2000

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                          PRIVATE EQUITY LINE AGREEMENT

                                 by and between

                           KINGSBRIDGE CAPITAL LIMITED

                                       and

                             Somanetics Corporation

                            dated as of March 6, 2000

                  This PRIVATE EQUITY LINE AGREEMENT is entered into as of this
6th day of March, 2000 (this "Agreement"), by and between KINGSBRIDGE CAPITAL
LIMITED (the "Investor"), an entity organized and existing under the laws of the
British Virgin Islands, and Somanetics Corporation a corporation organized and
existing under the laws of the State of Michigan (the "Company").

                  WHEREAS, the parties desire that, upon the terms and subject
to the conditions set forth herein, the Company may issue and sell to the
Investor, from time to time as provided herein, and the Investor shall purchase
from the Company, up to $15,000,000 of the Common Stock (as defined below); and

                  WHEREAS, such investments will be made in reliance upon the
provisions of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of
the United States Securities Act of 1933, as amended and the rules and
regulations promulgated thereunder (the "Securities Act"), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments in Common Stock to be
made hereunder; and

                  WHEREAS, in consideration for the Investor's execution and
delivery of, and its performance of its obligations under, this Agreement, the
Company is concurrently issuing to the Investor a Warrant (as defined below)
pursuant to which the Investor may purchase from the Company up to 200,000
shares of Common Stock, upon the terms and subject to the conditions set forth
therein; and

                  WHEREAS, the parties hereto are concurrently entering into a
Registration Rights Agreement (as defined below) pursuant to which the Company
shall register the Common Stock issued and sold to the Investor under this
Agreement and under the Warrant, upon the terms as subject to the conditions set
forth therein;

                  NOW, THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I

                               CERTAIN DEFINITIONS

     Section 1.1.   Average Daily Trading Volume. shall mean, with respect to
any date, the average of the daily trading volumes for the Common Stock on the
Principal Market for twenty-six (26) of the thirty (30) Trading Days immediately
preceding such date, without regard for the Trading Days with the two (2)
highest trading volumes and the Trading Days with the two (2) lowest trading
volumes.
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     Section 1.2.   Bid Price. shall mean the closing bid price (as reported by
Bloomberg L.P.) of the Common Stock on the Principal Market.

     Section 1.3.   Blackout Shares. shall have the meaning assigned to them in
Section 2.6.

     Section 1.4.   "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of dividends (as and when declared)
and assets (upon liquidation of the Company).

     Section 1.5.   "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.

     Section 1.6.   "Closing Date" shall mean, with respect to a Closing, the
second (2nd) Trading Day following the Valuation Period related to such Closing,
provided that all of the conditions precedent to such Closing have been
satisfied on or before such Trading Day.

     Section 1.7.   "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earlier to occur of (x) the date on which the Investor shall have purchased Put
Shares pursuant to this Agreement for an aggregate Purchase Price equal to the
Maximum Commitment Amount, (y) the date this Agreement is terminated by the
Investor pursuant to Section 2.4, or (z) the date occurring twenty four (24)
months from the date of commencement of the Commitment Period.

     Section 1.8.   "Common Stock" shall mean the Company's common shares, $.01
par value per share.

     Section 1.9.   "Common Stock Equivalents" shall mean any securities that
are convertible into or exchangeable for Common Stock or any warrants, options
or other rights to subscribe for or purchase Common Stock or any such
convertible or exchangeable securities.

     Section 1.10.  "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2 of this Agreement.

     Section 1.11.  "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).

     Section 1.12.  "Discount" shall mean with respect to any Put (i) fourteen
percent (14%) if the Market Price shall be less than three dollars ($3.00) per
share in respect of the applicable Put Date; (ii) twelve percent (12%) if the
Market Price shall be greater than or equal to three dollars ($3.00) per share
but less than eight dollars ($8.00) per share in respect of the applicable Put
Date; or (iii) ten percent (10%) if the Market Price shall be equal to or
greater than eight dollars ($8.00) per share in respect of the applicable Put
Date. Notwithstanding the foregoing, in the event that the Company fails to
issue and sell to the Investor Common Stock in respect of Puts for at least the
Minimum Commitment Amount in accordance with Section 2.1(b), or any amount
becomes due under Section 2.1(b) after termination of this Agreement by the
Investor in accordance with Section 2.4, the Discount shall be equal to fourteen
percent (14%).

     Section 1.13.  "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).

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     Section 1.14.  "Escrow Agreement" shall mean the escrow agreement in the
form of Exhibit A entered into pursuant to Section 7.2(o) hereof.

     Section 1.15.  "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended and the rules and regulations promulgated thereunder.

     Section 1.16.  "Investment Amount" shall mean the dollar amount (within the
range specified in Section 2.2) to be invested by the Investor to purchase Put
Shares with respect to any Put Notice as provided by the Company to the Investor
in accordance with Section 2.2 hereof.

     Section 1.17.  "Legend" shall have the meaning specified in Section 8.1.

     Section 1.18.  "Market Price" on any given date shall mean the average of
the lowest intra-day prices of the Common Stock over the Valuation Period.
"Lowest intra-day price" shall mean the lowest trade price of the Common Stock
(as reported by Bloomberg L.P.) during any Trading Day.

     Section 1.19.  "Maximum Commitment Amount" shall mean FIFTEEN MILLION
DOLLARS ($15,000,000).

     Section 1.20.  "Maximum Put Amount" shall mean, with respect to any Put,
the amount determined in accordance with the table set forth on Annex A hereto.

     Section 1.21.  "Minimum Commitment Amount" shall mean SEVEN MILLION FIVE
HUNDRED THOUSAND DOLLARS ($7,500,000).

     Section 1.22.  "Minimum Put Amount" shall mean TEN THOUSAND DOLLARS
($10,000).

     Section 1.23.  "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (i) this Agreement, (ii) the Registration Rights
Agreement, (iii) the Escrow Agreement and (iv) the Warrant.

     Section 1.24.  "NASD" shall mean the National Association of Securities
Dealers, Inc.

     Section 1.25.  "Outstanding" when used with reference to Common Stock or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not refer to any such Shares then
directly or indirectly owned or held by or for the account of the Company.

     Section 1.26.  "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.

     Section 1.27.  "Preferred Stock" shall mean the Company's preferred stock,
par value $.01 per share.

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     Section 1.28.  "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq SmallCap Market or the New York Stock Exchange, whichever is at the
time the principal trading exchange or market for the Common Stock, it being
acknowledged and agreed by the parties that, as of the date hereof, the
Principal Market is the Nasdaq SmallCap Market.

     Section 1.29.  "Purchase Price" shall mean, with respect to a Put, the
Market Price less the product of the Discount and the Market Price.

     Section 1.30.  "Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase the
Company's Common Stock for the Investment Amount specified in such Put Notice,
upon the terms and subject to the conditions set forth in this Agreement.

     Section 1.31.  "Put Date" shall mean the Trading Day during the Commitment
Period on which a Put Notice to sell Common Stock to the Investor is deemed
delivered by the Company to the Investor pursuant to Section 2.2(b) hereof.

     Section 1.32.  "Put Notice" shall mean a written notice to the Investor
setting forth the Investment Amount that the Company intends to require the
Investor to pay to purchase Common Stock upon the terms and subject to the
conditions set forth in this Agreement.

     Section 1.33.  "Put Shares" shall mean all shares of Common Stock issued or
issuable pursuant to a Put that has been exercised or may be exercised upon the
terms and subject to the conditions set forth in this Agreement.

     Section 1.34.  "Registrable Securities" shall mean the (i) Put Shares, (ii)
the Warrant Shares, (iii) the Blackout Shares and (iv) any securities issued or
issuable with respect to any of the foregoing by way of exchange, stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (w) the Registration Statement has been declared
effective by the SEC and all Registrable Securities have been disposed of
pursuant to the Registration Statement, (x) all Registrable Securities have been
sold under circumstances under which all of the applicable conditions of Rule
144 (or any similar provision then in force) under the Securities Act ("Rule
144") are met, (y) such time as all Registrable Securities have been otherwise
transferred to holders who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such securities not bearing a restrictive legend or
(z) in the opinion of counsel to the Company, which counsel shall be reasonably
acceptable to the Investor, all Registrable Securities may be sold without
registration and without any time, volume or manner limitations pursuant to Rule
144(k) (or any similar provision then in effect) under the Securities Act.

     Section 1.35.  "Registration Rights Agreement" shall mean the
registration rights agreement in the form of Exhibit B hereto.

     Section 1.36.  "Registration Statement" shall mean a registration statement
on Form S-1 or such other form promulgated by the SEC for which the Company then
qualifies and which counsel for the Company shall deem appropriate, and which
form shall be available for the resale of the Registrable Securities to be
registered thereunder in accordance with the provisions of this Agreement, the
Registration Rights Agreement, and the Warrant and in accordance with the
intended method of distribution of such securities), for the registration of the
resale by the Investor of the Registrable Securities under the Securities Act.

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     Section 1.37.  "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.

     Section 1.38.  "SEC" shall mean the Securities and Exchange Commission.

     Section 1.39.  "SEC Documents" shall mean the Company's latest Form 10-K as
of the time in question, all Forms 10-Q and 8-K filed thereafter, the Proxy
Statement for its latest fiscal year as of the time in question and the
Registration Statement until such time the Company no longer has an obligation
to maintain the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.

     Section 1.40.  "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.

     Section 1.41.  "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.

     Section 1.42.  "Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.

     Section 1.43.  "Trading Cushion" shall mean the mandatory fifteen (15)
Trading Days that must expire after any given Put Date before the Company may
tender a subsequent Put Notice to the Investor.

     Section 1.44.  "Trading Day" shall mean any day during which the Principal
Market shall be open for trading.

     Section 1.45.  "Underwriter" shall mean any underwriter participating in
any disposition of the Registrable Securities on behalf of the Investor pursuant
to the Registration Statement.

     Section 1.46.  "Valuation Event" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions:

             (a)    subdivides or combines its Common Stock;

             (b)    pays a dividend in its Capital Stock or makes any other
                    distribution of its Capital Shares, except for dividends
                    paid with respect to the Preferred Stock;

             (c)    issues any additional Capital Shares ("Additional Capital
                    Shares"), otherwise than as provided in the foregoing
                    Subsections (a) and (b) above, at a price per share less, or
                    for other consideration lower, than the Bid Price in effect
                    immediately prior to such issuance, or without
                    consideration;

             (d)    issues any warrants, options or other rights to subscribe
                    for or purchase any Additional Capital Shares and the price
                    per share for which Additional Capital Shares may at any
                    time thereafter be issuable pursuant to such warrants,
                    options or other rights shall be less than the Bid Price in
                    effect immediately prior to such issuance;

             (e)    issues any securities convertible into or exchangeable for
                    Capital Shares and the consideration per share for which
                    Additional Capital Shares may at any time thereafter be
                    issuable pursuant to the terms of such convertible or
                    exchangeable securities shall be less than the Bid Price in
                    effect immediately prior to such issuance;

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             (f)    makes a distribution of its assets or evidences of
                    indebtedness to the holders of its Capital Shares as a
                    dividend in liquidation or by way of return of capital or
                    other than as a dividend payable out of earnings or surplus
                    legally available for dividends under applicable law or any
                    distribution to such holders made in respect of the sale of
                    all or substantially all of the Company's assets (other than
                    under the circumstances provided for in the foregoing
                    subsections (a) through (e)); or

             (g)    takes any action affecting the number of Outstanding Capital
                    Shares, other than an action described in any of the
                    foregoing Subsections (a) through (f) hereof, inclusive,
                    which in the opinion of the Company's Board of Directors,
                    determined in good faith, would have a materially adverse
                    effect upon the rights of the Investor at the time of a Put
                    or exercise of the Warrant.

     Section 1.47.  "Valuation Period" shall mean the period of five (5) Trading
Days during which the Market Price of the Common Stock is valued, which period
shall be with respect to the Market Price on any Put Date, the two (2) Trading
Days preceding and the two (2) Trading Days following the Trading Day on which
the applicable Put Notice is deemed to be delivered, as well as the Trading Day
on which such notice is deemed to be delivered; provided, however, that if a
Valuation Event occurs during any Valuation Period, a new Valuation Period shall
begin on the Trading Day immediately after the occurrence of such Valuation
Event and end on the fifth (5th) Trading Day after the occurrence of such
Valuation Event.

     Section 1.48.  "Warrant" shall mean the Warrant in the form of Exhibit C
hereto issued pursuant to Section 2.5 of this Agreement.

     Section 1.49.  "Warrant Shares" shall mean all shares of Common Stock
issued or issuable pursuant to exercise of the Warrant.

                                   ARTICLE II

                PURCHASE AND SALE OF COMMON STOCK; TERMINATION OF
                      OBLIGATIONS; WARRANT; BLACKOUT SHARES

     Section 2.1.   Investments.

             (a)    Puts. Upon the terms and conditions set forth herein
                    (including, without limitation, the provisions of Article
                    VII hereof), on any Put Date the Company may exercise a Put
                    by the delivery of a Put Notice. The number of Put Shares
                    that the Investor shall receive pursuant to such Put shall
                    be determined by dividing the Investment Amount specified in
                    the Put Notice by the Purchase Price with respect to such
                    Put Date, rounded to the nearest whole share.

             (b)    Minimum Amount of Puts. The Company shall, in accordance
                    with Section 2.2(a), issue and sell Put Shares to the
                    Investor and the Investor shall purchase Put Shares from the
                    Company for an amount totaling (in aggregate Investment
                    Amounts) at least the Minimum Commitment Amount. If the
                    Company for any reason fails to issue and deliver such Put
                    Shares during the Commitment Period, on the first Trading
                    Day after the expiration of the Commitment Period, the
                    Company shall pay to Investor by wire transfer of
                    immediately available funds an
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                    amount equal to the product of (X) the Minimum Commitment
                    Amount minus the aggregate Investment Amounts of the Put
                    Shares delivered to the Investor hereunder and (Y) the
                    Discount.

             (c)    Maximum Sale of Common Stock. Unless the Company obtains the
                    requisite approval of its shareholders in accordance with
                    the corporate laws of Michigan and the applicable rules of
                    the Principal Market and the NASD, no more than 19.9% of the
                    Outstanding shares of Common Stock may be issued and sold in
                    the aggregate pursuant to this Agreement.

     Section 2.2.   Mechanics.

             (a)    Put Notice. At any time during the Commitment Period, the
                    Company may deliver a Put Notice to the Investor, subject to
                    the conditions set forth in Section 7.2; provided, however,
                    the Investment Amount for each Put as designated by the
                    Company in the applicable Put Notice shall be neither less
                    than the Minimum Put Amount nor more than the Maximum Put
                    Amount.

             (b)    Date of Delivery of Put Notice. A Put Notice shall be deemed
                    delivered on (i) the Trading Day it is received by facsimile
                    or otherwise by the Investor if such notice is received
                    prior to 12:00 noon New York time, or (ii) the immediately
                    succeeding Trading Day if it is received by facsimile or
                    otherwise after 12:00 noon New York time on a Trading Day or
                    at any time on a day which is not a Trading Day. No Put
                    Notice may be deemed to have been delivered on any day that
                    is not a Trading Day.

     Section 2.3.   Closings. On each Closing Date for a Put, (i) the Company
shall deliver into escrow one or more certificates, at the Investor's option,
representing the Put Shares to be purchased by the Investor pursuant to Section
2.1 herein, registered in the name of the Investor and (ii) the Investor shall
deliver into escrow the Investment Amount specified in the Put Notice by wire
transfer of immediately available funds to the account provided for in the
Escrow Agreement. In addition, on or prior to such Closing Date, each of the
Company and the Investor shall deliver to the other all documents, instruments
and writings required to be delivered or reasonably requested by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein. Payment of the Investment Amount to the Company and
delivery of such certificate(s) to the Investor shall occur out of escrow in
accordance with the Escrow Agreement; provided, however, that to the extent the
Company has not paid the fees, expenses and disbursements of the Investor's
counsel in accordance with Section 12.1 as billed to date, the amount of such
fees, expenses and disbursements shall be paid in immediately available funds,
at the direction of the Investor, to Investor's counsel with no reduction in the
number of Put Shares issuable to the Investor on such Closing Date; provided
further, that so long as the Investor shall maintain professional liability,
errors and omissions liability and or directors' and officers' insurance
("Private Equity Insurance") for its activities related to the Put Shares, the
Warrant Shares or the Blackout Shares, three percent (3%) of such Investment
Amount shall be retained by the Investor in respect of premium for such Private
Equity Insurance with no reduction in the number of Put Shares issuable to the
Investor on such Closing Date. Notwithstanding the immediately preceding
proviso, in the event that the premium charged to the Investor in respect of the
Private Equity Insurance is reduced, the amount of the Purchase Price retained
by the Investor shall be reduced proportionately.

     Section 2.4.   Termination.

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             (a)    The Investor may, at its sole discretion, terminate this
                    Agreement upon written notice to the Company in the event
                    that (i) the Registration Statement is not effective within
                    one hundred twenty days following the Subscription Date or
                    (ii) there shall occur any stop order or suspension of the
                    effectiveness of the Registration Statement for an aggregate
                    of thirty (30) Trading Days during the Commitment Period,
                    for any reason other than deferrals or suspension during a
                    Blackout Period in accordance with the Registration Rights
                    Agreement, as a result of corporate developments subsequent
                    to the Subscription Date that would require such
                    Registration Statement to be amended to reflect such event
                    in order to maintain its compliance with the disclosure
                    requirements of the Securities Act or (iii) the Company
                    shall at any time fail to comply with the requirements of
                    Section 6.3 (with respect to maintaining its listing on a
                    Principal Market), 6.4 (with respect to continued
                    registration and reporting obligations to the SEC), or 6.6
                    (with respect to maintenance of its corporate existence). In
                    the event that the Investor terminates this Agreement in
                    accordance with this Section 2.4, in addition to any and all
                    amounts due and payable by the Company to the Investor under
                    the Registration Rights Agreement, any and all amounts that
                    would have been due and payable by the Company to the
                    Investor in respect of Section 2.1(b) hereof had such
                    termination occurred at the end of the Commitment Period
                    shall also become immediately due and payable.

             (b)    The Company may, at its sole discretion, terminate this
                    Agreement upon written notice to the Investor in the event
                    that the Company has, in accordance with Section 2.1(b) of
                    this Agreement, issued and sold Put Shares to the Investor
                    for an amount equal to or greater than (in aggregate
                    Investment Amounts) the Minimum Commitment Amount.
                    Notwithstanding the foregoing, so long as the Investor (i)
                    holds Registrable Securities issued hereunder or under the
                    Warrant, and/or (ii) the Warrant has not expired and is
                    unexercised in whole or in part, the Company's obligations
                    hereunder and under the Registration Rights Agreement with
                    respect to the Registration Statement shall survive such
                    termination of this Agreement.

     Section 2.5.   The Warrant. On the Subscription Date, the Company shall
issue the Warrant to the Investor. The Warrant shall be delivered by the Company
to the Investor upon execution of this Agreement by the parties hereto. The
Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement.

     Section 2.6.   Blackout Shares. (a) In the event that, within five (5)
Trading Days following any Closing Date, the Company gives a Blackout Notice to
the Investor of a Blackout Period in accordance with the Registration Rights
Agreement, and (b) the Bid Price on the Trading Day immediately preceding such
Blackout Period ("Old Bid Price") is greater than the Bid Price on the first
Trading Day following such Blackout Period that the Investor may sell its
Registrable Securities pursuant to an effective Registration Statement ("New Bid
Price"), then the Company shall issue to the Investor the number of additional
shares of Registrable Securities (the "Blackout Shares") equal to the difference
between (X) the product of the number of Registrable Securities held by Investor
immediately prior to the Blackout Period multiplied by the Old Bid Price,
divided by the New Bid Price, and (Y) the number of Registrable Securities held
by Investor immediately prior to the Blackout Period.

     Section 2.7.   Liquidated Damages. The parties hereto acknowledge and agree
that the sum payable under Section 2.1(b) and the requirement to issue Blackout
Shares under Section 2.6 above shall give rise to liquidated damages and not
penalties. The parties further acknowledge that (a) the amount of

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loss or damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amounts specified in such Sections bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred by the Investor in connection with the failure by the
Company to make Puts with aggregate Purchase Prices totalling at least the
Minimum Commitment Amount or in connection with a Blackout Period under the
Registration Rights Agreement, and (c) the parties are sophisticated business
parties and have been represented by sophisticated and able legal and financial
counsel and negotiated this Agreement at arm's length.

                                  ARTICLE III

                   REPRESENTATIONS AND WARRANTIES OF INVESTOR

The Investor represents and warrants to the Company that:

     Section 3.1.   Intent. The Investor is entering into this Agreement for its
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell the Common Stock to or through any person or
entity; provided, however, that by making the representations herein, the
Investor does not agree to hold the Common Stock for any minimum or other
specific term and reserves the right to dispose of the Common Stock at any time
in accordance with federal and state securities laws applicable to such
disposition.

     Section 3.2.   Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
knowledge and experience in business and financial matters that it is capable of
evaluating the merits and risks of an investment in Common Stock. The Investor
acknowledges that an investment in the Common Stock is speculative and involves
a high degree of risk.

     Section 3.3.   Authority. Each of this Agreement, the Registration Rights
Agreement, and the Escrow Agreement has been duly authorized by all necessary
corporate action and no further consent or authorization of the Company, or its
Board of Directors or stockholders is required. Each of this Agreement, the
Registration Rights Agreement, and the Escrow Agreement was validly executed and
delivered by the Investor and each is a valid and binding agreement of the
Investor enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.

     Section 3.4.   Not an Affiliate.  The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.

     Section 3.5.   Organization and Standing.  Investor is duly organized,
validly existing, and in good standing under the laws of the British Virgin
Islands.

     Section 3.6.   Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument contemplated hereby, and the
consummation of the transactions contemplated thereby, and compliance with the
requirements thereof, will not (a) violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor, or, to the
Investor's knowledge, (b) violate any provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, (c) conflict with or constitute a material default
thereunder, (d) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (e) require the
approval of any third-party (that has not been obtained) pursuant to any

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material contract to which Investor is subject or to which any of its assets,
operations or management may be subject.

     Section 3.7.   Disclosure; Access to Information.  Investor has received
all documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. The Investor has
reviewed or received copies of the SEC Documents.

     Section 3.8.   Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.

                                   ARTICLE IV

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to the Investor that:

     Section 4.1.   Organization of the Company. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Michigan and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Except as set forth in the SEC Documents, the Company does not own
more than fifty percent (50%) of the outstanding capital stock of or control any
other business entity. The Company is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect.

     Section 4.2.   Authority. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
the Registration Rights Agreement, the Warrant and the Escrow Agreement and to
issue the Put Shares, the Warrant, the Warrant Shares and the Blackout Shares;
(ii) the execution and delivery of this Agreement and the Registration Rights
Agreement, and the execution, issuance and delivery of the Warrant, by the
Company and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required; and (iii) each of this Agreement and the Registration
Rights Agreement has been duly executed and delivered, and the Warrant has been
duly executed, issued and delivered, by the Company and constitute valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.

     Section 4.3.   Capitalization. As of November 30, 1999, the authorized
capital stock of the Company consisted of 20,000,000 shares of Common Stock, of
which 6,035,597 shares were issued and outstanding, and 1,000,000 shares of
Preferred stock, of which no shares were issued and outstanding. Except for
options to purchase Common Stock issued to officers, directors, employees,
consultants and advisors pursuant to stock option plans in the ordinary course
of the Company's business and (ii) warrants to purchase not more than 341,944
shares of Common Stock with purchase prices between $4.80 and $20.00 per share,
there are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable.

                                       10
<PAGE>   12

     Section 4.4. Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq SmallCap
Market.

     Section 4.5.   SEC Documents. The Company has delivered or made available
to the Investor true and complete copies of the SEC Documents (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Investor any information that, according to applicable
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company, but which has not been so disclosed. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
other federal, state and local laws, rules and regulations applicable to such
SEC Documents, and none of the SEC Documents 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 Documents comply as to form and
substance in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of 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 year-end audit adjustments).

     Section 4.6. Exemption from Registration; Valid Issuances. The sale and
issuance of the Warrant, the Warrant Shares, the Put Shares and any Blackout
Shares in accordance with the terms and on the bases of the representations and
warranties set forth in this Agreement, may and shall be properly issued
pursuant to Section 4(2), Regulation D and/or any applicable state law. When
issued and paid for as herein provided, the Put Shares, the Warrant Shares and
any Blackout Shares shall be duly and validly issued, fully paid, and
nonassessable. Neither the sales of the Put Shares, the Warrant, the Warrant
Shares or any Blackout Shares pursuant to, nor the Company's performance of its
obligations under, this Agreement, the Registration Rights Agreement, or the
Warrant shall (i) result in the creation or imposition of any liens, charges,
claims or other encumbrances upon the Put Shares, the Warrant Shares, any
Blackout Shares or any of the assets of the Company, or (ii) entitle the holders
of Outstanding Capital Shares to preemptive or other rights to subscribe to or
acquire the Capital Shares or other securities of the Company. The Put Shares,
the Warrant Shares and any Blackout Shares shall not subject the Investor to
personal liability by reason of the ownership thereof.

     Section 4.7.   No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares, the Warrant, the
Warrant Shares or any Blackout Shares, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Common Stock under the Securities Act
since 1998.

     Section 4.8.   Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on

                                       11
<PAGE>   13

the date hereof (the "Certificate"), and the Company's By-Laws, as amended and
in effect on the date hereof (the "By-Laws").

     Section 4.9.   No Material Breach or Violation with Law. The execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby, including without
limitation the issuance of the Put Shares, the Warrant, the Warrant Shares and
the Blackout Shares do not and will not (i) result in a violation of the
Certificate or By-Laws or (ii) constitute a material 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 of,
any material agreement, indenture, instrument or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state, local or foreign
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect) nor is
the Company otherwise in violation of, in default under, any of the foregoing;
provided, however, that for purposes of the Company's representations and
warranties as to violations of foreign law, rule or regulation referenced in
clause (iii), such representations and warranties are made only to the best of
the Company's knowledge insofar as the execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby are or may be affected by the status of the
Investor under or pursuant to any such foreign law, rule or regulation. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Common Stock or the Warrant in accordance with
the terms hereof (other than any SEC, NASD or state securities filings that may
be required to be made by the Company subsequent to any Closing, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on the Nasdaq SmallCap Market); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investor
herein.

     Section 4.10.  No Material Adverse Change.  Since November 30, 1999 no
event has occurred that would have a Material Adverse Effect on the Company,
except as disclosed in the SEC Documents.

     Section 4.11.  No Undisclosed Liabilities. The Company has no liabilities
or obligations that are material, individually or in the aggregate, and that are
not disclosed in the SEC Documents or otherwise publicly announced, other than
those incurred in the ordinary course of the Company's businesses since November
30, 1999 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company.

     Section 4.12.  No Undisclosed Events or Circumstances. Since November 30,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.

     Section 4.13. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or

                                       12
<PAGE>   14

solicited any offers to buy any security since 1998, other than pursuant to this
Agreement and employee benefit plans, under circumstances that would require
registration of the Common Stock under the Securities Act.

     Section 4.14.  Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which might have a Material Adverse Effect. Except as set
forth in the SEC Documents, no judgment, order, writ, injunction or decree or
award has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which might result in a Material
Adverse Effect.

     Section 4.15.  No Misleading or Untrue Communication. The Company, any
Person representing the Company, and, to the knowledge of the Company, any other
Person selling or offering to sell the Put Shares, the Warrant, the Warrant
Shares or the Blackout Shares in connection with the transactions contemplated
by this Agreement, have not made, at any time, any oral communication in
connection with the offer or sale of the same which contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements, in the light of the circumstances under which they
were made, not misleading.

     Section 4.16.  Material Non-Public Information. The Company is not in
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.

                                   ARTICLE V

                            COVENANTS OF THE INVESTOR

     The Investor's trading activities with respect to shares of the Company's
Common Stock will be in compliance with all applicable state and federal
securities laws, rules and regulations (including, without limitation, the
regulations set forth in Regulation M under the Securities Act) and the rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.

                                   ARTICLE VI

                            COVENANTS OF THE COMPANY

     Section 6.1.   Registration Rights.  The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all respects with the terms thereof.

     Section 6.2.   Reservation of Common Stock. As of the date hereof, the
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Put Shares, the
Warrant Shares and the Blackout Shares; such amount of shares of Common Stock to
be reserved shall be calculated based upon a good faith estimate by the Company
of the minimum aggregate Purchase Price for the Put Shares under the terms and
conditions of this Agreement and the Exercise Price of the Warrant and a good
faith estimate by the Company in consultation with the Investor of the number

                                       13
<PAGE>   15

of Blackout Shares that will need to be issued. The number of shares so reserved
from time to time, as theretofore increased or reduced as hereinafter provided,
may be reduced by the number of shares actually delivered hereunder.

     Section 6.3.   Listing of Common Stock. The Company shall maintain the
listing of the Common Stock on a Principal Market, and as soon as practicable
(but in any event prior to the commencement of the Commitment Period) will cause
the Put Shares, the Warrant Shares and any Blackout Shares to be listed on the
Principal Market. The Company further shall, if the Company applies to have the
Common Stock traded on any other Principal Market, include in such application
the Put Shares, the Warrant Shares and any Blackout Shares, and shall take such
other action as is necessary or desirable in the opinion of the Investor to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible. The Company shall use commercially reasonable efforts to continue
the listing and trading of its Common Stock on the Principal Market (including,
without limitation, maintaining sufficient net tangible assets) and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.

     Section 6.4.   Exchange Act Registration. The Company shall (i) cause its
Common Stock to continue to be registered under Section 12(g) or 12(b) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under said Act, and will not take any action or file any document
(whether or not permitted by said Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Act.

     Section 6.5.   Legends.  The certificates evidencing the Put Shares, the
Warrant Shares and the Blackout Shares shall be free of legends, except as
provided for in Article VIII.

     Section 6.6.   Corporate Existence.  The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company.

     Section 6.7.   Additional SEC Documents. The Company shall deliver to the
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.

     Section 6.8.   Notice of Certain Events Affecting Registration; Suspension
of Right to Make a Put. The Company shall immediately notify the Investor upon
the occurrence of any of the following events in respect of a registration
statement or related prospectus in respect of an offering of Registrable
Securities: (i) receipt of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the registration statement for amendments or supplements to the
registration statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the registration statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective

                                       14
<PAGE>   16

amendment to the registration statement would be appropriate, and the Company
shall promptly make available to the Investor any such supplement or amendment
to the related prospectus. The Company shall not deliver to the Investor any Put
Notice during the continuation of any of the foregoing events.

     Section 6.9.   Expectations Regarding Put Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company undertakes to notify the
Investor as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Put Notices.
Such notification shall constitute only the Company's good faith estimate with
respect to such calendar quarter and shall in no way obligate the Company to
raise such amount during such calendar quarter or otherwise limit its ability to
deliver Put Notices during such calendar quarter. The failure by the Company to
comply with this provision can be cured by the Company's notifying the Investor
at any time as to its reasonable expectations with respect to the current
calendar quarter.

     Section 6.10.   Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument the obligation to deliver to the Investor
such shares of stock and/or securities as the Investor is entitled to receive
pursuant to this Agreement and the Warrant.

     Section 6.11.  Issuance of Put Shares, Warrant Shares and Blackout Shares.
The sale of the Put Shares, the issuance of the Warrant Shares pursuant to
exercise of the Warrant and the issuance of any Blackout Shares shall be made in
accordance with the provisions and requirements of Regulation D and any
applicable state law. Issuance of the Warrant Shares pursuant to exercise of the
Warrant through a cashless exercise shall be made in accordance with the
provisions and requirements of Section 3(a)(9) under the Securities Act and any
applicable state law.

     Section 6.12.  Legal Opinion on Subscription Date. The Company's
independent counsel shall deliver to the Investor on the Subscription Date an
opinion in the form of Exhibit D, except for paragraph 6 thereof.

                                  ARTICLE VII

                            CONDITIONS TO DELIVERY OF
                      PUT NOTICES AND CONDITIONS TO CLOSING

     Section 7.1.   Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.

             (a)    Accuracy of the Investor's Representation and Warranties.
                    The representations and warranties of the Investor shall be
                    true and correct in all material respects as of the date of
                    this Agreement and as of the date of each such Closing as
                    though made at each such time.

             (b)    Performance by the Investor. The Investor shall have
                    performed, satisfied and complied in all respects with all
                    covenants, agreements and conditions required by this
                    Agreement to be performed, satisfied or complied with by the
                    Investor at or prior to such Closing.

                                       15
<PAGE>   17

     Section 7.2.   Conditions Precedent to the Right of the Company to Deliver
a Put Notice and the Obligation of the Investor to Purchase Put Shares. The
right of the Company to deliver a Put Notice and the obligation of the Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction, on (i) the applicable Put Date and (ii) the applicable
Closing Date (each a "Condition Satisfaction Date"), of each of the following
conditions:

             (a)    Registration of the Registrable Securities with the SEC. As
                    set forth in the Registration Rights Agreement, the Company
                    shall have filed with the SEC a Registration Statement with
                    respect to the resale of the Registrable Securities by the
                    Investor that shall have been declared effective by the SEC
                    prior to the first Put Date, but in no event later than one
                    hundred twenty (120) days after Subscription Date.

             (b)    Effective Registration Statement. Upon the terms and subject
                    to the conditions as set forth in the Registration Rights
                    Agreement, the Registration Statement shall have previously
                    become effective and shall remain effective on each
                    Condition Satisfaction Date and (i) neither the Company nor
                    the Investor shall have received notice that the SEC has
                    issued or intends to issue a stop order with respect to the
                    Registration Statement or that the SEC otherwise has
                    suspended or withdrawn the effectiveness of the Registration
                    Statement, either temporarily or permanently, or intends or
                    has threatened to do so (unless the SEC's concerns have been
                    addressed and the Investor is reasonably satisfied that the
                    SEC no longer is considering or intends to take such
                    action), and (ii) no other suspension of the use or
                    withdrawal of the effectiveness of the Registration
                    Statement or related prospectus shall exist.

             (c)    Accuracy of the Company's Representations and Warranties.
                    The representations and warranties of the Company shall be
                    true and correct in all material respects as of each
                    Condition Satisfaction Date as though made at each such time
                    (except for representations and warranties specifically made
                    as of a particular date).

             (d)    Performance by the Company. The Company shall have
                    performed, satisfied and complied in all material respects
                    with all covenants, agreements and conditions required by
                    this Agreement, the Registration Rights Agreement and the
                    Warrant to be performed, satisfied or complied with by the
                    Company at or prior to each Condition Satisfaction Date.

             (e)    No Injunction. No statute, rule, regulation, executive
                    order, decree, ruling or injunction shall have been enacted,
                    entered, promulgated or adopted by any court or governmental
                    authority of competent jurisdiction that prohibits the
                    transactions contemplated by this Agreement or otherwise has
                    a Material Adverse Effect, and no actions, suits or
                    proceedings shall be in progress, pending or threatened by
                    any Person, that seek to enjoin or prohibit the transactions
                    contemplated by this Agreement or otherwise could reasonably
                    be expected to have a Material Adverse Effect. For purposes
                    of this paragraph (e), no proceeding shall be deemed pending
                    or threatened unless one of the parties has received written
                    or oral notification thereof prior to the applicable Closing
                    Date.

             (f)    No Suspension of Trading In or Delisting of Common Stock.
                    The trading of the Common Stock shall not have been
                    suspended by the SEC, the Principal Market

                                       16
<PAGE>   18

                    or the NASD and the Common Stock shall have been approved
                    for listing or quotation on and shall not have been delisted
                    from the Principal Market. The issuance of shares of Common
                    Stock with respect to the applicable Closing, if any, shall
                    not violate the shareholder approval requirements of the
                    Principal Market.

             (g)    Legal Opinion. The Company shall have caused to be delivered
                    to the Investor, within five (5) Trading Days of the
                    effective date of the Registration Statement, an opinion of
                    the Company's independent counsel in the form of Exhibit D
                    hereto, addressed to the Investor.

             (h)    Adequacy of Disclosure. No dispute between the Company and
                    the Investor shall exist pursuant to Section 7.3 as to the
                    adequacy of the disclosure contained in the Registration
                    Statement.

             (i)    Ten Percent Limitation. On each Closing Date, the number of
                    Put Shares then to be purchased by the Investor shall not
                    exceed the number of such shares that, when aggregated with
                    all other shares of Registerable Securities then owned by
                    the Investor beneficially or deemed beneficially owned by
                    the Investor, would result in the Investor owning no more
                    than 9.9% of all of such Common Stock as would be
                    outstanding on such Closing Date, as determined in
                    accordance with Section 16 of the Exchange Act and the
                    regulations promulgated thereunder. For purposes of this
                    Section, in the event that the amount of Common Stock
                    outstanding as determined in accordance with Section 16 of
                    the Exchange Act and the regulations promulgated thereunder
                    is greater on a Closing Date than on the date upon which the
                    Put Notice associated with such Closing Date is given, the
                    amount of Common Stock outstanding on such Closing Date
                    shall govern for purposes of determining whether the
                    Investor, when aggregating all purchases of Common Stock
                    made pursuant to this Agreement and, if any, Warrant Shares
                    and Blackout Shares, would own more than 9.9% of the Common
                    Stock following such Closing Date.

             (j)    Minimum Average Daily Trading Volume. The Average Daily
                    Trading Volume for the Common Stock with respect to the
                    applicable Put Date and Closing Date equals or exceeds
                    30,000 shares per Trading Day.

             (k)    No Knowledge. The Company shall have no knowledge of any
                    event more likely than not to have the effect of causing
                    such Registration Statement to be suspended or otherwise
                    ineffective (which event is more likely than not to occur
                    within the fifteen Trading Days following the Trading Day on
                    which such Notice is deemed delivered).

             (l)    Trading Cushion. The Trading Cushion shall have elapsed
                    since the immediately preceding Put Date.

             (m)    Shareholder Vote. The issuance of shares of Common Stock
                    with respect to the applicable Closing, if any, shall not
                    violate the shareholder approval requirements of the NASD or
                    the Principal Market.

             (n)    Escrow Agreement. The parties hereto shall have entered into
                    the Escrow Agreement.

                                       17
<PAGE>   19

             (o)    Other. On each Condition Satisfaction Date, the Investor
                    shall have received and been reasonably satisfied with such
                    other certificates and documents as shall have been
                    reasonably requested by the Investor in order for the
                    Investor to confirm the Company's satisfaction of the
                    conditions set forth in this Section 7.2., including,
                    without limitation, a certificate in substantially the form
                    and substance of Exhibit F hereto, executed in either case
                    by an executive officer of the Company and to the effect
                    that all the conditions to such Closing shall have been
                    satisfied as at the date of each such certificate.

     Section 7.3.   Review of Registration Statement; Non-Disclosure of
Non-Public Information.

             (a)    The Company shall make available for inspection and review
                    by the Investor, advisors to and representatives of the
                    Investor (who may or may not be affiliated with the Investor
                    and who are reasonably acceptable to the Company), any
                    Underwriter, any Registration Statement or amendment or
                    supplement thereto or any blue sky, NASD or other filing,
                    all financial and other records, all SEC Documents and other
                    filings with the SEC, and all other corporate documents and
                    properties of the Company as may be reasonably necessary for
                    the purpose of such review, and cause the Company's
                    officers, directors and employees to supply all such
                    information reasonably requested by the Investor or any such
                    representative, advisor or Underwriter in connection with
                    such Registration Statement (including, without limitation,
                    in response to all questions and other inquiries reasonably
                    made or submitted by any of them), prior to and from time to
                    time after the filing and effectiveness of the Registration
                    Statement for the sole purpose of enabling the Investor and
                    such representatives, advisors and Underwriters and their
                    respective accountants and attorneys to conduct initial and
                    ongoing due diligence with respect to the Company and the
                    accuracy of the Registration Statement.

             (b)    Each of the Company, its officers, directors, employees and
                    agents shall in no event disclose non-public information to
                    the Investor, advisors to or representatives of the Investor
                    unless prior to disclosure of such information the Company
                    identifies such information as being non-public information
                    and provides the Investor, such advisors and representatives
                    with the opportunity to accept or refuse to accept such
                    non-public information for review. The Company may, as a
                    condition to disclosing any non-public information
                    hereunder, require the Investor's advisors and
                    representatives to enter into a confidentiality agreement in
                    form reasonably satisfactory to the Company and the
                    Investor.

             (c)    Nothing herein shall require the Company to disclose
                    non-public information to the Investor or its advisors or
                    representatives, and the Company represents that it does not
                    disseminate non-public information to any investors who
                    purchase stock in the Company in a public offering, to money
                    managers or to securities analysts; provided, however, that
                    notwithstanding anything herein to the contrary, the Company
                    shall, as hereinabove provided, immediately notify the
                    advisors and representatives of the Investor and any
                    Underwriters of any event or the existence of any
                    circumstance (without any obligation to disclose the
                    specific event or circumstance) of which it becomes aware,
                    constituting non-public information (whether or not
                    requested of the Company specifically or generally during
                    the course of due diligence by such persons or entities),
                    which, if not disclosed in the prospectus included in the
                    Registration Statement would cause such prospectus to

                                       18
<PAGE>   20

                    include a material misstatement or to omit a material fact
                    required to be stated therein in order to make the
                    statements, therein, in light of the circumstances in which
                    they were made, not misleading. Nothing contained in this
                    Section 7.3 shall be construed to mean that such persons or
                    entities other than the Investor (without the written
                    consent of the Investor prior to disclosure of such
                    information) may not obtain non-public information in the
                    course of conducting due diligence in accordance with the
                    terms and conditions of this Agreement and nothing herein
                    shall prevent any such persons or entities from notifying
                    the Company of their opinion that based on such due
                    diligence by such persons or entities, that the Registration
                    Statement contains an untrue statement of a material fact or
                    omits a material fact required to be stated in the
                    Registration Statement or necessary to make the statements
                    contained therein, in light of the circumstances in which
                    they were made, not misleading.

                                  ARTICLE VIII

                                     LEGENDS

     Section 8.1.   Legends. Each of the Warrant and, unless otherwise provided
below, each certificate representing Registrable Securities will bear the
following legend (the "Legend"):

     THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
     THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
     OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
     EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
     OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
     PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
     PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT
     TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
     TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
     THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF
     THE COMPANY SET FORTH IN A PRIVATE EQUITY LINE AGREEMENT BETWEEN SOMANETICS
     CORPORATION AND KINGSBRIDGE CAPITAL LIMITED DATED AS OF MARCH 6, 2000. A
     COPY OF THE PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS
     MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES.

     As soon as practicable after the execution and delivery hereof, but in any
event within five (5) Trading Days hereafter, the Company shall issue to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit F hereto, with a copy to the Investor. Such instructions shall be
irrevocable by the Company from and after the date hereof or from and after the
issuance thereof to any such substitute or replacement transfer agent, as the
case may be, except as otherwise expressly provided in the Registration Rights
Agreement. It is the intent and purpose of such instructions, as provided
therein, to require the transfer agent for the Common Stock from time to time
upon transfer of Registrable Securities by the Investor to issue certificates

                                       19
<PAGE>   21

evidencing such Registrable Securities free of the Legend during the following
periods and under the following circumstances and without consultation by the
transfer agent with the Company or its counsel and without the need for any
further advice or instruction or documentation to the transfer agent by or from
the Company or its counsel or the Investor:

             (a)    At any time after the Effective Date to the extent
                    accompanied by a notice requesting the issuance of
                    certificates free of the Legend; provided that (i) the
                    Registration Statement shall then be effective and (ii) if
                    reasonably requested by the transfer agent the Investor
                    confirms to the transfer agent that the Investor has
                    complied with or will comply with the prospectus delivery
                    requirement under the Securities Act.

             (b)    At any time upon any surrender of one or more certificates
                    evidencing Registrable Securities that bear the Legend, to
                    the extent accompanied by a notice requesting the issuance
                    of new certificates free of the Legend to replace those
                    surrendered and containing representations that (i) the
                    Investor is permitted to dispose of such Registrable
                    Securities without limitation as to amount or manner of sale
                    pursuant to Rule 144(k) under the Securities Act or (ii) the
                    Investor has sold, pledged or otherwise transferred or
                    agreed to sell, pledge or otherwise transfer such
                    Registrable Securities in a manner other than pursuant to an
                    effective registration statement, to a transferee who shall
                    upon such transfer be entitled to freely tradeable
                    securities.

     Section 8.2.   No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock issued to the Investor and no
instructions or "stop transfers orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article VIII.

     Section 8.3.   Investor's Compliance. Nothing in this Article VIII shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.

                                   ARTICLE IX

                                 INDEMNIFICATION

     Section 9.1.   Indemnification.

             (a)    The Company agrees to indemnify and hold harmless the
                    Investor, its partners, affiliates, officers, directors,
                    employees, and duly authorized agents, and each Person or
                    entity, if any, who controls the Investor within the meaning
                    of Section 15 of the Securities Act or Section 20 of the
                    Exchange Act, together with the Controlling Persons (as
                    defined in the Registration Rights Agreement) from and
                    against any Damages, joint or several, and any action in
                    respect thereof to which the Investor, its partners,
                    affiliates, officers, directors, employees, and duly
                    authorized agents, and any such Controlling Person becomes
                    subject to, resulting from, arising out of or relating to
                    any misrepresentation, breach of warranty or nonfulfillment
                    of or failure to perform any covenant or agreement on the
                    part of Company contained in this Agreement, as such Damages
                    are incurred, except to

                                       20
<PAGE>   22

                    the extent that such damages result solely from the
                    Investor's failure to perform any covenant or agreement
                    contained in this Agreement, provided, however, that the
                    Company shall not be liable in any such case to the extent
                    that any such Damages arise out of or are based upon
                    information furnished to the Company by or on behalf of the
                    Investor in writing.

             (b)    the Investor agrees to indemnify and hold harmless the
                    Company, its partners, affiliates, officers, directors,
                    employees and duly authorized agents and its Controlling
                    Persons (as defined in the Registration Rights Agreement)
                    from and against any Damages, joint or several, and any
                    action in respect thereof to which the Company, its
                    partners, affiliates, officers, directors, employees, and
                    duly authorized agents, and any such Controlling Person
                    becomes subject to, resulting from, arising out of or
                    relating to any misrepresentation, breach of warranty or
                    nonfulfillment of or failure to perform any covenant or
                    agreement on the part of Investor contained in this
                    Agreement, as such Damages are incurred, except to the
                    extent that such damages result solely from the Company's
                    failure to perform any covenant or agreement contained in
                    this Agreement; provided, however, that the indemnification
                    obligation of the Investor under this Section 9.1 shall not
                    exceed an aggregate maximum amount of $750,000.

     Section 9.2.   Method of Asserting Indemnification Claims.  All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.1
shall be asserted and resolved as follows:

             (a)    In the event any claim or demand in respect of which any
                    person claiming indemnification under any provision of
                    Section 9.1 (an "Indemnified Party") might seek indemnity
                    under Section 9.1 is asserted against or sought to be
                    collected from such Indemnified Party by a person other than
                    the Company, the Investor or any affiliate of the Company or
                    (a "Third Party Claim"), the Indemnified Party shall deliver
                    a written notification, enclosing a copy of all papers
                    served, if any, and specifying the nature of and basis for
                    such Third Party Claim and for the Indemnified Party's claim
                    for indemnification that is being asserted under any
                    provision of Section 9.1 against any person (the
                    "Indemnifying Party"), together with the amount or, if not
                    then reasonably ascertainable, the estimated amount,
                    determined in good faith, of such Third Party Claim (a
                    "Claim Notice") with reasonable promptness to the
                    Indemnifying Party. If the Indemnified Party fails to
                    provide the Claim Notice with reasonable promptness after
                    the Indemnified Party receives notice of such Third Party
                    Claim, the Indemnifying Party shall not be obligated to
                    indemnify the Indemnified Party with respect to such Third
                    Party Claim to the extent that the Indemnifying Party's
                    ability to defend has been irreparably prejudiced by such
                    failure of the Indemnified Party. The Indemnifying Party
                    shall notify the Indemnified Party as soon as practicable
                    within the period ending thirty (30) calendar days following
                    receipt by the Indemnifying Party of either a Claim Notice
                    or an Indemnity Notice (as defined below) (the "Dispute
                    Period") whether the Indemnifying Party disputes its
                    liability or the amount of its liability to the Indemnified
                    Party under Section 9.1 and whether the Indemnifying Party
                    desires, at its sole cost and expense, to defend the
                    Indemnified Party against such Third Party Claim.

                    (i)    If the Indemnifying Party notifies the Indemnified
                           Party within the Dispute Period that the Indemnifying
                           Party desires to defend the

                                       21
<PAGE>   23

                           Indemnified Party with respect to the Third Party
                           Claim pursuant to this Section 9.2(a), then the
                           Indemnifying Party shall have the right to defend,
                           with counsel reasonably satisfactory to the
                           Indemnified Party, at the sole cost and expense of
                           the Indemnifying Party, such Third Party Claim by all
                           appropriate proceedings, which proceedings shall be
                           vigorously and diligently prosecuted by the
                           Indemnifying Party to a final conclusion or will be
                           settled at the discretion of the Indemnifying Party
                           (but only with the consent of the Indemnified Party
                           in the case of any settlement that provides for any
                           relief other than the payment of monetary damages or
                           that provides for the payment of monetary damages as
                           to which the Indemnified Party shall not be
                           indemnified in full pursuant to Section 9.1). The
                           Indemnifying Party shall have full control of such
                           defense and proceedings, including any compromise or
                           settlement thereof; provided, however, that the
                           Indemnified Party may, at the sole cost and expense
                           of the Indemnified Party, at any time prior to the
                           Indemnifying Party's delivery of the notice referred
                           to in the first sentence of this clause (i), file any
                           motion, answer or other pleadings or take any other
                           action that the Indemnified Party reasonably believes
                           to be necessary or appropriate to protect its
                           interests; and provided further, that if requested by
                           the Indemnifying Party, the Indemnified Party will,
                           at the sole cost and expense of the Indemnifying
                           Party, provide reasonable cooperation to the
                           Indemnifying Party in contesting any Third Party
                           Claim that the Indemnifying Party elects to contest.
                           The Indemnified Party may participate in, but not
                           control, any defense or settlement of any Third Party
                           Claim controlled by the Indemnifying Party pursuant
                           to this clause (i), and except as provided in the
                           preceding sentence, the Indemnified Party shall bear
                           its own costs and expenses with respect to such
                           participation. Notwithstanding the foregoing, the
                           Indemnified Party may take over the control of the
                           defense or settlement of a Third Party Claim at any
                           time if it irrevocably waives its right to indemnity
                           under Section 9.1 with respect to such Third Party
                           Claim.

                    (ii)   If the Indemnifying Party fails to notify the
                           Indemnified Party within the Dispute Period that the
                           Indemnifying Party desires to defend the Third Party
                           Claim pursuant to Section 9.2(a), or if the
                           Indemnifying Party gives such notice but fails to
                           prosecute vigorously and diligently or settle the
                           Third Party Claim, or if the Indemnifying Party fails
                           to give any notice whatsoever within the Dispute
                           Period, then the Indemnified Party shall have the
                           right to defend, at the sole cost and expense of the
                           Indemnifying Party, the Third Party Claim by all
                           appropriate proceedings, which proceedings shall be
                           prosecuted by the Indemnified Party in a reasonable
                           manner and in good faith or will be settled at the
                           discretion of the Indemnified Party (with the consent
                           of the Indemnifying Party, which consent will not be
                           unreasonably withheld). The Indemnified Party will
                           have full control of such defense and proceedings,
                           including any compromise or settlement thereof;
                           provided, however, that if requested by the
                           Indemnified Party, the Indemnifying Party will, at
                           the sole cost and expense of the Indemnifying Party,
                           provide reasonable cooperation to the Indemnified
                           Party and its counsel in contesting any Third Party
                           Claim which the Indemnified Party is contesting.
                           Notwithstanding the foregoing provisions of this
                           clause (ii), if the

                                       22
<PAGE>   24

                           Indemnifying Party has notified the Indemnified Party
                           within the Dispute Period that the Indemnifying Party
                           disputes its liability or the amount of its liability
                           hereunder to the Indemnified Party with respect to
                           such Third Party Claim and if such dispute is
                           resolved in favor of the Indemnifying Party in the
                           manner provided in clause (iii) below, the
                           Indemnifying Party will not be required to bear the
                           costs and expenses of the Indemnified Party's defense
                           pursuant to this clause (ii) or of the Indemnifying
                           Party's participation therein at the Indemnified
                           Party's request, and the Indemnified Party shall
                           reimburse the Indemnifying Party in full for all
                           reasonable costs and expenses incurred by the
                           Indemnifying Party in connection with such
                           litigation. The Indemnifying Party may participate
                           in, but not control, any defense or settlement
                           controlled by the Indemnified Party pursuant to this
                           clause (ii), and the Indemnifying Party shall bear
                           its own costs and expenses with respect to such
                           participation.

                    (iii)  If the Indemnifying Party notifies the Indemnified
                           Party that it does not dispute its liability or the
                           amount of its liability to the Indemnified Party with
                           respect to the Third Party Claim under Section 9.1,
                           or fails to notify the Indemnified Party within the
                           Dispute Period whether the Indemnifying Party
                           disputes its liability or the amount of its liability
                           to the Indemnified Party with respect to such Third
                           Party Claim, the Loss in the amount specified in the
                           Claim Notice shall be conclusively deemed a liability
                           of the Indemnifying Party under Section 9.1 and the
                           Indemnifying Party shall pay the amount of such Loss
                           to the Indemnified Party on demand. If the
                           Indemnifying Party has timely disputed its liability
                           or the amount of its liability with respect to such
                           claim, the Indemnifying Party and the Indemnified
                           Party shall proceed in good faith to negotiate a
                           resolution of such dispute, and if not resolved
                           through negotiations within the Resolution Period,
                           such dispute shall be resolved by arbitration in
                           accordance with paragraph (c) of this Section 9.2.

             (b)    In the event any Indemnified Party should have a claim under
                    Section 9.1 against the Indemnifying Party that does not
                    involve a Third Party Claim, the Indemnified Party shall
                    deliver a written notification of a claim for indemnity
                    under Section 9.1 specifying the nature of and basis for
                    such claim, together with the amount or, if not then
                    reasonably ascertainable, the estimated amount, determined
                    in good faith, of such claim (an "Indemnity Notice") with
                    reasonable promptness to the Indemnifying Party. The failure
                    by any Indemnified Party to give the Indemnity Notice shall
                    not impair such party's rights hereunder except to the
                    extent that the Indemnifying Party demonstrates that it has
                    been irreparably prejudiced thereby. If the Indemnifying
                    Party notifies the Indemnified Party that it does not
                    dispute the claim or the amount of the claim described in
                    such Indemnity Notice, or fails to notify the Indemnified
                    Party within the Dispute Period whether the Indemnifying
                    Party disputes the claim or the amount of the claim
                    described in such Indemnity Notice, the Loss in the amount
                    specified in the Indemnity Notice will be conclusively
                    deemed a liability of the Indemnifying Party under Section
                    9.1 and the Indemnifying Party shall pay the amount of such
                    Loss to the Indemnified Party on demand. If the Indemnifying
                    Party has timely disputed its liability or the amount of its
                    liability with respect to such claim, the Indemnifying Party
                    and the Indemnified Party shall proceed in good faith to

                                       23
<PAGE>   25

                    negotiate a resolution of such dispute, and if not resolved
                    through negotiations within the Resolution Period, such
                    dispute shall be resolved by arbitration in accordance with
                    paragraph (c) of this Section 9.2.

             (c)    Any dispute under this Agreement or the Warrant shall be
                    submitted to arbitration (including, without limitation,
                    pursuant to this Section 9.2) and shall be finally and
                    conclusively determined by the decision of a board of
                    arbitration consisting of three (3) members (the "Board of
                    Arbitration") selected as hereinafter provided. Each of the
                    Indemnified Party and the Indemnifying Party shall select
                    one (1) member and the third member shall be selected by
                    mutual agreement of the other members, or if the other
                    members fail to reach agreement on a third member within
                    twenty (20) days after their selection, such third member
                    shall thereafter be selected by the American Arbitration
                    Association upon application made to it for such purpose by
                    the Indemnified Party. The Board of Arbitration shall meet
                    on consecutive business days in New York County, New York or
                    such other place as a majority of the members of the Board
                    of Arbitration determines more appropriate, and shall reach
                    and render a decision in writing (concurred in by a majority
                    of the members of the Board of Arbitration) with respect to
                    the amount, if any, which the Indemnifying Party is required
                    to pay to the Indemnified Party in respect of a claim filed
                    by the Indemnified Party. In connection with rendering its
                    decisions, the Board of Arbitration shall adopt and follow
                    such rules and procedures as a majority of the members of
                    the Board of Arbitration deems necessary or appropriate. To
                    the extent practical, decisions of the Board of Arbitration
                    shall be rendered no more than thirty (30) calendar days
                    following commencement of proceedings with respect thereto.
                    The Board of Arbitration shall cause its written decision to
                    be delivered to the Indemnified Party and the Indemnifying
                    Party. Any decision made by the Board of Arbitration (either
                    prior to or after the expiration of such thirty (30)
                    calendar day period) shall be final, binding and conclusive
                    on the Indemnified Party and the Indemnifying Party and
                    entitled to be enforced to the fullest extent permitted by
                    law and entered in any court of competent jurisdiction. Each
                    party to any arbitration shall bear its own expense in
                    relation thereto, including but not limited to such party's
                    attorneys' fees, if any, and the expenses and fees of the
                    Board of Arbitration shall be divided between the
                    Indemnifying Party and the Indemnified Party in the same
                    proportion as the portion of the related claim determined by
                    the Board of Arbitration to be payable to the Indemnified
                    Party bears to the portion of such claim determined not to
                    be so payable.

                                   ARTICLE X

                                  MISCELLANEOUS

Section 10.1. Fees and Expenses. Each of the Company and the Investor agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of the
Investor's counsel incurred in connection with the drafting, negotiation,
execution and delivery of this Agreement, the Registration Rights Agreement, the
Warrant and the Escrow Agreement up to an aggregate maximum amount of
twenty-five thousand dollars ($25,000) and that the Company shall pay the fees,
expenses and disbursements of the Investor's counsel incurred in connection with
such counsel's review of the Registration Statement in accordance with the terms
of the Registration Rights Agreement, including the limitation contained
therein.

                                       24
<PAGE>   26

     Section 10.2. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.

     Section 10.3. Brokerage. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any persons claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.

     Section 10.4. Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery or facsimile, addressed as set
forth below or to such other address as such party shall have specified most
recently by written notice given in accordance herewith. Any notice or other
communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:

                  If to the Company:

                  Somanetics Corporation
                  1653 East Maple Road,
                  Troy, Michigan 48083-4208
                  (248) 689-3050
                  Telephone: (248) 689-3050
                  Facsimile: (248) 689-4272
                  Attention: Bruce J. Barrett

with a copy (which shall not constitute notice) to:

                  Honigman Miller Schwartz and Cohn
                  2290 First National Building
                  660 Woodward Avenue
                  Detroit, Michigan 48226-3583
                  Telephone: (313) 465-7452
                  Facsimile: (313) 465-7453

                  Attention: Robert J. Krueger, Esq.

if to the Investor:

                  Kingsbridge Capital Limited
                  c/o Kingsbridge Corporate Services Limited

                                       25
<PAGE>   27

                  Main Street
                  Kilcullen, County Kildare
                  Republic of Ireland
                  Telephone: 011-353-45-481-811
                  Facsimile: 011-353-45-482-003
                  Attention: Adam Gurney

with a copy (which shall not constitute notice) to:

                  Clifford Chance Rogers & Wells LLP
                  200 Park Avenue, 52nd Floor
                  New York, NY  10166
                  Telephone: (212) 878-8000
                  Facsimile: (212) 878-8375
                  Attention: Keith M. Andruschak, Esq.

     Either party hereto may from time to time change its address or facsimile
     number for notices under this Section by giving at least ten (10) days'
     prior written notice of such changed address or facsimile number to the
     other party hereto.

     Section 10.5. Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Common Stock purchased or acquired by the Investor hereunder with respect to
the Common Stock held by such person, and (b) the Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any affiliate of the Investor) upon the prior written
consent of the Company, which consent shall not be unreasonably withheld.

     Section 10.6. Amendment; No Waiver. No party shall be liable or bound to
any other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein. Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by both parties hereto. The failure of the either party to
insist on strict compliance with this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding
full and complete compliance nor prevent the parties from exercising such a
right or remedy in the future.

     Section 10.7. Annexes and Exhibits; Entire Agreement. All annexes and
exhibits to this Agreement are incorporated herein by reference and shall
constitute part of this Agreement. This Agreement, the Warrant, the Registration
Rights Agreement and the Escrow Agreement set forth the entire agreement and
understanding of the parties relating to the subject matter hereof and thereof
and supersede all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written, relating to the
subject matter hereof.

     Section 10.8. Termination; Survival. This Agreement shall terminate on the
earlier of (i) twenty four (24) months after the commencement of the Commitment
Period (ii) such date the Investor or the Company terminates this Agreement in
accordance with its terms and (iii) the date on which the Company has made Puts
with an aggregate Investment Amount equal to the Maximum Commitment Amount;
provided, however, that the provisions of Articles VI, VIII, IX and X, and of
Section 2.1(b) and Section 7.3, shall survive the termination of this Agreement.

                                       26
<PAGE>   28

     Section 10.9. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.

     Section 10.10. Title and Subtitles. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.

     Section 10.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.

     Section 10.12. Choice of Law. This Agreement shall be construed under the
laws of the State of Michigan, without giving effect to conflicts of law
principles of such jurisdiction.

                                       27

<PAGE>   29

         IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Line Agreement to be executed by the undersigned, thereunto duly authorized, as
of the date first set forth above.

                           KINGSBRIDGE CAPITAL LIMITED

                           By:
                              -------------------------------------
                              Valentine O'Donoghue
                              Director

                           SOMANETICS CORPORATION

                           By:
                              -------------------------------------
                              Bruce J. Barrett
                              Chief Executive Officer

<PAGE>   30
                                     ANNEX A
                               MAXIMUM PUT AMOUNT

     The Maximum Put Amount with respect to a Put shall be determined based upon
the Average Daily Trading Volume of shares of Common Stock with respect to the
relevant Put Date and the Market Price as of such Put Date of shares of Common
Stock as follows:

<TABLE>
<CAPTION>
                         ===========================================================================================
                                        Average Daily Trading Volume
======================== ====================== ====================== ====================== ======================
Market   Price  ($       30,000-45,000          45,001-60,000          60,001-75,000          75,001 and above
per share)
====================================================================================================================
<S>                      <C>                    <C>                    <C>                    <C>
0.01-1.00                $10,000                $20,000                $30,000                $30,000
======================== ---------------------- ---------------------- ---------------------- ======================
1.01-2.25                $100,000               $150,000               $200,000               $300,000
======================== ---------------------- ---------------------- ---------------------- ======================
2.26-3.50                $200,000               $300,000               $400,000               $500,000
======================== ---------------------- ---------------------- ---------------------- ======================
3.51-5.00                $300,000               $400,000               $500,000               $600,000
======================== ---------------------- ---------------------- ---------------------- ======================
5.01-6.50                $400,000               $500,000               $600,000               $700,000
======================== ---------------------- ---------------------- ---------------------- ======================
6.51-8.00                $500,000               $650,000               $750,000               $850,000
======================== ====================== ====================== ====================== ======================
8.00 and above           $600,000               $750,000               $850,000               $1,000,000
======================== ====================== ====================== ====================== ======================
</TABLE>

<PAGE>   31
                                                                               2

                                    EXHIBIT A

                           [FORM OF ESCROW AGREEMENT]

<PAGE>   32
                                                                               3

                                    EXHIBIT B

                     [FORM OF REGISTRATION RIGHTS AGREEMENT]

<PAGE>   33

                                                                               4

                                    EXHIBIT C

                                [FORM OF WARRANT]

<PAGE>   34
                                                                               5

                                    EXHIBIT D
              FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL

                       [FORM PROVIDED BY COMPANY COUNSEL]

<PAGE>   35
                                    EXHIBIT E

                             COMPLIANCE CERTIFICATE
                             SOMANETICS CORPORATION

     The undersigned, Bruce J. Barrett hereby certifies, with respect to common
shares of Somanetics Corporation (the "Company") issuable in connection with the
Put Notice, dated               (the "Notice"), delivered pursuant to Article II
of the Private Equity Line Agreement, dated March 6, 2000, by and between the
Company and Kingsbridge Capital Limited (the "Agreement"), as follows:

     1. The undersigned is the duly elected Chief Executive Officer of the
Company.

     2. The representations and warranties of the Company set forth in Article
IV of the Agreement are true and correct in all material respects as though made
on and as of the date hereof.

     3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in Article VII of the Agreement.

     The undersigned has executed this Certificate this      day of         ,
2000.

                                         ------------------------------------
                                         Bruce J. Barrett
                                         Chief Executive Officer

<PAGE>   36
                                    EXHIBIT F

                         INSTRUCTIONS TO TRANSFER AGENT
                             SOMANETICS CORPORATION

                                                          ________________, 2000

[Name, address and phone and facsimile number of Transfer Agent]

Ladies and Gentlemen::

     Reference is made to the Private Equity Line Agreement (the "Agreement"),
dated as of February __, 2000 between Kingsbridge Capital Limited (the
"Investor") and Somanetics Corporation (the "Company"). Pursuant to the
Agreement, subject to the terms and conditions set forth in the Agreement the
Investor has agreed to purchase from the Company and the Company has agreed to
sell to the Investor from time to time during the term of the Agreement shares
of common shares of the Company, $.01 par value per share (the "Common Stock").
As a condition to the effectiveness of the Agreement, the Company has agreed to
issue to you, as the transfer agent for the Common Stock (the "Transfer Agent"),
these instructions relating to the Common Stock to be issued to the Investor (or
a permitted assignee) pursuant to the Agreement. All terms used herein and not
otherwise defined shall have the meaning set forth in the Agreement.

     1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND

     Pursuant to the Agreement, the Company is required to prepare and file with
the Commission, and maintain the effectiveness of, a registration statement or
registration statements registering the resale of the Common Stock to be
acquired by the Investor under the Agreement. The Company will advise the
Transfer Agent in writing of the effectiveness of any such registration
statement promptly upon its being declared effective. The Transfer Agent shall
be entitled to rely on such advice and shall assume that the effectiveness of
such registration statement remains in effect unless the Transfer Agent is
otherwise advised in writing by the Company and shall not be required to
independently confirm the continued effectiveness of such registration
statement. In the circumstances set forth in the following two paragraphs, the
Transfer Agent shall deliver to the Investor certificates representing Common
Stock not bearing the Legend without requiring further advice or instruction or
additional documentation from the Company or its counsel or the Investor or its
counsel or any other party (other than as described in such paragraphs).

     At any time after the effective date of the applicable registration
statement (provided that the Company has not informed the Transfer Agent in
writing that such registration statement is not effective) upon a notice
requesting the issuance of certificates free of the Legend, the Transfer Agent
shall deliver to the Investor the certificates representing the Common Stock not
bearing the Legend, in such names and denominations as the Investor shall
request, provided that:

     (a) in connection with such event, if so requested by the Transfer Agent,
     the Investor (or its permitted assignee) shall confirm in writing to the
     Transfer Agent that the Investor has complied with the prospectus delivery
     requirement under the Securities Act;

<PAGE>   37
                                                                               2

     (b) if so requested by the Transfer Agent, the Investor (or its permitted
     assignee) shall represent that it is permitted to dispose thereof without
     limitation as to amount or manner of sale pursuant to Rule 144(k) under the
     Securities Act; or

     (c) the Investor, its permitted assignee, or either of their brokers
     confirms to the transfer agent that (i) the Investor has held the shares of
     Common Stock for at least one year, (ii) counting the shares surrendered as
     being sold upon the date the unlegended Certificates would be delivered to
     the Investor (or the Trading Day immediately following if such date is not
     a Trading Day), the Investor will not have sold more than the greater of
     (a) one percent (1%) of the total number of outstanding shares of Common
     Stock or (b) the average weekly trading volume of the Common Stock for the
     preceding four weeks during the three months ending upon such delivery date
     (or the Trading Day immediately following if such date is not a Trading
     Day), and (iii) the Investor has complied with the manner of sale and
     notice requirements of Rule 144 under the Securities Act.

     Any advice, notice or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the Transfer
Agent's facsimile number of (___)-___-____.

     2.  MECHANICS OF DELIVERY OF CERTIFICATES
         REPRESENTING COMMON STOCK

     In connection with any Closing pursuant to which the Investor acquires
Common Stock under the Agreement, the Transfer Agent shall deliver certificates
representing Common Stock (with or without the Legend, as appropriate) as
promptly as practicable, but in no event later than three business days, after
such Closing.

     3.  FEES OF TRANSFER AGENT; INDEMNIFICATION

     The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to indemnify
the Transfer Agent and its officers, employees and agents, against any losses,
claims, damages or liabilities, joint or several, to which it or they become
subject based upon the performance by the Transfer Agent of its duties in
accordance with the Irrevocable Instructions.

<PAGE>   38
                                                                               3

4.       THIRD PARTY BENEFICIARY
         The Company and the Transfer Agent acknowledge and agree that the
Investor is an express third party beneficiary of these Irrevocable Instructions
and shall be entitled to rely upon, and enforce, the provisions hereof.

         By:
             -------------------------------------
             Name
             Title

AGREED:

[NAME OF TRANSFER AGENT]

By:
      ---------------------------------
Name:
Title:

<PAGE>   39
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                                PAGE
<S>              <C>                                                                                            <C>
         Section 1.1.      Average Daily Trading Volume......................................................... 1

         Section 1.2.      Bid Price............................................................................ 2

         Section 1.3.      Blackout Shares...................................................................... 2

         Section 1.4.      "Capital Shares\..................................................................... 2

         Section 1.5.      "Closing\............................................................................ 2

         Section 1.6.      "Closing Date\....................................................................... 2

         Section 1.7.      "Commitment Period................................................................... 2

         Section 1.8.      "Common Stock"....................................................................... 2

         Section 1.9.      "Common Stock Equivalents"........................................................... 2

         Section 1.10.     "Condition Satisfaction Date"........................................................ 2

         Section 1.11.     "Damages"............................................................................ 2

         Section 1.12.     "Discount"........................................................................... 2

         Section 1.13.     "Effective Date"..................................................................... 2

         Section 1.14.     "Escrow Agreement"................................................................... 3

         Section 1.15.     "Exchange Act"....................................................................... 3

         Section 1.16.     "Investment Amount".................................................................. 3

         Section 1.17.     "Legend"............................................................................. 3

         Section 1.18.     "Market Price"....................................................................... 3

         Section 1.19.     "Maximum Commitment Amount".......................................................... 3

         Section 1.20.     "Maximum Put Amount"................................................................. 3

         Section 1.21.     "Minimum Commitment Amount".......................................................... 3

         Section 1.22.     "Minimum Put Amount"................................................................. 3

         Section 1.23.     "Material Adverse Effect"............................................................ 3

         Section 1.24.     "NASD"............................................................................... 3

         Section 1.25.     "Outstanding"........................................................................ 3

         Section 1.26.     "Person"............................................................................. 3

         Section 1.27.     "Preferred Stock".................................................................... 3

         Section 1.28.     "Principal Market"................................................................... 4

         Section 1.29.     "Purchase Price"..................................................................... 4

         Section 1.30.     "Put"................................................................................ 4

         Section 1.31.     "Put Date"........................................................................... 4

         Section 1.32.     "Put Notice"......................................................................... 4
</TABLE>

                                      -i-
<PAGE>   40

                               TABLE OF CONTENTS
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                                 PAGE
<S>                        <C>                                                                                   <C>
         Section 1.33.     "Put Shares"......................................................................... 4

         Section 1.34.     "Registrable Securities"............................................................. 4

         Section 1.35.     "Registration Rights Agreement"...................................................... 4

         Section 1.36.     "Registration Statement"............................................................. 4

         Section 1.37.     "Regulation D"....................................................................... 5

         Section 1.38.     "SEC"................................................................................ 5

         Section 1.39.     "SEC Documents"...................................................................... 5

         Section 1.40.     "Section 4(2)"....................................................................... 5

         Section 1.41.     "Securities Act"..................................................................... 5

         Section 1.42.     "Subscription Date".................................................................. 5

         Section 1.43.     "Trading Cushion".................................................................... 5

         Section 1.44.     "Trading Day"........................................................................ 5

         Section 1.45.     "Underwriter"........................................................................ 5

         Section 1.46.     "Valuation Event".................................................................... 5

         Section 1.47.     "Valuation Period"................................................................... 6

         Section 1.48.     "Warrant"............................................................................ 6

         Section 1.49.     "Warrant Shares"..................................................................... 6

ARTICLE II            PURCHASE AND SALE OF COMMON STOCK; TERMINATION OF OBLIGATIONS; WARRANT; BLACKOUT
                      SHARES.................................................................................... 6

         Section 2.1.      Investments.......................................................................... 6

         Section 2.2.      Mechanics............................................................................ 7

         Section 2.3.      Closings............................................................................. 7

         Section 2.4.      Termination.......................................................................... 7

         Section 2.5.      The Warrant.......................................................................... 8

         Section 2.6.      Blackout Shares...................................................................... 8

         Section 2.7.      Liquidated Damages................................................................... 8

ARTICLE III           REPRESENTATIONS AND WARRANTIES OF INVESTOR................................................ 9

         Section 3.1.      Intent............................................................................... 9

         Section 3.2.      Sophisticated Investor............................................................... 9

         Section 3.3.      Authority............................................................................ 9

         Section 3.4.      Not an Affiliate..................................................................... 9

         Section 3.5.      Organization and Standing............................................................ 9

         Section 3.6.      Absence of Conflicts................................................................. 9
</TABLE>

                                      -ii-
<PAGE>   41

                               TABLE OF CONTENTS
                                  (CONTINUED)
<TABLE>
<CAPTION>
                                                                                                                PAGE
<S>                        <C>                                                                                  <C>
         Section 3.7.      Disclosure; Access to Information................................................... 10

         Section 3.8.      Manner of Sale...................................................................... 10

ARTICLE IV            REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................ 10

         Section 4.1.      Organization of the Company......................................................... 10

         Section 4.2.      Authority........................................................................... 10

         Section 4.3.      Capitalization...................................................................... 10

         Section 4.4.      Common Stock........................................................................ 11

         Section 4.5.      SEC Documents....................................................................... 11

         Section 4.6.      Exemption from Registration; Valid Issuances........................................ 11

         Section 4.7.      No General Solicitation or Advertising in Regard to this Transaction................ 11

         Section 4.8.      Corporate Documents................................................................. 11

         Section 4.9.      No Material Breach or Violation with Law............................................ 12

         Section 4.10.     No Material Adverse Change.......................................................... 12

         Section 4.11.     No Undisclosed Liabilities.......................................................... 12

         Section 4.12.     No Undisclosed Events or Circumstances.............................................. 12

         Section 4.13.     No Integrated Offering.............................................................. 12

         Section 4.14.     Litigation and Other Proceedings.................................................... 13

         Section 4.15.     No Misleading or Untrue Communication............................................... 13

         Section 4.16.     Material Non-Public Information..................................................... 13

ARTICLE V             COVENANTS OF THE INVESTOR................................................................ 13

ARTICLE VI            COVENANTS OF THE COMPANY................................................................. 13

         Section 6.1.      Registration Rights................................................................. 13

         Section 6.2.      Reservation of Common Stock......................................................... 13

         Section 6.3.      Listing of Common Stock............................................................. 14

         Section 6.4.      Exchange Act Registration........................................................... 14

         Section 6.5.      Legends............................................................................. 14

         Section 6.6.      Corporate Existence................................................................. 14

         Section 6.7.      Additional SEC Documents............................................................ 14
         Section 6.8.      Notice of Certain Events Affecting Registration; Suspension of Right to Make a
                           Put................................................................................. 14

         Section 6.9.      Expectations Regarding Put Notices.................................................. 15

         Section 6.10.     Consolidation; Merger............................................................... 15

         Section 6.11.     Issuance of Put Shares, Warrant Shares and Blackout Shares.......................... 15
</TABLE>

                                     -iii-
<PAGE>   42
                               TABLE OF CONTENTS
                                  (CONTINUED)
<TABLE>
<CAPTION>
                                                                                                                PAGE
<S>                        <C>                                                                                  <C>
         Section 6.12.     Legal Opinion on Subscription Date.................................................. 15

ARTICLE VII           CONDITIONS TO DELIVERY OF PUT NOTICES AND CONDITIONS TO CLOSING.......................... 15

         Section 7.1.      Conditions Precedent to the Obligation of the Company to Issue and Sell Common
                           Stock............................................................................... 15

         Section 7.2.      Conditions Precedent to the Right of the Company to Deliver a Put Notice and the
                           Obligation of the Investor to Purchase Put Shares................................... 16

         Section 7.3.      Review of Registration Statement; Non-Disclosure of Non-Public Information.......... 18

ARTICLE VIII          LEGENDS.................................................................................. 19

         Section 8.1.      Legends............................................................................. 19

         Section 8.2.      No Other Legend or Stock Transfer Restrictions...................................... 20

         Section 8.3.      Investor's Compliance............................................................... 20

ARTICLE IX            INDEMNIFICATION.......................................................................... 20

         Section 9.1.      Indemnification..................................................................... 20

         Section 9.2.      Method of Asserting Indemnification Claims.......................................... 21

ARTICLE X             MISCELLANEOUS............................................................................ 24

         Section 10.1.     Fees and Expenses................................................................... 24

         Section 10.2.     Reporting Entity for the Common Stock............................................... 25

         Section 10.3.     Brokerage........................................................................... 25

         Section 10.4.     Notices............................................................................. 25

         Section 10.5.     Assignment.......................................................................... 26

         Section 10.6.     Amendment; No Waiver................................................................ 26

         Section 10.7.     Annexes and Exhibits; Entire Agreement.............................................. 26

         Section 10.8.     Termination; Survival............................................................... 26

         Section 10.9.     Severability........................................................................ 27

         Section 10.10.    Title and Subtitles................................................................. 27

         Section 10.11.    Counterparts........................................................................ 27

         Section 10.12.    Choice of Law....................................................................... 27
</TABLE>

                                      -iv-<PAGE>   1
                                                                   EXHIBIT 10.43

                                     WARRANT

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A PRIVATE EQUITY
LINE AGREEMENT, DATED AS OF MARCH 6, 2000, BETWEEN SOMANETICS CORPORATION AND
KINGSBRIDGE CAPITAL LIMITED. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT
EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM SOMANETICS CORPORATION'S
EXECUTIVE OFFICES.

                                                                   March 6, 2000

         Warrant to Purchase up to 200,000 of Common Shares of Somanetics
Corporation.

         Somanetics Corporation, a Michigan corporation (the "Company"), hereby
agrees that Kingsbridge Capital Limited (the "Investor") or any other Warrant
Holder is entitled, on the terms and conditions set forth below, to purchase
from the Company at any time during the Exercise Period up to 200,000 fully paid
and nonassessable common shares, par value $.01 per share, of the Company (the
"Common Stock"), as the same may be adjusted from time to time pursuant to
Section 6 hereof, at the Exercise Price (hereinafter defined), as the same may
be adjusted pursuant to Section 6 hereof. The resale of the shares of Common
Stock or other securities issuable upon exercise or exchange of this Warrant is
subject to the provisions of the Registration Rights Agreement (as defined
below).

                  Section 1.  Definitions.

                  "Agreement" shall mean the Private Equity Line Agreement,
dated the date hereof, between the Company and the Investor.

                  "Capital Shares" shall mean the Common Stock and any shares of
any other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.

                  "Date of Exercise" shall mean the date that the advance copy
of the Exercise Form is sent by facsimile to the Company, provided that the
original Warrant and Exercise Form are received by the Company within reasonable
time thereafter. If the Warrant Holder has not sent advance notice by facsimile,
the Date of Exercise shall be the date the original Exercise Form is received by
the Company.

                  "Exercise Period" shall mean that period beginning on the
181st day after the Subscription Date and continuing until the expiration of the
five-year period thereafter; provided that such period shall be extended one day
for each day after such 181st day after the Subscription Date, that a
Registration Statement is not effective during the period such Registration
Statement is required to be effective pursuant to the Registration Rights
Agreement.

                  "Exercise Price" as of the date hereof shall mean one hundred
fifteen percent (115%) of the average of the lowest intra-day bid prices per
share of Common Stock (as reported by Bloomberg,

<PAGE>   2

L.P.) for the five (5) Trading Days immediately preceding the Subscription
Date and shall hereafter be subject to the adjustments provided for in Section 6
of this Warrant.

                  "Per Share Warrant Value" shall mean the difference resulting
from subtracting the Exercise Price from the Bid Price of one share of Common
Stock on the Trading Day next preceding the Date of Exercise.

                  "Registration Rights Agreement" shall mean the registration
rights agreement, dated the date hereof between the Company and the Investor.

                  "Subscription Date" shall mean the date on which the Agreement
is executed and delivered by the parties hereto.

                  "Warrant Holder" shall mean the Investor or any assignee or
transferee of all or any portion of this Warrant; and other capitalized terms
used but not defined herein shall have their respective meanings set forth in
the Agreement.

                  Section 2.        Exercise; Cashless Exercise.

                           (a) Method of Exercise. This Warrant may be exercised
in whole or in part (but not as to a fractional share of Common Stock), at any
time and from time to time during the Exercise Period, by the Warrant Holder by
(i) surrender of this Warrant, with the form of exercise attached hereto as
Exhibit A duly executed by the Warrant Holder (the "Exercise Notice"), to the
Company at the address set forth in Section 13 hereof, accompanied by payment of
the Exercise Price multiplied by the number of shares of Common Stock for which
this Warrant is being exercised (the "Aggregate Exercise Price") or (ii)
telecopying an executed and completed Exercise Notice to the Company and
delivering to the Company within three business days thereafter the original
Exercise Notice, this Warrant and the Aggregate Exercise Price. Each date on
which an Exercise Notice is received by the Company in accordance with clause
(i) and each date on which the Exercise Notice is telecopied to the Company in
accordance with clause (ii) above shall be deemed an "Exercise Date".

                           (b) Payment of Aggregate Exercise Price. Subject to
paragraph (c) below, payment of the Aggregate Exercise Price shall be made by
check or bank draft payable to the order of the Company or by wire transfer to
an account designated by the Company. If the amount of the payment received by
the Company is less than the Aggregate Exercise Price, the Warrant Holder will
be notified of the deficiency and shall make payment in that amount within five
(5) business days. In the event the payment exceeds the Aggregate Exercise
Price, the Company will refund the excess to the Warrant Holder within three (3)
business days of receipt.

                           (c) Cashless Exercise. As an alternative to payment
of the Aggregate Exercise Price in accordance with paragraph (b) above, the
Warrant Holder may elect to effect a cashless exercise by so indicating on the
Exercise Notice and including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"Cashless Exercise"). In the event of a Cashless Exercise, the Warrant Holder
shall surrender this Warrant for that number of shares of Common Stock
determined by (i) multiplying the number of Warrant Shares for which this
Warrant is being exercised by the Per Share Warrant Value and (ii) dividing the
product by the Bid Price of one share of the Common Stock on the Trading Day
next preceding the Date of Exercise and rounding to the nearest whole share.

                           (d) Replacement Warrant. In the event that the
Warrant is not exercised in full, the number of Warrant Shares shall be reduced
by the number of such Warrant Shares for which this Warrant is exercised, and
the Company, at its expense, shall forthwith issue and deliver to or upon the
order of the Warrant Holder a new Warrant of like tenor in the name of the
Warrant Holder or as the Warrant Holder may request, reflecting such adjusted
number of Warrant Shares.

                                       2
<PAGE>   3

                  Section 3.        Ten Percent Limitation. The Warrant Holder
may not exercise this Warrant such that the number of Warrant Shares to be
received pursuant to such exercise aggregated with all other shares of Common
Stock then owned by the Warrant Holder beneficially or deemed beneficially owned
by the Warrant Holder would result in the Warrant Holder owning more than 9.9%
of all of such Common Stock as would be outstanding on such Closing Date, as
determined in accordance with Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder. As of any date prior to the Date of
Exercise, the aggregate number of shares of Common Stock into which this Warrant
is exercisable, together with all other shares of Common Stock then beneficially
owned (as such term is defined in Rule 16a-1 under the Exchange Act) by such
Warrant Holder and its affiliates, shall not exceed 9.9% of the total
outstanding shares of Common Stock as of such date.

                  Section 4.        Delivery of Stock Certificates.

                  (a)      Subject to the terms and conditions of this Warrant,
as soon as practicable after the exercise of this Warrant in full or in part,
and in any event within three (3) Trading Days thereafter, the Company at its
expense (including, without limitation, the payment by it of any applicable
issue taxes) will cause to be issued in the name of and delivered to the Warrant
Holder, or as the Warrant Holder may lawfully direct, a certificate or
certificates for the number of validly issued, fully paid and non-assessable
Warrant Shares to which the Warrant Holder shall be entitled on such exercise,
together with any other stock or other securities or property (including cash,
where applicable) to which the Warrant Holder is entitled upon such exercise in
accordance with the provisions hereof; provided, however, that any such delivery
to a location outside of the United States shall be made within five (5) Trading
Days after the exercise of this Warrant in full or in part.

                  (b)      This Warrant may not be exercised as to fractional
shares of Common Stock. In the event that the exercise of this Warrant, in full
or in part, would result in the issuance of any fractional share of Common
Stock, then in such event the Warrant Holder shall receive the number of shares
rounded to the nearest whole share.

                  Section 5.        Representations, Warranties and Covenants of
the Company.

                  (a)      The Company shall take all necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation for the legal and valid issuance of this Warrant and the Warrant
Shares to the Warrant Holder.

                  (b)      From the date hereof through the last date on which
this Warrant is exercisable, the Company shall take all steps reasonably
necessary and within its control to insure that the Common Stock remains listed
or quoted on the Principal Market.

                  (c)      The Warrant Shares, when issued in accordance with
the terms hereof, will be duly authorized and, when paid for or issued in
accordance with the terms hereof, shall be validly issued, fully paid and
non-assessable.

                  (d)      The Company has authorized and reserved for issuance
to the Warrant Holder the requisite number of shares of Common Stock to be
issued pursuant to this Warrant. The Company shall at all times reserve and keep
available, solely for issuance and delivery as Warrant Shares hereunder, such
shares of Common Stock as shall from time to time be issuable as Warrant Shares.

                  Section 6.1       Adjustment of the Exercise Price. The
Exercise Price and, accordingly, the number of Warrant Shares issuable upon
exercise of the Warrant, shall be subject to adjustment from time to time upon
the happening of certain events as follows:

                  (a)      Reclassification, Consolidation, Merger or Mandatory
Share Exchange. If the Company, at any time while this Warrant is unexpired and
not exercised in full, (i) reclassifies or changes

                                       3
<PAGE>   4

its Outstanding Capital Shares (other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value or
as a result of a subdivision or combination of outstanding securities issuable
upon exercise of the Warrant) or (ii) consolidates, merges or effects a
mandatory share exchange with or into another corporation (other than a merger
or mandatory share exchange with another corporation in which the Company is a
continuing corporation and that does not result in any reclassification or
change, other than a change in par value, or from par value to no par value per
share, or from no par value per share to par value, or as a result of a
subdivision or combination of Outstanding Capital Shares issuable upon exercise
of the Warrant) at any time while this Warrant is unexpired and not exercised in
full, then in any such event the Company, or such successor or purchasing
corporation, as the case may be, shall, without payment of any additional
consideration therefore, amend this Warrant or issue a new Warrant providing
that the Warrant Holder shall have rights not less favorable to the holder than
those then applicable to this Warrant and to receive upon exercise under such
amendment of this Warrant or new Warrant, in lieu of each share of Common Stock
theretofore issuable upon exercise of the Warrant hereunder, the kind and amount
of shares of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share exchange, sale
or transfer by the holder of one share of Common Stock issuable upon exercise of
the Warrant had the Warrant been exercised immediately prior to such
reclassification, change, consolidation, merger, mandatory share exchange or
sale or transfer. Such amended Warrant shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Section 6.1. The provisions of this subsection (a) shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.

                  (b)      Subdivision or Combination of Shares. If the Company,
at any time while this Warrant is unexpired and not exercised in full, shall
subdivide its Common Stock, the Exercise Price shall be proportionately reduced
as of the effective date of such subdivision, or, if the Company shall take a
record of holders of its Common Stock for the purpose of so subdividing, as of
such record date, whichever is earlier. If the Company, at any time while this
Warrant is unexpired and not exercised in full, shall combine its Common Stock,
the Exercise Price shall be proportionately increased as of the effective date
of such combination, or, if the Company shall take a record of holders of its
Common Stock for the purpose of so combining, as of such record date, whichever
is earlier.

                  (c)      Stock Dividends. If the Company, at any time while
this Warrant is unexpired and not exercised in full, shall pay a dividend in its
Capital Shares, or make any other distribution of its Capital Shares, then the
Exercise Price shall be adjusted, as of the date the Company shall take a record
of the holders of its Capital Shares for the purpose of receiving such dividend
or other distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or other distribution
by a fraction:

                  1.       the numerator of which shall be the total number of
Outstanding Capital Shares immediately prior to such dividend or distribution,
and

                  2.       the denominator of which shall be the total number of
Outstanding Capital Shares immediately after such dividend or distribution. The
provisions of this subsection (c) shall not apply under any of the circumstances
for which an adjustment is provided in subsections (a) or (b).

         (d)      Issuance of Additional Capital Shares. If the Company, at any
time while this Warrant is unexpired and not exercised in full, shall issue any
additional Capital Shares ("Additional Capital Shares"), otherwise than as
provided in the foregoing subsections (a) through (c) above, at a price per
share less, or for other consideration lower, than the Bid Price in effect
immediately prior to such issuance, or without consideration, then upon such
issuance the Exercise Price shall be reduced to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction:

                                       4
<PAGE>   5

                  1.       the numerator of which shall be the number of
Outstanding Capital Shares immediately prior to the issuance of the Additional
Capital Shares plus the number of Capital Shares that the aggregate
consideration for the total number of such Additional Capital Shares so issued
would purchase at the then effective Bid Price, and

                  2.       the denominator of which shall be the number of
Outstanding Capital Shares immediately after the issuance of the Additional
Capital Shares. The provisions of this subsection (d) shall not apply under any
of the circumstances for which an adjustment is provided in subsections (a), (b)
or (c).

     The provisions of this subsection (d) shall not apply to the issuance of
     any Additional Capital Shares that are issued pursuant to the exercise of
     any warrants, options or other subscription or purchase rights or pursuant
     to the exercise of any conversion or exchange rights in any convertible or
     exchangeable securities.

                  (e)      Issuance of Warrants, Options or Other Rights. If the
Company, at any time while this Warrant is unexpired and not exercised in full,
shall issue any warrants, options or other rights to subscribe for or purchase
any Additional Capital Shares

     and the price per share for which Additional Capital Shares may at any
     time thereafter be issuable pursuant to such warrants, options or other
     rights shall be less than the Bid Price in effect immediately prior to such
     issuance, then, upon the issuance of such warrants, options or other
     rights, the Exercise Price shall be adjusted as provided in subsection (d)
     hereof on the basis that:

                  1.       the maximum number of Additional Capital Shares
issuable on the date of determination (subject to adjustment on the date(s) of
exercise) pursuant to all such warrants, options or other rights shall be deemed
to have been issued as of the date of actual issuance of such warrants, options
or other rights, and

                  2.       the aggregate consideration for such maximum number
of Additional Capital Shares issuable pursuant to such warrants, options or
other rights, shall be deemed to be the consideration received by the Company
for the issuance of such warrants, options, or other rights plus the minimum
consideration to be received by the Company for the issuance of Additional
Capital Shares pursuant to such warrants, options, or other rights.

                  (f)      Issuance of Convertible or Exchangeable Securities.
If the Company, at any time while this Warrant is unexpired and not exercised in
full, shall issue any securities convertible into or exchangeable for Capital
Shares and the consideration per share for which Additional Capital Shares may
at any time thereafter be issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in effect immediately
prior to such issuance, then, upon the issuance of such convertible or
exchangeable securities, the Exercise Price shall be adjusted as provided in
subsection (d) hereof on the basis that:

                  1.       the maximum number of Additional Capital Shares
necessary on the date of determination (subject to adjustment on the date(s) of
conversion or exchange) to effect the conversion or exchange of all such
convertible or exchangeable securities shall be deemed to have been issued as of
the date of issuance of such convertible or exchangeable securities, and

                  2.       the aggregate consideration for such maximum number
of Additional Capital Shares shall be deemed to be the consideration received by
the Company for the issuance of such convertible or exchangeable securities plus
the minimum consideration received by the Company for the issuance of such
Additional Capital Shares pursuant to the terms of such convertible or
exchangeable securities.

                                       5
<PAGE>   6

     No adjustment of the Exercise Price shall be made under this subsection (f)
     upon the issuance of any convertible or exchangeable securities that are
     issued pursuant to the exercise of any warrants, options or other
     subscription or purchase rights therefor, if the issuance of such warrants,
     options or other rights was subject to subsection (e) hereof.

                  (g)      Adjustment of Number of Shares. Upon each adjustment
of the Exercise Price pursuant to any provisions of this Section 6.1, the number
of Warrant Shares issuable hereunder at the option of the Warrant Holder shall
be calculated, and rounded to the nearest whole share, by multiplying the number
of Warrant Shares issuable prior to an adjustment by a fraction:

                  1.       the numerator of which shall be the Exercise Price
before any adjustment pursuant to this Section 6.1; and

                  2.       the denominator of which shall be the Exercise Price
after such adjustment.

                  (h)      Liquidating Dividends, Etc. If the Company, at any
time while this Warrant is unexpired and not exercised in full, makes a
distribution of its assets or evidences of indebtedness to the holders of its
Capital Shares as a dividend in liquidation or by way of return of capital or
other than as a dividend payable out of earnings or surplus legally available
for dividends under applicable law or any distribution to such holders made in
respect of the sale of all or substantially all of the Company's assets (other
than under the circumstances provided for in the foregoing subsections (a)
through (g)) while an exercise is pending, then the Warrant Holder shall be
entitled to receive upon such exercise of the Warrant in addition to the Warrant
Shares receivable in connection therewith, and without payment of any
consideration other than the Exercise Price, an amount in cash equal to the
value of such distribution per Capital Share multiplied by the number of Warrant
Shares that, on the record date for such distribution, are issuable upon such
exercise of the Warrant (with no further adjustment being made following any
event which causes a subsequent adjustment in the number of Warrant Shares
issuable), and an appropriate provision therefor shall be made a part of any
such distribution. The value of a distribution that is paid in other than cash
shall be determined in good faith by the Board of Directors of the Company.

                  (i)      Other Provisions Applicable to Adjustments Under this
Section. The following provisions will be applicable to the making of
adjustments in any Exercise Price hereinabove provided in this Section 6.1:

                  1.       Computation of Consideration. To the extent that any
Additional Capital Shares or any convertible or exchangeable securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Capital Shares or any convertible or exchangeable securities shall be issued for
a cash consideration, the consideration received by the Company therefor shall
be deemed to be the amount of the cash received by the Company therefor, or, if
such Additional Capital Shares or convertible or exchangeable securities are
offered by the Company for subscription, the subscription price, or, if such
Additional Capital Shares or convertible or exchangeable securities are sold to
or through underwriters or dealers for public offering without a subscription
offering, the initial public offering price, in any such case excluding any
amounts paid or incurred by the Company for and in the underwriting of, or
otherwise in connection with the issue thereof. To the extent that such issuance
shall be for a consideration other than cash, then, the amount of such
consideration shall be deemed to be the fair value of such consideration at the
time of such issuance as determined in good faith by the Company's Board of
Directors. The consideration for any Additional Capital Shares issuable pursuant
to any warrants, options or other rights to subscribe for or purchase the same
shall be the consideration received by the Company for issuing such warrants,
options or other rights, plus the additional consideration payable to the
Company upon the exercise of such warrants, options or other rights. The
consideration for any Additional Capital Shares issuable pursuant to the terms
of any convertible or exchangeable securities shall be the consideration paid or
payable to the Company in respect of the subscription for or purchase of

                                       6
<PAGE>   7

such convertible or exchangeable securities, plus the additional consideration,
if any, payable to the Company upon the exercise of the right of conversion or
exchange in such convertible or exchangeable securities. In case of the issuance
at any time of any Additional Capital Shares or convertible or exchangeable
securities in payment or satisfaction of any dividend upon any class of stock
preferred as to dividends in a fixed amount, the Company shall be deemed to have
received for such Additional Capital Shares or convertible or exchangeable
securities a consideration equal to the amount of such dividend so paid or
satisfied.

                  2.       Readjustment of Exercise Price. Upon the expiration
of the right to convert or exchange any convertible or exchangeable securities,
or upon the expiration of any rights, options or warrants, the issuance of which
convertible or exchangeable securities, rights, options or warrants effected an
adjustment in Exercise Price, if any such convertible or exchangeable securities
shall not have been converted or exchanged, or if any such rights, options or
warrants shall not have been exercised, the number of Capital Shares deemed to
be issued and Outstanding by reason of the fact that they were issuable upon
conversion or exchange of any such convertible or exchangeable securities or
upon exercise of any such rights, options, or warrants shall no longer be
computed as set forth above, and such Exercise Price shall forthwith be
readjusted and thereafter be the price that it would have been (but reflecting
any other adjustments in the Exercise Price made pursuant to the provisions of
this Section 6.1 after the issuance of such convertible or exchangeable
securities, rights, options or warrants) had the adjustment of the Exercise
Price made upon the issuance or sale of such convertible or exchangeable
securities or issuance of rights, options or warrants been made on the basis of
the issuance only of the number of Additional Capital Shares actually issued
upon conversion or exchange of such convertible or exchangeable securities, or
upon the exercise of such rights, options or warrants, and thereupon only the
number of Additional Capital Shares actually so issued, if any, shall be deemed
to have been issued and only the consideration actually received by the Company
(computed as set forth in sub-subsection (1. hereof) shall be deemed to have
been received by the Company. If the purchase price provided for in any rights,
options or warrants, or the additional consideration (if any) payable upon the
conversion or exchange of any convertible or exchangeable securities, or the
rate at which any convertible or exchangeable securities are convertible into or
exchangeable for Capital Shares changes at any time (other than under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect at the time of the change shall be adjusted to the Exercise Price that
would have been in effect at such time had such rights, options, warrants or
convertible or exchangeable 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.

                  3.       Other Action Affecting Capital Shares. In case after
the date hereof the Company shall take any action affecting the number of
Outstanding Capital Shares, other than an action described in any of the
foregoing subsections (a) through (h) hereof, inclusive, which in the opinion of
the Company's Board of Directors would have a materially adverse effect upon the
rights of the Warrant Holder at the time of exercise of the Warrant, the
Exercise Price shall be adjusted in such manner and at such time as the Board or
Directors on the advice of the Company's independent public accountants may in
good faith determine to be equitable in the circumstances.

                  (j)      In the event the Company shall, at a time while the
Warrant is unexpired and outstanding, take any action which pursuant to
subsections (a) through (h) of this Section 6.1 may result in an adjustment of
the Exercise Price, the Company shall give to the Warrant Holder at its last
address known to the Company written notice of such action ten (10) days in
advance of its effective date in order to afford to the Warrant Holder an
opportunity to exercise the Warrant prior to such action becoming effective.

                  Section 6.2       No Adjustments Under Certain Circumstances.
Notwithstanding anything contained in the foregoing to the contrary, there shall
be no adjustment to the Exercise Price

                                       7
<PAGE>   8

based upon, related to or in connection with any instrument or other benefit
issued or conferred by the Company under any of its stock option plans or in
consideration of the Company's acquisition of all or any part of the assets of
any other Person.

                  Section 6.3       Notice of Adjustments. Whenever the Exercise
Price or number of Warrant Shares shall be adjusted pursuant to Section 6.1
hereof, the Company shall promptly make a certificate signed by its President or
a Vice President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the Exercise Price and
number of Warrant Shares purchasable at that Exercise Price after giving effect
to such adjustment, and shall promptly cause copies of such certificate to be
mailed (by first class and postage prepaid) to the Holder of the Warrant. In the
event the Company shall, at a time while the Warrant is unexpired and not
exercised in full, take any action that pursuant to subsections (a) through (g)
of Section 6.1 may result in an adjustment of the Exercise Price, the Company
shall give to the Holder of the Warrant at its last address known to the Company
written notice of such action ten (10) days in advance of its effective date in
order to afford to the Holder of the Warrant an opportunity to exercise the
Warrant prior to such action becoming effective.

                  Section 7.        No Impairment. The Company will not, by
amendment of its Articles of Incorporation or By-Laws or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Warrant Holder against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, and (b)
will take all such action as may be reasonably necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares on the exercise of this Warrant.

                  Section 8.        Rights As Shareholder. Prior to exercise of
this Warrant, the Warrant Holder shall not be entitled to any rights as a
shareholder of the Company with respect to the Warrant Shares, including
(without limitation) the right to vote such shares, receive dividends or other
distributions thereon or be notified of shareholder meetings. However, in the
event of any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, the
Company shall mail to each Warrant Holder, at least ten (10) days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.

                  Section 9.        Replacement of Warrant. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of the Warrant and, in the case of any such loss, theft or
destruction of the Warrant, upon delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, on surrender and cancellation of such Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.

                  Section 10.       Choice of Law. This Agreement shall be
construed under the laws of the State of Michigan without giving effect to
conflicts of law principles of such jurisdiction.

                                       8
<PAGE>   9

                  Section 11.       Entire Agreement; Amendments. This Warrant,
the Registration Rights Agreement, and the Agreement contain the entire
understanding of the parties with respect to the matters covered hereby and
thereby. No provision of this Warrant may be waived or amended other than by a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought.

                  Section 12.       Restricted Securities.

                  (a)      Registration or Exemption Required. This Warrant has
been issued in a transaction exempt from the registration requirements of the
Securities Act in reliance upon the provisions of Section 4(2) promulgated by
the SEC under the Securities Act. This Warrant and the Warrant Shares issuable
upon exercise of this Warrant may not be resold except pursuant to an effective
registration statement or an exemption to the registration requirements of the
Securities Act and applicable state laws.

                  (b)      Legend. Any replacement Warrants issued pursuant to
Section 2 hereof and any Warrant Shares issued upon exercise hereof, shall bear
the following legend:

                  "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
                  (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES
                  LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM
                  THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
                  OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST
                  OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
                  TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE
                  DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
                  STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
                  TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
                  REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
                  BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN
                  A PRIVATE EQUITY LINE AGREEMENT, DATED AS OF MARCH 6, 2000,
                  BETWEEN SOMANETICS CORPORATION AND KINGSBRIDGE CAPITAL
                  LIMITED. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT
                  EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S
                  EXECUTIVE OFFICES."

         Removal of such legend shall be in accordance with the legend removal
provisions in the Agreement.

                  (c)      No Other Legend or Stock Transfer Restrictions. No
legend other than the one specified in Section 12(b) has been or shall be placed
on the share certificates representing the Warrant Shares and no instructions or
"stop transfer orders," so called, "stock transfer restrictions" or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Section 12.

                  (d)      Assignment. Assuming the conditions of Section 12(a)
above regarding registration or exemption have been satisfied, the Warrant
Holder may sell, transfer, assign, pledge or otherwise dispose of this Warrant,
in whole or in part. The Warrant Holder shall deliver a written notice to
Company, substantially in the form of the Assignment attached hereto as Exhibit
B, indicating the person or persons to whom the Warrant shall be assigned and
the respective number of warrants to be assigned to each assignee. The Company
shall effect the assignment within ten (10) days, and shall deliver to the
assignee(s) designated by the Warrant Holder a Warrant or Warrants of like tenor
and terms for the appropriate number of shares.

                                       9
<PAGE>   10

                  (e)      Investor's Compliance. Nothing in this Section 12
shall affect in any way the Investor's obligations under any agreement to comply
with all applicable securities laws upon resale of the Common Stock.

                  Section 13.       Notices. All notices, demands, requests,
consents, approvals, and other communications required or permitted hereunder
shall be in writing and shall be (i) personally served, (ii) deposited in the
mail, registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile (with accurate confirmation generated by the transmitting facsimile
machine) at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:

         if to the Company:

                  Somanetics Corporation
                  1653 East Maple Road
                  Troy, Michigan 48083-4208
                  (248) 689-3050
                  Telephone: (248) 689-3050
                  Facsimile: (248) 689-4272
                  Attention: Bruce J. Barrett

         with a copy (which shall not constitute notice) to:

                  Honigman Miller Schwartz and Cohn
                  2290 First National Building
                  Detroit, Michigan 48226
                  Attention: Robert J. Krueger, Esq.
                  Telephone: (313) 465-7452
                  Facsimile: (313) 465-7453

         if to the Investor:

                  Adam Gurney
                  Kingsbridge Capital Limited
                  Main Street
                  Kilcullen, County Kildare
                  Republic of Ireland
                  Telephone: 011-353-45-481-811
                  Facsimile: 011-353-45-482-003

         with a copy (which shall not constitute notice) to:

                  Clifford Chance Rogers & Wells LLP
                  200 Park Avenue
                  New York, NY 10166
                  Attention: Keith M. Andruschak, Esq.
                  Telephone: (212) 878-8000
                  Facsimile: (212) 878-8375

                                       10
<PAGE>   11

     Either party hereto may from time to time change its address or facsimile
     number for notices under this Section 13 by giving at least ten (10) days'
     prior written notice of such changed address or facsimile number to the
     other party hereto.

                  Section 14.       Miscellaneous. This Warrant and any term
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision.

                                       11
<PAGE>   12

                  IN WITNESS WHEREOF, this Warrant was duly executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.

SOMANETICS CORPORATION

By:________________________________
   Bruce J. Barrett
   Chief Executive Officer

Attested:

By:________________________________
    Name:
    Secretary

<PAGE>   13
                            EXHIBIT A TO THE WARRANT

                                  EXERCISE FORM

                             SOMANETICS CORPORATION

         The undersigned hereby irrevocably exercises the right to purchase
__________________ Common Shares of Somanetics Corporation, a Michigan
corporation, evidenced by the attached Warrant, and herewith makes payment of
the Exercise Price with respect to such shares in full in the form of [cash or
certified check in the amount of $________], [______] Warrant Shares, which
represent the amount of Warrant Shares as provided in the attached Warrant to be
canceled in connection with such exercise], all in accordance with the
conditions and provisions of said Warrant.

         The undersigned requests that stock certificates for such Warrant
Shares be issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to this Warrant in the name of the registered Holder and
delivered to the undersigned at the address set forth below.

Dated:_______________________________________
Signature of Registered Holder
Name of Registered Holder (Print)

_____________________________________________
Address

                                     NOTICE

         The signature to the foregoing Exercise Form must correspond to the
name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.

<PAGE>   14
                            EXHIBIT B TO THE WARRANT
                                   ASSIGNMENT

         (To be executed by the registered Warrant Holder desiring to transfer
the Warrant)

         FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached
Warrant hereby sells, assigns and transfers unto the persons below named the
right to purchase ______________ Common Shares of Somanetics Corporation
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint ______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.

Dated:
______________________________
Signature

Fill in for new Registration of Warrant:

_________________________________________
Name

_________________________________________
Address

_________________________________________
Please print name and address of assignee
(including zip code number)

                                     NOTICE

         The signature to the foregoing Assignment must correspond to the name
as written upon the face of the attached Warrant in every particular, without
salteration or enlargement or any change whatsoever.

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