Exhibit 10.1

 

STOCK PURCHASE AGREEMENT

 

Endocardial Solutions, Inc.
1350 Energy Lane, Suite 110
St. Paul, Minnesota 55108

 

 

The undersigned (the “Investor”), hereby confirms its agreement with you as
follows:

 

1.             This Stock Purchase Agreement (the “Agreement”) is made as of the
date set forth below among Endocardial Solutions, Inc., a Delaware corporation
(the “Company”), and the Investor.

 

2.             The Company has authorized the sale and issuance of up to
3,097,000 shares (the “Shares”) of common stock of the Company, $.01 par value
per share (the “Common Stock”), to certain investors in a private placement (the
“Offering”).

 

3.             The Company and the Investor agree that the Investor will
purchase from the Company and the Company will issue and sell to the Investor
               Shares at a purchase price of $2.75 per Share, or an aggregate
purchase price of $                              , pursuant to the Terms and
Conditions for Purchase of Shares attached hereto as Annex I and incorporated
herein by this reference as if fully set forth herein.  Unless otherwise
requested by the Investor in Exhibit A, certificates representing the Shares
purchased by the Investor will be registered in the Investor’s name and address
as set forth below.

 

4.             The Investor represents that, except as set forth below, (a) it
has had no position, office or other material relationship within the past three
years with the Company or its affiliates, (b) neither it, nor any group of which
it is a member or to which it is related, beneficially owns (including the right
to acquire or vote) any securities of the Company and (c) it has no direct or
indirect affiliation or association with any National Association of Securities
Dealers, Inc. (“NASD”) member.  Exceptions:

 

 

(If no exceptions, write “none.”  If left blank, response will be deemed to be
“none.”)

 

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Please confirm that the foregoing correctly sets forth the agreement between us
by signing in the space provided below for that purpose.

 

 

Dated as of:  January 2, 2003

 

 

 

 

 

“INVESTOR”

 

 

 

By:

 

 

Print Name:

 

 

Title:

 

 

Address:

 

 

 

AGREED AND ACCEPTED:

 

Endocardial Solutions, Inc.

 

 

 

 

 

By: /s/ J. Robert Paulson

 

Title: Chief Financial Officer

 

 

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Annex I

 

TERMS AND CONDITIONS FOR PURCHASE OF SHARES

 

1.                                      Agreement to Sell and Purchase the
Shares; Subscription Date.

 

1.1          Purchase and Sale.  At the Closing (as defined in Section 2), the
Company will sell to the Investor, and the Investor will purchase from the
Company, upon the terms and conditions hereinafter set forth, the number of
Shares set forth in paragraph 3 of the Stock Purchase Agreement to which these
Terms and Conditions for Purchase of Shares are attached as Annex I and at the
purchase price set forth in such paragraph.

 

1.2          Other Investors.  As part of the Offering, the Company proposes to
enter into this same form of Stock Purchase Agreement with certain other
investors (the “Other Investors”), and the Company expects to complete sales of
Shares to them.  (The Investor and the Other Investors are hereinafter sometimes
collectively referred to as the “Investors,” and this Agreement and the Stock
Purchase Agreements executed by the Other Investors are hereinafter sometimes
collectively referred to as the “Agreements.”)  The Company may accept executed
Agreements from Investors for the purchase of Shares commencing upon the date on
which the Company provides the Investors with the proposed purchase price per
Share and concluding upon the date (the “Subscription Date”) on which the
Company has notified U.S. Bancorp Piper Jaffray Inc. (in its capacity as
placement agent for the Shares, the “Placement Agent”) in writing that it is no
longer accepting Agreements for the purchase of Shares in the Offering (which
shall not be later than the Closing Date).  Each Investor must complete the
Stock Purchase Agreement, the Stock Certificate Questionnaire (attached as
Exhibit A hereto) and the Investor Questionnaire (attached as Exhibit B hereto)
in order to purchase Shares in the Offering.

 

1.3          Placement Agent Fee.  Investor acknowledges that the Company
intends to pay the Placement Agent a fee in respect of the sale of Shares to the
Investor.

 

The Company shall indemnify and hold harmless the Investor from and against all
fees, commissions or other payments owing by the Company to the Placement Agent
or any other person or firm acting on behalf of the Company hereunder.

 

2.             Delivery of the Shares at Closing.  The completion of the
purchase and sale of the Shares (the “Closing”) shall occur at a place and time,
no later than January 7, 2003 (the “Closing Date”), to be specified by the
Company and the Placement Agent, and of which the Investors will be notified in
advance by the Placement Agent.  At the Closing, the Company shall deliver to
the Investor one or more stock certificates representing the number of Shares
set forth in paragraph 3 of the Stock Purchase Agreement, each such certificate
to be registered in the name of the Investor or, if so indicated on the Stock
Certificate Questionnaire attached hereto as Exhibit A, in the name of a nominee
designated by the Investor provided that, if requested by the Investor, stock
certificates representing such Shares shall be delivered in escrow to such
Investor’s agent prior to the Closing, to be held until the completion of the
Closing.  In addition, on or prior to the Closing Date, the Company shall cause
counsel to the Company to deliver to the Investors a legal opinion substantially
in the form attached hereto as Exhibit D.

 

The Company’s obligation to issue and sell the Shares to the Investor shall be
subject to the following conditions, any one or more of which may be waived by
the Company: (a) receipt by the Company of a certified bank check or wire
transfer of funds in the full amount of the purchase price for the Shares being
purchased hereunder as set forth in paragraph 3 of the Stock Purchase Agreement;
(b) completion of purchases and sales under the Agreements with the

 

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Other Investors; and (c) the accuracy of the representations and warranties made
by the Investors and the fulfillment of those undertakings of the Investors to
be fulfilled prior to the Closing.

 

The Investor’s obligation to purchase the Shares shall be subject to the
following conditions, any one or more of which may be waived by the Investor:
(a) the Company’s agreement to issue and sell, and the Investors’ agreement to
purchase, on the Closing Date, not less than three million (3,000,000) shares of
Common Stock; (b) evidence satisfactory to the Investor that the Shares have
been issued to the Investor (which may be in the form of a facsimile
transmission of a copy of the certificate representing the Shares); (c) the
delivery to the Investor by counsel to the Company of a legal opinion in the
form attached hereto as Exhibit D; (d) the representations and warranties of the
Company contained in Section 3 being true and correct on and as of such Closing
with the same effect as though such representations and warranties had been made
on and as of the date of such Closing; (e) the absence of any order, writ,
injunction, judgment or decree that questions the validity of the Agreements or
the right of the Company to enter into such Agreements or to consummate the
transactions contemplated hereby and thereby; and (f) the delivery to the
Investor by the Secretary or Assistant Secretary of the Company of a certificate
stating that the condition specified in part (d) of this paragraph has been
fulfilled.

 

3.                                      Representations, Warranties and
Covenants of the Company.  Except as otherwise described in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2001 (and any amendments
thereto filed prior to the date hereof), the Company’s Proxy Statement for its
2002 Annual Meeting of Stockholders, or the Company’s Quarterly Reports on Form
10-Q for the quarters ended March 31, 2002, June 30, 2002 and September 30, 2002
(and any amendments thereto filed prior to the date hereof) or any of the
Company’s Current Reports on Form 8-K filed since January 1, 2002 (collectively,
the “SEC Reports”), the Company hereby represents and warrants to, and covenants
with, the Investor as of the date hereof and the Closing Date, as follows:

 

3.1          Organization.  Each of the Company and its Subsidiaries (as defined
in Rule 405 under the Securities Act, as amended (the “Securities Act”)) is duly
incorporated and validly existing in good standing under the laws of the
jurisdiction of its incorporation.  Each of the Company and its Subsidiaries has
full power and authority to own, operate and occupy its properties and to
conduct its business as presently conducted and is registered or qualified to do
business and in good standing in each jurisdiction in which it owns or leases
property or transacts business and where the failure to be so qualified would
have a material adverse effect upon the Company and its Subsidiaries taken as a
whole, or the business, financial condition, properties, operations or assets of
the Company and its Subsidiaries taken as a whole, or the Company’s ability to
perform its obligations under the Agreements (“Material Adverse Effect”), and no
proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification.

 

3.2          Due Authorization.  The Company has all requisite power and
authority to execute, deliver and perform its obligations under the Agreements,
and the Agreements have been duly authorized and validly executed and delivered
by the Company and constitute legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their terms, except as rights
to indemnity and contribution may be limited by state or federal securities laws
or the public policy underlying such laws, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

 

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3.3          Non-Contravention.  The execution and delivery of the Agreements,
the issuance and sale of the Shares to be sold by the Company under the
Agreements, the fulfillment of the terms of the Agreements and the consummation
of the transactions contemplated thereby will not (A) result in conflict with or
constitute a violation of, or default (with the passage of time or otherwise)
under, (i) any bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
their respective properties are bound, where such conflict, violation or default
is reasonably expected to result in a Material Adverse Effect, (ii) the
certificate of incorporation, by-laws or other organizational documents of the
Company or any of its Subsidiaries, or (iii) any law, administrative regulation,
ordinance or order of any court or governmental agency, arbitration panel or
authority binding upon the Company or any of its Subsidiaries or their
respective properties, where such conflict, violation or default is likely to
result in a Material Adverse Effect or (B) result in the creation or imposition
of any lien, encumbrance, claim, security interest or restriction whatsoever
upon any of the material properties or assets of the Company or any of its
Subsidiaries or an acceleration of indebtedness pursuant to any obligation,
agreement or condition contained in any material bond, debenture, note or any
other evidence of indebtedness or any material indenture, mortgage, deed of
trust or any other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which any of them is bound or to which any of the
property or assets of the Company or any of its Subsidiaries is subject.  No
consent, approval, authorization or other order of, or registration,
qualification or filing with, any regulatory body, administrative agency, or
other governmental body in the United States is required for the execution and
delivery of the Agreements by the Company and the valid issuance or sale of the
Shares by the Company pursuant to the Agreements, other than such as have been
made or obtained, and except for any filings required to be made under federal
or state securities laws.

 

3.4          Capitalization.  The outstanding capital stock of the Company as of
September 30, 2002 is as described in the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2002.  The Company has not issued any
capital stock since September 30, 2002 other than pursuant to (i) the exercise
of employee stock options under the stock option plans disclosed in the SEC
Reports and(ii) the exercise of rights under the Company’s Employee Stock
Purchase Plan disclosed in the SEC Reports.  The Shares to be sold pursuant to
the Agreements have been duly authorized, and when issued and paid for in
accordance with the terms of the Agreements, will be duly and validly issued,
fully paid and nonassessable.  The outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
have been issued in compliance with the registration requirements of federal and
state securities laws, and were not issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities.  Except for options
issued under the Company’s stock option plans, warrants outstanding as described
in the SEC Reports and rights under the Company’s Employee Stock Purchase Plan
or Rights Agreement with Wells Fargo Bank Minnesota (formerly Norwest Bank
Minnesota) as Rights Agent, there are no outstanding rights (including, without
limitation, preemptive rights), warrants or options to acquire, or instruments
convertible into or exchangeable for, any unissued shares of capital stock or
other equity interest in the Company, or any contract, commitment, agreement,
understanding or arrangement of any kind, in either case to which the Company is
a party and providing for the issuance or sale of any capital stock of the
Company, any such convertible or exchangeable securities or any such rights,
warrants or options.  Without limiting the foregoing, no preemptive right,
co-sale right, registration right, right of first refusal or other similar right
exists with respect to the issuance and sale of the Shares, except as provided
in the Agreements.  There are no stockholders agreements, voting agreements or
other similar agreements with respect to the Common Stock to which the Company
is a party.  Other than one share held by the Chief Executive Officer of the
Company for compliance with local law, the Company owns the entire equity
interest in the Subsidiaries, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest.

 

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3.5          Legal Proceedings.  There is no material legal or governmental
proceeding pending, or to the knowledge of the Company, threatened, to which the
Company or any of its Subsidiaries is a party or of which the business or
property of the Company or any of its Subsidiaries is subject that is required
to be disclosed and that is not so disclosed in the SEC Reports.  Neither the
Company nor any of its Subsidiaries is a party to the provisions of any
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other government body which is material to the business
or operation of the Company and its Subsidiaries, taken as a whole.

 

3.6          No Violations.  Neither the Company nor any of its Subsidiaries is
in violation of its certificate of incorporation, bylaws or other organizational
documents, or in violation of any law, administrative regulation, ordinance or
order of any court or governmental agency, arbitration panel or authority
applicable to the Company or any of its Subsidiaries, which violation,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect, nor, except as provided below, is the Company or any of its
Subsidiaries in default (and there exists no condition which, with the passage
of time or otherwise, would constitute a default) in the performance of any
bond, debenture, note or any other evidence of indebtedness or any indenture,
mortgage, deed of trust or any other material agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound or by which the property of the Company or any of
its Subsidiaries is bound, which default is reasonably likely to have a Material
Adverse Effect.  As a result of the Company’s current cash position, the Company
is in technical violation of a net worth covenant and a quick ratio covenant in
its loan agreement with Silicon Valley Bank, which Silicon Valley Bank has
agreed to forbear through the earlier of January 10, 2003 or the Closing Date in
anticipation of the Company’s completion of this Offering.

 

3.7          Governmental Permits, Etc.  With the exception of the matters which
are dealt with separately in Sections 3.1, 3.11, 3.12 and 3.21, each of the
Company and its Subsidiaries has all necessary franchises, licenses,
certificates and other authorizations from any foreign, federal, state or local
government or governmental agency, department or body that are currently
necessary for the operation of the business of the Company and its Subsidiaries
as currently conducted, except where the failure to currently possess such
franchises, licenses, certificates and other authorizations is not reasonably be
expected to have a Material Adverse Effect.

 

3.8          Intellectual Property.

 

(a)           Except for matters which are not reasonably likely to have a
Material Adverse Effect, (i) each of the Company and its Subsidiaries has
ownership of, or a license or other legal right to use, all patents, copyrights,
trade secrets, trademarks, customer lists, designs, manufacturing or other
processes, computer software, systems, data compilation, research results or
other proprietary rights used in the business of the Company or its Subsidiaries
(collectively, “Intellectual Property”) and (ii) all of the Intellectual
Property owned by the Company or its Subsidiaries consisting of patents,
registered trademarks and registered copyrights have been duly registered in,
filed in or issued by the United States Patent and Trademark Office, the United
States Register of Copyrights or the corresponding offices of other
jurisdictions and have been maintained and renewed in accordance with all
applicable provisions of law and administrative regulations in the United States
and/or such other jurisdictions.

 

(b)           Except for matters which are not reasonably likely to have a
Material Adverse Effect, all material licenses or other material agreements
under which (i) the Company or any of its Subsidiaries employs rights in
Intellectual Property, or (ii) the Company or any of its Subsidiaries has
granted rights to others in Intellectual Property owned or licensed by the
Company or any of its Subsidiaries, are in full force and effect and there is no
default by the Company or any of its Subsidiaries thereto.

 

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(c)           The Company believes that it has taken all steps reasonably
required in accordance with sound business practice and business judgment to
establish and preserve the Company’s ownership of all material Intellectual
Property owned by the Company or its Subsidiaries.

 

(d)           Except for matters which are not reasonably likely to have a
Material Adverse Effect, to the knowledge of the Company, (i) the present
business, activities and products of the Company and its Subsidiaries do not
infringe any intellectual property of any other person; (ii) neither the Company
nor any of its Subsidiaries is making unauthorized use of any confidential
information or trade secrets of any person; and (iii) the activities of any of
the employees on behalf of the Company or any of its Subsidiaries do not violate
any agreements or arrangements related to confidential information or trade
secrets of persons other than the Company or its Subsidiaries or restricting any
such employee’s engagement in business activities of any nature.

 

(e)           No proceedings are pending, or to the knowledge of the Company,
threatened, which challenge the rights of the Company or any of its Subsidiaries
in respect of the Company’s or any of its Subsidiaries’ right to the use of the
Intellectual Property, except for matters which are not reasonably likely to
have a Material Adverse Effect.

 

3.9          Financial Statements.  The consolidated financial statements of the
Company and the related notes contained in the SEC Reports present fairly and
accurately in all material respects, in accordance with generally accepted
accounting principles, the consolidated financial position of the Company and
its Subsidiaries as of the dates indicated, and the results of their operations,
cash flows and the changes in stockholders’ equity for the periods therein
specified, subject, in the case of unaudited financial statements for interim
periods, to normal year-end audit adjustments.  Such consolidated financial
statements (including the related notes) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods therein specified, except that unaudited financial
statements may not contain all footnotes required by generally accepted
accounting principles.

 

3.10        No Material Adverse Change.  Except as disclosed in the SEC Reports
or in Section 3.6, since September 30, 2002, there has not been (i) a change
that has had or is reasonably likely to have a Material Adverse Effect, (ii) any
obligation, direct or contingent, that is material to the Company or any of its
Subsidiaries considered as one enterprise, incurred by the Company or any of its
Subsidiaries, except obligations incurred in the ordinary course of business,
(iii) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its Subsidiaries, or (iv) any loss or
damage (whether or not insured) to the physical property of the Company or any
of its Subsidiaries which has been sustained which has a Material Adverse
Effect.

 

3.11        Nasdaq Compliance.  The Company’s Common Stock is registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and is listed on the Nasdaq National Market (the “Nasdaq
Stock Market”), and the Company has taken no action designed to, or which to its
knowledge is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act or delisting the Common Stock from the
Nasdaq Stock Market.  The issuance of the Shares does not require shareholder
approval, including, without limitation, pursuant to the Nasdaq Marketplace
Rules.

 

3.12        Reporting Status.  The Company has timely made all filings required
under the Exchange Act during the 12 months preceding the date of this
Agreement, and all of those documents complied in all material respects with the
Securities and Exchange Commission’s (the “SEC”) requirements as of their
respective filing dates, and the information contained therein as of the
respective dates thereof did not contain an untrue statement of a material fact
or omit to state a material fact required

 

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to be stated therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading.  The Company is
currently eligible to register the resale of Common Stock in a secondary
offering on a registration statement on Form S-3 under the Securities Act.

 

3.13        No Manipulation of Stock.  The Company has not taken and will not,
in violation of applicable law, take any action outside the ordinary course of
business designed to or that might reasonably be expected to cause or result in
unlawful manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.

 

3.14        Accountants.  Ernst & Young LLP, who expressed their opinion with
respect to the consolidated financial statements to be incorporated by reference
from the Company’s Annual Report on Form 10-K for the year ended December 31,
2001 into the Registration Statement (as defined below) and the prospectus which
forms a part thereof (the “Prospectus”), have advised the Company that they are,
and to the knowledge of the Company they are, independent accountants as
required by the Securities Act and the rules and regulations promulgated
thereunder (the “Rules and Regulations”).

 

3.15        Contracts.  Except for matters which are not reasonably likely to
have a Material Adverse Effect, the contracts listed as exhibits to the SEC
Reports that are material to the Company, other than the Distribution/Supply
Agreement between the Company and Medtronic, Inc. and all amendments thereto and
those contracts that are substantially or fully performed or expired by their
terms, are in full force and effect on the date hereof, and none of the Company,
its Subsidiaries nor, to the Company’s knowledge, any other party to such
contracts is in breach of or default under any of such contracts.

 

3.16        Taxes.  Except for matters which are not reasonably expected to have
a Material Adverse Effect, the Company has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company.

 

3.17        Transfer Taxes.  On the Closing Date, all stock transfer or other
taxes (other than income taxes) which are required to be paid in connection with
the sale and transfer of the Shares hereunder will be, or will have been, fully
paid or provided for by the Company and the Company will have complied with all
laws imposing such taxes.

 

3.18        Investment Company.  The Company is not an “investment company” or
an “affiliated person” of, or “promoter” or “principal underwriter” for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.

 

3.19        Insurance.  The Company and its Subsidiaries maintain insurance of
the types and in the amounts that the Company reasonably believes is adequate
for their businesses, including, but not limited to, insurance covering real and
personal property owned or leased by the Company and its Subsidiaries against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against by similarly situated companies, all of which insurance is in
full force and effect.

 

3.20        Offering Materials.  The Company has not in the past nor will it
hereafter take any action to sell, offer for sale or solicit offers to buy any
securities of the Company which would bring the offer or sale of the Shares as
contemplated by this Agreement within the provisions of Section 5 of the
Securities Act.

 

3.21        Listing.  The Company shall comply with all requirements of the NASD
with respect to the issuance of the Shares and the listing thereof on the Nasdaq
Stock Market.

 

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3.22        Related Party Transactions.  Except as disclosed in the SEC Reports,
no transaction has occurred between or among the Company, or any of its
Subsidiaries and their affiliates, officers or directors or any affiliate or
affiliates of any such officer or director that with the passage of time will be
required to be disclosed pursuant to Section 13, 14 or 15(d) of the Exchange
Act, other than (i) the execution of a Change of Control Agreement with J.
Robert Paulson, Jr. upon employment as Chief Financial Officer, and (ii) the
execution of Noncompetition, Nondisclosure and Assignment of Inventions
Agreements with certain officers in October, 2002.

 

3.23        Books and Records.  The books, records and accounts of the Company
and its Subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in, and dispositions of, the assets of, and the operations of, the
Company and its Subsidiaries.  The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

 

3.24        Disclosure.  The Company confirms that neither it nor any other
Person acting on its behalf has provided Investor, or will provide Investor
without Investor’s consent, with any information that constitutes or might
constitute material, nonpublic information, except the material terms and
conditions of this transaction, including the provisions of the Agreement, which
shall be fully disclosed pursuant to Section 6.6 hereof, and Suspension Notices
pursuant to Section 6.2(c). The Company understands and confirms that Investor
will rely on the foregoing representations in effecting transactions in
securities of the Company.

 

4.                                      Representations, Warranties and
Covenants of the Investor.

 

4.1          Investor Knowledge and Status.  The Investor represents and
warrants to, and covenants with, the Company that: (i) the Investor is an
“accredited investor” as defined in Regulation D under the Securities Act, is
knowledgeable, sophisticated and experienced in making, and is qualified to make
decisions with respect to, investments in securities presenting an investment
decision like that involved in the purchase of the Shares, and has requested,
received, reviewed and considered all information it deemed relevant in making
an informed decision to purchase the Shares; (ii) the Investor understands that
the Shares are “restricted securities” and have not been registered under the
Securities Act and is acquiring the number of Shares set forth in paragraph 3 of
the Stock Purchase Agreement in the ordinary course of its business and for its
own account for investment only, has no present intention of distributing any of
such Shares and has no arrangement or understanding with any other persons
regarding the distribution of such Shares (this representation and warranty not
limiting the Investor’s right to sell Shares at any time pursuant to the
Registration Statement or otherwise, or other than with respect to any claim
arising out of a breach of this representation and warranty, the Investor’s
right to indemnification under Section 6.3); (iii) the Investor will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Shares except in compliance with the Securities Act, applicable
state securities laws and the respective rules and regulations promulgated
thereunder; (iv) the Investor has answered all questions in paragraph 3 of the
Stock Purchase Agreement and the Investor Questionnaire attached hereto as
Exhibit B for use in preparation of the Registration Statement and the answers
thereto are true and correct as of the date hereof and will be true and correct
as of the Closing Date; (v) the Investor will notify the Company promptly of any
change in any of such information until such time as the Investor has sold all
of its Shares or until the Company is no longer required to keep the
Registration Statement

 

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effective; and (vi) the Investor has, in connection with its decision to
purchase the number of Shares set forth in paragraph 3 of the Stock Purchase
Agreement, relied only upon the representations and warranties of the Company
contained herein.  Investor understands that the issuance of the Shares to the
Investor has not been registered under the Securities Act, or registered or
qualified under any state securities law in reliance on specific exemptions
therefrom, which exemptions may depend upon, among other things, the bona fide
nature of the Investor’s investment intent as expressed herein and the
information provided in the Investor Questionnaire.  The Placement Agent is not
authorized to make any representation or use any information in connection with
the placement, purchase and sale of the Shares, and no person is authorized to
provide any representation which is inconsistent or in addition to those in the
SEC Reports.  The Investor acknowledges that it has not received or relied on
any such representations.

 

4.2          International Actions.  The Investor acknowledges, represents and
agrees that no action has been or will be taken in any jurisdiction outside the
United States by the Company or the Placement Agent that would permit an
offering of the Shares, or possession or distribution of offering materials in
connection with the issue of the Shares, in any jurisdiction outside the United
States.  If the Investor is located outside the United States, it has or will
take all actions necessary for the sale of the Shares to comply with all
applicable laws and regulations in each foreign jurisdiction in which it
purchases, offers, sells or delivers Shares or has in its possession or
distributes any offering material, in all cases at its own expense.

 

4.3          Registration Required.  The Investor hereby covenants with the
Company not to make any sale of the Shares without complying with the provisions
of this Agreement, including Section 6.2 hereof, and without effectively causing
the prospectus delivery requirement under the Securities Act to be satisfied
(unless the Investor is selling such Shares in a transaction not subject to the
prospectus delivery requirement), and the Investor acknowledges that the
certificates evidencing the Shares will be imprinted with a legend that
prohibits their transfer except in accordance therewith.  The Investor
acknowledges that as set forth in, and subject to the provisions of, Section
6.2, there may occasionally be times when the Company, based on the advice of
its counsel, determines that it must suspend the use of the Prospectus forming a
part of the Registration Statement until such time as an amendment to the
Registration Statement has been filed by the Company and declared effective by
the SEC or until the Company has amended or supplemented such Prospectus.

 

4.4          Power and Authority.  The Investor further represents and warrants
to, and covenants with, the Company that (i) the Investor has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, and (ii) this
Agreement constitutes a valid and binding obligation of the Investor enforceable
against the Investor in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification agreements of the Investors
herein may be legally unenforceable.

 

4.5          Short Positions.  The Investor will not use any of the Shares
acquired pursuant to this Agreement to cover any short position in the Common
Stock if doing so would be in violation of applicable securities laws.

 

4.6          No Investment, Tax or Legal Advice.  The Investor understands that
nothing in the SEC Reports, this Agreement, or any other materials presented to
the Investor in connection with the purchase and sale of the Shares constitutes
legal, tax or investment advice.  The Investor has consulted

 

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such legal, tax and investment advisors as it, in its sole discretion, has
deemed necessary or appropriate in connection with its purchase of Shares.

 

4.7          Confidential Information.  The Investor covenants that from the
date hereof it will maintain in confidence all material non-public information
regarding the Company received by the Investor from the Company after the date
hereof, including the receipt of any Suspension Notice (as defined in Section
6.2(c)) until such information (a) becomes generally publicly available other
than through a violation of this provision by the Investor or its agents or
(b) is required to be disclosed in legal proceedings (such as by deposition,
interrogatory, request for documents, subpoena, civil investigation demand,
filing with any governmental authority or similar process); provided, however,
that the foregoing obligation is subject to Investor’s consent to receive such
information as provided in Section 3.24; provided, further, that before making
any disclosure in reliance on this Section 4.7, the Investor will give the
Company at least 15 days prior written notice (or such shorter period as
required by law) specifying the circumstances giving rise thereto and will
furnish only that portion of the non-public information which is legally
required and will exercise its best efforts to obtain reliable assurance that
confidential treatment will be accorded any non-public information so furnished.

 

4.8          Acknowledgments Regarding Placement Agent.  The Investor
acknowledges that the Placement Agent has acted solely as placement agent for
the Company in connection with the Offering of the Shares by the Company, that
certain of the information and data provided to the Investor in connection with
the transactions contemplated hereby have not been subjected to independent
verification by the Placement Agent, and that the Placement Agent makes no
representation or warranty with respect to the accuracy or completeness of such
information, data or other related disclosure material.  The Investor further
acknowledges that in making its decision to enter into this Agreement and
purchase the Shares it has relied on its own examination of the Company and the
terms of, and consequences, of holding the Shares.  The Investor further
acknowledges that the provisions of this Section 4.8 are also for the benefit
of, and may also be enforced by, the Placement Agent.

 

5.                                      Survival of Representations, Warranties
and Agreements.  Notwithstanding any investigation made by any party to this
Agreement or by the Placement Agent, all covenants, agreements, representations
and warranties made by the Company and the Investor herein shall survive the
execution of this Agreement, the delivery to the Investor of the Shares being
purchased and the payment therefor.

 

6.                                      Registration of the Shares; Compliance
with the Securities Act.

 

6.1          Registration Procedures and Expenses.  The Company shall:

 

(a)           subject to receipt of necessary information from the Investors
reasonably requested by the Company, prepare and file with the SEC, within ten
(10) business days after the Closing Date, a registration statement on Form S-3
(the “Registration Statement”) to enable the resale of the Shares by the
Investors from time to time through the automated quotation system of the Nasdaq
Stock Market or in privately-negotiated transactions, and provide the Investor
at least two (2) business days to review and provide comments to the
Registration Statement before filing with the SEC;

 

(b)           use its best efforts, subject to receipt of necessary information
from the Investor reasonably requested by the Company, to cause the Registration
Statement to become effective as soon as practicable, but in no event later than
sixty (60) days after the Registration Statement is filed by the Company. If the
Registration Statement has not been declared effective by the SEC on or before
the date that is 90 days after the Closing Date (the “Required Effective Date”),
the Company shall, on the 91st day and each 30th day thereafter, make a payment
to the Investor as partial compensation for such delay (the “Late Registration
Payments”) equal to 1% of the purchase price paid for the Shares

 

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purchased by the Investor and not previously sold by the Investor  (but in no
event to exceed 8% in the aggregate) until the Registration Statement is
declared effective by the SEC. The Late Registration Payments will be prorated
on a daily basis during each 30 day period and will be paid to the Investor by
wire transfer or check within five business days after the earlier of (i) the
end of each 30 day period following the Required Effective Date or (ii) the
effective date of the Registration Statement;

 

(c)           use its best efforts to prepare and file with the SEC such
amendments and supplements to the Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep the Registration Statement
current and effective for a period not exceeding, with respect to each
Investor’s Shares purchased hereunder, the earlier of (i) the second anniversary
of the Closing Date, (ii) the date on which the Investor may sell all Shares
then held by the Investor without restriction by the volume limitations of Rule
144(e) of the Securities Act or (iii) such time as all Shares purchased by such
Investor in this Offering have been sold pursuant to a registration statement,
and to notify each Investor promptly upon the Registration Statement and each
post-effective amendment thereto, being declared effective by the SEC;

 

(d)           furnish to the Investor with respect to the Shares registered
under the Registration Statement such number of copies of the Registration
Statement, Prospectuses (including supplemental prospectuses) and preliminary
versions of the Prospectus filed with the SEC (“Preliminary Prospectuses”) in
conformity with the requirements of the Securities Act and such other documents
as the Investor may reasonably request, in order to facilitate the public sale
or other disposition of all or any of the Shares by the Investor, provided,
however, that unless waived by the Company in writing, the obligation of the
Company to deliver copies of Prospectuses or Preliminary Prospectuses to the
Investor shall be subject to the receipt by the Company of reasonable assurances
from the Investor that the Investor will comply with the applicable provisions
of the Securities Act and of such other securities or blue sky laws as may be
applicable in connection with any use of such Prospectuses or Preliminary
Prospectuses;

 

(e)           file documents required of the Company for normal blue sky
clearance in states specified in writing by the Investor; provided, however,
that the Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so qualified or
has not so consented;

 

(f)            bear all expenses (other than underwriting discounts and
commissions, if any) in connection with the procedures in paragraph (a) through
(e) of this Section 6.1 and the registration of the Shares pursuant to the
Registration Statement; and

 

(g)           advise the Investors, promptly after it receives notice or obtains
knowledge of the issuance of any stop order by the SEC delaying or suspending
the effectiveness of the Registration Statement or of the initiation of any
proceeding for that purpose; and it will promptly use its commercially
reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.

 

With a view to making available to the Investor the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any time
permit the Investor to sell Shares to the public without registration, the
Company covenants and agrees to:  (i) make and keep public information
available, as those terms are understood and defined in Rule 144, until the
earlier of (A) such date as all of the Investor’s Shares may be resold pursuant
to Rule 144(k) or any other rule of similar effect or (B) such date as all of
the Investor’s Shares shall have been resold; (ii) file with the SEC in a timely
manner all reports and other documents required of the

 

16

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Company under the Securities Act and under the Exchange Act; and (iii) furnish
to the Investor upon request, as long as the Investor owns any Shares, (A) a
written statement by the Company that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, (B) a copy of the
Company’s most recent Annual Report on Form 10-K or Quarterly Report on Form
10-Q, and (C) such other information as may be reasonably requested in order to
avail the Investor of any rule or regulation of the SEC that permits the selling
of any such Shares without registration.

 

It shall be a condition precedent to the obligations of the Company to take any
action pursuant to this Section 6.1 that the Investor shall furnish to the
Company such information regarding itself, the Shares to be sold by Investor,
and the intended method of disposition of such securities as shall be reasonably
required to effect the registration of the Shares.

 

The Company understands that the Investor disclaims being an underwriter, but
the Investor being deemed an underwriter by the SEC shall not relieve the
Company of any obligations it has hereunder.

 

6.2          Transfer of Shares After Registration; Suspension.

 

(a)           The Investor agrees that it will not effect any disposition of the
Shares or its right to purchase the Shares that would constitute a sale within
the meaning of the Securities Act other than transactions exempt from the
registration requirements of the Securities Act, except as contemplated in the
Registration Statement referred to in Section 6.1 and as described below, and
that it will promptly notify the Company of any changes in the information set
forth in the Registration Statement regarding the Investor or its plan of
distribution.

 

(b)           Except in the event that paragraph (c) below applies, the Company
shall: (i) if deemed necessary by the Company, prepare and file from time to
time with the SEC a post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or a supplement or amendment to any
document incorporated therein by reference or file any other required document
so that such Registration Statement will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and so that, as
thereafter delivered to purchasers of the Shares being sold thereunder, such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) provide the Investor copies of any documents filed pursuant
to Section 6.2(b)(i); and (iii) upon request, inform each Investor who so
requests that the Company has complied with its obligations in Section 6.2(b)(i)
(or that, if the Company has filed a post-effective amendment to the
Registration Statement which has not yet been declared effective, the Company
will notify the Investor to that effect, will use its reasonable efforts to
secure the effectiveness of such post-effective amendment as promptly as
possible and will promptly notify the Investor pursuant to Section 6.2(b)(i)
hereof when the amendment has become effective).

 

(c)           Subject to paragraph (d) below, in the event: (i) of any request
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 or for
additional information; (ii) of 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) of the receipt by the Company of any notification

 

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with respect to the suspension of the qualification or exemption from
qualification of any of the Shares for sale in any jurisdiction or the
initiation of any proceeding for such purpose; or (iv) of any event or
circumstance which necessitates the making of any changes in the Registration
Statement or Prospectus, or any document incorporated or deemed to be
incorporated therein by reference, so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a material fact or any
omission to state a 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; then the Company shall promptly deliver a certificate
in writing to the Investor (the “Suspension Notice”) to the effect of the
foregoing (but not including any information which constitutes material
non-public information other than notice that one of the foregoing events has
occurred) and, upon receipt of such Suspension Notice, the Investor will refrain
from selling any Shares pursuant to the Registration Statement (a “Suspension”)
until the Investor’s receipt of copies of a supplemented or amended Prospectus
prepared and filed by the Company, or until it is advised in writing by the
Company that the current Prospectus may be used, and has received copies of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in any such Prospectus.  In the event of any Suspension, the
Company will use its reasonable best efforts to cause the use of the Prospectus
so suspended to be resumed as soon as reasonably practicable after delivery of a
Suspension Notice to the Investors.  In addition to and without limiting any
other remedies (including, without limitation, at law or at equity) available to
the Investor, the Investor shall be entitled to specific performance in the
event that the Company fails to comply with the provisions of this Section
6.2(c).

 

(d)           Notwithstanding the foregoing paragraphs of this Section 6.2, the
Company shall use its best efforts to ensure that the Investor shall not be
prohibited from selling Shares under the Registration Statement as a result of
Suspensions on more than two occasions of not more than 30 days in any twelve
month period.  If a Suspension is in effect for more than 60 days (consecutive
or non-consecutive) in any twelve-month period, the Company shall, on the 61st
day of the Suspension and each 30th day thereafter, make payments to the
Investor as partial compensation for such delay until the Suspension is lifted. 
The amount of the payments made to the Investor will be equal to 1% of the
purchase price paid for the Shares purchased by the Investor and not previously
sold by the Investor for each 30 days that sales cannot be made under the
effective Registration Statement (but in no event to exceed 8% in the aggregate)
beyond the period allowed by the previous sentence.  The number of Shares not
previously sold as specified in the previous sentence shall be determined as of
the end of the respective 30 day period.  These payments will be prorated on a
daily basis during the 30 day period and will be paid to the Investor by check
within five business days following the end of each month as to which payment is
due hereunder, assuming that the Investor delivered to the Company at least two
business days prior thereto information with respect to the number of Shares not
previously sold by the Investor (together with reasonable supporting
documentation).

 

(e)           Provided that a Suspension is not then in effect the Investor may
sell Shares under the Registration Statement, provided that it arranges for
delivery of a current Prospectus to the transferee of such Shares.  Upon receipt
of a request therefor, the Company will provide an adequate number of current
Prospectuses to the Investor and to any other parties requiring such
Prospectuses.

 

(f)            In the event of a sale of Shares by the Investor pursuant to the
Registration Statement, unless such requirement is waived by the Company in
writing, the Investor must also deliver to the Company’s transfer agent, with a
copy to the Company, a Certificate of Subsequent Sale substantially in the form
attached hereto as Exhibit C, so that the shares may be properly transferred.

 

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(g)           The Company agrees that it shall, immediately prior to the
Registration Statement being declared effective, deliver to its transfer agent
an opinion letter of counsel, opining that at any time the Registration
Statement is effective, the transfer agent shall issue, in connection with the
sale of the Shares, certificates representing such Shares without restrictive
legend, provided the Shares are to be sold pursuant to the prospectus contained
in the Registration Statement and the transfer agent receives a Certificate of
Subsequent Sale in the form attached hereto as Exhibit C.  Upon receipt of such
opinion, the Company shall cause the transfer agent to confirm, for the benefit
of the Investor, that no further opinion of counsel is required at the time of
transfer in order to issue such Shares without restrictive legend.

 

In the event of any sale of the Shares in accordance with this Agreement, the
restrictive legend shall be removed and the Company shall issue a certificate
without such legend to the purchaser of any such Shares, if (a) the sale of such
Shares is registered under the Registration Statement (including registration
pursuant to Rule 416 under the Securities Act); (b) the holder has provided the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such Shares may be made without registration under the Securities
Act; or (c) such Shares are sold in compliance with Rule 144 under the
Securities Act.

 

6.3          Indemnification.  For the purpose of this Section 6.3:

 

(a)           the term “Selling Stockholder” shall include the Investor and each
person, if any, who controls the Investor within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act;

 

(b)           the term “Registration Statement” shall include any final
Prospectus, exhibit, supplement or amendment included in or relating to, and any
document incorporated by reference in, the Registration Statement (or deemed to
be a part thereof) referred to in Section 6.1; and

 

(c)           the term “untrue statement” shall include any untrue statement or
alleged untrue statement, or any omission or alleged omission to state in the
Registration Statement a 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.

 

(d)           (i)            The Company agrees to indemnify and hold harmless
each Selling Stockholder (including its investment advisor, auditors and legal
counsel) from and against any losses, claims, damages or liabilities to which
such Selling Stockholder may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon (i) any untrue
statement of a material fact contained in the Registration Statement, (ii) any
inaccuracy in the representations and warranties of the Company contained in the
Agreement or the failure of the Company to perform its obligations hereunder or
(iii) any failure by the Company to fulfill any undertaking included in the
Registration Statement, and the Company will reimburse such Selling Stockholder
for any reasonable legal expense or other actual accountable out of pocket
expenses reasonably incurred in investigating, defending or preparing to defend
any such action, proceeding or claim, provided, however, that the Company shall
not be liable in any such case to the extent that such loss, claim, damage or
liability arises out of, or is based upon, an untrue statement made in such
Registration Statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Selling Stockholder
specifically for use in preparation of the Registration Statement or the failure
of such Selling Stockholder to comply with its covenants and agreements
contained in Sections 4.1, 4.2, 4.3 or 6.2 hereof or any statement or omission
in

 

19

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any Prospectus that is corrected in any subsequent Prospectus that was delivered
to the Selling Stockholder prior to the pertinent sale or sales by the Selling
Stockholder.

 

(ii)           The Investor agrees to indemnify and hold harmless the Company
(and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act, each officer of the Company who signs the Registration
Statement and each director of the Company) from and against any losses, claims,
damages or liabilities to which the Company (or any such officer, director or
controlling person) may become subject (under the Securities Act or otherwise),
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, (i) any failure
to comply with the covenants and agreements contained in Section 4.1, 4.2, 4.3
or 6.2 hereof, or (ii) any untrue statement of a material fact contained in the
Registration Statement if such untrue statement was made in reliance upon and in
conformity with written information furnished by or on behalf of the Investor
specifically for use in preparation of the Registration Statement, and the
Investor will reimburse the Company (or such officer, director or controlling
person), as the case may be, for any reasonable legal expense or other actual
accountable out-of-pocket expenses reasonably incurred in investigating,
defending or preparing to defend any such action, proceeding or claim.  The
Investor’s obligation to indemnify the Company pursuant to this Section
6.3(d)(ii) shall be limited to the extent the net amount of the proceeds
received by the Investor from the sale of the Shares pursuant to the
Registration Statement exceeds the amount paid for such Shares pursuant to this
Agreement.

 

(iii)         Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 6.3, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party under this Section 6.3 (except to the extent that such
omission materially and adversely affects the indemnifying party’s ability to
defend such action) or from any liability otherwise than under this Section
6.3.  Subject to the provisions hereinafter stated, in case any such action
shall be brought against an indemnified person, the indemnifying person shall be
entitled to participate therein, and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, shall be entitled to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
person.  After notice from the indemnifying person to such indemnified person of
its election to assume the defense thereof (unless it has failed to assume the
defense thereof and appoint counsel reasonably satisfactory to the indemnified
party), such indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof, provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate, in the
reasonable opinion of counsel to the indemnified person, for the same counsel to
represent both the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel (together with appropriate local
counsel) for all indemnified parties.  In no event shall any indemnifying person
be liable in respect of any amounts paid in settlement of any action unless the
indemnifying person shall have approved the terms of such settlement; provided
that such consent shall not be unreasonably withheld.  No indemnifying person
shall, without the prior written consent of the indemnified person, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified person is or could reasonably have been a party and indemnification
could have been sought hereunder by such indemnified person, unless such
settlement includes an unconditional release of such indemnified person from all
liability on claims that are the subject matter of such proceeding.

 

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(iv)          If the indemnification provided for in this Section 6.3 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (d)(i) or (d)(ii) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the Investor on
the other in connection with the statements or omissions or other matters which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations.  The relative
fault shall be determined by reference to, among other things, in the case of an
untrue statement, whether the untrue statement relates to information supplied
by the Company on the one hand or the Investor on the other and the parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement.  The Company and the Investor agree that it would
not be just and equitable if contribution pursuant to this subsection (d) were
determined by pro rata allocation (even if the Investors were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to above in this
subsection (d).  The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.  Notwithstanding the
provisions of this subsection (d), the Investor shall not be required to
contribute any amount in excess of the amount by which the net amount received
by the Investor from the sale of the Shares to which such loss relates exceeds
the amount of any damages which the Investor has otherwise been required to pay
by reason of such untrue statement.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.  The Investors’ obligations in this subsection to
contribute are several in proportion to their sales of Shares to which such loss
relates and not joint.

 

(v)            The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 6.3, and are fully informed regarding said
provisions.  They further acknowledge that the provisions of this Section 6.3
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement as required by the Securities Act and the Exchange
Act.

 

6.4          Termination of Conditions and Obligations.  The conditions
precedent imposed by Section 4 or this Section 6 upon the transferability of the
Shares shall cease and terminate as to any particular number of the Shares when
such Shares shall have been effectively registered under the Securities Act and
sold or otherwise disposed of in accordance with the intended method of
disposition set forth in the Registration Statement covering such Shares or at
such time as an opinion of counsel satisfactory to the Company shall have been
rendered to the effect that such conditions are not necessary in order to comply
with the Securities Act.

 

6.5          Information Available.  So long as the Registration Statement is
effective covering the resale of Shares owned by the Investor, the Company will
furnish (or to the extent such information is available electronically through
the Company’s filings with the SEC, the Company will make available) to the
Investor:

 

(a)           as soon as practicable after it is available, one copy of (i) its
Annual Report to Stockholders (which Annual Report shall contain financial
statements audited in accordance with generally accepted accounting principles
by a national firm of certified public accountants) and (ii) if

 

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not included in substance in the Annual Report to Stockholders, its Annual
Report on Form 10-K (the foregoing, in each case, excluding exhibits);

 

(b)           upon the reasonable request of the Investor, all exhibits excluded
by the parenthetical to subparagraph (a)(ii) of this Section 6.5 as filed with
the SEC and all other information that is made available to stockholders; and

 

(c)           upon the reasonable request of the Investor, an adequate number of
copies of the Prospectuses to supply to any other party requiring such
Prospectuses; and the Company, upon the reasonable request of the Investor, will
meet with the Investor or a representative thereof at the Company’s headquarters
to discuss all information relevant for disclosure in the Registration Statement
covering the Shares and will otherwise reasonably cooperate with the Investor
conducting an investigation for the purpose of reducing or eliminating the
Investor’s exposure to liability under the Securities Act, including the
reasonable production of information at the Company’s headquarters; provided,
that the Company shall not be required to disclose any confidential information
to or meet at its headquarters with the Investor until and unless the Investor
shall have entered into a confidentiality agreement in form and substance
reasonably satisfactory to the Company with the Company with respect thereto.

 

6.6          Public Statements.  The Company agrees to disclose the existence of
the Offering and the material terms thereof on or before the Closing Date.  The
Company will not issue any public statement, press release or any other public
disclosure listing Investor as one of the purchasers of the Shares without
Investor’s prior written consent, except as may be required by applicable law or
rules of any exchange on which the Company’s securities are listed.

 

7.                                      Notices.  All notices, requests,
consents and other communications hereunder shall be in writing, shall be mailed
(A) if within domestic United States by first-class registered or certified
airmail, or nationally recognized overnight express courier, postage prepaid, or
by facsimile, or (B) if delivered from outside the United States, by
International Federal Express (or comparable service) or facsimile, and shall be
deemed given (i) if delivered by first-class registered or certified mail
domestic, three business days after so mailed, (ii) if delivered by nationally
recognized overnight carrier, one (1) business day after so mailed, (iii) if
delivered by International Federal Express (or comparable service), two (2)
business days after so mailed, (iv) if delivered by facsimile, upon electric
confirmation of receipt and shall be delivered as addressed as follows:

 

(a)           if to the Company, to:

 

Endocardial Solutions, Inc.

1350 Energy Lane, Suite 110

St. Paul, MN 55108

Attention:      J. Robert Paulson, Jr.

Telephone:    (651) 523-6900

Telecopy:      (651) 644-7897

 

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with a copy mailed to:

 

Dorsey & Whitney LLP

Suite 1500

50 South Sixth Street

Minneapolis, MN 55402

Attention:      Ken Cutler

Telephone:    (612) 340-2740

Telecopy:      (612) 340-7800

 

(b)           if to the Investor, at its address on the signature page to the
Stock Purchase Agreement, or at such other address or addresses as may have been
furnished to the Company in writing.

 

8.                                      Changes.  This Agreement may not be
modified or amended except pursuant to an instrument in writing signed by the
Company and the Investor.

 

9.                                      Headings.  The headings of the various
sections of this Agreement have been inserted for convenience of reference only
and shall not be deemed to be part of this Agreement.

 

10.                               Severability.  In case any provision contained
in this Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.

 

11.                               Governing Law.  This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
Minnesota, without giving effect to the principles of conflicts of law.

 

12.                               Counterparts.  This Agreement may be executed
in two or more counterparts, each of which shall constitute an original, but all
of which, when taken together, shall constitute but one instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties.

 

13.                               Independent Nature of Investors.  The
obligations of each Investor under any Agreement are several and not joint with
the obligations of any other Investor, and no Investor shall be responsible in
any way for the performance of the obligations of any other Investor under any
Agreement. The decision of each Investor to purchase Shares as part of the
Offering has been made by such Investor independently of any other Investor. 
Nothing contained herein, and no action taken by any Investor pursuant hereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Offering. Each Investor
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement.

 

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