Document:

Exhibit
10.3

 

STOCK
TRADING AGREEMENT

 

This Stock Trading Agreement (this “Agreement”) is made as of the 31st day of May, 2003
between Dale Hoppensteadt (the “Stockholder”) and Electric City Corp., a
Delaware corporation (the “Corporation”) (collectively, the “Parties”).

 

WHEREAS, the
Parties desire to set forth certain understandings between them;

 

NOW, THEREFORE, in
consideration of the foregoing and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by each of the
Parties hereto, the Parties do hereby agree as follows:

 

Section 1.               Trading Restrictions.

 

1.1           Arranged Sales.  With respect to any sales by the Stockholder
of Common Stock (or securities convertible or exercisable for shares of Common
Stock) into the public market, the Stockholder agrees to use reasonable efforts
to try to effect such sales in block trades of not less than 5,000 shares
through arranged sales, rather than using open market sales.  Anytime the Stockholder wishes to sell 5,000
or more shares of Common Stock into the public market he will contact a stock
broker or agent designated by the Corporation and inform such broker or agent
of his desire to sell and the number of shares of Common Stock which he desires
to sell.  If the Stockholder desires to
sell not more than 50,000 shares, the broker or agent shall have thirty (30)
business days after such notice to sell the shares of Common Stock which the
Stockholder desires to sell.  If the
Stockholder desires to sell a more than 50,000 shares of Common Stock, or more,
the broker or agent shall have sixty (60) business days after such notice to
sell the shares of Common Stock which the Stockholder desires to sell.  The applicable period of time in which the
broker or agent shall attempt to sell the block of shares under the preceding
two sentences is referred to herein as the “Solicitation Period”.  If the broker or agent is unable to sell the
shares in one or more block sales of at least 5,000 shares each at a price or
prices acceptable to the Stockholder prior to the expiration of the
Solicitation Period, then the Stockholder shall thereafter be free to attempt
to sell the shares in a publicly traded transaction through a broker-dealer or
with a market maker of his choice, subject to the restrictions of section 1.2
and to compliance with all applicable laws and regulations.

 

1.2           Restricted Trading.  Subject to the first sentence of section
1.1, shares owned by Stockholder sold in a publicly traded transaction through
a broker-dealer or with a market maker may only be sold in amounts not to
exceed on any trading day five percent (5%) of the average daily trading volume
of the Common Stock over the prior ten (10) trading days; provided that
if the Common Stock is trading below $1.00 per share, the maximum amount of
shares which the Stockholder may sell on any trading day shall not exceed three
percent (3%) of the average daily volume during the prior ten (10) trading
days.  Shares sold in trades subject to
this Section 1.2 must be executed during regular trading hours and cannot be
sold as an opening transaction on, or sold in the first hour or the last hour
of regular trading hours of, any trading day.

 

1

 

1.3                                 Trading Blackouts. 
Notwithstanding the provisions of Section 1.2, the Corporation, at its
sole option, may direct the Stockholder to not engage in any sales of shares of
Common Stock on any trading day, provided that the Corporation’s right
to take such action shall be limited to not more than ten (10) trading days in
each period of year (with the first period of one year commencing on the date
of this Agreement).

 

1.4                                 Corporate Action. 
Stockholder agrees that the Corporation may withhold its cooperation and
any requested or required legal opinion for any transaction which violates the
terms of this Agreement.

 

Section 2.                                            Private Sales; Transfers to Affiliates.

 

2.1                                 Right of First Offer Re Private Sales. 
Notwithstanding Sections 1.1, 1.2, 1.3 and 1.4 hereof, subject to
compliance with this Section 2.1 Stockholder may sell shares of Common Stock
(or securities convertible or exercisable for shares of Common Stock).  If the Stockholder desires to sell any of
his shares of Common Stock (or securities exercisable or exchangeable for or
convertible into shares of Common Stock) in a private transaction, the
Stockholder shall send written notice (the “Sale Notice”) of such intent
to the Corporation containing the following information:

 

(a)                                  the
number of shares of Common Stock or other securities the Stockholder desires to
sell;

 

(b)                                 the
proposed sale price per share or per security, as applicable; and

 

(c)                                  any
other material terms of the offer.

 

The
Corporation shall have five (5) business days after receipt of the Sale Notice
(the “Election Period”) to elect to purchase the Common Stock or other
securities that are the subject of the Sale Notice by giving the Stockholder
written notice thereof within the Election Period, in which case the
Stockholder and the Corporation shall complete such sale within five (5)
business days after the Corporation gives such election notice on the terms set
forth in the Sale Notice.  If the
Corporation does not elect to purchase within the Election Period, then the
Stockholder may sell the Common Stock or other securities that are the subject
of the Sale Notice on terms no less favorable to the Stockholder than those set
forth in the Sale Notice in a private sale to any third party within ten (10)
business days after the date of the Sale Notice.

 

2.2           Transfer
to Affiliates.  Notwithstanding
anything in this Agreement to the contrary, Stockholder may transfer any Common
Stock (or securities exercisable or exchangeable for or convertible into shares
of Common Stock) he owns to any member of his immediate family, any trust for
the benefit of himself or members of his immediate family, or any other entity
which is wholly-owned by Stockholder and members of his immediate family
without complying with the foregoing provisions of this Agreement; provided
that any such transferee shall become a separate Party to this Agreement on
terms similar to those applicable to Stockholder and his, her or its ownership
and sales of shares of Common Stock or other securities shall thereafter be
subject to the terms hereof on the same basis as is applicable to 

 

2

 

Stockholder
(provided  further that for purposes of complying with the
obligation to use reasonable efforts to effect block sales of 5,000 shares or
more, Stockholder and any such transferee(s) may aggregate shares which they
sell at the same time).

 

Section 3.               Term and Termination.

 

3.1           Term. This Agreement shall
become effective as of the date first written above and shall terminate upon
the third anniversary thereof, or, if earlier, on the date (a) when Stockholder
ceases to own any shares of Common Stock or options or other rights to acquire
shares of Common Stock from the Corporation, or (b) of consummation of a sale
of substantially all of the assets or stock of ECC or a merger or consolidation
involving ECC in which ECC is not the surviving corporation.  Within thirty (30) days prior to the fifth
anniversary of this Agreement (or any subsequently scheduled termination date),
the Corporation and the Stockholder shall meet to determine, in good faith, if
this Agreement should be extended in the best interests of the Corporation and
its shareholders.  The Corporation and
the Stockholder agree in good faith to extend this Agreement for additional
periods of time to be agreed upon, and to make any reasonable revisions hereto
in connection therewith, if the purposes for which this Agreement has been
entered into continue to be reasonable.

 

Section 4.               General Provisions.

 

4.1           Notices.  All notices required or permitted by this
Agreement shall be in writing and either delivered personally or by express
courier service (such as Federal Express) or by registered or certified mail,
return receipt requested, postage and registration fees prepaid, addressed as
follows:

 

If to the Stockholder, to his address as appears on the stock transfer
books and records of the Corporation.

 

If to the Corporation, to 1280 Landmeier Road, Elk Grove Village,
Illinois  60007, Attention: Chief
Executive Officer

 

Or to such address
as either Party hereto may specify by a writing given to the other Party in
accordance with the requirements of this section.  Notices shall be deemed given on the date of personal delivery
(if delivered personally) or the date of delivery by express courier service
(if delivered by such means) and notices sent by registered or certified mail
shall be deemed delivered on the third business day following deposit of the
notice in the United States mail.

 

4.2           Binding Effect.  This Agreement shall inure to the benefit of
and shall be binding upon the Parties hereto, their respective executors,
administrators, other personal representatives, successors and assigns.

 

4.3           Counterparts.  This Agreement may be signed in any number
of counterparts each of which shall be deemed an original but all of which,
taken together, shall be and constitute one document.

 

3

 

4.4           Descriptive Headings.  Headings of paragraphs and sections herein
are for convenience only and do not define, limit or construe the contents of
the sections to which they refer or pertain or otherwise constitute a part of
the meaning of this Agreement.

 

4.5           Amendments.  This Agreement may not be amended, or any
provisions hereof waived, without the written approval of both Parties.

 

4.6           Governing Law; Severability.  This Agreement will be governed by and
construed and enforced in accordance with the laws of the State of Illinois
without giving effect to any conflicts of laws provisions.  Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall (a) be
reformed by the Parties to reflect the intent of the Parties, or (b) if
reformation is not possible, be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this
Agreement.

 

4.7           Arbitration.  The Parties agree that in the event of any
and all disagreements and controversies arising from this Agreement, the
breach, termination or validity hereof or the dealings between the Parties
relating hereto, such disagreements and controversies shall be subject to
binding arbitration as arbitrated in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association, with such
arbitration to be conducted in Chicago, Illinois before one neutral
arbitrator.  Either Party may apply to
the arbitrator seeking injunctive relief until the arbitration award is
rendered or the controversy is otherwise resolved.  Without waiving any remedy under this Agreement, either Party may
also seek from any court having jurisdiction any interim or provisional relief
that is necessary to protect the rights or property of that Party, pending the
establishment of the arbitral tribunal (or pending the arbitral tribunal’s
determination of the merits of the controversy).  In the event of any such disagreement or controversy, neither
Party shall directly or indirectly reveal, report, publish or disclose any
information relating to such disagreement or controversy to any person, firm or
corporation not expressly authorized by the other Party to receive such
information or use such information or assist any other person in doing so,
except to comply with actual legal obligations of such Party or unless such
disclosure is directly related to an arbitration proceeding as provided herein,
including, but not limited to, the prosecution or defense of any claim in such
arbitration.  The costs and expenses of
the arbitration (excluding attorneys’ fees) shall be paid by the non-prevailing
Party or as determined by the arbitrator. 
This Section 4.7 shall survive the termination of this Agreement.

 

4.8           Entire Agreement.  This Agreement sets forth the entire
understanding of the Parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter
and supersedes any and all prior negotiations, correspondence and understandings.  This Agreement is the result of negotiation
and accordingly, the normal rules of construction to the effect that any
ambiguity shall be resolved against the drafting party shall not be employed in
the interpretation of this Agreement.

 

[Balance of page
intentionally left blank; signature page follows.]

 

4

 

IN WITNESS WHEREOF, Stockholder and the Corporation
have executed this Stock Trading Agreement as of the day and year first written
above.

 

 

	
   

  	
  STOCKHOLDER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Dale Hoppensteadt

  	
   

  
	
   

  	
  Dale Hoppensteadt

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ELECTRIC CITY CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey Mistarz

  	
   

  
	
   

  	
  Name:

  	
  Jeffrey Mistarz

  	
   

  
	
   

  	
  Title:

  	
  CFO & Treasurer

  	
   

  

 

5Exhibit 10.1

 

STOCK PURCHASE AGREEMENT

 

Vital Images, Inc.

3300 Fernbrooklane, North

Plymouth, Minnesota  55447

 

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 Vital Images, Inc., a Minnesota corporation (the “Company”),
and the Investor.

 

2.                                      The
Company has authorized the sale and issuance of up to 1,500,000 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 $13.50 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.”)

 

 

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:  May 30, 2003

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “INVESTOR”

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  AGREED AND ACCEPTED:

  	
   

  	
   

  
	
  Vital Images, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  	
   

  
											

 

2

 

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, but in no event later than June 4,
2003.  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.

 

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 June 4, 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 exchange for the
delivery of the stock certificates representing such Shares, on or prior to the
Closing, the Investor shall deliver the purchase price for such Shares to the
Company by certified bank check or wire transfer of immediately available funds
pursuant to the Company’s written instructions.  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, at the Closing, upon payment by
the Investors of the aggregate purchase price, will receive net proceeds of
$19,035,000 (which shall be net of the placement agent fee).

 

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) prior receipt by the Company of an executed copy of the Stock Purchase
Agreement; (b) completion of purchases and sales under the Agreements with the
Other Investors; and (c) the accuracy of the representations and warranties

 

3

 

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 1,500,000 shares of Common Stock; (b) the delivery
to the Investor by counsel to the Company of a legal opinion in the form
attached hereto as Exhibit D; (c) 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; (d) 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 (e) the delivery to the
Investor by the Secretary or Assistant Secretary of the Company of a certificate
stating that the condition specified in part (a) and (c) of this paragraph has
been fulfilled.  In the event the
Closing does not occur on or before the Closing Date on account of the
Company’s failure to satisfy any of the conditions set forth above (and such
condition has not been waived by the Investor), the Company shall return any
and all funds paid hereunder to the Investor no later than one business day
following the Outside Date and the Investors shall have no further obligations
hereunder.

 

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, 2002 (and any amendments thereto
filed prior to the date hereof), the Company’s Proxy Statement for its 2003
Annual Meeting of Shareholders, or the Company’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003 (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, 2003 (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.  The Company is duly incorporated and
validly existing in good standing under the laws of the State of
Minnesota.  The Company 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 as a whole or the business, financial
condition, properties, operations or assets of the Company as a whole or the
Company’s ability to perform its material 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.  The Company has no Subsidiaries (as defined in Rule 405 under the
Securities Act of 1933, as amended (the “Securities
Act”)).

 

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).

 

4

 

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 is a party or by which the Company or its properties are bound, where
such conflict, violation or default is reasonably expected to result in a
Material Adverse Effect, (ii) the Articles of Incorporation, by-laws or
other organizational documents of the Company, as amended, or (iii) any
law, administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority binding upon the Company or its
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 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 is a party or by which it is bound or to which
any of the property or assets of the Company 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 March 31, 2003 is as described in the Company’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2003.  The Company has not issued any capital stock
since March 31, 2003 other than pursuant to the exercise of outstanding
warrants or employee stock options under the stock option plans 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 the outstanding warrants described in the SEC Reports,
the options issued under the Company’s stock option plans and rights under the
Company’s Rights Agreement with American Stock Transfer and Trust Company 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 shareholders agreements, voting
agreements or other similar agreements with respect to the Common Stock to
which the Company is a party.

 

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 is a party or of which the business or
property of the Company is subject that is required to be disclosed and that is
not so disclosed in the SEC Reports. 
The Company is not 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.

 

5

 

3.6                               No
Violations.  The Company is not in
violation of its Articles of Incorporation, bylaws or other organizational
documents, as amended, 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, which violation, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect, and the
Company is not 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 is a party or by which the Company is bound or
by which the property of the Company is bound, which default is reasonably
likely to have a Material Adverse Effect.

 

3.7                               Governmental
Permits, Etc.  The Company 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 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) the Company 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 (collectively, “Intellectual Property”) and (ii) all of the
Intellectual Property owned by the Company 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
employs rights in Intellectual Property, or (ii) the Company has granted rights
to others in Intellectual Property owned or licensed by the Company are in full
force and effect, and there is no default by the Company with respect thereto.

 

(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.

 

(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 do not infringe any intellectual property of any other
person; (ii) the Company is not 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 do not violate any agreements or
arrangements related to confidential information or trade secrets of persons
other than the Company or restricting any such employee’s engagement in
business activities of any nature.

 

6

 

(e)                                  No
proceedings are pending, or to the knowledge of the Company, threatened, which
challenge the rights of the Company in respect of the Company’s 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 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 financial position of the Company
as of the dates indicated, and the results of its operations, cash flows and
the changes in shareholders’ equity for the periods therein specified, subject,
in the case of unaudited financial statements for interim periods, to normal
year-end audit adjustments.  Such
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 since March 31, 2003, 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, incurred by the Company, 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 (iv) any
loss or damage (whether or not insured) to the physical property of the Company
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 SmallCap Market (the “Nasdaq SmallCap 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 SmallCap
Market, except that the Company has filed an application with the Nasdaq Stock
Market to list its Common Stock on the Nasdaq National Market System (the “Nasdaq NMS”).  The issuance of the Shares does not require shareholder approval,
including, without limitation, pursuant to the Nasdaq Marketplace Rule
4350(i).  The Nasdaq SmallCap Market and
the Nasdaq NMS are herein collectively referred to as the “Nasdaq Stock
Market.”

 

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 SEC’s 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 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.  PricewaterhouseCoopers 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, 2002 into the Registration Statement (as

 

7

 

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 and those contracts that are
substantially or fully performed or expired by their terms, the contracts
listed as exhibits to the SEC Reports that are material to the Company and all
amendments thereto, are in full force and effect on the date hereof, and
neither the Company 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 maintains insurance of the types
and in the amounts that the Company reasonably believes is adequate for its
businesses, including, but not limited to, insurance covering real and personal
property owned or leased by the Company 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.

 

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 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.

 

3.23                        Books
and Records.  The books, records and
accounts of the Company accurately and fairly reflect, in reasonable detail,
the transactions in, and dispositions of, the assets of, and the operations of,
the Company.  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

 

8

 

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.

 

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
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 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.  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

 

9

 

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                               [Intentionally
Omitted.]

 

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 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, including the receipt and content 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 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.

 

10

 

4.9                               Additional Acknowledgement.  The
Investor acknowledges that it has independently evaluated the merits of the
transactions contemplated by this Agreement, that it has independently
determined to enter into the transactions contemplated hereby, that it is not
relying on any advice from or evaluation by any other Investor, and that it is
not acting in concert with any other Investor in making its purchase of the
Shares hereunder.  The Investor and, to
its knowledge, the Company agree that the Investors have not taken any actions
that would deem such Investors to be members of a “group” for purposes of
Section 13(d) of the Exchange Act.

 

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, prepare and file with
the SEC, within fifteen (15) 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;

 

(b)                                  use
its best efforts, subject to receipt of necessary information from the
Investors, 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 120 days after the
Closing Date (the “Required Effective Date”), the Company shall, on the 121st
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 purchased by
the Investor and not previously sold by the Investor  (but in no event to exceed 5% 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 Securities Exchange Commission (“Preliminary Prospectuses”) in
conformity with the requirements of the Securities Act

 

11

 

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 shall receive notice or obtain 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.

 

(h)                                 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 use its commercially reasonable efforts
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 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 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

 

12

 

in the Registration Statement referred to in Section 6.1 and as
described below, and that it will promptly notify the Company of any material
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 best 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 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 omit 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 omit 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 and, upon receipt of such Suspension Notice, the
Investor will refrain from selling any Shares pursuant to the Registration
Statement (a “Suspension”) until the Investors are 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

 

13

 

30 days in any twelve month period, and any such Suspension must be
separated by a period of at least 30 days from a prior Suspension.

 

(e)                                  If
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, 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.

 

(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 415 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 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

 

14

 

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 any inaccuracy in representations made by such
Selling Stockholder in the Investor Questionnaire 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 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 obligation to indemnify
shall be limited to the net amount of the proceeds received by the Investor
from the sale of the Shares pursuant to the Registration Statement.

 

(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

 

15

 

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.

 

(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 gross 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.

 

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

 

16

 

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
Shareholders (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 not included in substance in the
Annual Report to Shareholders, 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 shareholders; 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 during the
Company’s normal business hours 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 on a Current Report on Form 8-K the existence of the Offering and the
material terms, thereof, including pricing, within one (1) business day after
the Closing.  Such Current Report on
Form 8-K shall include a form of this Agreement as an exhibit thereto.  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.

 

6.7                               Limits on Additional Issuances.  Except for the issuance of stock options
under the Company’s stock option plans, the issuance of common stock upon
exercise of outstanding options and warrants and the offering contemplated
hereby, the Company will not, for a period of six months following the final
closing date of the Placement, offer for sale or sell any securities unless, in
the opinion of the Company’s counsel, such offer or sale does not jeopardize
the availability of exemptions from the registration and qualification
requirements under applicable securities laws with respect to the
Placement.  The foregoing shall not
apply to securities issued in connection with any acquisition, including by way
of merger, or purchase of stock or all or substantially all of the assets of
any third party.  Except for the
issuance of stock options under the Company’s stock option plans, the issuance
of common stock upon exercise of outstanding options and warrants, the issuance
of common stock purchase warrants, and the offering contemplated hereby, the
Company has not engaged in any such offering during the six months prior to the
date of this agreement.  The foregoing
provisions shall not prevent the Company from filing a

 

17

 

“universal shelf” registration statement pursuant to Rule 415 under the
Securities Act, but the foregoing provisions shall apply to any sale of
securities thereunder.

 

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, or at such other
address or addresses as may have been furnished in writing by a party to
another party pursuant to this paragraph:

 

(a)                                  if
to the Company, to:

 

Vital Images, Inc.

3300 Fernbrook Lane, North

Plymouth, MN  55447

Attention:            Jay
Miller

Telephone:       (763) 852-4100

Telecopy:              (763) 852-4110

 

with a copy mailed
to: 

 

Philip T. Colton,
Esq.

Winthrop & Weinstine, P.A.

3000 Dain Rauscher Plaza

60 South Sixth Street

Minneapolis, MN  55402

Telephone:  (612) 347-0729

Telecopy:  (612) 347-0600

 

(b)                                  if
to the Investor, at its address on the signature page to the Stock Purchase
Agreement.

 

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.  If any provision contained in this
Agreement is determined to 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.

 

18

 

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.

 

19

 

EXHIBIT A

 

Vital Images, Inc.

 

STOCK CERTIFICATE
QUESTIONNAIRE

 

Pursuant to
Section 4 of the Agreement, please provide us with the following information:

 

	
  1.                                       The
  exact name in which your Shares are to be registered (this is the name that
  will appear on your stock certificate(s)). 
  You may use a nominee name if appropriate:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  2.                                       The
  relationship between the Investor and the registered holder listed in
  response to item 1 above:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  3.                                       The
  mailing address of the registered holder listed in response to item 1 above:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  4.                                       The
  Social Security Number or Tax Identification Number of the registered holder
  listed in the response to item 1 above:

  	
   

  	
   

  

 

1

 

EXHIBIT B

 

Vital
Images, Inc.

 

INVESTOR QUESTIONNAIRE

 

(all information will be treated confidentially)

 

To: Vital Images, Inc.,

 

This Investor
Questionnaire (“Questionnaire”) must be completed by each potential investor
in connection with the offer and sale of the shares of the common stock, par
value $.01 per share (the “Shares”), of Vital Images, Inc. (the “Company”).  The Shares are being offered and sold by the
Company without registration under the Securities Act of 1933, as amended (the “Securities
Act”), and the securities laws of certain states, in reliance on the
exemptions contained in Section 4 of the Securities Act and on Regulation D
promulgated thereunder and in reliance on similar exemptions under applicable
state laws.  The Company must determine
that a potential investor meets certain suitability requirements before
offering or selling Shares to such investor. 
The purpose of this Questionnaire is to assure the Company that each
investor will meet the applicable suitability requirements.  The information supplied by you will be used
in determining whether you meet such criteria, and reliance upon the private
offering exemption from registration is based in part on the information herein
supplied.

 

This Questionnaire
does not constitute an offer to sell or a solicitation of an offer to buy any
security.  Your answers will be kept
strictly confidential.  However, by
signing this Questionnaire you will be authorizing the Company to provide a
completed copy of this Questionnaire to such parties as the Company deems
appropriate in order to ensure that the offer and sale of the Shares will not
result in a violation of the Securities Act or the securities laws of any state
and that you otherwise satisfy the suitability standards applicable to
purchasers of the Shares.  All potential
investors must answer all applicable questions and complete, date and sign this
Questionnaire.  Please print or type
your responses and attach additional sheets of paper if necessary to complete
your answers to any item.

 

A.                                    BACKGROUND
INFORMATION

 

	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Business Address:

  	
   

  
	
   

  	
  (Number and Street)

  	
   

  
	
   

  
	
  (City)

  	
   

  	
  (State)

  	
   

  	
   

  	
  (Zip Code)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Telephone Number: 
  (       )

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Residence Address:

  	
   

  
	
   

  	
   

  	
  (Number and Street)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (City)

  	
   

  	
  (State)

  	
   

  	
  (Zip Code)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Telephone Number: 
  (       )

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  If an individual:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Age:

  	
   

  	
   

  	
  Citizenship:

  	
   

  	
   

  	
  Where registered to
  vote:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  If a corporation,
  partnership, limited liability company, trust or other entity:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Type of entity:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  State of formation:

  	
   

  	
   

  	
  Date of formation:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Social Security or
  Taxpayer Identification No.

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Send all correspondence
  to (check one): o
  Residence Address

  	
  o
  Business Address

  
																											

 

1

 

B.                                    STATUS
AS ACCREDITED INVESTOR

 

The undersigned is an
“accredited investor” as such term is defined in Regulation D under the
Securities Act, because at the time of the sale of the Shares the undersigned
falls within one or more of the following categories (Please initial one or more,
as applicable):

 

                              (1)                                  a
bank as defined in Section 3(a)(2) of the Securities Act, or a savings and loan
association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or fiduciary capacity; a broker
or dealer registered pursuant to Section 15 of the Securities Exchange Act of
1934; an insurance company as defined in Section 2(13) of the Securities Act;
an investment company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of that act; a
Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958; a plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions for the benefit of its employees, if such plan has total assets in
excess of $5,000,000; an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with the investment decisions made
solely by persons that are accredited investors;(1)

 

                              (2)                                  a
private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940;

 

                              (3)                                  an
organization described in Section 501(c)(3) of the Internal Revenue Code of
1986, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the Shares offered, with total
assets in excess of $5,000,000;

 

                              (4)                                  a
natural person whose individual net worth, or joint net worth with that
person’s spouse, at the time of such person’s purchase of the Shares exceeds
$1,000,000;

 

                              (5)                                  a
natural person who had an individual income in excess of $200,000 in each of
the two most recent years or joint income with that person’s spouse in excess
of $300,000 in each of those years and has a reasonable expectation of reaching
the same income level in the current year;

 

                              (6)                                  a
trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the Shares offered, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; and

 

                              (7)                                  an
entity in which all of the equity owners are accredited investors (as defined
above).

 

(1)  As used in
this Questionnaire, the term “net worth” means the excess of total assets over
total liabilities.  In computing net
worth for the purpose of subsection (4), the principal residence of the
investor must be valued at cost, including cost of improvements, or at recently
appraised value by a professional appraiser. 
In determining income, the investor should add to the investor’s
adjusted gross income any amounts attributable to tax exempt income received,
losses claimed as a limited partner in any limited partnership, deductions
claimed for depreciation, contributions to an IRA or KEOGH retirement plan, alimony
payments, and any amount by which income from long-term capital gains has been
reduced in arriving at adjusted gross income.

 

B-2

 

C.                                    REPRESENTATIONS

 

The undersigned hereby represents and warrants to the Company as
follows:

 

1.                                      Any
purchase of the Shares would be solely for the account of the undersigned and
not for the account of any other person or with a view to any resale,
fractionalization, division, or distribution thereof.

 

2.                                      The
information contained herein is complete and accurate and may be relied upon by
the Company, and the undersigned will notify the Company immediately of any
material change in any of such information occurring prior to the closing, if
any, with respect to the purchase of Shares by the undersigned or any
co-purchaser.

 

3.                                      There
are no suits, pending litigation, or claims against the undersigned that could
materially affect the net worth of the undersigned as reported in this
Questionnaire.

 

4.                                      The
undersigned acknowledges that 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 (as such terms are
defined in the Stock Purchase Agreement to which this Questionnaire is
attached) until such time as an amendment to the Registration Statement has
been filed by the Company and declared effective by the Securities and Exchange
Commission or until the Company has amended or supplemented such Prospectus.  The undersigned is aware that, in such
event, the Shares will not be subject to ready liquidation, and that any Shares
purchased by the undersigned would have to be held during such suspension.  The overall commitment of the undersigned to
investments which are not readily marketable is not excessive in view of the
undersigned’s net worth and financial circumstances, and any purchase of the
Shares will not cause such commitment to become excessive.  The undersigned is able to bear the economic
risk of an investment in the Shares.

 

5.                                      The
undersigned has carefully considered the potential risks relating to the
Company and a purchase of the Shares and fully understands that the Shares are
speculative investments which involve a high degree of risk of loss of the
undersigned’s entire investment.  Among
others, the undersigned has carefully considered each of the risks described in
the Company’s Annual Report on Form 10-K for the year ended December 31,
2002.

 

6.                                       The
following is a list of all states and other jurisdictions in which blue sky or
similar clearance will be required in connection with the undersigned’s
purchase of the Shares:
                                                                                   .

 

The undersigned agrees to
notify the Company in writing of any additional states or other jurisdictions
in which blue sky or similar clearance will be required in connection with the
undersigned’s purchase of the Shares.

 

B-3

 

IN WITNESS WHEREOF, the
undersigned has executed this Questionnaire this
         day of
                ,
2003, and declares under oath that it is truthful and correct.

 

	
   

  	
   

  	
  Print Name

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (required for
  any purchaser that is a

  corporation, partnership, trust or other entity)

  	
   

  
						

 

B-4

 

EXHIBIT C

 

Vital Images, Inc.

CERTIFICATE OF SUBSEQUENT SALE

 

[Transfer Agent]

 

 

 

RE:                              Sale
of Shares of Common Stock of Vital Images, Inc. (the “Company”) pursuant to the
Company’s Prospectus dated
                               ,
2003 (the “Prospectus”)

 

Dear Sir/Madam:

 

The undersigned
hereby certifies, in connection with the sale of shares of Common Stock of the
Company included in the table of Selling Shareholders in the Prospectus, that
the undersigned has sold the Shares pursuant to the Prospectus and in a manner
described under the caption “Plan of Distribution” in the Prospectus and that
such sale complies with all applicable securities laws, including, without
limitation, the Prospectus delivery requirements of the Securities Act of 1933,
as amended.

 

Selling
Stockholder (the beneficial owner):

 

Record Holder
(e.g., if held in name of nominee):

 

Restricted Stock
Certificate No.(s):

 

Number of Shares
Sold:

 

Date of Sale:

 

In the event that
you receive a stock certificate(s) representing more shares of Common Stock
than have been sold by the undersigned, then you should return to the
undersigned a newly issued certificate for such excess shares in the name of
the Record Holder and BEARING A RESTRICTIVE LEGEND.  Further, you should place a stop transfer on your records with
regard to such certificate.

 

	
  Dated:

  	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
								

 

1

 

EXHIBIT D

 

FORM OF LEGAL OPINION

 

May   ,
2003

 

To:                              The
Investors in Common Stock of Vital Images, Inc.

 

Ladies and Gentlemen:

 

We have acted as
counsel for Vital Images, Inc., a Minnesota corporation (the “Company”), in
connection with the issuance of
               
shares (the “Shares”) of the Company’s Common Stock, $.01 par value per share,
pursuant to those certain Stock Purchase Agreements, dated as of May
  , 2003, including the exhibits thereto (collectively, the “Agreement”),
between the Company and the Investors named therein.  This opinion is being delivered to you pursuant to Section 2 of
the Agreement.  Capitalized terms used
herein are as defined in the Agreement unless otherwise specifically provided
herein.

 

We have examined
such documents and have reviewed such questions of law as we have considered
necessary or appropriate for the purpose of this opinion.

 

In rendering our
opinion below, we have assumed the authenticity of all documents submitted to
us as originals, the genuineness of all signatures, and the conformity to
authentic originals of all documents submitted to us as copies.  We have also assumed the legal capacity for
all purposes relevant hereto of all parties to all relevant agreements other
than the Company.  As to questions of
fact material to our opinion, we have relied, without independent verification,
on the representations and warranties contained in the Agreement and on
certificates of officers of the Company and public officials.

 

Our opinions
expressed below as to certain factual matters are qualified as being limited
“to our knowledge” or by other words to the same or similar effect.  Such words, as used herein, mean the
information known to the attorneys in this firm who have represented the
Company in connection with the matters addressed herein.  In rendering such opinions, we have not
conducted any independent investigation or consulted with other attorneys in
our firm with respect to the matters covered by the Agreement.  No inference as to our knowledge with
respect to such matters should be drawn from the fact of our representation of
the Company.

 

Based on the
foregoing, we are of the opinion that:

 

1.                                       The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Minnesota, with the corporate power to
conduct any lawful business activity.  
The Company has the corporate power to execute, deliver and perform the
Agreement including, without limitation, the issuance and sale of the Shares.

 

2.                                       The
Company is duly qualified to do business as a foreign corporation in each
jurisdiction in which the character of the business conducted by it or the
location of the properties owned or leased by it makes such qualification
necessary, except where the failure to be so qualified would not have a
material adverse effect on the financial position of the Company as a whole.

 

1

 

3.                                       The
Agreement has been duly authorized by all requisite corporate action, executed
and delivered by the Company.  The
Agreement constitutes the valid and binding agreement of the Company
enforceable in accordance with its terms.

 

4.                                       The
Shares have been duly authorized and, upon issuance, delivery and payment
therefor as described in the Agreement, will be validly issued, fully paid and
nonassessable.

 

5.                                       As
of the date hereof, the authorized capital stock of the Company consists of
20,000,000 shares, $.01 par value, of Common Stock and 5,000,000 shares, $.01
par value, of Preferred Stock.

 

6.                                       The
execution, delivery and performance of the Agreement and the issuance and sale
of the Shares in accordance with the Agreement will not: (a) violate or
conflict with, or result in a breach of or default under, the Articles or
by-laws of the Company, (b) violate or conflict with, or constitute a default
under, the provisions of any bond, debenture, not or any other evidence of
indebtedness or any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or any other material agreement or instrument
(limited, with your consent, to agreements filed or required to be filed with
the Securities and Exchange Commission under the Exchange Act and applicable
rules and regulations) to which the Company is a party, or (c) violate any
federal or state law applicable to the Company.

 

7.                                       To
our knowledge, no consent, approval, authorization or order of, and no notice
to or filing with, any governmental agency or body or any court is required to
be obtained or made by the Company for the issue and sale of the Shares
pursuant to the Agreement, except such as have been obtained or made and such
as may be required under the federal securities laws or the Blue Sky laws of
the various states or the bylaws and the Corporate Financing rules of the
National Association of Securities Dealers, Inc.

 

8.                                       Assuming
the representations made by the Investors and the Company set forth in the
Agreement and the exhibits thereto are true and correct and subject to the
Placement Agent’s compliance with applicable securities laws and regulations,
the offer, sale, issuance and delivery of the Shares to the Investors, in the
manner contemplated by the Agreement, does not need to be registered under the
Securities Act, it being understood that no opinion is expressed as to any
subsequent resale of such shares.

 

9.                                       The
issuance of the Shares does not require approval of the Company’s shareholders
pursuant to the Nasdaq Marketplace Rule 4350(i).

 

10.                                 The
Shares are “Covered Securities” pursuant to the definition of that term in
Section 18(b) of the Securities Act.

 

11.                                 The
Company is not an “investment company” or affiliated with an “investment
company,” within the meaning of the Investment Company Act of 1940, as amended.

 

12.                                 The
descriptions of the Common Stock contained in the Company’s registration
statement on Form 10 filed under the Exchange Act are accurate.

 

2

 

13.                                 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.

 

14.                                 To
the best of our knowledge, there are no pending or threatened or contemplated
actions, suits or proceedings before or by any court or governmental agency,
authority or body or any arbitrator, which are not ordinary, routine and
incidental to the business of the Company or which might result in any material
adverse change in the business condition or properties of the Company.

 

The opinions set forth above are subject to the following
qualifications and exceptions:

 

(a)                                  We
are admitted to practice law in the State of Minnesota and our opinions
expressed above are limited to the laws of the State of Minnesota and the
federal laws of the United States of America.

 

(b)                                 Our
opinion in paragraph 3 above is subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general application affecting creditors’ rights.

 

(c)                                  Our
opinion in paragraph 3 above is subject to the effect of general
principles of equity, including (without limitation) concepts of materiality,
reasonableness, good faith, fair dealing and unconscionability, and other
similar doctrines affecting the enforceability of agreements generally
(regardless of whether considered in a proceeding in equity or at law).

 

(d)                                 Our
opinion in paragraph 3 above, insofar as it relates to indemnification
provisions, is subject to the effect of federal and state securities laws and
public policy relating thereto.

 

(e)                                  With
respect to our opinion in paragraph 8 above, we express no opinion as to any
subsequent resale of any such Shares.

 

(f)                                    We
express no opinion as to the compliance or the effect of noncompliance by the
Investors with any state or federal laws or regulations applicable to the
Investors in connection with the transactions described in the Agreement.

 

(g)                                 In
addition, we have participated in conferences with officers and other
representatives of the Company at which the contents of the Company’s SEC
Reports and other related matters were discussed.  Although we are not passing upon and have not independently
checked or verified the accuracy, completeness or fairness of the statements
contained in the Company’s SEC Reports, we advise you that we have no reason to
believe that, as of the date of the Agreements and as of the date hereof, the
Company’s SEC Reports (except as to the financial statements, including the
notes thereto and related schedules and other financial, statistical and
accounting data included or incorporated by reference therein or which should
have been included or incorporated by reference therein, as to which we are not
called upon to and do not express any opinion), as supplemented and updated by
the most recent Company SEC Reports, contained or contain an untrue statement
of a material fact or omitted or omit 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.

 

3

 

The opinions
expressed herein are based on an analysis of existing laws and court decisions
and cover certain matters not directly addressed by such authorities.  The foregoing opinions are being furnished
to you solely for your benefit in connection with the transactions contemplated
by the Agreement and may not be relied upon by any other person without our
prior written consent.  We disclaim any
obligation to update this opinion letter for events occurring or coming to our
attention, or any changes in the law taking effect, after the date hereof.

 

Very truly yours,

 

4

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