Sales Agency for Share Offering Agreement

CARDIMA, INC.





A minimum of 5,000,000 ($10,000,000) and

a maximum of 7,500,000 ($15,000,000)

Shares of Common Stock







SALES AGENCY AGREEMENT

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







As of January 21, 1999







Sunrise Securities Corp. 135 E. 57th Street New York, New York 10022





Dear Sirs:



Cardima, Inc., a Delaware corporation (the "Company"), proposes to

------- offer for sale in a private offering (the "Offering"), pursuant to Rule 506 of

-------- Regulation D ("Regulation D") under the Securities Act of 1933, as amended (the

------------ "Act"), a minimum of 5,000,000 (including "Affiliate Shares," and "Insider

--- Shares", each as hereinafter defined, if any) and a maximum of 7,500,000 shares (the "Shares") of the Company's common stock, par value $0.001 per share (the

------ "Common Stock"). This Offering is being made solely to "accredited investors" - ------------- as defined in Regulation D. This is to confirm our agreement concerning your acting as our exclusive placement agent (the "Placement Agent") in connection

--------------- with the Offering.



The Company has prepared and has delivered to the Placement Agent copies of a confidential executive summary, dated December 9, 1998, relating to, among other things, the Company, its management, and the risks associated with an investment in the Company's securities. Such confidential executive summary, including all documents delivered therewith and incorporated by reference therein, is referred to herein as the "Executive Summary" unless such

----------------- confidential executive summary or any such accompanying documents shall be supplemented or amended in accordance with this Agreement, in which event the term "Executive Summary" shall refer to such confidential executive summary and

----------------- such documents as so supplemented or amended from and after the time of delivery to the Placement Agent of such supplement or amendment.

In addition, the Company has furnished or made available to the Placement Agent the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, (the "Form 10-K"), quarterly report on Form 10-Q for

--------- the quarter ended March 31, 1998, quarterly report on Form 10-Q for the quarter ended June 30, 1998, quarterly report on Form 10-Q for the quarter ended September 30, 1998 (the "Most Recent 10-Q") and any other reports filed by the

---------------- Company pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") or the rules and regulations promulgated thereunder, prior to - ------------- Closing (collectively, the "SEC Filings"), in each case as filed with the

----------- Securities and Exchange Commission (the "Commission").

----------



1. Appointment of Placement Agent. On the basis of the

------------------------------ representations and warranties contained herein, and subject to the terms and conditions set forth herein, the Company hereby appoints you as its Placement Agent and grants to you the exclusive right to offer, as its agent, the Shares pursuant to the terms of this Agreement. On the basis of such representations and warranties, and subject to such conditions, you hereby accept such appointment and agree to use your best efforts to secure subscriptions to purchase a minimum of 5,000,000 ($10,000,000) and a maximum of 7,500,000 ($15,000,000) Shares pursuant to the terms of this Agreement. The agency created hereby is not terminable by the Company except upon termination of the Offering or upon expiration of the Offering Period (as hereinafter defined) in accordance with the terms of this Agreement.



2. Terms of the Offering.

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



(a) A minimum of 5,000,000 ($10,000,000) and a maximum of 7,500,000 ($15,000,000) Shares shall be offered for sale to prospective investors in the Offering ("Prospective Investors") at a purchase price equal to $2.00 per Share

--------------------- (the "Purchase Price"). Certain of the shares offered for sale may be sold to

-------------- certain of the Company's current institutional investors (the "Insider Shares").

-------------- In addition, officers, directors and employees of the Company and the Placement Agent may purchase Shares for their own accounts on the same terms and conditions as other investors (the "Affiliate Shares"). The Affiliate Shares

---------------- and Insider Shares shall be included in determining whether the minimum and maximum number of Shares have been subscribed for, and all references herein to subscriptions from Prospective Investors shall be deemed to include the Affiliate Shares and the Insider Shares.



(b) The Offering shall expire at 5:00 P.M., New York time, on February 15, 1999, unless extended from time to time for periods of up to an aggregate of 30 days by mutual agreement of the Company and the Placement Agent. Such period, as the same may be so extended, shall hereinafter be referred to as the "Offering Period."

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



(c) Each Prospective Investor who desires to purchase Shares shall be required to deliver to the Placement Agent one copy of a subscription agreement in the form annexed hereto as Exhibit A, including the investor questionnaire

--------- (the "Subscription Agreement"), and payment in the amount necessary to purchase the number of Shares such Prospective Investor desires to purchase. The Placement Agent shall not have any obligation to independently verify the accuracy or completeness of any information contained in any Subscription Agreement or the authenticity, sufficiency or validity of any check or other form of payment delivered by any Prospective Investor in payment for Shares.



(d) Pursuant to an Escrow Agreement, dated as of January 21, 1999 (the "Escrow Agreement"), the Placement Agent has established a special account with

---------------- the United States Trust Company of New York (the "Escrow Agent") entitled

------------ "Cardima, Inc. - Escrow Account" (the "Escrow Account"). The Placement Agent

-------------- shall deliver each check received from a Prospective Investor to the Escrow Agent for deposit in the Escrow Account and shall deliver the executed copy of the Subscription Agreement received from such Prospective Investor to the Company. The Company shall notify the Placement Agent promptly of the acceptance or rejection of any subscription. The Company and/or the Placement Agent may reject any subscription.



(e) If subscriptions to purchase 5,000,000 Shares ($10,000,000) are not received from Prospective Investors prior to the expiration of the Offering Period and accepted by the Company, the Offering shall be canceled, all funds received by the Escrow Agent on behalf of the Company shall be refunded in full without interest, and this Agreement and the agency created hereby shall be terminated without any further obligation on the part of either party, except as provided in Section 10 hereof.

----------



(f) We agree that within 30 business days following completion of the Offering (the "Final Closing"), the Company will file a registration statement

------------- (the "Registration Statement") under the Act covering the resale of the Shares.

---------------------- In the event the Registration Statement is not filed by the end of such 30 business-day period (the "Filing Deadline"), the Company agrees to issue to each

--------------- purchaser of Shares an additional number of shares equal to 1.0% of the number of Shares purchased for each 30 days or part thereof the filing is delayed until 60 days after the Filing Deadline, plus an additional 2% of the number of Shares so purchased for each 30 days thereafter, until the Registration Statement is filed; provided, however, that the Company shall not be required to issue such additional shares of Common Stock if such failure has been caused by (a) the failure of the holders of the Shares to be registered to provide information in connection with the Registration Statement or (b) the occurrence of a material event not in the ordinary course which may delay the filing of the Registration Statement pending public disclosure, which disclosure shall be promptly made. We further agree that the Company will use its reasonable best efforts to cause the Registration Statement (A) to become effective under the Act as promptly as practicable, and (B) to remain effective until such time as all Shares purchased in the Offering become eligible for resale pursuant to Rule 144 under the Act.



(g) The Company may at any time refuse to permit holders of the Shares to resell any Shares pursuant to the Registration Statement upon delivery to such holders of a written certificate to the effect that withdrawal of the Registration Statement is necessary because a sale thereunder in then current form would constitute a violation of federal securities laws. In



the event of a withdrawal, the Company shall use its best efforts to amend the Registration Statement and/or take all other necessary actions to again permit sales in compliance with the federal securities laws.



3. Closing.

-------



(a) Subject to the conditions set forth in Section 8 hereof, if

--------- subscriptions to purchase at least 5,000,000 Shares (including Insider Shares and Affiliate Shares) have been received prior to the expiration of the Offering Period and accepted by the Company, the initial closing under this Agreement (the "Closing") shall be held at the offices of Thelen Reid & Priest LLP, 40

------- West 57th Street, New York, New York, at 10:00 A.M., New York time, on the third business day following the date upon which the Placement Agent receives notice from the Company that subscriptions to purchase at least 5,000,000 Shares (including Insider Shares and Affiliate Shares) have been so accepted or at such other place, time and/or date as the Company and the Placement Agent shall agree upon. The Company shall provide the notice required by the preceding sentence as promptly as practicable. The date upon which the Closing is held shall hereinafter be referred to as the "Closing Date."

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



(b) Subject to the conditions set forth in Section 8 hereof, if,

--------- subsequent to the date the subscriptions referred to in Section 3(a) hereof are

------------------- received and accepted and prior to the expiration of the Offering Period, additional subscriptions to purchase Shares are received from Prospective Investors, which subscriptions are accepted by the Company, one or more additional closings under this Agreement (each, an "Additional Closing") shall

------------------ be held at the offices of Thelen Reid & Priest LLP, 40 West 57th Street at 10:00 A.M., New York time, on the third business day following the date upon which the Placement Agent receives notice from the Company that additional subscriptions have been so accepted, or at such other place, time or date as the Company and the Placement Agent shall agree upon. The Company shall notify the Placement Agent as promptly as practicable whether any additional subscriptions so received have been accepted. The date upon which any Additional Closing is held shall hereinafter be referred to as an "Additional Closing Date."

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



Notwithstanding anything contained herein to the contrary, in no event shall the Company accept subscriptions to purchase in excess of 7,500,000 Shares (including Insider Shares and Affiliate Shares).



(c) At the Closing or an Additional Closing, as the case may be, the Company shall instruct the Escrow Agent to pay to the Placement Agent at the Closing or an Additional Closing, from the funds deposited in the applicable Escrow Account in payment for the Shares, the cash amounts payable to the Placement Agent pursuant to Section 4 of this Agreement. Promptly after the

--------- Closing Date or an Additional Closing Date, as the case may be, the Company shall deliver to the purchasers of Shares certificates representing the Shares to which they are entitled.





4. Compensation.

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



(a) If subscriptions to purchase 5,000,000 Shares (including Insider Shares and Affiliate Shares) are received from Prospective Investors prior to the expiration of the Offering Period and accepted by the Company, you shall be entitled to receive from the Company, as compensation for your services as Placement Agent under this Agreement, an aggregate amount equal to 8.0% of the gross proceeds received by the Company from the sales of the Shares (the "Commission"), provided that no commission will be due to the Placement Agent - ----------- with respect to the sale of the Insider Shares or the Compensatory Shares (as defined below). At the sole option of the Placement Agent, some or all of the Commission may be paid by the issuance of additional shares of the Company's Common Stock (the "Compensatory Shares"), which Compensatory Shares will be

------------------- valued at $2.00 per share. The Compensatory Shares will be entitled to the same registration rights afforded the Shares as set forth in the Subscription Agreement. All of the foregoing compensation is payable by the Company on the Closing Date or Additional Closing Date, as the case may be, with respect to the Shares sold on such date. The Company has previously paid $20,000 against the aggregate Commission to be due the Placement Agent hereunder (the "Advance"). In the event subscriptions to purchase 5,000,000 Shares (including Insider Shares and Affiliate Shares) are not received prior to the expiration of the Offering Period and accepted by the Company (A) $10,000 of the Advance will be refundable to the extent documented Offering- related expenses have not been incurred by the Placement Agent, and (B) $10,000 of the Advance shall not be refundable under any circumstances and will be retained by the Placement Agent.



(b) If subscriptions to purchase 5,000,000 Shares (including Insider Shares and Affiliate Shares) are received from Prospective Investors prior to the expiration of the Offering Period and accepted by the Company, the Company shall sell to you or, at your discretion, your designees, in addition to the amounts set forth in Section 4(a) above, and you (or your designees) may buy

------------ warrants (individually, a "Warrant" and collectively, the "Warrants") to

------- -------- purchase that number of shares of the Company's Common Stock (the "Warrant

------- Shares") equal to 10% of the aggregate number of Shares issued in the Offering, - ------ provided that no Warrants will be due the Placement Agent with respect to the - -------- sale of the Insider Shares or the Compensatory Shares. The purchase price of each Warrant shall equal $0.001. Each Warrant will entitle the holder thereof, for a five year period from the later of the Closing Date or the last Additional Closing Date (if any), to purchase one Warrant Share at an exercise price equal to $2.20 per Warrant Share. The Warrant Shares will be entitled to the same registration rights afforded the Shares as set forth in the Subscription Agreement. The Warrants shall be purchasable pursuant to share purchase agreements (the "Share Purchase Warrants") in the form attached hereto as

----------------------- Exhibit B. - ---------



(c) If the Offering is terminated by the Company (i) during the Offering Period (provided you are actively pursuing the Offering during such period), (ii) during any 30 day extension period (provided you are actively pursuing the Offering during such period), or (iii) at the completion of the Offering (provided that you shall have obtained offers to purchase at least the required minimum), and the Placement Agent is not then in default hereunder or has not



breached the terms herein, and within six months after termination the Company completes the sale of any of its equity securities (including securities convertible into equity securities) for cash to any person or entity who was introduced to the Company by the Placement Agent, in connection with the Offering or otherwise, then in any such case, the Company shall pay to you 8.0%

---- of the gross sales price of such securities, and shall sell to you, on the terms set forth in this Section 4, Warrants to purchase 10% of the securities so sold.

---------



5. Representations and Warranties.

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



(a) Representations and Warranties of the Company. The Company

--------------------------------------------- represents and warrants to, and agrees with, the Placement that:



(i) The Executive Summary as of the date thereof did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Each contract, agreement, instrument, lease, license or other document, if any, described in the Executive Summary has been accurately described therein in all material respects.



(ii) The Company has furnished, or made available through the EDGAR Internet web site of the Commission, to the undersigned true and complete copies of the SEC Filings. As of their respective filing dates, the SEC Filings complied in all material respects with the applicable requirements of the Exchange Act, and the Act and the rules and regulations promulgated under the Exchange Act and the Act. The SEC Filings do not as of their respective dates contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of circumstances under which they were made, not misleading. Each contract, agreement, instrument, lease, license or other document described in the SEC Filings has been accurately described therein in all material respects.



(iii) No document provided by the Company to Prospective Investors pursuant to Section 6(a)(vii) hereof, and no oral information

----------------- provided by the Company to Prospective Investors, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Contracts to which the Company is a party provided by the Company to Prospective Investors shall not be deemed to contain any untrue statement of a material fact or to omit to state any material fact if the contract so provided is a true, correct and complete copy of such contract, as amended or modified through the date it is so provided.



(iv) The Company has not solicited any offer to buy or offered to sell any Shares or any other securities of the Company during the twelve- month period ending on the date hereof, except as may be described in the SEC Filings or which would not be integrated with the sale of the Shares in a manner that would require the registration of the Offering pursuant to the



Act; and the Company has no present intention to solicit any offer to buy or offer to sell any Shares or any other securities of the Company other than pursuant to this Agreement or pursuant to a registered public offering of the Company's securities which may be commenced after the completion of the Offering.



(v) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full power and authority and all necessary consents, authorizations, approvals, orders, licenses, certificates and permits of and from, and declarations and filings with (collectively, "Consents") all federal, state,

-------- local, foreign and other governmental authorities and all courts and other tribunals, to own, lease, license and use its properties and assets and to carry on its business in the manner described in the Executive Summary, except where the failure to have obtained such Consents would not have a material adverse effect on the Company and except that the Company is not qualified in Tennessee, Massachusetts, Virginia and Ohio; and the Company has not received any notice of proceedings relating to the revocation or modification of any such Consent which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding would result in a material adverse change in the financial condition, results of operations, business, properties, assets, liabilities or future prospects of the Company. The Company is duly qualified to do business and is in good standing in every jurisdiction in which its ownership, leasing, licensing or use of property and assets or the conduct of its business makes such qualification necessary, except where such failure to qualify would not have a material adverse effect upon the business of the Company. The Company does not have any operating subsidiaries.



(vi) The Company has, as of the date hereof and subject to the exercise of any outstanding Common Stock purchase rights, an authorized and outstanding capitalization as set forth in the Most Recent 10-Q. Each outstanding share of capital stock of the Company is duly authorized, validly issued, fully paid and nonassessable and has not been issued and is not owned or held in violation of any preemptive rights set forth in the Company's Certificate of Incorporation or By-Laws, each as amended to date, or any agreement to which the Company is a party. There is no commitment, plan or arrangement to issue, and no outstanding option, warrant or other right calling for the issuance of, any share of capital stock of the Company or any security or other instrument which by its terms is convertible into, exercisable for or exchangeable for shares of capital stock of the Company, except as may be described in the SEC Filings. There is outstanding no security or other instrument which by its terms is convertible into or exchangeable for any class of share of capital stock of the Company, except as may be described in the SEC Filings. The capital stock of the Company conforms to the description thereof contained in the SEC Filings.



(vii) The financial statements of the Company included in the SEC Filings (by incorporation, by reference or otherwise) fairly present, in all material respects, the financial position, the results of operations, cash flows and the other information purported to be shown therein at the respective dates and for the respective periods to which they apply. Such financial statements have been prepared in accordance with generally accepted accounting principles



consistently applied throughout the periods involved, are correct and complete, in all material respects, and are in accordance with the books and records of the Company. Except as previously disclosed to the Placement Agent, there has at no time been a material adverse change in the financial condition, results of operations, business, properties, assets, liabilities or future prospects of the Company from the latest information set forth in the SEC Filings, except as may be described in the SEC Filings as having occurred.



(viii) Ernst & Young LLP, who have audited certain financial statements of the Company and performed certain procedures relating to financial statement schedules and other financial information concerning the Company, included in the SEC Filings, are independent public accountants as required by the Act and the applicable rules and regulations thereunder.



(ix) There is no litigation, arbitration, governmental or other proceeding (formal or informal) or claim or investigation pending or, to the knowledge of the Company, threatened with respect to the Company or any of its operations, businesses, properties or assets, except as may be described in the SEC Filings or such as individually or in the aggregate do not now have and will not in the future have a material adverse effect upon the operations, business, properties or assets of the Company. The Company is not in violation of, or in default with respect to, any law, rule, regulation, order, judgment or decree, except as may be described in the SEC Filings or such as in the aggregate do not now have and will not in the future have a material adverse effect upon the operations, business, properties, assets or future prospects of the Company.



(x) Except as described in the SEC Filings, any real property and buildings held under lease by the Company are held by it under valid, subsisting and enforceable leases with such exceptions as in the aggregate are not material. Except as described in the SEC Filings, the Company enjoys peaceful and undisturbed possession under all real property leases under which it is operating.



(xi) Except as previously disclosed to the Placement Agent, neither the Company, nor, to the knowledge of the Company, any other party, is in violation or breach of or in default with respect to, complying with any material provision of any contract, agreement, instrument, lease, license, arrangement or understanding which is material to the Company, and each such contract, agreement, instrument, lease, license, arrangement and under ...