EXHIBIT 10.1 -- DISTRIBUTION AGREEMENT
DIOMED, INC.
One Dundee Park
Andover, MA 01810
August 5, 2005
Luminetx Corporation
1256 Union Avenue
Memphis, TN 38104
Ladies and Gentlemen:
This letter sets forth our understanding and agreement regarding the terms
upon which Diomed, Inc. (referred to as "we" or "us" or variations thereof) will
distribute certain medical products developed by Luminetx Corporation (referred
to as "you" or variations thereof).
1. Background. You have developed a biomedical imaging system known as the
VeinViewer Imaging System (the "System"). We are interested in obtaining
exclusive rights to distribute the System directly and through leasing companies
to physicians for the purpose of performing sclerotherapy, phlebectomies or the
treatment of varicose veins (the "Market"), and you desire to appoint us as your
exclusive distributor of the System to the Market. The territory within which we
may exercise our distribution rights (the "Territory") shall initially consist
of the United States, including all commonwealths, territories, possessions and
military bases, and the United Kingdom, and may be expanded upon mutual
agreement to include other international markets as the product becomes more
widely available. We agree that we will not attempt to sell the system in the
U.K. during 2006 without your prior approval, to allow time to obtain the
necessary regulatory clearances for that portion of the Territory, however, if
we decide to bear such costs and responsibilities to allow us to sell the System
in the U.K. sooner, we may do so.
2. Grant of Distribution Rights. Subject to the provisions of this
Agreement, you appoint us as your exclusive distributor of the System to the
Market within the Territory, and grant us the exclusive right to distribute and
sell the System to the Market throughout the Territory. You will refer to us all
inquiries you receive for or relating to the System within the Market and the
Territory. We will refer to you all inquiries we receive for or relating to the
System outside the Market or the Territory. All new models or versions of the
System introduced during the term of this Agreement, and all updates,
modifications, improvements and customizations made to the System during the
term of this Agreement, will be considered to be part of the System for purposes
of this Agreement, and our rights under this paragraph 2 will apply to such new
models or versions of the System and to the System as so updated, modified,
improved or customized. We recognize that some modifications or improvements to
the system may lead to an increase in the base price of the system. Pricing
changes will be implemented in accordance with paragraph 8(a). We agree to use
commercially reasonable efforts (a) to exploit the rights granted to us by you;
(b) to achieve and maintain sales volume and distribution of the System; and (c)
otherwise to develop and satisfy the market for the System in the Territory and
Market. We shall consult with you and give due regard to your advice concerning
material aspects of distribution strategy and policy, and you shall supply us
with such Technical Information or other Confidential Information (as defined
below), as in your reasonable discretion, is reasonably necessary to enable us
to perform our obligations under this Agreement.
3. Limitation on Activities. During the term of this Agreement, you will
not yourself distribute or sell (except to us under this Agreement), or grant to
any third party any right to distribute or sell, the System within the Market
anywhere in the Territory. During the term of this Agreement and for a period of
two (2) years following any expiration or termination of this Agreement, we
specifically agree to refrain from directly or indirectly developing,
manufacturing, assembling, distributing, marketing or selling products or
services, under our own brand name or otherwise, within the Territory, which are
competitive with the System; provided, however, that we may continue to sell and
support the sale of ultrasound equipment which we currently market or may market
in the future and which may be considered to compete with the System.
4. Requirements for Systems. All Systems you sell to us for distribution
under this Agreement will display the Diomed name or logo on the border of all
projected images. We will have the right to review and approve all such uses of
our trademarks and logos. In addition, you will notify us promptly of material
defects in any System reported by any user.
5. Consideration. In consideration of the exclusive distribution rights
granted to us hereunder, we have agreed to invest a total of $1,000,000 in
Luminetx, upon the terms and conditions set forth in Exhibit B, and to grant you
a warrant to purchase 600,000 shares of Diomed common stock, upon the terms and
conditions set forth in Exhibit C. You understand and acknowledge that we are
under no obligation to provide any financial support to you other than as
expressly set forth herein.
6. Your Assistance with Marketing and Distribution. You will reasonably
cooperate with us in our marketing and distribution of the System. You will also
work with us to develop a program to exchange sales leads, and to identify
opportunities for joint public relations activities and trade show
participation. You will provide, at no charge to us, specimen copies of
collateral advertising and promotional materals developed by you including, but
not limited to, photographs, video files, animations and graphic images; and you
will assist us in developing other collateral materials to support our sales and
marketing programs. We shall prepare and distribute such advertising material,
sales literature, catalogues, and other printed promotional material, prepare
and disseminate such electronic and other non-printed promotional material, and
conduct such promotional activities as we believe necessary to perform our
obligations under this Agreement. Prior to their distribution, dissemination or
use, we will supply you with copies of all advertising material, sales
literature, catalogues, and other printed promotional material, and transcripts
and graphical representations of all other non-printed promotional material
prepared by or for us relating to the System. You shall have a period of ten
(10) business days to review such advertising and promotional materials by us,
and, upon your reasonable request we will make changes in such advertising and
promotional materials prior to distribution, dissemination or use thereof. All
copyright or other intellectual property interests in any promotional,
advertising or marketing literature or other materials produced by or for us
pertaining to the System, which bear any of your trademarks or to which your
logo has been affixed, shall vest in you. We agree to assign, and hereby do
assign, any and all such rights to you and agree to execute any further
documents reasonably requested by you to confirm such assignment, and further
hereby appoint you our attorney-in-fact to execute all such documents in the
event that we fail to do so. We will retain all copyright and other intellectual
property interests in all other promotional, advertising or marketing literature
or other materials produced by or for us, and you will retain all copyright and
other intellectual property interests in all promotional, advertising or
marketing literature or other materials produced by or for you.
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7. Orders. We will place monthly orders for Systems with you on our
standard purchase order form setting forth the quantity of the products ordered
and the desired delivery date (which shall not be less than fifteen (15)
business days following the date of the order unless you otherwise agree). No
order will be binding unless acknowledged and accepted by you, but you may not
unreasonably refuse to accept any order. You will confirm your acceptance or
rejection of an order within five (5) days after your receipt of such order.
Once an order is accepted, neither you nor we may cancel or modify it without
the other party's approval. We will also provide by the end of each month a
rolling non-binding 12 month forecast of our expected purchases to assist you
with production scheduling, which forecast shall be subject to monthly review
and adjustment. We will make reasonable attempts to purchase according to this
forecast.
8. Pricing, Shipping and Payment. You will use your best efforts to make
first delivery of the Systems to us on or before January 31, 2006. The date of
your initial delivery of the Systems to us may be referred to in this Agreement
as the "Initial Delivery Date."
(a) Until the six (6) month anniversary of the Initial Delivery Date
(the "Initial Period"), the price at which you will sell us Systems under this
Agreement (the "System Price") will be as set forth on Exhibit A. After the
Initial Period, the System Price shall be determined for each Measuring Period
as set forth below. As used herein, the "Measuring Periods" shall mean
successive quarterly periods following the Initial Period until the second (2nd)
anniversary of the Initial Delivery Date and successive annual periods
thereafter. For each Measuring Period, the System Price shall be equal to
****CONFIDENTIAL TREATMENT REQUESTED**** of the average selling price of Systems
to end users across all your distribution channels and markets (including end
user sales by us but excluding sales of demonstration units, loaners, used
Systems, and sales to governmental authorities and research institutions) during
the preceding Measuring Period (or during the Initial Period, in the case of the
first Measuring Period); provided, however, that any increases in the System
Price shall not exceed, on a percentage basis, the percentage increase in your
actual direct per-unit production costs for the Systems, as evidenced by your
costed bill of materials, since the Initial Delivery Date. We shall have the
right, at our expense, during normal business hours and upon reasonable notice,
to review your books and records regarding System sales as required to allow us
to verify the calculation of System pricing; provided, however, that we may not
exercise this right more than once in any twelve (12) month period. You and we
agree that we will determine the prices at which we sell Systems to end users.
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(b) In the event that we realize an average gross margin of more than
****CONFIDENTIAL TREATMENT REQUESTED**** % on sales of Systems in any calendar
quarter, we will pay you an additional amount equal to (i) ****CONFIDENTIAL
TREATMENT REQUESTED**** % of the portion of our System gross margin in such
quarter that resulted in a gross margin of more than but not more than
****CONFIDENTIAL TREATMENT REQUESTED**** %, plus (ii) ****CONFIDENTIAL TREATMENT
REQUESTED**** % of the portion of our System gross margin in such quarter that
resulted in a gross margin of more than ****CONFIDENTIAL TREATMENT REQUESTED****
%. Sales of demonstration units and loaners, and sales to governmental
authorities and research units, shall be excluded from the calculation of our
average gross margin for purposes of this paragraph.
By way of example, if System revenues in a particular quarter were $
****CONFIDENTIAL TREATMENT REQUESTED**** and our cost of sales for the System in
such quarter was $ ****CONFIDENTIAL TREATMENT REQUESTED****, resulting in a
gross margin of ****CONFIDENTIAL TREATMENT REQUESTED**** %, we would pay you an
amount equal to ****CONFIDENTIAL TREATMENT REQUESTED**** % of $ ****CONFIDENTIAL
TREATMENT REQUESTED**** (being the difference between $ ****CONFIDENTIAL
TREATMENT REQUESTED****, the level of System revenues that would have resulted
in a ****CONFIDENTIAL TREATMENT REQUESTED**** % gross margin, and $
****CONFIDENTIAL TREATMENT REQUESTED****, the level of System revenues that
would have resulted in a ****CONFIDENTIAL TREATMENT REQUESTED**** % gross
margin) plus ****CONFIDENTIAL TREATMENT REQUESTED**** % of $ ****CONFIDENTIAL
TREATMENT REQUESTED**** (being the difference between the $ ****CONFIDENTIAL
TREATMENT REQUESTED**** in actual System revenues and $ ****CONFIDENTIAL
TREATMENT REQUESTED****, the level of System revenues that would have resulted
in a ****CONFIDENTIAL TREATMENT REQUESTED**** % gross margin), or a total of $
****CONFIDENTIAL TREATMENT REQUESTED****. We will pay such additional amount to
you within forty-five (45) days following the end of the applicable quarter. We
will make all accounting determinations required under this paragraph in
accordance with our published financial statements and generally accepted
accounting principles, consistently applied. You shall have the right, at your
expense, during normal business hours and upon reasonable notice, to review our
books and records regarding System sales as required to allow you to verify the
amount of fees owed to you; provided, however, that you may not exercise this
right more than once in any twelve (12) month period.
(c) You will ship Systems purchased by us via ground carrier, FOB from
your manufacturing facility or distribution site, to any location we specify in
the continental United States. We will provide you with contact and address
information for end users of Systems who purchase from us, including associated
System identification numbers (such as serial numbers or lot numbers).
(d) We will make payment to you within 45 days from the date of our
receipt of the goods, and you may charge us interest (at a rate of 1.0% per
month) on any late payments we make.
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9. Fulfillment of Orders. You agree to sell and deliver to us (subject to
our orders) a number of Systems at least equal to the target number of Systems
described in paragraph 10 below. Beyond such target number of Systems, you agree
to use your best efforts to sell and deliver to us (subject to our orders) a
sufficient quantity of Systems to meet our requirements.
10. Purchase Quantities.
(a) The target number of Systems we are to purchase under this
Agreement shall be: (i) ****CONFIDENTIAL TREATMENT REQUESTED**** Systems prior
to the first (1st) anniversary of the Initial Delivery Date, purchased according
to the rolling twelve (12) month forecast described in paragraph 7, (ii) an
additional ****CONFIDENTIAL TREATMENT REQUESTED**** Systems prior to the second
(2nd) anniversary of the Initial Delivery Date, and (iii) an additional
****CONFIDENTIAL TREATMENT REQUESTED**** Systems prior to the third (3rd)
anniversary of the Initial Delivery Date. In the event that this Agreement
continues in effect after the third (3rd) anniversary of the Initial Delivery
Date, the target number of Systems we are to purchase in each subsequent year
shall be determined by good faith agreement between you and us at least ninety
(90) days before the beginning of such year, and will be in the range of
****CONFIDENTIAL TREATMENT REQUESTED**** % to ****CONFIDENTIAL TREATMENT
REQUESTED**** % greater than the target number for the preceding year, unless
you and we agree otherwise. Purchases in all years beyond 2006 shall be made in
a quarterly spread as mutually agreed upon at least ninety (90) days in advance
of the contract year based on an assessment of the then current sales year
purchasing pattern.
(b) If we fail to purchase the annual target number of Systems in
clauses (i) and (ii) of paragraph (a) above, prior to the third (3rd)
anniversary of the Initial Delivery Date for any reason (except as described
below), then, upon your delivery to us of written notice of such failure, our
rights under paragraph 2 of this Agreement shall become non-exclusive in nature
and thereafter you will have the right to yourself distribute and sell, and
grant to third parties the right to distribute and sell, the System within the
Market in the Territory. In addition, if we fail to purchase at least
****CONFIDENTIAL TREATMENT REQUESTED**** % of the annual target number of
Systems in any year for any reason (except as described below), then you may
terminate this Agreement by written notice to us of such failure.
(c) If we place an order for Systems that would not result in our
purchases of Systems exceeding ****CONFIDENTIAL TREATMENT REQUESTED**** % of the
quantities reflected in our then-current purchase forecast furnished to you
pursuant to paragraph 7 and you reject such order, the target purchase quantity
for the period in which such order was placed will be reduced by the number of
Systems covered by such rejected order. If you accept an order and fail to
deliver any Systems within ten (10) days after the date for delivery specified
by us in the order for such Systems as described in paragraph 7, the target
purchase quantity for the period in which such Systems were scheduled for
delivery will be reduced by the number of Systems which were not so delivered.
If during any period we purchase more than the target number of Systems that we
are to purchase for such period, such excess number of Systems will be applied
to reduce the target purchase quantity for the subsequent period or periods.
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11. Warranties.
(a) You warrant each System sold in accordance with this Agreement to
be free from defects in materials and workmanship for a period of twelve (12)
months from the date of its first use by the end user. You make such warranty to
us and to each System end user. You agree to provide warranty service directly
to all System end users, at your sole expense. We acknowledge that the only
warranty given by you is a warranty to repair or replace any System determined
to be defective, or determined by the parties to have failed to meet existing,
applicable manufacturers' warranties, specifications and/or standards for the
System; provided, however, that if you are unable to repair or replace any
defective System, you will refund the purchase price paid for the System. THE
REMEDY PROVIDED BY YOU AS TO REPAIR OR REPLACEMENT OF SYSTEMS OR REFUNDS
THEREFOR SHALL BE OUR SOLE AND EXCLUSIVE REMEDY UNDER THIS SECTION, AND IT IS
EXPRESSLY MADE IN SUBSTITUTION OF ANY AND ALL REMEDIES OTHERWISE AVAILABLE TO
US, INCLUDING ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, UNLESS SUCH
LIMITATION IS OTHERWISE PROHIBITED UNDER APPLICABLE LAW. EXCEPT AS SET FORTH IN
PARAGRAPHS (b) AND (c) OF THIS SECTION, YOU HEREBY DISCLAIM ANY AND ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, HOWSOEVER ARISING RELATED TO THE SYSTEM,
INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR
PURPOSE, MERCHANTABILITY, OR OTHERWISE, SAVE TO THE EXTENT SUCH WARRANTIES ARE
UNABLE TO BE EXCLUDED BY APPLICABLE LAW. YOU NEITHER ASSUME OR AUTHORIZE ANY
PERSON TO ASSUME FOR YOU ANY OTHER ADDITIONAL LIABILITY OR RESPONSIBILITY WITH
RESPECT TO THE SYSTEM.
(b) You represent and warrant that all Systems you sell to us (i)
shall be manufactured in accordance with Food and Drug Administration ("FDA")
Good Manufacturing Practices requirements in the U.S. and other similar
governmental standards applicable in the Territory, (ii) shall have all FDA and
other governmental approvals required in the Territory in order to allow us to
sell them for use in the Market, and (iii) shall bear labeling that conforms to
FDA and other applicable governmental rules and regulations in the Territory. We
shall be responsible for obtaining any approval or license necessary to import
the Systems into the Territory outside of the U.S. You agree to cooperate and
use your best efforts to assist us in obtaining and maintaining any and all
necessary regulatory or other government approvals regarding the use or sale of
the System within the Territory outside of the U.S. and all such approvals
relating to the System shall, if local regulatory policy permits, be obtained in
your name and benefit as the manufacturer and shall allow you to continue sales
of the System in such country in the event of the termination of this Agreement.
Upon termination of this Agreement, we will make all reasonable efforts at your
expense to transfer local registrations to you or your designated third party.
All costs associated with obtaining and maintain any and all necessary
regulatory or other government approvals regarding the use or sale of the System
within the Territory, and any fines and/or penalties resulting from the failure
to obtain or maintain such approvals, shall be borne by you during the term of
this Agreement.
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(c) You represent and warrant that the System does not and shall not
during the term of this Agreement violate or infringe in the Territory any
copyright, patent, trademark, trade secret or other proprietary rights of any
third party, and that no claims of any such infringement have been made through
the date of this Agreement.
(d) You and we represent and warrant to each other that we and you
have all power and authority necessary to enter into and perform our respective
obligations under this Agreement, and you and we have obtained all consents and
approvals required to permit each of us to execute, deliver and perform this
Agreement.
12. Confidentiality and Non-Disclosure. All information exchanged between
you and us will be subject to the terms and conditions of the Mutual
Confidentiality and Non-Disclosure Agreement between you and us dated July 29,
2005, the terms of which are incorporated herein by this reference and the
breach of which shall be a breach of this Agreement. As used herein,
"Confidential Information" and "Technical Information" shall both mean
information that constitutes "Confidential Information" pursuant to the terms of
such agreement.
13. Non-Solicitation. We and you each agree, during the term hereof and
for a period of two (2) years after any expiration or termination hereof, not to
directly or indirectly, without the other party's prior written consent, offer
to employ or employ in any manner any employees of the other party while they
are in the other party's employ, and not to offer to employ or employ in any
manner any of the other party's former employees for a period of six (6) months
after they have left the other party's employ. Our and your obligations
contained in this section are independent, and the existence of any claim or
cause of action of a party, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the other party of such
party's obligations of under this section. Our and your obligations under this
section shall survive any termination or expiration of this Agreement.
14. Injunction and Damages. We and you each acknowledge that any breach or
imminent breach by a party of paragraphs 12, 13 or 15 of this Agreement may
cause irreparable injury and harm to the other party, and that remedies at law
for the breach or imminent breach may be inadequate. Accordingly,
notwithstanding the terms of any other section of this Agreement to the
contrary, and in addition to any such other relief, in the event of a breach of
such paragraphs by a party, the other party shall be entitled to seek specific
performance, temporary and permanent injunctive relief and such other relief to
which the other party may be entitled at law or in equity without the necessity
of posting bond or proving actual damage. A party shall be entitled to recover
all reasonable costs and attorneys' fees incurred by it in the event it is
successful in obtaining any such relief. In the event that a party is
unsuccessful in obtaining any relief under this section, then it shall reimburse
the other party for such party's reasonable costs and attorneys' fees incurred
in defense of such action.
15. Intellectual Property Rights.
(a) Ownership. We acknowledge your exclusive ownership of your
trademarks affixed to or used in connection with the System (collectively
referred to as the "Marks"), the patents, compositions or technology embodied in
the System or any improvements or additions thereto, and any copyrights or other
intellectual property interests in or relating to the System, or advertising and
promotional literature associated therewith (whether produced by you or us), and
will not make any modification or obliteration of the trademark or patent
markings on the Products as sold. You acknowledge our exclusive ownership of our
trademarks and logos that the System displays pursuant to paragraph 4 and any
advertising, sales and promotional materials in which we are to retain rights as
described in paragraph 6.
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(b) Use of Marks. This Agreement shall not give us any right to use
the Marks, and shall not give you any right to use our trademarks and logos,
except as specifically authorized by you herein. We agree to identify ourselves
as an independent distributor of the System and to display the Marks prominently
on or in connection with any and all advertising material, sales literature,
catalogues, internet websites and other printed and electronic promotional
material prepared by or for us relating to the System or our business involving
the System. We shall not use any Mark with any prefix, suffix or other modifying
words, terms, designs or symbols, or in any modified form, nor use any Mark in
connection with the sale of any other products or services not purchased from
you. Promptly following termination of this Agreement for any reason, we agree
to discontinue use of the Marks, and to remove, or dispose of, as you shall
direct, any signs or other indicia relating our sale of the System and any use
of the Marks; provided, however, that we may continue to use the Marks in
connection with the sale of Systems we have on hand as of the effective date of
termination. Following termination of this Agreement, we shall not be permitted
to use the Marks in connection with any product or service, except as provided
in the preceding sentence. We shall not have any right to register in the
Territory or elsewhere, any trademarks identical with, substantially similar to
or a translation of the Marks. All use of the Marks by us, including any new
variations thereof first used in the Territory, in connection with the selling,
installation and service of the System, under this Agreement shall be owned by
you, subject to your control in all respects and shall inure to your benefit.
(c) Defense of Rights. We shall, at your request and expense, assist
you in taking any action which may be necessary in order to safeguard and defend
your right of ownership in the Marks or your patents. In particular, we shall
observe the market for designations which may infringe your rights in and to
your patents or Marks and inform you of our observations. We shall (a) inform
you promptly of any such infringement; and (b) collaborate with you in
proceeding against such infringers, to the extent reasonably requested by you.
(d) Limited License; Inventions. This Agreement grants a limited
license to us to use, only as may be reasonably necessary to effectuate the
purposes of this Agreement, and subject to your control and approval, the Marks,
patents, copyrights, Technical Information, Confidential Information or
technology used by you in connection with or embodied in the System. We agree to
execute any and all documents as you may reasonably determine are necessary or
desirable to evidence the limited license granted hereunder for recording
purposes. Any and all improvements, modifications, inventions or discoveries by
us or our employees, relating to the System shall be your sole and exclusive
property. In furtherance of the foregoing, we hereby assign, and agree to
assign, all such improvements, modifications, inventions and discoveries to you,
and further authorize you as our attorney-in-fact to execute all such documents
as you may determine are necessary or desirable to confirm the foregoing
assignment and/or your ownership rights to such improvements, modifications,
inventions or discoveries. It is expressly understood and agreed between the
parties that you retain full ownership of all Marks, patents, copyrights,
Technical Information, Confidential Information and other technology described
above in this Section. In the event of termination of this Agreement, for any
reason, we agree that all rights of access to or to use the Marks, patents,
copyrights, Technical Information, Confidential Information and other technology
granted hereunder shall revert to you, and we shall have no interest therein
whatsoever.
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16. Term. This Agreement will be effective as of the date of your
execution of this Agreement, and unless sooner terminated pursuant to the terms
of this paragraph, will terminate on the third (3rd) anniversary of the Initial
Delivery Date; provided, however, that if we purchase an aggregate of at least
****CONFIDENTIAL TREATMENT REQUESTED**** Systems prior to the third (3rd)
anniversary of the Initial Delivery Date, the termination date of this Agreement
will be the fourth (4th) anniversary of the Initial Delivery Date. You and we
may agree to extend the term hereof for additional one year periods mutual
written agreement.
Termination by You. Upon giving us thirty (30) days prior written notice,
you shall have the right to terminate this Agreement in the event of any of the
following, unless we cure such situation in all material respects within such
thirty (30) day period:
(a) We intentionally, knowingly and on a continuing basis sell Systems
outside the Territory or Market;
(b) In the event of any material breach by us of our obligations
hereunder;
(c) We make an assignment for the benefit of creditors or if a petition
for bankruptcy is filed by or against us and such petition is not
dismissed within ninety (90) days after the filing of such petition; or
(d) Any of your invoices to us remains unpaid more than ninety (90) days
past its due date.
Termination by Us. Upon giving you thirty (30) days prior written notice,
we shall have the right to terminate this Agreement in the event of any of the
following, unless you cure such situation in all material respects within such
thirty (30) day period:
(a) You are adjudicated to be insolvent or if bankruptcy or similar
proceedings are instituted against you;
(b) You intentionally, knowingly and on a continuing basis sell Systems to
other persons inside the Territory or Market;
(c) You make an assignement for the benefit of creditors or if a petition
for bankruptcy is filed by or against you and such petition is not
dismissed within ninety (90) days after filing of such petition;
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(d) You intentionally, knowingly and on a continuing basis sell Systems to
other persons inside the Territory or Market;
(e) You fail to make the first delivery of Systems to us prior to May 31,
2006; or
(f) In the event of any material breach by you of your obligations
hereunder.
In the event of any termination by us pursuant to the foregoing provisions, (i)
the unexercised portion of the warrant we have agreed to grant you as described
in paragraph 5 shall terminate immediately and (ii) any obligation that we may
then have to make additional investments in Luminetx shall terminate.
17. Rights Upon Termination. Upon the termination of this Agreement for
any reason, all rights and obligations of the parties under this Agreement will
cease, except for (i) our obligation to make payments with respect to orders of
Systems delivered by you prior to the effective date of termination, (ii) our
right to continue to distribute and sell all Systems we have on hand as of the
effective date of termination, and (iii) the rights and obligations of the
parties under this paragraph and under paragraphs 12, 13, 14, 15, 17, and 24.
18. Indemnification. You shall indemnify and defend us against and hold us
harmless from any and all claims (including without limitation, product
liability claims), suits, damages, judgments, or losses, including reasonable
attorneys' fees and other expenses incurred in investigation and defense, which
arise out of (i) any breach of your warranties set forth in paragraph 11, or
(ii) any alleged lack of quality or safety of any Systems sold by you to us
under this Agreement. You will retain counsel reasonably acceptable to us to
defend any such claims, and will not settle any such claims without our prior
written consent unless the settlement includes a full and complete release of
our liability. During the term of this Agreement, you will maintain product
liability insurance policies reasonably acceptable to us, which policies shall
name us as an additional insured. You agree to provide us evidence of such
policies at our request. We shall indemnify and defend you against and hold you
harmless from any and all claims (including without limitation, product
liability claims), suits, damages, judgments, or losses, including reasonable
attorneys' fees and other expenses incurred in investigation and defense, which
arise out of (i) any breach of our warranties set forth in paragraph 11, or (ii)
any material misrepresentation we make regarding the System that is inconsistent
with information regarding the System you provide to us or authorize us to use.
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19. Escrow.
(a) Within ten (10) days following the execution of this Agreement,
you will deposit the plans, designs, specifications and manufacturing
documentation necessary for manufacture of the System (the "Escrow Materials")
with an escrow agent reasonably acceptable to us. You will promptly update
Escrow Materials in the event of any material change in the System, and in any
event not less than quarterly until the first (1st) anniversary of the Initial
Delivery Date and annually thereafter. The Escrow Material shall be maintained
under an agreement which provides that the escrow agent shall furnish us with a
copy of the Escrow Materials in the event of any of the following (the "Release
Events"); (i) you fail to make the first delivery of Systems to us prior to May
31, 2006, (ii) you make an assignment for the benefit of creditors, file a
petition for bankruptcy or a petition is filed against you and such petition is
not dismissed within ninety (90) days after filing of such petition, (iii) you
cease to provide warranty or maintenance service for the System; or (iv) for a
period of at least three (3) consecutive months, we order and you fail to
deliver or have delivered at least fifty percent (50%) of the monthly forecast
number of Systems established pursuant to paragraph 7 as and when described in
this Agreement, provided that the failure to sell and deliver such Systems to us
is not the result of a Force Majeure Event (as defined below) or the action of
any regulatory authority, or any breach of this Agreement by us. Following the
Release Event, we will continue to purchase those Systems which are actually
produced by you or your manufacturer and delivered to us in accord with and as
per the terms of this Agreement; provided, however, that we may utilize the
Escrow Materials, and shall have a limited license, subject to the provisions of
this Agreement, to manufacture Systems directly or have Systems manufactured by
third parties in order to supplement the number of Systems available for our
purchase from you or your manufacturer and allow us to meet the demand for
Systems in our Market. We will continue to have access to the Escrow Materials
until the Release Event is terminated by: (a) expiration or termination of this
Agreement, in the case of a Release Event described in clause (i) above; (b)
your petition for bankruptcy being dismissed, in the case of a Release Event
described in clause (ii) above; (c) you resume the provision of warranty and
maintenance service for the System for a period of three (3) consecutive months
in the case of a Release Event described in clause (iii) above; or (d) you
demonstrate for a period of three (3) consecutive months the ability to deliver
seventy-five percent (75%) of the monthly forecast number of Systems established
pursuant to paragraph 7, in the case of a Release Event described in clause (iv)
above. Upon request, you will show us the agreement with the escrow agent that
sets forth the above specified terms. You hereby grant us a license, effective
during the Term of this Agreement, to use the Escrow Materials while any Release
Event is ongoing to manufacture or have manufactured the System for sale by us
in the Market and the Territory and to provide warranty and maintenance services
to our customers, which license shall be exercisable only if we are entitled to
receive the Escrow Materials in accordance with the foregoing terms. In the
event that a Release Event occurs and as a result we have the right to terminate
this Agreement and do so, our rights pursuant to this Section 19 shall be
terminated.
(b) It is understood and agreed that all rights and licenses to Escrow
Materials granted under this paragraph 19 are, and shall be deemed to be, for
purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to
"intellectual property" as defined under Section 101 (56) of the Bankruptcy
Code. Further, it is understood and agreed that we, as licensee of the Escrow
Materials, shall retain and may fully exercise all of our rights and elections
under the Bankruptcy Code in the event of your bankruptcy.
11
20. Disputes. Should any dispute, controversy, difference or claim arise
among the parties concerning the interpretation, performance or enforcement of
this Agreement, the parties shall use their best efforts to settle such disputes
amicably between themselves. However, if such efforts fail to resolve the
dispute within thirty (30) days from the date written notice of the dispute was
given by one party to the other party, the parties agree that such dispute shall
be settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association (the "Rules") before a panel of three (3)
arbitrators appointed in accordance with the Rules (the "Arbitral Panel"). The
arbitration will be held as promptly as possible at such time as the Arbitral
Panel may determine; provided, however, that such arbitration shall take place
in New York City, New York. The Arbitral Panel shall determine the matters in
dispute in accordance with the laws of the State of Tennessee, without regard to
principles of conflicts of laws.
(a) Procedure. The decision of the Arbitral Panel shall be in writing
and shall set forth in detail the facts of the dispute and the reasons for the
decision. The decision of a majority of the arbitrators on the Arbitral Panel
will be final and binding upon the parties hereto, who hereby waive any appeal
of such award. The expenses of the arbitration will be shared equally between
the parties. The parties agree that the award of the Arbitral Panel shall be the
sole and exclusive remedy between them regarding any claims, counter-claims,
issues, disputes, controversies, differences or accountings presented or pled to
the Arbitral Panel. The award of the Arbitral Panel shall be made and shall
promptly be payable in U.S. Dollars, free of any tax, deductions or offsets, and
that any costs, fees or taxes incident to enforcing the award shall, to the
maximum extent permitted by law, be charged against the party resisting such
enforcement. Judgment upon the award of the Arbitral Panel may be entered in any
court of competent jurisdiction, or application may be made in such court for a
judicial acceptance of the award and an order of enforcement, as the case may
be.
21. Severability. In case any one or more of the provisions contained in
this Agreement shall be invalid, illegal or unenforceable, such invalidity,
illegality or unenforceability shall be limited to such provisions and the
remainder of this Agreement shall be valid and binding upon you and us;
provided, however, that in the event the Arbitral Panel or a court of competent
jurisdiction determines that a particular provision of this Agreement is
unreasonable, the parties agree to use their best efforts to reform the
provision in a manner so as to preserve as closely as possible the intent of the
parties.
22. Exhibits. The Exhibits referred to herein are expressly incorporated
into this Agreement by this reference.
23.. Assignment. Neither party shall have the right to assign or transfer
its rights or obligations under this Agreement, in whole or in part, without the
other party's prior written consent, which shall not be unreasonably withheld or
delayed.
24. Relationship Between the Parties. This Agreement shall not create the
relationship of principal and agent between us. We shall have no authority to
make any commitment on behalf of you and you shall have no authority to make any
commitment on behalf of us. We warrant that we shall not act as or represent
ourselves to be an agent for you, or create or attempt to create any obligation
or liability on behalf of you. You warrant that you shall not act as or
represent yourself to be an agent for us, nor create or attempt to create any
obligation on our behalf. This Agreement shall not be construed as binding the
us as partners or as creating any other form of legal association which would
impose liability upon one party for the act or failure to act of the other.
12
25. Compliance with Foreign Laws. Each party will comply with all laws and
regulations applicable to it during the course of performance of this Agreement
and related activities. Should registration of the System or this Agreement with
governmental authorities be required under the laws of the Territory outside of
the U.S., we shall comply with such registration requirements and provide proof
of such compliance to you; provided, however, that you shall not be bound by nor
obligated to make any revisions or modifications to this Agreement requested by
such governmental authorities unless you shall expressly consent in writing to
any such revision or modification.
26. Force Majeure.
(a) Definition. A "Force Majeure Event" shall mean any event or
circumstance or combination of events or circumstances which is beyond a party's
control and which materially and adversely affects the performance by that party
of its obligations under or pursuant to this Agreement. To the extent they
satisfy the above requirements, Force Majeure Events shall include, by way of
example only, such events as governmental acts, orders, judgments, directives
(official or unofficial), decrees or laws having a substantial adverse effect on
the production of the Systems; strikes (legal or illegal); lockouts; blockades
or embargoes; war (declared or undeclared); insurrection, riot, sabotage or
civil disturbance; acts of terrorism, general restraint or arrests of government
and people; explosions; epidemic; fires; flooding or water damage; hurricanes or
storms; atmospheric disturbances; landslides; lightning; typhoon; tornado; soil
subsidence; washouts; and earthquakes.
(b) Notification. The party asserting the occurrence of a Force
Majeure Event shall promptly notify the other party of the occurrence of the
Force Majeure Event, and will estimate the period of suspension and the nature
of the disruption caused by the Force Majeure Event. Upon prompt notice of the
Force Majeure Event, the affected party may suspend performance of its
obligations hereunder; provided, however, that the party so affected shall use
its best efforts to avoid or remove the causes of nonperformance brought about
by the Force Majeure Event, and shall continue performance hereunder with the
utmost dispatch whenever those causes are removed. If at any time any party
shall suspend performance of its obligations hereunder, then the performance of
the other party hereunder shall be likewise suspended for the same length of
time.
(c) Right to Terminate. If a Force Majeure Event (or a combination of
Force Majeure Events) suspends the performance of any obligation by a party
under this Agreement for more than six (6) months, either party may terminate
this Agreement by providing written notice of termination to the other party.
Any such termination shall not adversely affect any terms of this Agreement that
provide for obligations surviving termination of this Agreement.
13
27. Notice. Any notice required or permitted herein must be in writing,
and may be sent by personal delivery, fax, expedited courier, messenger service,
registered mail or electronic mail, properly addressed to the party to be
notified at the address set forth below:
If to You: With Copy to:
Jim Phillips. G. Robert Morris
Luminetx Corporation Butler, Snow, O'Mara, Stevens &
1256 Union Avenue, Third Floor Cannada
Memphis, TN 38104 Suite 500
Fax: (901) 252-3701 6075 Poplar Avenue
Memphis, TN 38119
Fax: (901) 680-7201
If to Us: With Copy to:
James A. Wylie Stephen R. Conlin
Diomed, Inc. Van Wert, Zimmer & Conlin, P.C.
One Dundee Park 245 Winter Street, Suite 400
Andover, MA 01810 Waltham, MA 02451
Fax: (978) 475-8488 Fax: (781) 314-0101
Such notice shall be deemed delivered when received. Receipt of any notice shall
be confirmed in writing by the recipient. Either party may, by written notice to
the other party, change the address to which notices shall be sent.
28. General. This Agreement: (a) may be executed in any number of
counterparts, all of which together shall constitute one and the same
instrument; (b) shall be governed by the laws of The State of Tennessee; (c)
constitutes the entire agreement between you and us with respect to its subject
matter, superseding all prior oral and written communications, negotiations,
understandings, agreements and the like between you and us in such respect,
other than the existing non-disclosure agreement between you and us; (d) may be
amended, and any right under this Agreement may be waived, only in writing
(which, in the case of any amendment, is signed by you and us, or, in the case
of the waiver of any right, by the party waiving such right); (e) shall bind and
inure to the benefit of both you and us and our respective successors and
assigns; (f) contains rights which are cumulative, and no right or remedy
conferred upon either party is intended to be exclusive of any other right or
remedy, and every right and remedy shall be in addition to any other right or
remedy given; and (g) shall not be construed such that any waiver by either
party of any of its rights or of any breaches of the other party in a particular
instance is deemed a waiver of the same or different rights or breaches in
subsequent instances
If you agree with and accept the above terms, please indicate your
agreement and acceptance by signing below.
Yours truly,
DIOMED, INC.
/s/ James A. Wylie
James A. Wylie
President and Chief Executive Officer
14
Agreed and accepted
As of August 5, 2005:
LUMINETX CORPORATION
/s/ Jim Phillips
Name: Jim Phillips
Title: CEO
15
EXHIBIT A - Initial System Pricing
(Confidential)
VVC: Price to Diomed of $ ****CONFIDENTIAL TREATMENT REQUESTED****, based on
target list price of $22,500 and
target Diomed ASP of $ ****CONFIDENTIAL TREATMENT REQUESTED****
VVS: Price to Diomed of $ ****CONFIDENTIAL TREATMENT REQUESTED****,
based on target list price of $17,500
and target Diomed ASP of $ ****CONFIDENTIAL TREATMENT
REQUESTED****
16
EXHIBIT B - Terms for Diomed Investment in Luminetx
17
THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE AFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE LENDER, REASONABLY SATISFACTORY TO THE CORPORATION, THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION.
LUMINETX CORPORATION
CONVERTIBLE PROMISSORY NOTE
$1,000,000 Dated: August 5, 2005
FOR VALUE RECEIVED, the undersigned, LUMINETX CORPORATION, a Tennessee
corporation (the "Corporation"), hereby promises to pay to the order of Diomed,
Inc., a Delaware corporation, or its assigns (collectively, the "Lender"), the
principal amount of One Million Dollars ($1,000,000.00) and interest ("Note").
1. Principal Amount. The principal amount represented by this Note is One
Million Dollars ($1,000,000.00) (the "Principal Amount"). Lender shall disburse
(i) Five Hundred Thousand Dollars ($500,000) to Corporation upon execution of
this Note, and (ii) disburse Five Hundred Thousand Dollars ($500,000) to
Corporation on the date when Corporation shall have both (a) produced at least
one hundred (100) units of the System (as such term is defined in the
Distribution Letter from Lender to Corporation (the "Distribution Letter") and
(b) Lender shall have accepted delivery of at least twenty five (25) units of
the System.
2. Payment of Principal and Interest. Subject to conversion or earlier
payment as provided for elsewhere in this Note, the Corporation shall pay to the
Lender the entire unpaid Principal Amount and all unpaid accrued interest under
this Note in full on August 5, 2006 (the "Maturity Date"). Interest at a rate of
five percent (5.0%) per annum shall commence on the date of each disbursement of
funds hereunder and, except as provided in Section 6(a) below, shall continue on
the unpaid Principal Amount until paid in full. Principal and interest due
hereunder shall be paid in lawful money of the United States of America in
immediately available federal funds or the equivalent at the address of the
Lender set forth in Section 8 below or at such other address as the Lender may
designate. All payments made hereunder (including, without limitation, payments
made under Section 3) shall first be applied to interest then due and payable
and any excess payment shall then be applied to reduce the Principal Amount.
3. Optional Prepayment. The Corporation may prepay all or any portion of
the unpaid Principal Amount together with interest due on this Note without
premium or penalty.
4. Mandatory Prepayment. The Corporation shall prepay the full unpaid
Principal Amount, together with all accrued and unpaid interest thereon, upon
the occurrence of an Event of Default (as defined in Section 5 below).
5. Default and Remedies.
(a) An "Event of Default" under this Note shall mean the occurrence of
any of the following events:
(i) If the Corporation shall fail to make when due the payment of
the Principal Amount or interest as required by the Note,
whether at the due date thereof or by acceleration thereof or
otherwise;
(ii) If the Corporation shall fail to duly observe or perform in
any material respect any covenant, condition or agreement
required to be observed or performed under the Note and such
failure remains uncured (to the extent that such breach is
curable) for a period of thirty (30) calendar days after
written notice thereof;
(iii) The commencement by the Corporation of any bankruptcy,
insolvency, arrangement, reorganization, receivership or
similar proceedings under any federal or applicable state law;
or the commencement against the Corporation, of any
bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceeding under any federal or
applicable state law by creditors of the Corporation,
provided, that such proceedings shall not be deemed an Event
of Default if such proceeding is controverted within thirty
(30) days and dismissed and vacated within sixty (60) days of
commencement, except in the event that any of the actions
sought in any such proceeding shall occur or the Corporation
shall take action to authorize or effect any of the actions in
any such proceeding;
(iv) If any proceeding or case shall be commenced in any court of
competent jurisdiction seeking dissolution or winding-up of
the Corporation;
(v) If the Corporation is dissolved, either voluntarily or
involuntarily; or (vi) Upon termination of the Distribution
Letter by Lender pursuant to Paragraph 16 thereof.
(b) Upon an Event of Default, the Lender may declare the
outstanding Principal Amount, and all accrued and unpaid
interest on the Principal Amount, immediately due and payable,
and such amount shall be collectible immediately or at any
time after such Event of Default. The rights and remedies
provided by this Note shall be cumulative, and shall be in
addition to, and not exclusive of, any other rights and
remedies available at law or in equity.
6. Conversion into Stock
(a) Conversion Upon a Qualified Financing. Upon the occurrence of a
Qualified Financing (as hereinafter defined) prior to the Maturity Date, the
unpaid Principal Amount on this Note shall be automatically converted
("Qualified Financing Conversion") into shares of the Corporation's capital
stock of the same class or series issued in the Qualified Financing ("Stock").
Upon a Qualified Financing Conversion, any accrued but unpaid interest shall be
cancelled and Corporation shall have no further obligation or liability
therefor. The number of shares of Stock into which this Note is convertible
shall be determined by dividing the sum of the unpaid Principal Amount by the
issue price per share of the Stock paid by other investors in the Qualified
Financing, and such shares shall be issued upon the same terms and conditions as
the Stock issued in the Qualified Financing. Lender shall be entitled to
equivalent rights as those in any stock purchase, investor rights, stockholder
or other investment-related agreements entered into between the Corporation and
other investors in the Qualified Financing. For purposes of this Note, a
"Qualified Financing" shall be the issuance of Stock in one or more closings, as
a result of arm's length negotiations, in which a minimum amount of Three
Million Dollars ($3,000,000), as authorized and approved by the Corporation's
Board of Directors, is received by the Corporation from one or more investors.
The Corporation shall take any and all actions required by the Corporation's
Charter, Bylaws or applicable laws to authorize and issue the necessary total
number of shares of Stock to permit issuance of Stock to the Lender in
connection with a Qualified Financing Conversion. Upon the occurrence of a
Qualified Financing Conversion, the entire unpaid Principal Amount of this Note
shall be applied against the issue price of the shares of Stock being issued to
the Lender hereunder. In lieu of any fractional shares of Stock that may result
in the calculation of the number of such shares, the Corporation will promptly
pay to the Lender an amount equal to the value of such fractional shares. In
connection with an Qualified Financing Conversion, the Lender shall surrender
this Note to the Secretary of the Corporation in exchange for (i) a certificate
representing the shares of Stock issued to the Lender as a result of such
Qualified Financing Conversion and, if applicable, (ii) payment in lieu of any
fractional shares as provided for in this Section 6(a). The provisions of this
Section 6(a) shall terminate upon the repayment of the entire outstanding
Principal Amount plus any accrued but unpaid interest
(b) Optional Conversion. In the event (i) of a Change of Control (as
defined below) or (ii) that a Qualified Financing has not occurred as of the
Maturity Date, the unpaid and outstanding Principal Amount and all accrued and
unpaid interest as of the Change of Control or Maturity Date, as applicable, may
be converted at any time thereafter, at the option of the Lender, ("Optional
Conversion") into shares of the Corporation's common stock ("Common Stock"). The
number of shares of Common Stock into which this Note is convertible shall be
determined by dividing the sum of the unpaid Principal Amount plus the accrued
interest on the date of the Optional Conversion by the purchase price per share
of the Common Stock. The Corporation shall take any and all actions required by
the Corporation's Charter, Bylaws or applicable laws to authorize and issue the
necessary total number of shares of Common Stock to permit issuance of Common
Stock to the Lender in connection with an Optional Conversion. Upon the
occurrence of an Optional Conversion, the entire unpaid Principal Amount and all
accrued unpaid interest shall be applied against the purchase price of the
Common Stock being issued to the Lender hereunder. In lieu of any fractional
shares of Common Stock that may result in the calculation of the number of such
shares, the Corporation will promptly pay to the Lender an amount equal to the
value of such fractional shares. In connection with an Optional Conversion, the
Lender shall surrender this Note to the Secretary of the Corporation in exchange
for (i) a certificate representing the shares of Common Stock issued to the
Lender as a result of such Optional Conversion and, if applicable, (ii) payment
in lieu of any fractional shares as provided for in this Section 6(b). The
purchase price of the Common Stock shall be $1.00 per share, which price shall
be appropriately adjusted to reflect the occurrence of any stock split, stock
dividend, recapitalization or other similar transaction affecting the Common
Stock.
For purposes of the above, "Change of Control" shall mean: (a) the merger,
consolidation or other combination of the Corporation with any other
corporation, partnership, limited liability company or other business entity
that will result in the holders of the capital stock of the Corporation
immediately after the date of this Note owning in combination less than 50% of
the voting power and equity interests of the surviving corporation, partnership,
limited liability company or other business entity immediately after the
consummation of such transaction on a fully-diluted basis; (b) the sale,
exchange, lease or transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Corporation; or
(c) other than a Qualified Financing, any issuance of securities or other
transaction that will result in any person or entity (other than the holders of
the capital stock of the Corporation immediately after the date of this Note)
owning in combination more than 50% of the voting power or equity interests of
the Corporation on a fully-diluted basis.
7. Term. The term of this Note shall be adjusted as necessary to avoid the
treatment of the Note as a "high-yield debt obligation" under the Internal
Revenue Code of 1986, as amended.
8. Notices. All notices, demands and other communications under this Note
shall be in writing and shall be deemed to have been duly given on the date of
service if served personally on or faxed (if receipt confirmed) to the party to
whom notice is to be given, or on the third day after mailing if mailed to the
party to whom notice is to be given by certified mail, return receipt requested,
and properly addressed as follows (and with a copy sent as specified in the case
of notices, demands or communications to the Corporation):
If to the Corporation, to: Luminetx Corporation
Attention: James M. Phillips
1256 Union Ave., 3rd Floor
Memphis, TN 38104
Facsimile: (901) 253-3701
With a copy to (which copy G. Robert Morris
shall not constitute notice Butler, Snow, O'Mara, Stevens & Cannada,
hereunder): PLLC
Crescent Center, Suite 500
6075 Poplar Avenue
Memphis, TN 38119
Facsimile: (901) 680-7201
If to the Lender, to: Diomed, Inc.
Attn: James A. Wylie
One Dundee Park
Andover, MA 01810
Facsimile: (978) 475-8488
With a copy to (which copy Stephen R. Conlin
shall not constitute notice Van Wert, Zimmer & Conlin, P.C.
hereunder): 245 Winter Street, Suite 400
Waltham, MA 02451
Facsimile: (781) 314-0101
The address, facsimile number, or the contact person for purposes of this
Section 8 may be changed by giving the parties specified above written notice of
the new address or name in the manner set forth above.
9. Assignability. This Note may not be assigned by the Corporation,
without the consent of the Lender. No such assignment shall constitute a
novation or release of the Corporation of the obligations hereof or from any
liability to the Lender.
10. Usury Laws. It is the intention of the Corporation and the Lender to
conform strictly to all applicable usury laws now or hereafter in force, and any
interest payable under this Note shall be subject to reduction to an amount
which is the maximum legal amount allowed under the applicable usury laws as now
or hereafter construed by the courts having jurisdiction over such matters. The
aggregate of all interest (whether designated as interest, service charges,
points or otherwise) contracted for, chargeable, or receivable under this Note
shall under no circumstances exceed the maximum legal rate upon the Principal
Amount remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to the Corporation or
credited on the Principal Amount, or if this Note has been repaid, then such
excess shall be rebated to the Corporation.
11. Security Interest. As collateral security for the prompt performance
and payment in full of the indebtedness evidenced by this Note, including
accrued and unpaid interest and costs of collection and any other charges due in
connection herewith (collectively, the "Obligations"), the Corporation hereby
grants to the Lender a continuing security interest in all assets now or
hereafter owned or acquired by the Corporation, and any accessions or
substitutions thereto, including without limitation the following (collectively,
the "Collateral"):
All inventory of the Corporation; all goods and equipment of the
Corporation; all accounts receivable of the Corporation; all real
property of the Corporation; all contract rights of the Corporation;
all other rights of the Corporation to the payment of money, amounts
due under factoring agreements, tax refunds and insurance proceeds;
all interests of the Corporation in goods as to which an account
receivable shall have arisen; all files, records and writings of the
Corporation or in which it has an interest in any way relating to
the foregoing property; all deposit accounts, investment property,
instruments, documents of title, policies and certificates of
insurance, securities, promissory notes, chattel paper, deposits,
cash or other property owned by the Corporation or in which it has
an interest; all general intangibles of the Corporation including
without limitation good will, trade secrets, trade names,
trademarks, URLs, patents, patent applications and any rights of the
Corporation to retrieval from third parties of electronically
processed and recorded information pertaining to any of the
foregoing types of Collateral; and proceeds and products of all of
the foregoing.
The Corporation shall cooperate with the Lender in preparing and filing one or
more UCC-1 financing statements or other financing notices complying with the
requirements of applicable law and otherwise in form approved by the Lender; and
shall do, make, execute and deliver all such additional and further acts,
things, deeds, assurances and instruments as the Lender may reasonably require
more completely to vest in and assure to the Lender its rights hereunder or in
any of the Collateral. Upon the happening of any Event of Default, the Lender
shall have all of the rights and remedies of a secured party under the Uniform
Commercial Code.
12. Miscellaneous.
(a) Any amendment hereto or waiver of any provision hereof must be in
writing and signed by both the Corporation and the Lender.
(b) Wherever in this Note reference is made to the Corporation or the
Lender, such reference shall be deemed to include, as applicable, a
reference to their respective permitted successors and assigns, and
the provisions of this Note shall be binding upon and shall inure to
the benefit of such permitted successors and assigns.
(c) This Note shall in all respects be governed by and construed in
accordance with the laws of the State of Tennessee without regard to
conflicts of law principles of any jurisdiction to the contrary.
(c) The captions of the Sections of this Note are inserted solely for
ease of reference and shall not be considered in the interpretation
or construction of this Note.
(d) The Lender, by acceptance of this Note, hereby represents and
warrants that this Note has been acquired by the Lender for
investment only and not for resale or distribution hereof. The
Lender, by acceptance of this Note, further understands, covenants
and agrees that the Corporation is under no obligation and has made
no commitment to provide for registration of this Note under the
Securities Act of 1933, as amended, or state securities laws, or to
take such steps as are necessary to permit the sale of this Note
without registration under those laws.
(e) The Corporation waives presentment, notice and demand, notice of
protest, notice of demand and dishonor, and notice of nonpayment of
this Note.
(f) Wherever possible, each provision of this Note which has been
prohibited by or held invalid under applicable law shall be
ineffective to the extent of such prohibition or invalidity, but
such prohibition or invalidity shall not invalidate the remainder of
such provision or the remaining provisions of this Note.
(g) No delay in the exercise of any right or remedy of any party hereto
shall operate as a waiver thereof, and no single or partial exercise
of any such right or remedy shall preclude other or future exercise
thereof or the exercise of any other right or remedy.
(h) It is expressly understood and agreed by the parties hereto that if
it is necessary to enforce payment of this Note through the
engagement or efforts of an attorney or by suit, the Corporation
shall pay reasonable attorneys' fees, expenses of counsel, and other
costs of collection actually incurred by the Lender.
(i) This Note may be executed in counterparts, each of which shall be
deemed an original, but both of which shall constitute one and the
same Note.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Corporation has executed, acknowledged and
delivered this Note as of the day and year first above written.
LUMINETX CORPORATION
By:
----------------------------------
Printed:
-----------------------------
Title:
-------------------------------
ACCEPTED AND AGREED, this 5th day of August, 2005:
Diomed, Inc.
By:
-----------------------
Printed:
-----------------
Title:
--------------------
EXHIBIT C - Diomed Warrant
18
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
To Purchase up to 600,000 Shares of Common Stock of
Diomed Holdings, Inc.
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant"), granted as of August
5, 2005, certifies that, for value received, LUMINETX CORPORATION ("Luminetx"
and, together with its permitted successors and permitted assigns, the
"Holder"), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after the
Initial Exercise Date (as defined below) and on or prior to the close of
business on the Termination Date (as defined below), but not thereafter, to
subscribe for and purchase from Diomed Holdings, Inc., a Delaware corporation
(the "Company"), up to Six Hundred Thousand (600,000) shares (the "Warrant
Shares") of Common Stock, par value $0.001 per share, of the Company (the
"Common Stock"). The purchase price of one share of Common Stock (the "Exercise
Price") under this Warrant shall be $2.90, subject to adjustment hereunder.
Section 1. Definitions. Capitalized terms not otherwise defined
herein shall have their respective meanings set forth in the letter
agreement, dated as of August 5, 2005, between the Diomed, Inc. and Luminetx
(the "Distribution Agreement"). The following terms when used herein shall
have their respective meanings as set forth below:
"Initial Exercise Date" means the date when the Warrant Shares have been
approved for listing on the American Stock Exchange.
"Market Price" means the closing price of the Company's Common Stock on
the American Stock Exchange (or a successor trading market where the Common
Stock is listed for trading).
"Termination Date" means the date which is the earliest to occur of (i)
the fifth anniversary of the date when the Holder's right to purchase the
Warrant Shares granted herein shall be fully vested pursuant to Section 2(c),
(ii) the sixth (6th) anniversary from the date hereof, and (iii) the effective
date of any termination of the Distribution Agreement by the Company pursuant to
Section 16 thereof.
"Trading Day" means a day when the American Stock Exchange (or a successor
trading market where the Company's Common Stock is listed for trading) is open
for business and conducts trading in the market where the Common Stock is listed
for trading.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented
by this Warrant may, to the extent vested, as provided herein, be made at
any time or times on or after the Initial Exercise Date and on or before
the Termination Date by delivery to the Company of a duly executed
facsimile copy of the Notice of Exercise Form annexed hereto (or such
other office or agency of the Company as it may designate by notice in
writing to the registered Holder at the address of such Holder appearing
on the books of the Company); provided, however, within five (5) Trading
Days of the date said Notice of Exercise is delivered to the Company, the
Holder shall have surrendered this Warrant to the Company and the Company
shall have received payment of the aggregate Exercise Price of the shares
thereby purchased by wire transfer or cashier's check drawn on a United
States bank.
b) Exercise Price. The Exercise Price of each share of Common Stock
under this Warrant shall be $2.90, subject to adjustment hereunder.
c) Vesting. The Holder's purchase rights represented by this Warrant
shall vest as follows: (i) fifty percent (50%) shall vest on the date
hereof and (ii) the remaining fifty percent (50%) shall vest on the date
when Luminetx shall have both (A) produced at least one hundred (100)
units of the System and (B) Diomed, Inc. shall have accepted delivery of
at least twenty five (25) units of the System.
d) Mechanics of Exercise.
i. Authorization of Warrant Shares. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of
the purchase rights represented by this Warrant, be duly authorized,
validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than
taxes in respect of any transfer occurring contemporaneously with
such issue). The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for
the issuance of the Warrant Shares upon the exercise of any purchase
rights under this Warrant. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the
Warrant Shares upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be
necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or
regulation, or of any requirements of the American Stock Exchange
(or a successor trading market) upon which the Common Stock may be
listed.
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ii. Delivery of Certificates upon Exercise. Certificates for
shares purchased hereunder shall be delivered to the Holder within
five (5) Trading Days from the delivery to the Company of the Notice
of Exercise Form, surrender of this Warrant and payment of the
aggregate Exercise Price as set forth above ("Warrant Share Delivery
Date"). This Warrant shall be deemed to have been exercised on the
date the Exercise Price is received by the Company. The Warrant
Shares shall be deemed to have been issued, and Holder or any other
person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the
date the Warrant has been exercised by delivery to the Company of
the Notice of Exercise form and by payment to the Company of the
Exercise Price and all taxes required to be paid by the Holder, if
any, prior to the issuance of such shares, have been paid.
iii. Delivery of New Warrants upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of
Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical
with this Warrant.
iv. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the
exercise of this Warrant. As to any fraction of a share which Holder
would otherwise be entitled to purchase upon such exercise, the
Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the
Exercise Price.
v. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall
be paid by the Company, and such certificates shall be issued in the
name of the Holder or in such name or names as may be directed by
the Holder.
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Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while
this Warrant is outstanding: (A) pays a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company pursuant to this Warrant), (B) subdivides
outstanding shares of Common Stock into a larger number of shares, (C)
combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock
of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such
event and of which the denominator shall be the number of shares of Common
Stock outstanding after such event, and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted. Any adjustment
made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.
b) Notice to Holders. Whenever the Exercise Price is adjusted
pursuant to this Section 3, the Company shall promptly mail to each Holder
a notice setting forth the Exercise Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
c) Fundamental Transaction. If, at any time while this Warrant is
outstanding, (A) the Company effects any merger or consolidation of the
Company with or into another Person, (B) the Company effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then, (i) if the Market Price of the Common
Stock on the Trading Day immediately prior to the consummation of the
Fundamental Transaction is equal to or greater than the Exercise Price of
the Common Stock, then the Holder shall be deemed to have exercised this
Warrant in full immediately prior to the consummation of the Fundamental
Transaction, and the Holder shall receive, after surrender of this Warrant
to the Company, together with payment of the Exercise Price, the cash,
securities or other property received by the holders of Common Stock in
consideration for each share of Common Stock held by them prior to the
consummation of the Fundamental Transaction (the "Alternate
Consideration") and (ii) if the Market Price of the Common Stock on the
Trading Day immediately prior to the consummation of the Fundamental
Transaction is less than the Exercise Price of the Common Stock, then the
Holder shall be entitled to exercise this Warrant subsequent to the
consummation of the Fundamental Transaction and prior to the Termination
Date, provided that upon any such subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would
have been issuable upon such exercise absent such Fundamental Transaction,
the Alternate Consideration. For purposes of any such exercise, the
Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction. To the
extent necessary to effectuate the foregoing provisions, any successor to
the Company or surviving entity in such Fundamental Transaction shall
issue to the Holder a new warrant consistent with the foregoing provisions
and evidencing the Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor
or surviving entity to comply with the provisions of this paragraph (c)
and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.
4
Section 4. Transfers of Warrants.
a) Warrant Register. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.
b) Limitations on Transfer. The Holder shall not have the right to
sell, transfer, convey or assign (each, a "transfer") all or any part of
its purchase rights granted under this Warrant except that (A) the Holder
may transfer its right to purchase limited numbers of Warrant Shares such
that (i) on the date hereof, the Holder may transfer its right to purchase
up to two hundred thousand (200,000) Warrant Shares, but only if the
Market Price of the Common Stock is not less than five dollars ($5.00) per
share (as the same may be adjusted on account of stock dividends and
splits under Section 3(a)) on the date of such transfer and (ii) during
any three (3) month period following the first date after the date hereof
when the Market Price of the Common Stock reaches or exceeds five dollars
($5.00) per share (as the same may be adjusted on account of stock
dividends and splits under Section 3(a)) the Holder may transfer its right
to purchase up to fifty thousand (50,000) Warrant Shares, but in either
case only where (B) such transfer is (i) in full compliance with Section
4(c), (ii) to the extent that the proposed transfer would or may, in the
reasonable view of the Company, violate any provision of, or result in
liability to the Company under, any applicable law, including without
limitation Executive Order 13224, the Untied States Bank Secrecy Act, the
United States Money Laundering Control Act of 1986, the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001, the Foreign Corrupt Practices Act of 1977, the Securities Act of
1933, as amended (the "Securities Act") or the Securities Exchange Act of
1934, as amended ---------------- and (iii) where the proposed transferee
provides to the Company such acknowledgments, certifications and
documentation as may be reasonably required by the Company to demonstrate
the absence of any violation of law or liability.
5
c) Transfer Restrictions. If, at the time of the surrender of this
Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities
or blue sky laws, the Company may require, as a condition of allowing such
transfer (i) that the Holder or transferee of this Warrant, as the case
may be, furnish to the Company a written opinion of counsel (which opinion
shall be in form, substance and scope customary for opinions of counsel in
comparable transactions) to the effect that such transfer may be made
without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the transferee be an "accredited
investor" as defined in Rule 501 promulgated under the Securities Act or a
"qualified institutional buyer" as defined in Rule 144A(a) under the
Securities Act and (iii) that the Holder or transferee execute and deliver
to the Company an investment letter, investor suitability questionnaire
and/or other acknowledgments, certifications and documentation as may be
reasonably required by the Company to demonstrate the proposed
transferee's status as an accredited investor or qualified institutional
buyer, as the case may be.
Section 5. Miscellaneous.
a) Title to Warrant. Prior to the Termination Date and subject to
compliance with all applicable law and Section 4 of this Warrant, this
Warrant and all rights hereunder are transferable, in whole or in part, at
the office or agency of the Company by the Holder in person or by duly
authorized attorney, upon surrender of this Warrant together with
documentation, acknowledgements and/or certifications required by the
Company in connection with the proposed transfer.
b) No Rights as Shareholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof. Upon the surrender of this
Warrant and the payment of the aggregate Exercise Price (or by means of a
cashless exercise), the Warrant Shares so purchased shall be and be deemed
to be issued to such Holder as the record owner of such shares as of the
close of business on the later of the date of such surrender or payment.
c) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the Company will make and deliver a new
Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
6
d) Saturdays, Sundays, Holidays, etc. If the last or appointed day
for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.
e) Applicable Law; Dispute Resolution; Jurisdiction. All questions
concerning the construction, validity, enforcement and interpretation of
this Warrant shall be determined in accordance with the provisions of the
Distribution Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights,
powers or remedies, notwithstanding all rights hereunder terminate on the
Termination Date. If the Company willfully and knowingly fails to comply
with any provision of this Warrant, which results in any material damages
to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings,
incurred by Holder in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Distribution
Agreement.
i) Successors and Assigns. Subject to applicable securities laws,
this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and
the successors and permitted assigns of Holder. The provisions of this
Warrant are intended to be for the benefit of all Holders from time to
time of this Warrant and shall be enforceable by any such Holder or holder
of Warrant Shares.
j) Amendment. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and the
Holder.
k) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
l) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
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[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: August __, 2005
DIOMED HOLDINGS, INC.
By:
---------------------------------
Name: James A. Wylie, Jr.
Title: Chief Executive Officer
9
NOTICE OF EXERCISE
TO: Diomed Holdings, Inc.
The undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
Please issue a certificate or certificates representing said Warrant Shares in
the name of the undersigned or in such other name as is specified below:
-------------------------------------
The Warrant Shares shall be delivered to the following:
-------------------------------------
-------------------------------------
-------------------------------------
The undersigned is an "accredited investor" as defined in Regulation D
promulgated under the Securities Act of 1933, as amended.
[PURCHASER]
By:
--------------------------
Name:
Title:
Dated:
--------------------------