EXHIBIT 10.2
Execution Form
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this "Agreement"), dated as of September
30, 2005, is entered into by and among Diomed Holdings, Inc., a Delaware
corporation, with headquarters located at One Dundee Park, Andover, MA 01810
(the "Company") and each Purchaser (as defined in the Securities Purchase
Agreement, dated as of the date hereof, among the Company and the purchasers
identified on the signature pages thereto (the "Securities Purchase
Agreement")). Capitalized terms used but not defined herein shall have their
respective meanings set forth in the Securities Purchase Agreement, unless the
context clearly indicates otherwise.
W I T N E S S E T H:
WHEREAS, the Company and the Purchasers have agreed that the Preferred
Stock issued and sold by the Company to the Purchasers pursuant to the
Securities Purchase Agreement shall be subject to certain exchange, redemption,
antidilution and other provisions, as set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. TENDER AND REDEMPTION OF PREFERRED STOCK.
(a) Purchasers' Exchange Right. (i) Subject to the conditions set
forth below in this Agreement and the Securities Purchase Agreement, at any time
and from time to time after the date of the listing of such shares with the
Trading Market, the Purchasers may tender any whole number of shares of
Preferred Stock held by them in exchange for a number of fully paid and non
assessable shares of Common Stock per share of Preferred Stock determined in
accordance with the following formula:
Issue Price
-------------
Exchange Rate
Where:
"Exchange Rate" shall mean $2.50, subject to adjustment as set forth herein.
Notwithstanding the foregoing, the Purchaser shall not have the right to
exchange Preferred Stock for Common Stock hereunder if and to the extent that
the issuance of Common Stock pursuant to the exchange right set forth in this
Section 1(a) would cause the Purchaser to violate the limitations on ownership
provisions set forth in Section 4.17 of the Securities Purchase Agreement
("Limitations on Ownership").
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(b) Procedures for Exchange by Purchasers.
(i) The Purchasers may exercise their exchange right under Section
1(a) by providing written irrevocable notice to the Company (the "Exchange
Notice"), substantially in the form of Exhibit A hereto (and, if the Preferred
Stock is in certificated form, surrendering to the Company along with the
Exchange Notice the Purchaser's stock certificate(s), with stock power(s)
endorsed in blank, representing the Preferred Stock tendered for exchange), in
accordance with the notice provisions of Section 5.4(a) or (b) of the Securities
Purchase Agreement, which Exchange Notice shall be deemed given and effective on
the date (the "Exchange Date") when provided under Section 5.4(a) or (b) of the
Securities Purchase Agreement. Upon receipt by the Company of an Exchange Notice
from a Purchaser (the "Exchanging Purchaser"), the Company shall promptly send,
via facsimile, a confirmation to such Exchanging Purchaser stating that the
Exchange Notice has been received, the date upon which the Company expects to
deliver the Common Stock issuable upon such exchange and the name and telephone
number of a contact person at the Company regarding the exchange.
(ii) Upon delivery of an Exchange Notice, the Company (itself, or
through its transfer agent) shall, no later than the second Trading Day
following the Exchange Date (the "Delivery Period"), issue and deliver (i.e.,
deposit with a nationally recognized overnight courier service postage prepaid)
to the Exchanging Purchaser or its nominee that number of shares of Common Stock
issuable upon exchange of such shares of Preferred Stock being exchanged.
Notwithstanding the foregoing, if the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, and so long as the certificates therefor do not bear a legend and the
holder thereof is not then required to return such certificate for the placement
of a legend thereon, the Company shall cause its transfer agent to promptly
electronically transmit the Common Stock issuable upon the exchange to the
Exchanging Purchaser by crediting the account of the holder or its nominee with
DTC through its Deposit Withdrawal Agent Commission system ("DTC Transfer"). If
the aforementioned conditions to a DTC Transfer are not satisfied, and the
Preferred Stock is in certificated form, the Company shall deliver as provided
above to the Purchaser physical certificates representing the Common Stock
issuable upon exchange. Further, if the Preferred Stock is in certificated form,
an Exchanging Purchaser may instruct the Company to deliver to the Exchanging
Purchaser physical certificates representing the Common Stock issuable upon the
exchange in lieu of delivering such shares by way of DTC Transfer.
(iii) The Company shall pay any and all taxes that may be imposed
upon it with respect to the issuance and delivery of the shares of Common Stock
upon the exchange of the Preferred Stock.
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(iv) If any exchange of Preferred Stock would result in the
issuance of a fractional share of Common Stock (aggregating all shares of
Preferred Stock being exchanged pursuant to a given Exchange Notice), such
fractional share shall be payable in cash based upon the ten day VWAP (as
defined below) of the Common Stock at such time, and the number of shares of
Common Stock issuable upon exchange of the Preferred Stock shall be the next
lower whole number of shares. If the Company elects not to, or is unable to,
make such a cash payment, the Exchanging Purchaser shall be entitled to receive,
in lieu of the final fraction of a share, one whole share of Common Stock. For
purposes of the foregoing, "VWAP" means, for any Trading Day, the price
determined by the first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on a Trading Market, the daily volume weighted
average price of the Common Stock for such date on the Trading Market on which
the Common Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern
Time); (b) if the Common Stock is not then listed or quoted on a Trading Market
and if prices for the Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price of the Common Stock for such date on the OTC
Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC
Bulletin Board and if prices for the Common Stock are then reported in the "Pink
Sheets" published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (c) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the holders of the Preferred
Stock and reasonably acceptable to the Corporation, where "Trading Day" means a
day on which the Common Stock is traded on a Trading Market, and "Trading
Market" means the following markets or exchanges on which the Common Stock is
listed or quoted for trading on the date in question: the Nasdaq SmallCap
Market, the American Stock Exchange, the New York Stock Exchange or the Nasdaq
National Market.
(v) In the case of any dispute with respect to an exchange, the
Company shall promptly issue such number of shares of Common Stock as are not
disputed in accordance with subparagraph (ii) above. If such dispute involves
the calculation of the Exchange Rate, and such dispute is not promptly resolved
by discussion between the Exchanging Purchaser and the Company, the Company
shall submit the disputed calculations to an independent outside accountant via
facsimile within three business days of receipt of the Exchange Notice. The
accountant, at the Company's sole expense, shall promptly audit the calculations
and notify the Company and the Exchanging Purchaser of the results no later than
three business days from the date it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive, absent manifest error. The
Company shall then issue the appropriate number of shares of Common Stock in
accordance with subparagraph (ii) above.
(vi) Upon the exchange of any shares of Preferred Stock, all
amounts then accrued or payable on such shares under this Agreement, the
Securities Purchase Agreement, the Certificate of Designations (including,
without limitation, all Dividends), the Registration Rights Agreement or the
Warrants through and including the Exchange Date shall be paid in cash (or, in
the case of Dividends, cash or Common Stock) by the Company.
(vii) If fewer than all shares of Preferred Stock held by an
Exchanging Purchaser are tendered for exchange, then the Company shall record
the cancellation of those shares which were tendered on its books and records
(and, if the Preferred Stock is in certificated form, shall issue in due course
one or more new stock certificates representing those shares held by the
Exchanging Purchaser which remain issued and outstanding)
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(c) Exchange Defaults. If, at any time, (i) an Exchanging Purchaser
submits an Exchange Notice and the Company fails for any reason (other than
because such issuance would exceed such Exchanging Purchaser's Limitations on
Ownership) to deliver, on or prior to the fifth Trading Day following the
expiration of the Delivery Period for such exchange, such number of freely
tradable shares of Common Stock to which such holder is entitled upon such
exchange, or (ii) the Company provides written notice to any holder of Preferred
Stock (or makes a public announcement via press release) at any time of its
intention not to issue freely tradable shares of Common Stock upon exercise by
any Exchanging Purchaser of its exchange rights in accordance with the terms of
this Agreement (other than because such issuance would exceed such Purchaser's
Limitations on Ownership) (each of (i) and (ii) being an "Exchange Default"),
then the Company shall pay to the Exchanging Purchaser Liquidated Damages (as
defined below) until the earlier of the date of the cure of such Exchange
Default by the Company or the date of payment by the Company of the Redemption
Amount (as defined below) or the Optional Redemption Price (as defined below),
as the case may be.
Unless the Company has notified the Exchanging Purchaser in writing
prior to the delivery by such Purchaser of an Exchange Notice that the Company
is unable to honor requests for exchanges, if (i) (a) the Company fails to
promptly deliver during the Delivery Period shares of Common Stock to an
Exchanging Purchaser upon an exchange of shares of Preferred Stock or (b) there
shall occur a Legend Removal Failure (as defined below) and (ii) thereafter,
such Exchanging Purchaser purchases (in an open market transaction or otherwise)
shares of Common Stock to make delivery in satisfaction of a sale by such
Exchanging Purchaser of the unlegended shares of Common Stock (the "Sold
Shares") which such Exchanging Purchaser anticipated receiving upon such
exchange (a "Buy-In"), the Company shall pay such Exchanging Purchaser, in
addition to any other remedies available to the Exchanging Purchaser, the amount
by which (x) such Exchanging Purchaser's total purchase price (including
brokerage commissions, if any) for the unlegended shares of Common Stock so
purchased exceeds (y) the net proceeds received by such Exchanging Purchaser
from the sale of the Sold Shares. For example, if an Exchanging Purchaser
purchases unlegended shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for
$10,000, the Company will be required to pay the Exchanging Purchaser $1,000. An
Exchanging Purchaser shall provide the Company written notification and
supporting documentation indicating any amounts payable to such Purchaser
pursuant to this provision.
(d) Purchasers' Optional Redemption Right. In the event (each of the
events described in clauses (i)-(ix) below after expiration of the applicable
cure period (if any) being a "Redemption Event"):
(i) an Exchange Default shall have occurred and be continuing for
a period of thirty (30) days, during which cure period the Exchanging Purchaser
shall be entitled to Liquidated Damages;
(ii) the Common Stock (including any of the shares of Common Stock
issuable upon exchange of the Preferred Stock) is suspended from trading on any
of, or is not listed (and authorized) for trading on at least one of, the New
York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or
the Nasdaq SmallCap Market for an aggregate of ten or more trading days in any
twelve (12) month period, subject to a cure period of six (6) months, during
which cure period the Purchaser shall be entitled to Liquidated Damages;
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(iii) the registration statement required to be filed by the
Company pursuant to the Registration Rights Agreement (A) has not been declared
effective by the one hundred twentieth (120th) day following the Closing Date or
(B) such registration statement, after being declared effective, cannot be
utilized by the holders of Preferred Stock for the resale of all of their
Registrable Securities (as defined in the Registration Rights Agreement) for an
aggregate of more than nine fifteen (15) days (other than as permitted under the
Registration Rights Agreement), subject in the case of subclause (B) above to a
cure period of sixty (60) days, during which cure period the Purchaser shall be
entitled to Liquidated Damages; provided, that such Liquidated Damages shall not
be payable to the extent that such payment would be duplicative of liquidated
damages paid by the Company to the Purchaser under the Registration Rights
Agreement for the same underlying reason and for the same period of time;
(iv) the Company fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Preferred
Stock upon exchange of the Preferred Stock as and when required by the
Securities Purchase Agreement or the Registration Rights Agreement and permitted
by applicable law (a "Legend Removal Failure"), and any such failure continues
uncured for five business days after the Company has been notified thereof in
writing by the holder;
(v) the Company provides written notice (or otherwise indicates)
to any holder of Preferred Stock, or states by way of public announcement
distributed via a press release, at any time, of its intention not to issue, or
otherwise refuses to issue, shares of Common Stock to any holder of Preferred
Stock upon exchange in accordance with the terms of this Agreement;
(vi) the Company or any subsidiary of the Company shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such a receiver or trustee shall otherwise be
appointed;
(vii) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for the relief of debtors shall be instituted
by or against the Company or any subsidiary of the Company and if instituted
against the Company or any subsidiary of the Company by a third party, shall not
be dismissed within 60 days of their initiation;
(viii) the Company shall:
(1) either (i) fail to pay, when due, or within any
applicable grace period, any payment with respect to any indebtedness of
the Company in excess of $250,000 due to any third party, other than
payments contested by the Company in good faith, or otherwise be in breach
or violation of any agreement for monies owed or owing in an amount in
excess of $250,000 which breach or violation permits the other party
thereto to declare a default or otherwise accelerate amounts due
thereunder, or (ii) suffer to exist any other default or event of default
under any agreement binding the Company which default or event of default
would or is likely to have a material adverse effect on the business,
operations, properties, prospects or financial condition of the Company;
or
Page 5
(2) have thirty-five percent (35%) or more of the voting
power of its capital stock owned beneficially by one person, entity or
"group" (as such term is used under Section 13(d) of the Securities
Exchange Act of 1934, as amended), other than in a transaction
constituting a Liquidating Event (as defined in the Certificate of
Designations), and such person, entity or group shall continue to have a
thirty-five percent (35%) or more voting power for a period of thirty (30)
days; and
(ix) except with respect to matters covered by subparagraphs (i) -
(viii) above, as to which such applicable subparagraphs shall apply, the Company
otherwise shall breach any material term hereunder or a material term under the
Securities Purchase Agreement, the Certificate of Designations, the Registration
Rights Agreement or the Warrants (where, in the case of a breach that is
curable, such breach was not cured within ten business days after the Company
has been notified thereof in writing by the Purchaser and, in the case of a
representation or warranty, constituted a material breach as of the date such
representation or warranty was made);
then, to the extent that any Purchaser has not exercised its exchange rights
under Section 1(a) with respect to such shares, upon the occurrence of any such
Redemption Event, such Purchaser shall thereafter have the option, exercisable
in whole or in part at any time and from time to time by delivery of a written
notice to such effect (a "Purchaser Redemption Notice") to the Company while
such Redemption Event continues, to require the Company to purchase for cash any
or all of the then outstanding shares of Preferred Stock held by such holder for
an amount per share equal to the Redemption Amount (as defined below) in effect
at the time of the redemption hereunder. For the avoidance of doubt, the
occurrence of any event described in clauses (i) through (iv) and (ix) shall be
subject to the respective cure periods set forth therein and any event described
in clauses (v), (vi), (vii) and (viii) above shall immediately constitute a
Redemption Event and there shall be no cure period. Upon the Company's receipt
of any Purchaser Redemption Notice hereunder, the Company shall promptly (and in
any event within one business day following such receipt) deliver a written
notice (a "Purchaser Redemption Announcement") to all Purchasers stating the
date upon which the Company received such Purchaser Redemption Notice and the
amount of Preferred Stock covered thereby. The Company shall not redeem any
shares of Preferred Stock during the three Trading Day period following the
delivery of a required Purchaser Redemption Announcement hereunder. At any time
and from time to time during such three Trading Day period, each Purchaser may
request (either orally or in writing) information from the Company with respect
to the instant redemption (including, but not limited to, the aggregate number
of shares of Preferred Stock covered by Purchaser Redemption Notices received by
the Company), and the Company shall furnish (either orally or in writing) as
soon as practicable such requested information to such requesting Purchaser.
For purposes of the foregoing, "Liquidated Damages" shall mean an amount in cash
equal to 3.0% per month of the aggregate purchase price paid by the applicable
Purchaser pursuant to the Securities Purchase Agreement for any shares of
Preferred Stock (together with any shares of Common Stock issued upon exchange
of Preferred Stock by the Purchaser hereunder to the extent such shares of
Common Stock continue to be held by such Purchaser, as if such shares of
Preferred Stock had not been exchanged into Common Stock) then held by such
Purchaser, payable on demand by the Purchaser, as full liquidated damages and
not as a penalty. The Liquidated Damages pursuant to the terms hereof shall
apply on a daily pro-rata basis for any portion of a month prior to the cure of
a Redemption Event to which Liquidated Damages are applicable.
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(e) Definition of Redemption Amount. The "Redemption Amount" with
respect to a share of Preferred Stock means an amount equal to the greater of:
(i) IP x M
----
ER
and (ii) IP x R
where:
"IP" means the Issue Price thereof plus all accrued Dividends (as defined
in the Certificate of Designations) thereon through the date of payment of
the Redemption Amount;
"ER" means the Exchange Rate in effect on the date on which the Company
receives the Purchaser Redemption Notice;
"M" means the greater of (A) the highest closing sales price of the Common
Stock during the period beginning on the date on which the Company receives
the Purchaser Redemption Notice and ending on the date immediately
preceding the date of payment of the Purchaser Redemption Amount and (B)
the fair market value, as of the date on which the Company receives the
Purchaser Redemption Notice, of the consideration payable to the holder of
a share of Common Stock pursuant to the transaction which triggers the
redemption. For purposes of this definition, "fair market value" shall be
determined by the mutual agreement of the Company and the holders of at
least 51% of the Preferred Stock then outstanding (the "Required Holders"),
or if such agreement cannot be reached within five business days prior to
the date of redemption, by an investment banking firm selected by the
Company and reasonably acceptable to the Required Holders, with the costs
of such appraisal to be borne by the Company; and
"R" means 120%.
(f) Redemption Defaults. If the Company fails to pay any Purchaser the
Redemption Amount with respect to any share of Preferred Stock within five
Trading Days after its receipt of a Purchaser Redemption Notice, then the
Purchaser entitled to redemption shall be entitled to interest on the Redemption
Amount at a per annum rate equal to the lower of eighteen percent (18%) and the
highest interest rate permitted by applicable law from the date on which the
Company receives the Purchaser Redemption Notice until the date of payment of
the Redemption Amount hereunder. In the event the Company is not able to redeem
all of the shares of Preferred Stock subject to Purchaser Redemption Notices
delivered prior to the date upon which such redemption is to be effected, the
Company shall redeem shares of Preferred Stock from each Purchaser pro rata,
based on the total number of shares of Preferred Stock outstanding at the time
of redemption included by such holder in all Purchaser Redemption Notices
delivered prior to the date upon which such redemption is to be effected
relative to the total number of shares of Preferred Stock outstanding at the
time of redemption included in all of the Purchaser Redemption Notices delivered
prior to the date upon which such redemption is to be effected.
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(g) Company's Optional Redemption Rights. From and after the fifth
(5th) anniversary of the Closing Date, to the extent that the Purchasers have
not exercised its exchange rights under Section 1(a) with respect to such
shares, and unless then precluded from making an Optional Redemption following
the issuance of a Purchaser Redemption Announcement under Section 1(d), the
Company may redeem for cash any or all shares of Preferred Stock then
outstanding (an "Optional Redemption") at a price (the "Optional Redemption
Price") equal to one hundred twenty percent (120%) of the Issue Price of the
Preferred Stock being redeemed, together with any and all accrued and unpaid
Dividends thereon. If the Company elects to redeem in an Optional Redemption
less than all shares of Preferred Stock outstanding, then the Company shall
redeem shares of Preferred Stock pro rata, based on the amount of shares to be
redeemed and the proportion that the number of shares held by each Purchaser
bears to the total number of shares then held by all Purchasers.
(h) Procedures for Optional Redemption by Company. The Company may
exercise its redemption right under Section 1(g) by providing written
irrevocable notice to the Purchasers in any manner set forth in Section 5.4 of
the Securities Purchase Agreement (the "Optional Redemption Notice") in such
form as the Company shall approve, setting forth the number of shares of
Preferred Stock being redeemed (and, if less than all, the percentage of shares
held by each Purchasers on a pro rata basis), the Optional Redemption Price, the
date that the Optional Redemption is proposed to occur (which date shall be not
less than twenty (20) days following the effective date of the Optional
Redemption Notice (the "Optional Redemption Date") and such other information as
the Company shall in its discretion determine. If any shares of Preferred Stock
to be redeemed are held in certificated form, the Optional Redemption Notice
shall also include instructions for Purchasers to surrender their shares, duly
endorsed in blank, to the Company for redemption. On the Optional Redemption
Date, unless earlier tendered for exchange by the Purchasers pursuant to Section
1(a) or 1(d), the Company shall issue payment of the Optional Redemption Price
to the Purchasers and the Company shall record the cancellation of those shares
which were so redeemed on its books and records (and, if the Preferred Stock is
in certificated form, shall issue in due course one or more new stock
certificates representing those shares held by the Purchaser which remain issued
and outstanding).
(i) Purchasers' Right to Exchange following Company's Optional
Redemption Notice. Following the Company's issuance of an Optional Redemption
Notice and prior to the Optional Redemption Date, each Purchaser shall have the
right to tender for exchange into Common Stock any or all shares of Preferred
Stock held by it (including those that are the subject of the Optional
Redemption Notice) in the manner set forth under Sections 1(a) and (b), subject
to the Limitations on Ownership applicable to each such Purchaser.
2. ANTIDILUTION ADJUSTMENTS TO EXCHANGE RATE.
(a) If at any time while Preferred Stock is issued and
outstanding, other than in an Exempt Issuance, the Company shall offer,
sell, grant any option to purchase or offer, sell or grant any right to
reprice its securities, or otherwise dispose of or issue (or announce or
be deemed to have made any offer, sale, grant or any option to purchase or
other disposition) any Common Stock or Common Stock Equivalents (as
defined below) entitling any Person to acquire shares of Common Stock at
an effective price per share less than the then Exchange Rate (such lower
price, with respect to each class of securities being issued, the "Base
Share Price" of such securities and each such issuance a "Dilutive
Issuance"), as adjusted hereunder, then the Exchange Rate shall be reduced
as follows:
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(i) prior to the time when the Company obtains Stockholder
Approval, the Exchange Rate shall be reduced to an amount that is
equal to the greater of the (A) Base Share Price and (B) $2.17,
subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the
Common Stock that occur after the date of this Agreement (such
amount set forth in this subclause (B), the "Preferred Stock Floor
Price"); or
(ii) after the time when the Company obtains Stockholder
Approval, the Exchange Rate shall be reduced to an amount that is
equal to the Base Share Price; provided, that if the Base Share
Price is less than the Preferred Stock Floor Price, then the
Exchange Rate shall be adjusted by (A) reducing the Exchange Rate to
the Preferred Stock Floor Price and (B) further reducing the
Exchange Rate to the amount determined by the following calculation:
((Fully Diluted Shares Outstanding Before x Adjusted Exchange Rate)
+ Total Consideration)
-------------------------------------------------------------------
Fully Diluted Shares Outstanding After
Where:
"Fully Diluted Shares Outstanding Before" shall mean the total
number of shares of Common Stock outstanding immediately prior to
the consummation of such Dilutive Issuance, assuming the issuance of
all shares of Common Stock underlying Common Stock Equivalents then
outstanding;
"Common Stock Equivalents" shall mean any securities of the Company
or its Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including without limitation, any
Purchase Rights or Convertible Securities, including without
limitation the Preferred Stock and the Warrants;
"Adjusted Exchange Rate" shall mean the lesser of the Preferred
Stock Floor Price and the Exchange Rate in effect immediately prior
to the Dilutive Issuance;
"Total Consideration" shall mean the sum of all consideration
received by the Company in the Dilutive Issuance, calculated
pursuant to Section 3(d)(ii); and
"Fully Diluted Shares Outstanding After" shall mean the total number
of shares of Common Stock outstanding immediately after the
consummation of such Dilutive Issuance, assuming the issuance of all
shares of Common Stock underlying Common Stock Equivalents then
outstanding;
Page 9
In each instance of an adjustment pursuant to the foregoing clauses (i) and
(ii), such adjustment shall be made whenever Common Stock or Common Stock
Equivalents are issued in a Dilutive Issuance. The Company shall notify each
Purchaser that holds Preferred Stock in writing, no later than five (5) Trading
Days following the consummation of a Dilutive Issuance, indicating therein the
applicable issuance price and other pricing terms. For the avoidance of doubt,
in no event shall the Exchange Rate after giving effect to the Dilutive Issuance
be greater than the Exchange Rate in effect prior to such Dilutive Issuance,
subject to adjustment for reverse and forward stock splits, stock dividends,
stock combinations and other similar transactions of the Common Stock that occur
in connection with the Dilutive Issuance.
(b) Effect on Exchange Rate of Certain Events. For purposes of
determining the adjusted Exchange Rate under Section 2(a), the following will be
applicable:
(i) Issuance of Purchase Rights. If the Company issues or
sells any Purchase Rights, whether or not immediately exercisable,
and the price per share for which Common Stock is issuable upon the
exercise of such Purchase Rights (and the price of any conversion of
Convertible Securities, if applicable) is less than the Exchange
Rate in effect on the date of issuance or sale of such Purchase
Rights, then the maximum total number of shares of Common Stock
issuable upon the exercise of all such Purchase Rights (assuming
full conversion, exercise or exchange of Convertible Securities, if
applicable) shall, as of the date of the issuance or sale of such
Purchase Rights, be deemed to be outstanding and to have been issued
and sold by the Company for such price per share. For purposes of
the preceding sentence, the "price per share for which Common Stock
is issuable upon the exercise of such Purchase Rights" shall be
determined by dividing (A) the total amount, if any, received or
receivable by the Company as consideration for the issuance or sale
of all such Purchase Rights, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
exercise of all such Purchase Rights, plus, in the case of
Convertible Securities issuable upon the exercise of such Purchase
Rights, the minimum aggregate amount of additional consideration
payable upon the conversion, exercise or exchange thereof
(determined in accordance with the calculation method set forth in
clause (2) of this Section 2(b)) at the time such Convertible
Securities first become convertible, exercisable or exchangeable, by
(B) the maximum total number of shares of Common Stock issuable upon
the exercise of all such Purchase Rights (assuming full conversion,
exercise or exchange of Convertible Securities, if applicable). No
further adjustment to the Exchange Rate shall be made upon the
actual issuance of such Common Stock upon the exercise of such
Purchase Rights or upon the conversion, exercise or exchange of
Convertible Securities issuable upon exercise of such Purchase
Rights.
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(ii) Issuance of Convertible Securities. If the Company
issues or sells any Convertible Securities, whether or not
immediately convertible, exercisable or exchangeable, and the price
per share for which Common Stock is issuable upon such conversion,
exercise or exchange is less than the Exchange Rate in effect on the
date of issuance or sale of such Convertible Securities, then the
maximum total number of shares of Common Stock issuable upon the
conversion, exercise or exchange of all such Convertible Securities
shall, as of the date of the issuance or sale of such Convertible
Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. If the Convertible
Securities so issued or sold do not have a fluctuating conversion or
exercise price or exchange ratio, then for the purposes of the
preceding sentence, the "price per share for which Common Stock is
issuable upon such conversion, exercise or exchange" shall be
determined by dividing (A) the total amount, if any, received or
receivable by the Company as consideration for the issuance or sale
of all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company
upon the conversion, exercise or exchange thereof (determined in
accordance with the calculation method set forth in this clause (2)
of this Section 2(b) at the time such Convertible Securities first
become convertible, exercisable or exchangeable, by (B) the maximum
total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible Securities. If the
Convertible Securities so issued or sold have a fluctuating
conversion or exercise price or exchange ratio (a "Variable Rate
Convertible Security"), then for purposes of the next preceding
sentence, the "price per share for which Common Stock is issuable
upon such conversion, exercise or exchange" shall be deemed to be
the lowest price per share which would be applicable (assuming all
holding period and other conditions to any discounts contained in
such Variable Rate Convertible Security have been satisfied) if the
conversion price of such Variable Rate Convertible Security on the
date of issuance or sale thereof was seventy-five percent (75%) of
the actual conversion price on such date (the "Assumed Variable
Market Price"), and, further, if the conversion price of such
Variable Rate Convertible Security at any time or times thereafter
is less than or equal to the Assumed Variable Market Price last used
for making any adjustment under this Section 2 with respect to any
Variable Rate Convertible Security, the Exchange Rate in effect at
such time shall be readjusted to equal the Exchange Rate which would
have resulted if the Assumed Variable Market Price at the time of
issuance of the Variable Rate Convertible Security had been
seventy-five percent (75%) of the actual conversion price of such
Variable Rate Convertible Security existing at the time of the
adjustment required by this sentence. No further adjustment to the
Exchange Rate shall be made upon the actual issuance of such Common
Stock upon conversion, exercise or exchange of such Convertible
Securities.
(iii) Change in Option Price or Conversion Rate. If there is a
change at any time in (A) the amount of additional consideration
payable to the Company upon the exercise of any Purchase Rights; (B)
the amount of additional consideration, if any, payable to the
Company upon the conversion, exercise or exchange of any Convertible
Securities; or (C) the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for Common Stock (in
each such case, other than under or by reason of provisions designed
to protect against dilution), the Exchange Rate in effect at the
time of such change shall be readjusted to the Exchange Rate which
would have been in effect at such time had such Purchase Rights or
Convertible Securities still outstanding provided for such changed
additional consideration or changed conversion, exercise or exchange
rate, as the case may be, at the time initially issued or sold.
Page 11
(iv) Calculation of Consideration Received. If any Common
Stock, Purchase Rights or Convertible Securities are issued or sold
for cash, the consideration received therefor will be the amount
received by the Company therefor (in the case of an underwritten
public offering, after deduction of all underwriting discounts or
allowances) in connection with such issuance, grant or sale. In case
any Common Stock, Purchase Rights or Convertible Securities are
issued or sold for a consideration part or all of which shall be
other than cash, including in the case of a strategic or similar
arrangement in which the other entity will provide services to the
Company, purchase services from the Company or otherwise provide
intangible consideration to the Company, the amount of the
consideration other than cash received by the Company (including the
net present value of the consideration expected by the Company for
the provided or purchased services) shall be the fair market value
of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the Market Price thereof as of the date of
receipt. In case any Common Stock, Purchase Rights or Convertible
Securities are issued in connection with any merger or consolidation
in which the Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair market value of
such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Purchase Rights
or Convertible Securities, as the case may be. Notwithstanding
anything else herein to the contrary, if Common Stock, Purchase
Rights or Convertible Securities are issued or sold in conjunction
with each other as part of a single transaction or in a series of
related transactions, the Purchaser may elect to determine the
amount of consideration deemed to be received by the Company
therefor by deducting the fair value of any type of securities (the
"Disregarded Securities") issued or sold in such transaction or
series of transactions. If the Purchaser makes an election pursuant
to the immediately preceding sentence, no adjustment to the Exchange
Rate shall be made pursuant to this Section 2 for the issuance of
the Disregarded Securities or upon any conversion, exercise or
exchange thereof. The Company shall calculate, using standard
commercial valuation methods appropriate for valuing such assets,
the fair market value of any consideration other than cash or
securities; provided, however, that if the Purchaser does not agree
to such fair market value calculation within three business days
after receipt thereof from the Company, then such fair market value
shall be determined in good faith by an investment banker or other
appropriate expert of national reputation selected by the Company
and reasonably acceptable to the Purchaser, with the costs of such
appraisal to be borne by the Company.
3. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns. The Company may
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of each Purchaser. Any Purchaser may assign any or all of
its rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Preferred Stock, provided, that (i) the proposed transferee or
assignee is either an "accredited investor" as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or a "qualified
institutional buyer" as defined in Rule 144(a) under the Securities Act, (ii)
such Purchaser provides written notice to the Company of such proposed
assignment or transfer as soon as practicable and (iii) prior to the taking
effect of such proposed assignment or transfer the proposed assignee or
transferee agrees in a written instrument in form and substance acceptable to
the Company in its sole discretion which provides that such assignee or
transferee agrees to be bound by all provisions hereof which apply to the
"Purchasers" herein and to the terms and conditions of the Preferred Stock
generally.
Page 12
4. MISCELLANEOUS.
(a) No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 3.
(b) Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each Purchaser or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
(c) Construction. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
(d) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, County of New York, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. The parties
hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
Page 13
(e) Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
(f) Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
[Signature page follows.]
Page 14
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Company and the Purchasers as of the date first set forth above.
COMPANY:
Diomed Holdings, Inc.
By:
---------------------------------
Name: James A. Wylie, Jr.
Title: Chief Executive Officer
PURCHASER
-----------------------------------
By:
---------------------------------
Name:
Title:
Page 15
EXHIBITS
Exhibit A Form of Exchange Notice
EXHIBIT A
EXCHANGE NOTICE
TO: Diomed Holdings, Inc.
(1) The undersigned hereby elects to tender ________ shares
of Preferred Stock of the Company (the "Tendered Shares") pursuant to the terms
of that certain Share Exchange Agreement, dated as of September 30, 2005, by and
between Diomed Holdings, Inc. and the undersigned (the "Share Exchange
Agreement"), to be exchanged for such number of shares of Common Stock of the
Company as the Tendered Shares are exchangeable for as of the date this notice
is received by the Company (the "Exchanged Common Shares").
(2) The undersigned tenders herewith the certificate(s)
representing the Tendered Shares, with stock power(s) endorsed in blank.
(3) Please issue a certificate or certificates representing said
Exchanged Common Shares in the name of the undersigned or in such other
name as is specified below:
------------------------------------
The Exchanged Common Shares shall be delivered to the following:
------------------------------------
------------------------------------
(4) Confirmation. Upon receipt of this notice, please deliver a
confirmation stating that this notice has been received, the date upon which the
Company expects to deliver the Exchanged Common Shares and the name and
telephone number of a contact person at the Company regarding the exchange.
(5) Limitations on Ownership. The undersigned hereby certifies
that, after giving effect to the exchange of Preferred Stock for Common Stock
requested hereby, the undersigned will not be in violation of the Limitations on
Ownership described in Section 1(a) of the Share Exchange Agreement.
[PURCHASER]
By: __________________________________
Name:
Title:
Dated: _______________________________
COMPANY ACKNOWLEDGMENT:
The undersigned acknowledges receipt of the within Exchange Notice on
______________ ___, 20__. The Company expects to deliver the Exchanged Common
Shares on _____________ ___, 20__. Please contact the following person at the
Company in connection with this matter: ______________________, telephone number
_______________.
DIOMED HOLDINGS, INC.
By:___________________________________
Name:
Title:
Dated:________________________________