June 12, 2006
James A. Wylie, Jr.
President and Chief Executive Officer
Diomed Holdings, Inc.
One Dundee Park
Andover, MA 01810
Dear Jim:
This letter will confirm the agreement ("Agreement") under which Musket Research
Associates, Inc., a Massachusetts corporation ("MRA") is engaged by Diomed
Holdings, Inc., or any affiliate of Diomed Holdings, Inc. (collectively "DIO",
"Diomed" or the "Company") to assist the Company as described below.
1. Engagement
1.1. Diomed hereby engages and retains MRA as a nonexclusive finder/advisor in
connection with a proposed private placement to MRA Contacts (as defined herein)
and other investors in the aggregate amount of at least $7.5 million in
equity-related securities such as common stock or preferred stock exchangeable
for DIO common stock and warrants to purchase DIO common stock, or pursuant to
such other terms and conditions as the Company may approve (the "Placement").
MRA hereby represents and warrants to the Company that MRA is a duly-licensed
broker-dealer and has all requisite approvals, power, licenses and registrations
as are required to provide its services to the Company as set forth herein.
2. Services
2.1. MRA's services hereunder shall include the following:
(a) Analyze the financial performance and projections of the Company and
provide advice regarding the appropriate financing structure for the Placement;
(b) Assist in the development of presentation materials for investor
solicitations. MRA will only send materials approved by the Company or otherwise
already in the public domain to prospective investors;
(c) Contact qualified investors and send the necessary documents directly
or through Diomed. Documents sent by the Company at MRA's request shall be
accompanied by a cover letter and/or business card from MRA, or, if these are
not available, a specific reference to the introduction by MRA;
(d) After appropriate screening by MRA, in consultation with the Company,
schedule meetings and accompany Diomed representatives to meetings (or
participate in telephonic conferences) with interested parties and other
advisors to the Company as reasonably requested by the Company as often as
scheduling allows;
(e) Assist the Company in negotiating the restructure of certain covenants
in the outstanding preferred stock to permit its reclassification to
stockholders' equity; and
(f) Assist the Company in the negotiation of the definitive documentation
pertaining to the Placement, manage ongoing discussions and coordinate the
execution and delivery of definitive Placement documents and the purchase and
sale of DIO securities to MRA Contacts pursuant to the Placement.
2.2. MRA acknowledges and agrees that the Placement offering will be made
pursuant to the private offering exemption from registration under Section 4(2)
of the Securities Act of 1933 and Rule 506 promulgated thereunder, and that DIO
securities are to be offered and sold only to "accredited investors" (as defined
in the SEC's Regulation D) who also satisfy any applicable securities laws. MRA
will not make any general solicitation in connection with the Placement and will
conduct its obligations hereunder in a manner consistent with the requirements
of Rule 506. Before each closing, DIO will validate the "accredited investor"
status of each MRA Contact with assistance from MRA, via the traditional
suitability questionnaire, copies of which will be provided to MRA upon request
2.3. The potential investors to be contacted by MRA are subject to acceptance by
DIO in its sole and absolute discretion, and DIO is under no obligation to sell
any of its securities to such parties or to any persons. MRA is and shall for
all purposes be deemed to be an independent contractor and shall have no right,
power or authority to create any obligations on behalf of DIO. Without
limitation of the generality of the foregoing, Diomed shall retain in its Board
of Directors full discretion as to the terms and conditions of the Placement,
whether or not to consummate the Placement and whether to accept any investment
by any particular investor (including any MRA Contact) in the Placement.
However, DIO will keep MRA informed of any developments, positive or negative,
that would be presumed to be relevant to the successful completion of the
Placement.
3. Cash Fees and Placement Warrants
3.1. DIO agrees to pay or to issue to MRA at any closing of a Placement finder's
fees (the "Finder's Fees") of: (i) six percent (6%) of the aggregate cash
proceeds received by DIO from MRA Contacts, as defined below, and (ii) common
stock purchase warrants (the "Placement Warrants") equal in number to five
percent (5%) of the number of common share equivalents that are actually
purchased by MRA Contacts in the Placement. Common share equivalents for
convertible preferred stock or convertible debt will be based on the conversion
price at the time of purchase. Consideration paid by Edwin Snape, PhD/New
England Partners (and affiliates) or existing investors that exchange their
existing positions for new securities will not be subject to or result in
Finder's Fees. The Placement Warrants will have terms identical with the common
stock purchase warrants issued to MRA Contacts in the Placement. If there are no
common stock placement warrants issued to investors in the Placement, the terms
of the Placement Warrant will conform to those in the warrants issued in the
October 2005 PIPE financing to MRA. The shares underlying the Placement Warrants
will be included in the registration statement covering the shares issued in the
Placement for which they were earned.
Additionally, DIO agrees to pay MRA a cash fee of six percent (6%) of any
aggregate cash proceeds received by DIO within twelve12 months of the closing of
the Placement in connection with any payments, equity purchases or warrant
exercises by MRA Contacts resulting from rights, obligations, contingencies or
issuances negotiated as part of the Placement. The closing of a Placement shall
be any date when the investors in the Placement deliver funds in exchange for
the debt or equity instrument, including such investments that were
contractually obligated as part of the Placement but dependent upon shareholder
approval.
Such fees described in this Section 3.1. shall constitute the complete and full
compensation payable to MRA and its agents arising from the Placement and the
sale by DIO of securities thereunder to the MRA Contacts and any other investors
in the Placement, and neither MRA nor any of its agents, successors or assigns
shall be entitled to any additional payment whatsoever hereunder, except as
provided for under of Sections 3.3 , 4.1, or 6.1 below.
3.2. "MRA Contacts" are defined as prospective investors who are persons (a)
identified by MRA and approved by the Company as prospective investors and who
are listed on the Schedule A hereto, (b) are contacted by MRA relative to this
Placement, (c) with whom members of the Company's management have had a
telephone conversation or a face-to-face meeting or (d) who participate as
investors in the Placement. MRA Contacts will be updated on Schedule A, which is
hereby incorporated by reference, from time to time with the written consent of
the Company, such consent to not be unreasonably withheld. DIO acknowledges that
Funds affiliated with North Sound, SDS Capital Group and ProMed Management are
preapproved on Schedule A.
3.3. The Company will inform MRA promptly if it engages any additional finders
in connection with the Placement, including in such notice a complete
description of any fee agreement with such additional finder. If the Company
agrees to pay fees in excess of those described in this Agreement for services
similar to those being provided by MRA hereunder, then the fees payable to MRA
will be increased to the same level, if requested by MRA, in its sole
discretion.
3.4. All payments of the Finders Fees and of unpaid expenses due to MRA under
this Agreement will be made within 10 days of the consummation of the Placement.
Cash and equity will be payable directly to or registered in the name of Musket
Research Associates, Inc., unless otherwise specified by MRA.
4. Expenses
4.1. Whether or not the Placement contemplated herein is consummated, the
Company will reimburse MRA for its reasonable out-of-pocket expenses incurred in
connection with this prospective financing, provided such expenses have been
approved in advance by DIO, such approval to not be unreasonably withheld,
subject to a ceiling of $25,000. A non-refundable retainer of $5,000 toward
these expenses will be paid at the time of the signing of this Agreement.
DIO-approved expenses incurred by MRA prior to closing of the Placement or
earlier termination of the Agreement will be submitted for reimbursement by DIO
and, should be paid within two weeks of receipt.
5. Public Disclosures; Press Releases
5.1. Concurrently with its execution and delivery of this Agreement, MRA shall
execute and deliver to the Company a counterpart of the Confidentiality
Agreement attached hereto as Exhibit 2 (the "Confidentiality Agreement"). The
Company represents that, except for the details related to the proposed
Placement and for certain information related to its financial performance in
the current quarter, it has disclosed no confidential information to MRA. After
the Company publicly discloses the existence and details regarding the
Placement, the Company will list MRA as a participating placement agent in any
description of this financing it issues directly (i.e. press release) and will
use its own discretion to list MRA similarly in any further communications it
makes to the investment community regarding this financing. MRA will not issue
any independent press release regarding its relationship with DIO or any
financing that may result therefrom without the prior approval of DIO, such
approval to not be unreasonably withheld. After the Company publicly discloses
the Placement, MRA will be allowed to list DIO and the amounts MRA raised in any
Placement for DIO in its general deal summaries without any further consent from
or notification of Diomed.
6. Termination
6.1. This Agreement shall automatically terminate upon the consummation of the
Placement. This Agreement may also be terminated by DIO or MRA at any time
without cause, upon 10 days written notice to that effect by the other party,
provided, however, that, MRA shall still be entitled to the fees described in
Section 3 above, in the event that, at any time within 180 days after
termination of this engagement, a financing, loan, credit facility, or other
investment is consummated by DIO with an MRA Contact listed on Schedule A at the
time of termination. Any expenses incurred by MRA prior to such termination
notice and owed under Section 4 above will be paid within two weeks of receipt.
The provisions of the Indemnification Agreement and the Confidentiality
Agreement shall also survive the termination of this Agreement.
7. Indemnification
7.1. The Company agrees to indemnify MRA under the terms set forth in Exhibit 1,
which is incorporated herein by reference.
8. Governing Law
8.1 This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts applicable to contracts executed and
to be wholly performed therein without giving effect to its conflicts of laws
principles or rules. The Company and MRA agree that any dispute concerning this
Agreement shall be resolved through binding arbitration conducted by a panel of
three arbitrators, one chosen by the Company, one chosen by MRA and the third
chosen by the two arbitrators selected by the parties, pursuant to the
commercial arbitration rules of the American Arbitration Association. In the
event that the parties are unable to reach agreement on the arbitration panel,
the arbitrators will be appointed pursuant to the applicable commercial rules of
the American Arbitration Association. Arbitration will be venued in the city of
Boston in the Commonwealth of Massachusetts.
9. Agreement
9.1. This Agreement (together with the Indemnification Agreement and the
Confidentiality Agreement) constitutes the entire and complete understanding
with respect to the subject matter hereof and supersedes any prior discussion or
agreement between the parties with respect hereto. No provision of this
Agreement may be waived or amended except in a written instrument signed, in the
case of an amendment, by Diomed and MRA or, in the case of a waiver, by the
party against whom enforcement of such waiver is sought.
Sincerely,
David B. Musket
President
Musket Research Associates, Inc.
Agreed and Accepted:
-------------------------------------------
David B. Swank Date
Chief Financial Officer
Diomed Holdings, Inc.
EXHIBIT 1: Indemnification
Diomed Holdings, Inc. ("DIO") agrees to indemnify and hold harmless Musket
Research Associates, Inc. ("MRA") and each of MRA's officers, directors, agents,
employees and controlling persons (within the meaning of each of Section 20 of
the Securities Exchange Act of 1934, as amended, and Section 15 of the
Securities Act of 1933, as amended) (each of the foregoing, including MRA, being
hereinafter referred to as an "Indemnified Person") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including reasonable fees and disbursements for counsel), actions (including
shareholder derivative actions), proceedings, investigations (whether formal or
informal, or in tort, contract or otherwise), inquiries or threats thereof (all
of the foregoing being hereinafter referred to as "Liabilities"), based upon,
relating to or arising out of MRA's engagement hereunder or any Indemnified
Person's role therein including, without limitation, any liabilities relating to
or arising out of the engagement by DIO of any other financial advisor or
investment banker; provided, however, that DIO shall not be liable under this
paragraph to the extent that it is finally judicially determined by a court of
competent jurisdiction that such Liabilities resulted from the willful
misconduct or gross negligence of any Indemnified Person. In connection with
DIO's obligation to indemnify for expenses as set forth above, DIO further
agrees to advance or reimburse each Indemnified Person for such expenses
(including reasonable fees for counsel) as they are incurred by such Indemnified
Person: provided, however, that if any Indemnified Person is reimbursed
hereunder for any expenses, such reimbursement of expenses shall be refunded by
the Indemnified Person who received such expenses to the extent it is finally
judicially determined by a court of competent jurisdiction that the Liabilities
in question resulted from the willful misconduct or gross negligence of such
Indemnified Person.
Each Indemnified Party shall, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against, it or upon its receipt of other written
notification of the assertion against it of any Liabilities, such Indemnified
Party will promptly give written notice (hereinafter the "Notice") thereof to
DIO (provided that delay in giving such notice shall not relieve DIO of its
indemnification obligations hereunder except to the extent, if at all, that DIO
shall have been prejudiced thereby). DIO shall be entitled, if it so elects
within fifteen days after receipt of the Notice, by giving written notice
(hereinafter the "Defense Notice") to the Indemnified Party, to assume the
entire defense of such Liabilities, in which event such defense shall be
conducted at the expense of DIO by counsel chosen by DIO and reasonably
satisfactory to the Indemnified Party; provided, however, that if the
Indemnified Party reasonably determines (i) that there may be conflict between
the positions of DIO and the Indemnified Party in conducting the defense of such
Liabilities or (ii) that there may be legal defenses available to the
Indemnified Party different from or in addition to those available to DIO, then
one counsel for the Indemnified Party shall be entitled to participate in such
defenses, or conduct the defense to the extent reasonably determined by such
counsel to be necessary to protect the interests of the Indemnified Party, and
such participation in or separate conduct of such defense shall be covered by
the indemnification by DIO hereunder. In any event, any Indemnified Party shall
retain the right to participate in the defense of any Liabilities with separate
counsel, where the defense of such Liabilities has been assumed by DIO in
accordance with the provisions hereof and the circumstances described in clauses
(i) or (ii) of the above proviso are not present, but the Indemnified Party
shall bear and be solely responsible for its own costs and expenses in
connection with any such participation.
If the indemnification or reimbursement provided for hereunder is finally
judicially determined by a court of competent jurisdiction to be unavailable to
an Indemnified Person in respect to any Liabilities (other than as a consequence
of a final judicial determination by such a court of willful misconduct or gross
negligence of such Indemnified Person), then DIO agrees, in lieu of indemnifying
such Indemnified Person, to contribute to the amount paid or payable by such
Indemnified Person as a result of such Liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received, or sought to be received,
by DIO on the one hand and by such Indemnified Person on the other from the
transaction in connection with which MRA has been engaged, or (ii) if (but only
if) the allocation provided in clause (i) of this sentence is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in such clause (i) but also the relative fault of
DIO and of such Indemnified Person: provided, however, that in no event shall
the aggregate amount contributed by the Indemnified Person exceed the amount of
fees actually received by his or its affiliate or employer pursuant to such
engagement. The relative benefits received or sought to be received by DIO on
the one hand and by MRA on the other shall be deemed to be in the same
proportion as (i) the gross proceeds raised in the transactions subject to this
Agreement bears to (ii) the fees paid or payable to MRA hereunder, including the
value of any warrants or other securities issued to MRA.
EXHIBIT 3: CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement ("Agreement") is made as of June __, 2006 between
Diomed Holdings, Inc. (the "Company") and Musket Research Associates, Inc., a
Massachusetts corporation (together with its affiliates, the "Disclosee"). In
consideration of the opportunity to enter into a business relationship, and as
an inducement for the Company to disclose to Disclosee certain Confidential
Information, the parties hereby agree as follows:
1. Confidential Information. "Confidential Information" means non-public
information pertaining to the Company, its markets, products, financial
condition, internal structure and all other information that is expressly marked
"confidential" when disclosed by the Company to Disclosee. By way of example but
without limitation, Confidential Information includes technical information and
data, knowhow, algorithms, designs, specifications, processes, plans, product
concepts, samples, reports, computer programs, works of authorship, inventions,
financial information, cost and expense data, marketing and customer data,
vendor data, and other information that is not generally ascertainable from
public or published information or trade sources. Disclosee understands and
agrees that the Confidential Information will be material, non-public
information and that accordingly, pursuant to United States securities laws,
Disclosee will not be permitted to engage, directly or indirectly, in
transactions in the Company's securities so long as such Confidential
Information remains non-public.
2. Non-Disclosure and Non-Use. Disclosee shall hold all Confidential Information
in strict confidence, and shall not use or disclose, or permit the use or
disclosure by any other person, except for the purposes of evaluating whether to
enter into a business relationship with the Company. Disclosee may disclose
Confidential Information only to such of its officers, employees, agents,
consultants and professional advisors who have a need to know such Confidential
Information to evaluate whether to enter into a business relationship with the
Company and who are required to undertake in writing the obligations regarding
non-use, non-disclosure and non-trading in accordance with and in the manner
provided in this Agreement. If Disclosee or anyone to whom Disclosee transmits
Confidential Information pursuant to this Agreement becomes legally compelled
(by deposition, interrogatory, subpoena, civil investigation, demand or similar
process) to disclose any Confidential Information, Disclosee shall provide the
Company with prompt written notice thereof so that the Company may seek a
protective order or other appropriate remedy prior to the disclosure of such
Confidential Information.
3. Term. The obligations of the Disclosee shall survive for a period of 2
(years) or until such time as the Confidential Information becomes publically
known and made available through no action or inaction of the Disclosee.
4. Action for Breach; Choice of Law and Jurisdiction. The Company may seek
action upon a breach of Disclosee's obligations hereunder in any court having
proper jurisdiction. This Agreement shall be governed by the law of the
Commonwealth of Massachusetts, without giving effect to the conflict of laws
provisions thereof. Disclosee irrevocably submits to the jurisdiction of the
state and federal courts located in Boston, Massachusetts, and waives any right
to seek to remove any legal proceedings initiated by the Company to another
forum, whether on the grounds of inconvenience, hardship or otherwise.
5. Return of Confidential Information. Upon the termination for any reason of
the discussions regarding the proposed business relationship, and upon the
request of the Company at any time, Disclosee shall promptly return to the
Company all documents and other tangible manifestations of Confidential
Information.
6. No Further Obligation. Neither the Company nor the Disclosee shall be
committed in any way by this Agreement to enter into any particular transaction,
and any future transaction shall be detailed in a formal agreement with respect
thereto entered into by the Company and Disclosee.
DIOMED HOLDINGS, INC. DISCLOSEE
By:____________________________ By:_______________________________
David B. Swank Name and Title: ___________________
Chief Financial Officer