ITEM
1.01.
ENTRY
INTO MATEIAL DEFINITIVE AGREEMENTS
.
$10,000,000
Term Loan from Hercules Technology Capital Growth Capital, Inc.
On
September 28, 2007, Diomed Holdings, Inc. (the “
Registrant
”)
and
its wholly-owned subsidiary, Diomed, Inc. (collectively, the “
Company
”),
entered into a Loan and Security Agreement (the “
Loan
Agreement
”)
with
Hercules Technology Growth Capital, Inc. (the “
Lender
”).
The
Loan Agreement provides for a term loan (the “
Loan
”)
of up
to $10 million in two tranches, an initial $6 million tranche, which was funded
on September 28, 2007, and an additional $4 million tranche available at the
Company’s option at any time during the period from January 31, 2008 through
March 31, 2008. The proceeds of the Loan are for the Company’s working capital
purposes.
The
Loan
is secured by the assets of the Company, including the $14.7 million judgment
awarded to Diomed, Inc. against AngioDynamics, Inc. and Vascular Solutions,
Inc.
in the Company’s lawsuit in which AngioDynamics and VSI were found to have
infringed the Company’s EVLT® patent. The Registrant also granted to the Lender
a pledge of the shares of Diomed, Inc., and Diomed, Inc. granted to the Lender
a
pledge of its wholly-owned United States subsidiaries and a share charge of
65%
of the outstanding shares of its wholly-owned United Kingdom subsidiary, Diomed
Limited.
The
Loan
bears interest at the prime rate plus 3.20%, will be repayable on an
interest-only basis through June 30, 2008 and will thereafter become payable
in
24 equal monthly installments of principal and interest, with the final
installment due on July 1, 2010, at which time a deferred interest charge of
9.5% of the funds borrowed will also be payable. The Loan may be prepaid at
the
Company’s option, subject to a prepayment fee of 3% of the funds borrowed (if
prepaid during the first 12 months), 2% of the funds borrowed (if prepaid during
after twelve months but before 24 months) or 1% (if prepaid at 24 months or
thereafter).
The
Company paid the Lender a $200,000 commitment fee in connection with the Loan,
and has agreed to pay the Lender success fees of $900,000 on June 30, 2008
and
1% of the gross consideration paid for the acquisition of the Company should
a
change of control occur while the Loan is outstanding. The Company also agreed
to pay the legal fees and expenses incurred by the Lender in connection with
negotiating the Loan Agreement. As additional consideration, the Registrant
also
issued to the Lender warrants to purchase up to 86,957 shares of Registrant’s
Common Stock at an exercise price of $0.70 per share, with a term of five years
(the “
the
Lender Warrants
”).
Consent
by Holders of Variable Rate Convertible Debentures
The
terms
of the outstanding Variable Rate Convertible Debentures due October 2008 (the
“
2004
Debentures
”),
issued by the Registrant on October 25, 2004, provide that the Company may
not
incur indebtedness that is senior to or
pari
passu
with the
indebtedness represented by the 2004 Debentures or grant a security interest
in
the Company’s assets. To enable the Company to enter into the Loan Agreement, on
September 28, 2007, the Company
negotiated
for and obtained the consent of each of the four holders of 2004 Debentures
(the
“
Debenture
Holders
”)
pursuant to an Agreement and Consent (the “
Debenture
Holder Consent
”).
Pursuant
to the Debenture Holder Consent, the Registrant amended and restated the 2004
Debentures in the form of an Amended and Restated Variable Rate Secured
Subordinated Convertible Debenture due October 2008 (the “
Secured
2004 Debenture
”)
by (i)
increasing the rate of interest from 400 basis points over six-month LIBOR
to
the greater of 10% and 500 basis points over six-month LIBOR, (ii) reflecting
the adjusted conversion price of the Secured 2004 Debentures of $0.70 per share,
which adjustment results from the antidilution adjustment of the 2004 Debentures
caused by the issuance of the Lender Warrants (discussed under “Impact on
Outstanding Securities,” below) and (iii) granting a security interest in all of
the Registrant’s assets (and, as set forth in a guaranty by Diomed, Inc. of the
Registrant’s obligations under the Secured 2004 Debenture and a separate
security agreement, the assets of Diomed, Inc.), subordinated to the security
interest granted to the Lender. The Company made certain representations,
warranties and other agreements with the Debenture Holders, including
reimbursement of their legal fees, but paid no remuneration for obtaining the
Debenture Holder Consents.
The
Debenture Holders and the Lender entered into an Intercreditor Agreement, dated
September 28, 2007, acknowledged by the Company, pertaining to the creditors’
respective rights to the collateral comprising their respective security
interests in the Company’s assets. The Intercreditor Agreement enables the
Lender to block the Registrant from repaying the Secured 2004 Debentures when
they become payable, in which case, under the Debenture Holder Consent, the
Company agreed to repay the Lender with the proceeds of the judgment in the
EVLT® patent litigation case, so long as the Company has received at least $10
million from that $14.7 million judgment by that time.
Under
the
Debenture Holder Consents, among other things, the Debenture Holders permitted
the Company’s incurrence of indebtedness under the Loan and the Company’s grant
of security to the Lender in connection with the Loan, agreed that they had
no
rights to participate in the Loan and agreed to limit conversions of their
Secured 2004 Debentures to 2/3 of the principal amount thereof until such time
as the Company obtains the listing of additional shares with the American Stock
Exchange to cover all shares into which the outstanding Secured 2004 Debentures
would be convertible after giving effect to the antidilution adjustment.
Consent
by Holders of Preferred Stock
The
terms
of the outstanding shares of Preferred Stock issued by the Registrant on
September 29, 2006 also prohibit the Company’s incurrence of debt and the
issuance of Common Stock equivalents, such as the Lender Warrants, at a price
lower than $1.15 per share exchange rate of the Preferred Stock (a “
Dilutive
Issuance
”),
and
provide that dividends must begin to accrue and be payable in the event of
a
Dilutive Issuance.
To
enable
the Company to enter into the Loan and the transactions contemplated thereby
(including the amended terms of the 2004 Debentures) and to avoid being required
to pay dividends, on September 28, 2007, the Company negotiated for and obtained
the consent of the requisite holders of Preferred Stock (the “
Preferred
Stockholders
”),
which
consent was provided under an Agreement and Consent (the “
Preferred
Stockholder Consent
”).
Pursuant
to the Preferred Stockholder Consent, the Registrant agreed that upon exchange
of the Preferred Stock in accordance with its terms, the Registrant will issue
to the holders of the Preferred Stock that provided their consents to the Loan,
in addition to those shares of Common Stock issuable upon such exchange,
additional shares of Common Stock such that the holders of Preferred Stock
that
provided their consents to the Loan will receive in total the number of shares
of Common Stock as if the exchange rate of the Preferred Stock were $0.70 per
share.
Under
the
Preferred Stockholder Consents, among other things, the Preferred Stockholders
that provided their consents to the Loan (i) permitted the Company’s incurrence
of indebtedness under the Loan and the amendments to the 2004 Debentures, (ii)
agreed that they had no rights to participate in the Loan, (iii) agreed to
limit
voting of their Preferred Stock to the number of underlying shares of Common
Stock at the exchange rate of $1.15 (without giving effect to the additional
shares the Registrant agreed to issue upon conversion), (iv) agreed to permit
the issuance of the Lender Warrant and (v) agreed that, notwithstanding the
issuance the Lender Warrant or the adjustments to the 2004 Debentures, (1)
no
antidilution adjustment to the Preferred Stock would occur and (2) dividends
would not begin to accrue or be payable on the Preferred Stock as a result
of
the Dilutive Issuance.
Impact
on Outstanding Securities
As
stated
above, as consideration for the Preferred Stockholder Consents, the Registrant
agreed to issue additional shares of Common Stock upon exchange of the Preferred
Stock. There are currently 673.6044 shares of Preferred Stock issued and
outstanding, exchangeable for a total of 6,736,044 shares of Common Stock,
at an
exchange rate of $1.15 per share of common at $10,000 per share of Preferred
Stock. All of the holders of Preferred Stock provided their consents. As a
result, the Registrant will be required to issue up to an additional 4,330,314
shares of its Common Stock at such time as the Preferred Stock is tendered
for
exchange, for a total of 11,066,358 shares.
Additionally,
the terms of certain of the Registrant’s currently outstanding securities (the
“
Antidilution
Securities
”)
provide for adjustments to the effective price payable for shares of Common
Stock upon conversion or exercise of those Antidilution Securities when the
Company completes certain future transactions and the effective price per share
of the Common Stock or Common Stock equivalents that are issued in the future
transaction is less than the effective price per share under the terms of the
Antidilution Security. The issuance of the Lender Warrants constitutes a
dilutive transaction under the terms of the Antidilution Securities, triggering
the antidilution provisions of certain Antidilution Securities.
Accordingly,
Registrant’s issuance of the Lender Warrant caused the following adjustments to
Antidilution Securities:
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the
conversion price of the 2004 Debentures ($3.712 million principal
amount
currently outstanding) was reduced from $1.15 per share of Common
Stock to
$0.70 per share, which, when converted, will increase the number
of shares
of Common Stock to be issued from to 3,227,826 to 5,302,857, or,
2,075,031
shares;
|
|
·
|
the
exercise price of the warrants to purchase 2,657,461 shares of Common
Stock issued to the investors in the Company’s financing transaction
completed October 28, 2004 (the “
2004
Warrants
”)
was reduced from $1.15 to $0.70 per share of Common Stock;
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|
the
exercise price of the warrants to purchase 2,272,000 shares of Common
Stock issued to the investors in the Company’s financing transaction
completed September 30, 2005 (the “
2005
Warrants
”)
was reduced from $1.98 to $1.75 per share, and the number of shares
of
Common Stock issuable upon exercise of the 2005 Warrants will increase
from 2,272,000 to 2,572,855, an increase of 300,855 shares;
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|
the
exercise price of the warrants to purchase 370,000 shares of Common
Stock
issued to the designees of the Registrant’s former placement agent, Musket
Research Associates, Inc., in the Registrant’s financing transaction
completed September 29, 2006 (the “
MRA
Warrants
”)
was reduced to $1.01 per share, and the number of shares of the Common
Stock issuable upon exercise of the MRA Warrants will increase from
370,000 to 418,995, an increase of 48,995 shares;
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|
the
exercise price of warrants to purchase 85,578 shares of the Common
Stock
issued to designees of the Company’s former placement agent, Sunrise
Securities Corp. (the “
Sunrise
Warrants
”),
will be reduced from $1.15 to $0.70 per
share.
|
The
following table sets forth the numbers of shares of Common Stock underlying
the
Preferred Stock and the Antidilution Securities prior to the Loan and related
Debenture Holder Consents and Preferred Stockholder Consents, and the numbers
of
shares that will underly the Lender Warrant, the Preferred Stock and the
Antidilution Securities giving effect to the Company’s entering into the Loan
Agreement, the Preferred Stockholder Consents and the adjustment to Antidilution
Securities:
Description
of Security
|
|
Current
Number of Underlying
Common
Shares
|
|
Number
of Underlying Shares following Transaction
|
|
Net
Increase in Underlying
Common
Shares
|
|
the
Lender Warrants
|
|
|
0
|
|
|
86,957
|
|
|
86,957
|
|
Preferred
Stock
|
|
|
6,736,044
|
|
|
11,066,358
|
|
|
4,330,314
|
|
2004
Debentures
|
|
|
3,227,826
|
|
|
5,302,857
|
|
|
2,075,031
|
|
2004
Warrants
|
|
|
2,657,461
|
|
|
2,657,461
|
|
|
0
|
|
2005
Warrants
|
|
|
2,272,000
|
|
|
2,572,855
|
|
|
300,855
|
|
MRA
Warrants
|
|
|
370,000
|
|
|
418,995
|
|
|
48,995
|
|
Sunrise
Warrants
|
|
|
85,578
|
|
|
85,578
|
|
|
0
|
|
TOTAL
|
|
|
15,348,909
|
|
|
22,191,061
|
|
|
6,842,152
|
|
On
a
fully-diluted basis (
i.e.,
giving
effect to all shares of Common Stock of the Registrant underlying Common Stock
equivalents outstanding), the total increase in shares of Common Stock issuable
under these securities represents approximately 14% of the Company’s
approximately 50 million outstanding shares.
Company
Approval of Loan; Related Transactions
The
Board
of Directors of the Company approved the Loan, the Debenture Holders Consents
and the Preferred Stockholder Consents through its Finance Committee, the
members of which are James A. Wylie, Jr., David B. Swank, Geoffrey H. Jenkins,
Joseph Harris and Edwin Snape. The Board granted the Finance Committee authority
to approve, negotiate and authorize the Company’s officers to enter into
agreements for debt and equity financings (such as the Loan, Debenture Holder
Consent and Preferred Stockholder Consent).
Dr.
Snape
is a partner of New England Partners (“
NEP
”),
whose
affiliates, New England Capital, L.P., and Nexus Medical Partners II S.C.A.,
SICAR, both of which are managed by NEP and affiliates of NEP, purchased
Preferred Stock in the Company’s September 29, 2006 financing transaction and
are currently Preferred Stockholders. As such, Dr. Snape recused himself from
deliberations and voting on the Finance Committee’s approval of the Loan,
Debenture Holder Consents and Preferred Stockholder Consents, which were
approved unanimously by the other members of the Finance Committee. NEP’s
affiliates gave their consent to the Loan under terms and conditions of the
Preferred Stockholder Consent that are identical to the terms and conditions
that were negotiated by the other, unaffiliated Preferred
Stockholders.
Exemptions
from Registration
The
Lender Warrants were issued, and the shares of Common Stock issuable upon
exercise thereof will be issued, without registration with the Commission,
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“
Securities
Act
”),
and
Rule 506 promulgated thereunder. The shares of Common Stock that the Registrant
agreed to issue as consideration for the Preferred Stockholder Consent and
the
additional shares of Common Stock that will be issuable upon exercise of the
Antidilution Securities will be issued without registration under the Securities
Act pursuant to Section 4(2) thereof and Rule 506 thereunder. The Secured 2004
Debentures were issued pursuant to Section 3(a)(9) of the Securities Act.
Transaction
Expenses and Net Proceeds
The
Company incurred certain transaction expenses in connection with the Loan,
the
Debenture Holder Consent and the Preferred Stockholder Consent, including (i)
the Loan commitment fee of $200,000, (ii) legal fees and expenses of
approximately $450,000 payable
to
its
counsel and counsel representing the Lender and the Debenture Holders, (iii)
American Stock Exchange additional listing fees of $47,000 in connection with
the listing of the shares of Common Stock underlying the Lender Warrants, the
additional shares of Common Stock it agreed to issue to the Preferred
Stockholders upon exchange of their Preferred Stock and the increased number
of
shares of Common Stock underlying the Antidilution Securities and (iv) legal
and
accounting fees of approximately $75,000 in connection with the registration
of
certain shares issuable as a result of the Loan. Accordingly, the Company will
receive net proceeds of approximately $5,228,000 out of the $6,000,000 tranche
under the Loan, excluding the $4,000,000 that will be received if the Company
elects to draw the second tranche when it becomes available.
The
Company will use the proceeds of the financing, net of transaction expenses,
for
its general working capital purposes, including legal expenses incurred in
patent litigation.
Further
Information
This
Current Report includes as exhibits copies of the forms of the following
documents in connection with the Loan, the Debenture Holder Consent and the
Preferred Stockholder Consent, each of which documents is hereby incorporated
by
reference into this Current Report:
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Loan
and Security Agreement, dated as of September 28, 2007, by and between
Diomed Holdings, Inc. and Diomed, Inc., on the one hand, and Hercules
Technology Growth Capital, Inc., on the other hand (Schedules
Omitted);
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Trademark
Security Agreement, dated as of September 28, 2007, by and between
Diomed
Holdings, Inc. and Diomed, Inc., on the one hand, and Hercules Technology
Growth Capital, Inc., on the other
hand;
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Collateral
Grant of Security Interest in Copyrights, dated as of September 28,
2007,
by and between Diomed Holdings, Inc. and Diomed, Inc., on the one
hand,
and Hercules Technology Growth Capital, Inc., on the other
hand
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Patent
Security Agreement, dated as of September 28, 2007, by and between
Diomed
Holdings, Inc. and Diomed, Inc., on the one hand, and Hercules Technology
Growth Capital, Inc., on the other hand;
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Stock
Pledge Agreement, dated as of September 28, 2007, by and between
Diomed
Holdings, Inc. and Diomed, Inc., on the one hand, and Hercules Technology
Growth Capital, Inc., on the other hand and Hercules Technology Growth
Capital, Inc., on the other hand;
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Share
Charge Agreement, dated as of September 28, 2007, by and between
Diomed,
Inc. and Hercules Technology Growth Capital,
Inc.;
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Warrant
Agreement, dated as of September 28, 2007, between Diomed Holdings,
Inc.
and Hercules Technology Growth Capital,
Inc.;
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Debenture
Holder Agreement and Consent, dated as of September 28, 2007, between
Diomed Holdings, Inc. and each holder of Variable Rate Convertible
Debentures due October 2008 (Schedules
Omitted);
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Intercreditor
Agreement, dated as of September 28, 2007, by and between Hercules
Technology Growth Capital, Inc., on the one hand, and each holder
of
Amended and Restated Secured Subordinated Convertible Debentures
due
October 2008;
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Form
of Amended and Restated Secured Subordinated Convertible Debentures
due
October 2008 of Diomed Holdings,
Inc.;
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Pledge
and Security Agreement, dated as of September 28, 2007, by Diomed
Holdings, Inc. in favor of the holders of Amended and Restated Secured
Subordinated Convertible Debentures due October
2008;
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Guaranty,
dated as of September 28, 2007, by Diomed, Inc. in favor of the holders
of
Amended and Restated Secured Subordinated Convertible Debentures
due
October 2008;
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Guarantor
Pledge and Security Agreement, as of September 28, 2007, by Diomed,
Inc.
in favor of the holders of Amended and Restated Secured Subordinated
Convertible Debentures due October 2008;
and
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Preferred
Stockholder Agreement and Consent, dated as of September 28, 2007,
between
Diomed Holdings, Inc. and each holder of Preferred
Stock.
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The
Company also issued a press release relating to the financing transaction on
October 1, 2007, which is filed as an Exhibit 99.1 to this Current Report and
is
hereby incorporated by reference into this Current Report.