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                                                                    Exhibit 10.3
                                 One Dundee Park
                                Andover, MA 01810
                                  978-475-7771

                                 August 21, 2003

Mr. Samuel Belzberg c/o Mr. Johnny Ciampi Gibralt US, Inc.
1177 West Hastings, Suite 2000
Vancouver, BC  V6E 2K3
Canada

Re:  Permanent Financing - Understanding and Acknowledgment of Certain Matters

Dear Sam:

This letter is being  addressed to Gibralt US, Inc.  ("Gibralt") in its capacity
as the  Designated  Note  Purchaser  under  the terms of the  $2,000,000  bridge
financing made to Diomed  Holdings,  Inc. (the  "Company") in December 2002 (the
"December  2002  Financing")  and the  Designated  Lender under the terms of the
$1,200,000  bridge  financing  made to the  Company  in May 2003  (the "May 2003
Financing"),  and as a holder of  greater  than  two-thirds  of the  outstanding
securities issued by the Company in both the December 2002 Financing and the May
2003  Financing.  The purpose of this  letter is to set forth our  understanding
with respect to certain matters  relating to these  transactions as they pertain
to the Company's  present  financing  initiative  (the  "Permanent  Financing").
Certain  investors in the Permanent  Financing  have asked the Company to obtain
the  acknowledgment  of the investors in the December 2002 Financing and the May
2003 Financing to our understanding of these matters.

As you know, the Permanent  Financing is  contemplated to occur in two tranches,
with Tranche I consisting  of  investment  in the form of Secured  Bridge Notes,
part of the proceeds of which will  immediately  be applied to the  repayment in
full of the notes  representing the  indebtedness  incurred in the December 2002
Financing,  and with the investors in the December 2002 Financing  participating
in Tranche I in the total amount of  $2,000,000.  Tranche II will occur when the
Company  has  satisfied  certain  conditions,  including  obtaining  stockholder
approval  or the  issuance of common  stock to the  investors  in the  Permanent
Financing,  the December 2002 Financing and the May 2003 Financing and obtaining
AMEX listing of this common stock.

Under the terms of the Class E Preferred Stock and Class F Preferred Stock, held
by the  investors in the December  2002  Financing  and the May 2003  Financing,
respectively, these shares of preferred stock are to be exchanged by the holders
and the Company for shares of common stock, under the exchange  agreements dated
as of August 16, 2003 between the Company and these investors,  once stockholder
approval of the  issuance of the  underlying  common  stock and AMEX  listing of
these shares has been  obtained.  We understand  that the holders of the Class E
Preferred  Stock and Class F Preferred  Stock will not tender  their  shares for
exchange into common stock until the Tranche II Closing occurs,  notwithstanding
the possibility that stockholder approval and AMEX listing may be obtained prior
to the  Tranche II Closing.  Further,  we  understand  that the shares of common
stock issued upon exchange of the Class E Preferred  Stock and Class F Preferred
Stock will not be  eligible  for  participation  in the  Company's  contemplated
rights offering, even if this common stock is outstanding,  or is for any reason
deemed to be  outstanding,  on the  business day prior to the Tranche II Closing
Date.  We also  understand  that any and all shares of common  stock held by the
investors  in the  December  2002  Financing  and the May 2003  Financing on the
business day prior to the Tranche II Closing Date other than those shares issued
in exchange for the Class E Preferred Stock and the Class F Preferred Stock will
be eligible to participate in the Company's contemplated rights offering.


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Additionally,  the  investors in the December  2002  Financing  and the May 2003
Financing are parties to a Registration  Rights Agreement with the Company.  The
investors  in the  Permanent  Financing  will also be parties  to an  Investors'
Rights  Agreement  with the Company,  which  provides  for,  among other things,
mandatory registration of the common stock issued in the Permanent Financing. It
is our intention  that the investors in the December 2002  Financing will become
parties to the Investors'  Rights Agreement by virtue of their  participation in
the Tranche I investment, that the investors in the May 2003 Financing will also
be deemed to be parties to the Investors' Rights Agreement and that the existing
Registration Rights Agreement will be terminated,  effective as of the Tranche I
Closing.  Accordingly,  the common stock issued to the investors in the December
2002  Financing  in  connection  with  their  investment  in  Tranche  I and  in
connection with the exchange of their Class E Preferred  Stock, the common stock
issued  to the  investors  in the May  2003  Financing  in  connection  with the
exchange  of their Class F Preferred  Stock and the common  stock  issued to the
investors  in the  Permanent  Financing  will all be governed by the  Investors'
Rights Agreement.

In terms of security for the Class D Notes,  which will remain outstanding after
the Tranche I Closing until the Tranche II Closing,  the  collateral  enjoyed by
the  holders of the Class D Notes will become  "shared"  with the holders of the
Secured  Bridge  Notes,  issued in Tranche I.  Gibralt  will cease to act as the
"Designated  Note Purchaser" on behalf of the Class E Notes because they will be
redeemed  immediately after the Tranche I Closing,  but Gibralt will continue to
be the  "Designated  Lender" on behalf of the holders of the Class D Notes until
they are redeemed in Tranche II. In addition,  we  understand  that Gibralt will
act as the  "Designated  Pledgeholder"  under the  Amended and  Restated  Pledge
Agreement, and will retain the stock certificate and stock power relating to all
outstanding  shares of Diomed PDT,  Inc.  and  perform  the other  duties of the
Designated  Pledgeholder  under  the  Amended  and  Restated  Pledge  Agreement.
Further,  signed  acknowledgment  below will constitute Gibralt's consent to the
Company's  entering  into the  Amended and  Restated  Pledge  Agreement  and the
Security Agreement with the Secured Bridge Note investors.


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Also in connection  with the security for the Class D Notes,  we wish to clarify
that Gibralt's capacity under the Second Amended and Restated Security Agreement
is as agent for the holders of the Class D Notes,  not in  Gibralt's  individual
capacity.  Your acknowledgment below will serve to confirm your concurrence with
this understanding.

Finally, we note that currently,  if the Company does not complete the Permanent
Financing by November 15, 2003, the investors in the May 2003 Financing have the
right to declare immediately due and payable the $1,200,000 principal amount and
accrued  interest  on the Class D Notes  issued by the  Company  in the May 2003
Financing. We appreciate the investors' previous willingness to grant extensions
of this deadline in light of the delays we have  encountered  in completing  the
Permanent  Financing.  While we  continue to expect to  complete  the  Permanent
Financing  by November 15,  2003,  we would like to obtain the  agreement of the
investors  in the May 2003  Financing  to further  extend  this  deadline to the
business day  following  any date after  November 15, 2003 which the Company and
the  investors  in the  Permanent  Financing  agree to as the Tranche II Closing
Date. Your acknowledgement below will constitute your agreement to so extend the
acceleration deadline.

If you are in  agreement  with the  foregoing,  please so indicate by having the
acknowledgment  below  signed on behalf of Gibralt.  If you have any  questions,
please call me to discuss them.

                                            Very truly yours,

                                            /s/  JAMES A. WYLIE, JR.
                                            James A. Wylie, Jr.
                                            Chief Executive Officer


Acknowledged and Agreed:
Gibralt US, Inc.,
         As an investor in the December  2002  Financing,  As an investor in the
         May 2003 Financing, As a holder of Class D Notes and Class E Notes,
         As a holder of Class E Preferred Stock and Class F Preferred Stock
         As the Designated Note Purchaser and
         As the Designated Lender



By:      /s/  JOHNNY CIAMPI
         Johnny Ciampi, Authorized Officer