DIOMED INC.
                               1998 INCENTIVE PLAN

1.     DEFINED TERMS

       Exhibit A, which is incorporated by reference, defines the terms used in
the Plan and sets forth certain operational rules related to those terms.

2.     IN GENERAL

       The Plan has been established to advance the interests of the Company by
giving selected Employees, directors and other persons (including both
individuals and entities) who provide services to the Company or its Affiliates
Stock-based or other incentives based on performance measures relating to the
Company or its Affiliates.

3.     ADMINISTRATION

       The Administrator has discretionary authority, subject only to the
express provisions of the Plan, to interpret the Plan; determine eligibility for
and grant Awards; determine, modify or waive the terms and conditions of any
Award; prescribe forms, rules and procedures (which it may modify or Waive); and
otherwise do all things necessary to carry out the purposes of the Plan. Once an
Award has been communicated in writing to a Participant, the Administrator may
not, without the Participant's consent, alter the terms of the Award so as to
affect adversely the Participant's rights under the Award, unless the
Administrator expressly reserved the right to do so in writing at the time of
such communication.

4.     SHARES SUBJECT TO THE PLAN

       a.     Subject to adjustment as provided in Section 7.b.(1), a maximum of
750,000 shares of Stock (not including any shares of stock that have been
authorized for issuance under stock option plans of Diomed, Ltd.) may be
delivered in satisfaction of Awards under the Plan. For purposes of the
preceding sentence, the following shares shall not be considered to have been
delivered under the Plan: (i) shares remaining under an Award that terminates
without having been exercised in full; (ii) shares subject to an Award, where
cash is delivered to a Participant in lieu of such shares; (iii) shares of
Restricted Stock that have been forfeited in accordance with the terms of the
applicable Award: and (iv) shares held back, in satisfaction of the exercise
price or tax withholding requirements, from shares that would otherwise have
been delivered pursuant to an Award. The number of shares of Stock delivered
under an Award shall be determined net of any previously acquired Shares
tendered by the Participant in payment of the exercise price, if any, or of
withholding taxes.

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       b.     Stock delivered by the Company under the Plan may be authorized
but unissued Stock or previously issued Stock acquired by the Company and held
in treasury. No fractional shares of Stock will be delivered under the Plan.

5.     ELIGIBILITY AND PARTICIPATION

       The Administrator will select Participants from among those key
Employees, directors and other individuals or entities providing services to the
Company or its Affiliates who, in the opinion of the Administrator, are in a
position to make a significant contribution to the success of the Company and
its Affiliates. Eligibility for ISOs is further limited to those individuals
whose employment status would qualify them for the tax treatment described in
Sections 421 and 422 of the Code.

6.     RULES APPLICABLE TO AWARDS

       a.     ALL AWARDS

              (1)    PERFORMANCE OBJECTIVES. Where rights under an Award depend
in whole or in part on attainment of performance objectives, actions by the
Company that have an effect, however material, on such performance objectives or
on the likelihood that they will be achieved will not be deemed an amendment or
alteration of the Award unless accomplished by a change in the express terms of
the Award or other action that is without substantial consequence except as it
affects the Award.

              (2)    ALTERNATIVE SETTLEMENT. The Company retains the right at
any time to extinguish rights under an Award in exchange for payment in cash,
Stock (subject to the limitations of Section 4) or other property on such terms
as the Administrator determines, provided the holder of the Award consents to
such exchange.

              (3)    TRANSFERABILITY OF AWARDS. Except as the Administrator
otherwise expressly provides, Awards, to the extent vested, (other than an Award
in the form of an outright transfer of cash or Unrestricted Stock) may only be
transferred to a Participant's Immediate Family members upon such Participant's
death. In the event of a Participant's incapacity, the person or persons legally
appointed to act on the Participant's behalf may exercise Awards on behalf of
such Participant.

              (4)    VESTING, ETC. Without limiting the generality of Section 3
and unless the Administrator provides otherwise: (i) Awards shall vest over a
two year time period, with 1/24th of the total Award vesting upon the end of
each month following the date of grant and (ii) an Award shall remain
exercisable for a period of ten years from the date of grant (the last

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day of such period being the "Final Exercise Date"). The Administrator shall
determine the terms on which an Award requiring exercise will remain
exercisable. Except as otherwise determined by the Administrator, any period
during which a Participant who is an employee is on an unpaid leave of absence
(or other unpaid absence) from the Company shall toll the period of time over
which an option becomes exercisable.

       If a Participant dies, each Award held by the Participant immediately
prior to death may be exercised, to the extent it was exercisable immediately
prior to death, by the Participant's executor or administrator or by the person
or persons to whom the Award is transferred by will or the applicable laws of
descent and distribution, in accordance with the limitations set forth in
Section 6(a)(3), at any time within the one-year period (or such longer or
shorter period as the Administrator may determine) beginning with the date of
the Participant's death but in no event beyond the Final Exercise Date. All
Awards held by a Participant immediately prior to death that are not then
exercisable shall terminate on the date of death.

       If an Employee's employment with the Company and its subsidiaries
terminates for any reason other than by death, all Awards held by the Employee
that are not then exercisable shall terminate. Awards that are exercisable on
the date employment terminates shall continue to be exercisable for a period of
three months (or such longer period as the Administrator may determine, but in
no event beyond the Final Exercise Date) unless the Employee was discharged for
cause that in the opinion of the Administrator casts such discredit on the
Employee as to justify termination of the Employee's Awards. After completion
of the post-termination exercise period, such Awards shall terminate to the
extent not previously exercised, expired or terminated. For purposes of this
Section 3(a)(4), employment shall not be considered terminated (i) in the case
of sick leave or other bona fide leave of absence approved for purposes of the
Plan by the Administrator, so long as the Employee's right to reemployment is
guaranteed either by statute or by contract, or (ii) in the case of a transfer
of employment between the Company and & a subsidiary or between subsidiaries, or
to the employment of a corporation (or a parent or subsidiary corporation of
such corporation) issuing or assuming an option in a transaction to which
section 424(a) of the Code applies.

       In the case of a Participant who is not an Employee, provisions relating
to the exercisability of Awards following termination of service shall be
specified in the Award. If not so specified, all Awards held by such Participant
that are not then exercisable shall terminate upon termination of service.
Awards that are exercisable on the date the Participant's service as a director,
consultant or adviser terminates shall continue to be exercisable for a period
of three months (or such longer period as the Administrator may determine, but
in no event beyond the Final Exercise Date) unless the director, consultant or
adviser was terminated for cause that in the opinion of the Administrator casts
such discredit on him or her as to justify termination of his of her Awards.
After completion of the post-termination exercise period, such options shall
terminate to the extent not previously exercised, expired or terminated,

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              (5)    TAXES. The Company will withhold from any cash payment
made pursuant to an Award an amount sufficient to satisfy all federal, state
and local withholding tax requirements (the "withholding requirements").

       In the case of an Award pursuant to which Stock may be delivered, the
Administrator will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Administrator with regard to such requirements, prior to the delivery of any
Stock or removal of restrictions thereon. If and to the extent that such
withholding is required, the Administrator may permit the Participant or such
other person to elect at such time and in such manner as the Administrator
provides to have the Company hold back from the shares to be delivered, or to
deliver to the Company, Stock having a value calculated to satisfy the
withholding requirement. The Administrator may make such share withholding
mandatory with respect to any Award at the time such Award is made to a
Participant.

       If at the time an ISO is exercised the Administrator determines that the
Company could be liable for withholding requirements with respect to the
exercise or with respect to a disposition of the Stock received upon exercise,
the Administrator may require as a condition of exercise that the person
exercising the ISO agree (a) to provide for withholding under the preceding
paragraph of this Section 6.a.(5), if the Administrator determines that a
withholding responsibility may arise in connection with the exercise, (b) to
Inform the Company promptly of any disposition (within the meaning of section
424(c) of the Code) of Stock received upon exercise, and (c) to give such
security as the Administrator deems adequate to meet the potential liability of
the Company for other withholding requirements and to augment such security from
time to time in any amount reasonably deemed necessary by the Administrator to
preserve the adequacy of such security.

              (6)    DIVIDEND  EQUIVALENTS,  ETC. The  Administrator may provide
for the payment of amounts in lieu of cash dividends or other cash distributions
with respect to Stock subject to an Award

              (7)    RIGHTS  LIMITED.  Nothing in the Plan shall be construed as
giving any person the right to continued  employment or service with the Company
or its  Affiliates, or any rights as a shareholder  except as to shares of Stock
actually  issued  under the Plan.  The loss of existing or  potential  profit in
Awards will not  constitute an element of damages in the event of termination of
employment or service for any reason, even if the termination is in violation of
an obligation of the Company or Affiliate to the Participant.

              (8)    DOCUMENTATION  OF AWARDS.  Awards will be evidenced by such
written instruments, if any, as may be prescribed by the Administrator from time
to time. Such  instruments  may be in the form of  Agreements to be executed by
both the Participant and the

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Company,  or  certificates,  letters or similar  instruments,  which need not be
executed by the Participant  but acceptance of which will evidence  agreement to
the terms thereof,

              (9)    NO RIGHTS AS A STOCKHOLDER. Except as specifically provided
by the Plan,  the  receipt of an Award will not give a  Participant  rights as a
stockholder; the Participant will obtain such rights, subject to any limitations
imposed  by the Plan or the  instrument  evidencing  the  Award,  only  upon the
issuance of Stock.

       b.     AWARDS REQUIRING EXERCISE

              (1)    TIME AND  MANNER  OF  EXERCISE.  Unless  the  Administrator
expressly provides otherwise, (a) an Award requiring exercise by the holder will
not be deemed to have been exercised until the Administrator  receives a written
notice of  exercise  (in form  acceptable  to the  Administrator)  signed by the
appropriate  person and accompanied by any payment  required under the Award and
any documents required by the  Administrator;  and (b) if the Award is exercised
by  any  person  other  than  the  Participant, the  Administrator  may  require
satisfactory  evidence that the person exercising  the Award has the right to do
so.

              (2)    PAYMENT OF EXERCISE PRICE, IF ANY. Where the exercise of an
Award is to be  accompanied  by payment,  the  Administrator  may  determine the
required or permitted forms of payment either at or after the time of the Award,
subject  to the  following:  (a)  unless the  Administrator  expressly  provides
otherwise,   all  payments  will  be   by  cash  or  check   acceptable  to  the
Administrator;  and (b) where  shares of stock issued under an Award are part of
an original issue of shares,  the Award shall require an exercise price equal to
at least the par value of such shares,

              (3)    RELOAD AWARDS.  The Administrator may provide that upon the
exercise of an Award,  either by payment of cash or (if permitted  under Section
6.b.(2)above)  through  the  tender of  previously  owned  shares of Stock,  the
Participant or other person  exercising the Award will  automatically  receive a
new Award of like kind  covering a number of shares of Stock equal to the number
of shares of Stock for which the first Award was exercised.

              (4)    ISOs. No ISO may be granted under the Plan after _________,
2008, but ISOs previously granted may extend beyond that date.

       c.     AWARDS NOT REQUIRING EXERCISE

       Awards of Restricted Stock and  Unrestricted  Stock may be made in return
for either (i) services determined by the Administrator to have a value not less
than the par  value  of  the  awarded  shares  of  Stock,  or (ii) cash or other
property  having a value not less  than the par  value of the awarded  shares of
Stock plus such additional amounts (if any) as the Administrator may

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determine  payable in such  combination and type of cash, other property (of any
kind) or services as the Administrator may determine.

7.     EFFECT OF CERTAIN TRANSACTIONS

       a.     MERGERS, ETC.

       In the event of (i) a consolidation or merger in which the Company is not
the  surviving  corporation  or  which  results  in  the  acquisition  of all or
substantially  all of the Company's  then  outstanding  common stock by a single
person or entity or by a group of persons  and/or  entities  acting in  concert,
(ii) a sale or transfer of all or  substantially  all the Company's  assets.  or
(iii) a  dissolution  or  liquidation  of the Company (any of the  foregoing,  a
"Covered Transaction"),  all outstanding Awards (other than shares of Stock that
are  outstanding and fully vested) will be forfeited as of the effective time of
the Covered  Transaction  unless assumed by an acquiring or surviving  entity or
its affiliate as provided in the  following  sentence.  In  connection  with any
Covered  Transaction  in which there is an acquiring or  surviving  entity,  the
Administrator  may provide for  substitute  or  replacement  awards from, or the
assumption  of Awards by, the acquiring or surviving  entity or its  affiliates,
any such  substitution,  replacement  or  assumption  to be on such terms as the
Administrator  determines;  but if there is no acquiring or surviving entity, or
if the Administrator  does not so provide for the  substitution,  replacement or
assumption of Awards in connection with the covered transaction, all outstanding
Awards shall vest and if relevant become  exercisable  and all deferrals,  other
than deferrals of amounts that are neither  measured by reference to nor payable
in shares of  Stock,  shall be  accelerated,  immediately  prior to the  covered
transaction.

       b.     CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK

              (1)    RUDE  ADJUSTMENT  PROVISIONS.  In  the  event  of  a  stock
dividend, stock split or combination of shares, recapitalization or other change
in the Company's  capital  structure,  the Administrator  will make  appropriate
adjustments to the maximum number of shares that may be delivered under the Plan
under Section 4.a. and will also make appropriate  adjustments to the number and
kind of shares of stock or  securities  subject to Awards  then  outstanding  or
subsequently  granted,  any  exercise  prices  relating  to Awards and any other
provision of Awards affected by such change.

              (2)    CERTAIN OTHER  ADJUSTMENTS. The Administrator may also make
adjustments  of the type  described in paragraph  (1) above to take into account
distributions to common  stockholders  other than stock dividends or normal cash
dividends,  mergers,  consolidations,   acquisitions,  dispositions  or  similar
corporate transactions, or any other event, if the Administrator determines that
adjustments are appropriate to avoid distortion in the operation of the Plan and
to

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preserve  the  value  of the  Awards  made  hereunder;  PROVIDED,  that  no such
adjustment  shall be made to ISOs  except to the  extent  consistent  with their
continued qualification under Section 422 of the Code.

              (3)    CONTINUING  APPLICATION  OF PLAN TERMS.  References  in the
Plan to shares of Stock shall be  construed  to include any stock or  securities
resulting from an adjustment pursuant to Section 7.b.(1) or 7.b.(2) above.

8.     CONDITIONS ON DELIVERY OF STOCK

       The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to  remove  any  restriction  from  shares  of  Stock  previously
delivered  under the Plan until:  the  Company's  counsel has approved all legal
matters in  connection  with the issuance  and  delivery of such shares;  if the
outstanding  Stock is at the time of  delivery  listed on any stock  exchange or
national  market  system,  the  shares  to be  delivered  have  been  listed  or
authorized  to be listed on such  exchange  or system  upon  official  notice of
issuance;  and all conditions of the Award have been satisfied or waived. If the
sale of Stock has not been  registered  under  the  Securities  Act of 1933,  as
amended,  the Company may require, as a condition to exercise of the Award, such
representations   or   agreements  as  counsel  for  the  Company  may  consider
appropriate  to avoid  violation  of such Act.  The  Company  may  require  that
certificates  evidencing Stock issued under the Plan bear an appropriate  legend
reflecting any restriction on transfer applicable to such Stock.

9.     AMENDMENT AND TERMINATION

       Subject to the last sentence of Section 3, the  Administrator  may at any
time or times amend the Plan or any outstanding  Award for any purpose which may
at the time be permitted by law, or may at any time terminate the Plan as to any
further  grants of  Awards;  PROVIDED,  that  (except  to the  extent  expressly
required or permitted by the Plan) no such amendment will,  without the approval
of the  stockholders of the Company,  effectuate a change for which  stockholder
approval is required in order for the Plan to continue to qualify  under Section
422 of the Code.

10.    NON-LIMITATION OF THE COMPANY'S RIGHTS

       The  existence of the Plan or the grant of any Award shall not in any way
affect the Company's  right to award a person bonuses or other  compensation  in
addition to Awards under the Plan.

11.    GOVERNING LAW

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The Plan  shall  be  construed  in  accordance  with  the  laws of the  State of
Delaware.

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                                    EXHIBIT A

                               DEFLATION OF TERMS

       The following  terms,  when used in the Plan, shall have the meanings and
be subject to the provisions set forth below:

       "ADMINISTRATOR": The Board or, if one has been appointed, the Committee.

       "AFFILIATE":   Any  corporation  or  other  entity  owning,  directly  or
indirectly,  50% or  more of the outstanding  Stock of the Company,  or in which
the  Company  or  any  such  corporation  or  other  entity  owns,  directly  or
indirectly, 50% of the outstanding capital stock (determined by aggregate voting
rights) or other voting interests.

       "AWARD": Any of the following:

              (i)   Options  ("Stock  Options")   entitling   the  recipient  to
       acquire  shares of Stock upon  payment of the exercise  price. Each Stock
       Option  will have an  exercise  price  determined  by the  Administrator,
       except that an ISO will have an  exercise  price equal to the fair market
       value of the Stock  subject to the option,  determined  as of the date of
       grant  unless  the ISO is  granted to an  Employee  described  in Section
       422(b)(6)  of the Code in which case the ISO will have an exercise  price
       equal to 110% of such fair market value. The Administrator will determine
       the medium in which the exercise price is to be paid, the duration of the
       option,  the time or times at which an option  will  become  exercisable,
       provisions  for   continuation   (if  any)  of  option  rights  following
       termination  of the  Participant's  employment  with the  Company and its
       Affiliates,  and all other  terms of the Stock  Option.  No Stock  Option
       awarded under the Plan will be an ISO unless the Administrator  expressly
       provides for ISO treatment.

              (ii)   Rights  ("SARs")  entitling  the holder  upon  exercise  to
       receive  cash or  Stock,  as the  Administrator  determines,  equal  to a
       function (determined by the  Administrator using such factors as it deems
       appropriate)  of the amount by which the Stock has  appreciated  in value
       since the date of the Award.

              (iii)  Stock subject to  restrictions  ("Restricted  Stock") under
       the Plan  requiring  that such  Stock be  redelivered  to the  Company if
       specified conditions are not satisfied. The conditions to be satisfied in
       connection  with any Award of Restricted  Stock,  the terms on which such
       Stock must be  redelivered  to the Company,  the  purchase  price of such
       Stock, and all other terms shall be determined by the Administrator.

              (iv)   Stock  not  subject  to any  restrictions  under  the  Plan
       ("Unrestricted Stock").

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              (v)    A  promise  to  deliver  Stock or other  securities  in the
       future on such terms and  conditions as the Administrator determines.

              (vi)   Securities  (other than Stock Options) that are convertible
       into or  exchangeable  for  Stock on such  terms  and  conditions  as the
       Administrator determines,

              (vii)  Cash bonuses tied to  performance  criteria as described at
       (viii) below ("Cash Performance Awards").

              (viii) Awards  described  in any of (i) through  (vii) above where
       the right to  exercisability,  vesting or full  enjoyment of the Award is
       conditioned  in  whole  or in  part  on  the  satisfaction  of  specified
       performance criteria ("Performance Awards").

              (ix)   Grants of cash,  or loans, made in  connection  with  other
       Awards  in order to help  defray  in whole or in part the  economic  cost
       (including  tax cost) of the Award to the  Participant.  The terms of any
       such grant or loan shall be determined by the Administrator.

Awards may be combined in the Administrator's discretion.

       "BOARD": The Board of Directors of the Company.

       "CODE":  The  U.S.  Internal  Revenue  Code of 1986 as from  time to time
amended and in effect, or any successor statute as from time to time in effect.

       "COMMITTEE":  A  committee  of the  Board.  The  Committee  may  delegate
ministerial tasks to such persons (including Employees) as it deems appropriate.

       "COMPANY": Diomed, Inc.

       "EMPLOYEE": Any person who is employed by the Company or an Affiliate.

       "IMMEDIATE FAMILY": A person's children or spouse.

       "ISO": A Stock Option  intended to be an "incentive  stock option" within
the meaning of Section 422 of the Code.

       "PARTICIPANT":  An Employee, director or other person or entity providing
services  to the  Company or its  Affiliates  who is granted an Award  under the
Plan.

       "PLAN": Diomed, Inc. 1998 Incentive Plan as from time to time amended and
in effect.

       "STOCK": Common Stock of the Company, par value $0.001 per share.