Document:

EX 10.6

    Execution
      Version 

     

    STOCK
      PLEDGE AGREEMENT

    

    THIS
      STOCK PLEDGE AGREEMENT (“Pledge
      Agreement”)
      is
      made this 28th day of September, 2007 by DIOMED
      HOLDINGS, INC. and
      DIOMED,
      INC.,
      each a
      Delaware corporation (each a “Pledgor”
and
      together, the “Pledgors”),
      in
      favor of HERCULES
      TECHNOLOGY GROWTH CAPITAL, INC.
      (“Pledgee”).

     

    WHEREAS,
      each
      Pledgor has concurrently herewith entered into that certain Loan and Security
      Agreement dated as of September 28th, 2007 (as amended and in effect from time
      to time, the “Loan
      Agreement”)
      with
      Pledgee pursuant to which Pledgee has agreed to make certain advances of money
      and to extend certain financial accommodations to Pledgor (collectively, the
      “Loan”),
      subject to the terms and conditions set forth therein; 

     

    WHEREAS,
      each Pledgor
      owns the percentage of the outstanding stock set forth beside the entities
      listed on Exhibit
      A
      attached
      hereto (which may be amended, updated, or otherwise modified from time to
      time);

     

    WHEREAS,
      Pledgee
      is willing to make the Loan to Pledgor, but only upon the condition, among
      others, that each Pledgor shall have executed and delivered to Pledgee this
      Pledge Agreement and the Pledged Collateral (as defined below);

     

    NOW,
      THEREFORE,
      in
      consideration of the foregoing recitals and for other good and valuable
      consideration, the receipt and adequacy of which are hereby acknowledged, and
      intending to be legally bound, each Pledgor hereby agrees as
      follows:

     

    1. All
      capitalized terms used but not otherwise defined herein shall have the meanings
      given them in the Loan Agreement.

     

    2. As
      security for the full, prompt and complete payment and performance when due
      (whether by stated maturity, by acceleration or otherwise) of all the Secured
      Obligations, together with, without limitation, the prompt payment of all
      expenses, including, without limitation, reasonable attorneys’ fees and legal
      expenses, incidental to the collection of the foregoing and the enforcement
      or
      protection of Pledgee’s lien in and to the collateral pledged hereunder (all
      such indebtedness being the “Liabilities”),
      each
      Pledgor hereby pledges to Pledgee, and grants to Pledgee, a first priority
      security interest in all of the following (collectively, the “Pledged
      Collateral”):

     

    (a) the
      shares of capital stock or other equity securities of the entities listed on
      Exhibit
      A
      attached
      hereto now owned or hereafter acquired (whether in connection with any
      recapitalization, reclassification, or reorganization of the capital of such
      entities or any successors in interest thereto) by Pledgor (collectively, the
      “Pledged
      Shares”),
      and
      all dividends, cash, instruments and other property or proceeds from time to
      time received, receivable or otherwise distributed in respect of or in exchange
      for any or all of the Pledged Shares;

     

    (b) all
      voting trust certificates held by Pledgor evidencing the right to vote any
      Pledged Shares subject to any voting trust; and 

     

    (c) all
      additional shares and voting trust certificates of the entities listed on
Exhibit
      A
      from
      time to time acquired by Pledgor in any manner (which additional shares shall
      be
      deemed to be part of the Pledged Shares), and the certificates representing
      such
      additional shares, and all dividends, cash, instruments and other property
      or
      proceeds from time to time received, receivable or otherwise distributed in
      respect of or in exchange for any or all of such Pledged Shares;

     

    
      
        
        

      

      
        1.

        
          

        

      

      
        
        

      

    

     

    provided,
      however,
      that
      notwithstanding the foregoing clauses
      (a)
      through
(c),
      in no
      event and at no time shall the Pledged Collateral include or be comprised of
      the
      issued and outstanding capital stock or other equity securities (calculated
      on
      an as-converted or as-exercised basis) of any Subsidiary of Pledgor organized
      under the laws of any jurisdiction other than the United States of America,
      or a
      subdivision thereof (a “Foreign
      Subsidiary”)
      which
      exceeds 65% of all such issued and outstanding capital stock or other equity
      securities (calculated on an as-converted or as-exercised basis) of such Foreign
      Subsidiary, and, in each case, the corresponding proportion of dividends,
      distributions, interest and other payments and rights with respect
      thereto.

     

    3. Each
      Pledgor hereby represents and warrants to Pledgee as follows:

     

    (a) Pledgor
      is, at the time of delivery of the Pledged Shares to Pledgee hereunder, the
      sole
      holder of record and the sole beneficial owner of its Pledged Collateral, free
      and clear of any lien thereon or affecting title thereto, except for the lien
      created by this Pledge Agreement and Permitted Liens.

     

    (b) None
      of
      the Pledged Shares have been transferred in violation of applicable federal
      or
      state securities laws to which such transfer may be subject.

     

    (c) All
      of
      the Pledged Shares have been duly authorized, validly issued, and fully paid,
      and are non-assessable and constitute the percentage of the issued and
      outstanding capital stock owned by Pledgor set forth on Exhibit
      A.

     

    (d) No
      consent, approval, authorization or other order of any person and no consent
      or
      authorization of any governmental authority or regulatory body is required
      to be
      made or obtained by Pledgor either (i) for the pledge by Pledgor of its Pledged
      Collateral pursuant to this Pledge Agreement or for the execution, delivery,
      or
      performance of this Pledge Agreement by Pledgor; or (ii) for the exercise by
      Pledgee of the voting or other rights provided for in this Pledge Agreement
      or
      the remedies with respect to the Pledged Collateral pursuant to this Pledge
      Agreement, except as may be required in connection with such disposition by
      laws
      affecting the offer and sale of securities generally.

     

    (e) The
      pledge, grant of a security interest in, and delivery of the Pledged Collateral
      pursuant to this Pledge Agreement, will create a valid first priority lien
      on
      and in the Pledged Collateral, and the proceeds thereof, securing the payment
      of
      the Liabilities.

     

    (f) This
      Pledge Agreement has been duly executed and delivered by Pledgor and constitutes
      a legal, valid, and binding obligation of Pledgor enforceable in accordance
      with
      its terms, except as enforceability may be limited by bankruptcy, insolvency,
      or
      other similar laws affecting the rights of creditors generally or by the
      application of general equity principles.

     

    Each
      Pledgor warrants and represents to Pledgee that all representations and
      warranties contained in this Pledge Agreement shall be true in all material
      respects at the time of Pledgor’s execution of this Pledge Agreement and with
      each Advance made to the Borrowers under the Loan Agreement.

     

    4. So
      long
      as no Event of Default exists and Pledgee has not given either Pledgor notice
      it
      will enforce its security interest in the Pledged Collateral:

     

    (a) Voting
      Rights.
      Each
      Pledgor shall be entitled to exercise any and all voting and other consensual
      rights pertaining to its Pledged Collateral, provided that no vote shall be
      cast
      or consent, waiver or ratification given by such Pledgor if the effect thereof
      would in the reasonable judgment of the Lender materially impair any of the
      Pledged Collateral or be inconsistent with or result in any violation of any
      of
      the provisions of the Loan Agreement, the Notes or any of the other Loan
      Documents; and

     

    
      
        
        

      

      
        2.

        
          

        

      

      
        
        

      

    

     

    (b) Dividend
      and Distribution Rights.
      Each
      Pledgor shall be entitled to receive and to retain and use any and all dividends
      or distributions paid in respect of its Pledged Collateral; provided, however,
      that any
      and all:

     

    (i) non-cash
      dividends or distributions in the form of capital stock, instruments or other
      property received, receivable or otherwise distributed in respect of, or in
      exchange for, any Pledged Collateral, and

     

    (ii) dividends
      and other distributions paid or payable in cash in respect of any Pledged
      Collateral in connection with total liquidation or dissolution, 

     

    shall
      forthwith be delivered to Pledgee, to be held as Pledged Collateral and shall,
      if received by a Pledgor, be received in trust for the benefit of Pledgee,
      be
      segregated from the other property of such Pledgor, and forthwith be delivered
      to Pledgee as Pledged Collateral in the same form as so received (with any
      necessary endorsement).

     

    5. Each
      Pledgor agrees to pay prior to delinquency all taxes, charges, liens and
      assessments against the Pledged Collateral, except those with respect to which
      the amount or validity is being contested in good faith by appropriate
      proceedings and with respect to which reserves in conformity with GAAP have
      been
      provided on the books of such Pledgor and upon the failure of such Pledgor
      to do
      so, Pledgee at its option may pay any of them and shall be the sole judge of
      the
      legality or validity thereof and the amount necessary to discharge the
      same.

     

    6. So
      long
      as Pledgee has any commitment to make Advances to any Pledgor under the Loan
      Agreement or any Pledgor has any Secured Obligations (other than inchoate
      indemnity obligations) outstanding under the Loan Agreement, each Pledgor agrees
      that such Pledgor:

     

    (a) will
      not
      (i) sell, transfer or otherwise dispose of, or grant any option or warrant
      with
      respect to, any of the Pledged Collateral (or any part thereof or interest
      therein) except with the prior written consent of Pledgee, or (ii) create or
      permit to exist any lien or encumbrance upon or with respect to any of the
      Pledged Collateral, except for Permitted Liens. If any Pledged Collateral,
      or
      any part thereof, is sold, transferred or otherwise disposed of in violation
      of
      this Section
      6,
      the
      security interest of Pledgee shall continue in the Pledged Collateral
      notwithstanding such sale, transfer or other disposition, and Pledgor will
      deliver any proceeds thereof to Pledgee to be held as Pledged Collateral
      hereunder;

     

    (b) shall,
      at
      Pledgor’s own expense, promptly execute, acknowledge, and deliver all such
      instruments and take all such actions as Pledgee from time to time may
      reasonably request in order to ensure to Pledgee the benefits of the lien in
      and
      to the Pledged Collateral intended to be created by this Pledge
      Agreement;

     

    (c) shall
      maintain, preserve and defend the title to the Pledged Collateral and the lien
      of Pledgee thereon against the claim of any other person; 

     

    
      
        
        

      

      
        3.

        
          

        

      

      
        
        

      

    

     

    (d) upon
      obtaining any shares of capital stock or other equity securities that should
      be
      pledged pursuant to Section
      2
      of this
      Pledge Agreement, shall immediately (i) deliver to Pledgee a duly executed
      Pledge Agreement Supplement in substantially the form of Schedule
      1
      attached
      hereto (a “Pledge
      Agreement Supplement”)
      identifying such additional shares of capital stock or other equity securities,
      and (ii) deliver or otherwise cause the transfer of such additional shares
      of capital stock or other equity securities to the Pledgee, provided,
      in
      each
      case so as to cause at all times the Pledged Collateral to constitute, but
      in no
      event and at no time to exceed, 65% of the issued and outstanding capital stock
      or other equity securities (calculated on an as-converted or as-exercised basis)
      of any Foreign Subsidiary. Pledgor hereby authorizes Pledgee to attach each
      Pledge Agreement Supplement to this Pledge Agreement and agrees that all shares
      of capital stock or other equity securities listed thereon shall for all
      purposes hereunder constitute Pledged Collateral.

     

    7. In
      the
      event that during the term of this Pledge Agreement, any reclassification,
      readjustment, new issuance or other change is declared or made in the capital
      structure of the issuer of the Pledged Shares, all new substituted and
      additional shares, options, or other securities, issued or issuable to any
      Pledgor by reason of any such issuance, change or exercise shall be delivered
      to
      and held by Pledgee under the terms of this Pledge Agreement in the same manner
      as the Pledged Collateral originally pledged hereunder.

     

    8. All
      advances, charges, costs and expenses, including reasonable attorneys’ fees,
      incurred or paid by Pledgee in exercising any right, power or remedy conferred
      upon Pledgee by this Pledge Agreement, or in the enforcement thereof, shall
      become a part of the Liabilities secured hereunder and shall be paid to Pledgee
      on demand.

     

    9. During
      the existence of an Event of Default, Pledgee may, to the extent permitted
      by
      applicable law, at its election, apply, set off, collect or sell in one or
      more
      sales, or take such steps as may be necessary to liquidate and reduce to cash
      in
      the hands of Pledgee in whole or in part, with or without any previous demands
      or demand of performance or notice or advertisement, the whole or any part
      of
      the Pledged Collateral in such order as Pledgee may elect, and any such sale
      may
      be made either at public or private sale at its place of business or elsewhere,
      or at any broker’s board or securities exchange, either for cash or upon credit
      or for future delivery; provided,
      however,
      that if
      such disposition is at private sale, then the purchase price of the Pledged
      Collateral shall be equal to the public market price then in effect, or, if
      at
      the time of sale no public market for the Pledged Collateral exists, then,
      in
      recognition of the fact that the sale of the Pledged Collateral would have
      to be
      registered under the Securities Act of 1933, as amended (the “Act”),
      and
      that the expenses of such registration are commercially unreasonable for the
      type and amount of collateral pledged hereunder, Pledgee and each Pledgor hereby
      agree that such private sale shall be at a purchase price mutually agreed to
      by
      Pledgee and the Pledgors or, if the parties cannot agree upon a purchase price,
      then at a purchase price established by Pledgee in the exercise of its
      reasonable discretion. Pledgee shall be under no obligation to delay the sale
      of
      any of the Pledged Shares for the period of time necessary to permit a Pledgor
      to register such securities for public sale under the Act, or under applicable
      state securities laws, even if such Pledgor would agree to do so. Pledgee may
      be
      the purchaser of any or all Pledged Collateral so sold and hold the same
      thereafter in its own right free from any claim of any Pledgor or right of
      redemption. To the extend permitted by law, demands of performance, notices
      of
      sale, advertisements and presence of property at sale are hereby waived. Any
      sale hereunder may be conducted by any officer or agent of Pledgee.

     

    10. The
      proceeds of the sale of any of the Pledged Collateral and all sums received
      or
      collected by Pledgee from or on account of such Pledged Collateral shall be
      applied by Pledgee to the payment of reasonable expenses incurred or paid by
      Pledgee in connection with any sale, transfer or delivery of the Pledged
      Collateral, to the payment of any other costs, charges, attorneys’ fees or
      expenses mentioned herein, and to the payment of the Secured Obligations or
      any
      part hereof, all in such order and manner as Pledgee in its discretion may
      determine. Pledgee shall then pay any remaining balance of the Secured
      Obligations to the Pledgor.

     

    11. Upon
      the
      transfer of all or any part of Secured Obligations pursuant to the terms of
      the
      Loan Agreement, Pledgee may transfer all or any part of the Pledged Collateral
      to the transferee of the Secured Obligations and shall be fully discharged
      thereafter from all liability and responsibility with respect to such Pledged
      Collateral so transferred, and the transferee shall be vested with all the
      rights and powers of Pledgee hereunder with respect to such Pledged Collateral
      so transferred; but with respect to any Pledged Collateral not so transferred,
      Pledgee shall retain all rights and powers hereby given.

     

    
      
        
        

      

      
        4.

        
          

        

      

      
        
        

      

    

     

    12. Until
      all
      Secured Obligations shall have been paid in full in cash, the power of sale
      and
      all other rights, powers and remedies granted to Pledgee hereunder shall
      continue to exist and may be exercised by Pledgee at any time and from time
      to
      time pursuant to the terms hereof.

     

    13. Pledgee
      may at any time deliver the Pledged Collateral or any part thereof to a Pledgor
      and the receipt thereof by such Pledgor shall be a complete and full acquittance
      for the Pledged Collateral so delivered, and Pledgee shall thereafter be
      discharged from any liability or responsibility therefore, except for such
      as is
      directly caused by Pledgee’s gross negligence or willful misconduct.

     

    14. The
      rights, powers and remedies given to Pledgee by this Pledge Agreement shall
      be
      in addition to all rights, powers and remedies given to Pledgee by virtue of
      any
      statute or rule of law. Any forbearance, failure or delay by Pledgee in
      exercising any right, power or remedy hereunder shall not be deemed to be a
      waiver of such right, power or remedy, and any single or partial exercise of
      any
      right, power or remedy hereunder shall not preclude the further exercise thereof
      and every right, power and remedy of Pledgee shall continue in full force and
      effect until such right, power or remedy is specifically waived by an instrument
      in writing executed by Pledgee.

     

    15. If
      any
      provision of this Pledge Agreement is held to be unenforceable for any reason,
      all other provisions of this Pledge Agreement shall be deemed valid and
      enforceable to the full extent possible.

     

    16. This
      Pledge Agreement shall be governed by, and construed in accordance with, the
      laws of the State of California.

     

    17. Upon
      the
      payment in full in cash of all Secured Obligations (other than inchoate
      indemnity obligations) and the cancellation or termination of any commitment
      to
      extend credit or make Advances under the Loan Agreement, the security interest
      granted herein shall terminate and all rights to the Pledged Collateral shall
      revert to the Pledgors, and Pledgee shall immediately return all Pledged
      Collateral to the applicable Pledgor. Upon such termination, Pledgee shall,
      at
      Pledgors’ cost and expense, execute and deliver to any Pledgor any additional
      documents or instruments as such Pledgor reasonably request to evidence such
      termination.

     

    [Signature
      Page Follows]

     

    
      
        
        

      

      
        5.

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      each
      Pledgor has executed this Pledge Agreement as of the date first set forth
      above.

     

    
      	
              DIOMED
                HOLDINGS, INC.

            
	 	 
	
              By:

            	 
	
              Name:
                

            	 
	
              Title:
                

            	 
	 	 
	
              DIOMED,
                INC.

            
	 	 
	
              By:

            	 
	
              Name:
                

            	 
	
              Title:
                

            	 

    

     

    
      
        
        

      

      
        1.

        
          

        

      

      
        
        

      

    

    Exhibit
      A

     

    Pledgor:
      Diomed Holdings, Inc.

    

    
      	
              Name of
                

              Pledged
                

              Share
                

              Issuer

            	 	
              Jurisdiction
                

              of
                

              Organization

            	 	
              Number of
                

              Shares
                

              Authorized

            	 	
              Number of
                

              Shares
                

              Issued

            	 	
              Number of
                

              Shares
                

              Outstanding

            	 	
              Number of
                

              Shares
                

              Owned by
                

              Pledgor

            	 	
              % of
                

              Outstanding
                

              Shares
                

              Pledged

            	 	
              Certificate
                

              Number

            
	
              Diomed,
                Inc.

            	 	
              Delaware

            	 	
              3,500,000

              Preferred

            	 	
              3,500,000
                Preferred

            	 	
              3,500,000
                Preferred

            	 	
              3,500,000

              Preferred

            	 	
              100%

            	 	
              P-1

            
	
              Diomed,
                Inc.

            	 	
              Delaware

            	 	
              40,000,000

              Common

            	 	
              40,000,000

              Common

            	 	
              40,000,000

              Common

            	 	
              40,000,000

              Common

            	 	
              100%

            	 	
              1

            

    

     

    Pledgor:
      Diomed, Inc.

    

    
      	
              Name of
                

              Pledged
                

              Share
                

              Issuer

            	 	
              Jurisdiction
                

              of
                

              Organization

            	 	
              Number of
                

              Shares
                

              Authorized

            	 	
              Number of
                

              Shares
                

              Issued

            	 	
              Number of
                

              Shares
                

              Outstanding

            	 	
              Number of
                

              Shares
                

              Owned by
                

              Pledgor

            	 	
              % of

              Outstanding
                

              Shares
                

              Pledged

            	 	
              Certificate
                

              Number

            
	
              Diomed
                PDT, Inc.

            	 	
              Delaware

            	 	
              100

              Common

            	 	
              100

              Common

            	 	
              100

              Common

            	 	
              100

              Common

            	 	
              100%

            	 	
              1

            
	
              Diomed
                Acquisition Corp.

            	 	
              Delaware

            	 	
              1,000

              Common

            	 	
              1,000

              Common

            	 	
              1,000

              Common

            	 	
              1,000

              Common

            	 	
              100%

            	 	
              1

            

    

     

    
      
        
        

      

      
        2.

        
          

        

      

      
        
        

      

    

     

    Schedule
      1

    

    Pledge
      Agreement Supplement

    

    This
      Pledge Agreement Supplement, dated as of _____________, 20__, is delivered
      pursuant to Section 6(d) of the Pledge Agreement referred to below. The
      undersigned hereby agrees that this Pledge Agreement Supplement may be attached
      to the Pledge Agreement, dated as of September 28, 2007 (as amended, restated,
      modified, renewed, supplemented or extended from time to time, the “Pledge
      Agreement”;
      the
      terms defined therein and not otherwise defined herein being used as therein
      defined), made by the undersigned, as Pledgor in favor of Hercules Technology
      Growth Capital, Inc., as Pledgee, and that the shares of capital stock or other
      equity securities listed on this Pledge Agreement Supplement shall be and become
      part of the Pledged Collateral pledged by the undersigned and referred to in
      the
      Pledge Agreement and shall secure all Secured Obligations.

    

    The
      undersigned agree that the shares of capital stock and other equity securities
      listed below shall for all purposes constitute Pledged Collateral pledged by
      the
      undersigned and shall be subject to the security interest created by the Pledge
      Agreement.

    

    The
      undersigned hereby certify that the representation and warranties set forth
      in
      Section 3 of the Pledge Agreement are true and complete in all material respects
      with respect to the Pledged Shares listed below on and as of the date
      hereof.

     

    
      	
              [PLEDGOR]

            
	 	 
	
              By:

            	 
	
              Name:
                

            	 
	
              Title:
                

            	 

    

     

    
      
        
        

      

      
        3.

        
          

        

      

      
        
        

      

    

     

    
      	
              Name of
                

              Pledged
                

              Share
                

              Issuer

            	 	
              Jurisdiction
                

              of
                

              Organization

            	 	
              Number of
                

              Shares
                

              Authorized

            	 	
              Number of
                

              Shares
                

              Issued

            	 	
              Number of
                

              Shares
                

              Outstanding

            	 	
              Number of
                

              Shares
                

              Owned by
                

              Pledgor

            	 	
              % of
                

              Outstanding
                

              Shares
                

              Pledged

            	 	
              Certificate
                

              Number

            
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

    

     

    
      
        
        

      

      
        4.EX 10.7

    Execution
      Version 

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED,
      OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
      OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
      THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY
      SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
      SECURITIES ACT OF 1933 ACT AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
      LAWS.

     

    WARRANT
      AGREEMENT

     

    To
      Purchase Shares of the Common Stock of

     

    DIOMED
      HOLDINGS, INC. 

     

    Dated
      as
      of September 28, 2007 (the “Effective
      Date”)

     

    WHEREAS,
      Diomed Holdings, Inc., a Delaware corporation (the “Company”),
      has
      entered into a Loan and Security Agreement of even date herewith (the
“Loan
      Agreement”)
      with,
      Hercules Technology Growth Capital, Inc., a Maryland corporation (the
“Warrantholder”);

     

    WHEREAS,
      the Company desires to grant to Warrantholder, in consideration for, among
      other
      things, the financial accommodations provided for in the Loan Agreement, the
      right to purchase shares of its Common Stock pursuant to this Warrant Agreement
      (the “Warrant”);

     

    NOW,
      THEREFORE, in consideration of the Warrantholder executing and delivering the
      Loan Agreement and providing the financial accommodations contemplated therein,
      and in consideration of the mutual covenants and agreements contained herein,
      the Company and Warrantholder agree as follows:

     

    
      	
              SECTION
                1.

            	
              GRANT
                OF THE RIGHT TO PURCHASE COMMON STOCK. 

            

    

     

    For
      value
      received, the Company hereby grants to the Warrantholder, and the Warrantholder
      is entitled, upon the terms and subject to the conditions hereinafter set forth,
      to subscribe for and purchase, from the Company, 86,957 fully paid and
      non-assessable shares of the Common Stock (as defined below) at a purchase
      price
      of $0.70 per share (the “Exercise
      Price”).
      The
      number and Exercise Price of such shares are subject to adjustment as provided
      in Section 8. As used herein, the following terms shall have the following
      meanings:

     

    “1934
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Acknowledgment
      of Exercise”
has
      the
      meaning given to it in Section 3(a).

     

    “Act”
means
      the Securities Act of 1933, as amended.

     

    “Agreement”
means
      this Warrant Agreement.

     

    
      
        
        

      

      
        1.

        
          

        

      

      
        
        

      

    

     

    “Charter”
means
      the Company’s Certificate of Incorporation or other constitutional document, as
      the same may be amended from time to time.

     

    “Claims”
has
      the
      meaning given to it in Section 12(p).

     

    “Common
      Stock”
means
      the Company’s common stock, $0.001 par value per share.

     

    “Company”
has
      the
      meaning given to it in the preamble to this Warrant.

     

    “Effective
      Date”
has
      the
      meaning given to it in the preamble to this Warrant.

     

    “Exercise
      Price”
has
      the
      meaning given to it in the preamble to this Warrant.

     

    “Loan
      Agreement”
has
      the
      meaning given to it in the preamble to this Warrant.

     

    “Merger
      Event”
means
      (i) a merger or consolidation involving the Company in which (x) the Company
      is
      not the surviving entity, or (y) the outstanding shares of the Company’s capital
      stock are otherwise converted into or exchanged for shares of capital of another
      entity; or (ii) the sale of all or substantially all of the assets of the
      Company. 

     

    “Net
      Issuance”
has
      the
      meaning given to it in Section 3(a).

     

    “Notice
      of Exercise”
has
      the
      meaning given to it in Section 3(a).

     

    “Preferred
      Stock”
means
      the 2006 Preferred Stock of the Company, par value $0.001 per share, and any
      other stock into or for which the 2006 Preferred Stock may be converted or
      exchanged other than pursuant to its terms.

     

    “Purchase
      Price”
means,
      with respect to any exercise of this Warrant, an amount equal to the Exercise
      Price as of the relevant time multiplied by the number of shares of Common
      Stock
      requested to be exercised under this Warrant pursuant to such
      exercise.

     

    “Rules”
has
      the
      meaning given to it in Section 12(q).

     

    “Transfer
      Notice”
has
      the
      meaning given to it in Section 11.

     

    “Warrant”
has
      the
      meaning given to it in Section 2.

     

    “Warrant
      Term”
has
      the
      meaning given to it in Section 2.

     

    “Warrantholder”
has
      the
      meaning given to it in the preamble to this Warrant.

     

    
      	
              SECTION
                2.

            	
              TERM
                OF THE WARRANT. 

            

    

     

    Except
      as
      otherwise provided for herein, the term of this Warrant (the “Warrant
      Term”)
      and
      the right to purchase Common Stock, as granted herein (the “Warrant”)
      shall
      commence on the Effective Date and shall be exercisable for a period ending
      on
      5:00 pm Eastern time on the day of the fifth anniversary of the Effective Date,
      provided,
      that
      this Warrant shall not be exercisable unless and until the Common Stock to
      be
      issued upon the exercise of this Warrant are then listed with the American
      Stock
      Exchange, as contemplated by Section 9(j).

     

    
      
        
        

      

      
        2.

        
          

        

      

      
        
        

      

    

     

    
      	
              SECTION
                3.

            	
              EXERCISE
                OF THE PURCHASE RIGHTS. 

            

    

     

    (a) Exercise.
      The
      purchase rights set forth in this Warrant are exercisable by the Warrantholder,
      in whole or in part, at any time, or from time to time, during the Warrant
      Term,
      by tendering to the Company at its principal office a notice of exercise in
      the
      form attached hereto as Exhibit
      I
      (the
“Notice
      of Exercise”),
      duly
      completed and executed. Promptly upon receipt of the Notice of Exercise and
      the
      payment of the Purchase Price in accordance with the terms set forth below,
      and
      in no event later than three (3) days thereafter, the Company shall issue to
      the
      Warrantholder a certificate for the number of shares of Common Stock purchased
      and shall execute the acknowledgment of exercise in the form attached hereto
      as
Exhibit
      II
      (the
“Acknowledgment
      of Exercise”)
      indicating the number of shares which remain subject to future purchases, if
      any. 

     

    The
      Purchase Price may be paid at the Warrantholder’s election either (i) by cash or
      check, or (ii) by surrender of all or a portion of the Warrant for shares of
      Common Stock to be exercised under this Warrant and, if applicable, an amended
      Warrant representing the remaining number of shares purchasable hereunder,
      as
      determined below (“Net
      Issuance”).
      If
      the Warrantholder elects the Net Issuance method, the Company will issue Common
      Stock in accordance with the following formula:

     

    X
      =
Y(A-B)

    A

     

    
      	
              Where:

            	
              X
                =
                

            	
              the
                number of shares of Common Stock to be issued to the
                Warrantholder.

            

    

     

    
      	 	
              Y
                =
                

            	
              the
                number of shares of Common Stock requested to be exercised under
                this
                Warrant.

            

    

     

    
      	 	
              A
                =
                

            	
              the
                fair market value of one (1) share of Common Stock at the time of
                issuance
                of such shares.

            

    

     

    
      	 	
              B
                =
                

            	
              the
                Exercise Price.

            

    

     

    For
      purposes of the above calculation, current fair market value of Common Stock
      shall mean:

     

    (i) if
      the
      Common Stock is traded on the New York Stock Exchange, the American Stock
      Exchange, any exchange operated by the NASDAQ Stock Market, Inc. or any other
      securities exchange, the fair market value shall be deemed to be the product
      of
      (x) the average of the closing prices over a five (5) day period ending three
      (3) days before the day the current fair market value of the securities is
      being
      determined and (y) the number of shares of Common Stock subject to such
      exercise; or

     

    
      
        
        

      

      
        3.

        
          

        

      

      
        
        

      

    

     

    (ii) if
      at any
      time the Common Stock is not listed on any securities exchange, the current
      fair
      market value of such Common Stock shall be the product of (x) the highest price
      per share which the Company could obtain from a willing buyer (not a current
      employee or director) for shares of Common Stock sold by the Company, from
      authorized but unissued shares, as determined in good faith by its Board of
      Directors and (y) the number of shares of Common Stock subject to such exercise,
      unless the Company shall become subject to a Merger Event, in which case the
      fair market value of Common Stock shall be deemed to be the per share value
      received by the holders of the Company’s Common Stock on a common equivalent
      basis pursuant to such Merger Event.

     

    Upon
      partial exercise by either cash or Net Issuance, the Company shall promptly
      issue an agreement substantially in the form of the Agreement representing
      the
      remaining number of shares purchasable hereunder. All other terms and conditions
      of such agreement shall be identical to those contained herein, including,
      but
      not limited to the Effective Date hereof.

     

    (b) Exercise
      Prior to Expiration.
      To the
      extent that the Warrantholder has not exercised its purchase rights under this
      Agreement to all Common Stock subject hereto, and if the fair market value
      of
      one share of the Common Stock is greater than the Exercise Price then in effect,
      this Agreement shall be deemed automatically exercised pursuant to Section
      3(a)
      (even if not surrendered) immediately before the expiration of the Warrant
      Term.
      For purposes of such automatic exercise, the fair market value of one share
      of
      the Common Stock upon such expiration shall be determined pursuant to Section
      3(a). To the extent this Agreement or any portion thereof is deemed
      automatically exercised pursuant to this Section 3(b), the Company agrees to
      promptly notify the Warrantholder of the number of shares of Common Stock if
      any, the Warrantholder is to receive by reason of such automatic exercise.
      

     

    
      	
              SECTION
                4.

            	
              RESERVATION
                OF SHARES. 

            

    

     

    During
      the Warrant Term, the Company will at all times have authorized and reserved
      a
      sufficient number of shares of its Common Stock to provide for the exercise
      of
      the rights to purchase such stock as provided for herein.

     

    
      	
              SECTION
                5.

            	
              NO
                FRACTIONAL SHARES OR SCRIP. 

            

    

     

    No
      fractional shares or scrip representing fractional shares shall be issued upon
      the exercise of this Warrant, but in lieu of such fractional shares the Company
      shall make a cash payment therefor upon the basis of the Exercise Price then
      in
      effect.

     

    
      	
              SECTION
                6.

            	
              NO
                RIGHTS AS SHAREHOLDER/STOCKHOLDER.

            

    

     

    This
      Warrant does not entitle the Warrantholder to any voting rights or other rights
      as a stockholder of the Company prior to the exercise of this
      Warrant.

     

    
      	
              SECTION
                7.

            	
              WARRANTHOLDER
                REGISTRY. 

            

    

     

    The
      Company shall maintain a registry showing the name and address of the registered
      holder of this Warrant. Warrantholder’s initial address, for purposes of such
      registry, is set forth below Warrantholder’s signature on this Warrant.
      Warrantholder may change such address by giving written notice of such changed
      address to the Company.

     

    
      
        
        

      

      
        4.

        
          

        

      

      
        
        

      

    

     

    
      	
              SECTION
                8.

            	
              ADJUSTMENT
                RIGHTS. 

            

    

     

    The
      Exercise Price and the number of shares of Common Stock purchasable hereunder
      are subject to adjustment, as follows:

     

    (a) Merger
      Event.
      If at
      any time prior to the exercise of this Warrant there shall be Merger Event,
      then, as a part of such Merger Event, lawful provision shall be made so that
      the
      Warrantholder shall thereafter be entitled to receive, upon exercise of this
      Warrant, the number of shares of stock or other securities or property of the
      successor corporation resulting from such Merger Event that would have been
      issuable if Warrantholder had exercised this Warrant immediately prior to the
      Merger Event. In any such case, appropriate adjustment (as determined in good
      faith by the Company’s Board of Directors) shall be made in the application of
      the provisions of this Warrant with respect to the rights and interests of
      the
      Warrantholder after the Merger Event to the end that the provisions of this
      Warrant (including adjustments of the Exercise Price and number of shares of
      stock purchasable) shall be applicable in their entirety, and to the greatest
      extent possible. Without limiting the foregoing, in connection with any Merger
      Event, upon the closing thereof, the Company will use reasonable efforts (as
      determined by the Company in its sole discretion) to cause the successor or
      surviving entity to assume the obligations of this Warrant. If the obligations
      of this Warrant are not assumed in connection with the Merger Event, the Company
      shall give Warrantholder written notice at least five (5) days prior to the
      closing of the Merger Event of such fact. In such event, notwithstanding any
      other provision of this Agreement to the contrary, Warrantholder may immediately
      exercise this Warrant in the manner specified in this Agreement with such
      exercise effective immediately prior to closing of the Merger Event. If
      Warrantholder elects not to exercise this Warrant, then this Warrant will
      terminate immediately prior to the closing of the Merger Event. If a Merger
      Event occurs at any time before the shares of Common Stock subject to this
      Warrant are listed for trading on the American Stock Exchange and the successor
      or surviving entity does not agree to assume the obligations of this Warrant,
      then the Warrantholder shall receive liquidated damages in an amount equal
      to
      the difference between the Exercise Price of the Warrant as then in effect
      and
      the consideration per share payable to the holders of the Common Stock in the
      transaction pursuant to which the Merger Event occurs. 

     

    (b) Reclassification
      of Shares.
      Except
      as set forth in Section 8(a) or Section 8(c), if the Company at any time shall,
      by combination, reclassification, exchange or subdivision of securities or
      otherwise, change any of the securities as to which purchase rights under this
      Warrant exist into the same or a different number of securities of any other
      class or classes, this Warrant shall thereafter represent the right to acquire
      such number and kind of securities as would have been issuable as the result
      of
      such change with respect to the securities which were subject to the purchase
      rights under this Warrant immediately prior to such combination,
      reclassification, exchange, subdivision or other change.

     

    (c) Subdivision
      or Combination of Shares.
      If the
      Company at any time shall combine or subdivide its Common Stock, (i) in the
      case
      of a subdivision, the Exercise Price shall be proportionately decreased, and
      the
      number of shares of Common Stock issuable upon exercise of this Warrant shall
      be
      proportionately increased, or (ii) in the case of a combination, the Exercise
      Price shall be proportionately increased, and the number of shares of Common
      Stock issuable upon the exercise of this Warrant shall be proportionately
      decreased.

     

    
      
        
        

      

      
        5.

        
          

        

      

      
        
        

      

    

     

    (d) Stock
      Dividends.
      If the
      Company at any time while this Warrant is outstanding and unexpired
      shall:

     

    (i) pay
      a
      dividend with respect to the Common Stock payable in Common Stock, then the
      Exercise Price shall be adjusted, from and after the date of determination
      of
      stockholders entitled to receive such dividend or distribution, to that price
      determined by multiplying the Exercise Price in effect immediately prior to such
      date of determination by a fraction (A) the numerator of which shall be the
      total number of shares of Common Stock outstanding immediately prior to such
      dividend or distribution, and (B) the denominator of which shall be the total
      number of shares of Common Stock outstanding immediately after such dividend
      or
      distribution; or

     

    (ii) make
      any
      other distribution with respect to Common Stock, except any distribution
      specifically provided for in any other clause of this Section 8, then, in each
      such case, provision shall be made by the Company such that the Warrantholder
      shall receive upon exercise or conversion of this Warrant a proportionate share
      of any such distribution as though it were the holder of the Common Stock as
      of
      the record date fixed for the determination of the shareholders/stockholders
      of
      the Company entitled to receive such distribution. 

     

    (e) Antidilution
      Rights.
      To the
      extent that additional antidilution rights applicable to the stock purchasable
      hereunder may be set forth in the Company’s Charter and shall be applicable with
      respect to the stock issuable hereunder, the Company shall promptly provide
      the
      Warrantholder with any restatement, amendment, modification or waiver of the
      Charter; provided,
      that no
      such amendment, modification or waiver shall impair or reduce the antidilution
      rights applicable to the stock as of the date hereof unless such amendment,
      modification or waiver affects the rights of Warrantholder with respect to
      the
      Common Stock in the same manner as it affects all other holders of Common Stock.
      The Company shall provide Warrantholder with prior written notice of any
      issuance of its stock or other equity security to occur after the Effective
      Date
      of this Warrant, which notice shall include (a) the price at which such stock
      or
      security is to be sold, (b) the number of shares to be issued, and (c) such
      other information as necessary for Warrantholder to determine if a dilutive
      event has occurred. For the avoidance of doubt, there shall be no duplicate
      anti-dilution adjustment pursuant to this subsection (e), the forgoing
      subsection (d) and the Company’s Charter.

     

    (f) Notice
      of Adjustments.
      If: (i)
      the Company shall declare any dividend or distribution upon its stock, whether
      in stock, cash, property or other securities (assuming Warrantholder consents
      to
      a dividend involving cash, property or other securities); (ii) the Company
      shall
      offer for subscription pro rata to the holders of any class of its stock any
      additional shares of stock of any class or other rights; (iii) there shall
      be
      any Merger Event; (iv) the Company shall sell, lease, license or otherwise
      transfer all or substantially all of its assets; or (v) there shall be any
      voluntary dissolution, liquidation or winding up of the Company; then, in
      connection with each such event, the Company shall send to the Warrantholder:
      (A) at least ten (10) days’ prior written notice of the date on which the books
      of the Company shall close or a record shall be taken for such dividend,
      distribution, subscription rights (specifying the date on which the holders
      of
      Common Stock shall be entitled thereto) or for determining rights to vote in
      respect of such Merger Event, dissolution, liquidation or winding up; and (B)
      in
      the case of any such Merger Event, sale, lease, license or other transfer of
      all
      or substantially all assets, dissolution, liquidation or winding up, at least
      ten (10) days’ prior written notice of the date when the same shall take place
      (and specifying the date on which the holders of Common Stock shall be entitled
      to exchange their Common Stock for securities or other property deliverable
      upon
      such Merger Event, dissolution, liquidation or winding up).

     

    
      
        
        

      

      
        6.

        
          

        

      

      
        
        

      

    

     

    Each
      such
      written notice shall set forth, in reasonable detail, (i) the event requiring
      the notice, and (ii) if any adjustment is required to be made, (A) the amount
      of
      such adjustment, (B) the method by which such adjustment was calculated, (C)
      the
      adjusted Exercise Price (if the Exercise Price has been adjusted), and (D)
      the
      number of shares subject to purchase hereunder after giving effect to such
      adjustment, and shall be given by first class mail, postage prepaid, or by
      reputable overnight courier with all charges prepaid, addressed to the
      Warrantholder at the address for Warrantholder set forth in the registry
      referred to in Section 7.

     

    (g) Timely
      Notice.
      Failure
      to timely provide such notice required by subsection (f) above shall entitle
      Warrantholder to retain the benefit of the applicable notice period
      notwithstanding anything to the contrary contained in any insufficient notice
      received by Warrantholder. For purposes of this subsection (g), and
      notwithstanding anything to the contrary in Section 12(g), the notice period
      shall begin on the earlier of (i) the date Warrantholder actually receives
      a
      written notice containing all the information required to be provided in such
      Section 8(f) and (ii) the date that is five (5) days after the date on which
      such notice would be effective pursuant to the provisions of Section
      12(g).

     

    
      	
              SECTION
                9.

            	
              REPRESENTATIONS,
                WARRANTIES AND COVENANTS OF THE
                COMPANY.

            

    

     

    (a) Reservation
      of Stock.
      The
      stock issuable upon exercise of the Warrantholder’s rights has been duly and
      validly reserved and, when issued in accordance with the provisions of this
      Warrant, will be validly issued, fully paid and non-assessable, and will be
      free
      of any taxes, liens, charges or encumbrances of any nature whatsoever;
provided,
      that
      the stock issuable pursuant to this Warrant may be subject to restrictions
      on
      transfer under state and/or federal securities laws. The Company has made
      available to the Warrantholder true, correct and complete copies of its Charter
      and current bylaws. The issuance of certificates for shares of stock upon
      exercise of this Warrant shall be made without charge to the Warrantholder
      for
      any issuance tax in respect thereof, or other cost incurred by the Company
      in
      connection with such exercise and the related issuance of shares of stock;
      provided,
      that
      the Company shall not be required to pay any tax which may be payable in respect
      of any transfer and the issuance and delivery of any certificate in a name
      other
      than that of the Warrantholder.

     

    (b) Due
      Authority.
      The
      execution and delivery by the Company of this Agreement and the performance
      of
      all obligations of the Company hereunder, including the issuance to
      Warrantholder of the right to acquire the shares of Common Stock have been
      duly
      authorized by all necessary corporate action on the part of the Company. This
      Agreement and the Warrant contained herein: (i) are not inconsistent with the
      Company’s Charter or current bylaws; (ii) do not contravene any law or
      governmental rule, regulation or order applicable to it; and (iii) do not and
      will not contravene any provision of, or constitute a default under, any
      indenture, mortgage, contract or other instrument to which it is a party or
      by
      which it is bound, after giving effect to such consents as the Company is
      required to obtain pursuant to the Loan Agreement. This Agreement constitutes
      the legal, valid and binding agreement of the Company, enforceable in accordance
      with its respective terms.

     

    
      
        
        

      

      
        7.

        
          

        

      

      
        
        

      

    

     

    (c) Consents
      and Approvals.
      No
      consent or approval of, giving of notice to, registration with, or taking of
      any
      other action in respect of any state, federal or other governmental authority
      or
      agency is required with respect to the execution, delivery and performance
      by
      the Company of its obligations under this Warrant, except for the filing of
      notices pursuant to Regulation D under the Act and any filing required by
      applicable state securities law, which filings will be effective by the time
      required thereby.

     

    (d) Issued
      Securities.
      All
      issued and outstanding shares of Common Stock, Preferred Stock or any other
      securities of the Company have been duly authorized and validly issued and
      are
      fully paid and nonassessable. All outstanding shares of Common Stock, Preferred
      Stock and any other securities were issued in full compliance with all federal
      and state securities laws. In addition, as of the date immediately preceding
      the
      date of this Warrant:

     

    (i) The
      authorized capital of the Company consists of (A) 65,000,000 shares of Common
      Stock, of which 30,067,031 shares are issued and outstanding, and (B) 1,736
      shares of Preferred Stock, of which 673.6044 shares are issued and outstanding
      and are convertible into 6,736,044 shares of Common Stock at $1.15 per
      share.

     

    (ii) The
      Company has reserved 5,708,172 shares of Common Stock for issuance under its
      Stock Option Plan(s), under which 3,533,103 options are outstanding. There
      are
      no other options, warrants, conversion privileges or other rights presently
      outstanding to purchase or otherwise acquire any authorized but unissued shares
      of the Company’s capital stock or other securities of the Company. The Company
      has no outstanding loans to any employee, officer or director of the Company,
      and the Company agrees not to enter into any such loan or otherwise guarantee
      the payment of any loan made to an employee, officer or director by a third
      party.

     

    (iii) In
      accordance with the Company’s Charter, no shareholder/stockholder of the Company
      has preemptive rights to purchase new issuances of the Company’s capital stock.

     

    (e) Insurance.
      The
      Company has in full force and effect insurance policies, with extended coverage,
      insuring the Company and its property and business against such losses and
      risks, and in such amounts, as are required pursuant to Section 6 of the Loan
      Agreement.

     

    (f) Other
      Commitments to Register Securities.
      Except
      as set forth in this Warrant, the Company is not, pursuant to the terms of
      any
      other agreement currently in existence, under any obligation to register under
      the Act any of its presently outstanding securities or any of its securities
      which may hereafter be issued, which agreement has not been performed prior
      to
      the Effective Date. 

     

    (g) Exempt
      Transaction.
      Subject
      to the accuracy of the Warrantholder’s representations in Section 10, the
      issuance of the Common Stock upon exercise of this Warrant will constitute
      a
      transaction exempt from (i) the registration requirements of Section 5 of the
      Act, in reliance upon Section 4(2) thereof, and (ii) the qualification
      requirements of the applicable state securities laws.

     

    
      
        
        

      

      
        8.

        
          

        

      

      
        
        

      

    

     

    (h) Compliance
      with Rule 144.
      If the
      Warrantholder proposes to sell Common Stock issuable upon the exercise of this
      Warrant in compliance with Rule 144 promulgated by the SEC, then, upon
      Warrantholder’s written request to the Company, the Company shall furnish to the
      Warrantholder, within ten days after receipt of such request, a written
      statement confirming the Company’s compliance with the filing requirements of
      the SEC as set forth in such Rule, as such Rule may be amended from time to
      time. 

     

    (i) Information
      Rights.
      During
      the term of this Warrant, Warrantholder shall be entitled to the information
      rights contain in Section 7.1 of the Loan Agreement, and Section 7.1 of the
      Loan
      Agreement is hereby incorporated into this Warrant by this reference as though
      fully set forth herein; provided
      that (A)
      the Company shall not be required to deliver a Compliance Certificate once
      all
      Indebtedness (as defined in the Loan Agreement) owed by the Company to
      Warrantholder as been repaid, and (B) for as long as the Warrantholder is the
      lender under the Loan Agreement, the Company shall not be required to make
      more
      than one delivery of each item of information pursuant to Section 7.1 of the
      Loan Agreement.

     

    (j) Registration
      of Shares.
      The
      Company shall list the shares of Common Stock subject to this Warrant for
      trading on the American Stock Exchange pursuant to an application for additional
      listing of such shares which the Company will deliver to the American Stock
      Exchange prior to 5:30 p.m. (Eastern Time) on the first business day following
      the Effective Date. Pursuant to the rules and regulations of the American Stock
      Exchange, such listing shall be a condition precedent to the Warrantholder’s
      ability to exercise this Warrant.

     

    
      	
              SECTION
                10.

            	
              REPRESENTATIONS
                AND COVENANTS OF THE WARRANTHOLDER. 

            

    

     

    This
      Agreement has been entered into by the Company, and the Company is issuing
      the
      Warrant and the shares of Common Stock issuable upon the exercise of the
      Warrant, in reliance upon the following representations and covenants of the
      Warrantholder: 

     

    (a) Investment
      Purpose.
      The
      right to acquire Common Stock issuable upon exercise of the Warrantholder’s
      rights contained herein will be acquired for investment and not with a view
      to
      the sale or distribution of any part thereof, and the Warrantholder has no
      present intention of selling or engaging in any public distribution of the
      same
      except pursuant to a registration or exemption.

     

    (b) Private
      Issue.
      The
      Warrantholder understands (i) that the Common Stock issuable upon exercise
      of
      this Warrant is not registered under the Act or qualified under applicable
      state
      securities laws on the ground that the issuance contemplated by this Warrant
      will be exempt from the registration and qualifications requirements thereof,
      and (ii) that the Company’s reliance on such exemption is predicated on the
      representations set forth in this Section 10.

     

    (c) Financial
      Risk.
      The
      Warrantholder has such knowledge and experience in financial and business
      matters as to be capable of evaluating the merits and risks of its investment,
      and has the ability to bear the economic risks of its investment.

     

    
      
        
        

      

      
        9.

        
          

        

      

      
        
        

      

    

     

    (d) Risk
      of No Registration.
      The
      Warrantholder understands that if the Company does not file reports pursuant
      to
      Section 15(d) of the 1934 Act, or if a registration statement under the Act
      covering the Warrant and shares of Common Stock issuable upon exercise of the
      Warrant is not in effect when it desires to sell (i) the rights to purchase
      Common Stock pursuant to this Warrant or (ii) the Common Stock issuable upon
      exercise of the right to purchase, the Warrantholder may be required to hold
      such securities for an indefinite period. The Warrantholder also understands
      that any sale of (A) its rights hereunder to purchase Common Stock or (B) Common
      Stock issued or issuable hereunder which might be made by it in reliance upon
      Rule 144 under the Act may be made only in accordance with the terms and
      conditions of that Rule.

     

    (e) Accredited
      Investor.
      Warrantholder is an “accredited investor” within the meaning of the Securities
      and Exchange Rule 501 of Regulation D, as presently in effect.

     

    
      	
              SECTION
                11.

            	
              TRANSFERS.

            

    

     

    Subject
      to compliance with applicable federal and state securities laws, and if such
      intended transferee is not an affiliate of the Lender to the duly executed
      written confirmation by the intended transferee that the representations and
      warranties set forth in Section 10 are true and correct as to such intended
      transferee, this Warrant and all rights hereunder are transferable, in whole
      or
      in part, without charge to the holder hereof (except for transfer taxes) upon
      surrender of this Warrant properly endorsed. Each taker and holder of this
      Warrant, by taking or holding the same, consents and agrees that this Warrant,
      when endorsed in blank, shall be deemed negotiable, and that the holder hereof,
      when this Warrant shall have been so endorsed and its transfer recorded on
      the
      Company’s books, shall be treated by the Company and all other persons dealing
      with this Warrant as the absolute owner hereof for any purpose and as the person
      entitled to exercise the rights represented by this Warrant and, notwithstanding
      any other provision of this Warrant to the contrary, shall be the Warrantholder
      as referred to in this Warrant. The transfer of this Warrant shall be recorded
      in the registry referred to in Section 7 upon receipt by the Company of a notice
      of transfer in the form attached hereto as Exhibit III (the “Transfer
      Notice”),
      at
      its principal offices and the payment to the Company of all transfer taxes
      and
      other governmental charges imposed on such transfer. Until the Company receives
      such Transfer Notice, the Company may treat the registered owner hereof as
      the
      owner for all purposes.

     

    
      	
              SECTION
                12.

            	
              MISCELLANEOUS. 

            

    

     

    (a) Effective
      Date.
      The
      provisions of this Warrant shall be construed and shall be given effect in
      all
      respects as if it had been executed and delivered by the Company on the date
      hereof. This Warrant shall be binding upon any successors or assigns of the
      Company.

     

    (b) Remedies.
      In the
      event of any default hereunder, the non-defaulting party may proceed to protect
      and enforce its rights either by suit in equity and/or by action at law,
      including but not limited to an action for damages as a result of any such
      default, and/or an action for specific performance for any default where
      Warrantholder will not have an adequate remedy at law and where damages will
      not
      be readily ascertainable. The Company expressly agrees that it shall not oppose
      an application by the Warrantholder or any other person entitled to the benefit
      of this Warrant requiring specific performance of any or all provisions hereof
      or enjoining the Company from continuing to commit any such breach of this
      Warrant.

     

    
      
        
        

      

      
        10.

        
          

        

      

      
        
        

      

    

     

    (c) No
      Impairment of Rights.
      The
      Company will not, by amendment of its Charter or through any other means, avoid
      or seek to avoid the observance or performance of any of the terms of this
      Warrant, but will at all times in good faith assist in the carrying out of
      all
      such terms and in the taking of all such actions as may be necessary or
      appropriate in order to protect the rights of the Warrantholder against
      impairment.

     

    (d) Additional
      Documents.
      The
      Company, upon execution of this Warrant, shall provide the Warrantholder with
      certified resolutions with respect to the representations, warranties and
      covenants set forth in Sections 9(a) through 9(d), Sections 9(g) and 9(h).
      The
      Company shall also supply such other documents as the Warrantholder may from
      time to time reasonably request.

     

    (e) Attorney’s
      Fees.
      In any
      litigation, arbitration or court proceeding between the Company and the
      Warrantholder relating hereto, the prevailing party shall be entitled to
      attorneys’ fees and expenses and all costs of proceedings incurred in enforcing
      this Warrant. For the purposes of this Section 12(e), attorneys’ fees shall
      include without limitation fees incurred in connection with the following:
      (i)
      contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other
      activity of any kind in connection with an insolvency proceeding; (iv)
      garnishment, levy, and debtor and third party examinations; and (v)
      post-judgment motions and proceedings of any kind, including without limitation
      any activity taken to collect or enforce any judgment. 

     

    (f) Severability.
      In the
      event any one or more of the provisions of this Warrant shall for any reason
      be
      held invalid, illegal or unenforceable, the remaining provisions of this Warrant
      shall be unimpaired, and the invalid, illegal or unenforceable provision shall
      be replaced by a mutually acceptable valid, legal and enforceable provision,
      which comes closest to the intention of the parties underlying the invalid,
      illegal or unenforceable provision.

     

    (g) Notices.
      Except
      as otherwise provided herein, any notice, demand, request, consent, approval,
      declaration, service of process or other communication that is required,
      contemplated, or permitted under this Warrant or with respect to the subject
      matter hereof shall be in writing, and shall be deemed to have been validly
      served, given, delivered, and received upon the earlier of: (i) the day of
      transmission by facsimile or hand delivery if transmission or delivery occurs
      on
      a business day at or before 5:00 pm in the time zone of the recipient, or,
      if
      transmission or delivery occurs on a non-business day or after such time, the
      first business day thereafter, or (ii) the first business day after deposit
      with
      an overnight express service or overnight mail delivery service; or
      (iii) the third calendar day after deposit in the United States mails, with
      proper first class postage prepaid, and shall be addressed to the party to
      be
      notified as follows:

     

    If
      to
      Warrantholder:

     

    Hercules
      Technology Growth Capital, Inc.

    Attention:
      Chief Legal Officer and R. Bryan Jadot

    
       

      
        
          
          

        

        
          11.

          
            

          

        

        
          
          

        

      

       

    

    400
      Hamilton Avenue, Suite 310

    Palo
      Alto, CA 94301

    Facsimile:
      650-473-9194

    Telephone:
      650-289-3060

    With
      a
      copy to:

     

    Bingham
      McCutchen LLP

    150
      Federal Street

    Boston,
      MA 02110

    Attention:
      Sandra Vrejan, Esq.

    Facsimile:
      (617) 951-8736

    Telephone:
      (617) 951-8671

     

    If
      to the
      Company:

     

    Diomed
      Holdings, Inc.

    1
      Dundee
      Park

    Andover,
      MA 01810

    Attention:
      David B. Swank

    Facsimile:
      (978) 475-8488

    Telephone:
      (978) 824-1823

    

    With
      a
      courtesy copy to:

    

    McGuire
      Woods LLP

    1345
      Avenue of the Americas

    7th
      Floor

    New
      York,
      NY 10105

    Attention:
      William A. Newman, Esq.

    Facsimile:
      (212) 548-2170

    Telephone:
      (212) 548-2660

    

    or
      to
      such other address as each party may designate for itself by like
      notice.

     

    (h) Entire
      Agreement; Amendments.
      This
      Agreement constitutes the entire agreement and understanding of the parties
      hereto in respect of the subject matter hereof, and supersede and replace in
      their entirety any prior proposals, term sheets, letters, negotiations or other
      documents or agreements, whether written or oral, with respect to the subject
      matter hereof (including Lender’s proposal letter dated August 21, 2007). None
      of the terms of this Agreement or Warrant may be amended except by an instrument
      executed by each of the parties hereto.

     

    (i) Headings.
      The
      various headings in this Agreement are inserted for convenience only and shall
      not affect the meaning or interpretation of this Agreement or any provisions
      hereof.

     

    
      
        
        

      

      
        12.

        
          

        

      

      
        
        

      

    

     

    (j) Advice
      of Counsel.
      Each of
      the parties represents to each other party hereto that it has discussed (or
      had
      an opportunity to discuss) with its counsel this Agreement and, specifically,
      the provisions of Sections 12(n), 12(o), 12(p), 12(q) and 12(r). 

     

    (k) No
      Strict Construction.
      The
      parties hereto have participated jointly in the negotiation and drafting of
      this
      Warrant. In the event an ambiguity or question of intent or interpretation
      arises, this Agreement shall be construed as if drafted jointly by the parties
      hereto and no presumption or burden of proof shall arise favoring or disfavoring
      any party by virtue of the authorship of any provisions of this
      Warrant.

     

    (l) No
      Waiver.
      Except
      for the requirement that this Warrant be exercised (or be deemed exercised),
      if
      at all, during the Warrant Term, no omission or delay by Warrantholder at any
      time to enforce any right or remedy reserved to it, or to require performance
      of
      any of the terms, covenants or provisions hereof by the Company at any time
      designated, shall be a waiver of any such right or remedy to which Warrantholder
      is entitled, nor shall it in any way affect the right of Warrantholder to
      enforce such provisions thereafter.

     

    (m) Survival.
      All
      agreements, representations and warranties contained in this Agreement or in
      any
      document delivered pursuant hereto shall be for the benefit of Warrantholder
      and
      shall survive the execution and delivery of this Agreement and the expiration
      or
      other termination of this Warrant.

     

    (n) Governing
      Law.
      This
      Agreement has been negotiated and delivered to Warrantholder in the State of
      California, and shall have been accepted by Warrantholder in the State of
      California. Delivery of Common Stock to Warrantholder by the Company under
      this
      Warrant is due in the State of California. This Warrant shall be governed by,
      and construed and enforced in accordance with, the laws of the State of
      California, excluding conflict of laws principles that would cause the
      application of laws of any other jurisdiction.

     

    (o) Consent
      to Jurisdiction and Venue.
      All
      judicial proceedings arising in or under or related to this Agreement may be
      brought in any state or federal court of competent jurisdiction located in
      the
      State of California. By execution and delivery of this Agreement, each party
      hereto generally and unconditionally: (a) consents to personal jurisdiction
      in
      San Mateo County, State of California; (b) waives any objection as to
      jurisdiction or venue in San Mateo County, State of California; (c) agrees
      not
      to assert any defense based on lack of jurisdiction or venue in the aforesaid
      courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby
      in connection with this Warrant. Service of process on any party hereto in
      any
      action arising out of or relating to this Warrant shall be effective if given
      in
      accordance with the requirements for notice set forth in Section 12(g), and
      shall be deemed effective and received as set forth in Section 12(g). Nothing
      herein shall affect the right to serve process in any other manner permitted
      by
      law or shall limit the right of either party to bring proceedings in the courts
      of any other jurisdiction.

     

    
      
        
        

      

      
        13.

        
          

        

      

      
        
        

      

    

     

    (p) Mutual
      Waiver of Jury Trial.
      Because
      disputes arising in connection with complex financial transactions are most
      quickly and economically resolved by an experienced and expert person and the
      parties wish applicable state and federal laws to apply (rather than arbitration
      rules), the parties desire that their disputes be resolved by a judge applying
      such applicable laws. EACH OF THE COMPANY AND WARRANTHOLDER SPECIFICALLY WAIVES
      ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM,
      CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY,
      “CLAIMS”) ASSERTED BY THE COMPANY AGAINST WARRANTHOLDER OR ITS ASSIGNEE OR BY
      WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY. This waiver extends to all
      such Claims, including Claims that involve Persons other than Borrower and
      Lender; Claims that arise out of or are in any way connected to the relationship
      between the Company and Warrantholder; and any Claims for damages, breach of
      contract, specific performance, or any equitable or legal relief of any kind,
      arising out of this Warrant.

     

    (q) Arbitration.
      If the
      Mutual Waiver of Jury Trial set forth in Section 12(p) is ineffective or
      unenforceable, the parties agree that all Claims shall be submitted to binding
      arbitration in accordance with the commercial arbitration rules of JAMS (the
      “Rules”), such arbitration to occur before one arbitrator, which arbitrator
      shall be a retired California state judge or a retired Federal court judge.
      Such
      proceeding shall be conducted in San Francisco County, California, with
      California rules of evidence and discovery applicable to such arbitration.
      The
      decision of the arbitrator shall be binding on the parties, and shall be final
      and nonappealable to the maximum extent permitted by law. Any judgment rendered
      by the arbitrator may be entered in a court of competent jurisdiction and
      enforced by the prevailing party as a final judgment of such court.

     

    (r) Prearbitration
      Relief.
      In the
      event Claims are to be resolved by arbitration, either party may seek from
      a
      court of competent jurisdiction identified in Section 12(o), any prejudgment
      order, writ or other relief and have such prejudgment order, writ or other
      relief enforced to the fullest extent permitted by law notwithstanding that
      all
      Claims are otherwise subject to resolution by binding arbitration.

     

    (s) Counterparts.
      This
      Agreement and any amendments, waivers, consents or supplements hereto may be
      executed in any number of counterparts, and by different parties hereto in
      separate counterparts, each of which when so delivered shall be deemed an
      original, but all of which counterparts shall constitute but one and the same
      instrument.

     

    (t) Specific
      Performance.
      The
      parties hereto hereby declare that it is impossible to measure in money the
      damages which will accrue to Warrantholder by reason of the Company’s failure to
      perform any of the obligations under this Agreement or the Warrant and agree
      that the terms of this Warrant shall be specifically enforceable by
      Warrrantholder. If Warrantholder institutes any action or proceeding to
      specifically enforce the provisions hereof, any person against whom such action
      or proceeding is brought hereby waives the claim or defense therein that
      Warrantholder has an adequate remedy at law, and such person shall not offer
      in
      any such action or proceeding the claim or defense that such remedy at law
      exists.

     

    [Remainder
      of Page Intentionally Left Blank]

     

    
      
        
        

      

      
        14.

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
      by
      its officers thereunto duly authorized as of the Effective Date.

     

    
      	
              COMPANY:

            	
              DIOMED
                HOLDINGS, INC.

            
	 	 	 
	 	
              By:

            	 
	 	Name:
              James A. Wylie, Jr.
	 	Title:
              President and Chief Executive Officer

    

     

    
      
        
        

      

      
        15.

        
          

        

      

      
        
        

      

    

     

    
      	
              WARRANTHOLDER:

            	
              HERCULES
                TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation

            
	 	 	 
	 	
              By:

            	 
	 	Name:
              K. Nicholas Martitsch
	 	Its:      Associate
              General Counsel

    

    

    
      
        
        

      

      
        16.

        
          

        

      

      
        
        

      

    

     

    
      Execution
        Version 

EXHIBIT
      I

     

    NOTICE
      OF
      EXERCISE

     

    To: [____________________________]

     

    
      	
              (1)

            	
              The
                undersigned Warrantholder hereby elects to purchase [_______] shares
                of
                the Common Stock of DIOMED HOLDINGS, INC., pursuant to the terms
                of the
                Warrant dated the 28th day of September, 2007 (the “Warrant”) between
                DIOMED, INC. and the Warrantholder, and [CASH PAYMENT: tenders herewith
                payment of the Purchase Price in full, together with all applicable
                transfer taxes, if any.] [NET ISSUANCE: elects pursuant to Section
                3(a) of
                the Warrant to effect a Net
                Issuance.]

            

    

     

    
      	
              (2)

            	
              Please
                issue a certificate or certificates representing said shares of Common
                Stock in the name of the undersigned or in such other name as is
                specified
                below.

            

    

     

    
      	 
	
              (Name)

            
	 
	 
	
              (Address)

            

    

    

     

    
      	
              WARRANTHOLDER:

            	
              HERCULES
                TECHNOLOGY GROWTH CAPITAL, 

              INC.,
                a Maryland corporation

            
	 	 	 
	 	
              By:

            	 
	 	Name:
              K. Nicholas Martitsch
	 	Its:      Associate
              General Counsel

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      II

     

    ACKNOWLEDGMENT
      OF EXERCISE

     

    The
      undersigned [____________________________________], hereby acknowledge receipt
      of the “Notice of Exercise” from Hercules Technology Growth Capital, Inc. to
      purchase [____] shares of the Common Stock of DIOMED HOLDINGS, INC., pursuant
      to
      the terms of the Warrant, and further acknowledges that [______] shares remain
      subject to purchase under the terms of the Warrant.

     

    
      	
              COMPANY:

            	
              DIOMED
                HOLDINGS, INC.

            
	 	 	 
	 	
               

              By:
                

            	 
	 	
              Title:
                

            	 
	 	
              Date:
                

            	 

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      III

     

    TRANSFER
      NOTICE

     

    (To
      transfer or assign the foregoing Warrant execute this form and supply required
      information. Do not use this form to purchase shares.)

     

    FOR
      VALUE
      RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
      transferred and assigned to 

     

     

      
        

      

    

    (Please
      Print)

     

    whose
      address
      is                                                                                                                                      

     

    
      

    

     

    Dated:                                                                                                           

     

    Holder’s
      Signature:                                                                                     

     

    Holder’s
      Address:                                                                                       

     

    Signature
      Guaranteed:                                                                                                                              

     

    NOTE:
      The
      signature to this Transfer Notice must correspond with the name as it appears
      on
      the face of the Warrant, without alteration or enlargement or any change
      whatever. Officers of corporations and those acting in a fiduciary or other
      representative capacity should file proper evidence of authority to assign
      the
      foregoing Warrant.

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