<PAGE>

             [CONFIDENTIAL TREATMENT OF CERTAIN PORTIONS REQUESTED]

                              SETTLEMENT AGREEMENT


         Having successfully mediated their dispute with mediator, Anthony
Piazza on August 11, 2000, Candela Corporation, The Regents of the University of
California and Cool Touch, Inc. agree to a settlement on the following terms:

         1. The parties will exchange full, mutual general release.

         2. Effective July 1, 2000:

                  a. Candela and Cool Touch will pay to The Regents a royalty
rate of [CONFIDENTIAL TREATMENT REQUESTED] on the good faith list price of DCDs
sold as an accessory or upgrade to a laser system;

                  b. Candela and Cool Touch will pay to The Regents a royalty
rate of [CONFIDENTIAL TREATMENT REQUESTED] on the good faith list price of laser
systems sold with an integrated DCD. ([CONFIDENTIAL TREATMENT REQUESTED] );

                  c. In the case of sales to resellers (e.g. distributors or
OEM's), the [CONFIDENTIAL TREATMENT REQUESTED] royalty (in 2a and 2b) will be
based on Candela's or Cool Touch's price to its reseller.

         3. Subject to the limitations of the final licenses, The Regents will
grant to Candela and Cool Touch a co-exclusive license to The Regents' Patent
Rights for the following fields of use: (i) for procedures that involve
non-oblative laser skin rejuvenation including collagen formation, collagen
remodeling, skin smoothing and wrinkle treatment, (ii) for procedures that
involve the treatment of facial and lower extremities telangiestasias and spider
veins and (iii) for procedures using a long pulse [0.2-500 milliseconds] 1.06
Vbi Nd: yAG laser. Subject to the limitations of the final licenses, The Regents
will grant to Candela an exclusive license to The Regents' Patent Rights for the
following fields of use: for procedures that involve (i) vascular skin lesions
and (ii) laser hair removal.

         4. Cool Touch's license to The Regents' Patent Rights shall not be
assigned ("assigned" shall include all restrictions of paragraph 19.2 of the
1/10/00 Agreement) to Coherent, Cynosure, Palomar or ESC, without Candela's
prior written consent. Otherwise, Cool Touch may assign its license.

         5. Upon closing and as a prepayment for the annual exclusivity fee
granted by The Regents, Candela will pay [CONFIDENTIAL TREATMENT REQUESTED] to
The Regents [CONFIDENTIAL TREATMENT REQUESTED] . [CONFIDENTIAL TREATMENT
REQUESTED], Candela will deliver to the University of California a Vbeam laser.

         6. The Regents shall pay Candela [CONFIDENTIAL TREATMENT REQUESTED]of
all royalties paid to it by any licensee. Candela shall pay[CONFIDENTIAL
TREATMENT REQUESTED]of the [CONFIDENTIAL TREATMENT


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REQUESTED]which Cool Touch paid to Candela in connection with their conditional
interim Sublicense Agreement.

         7. Cool Touch will receive an earned royalty credit of [CONFIDENTIAL
TREATMENT REQUESTED] which will be applied against all royalties and license
issue fees owed until the credit has been reached.

         8. Candela covenants that it will not sue Cool Touch regarding the
Anderson-Hsia patent. This covenant will become null and void upon any
assignment or any competitor of Candela acquiring more than a [CONFIDENTIAL
TREATMENT REQUESTED] interest in Cool Touch.

         9. This agreement is fully binding, subject only to the formal approval
by The Regents. The parties will negotiate in good faith full documentation of
this Agreement. All disputes related to the documentation of this Agreement will
be resolved by Anthony Piazza whose decisions will be final and binding. The
Regents and Candela have the right to an independent audit of royalties as
provided in the original Candela license.

         10. Upon consummation of the final documentation, the parties will
dismiss with prejudice the pending litigation in the Eastern District of
California and the District of Massachusetts and the arbitration.

         11. Each party will [CONFIDENTIAL TREATMENT REQUESTED] .

Dated:     August 11, 2000

THE REGENTS OF THE                    CANDELA CORPORATION
UNIVERSITY OF CALIFORNIA


By: /s/ P. Martin Simpson             By: /s/ Gerard E. Puorro
   --------------------------------      -----------------------------------

By: /s/ Valentin Fikovsky
   --------------------------------

COOL TOUCH, INC.


By: /s/ Dale Koop
   --------------------------------


Approved as to form:

/s/ Donn P. Pickett
-------------------------------------------------

/s/ Scott Birnbaum
-------------------------------------------------

/s/ Dale Campbell
-------------------------------------------------