REVISED:  7/23/98


                       PALOMAR MEDICAL TECHNOLOGIES, INC.

                SECOND AMENDED 1996 EMPLOYEE STOCK PURCHASE PLAN

1.   Purpose of the Plan

     The  purpose of the  Palomar  Medical  Technologies,  Inc.  Employee  Stock
Purchase Plan is to encourage  ownership of the common stock of Palomar  Medical
Technologies, Inc. ("Palomar") by its eligible employees and any and each of its
participating subsidiaries,  thereby enhancing such employees' personal interest
in the  continued  success  and  progress  of  Palomar.  The plan is intended to
facilitate  regular  investment  in the  common  stock of  Palomar  by  offering
employees a convenient  means to make  purchases at a discounted  price  through
payroll  deductions.  The Plan is  intended  to comply  with the  provisions  of
Section 423 of the Internal Revenue Code of 1986, as amended.

2.   Definitions

     For  purposes of the Plan,  the  following  terms  shall have the  meanings
indicated below:

          (a)  "Business  Day" shall mean a day on which there is trading on the
     New York Stock Exchange.

          (b) "Code" shall mean the Internal  Revenue Code of 1986, as it may be
     amended from time to time.

          (c) "Committee" shall mean the Compensation  Committee of the Board of
     Directors of Palomar.

          (d) "Common Stock" shall mean Palomar's  common stock,  par value $.01
     per share.

          (e) "Company" shall mean Palomar and any of its  subsidiaries  (within
     the meaning of Section  424(f) of the Code) whose  Board of  Directors  has
     adopted the Plan,  with approval of the Board of Directors of Palomar,  and
     which has not  terminated  participation  in or withdrawn  from the Plan by
     action of such subsidiary's Board of Directors or the Board of Directors of
     Palomar.

          (f)  "Compensation"  shall  mean the  amount of a  Participant's  base
     wages,  overtime,   commissions,   cash  bonuses,  premium  pay  and  shift
     differential,  before giving effect to any compensation  reductions made in
     connection with any plans described in Section 401(k) or Section 125 of the
     Code.

          (g)  "Custodian"  shall mean the custodian  appointed by the Committee
     pursuant to Section 7 hereof to hold the shares of Common  Stock  purchased
     under the Plan and subsequent  Dividends  reinvested or paid to Participant
     in cash.

          (h) "Dividends" shall mean all cash dividends paid on shares of Common
     Stock held in any Employee's Account.

          (i)  "Account"  shall  mean  a  separate  account  maintained  by  the
     Custodian for each Participant  which reflects,  at any time, the number of
     shares of Common Stock purchased under the Plan by such Participant as well
     as reinvested Dividends held by the Custodian.

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          (j) "Entry Date" shall mean the first  Business  Day of each  Purchase
     Period.

          (k)  "Eligible  Employee"  shall mean,  with  respect to any  Purchase
     Period,  an employee of the Company who is eligible to  participate  in the
     Plan in such Purchase  Period under the rules set forth in Sections 5 and 8
     hereof.

          (l) The "Fair Market Value" of a share of Common Stock on any Business
     Day shall be the closing bid price for such day of the Common  Stock on the
     principal  securities market on which the Common Stock is traded. If on the
     date for which Fair Market Value is to be determined the Common Stock is no
     eligible for trading on any securities  market,  the Fair Market Value of a
     share of Common Stock shall be determined by the Committee.

          (m)  "Participant"  shall mean,  with respect to any Purchase  Period,
     each Eligible Employee who has elected to have amounts deducted from his or
     her Compensation pursuant to Section 6 hereof for such Purchase Period.

          (n) "Plan" shall mean this 1996 Employee  Stock  Purchase Plan, as the
     same may be amended from time to time.

          (o) "Purchase  Date" shall mean the last Business Day of each Purchase
     Period.

          (p)  "Purchase  Period"  shall  mean each of the three  month  periods
     ending on the last days of March,  June,  September and December during the
     period when the Plan is in effect. The first Purchase Period shall begin on
     October 1, 1996 and end on December 31, 1996.

3.   Common Stock Available Under the Plan

     The maximum  number of shares of Common Stock which may be purchased  under
the Plan shall be 500,000 shares,  except as such maximum number may be adjusted
as provided in Section 12 hereof.  Shares of Common  Stock  purchased  under the
Plan  may  be  authorized  and  previously  unissued  shares,   treasury  shares
(including  shares  purchased from time to time by Palomar),  or any combination
thereof.

4.   Administration of Plan

     The Plan shall be administered  by the Committee.  The Committee shall have
the authority,  consistent with the Plan, to interpret the Plan, to adopt, amend
and rescind rules and regulations for the administration of the Plan and to make
all determinations in connection  therewith which may be necessary or advisable,
and all such actions shall be binding for all purposes  under the Plan. The Plan
shall be administered at the expense of the Company.

5.   Eligibility

     Each employee of the Company shall be eligible to  participate  in the Plan
during each  Purchase  Period,  provided  that he or she is not, as of the Entry
Date for such Purchase Period:

          (a) an employee who is  customarily  employed by the Company for fewer
     than 20 hours per week,  or for five or fewer months in any calendar  year;
     or

          (b) an employee who owns (within the meaning of Section  424(d) of the
     Code) stock  possessing  5% or more of the total  combined  voting power or
     value of all classes of stock of Palomar,  treating as owned on Entry Date,

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     for purposes of this  clause,  Common  Stock which such  employee  would be
     entitled to purchase on Purchase Date for such Purchase Period but for this
     Section 5(c).

6.   Participation

          (a) On the Entry date for each Purchase Period, Palomar shall grant to
     each Participant in the Plan for such Purchase Period an option to purchase
     on the Purchase  Date for such Purchase  Period,  at the  applicable  price
     specified  in  Section 7  hereof,  the  number  of shares of Common  Stock,
     including any fractional share, which may be purchased, at such price, with
     such participant's payroll deductions received during such Purchase Period,
     subject to the terms and conditions of the Plan.

          (b)  Eligible  Employees  may  elect  to  participate  in the  Plan as
     follows:

               (i) Each Eligible  Employee may elect to participate in the Plan,
          effective  on the Entry  Date for any  Purchase  Period,  by making an
          election  to  participate  at least 15 days prior to such entry  Date.
          Such election  shall  authorize the Company to deduct an amount chosen
          by  the  employee  equal  to any  whole  percentage  between  1 and 15
          percent,  inclusive from such Employee's Compensation paid during such
          Purchase Period.

               (ii)  After  making the  election  pursuant  to  Section  6(b)(i)
          hereof, a Participant shall  automatically  continue to participate in
          the Plan during  subsequent  Purchase  Periods  until the  Participant
          either  withdraws from the Plan or ceases to be an Eligible  Employee.
          The  percentage  of  the   Participant's   Compensation   deducted  in
          subsequent  Purchase Periods shall be the percentage  specified in the
          election made pursuant to Section  6(b)(i),  as it may be changed from
          time to time pursuant to Section 6(b)(iii) or 6(b)(iv) hereof.

               (iii) Except as provided in Section  6(b)(iv)  hereof,  after the
          last date for making an election  described in Section  6(b)(i) hereof
          for the  Purchase  Period,  a  Participant  shall not be  permitted to
          increase or reduce the percentage of Compensation deducted from his or
          her  Compensation  paid during each purchase period. A Participant may
          elect to reduce or increase the percentage of his or her  Compensation
          deducted  pursuant to the Plan to any whole  percentage  between 1 and
          15, inclusive, effective for a subsequent Purchase Period by filing an
          election  not  later  than 15 days  prior to the  Entry  Date for such
          Purchase Period.

               (iv) A Participant may elect at any time to reduce the percentage
          of his or her  Compensation  deducted  pursuant  to the  Plan to zero,
          effective  commencing with the next payroll period beginning after the
          making of such election.  All cash amounts  already  deducted during a
          Purchase Period prior to the  effectiveness of any such election shall
          be refunded to the Participant.

          (c)  No  interest  will  be  paid  to   Participants  on  any  payroll
     deductions.

          (d) A  Participant  may at any time  elect to  withdraw  from  further
     participation in the Plan,  effective as of the next Business day following
     such election. Any Participant whose employment with the Company terminates
     for any reason (including without limitation termination by reason of death
     or  disability)  shall be deemed to have made a  withdrawal,  effective the
     next  Business Day  following  such  termination  of  employment.  Upon any
     withdrawal,   (i)  no  further   amounts   shall  be  deducted   from  such
     Participant's Compensation effective for any payroll period beginning after
     the effective date of withdrawal,  (ii) any  outstanding  option granted to
     such Participant under the Plan shall terminate as of the effective date of
     the  withdrawal,  and no further  purchases  of Common Stock under the Plan
     shall be made for such Participant or after such date, and (iii) as soon as
     possible  the Company  will refund all cash  deducted  during the  Purchase

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     Period.  Following  any  such  withdrawal  from  the  Plan,  an  employee's
     eligibility  to  participate  again  in the  Plan  will be  subject  to all
     provisions of Section 5 and 8 hereof.

          (e)  Notwithstanding  any other provision of the Plan, an employee who
     has withdrawn from the Plan pursuant to Section 6(d) hereof shall be deemed
     to have made an irrevocable  election not to participate in the Plan during
     the two consecutive Purchase Periods immediately following the one in which
     such withdrawal was made.

          (f) Any  election  permitted by this Section 6 (other than an election
     deemed made  pursuant to Section 6(e)) shall be made in writing on the form
     prescribed for such purpose by the Committee from time to time and shall be
     delivered to the person or persons  designated by the  Committee.  Any such
     election  shall be deemed made when such form is  completed,  signed by the
     Participant and received by such designee.

7.   Purchases of Common Stock

     On the Purchase Date for each Purchase  Period,  all options  granted under
the Plan on the first Business Day of such Purchase Period shall be deemed to be
exercised,  and all  amounts  deducted  pursuant  to  Section 6 hereof  from the
Participant's  Compensation during such Purchase Period shall be applied on such
date to purchase whole and  fractional  shares of Common Stock from the Company,
unless such  Participant has withdrawn from the Plan during such Purchase Period
effective on or prior to such  Purchase  Date.  With respect to shares of Common
Stock  purchased,  the  purchase  price  per  share  shall be the  lesser of (i)
eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on
the Entry Date of the Purchase Period, or (ii) eighty-five  percent (85%) of the
Fair  Market  Value  of a share of  Common  Stock  on the  Purchase  Date of the
Purchase  Period.  The Committee shall appoint the Custodian for the Plan and to
hold all whole and fractional  shares purchased under the Plan and to maintain a
separate Account for each  Participant,  in which Common Stock purchased by such
Participant  under  the  Plan  shall  be held  and  Dividends  received  will be
reinvested.  Each  Participant  shall receive a statement as soon as practicable
after  the end of  each  Purchase  Period  reflecting  purchases  for his or her
account under the Plan through the end of such Purchase Period.

8.   Limitation on Number of Shares purchased

     Notwithstanding  any other  provision  of the Plan,  the maximum  number of
whole and fractional  shares of Common Stock which a Participant may purchase in
a Purchase  Period under the Plan and under all other  "employee  stock purchase
plans" (within the meaning of Section 423 of the Code) maintained by Palomar and
its subsidiaries (within the meaning of Section 424(f) of the Code) shall be the
number  determined  by dividing  $6,250 by the Fair  Market  Value of a share of
Common Stock on the Entry Date for such Purchase  Period.  In the event that the
amount of  payroll  deductions  is  greater  than  $6,250 in any given  Purchase
Period,  the  Company  will  refund  the  excess to the  Participant  as soon as
practicable after such Purchase Date.

9.   Rights as a Stockholder

     From and  after the  Purchase  Date on which  shares  of  Common  Stock are
purchased by the Participant  under the Plan, such Participant shall have all of
the rights and  privileges  of a  stockholder  of Palomar  with  respect to such
shares.  Prior to the  Purchase  Date on which  shares  of  Common  Stock may be
purchased  by a  Participant,  such  Participant  shall not have any rights as a
stockholder of Palomar.

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10.  Notice of Disposition of Stock

     Each  Participant  agrees,  by his or her  participation  in the  Plan,  to
promptly  notify  Palomar  in  writing of any  disposition  of any Common  Stock
purchased  under the Plan  occurring  within 2 years after the Entry Date of the
Purchase Period in which such stock was purchased.

11.  Rights Not Transferable

     Rights  under  the  Plan are not  transferable,  except  that the  right to
receive  shares  pursuant to the Plan may be  transferred by will or the laws of
descent and  distribution.  Options  granted to a  Participant  hereunder may be
exercised only by such Participant.

12.  Adjustment for Capital Changes

     In the event of any  capital  change by  reason  of any stock  dividend  or
split,  recapitalization,  merger  in which  Palomar  is the  surviving  entity,
combination or exchange of shares or similar  corporate  change,  the number and
type of shares or other  securities of Palomar which  Participants  may purchase
under the Plan,  and the maximum  aggregate  number of such shares or securities
which may be purchased under the Plan,  shall be  appropriately  adjusted by the
Board of Directors of Palomar.

13.  Amendments

     The Board of  Directors  of Palomar may at any time,  or from time to time,
amend the Plan in any respect,  except that, without  stockholder  approval,  no
amendment  shall be made (a)  increasing  the  number  of  shares  which  may be
purchased  under the Plan (other  than as  provided  in Section 12 herein),  (b)
materially  increasing the benefits  accruing to  Participants or (c) materially
modifying the requirements as to eligibility for participation in the Plan.

14.  Laws and Regulations

          (a)  Notwithstanding  any other  provision of the Plan,  the rights of
     Participants  to  purchase  Common  Stock  hereunder  shall be  subject  to
     compliance with all applicable  Federal,  state and foreign laws, rules and
     regulations  and the rules of each  stock  exchange  upon  which the Common
     Stock is from time to time listed.

          (b) The Plan and the  purchase  of  Common  Stock  hereunder  shall be
     subject to additional  rules and  regulations,  not  inconsistent  with the
     Plan, that may be promulgated from time to time by the Committee  regarding
     purchases and sales of Common Stock.

15.  Employment

     The Plan  shall not  confer  any  right to  continued  employment  upon any
employee of the Company.

16.  Effective Date of the Plan; Termination

          (a) The Plan shall  become  effective  on October 1, 1996,  subject to
     approval by the  shareholders  of Palomar in accordance with applicable law
     and the requirements of Section 423 of the Code.

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          (b) The Plan and all rights  hereunder shall terminate on the earliest
     to occur of:

               (i) the date on which  the  maximum  number  of  shares of Common
          Stock  available for purchase under the Plan as specified in Section 3
          hereof has been purchased;

               (ii) the  termination  of the Plan by the Board of  Directors  of
          Palomar; or

               (iii) the effective date of any  consolidation or merger in which
          Palomar is not the  surviving  entity,  any exchange or  conversion of
          outstanding shares of Palomar for or into securities of another entity
          or other consideration, or any complete liquidation of Palomar.

     In the event that on any Purchase Date the remaining shares of Common Stock
available  for  purchase  under  the Plan  are  insufficient  to  fully  satisfy
Participants'  outstanding  options,  such remaining  available  shares shall be
apportioned  among and sold to such  Participant in proportion to the amounts of
payroll  deductions  and the excess payroll  deduction  shall be returned to the
Participant as soon as practicable thereafter.

     Upon any  termination  of the Plan,  any shares in the  employee's  Account
shall  be  delivered  by the  Custodian  to  the  employee  or his or her  legal
representative as soon as practicable following such termination.