AMENDMENT NO. 1 TO KEY EMPLOYEE AGREEMENT

         AMENDMENT NO. 1, by and among  Palomar  Medical  Technologies,  Inc., a
Delaware corporation (the "Company") and Michael H. Smotrich ("Employee"), dated
as of May 15, 1999 (this "Amendment"),  to Key Employee  Agreement,  dated as of
April 1, 1998, between the Company and Employee.

                              W I T N E S S E T H :

         WHEREAS,  the  Company  and  Employee  are  parties  to a Key  Employee
Agreement dated as of April 1, 1998 (the "Agreement");

         WHEREAS,  the Company and Employee wish to amend the Agreement upon the
terms and subject to the conditions set forth herein; and

         NOW  THEREFORE,  in  consideration  of the premises  and the  covenants
contained  in this  Amendment  and other good and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

         1.  AMENDMENT.  Section  2.2(e) of the Agreement is amended by deleting
the final two  sentences  thereof and  replacing  them in their  entirety by the
following:  "If,  however,  a change in  control  of the  Company  should  occur
followed by termination of your employment  (either without Cause or as a result
of your  resignation)  at any time during the term of this  Agreement,  then you
shall be  entitled to receive as  severance  pay three times your Base Salary as
then in  effect  in a lump sum  payment  in  addition  to all  earned  incentive
compensation  in  accordance  with  EXHIBIT A  attached.  For  purposes  of this
Agreement  "change  in  control"  shall be  deemed  to be (i) the sale of all or
substantially all of the assets of the Company;  (ii) any person,  together with
its  affiliates  and  associates  (as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, or any successor rule thereto) shall become the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act), including by
merger or otherwise,  of more than fifty percent (50%) of the total voting power
of all  classes  of  voting  stock of the  Company;  or (iii)  that any  person,
together  its  affiliates  and  associates  (as  defined in Rule 12b-2 under the
Securities Exchange Act of 1934, or any successor rule thereto) has succeeded as
the result of or in response to actual or threatened election contests,  whether
by settlement or otherwise,  in having  elected to the Board of Directors of the
Company,  whether at one time or on a cumulative  basis, a sufficient  number of
nominees who were not nominees of the Board of  Directors or the  management  of
the Company to constitute  (x) more than thirty  percent (30%) of the members of
the Company's Board of Directors,  rounded down to the nearest whole number,  if
the number of directors  on the  Company's  Board is eight or less,  or (y) more
than forty percent (40%) of the members of the Company's Board,  rounded down to
the nearest whole number,  if the number of directors on the Company's  Board is
nine or more.

         2. EFFECTIVENESS. From and after the date hereof, all references in the
Agreement to the Agreement shall be deemed to be references to such Agreement as
amended hereby.

         3. AGREEMENT.  Except as amended by this Amendment, the Agreement shall
remain in effect in accordance with its terms.

<PAGE>

         4. MISCELLANEOUS. (a) This Amendment shall be construed and interpreted
in accordance with the laws of the Commonwealth of Massachusetts.

                  (b)  This   Amendment   may  be  executed  in  any  number  of
         counterparts and by different parties hereto on separate  counterparts,
         each of which  counterparts  when so executed and  delivered,  shall be
         deemed to be an original and all of which counterparts, taken together,
         shall constitute but one and the same instrument. This Amendment may be
         executed  and  delivered  by a  party  by a  telephone  line  facsimile
         transmission bearing a signature on behalf of such party transmitted by
         such party to the other party.

                  (c)  Section and  paragraph  headings  in this  Amendment  are
         included  herein  for  convenience  of  reference  only and  shall  not
         constitute a part of this Amendment for any other purpose.

                  (d) Any  provision  of  this  Amendment  that  is  prohibited,
         unenforceable or not authorized in any  jurisdiction  shall, as to such
         jurisdiction,  be  ineffective  to  the  extent  of  such  prohibition,
         unenforceability   or   non-authorization   without   invalidating  the
         remaining  provisions hereof or affecting the validity,  enforceability
         or legality of such provision in any other jurisdiction.

                  (e) No amendment or waiver of any provision of this  Amendment
         shall in any event be effective unless the same shall be in writing and
         signed by the party to be charged with enforcement thereof and any such
         waiver  shall be effective  only in the  specific  instance and for the
         specific  instance  and for the specific  purpose for which  given.  No
         failure  on the  part  of any  party  to  exercise,  and  no  delay  in
         exercising,  any right under this  Amendment  shall operate as a waiver
         thereof by such party. No single or partial exercise of any right under
         this Amendment shall preclude any other or further  exercise thereof or
         the exercise of any other right.

         IN WITNESS  WHEREOF,  the parties hereto have  executed,  delivered and
made effective this Amendment as of May 15, 1999.

                                         PALOMAR MEDICAL TECHNOLOGIES, INC.

                                         BY:   /s/      Louis P. Valente
                                               ---------------------------------
                                               Name:    Louis P. Valente
                                               Title:   Chief Executive Officer

/s/ Michael H. Smotrich
-------------------------------
Michael H. Smotrich