AMENDMENT NO. 1 TO KEY EMPLOYEE AGREEMENT

         AMENDMENT NO. 1, by and among  Palomar  Medical  Technologies,  Inc., a
Delaware corporation (the "Company") and Louis P. Valente ("Employee"), dated as
of May 15, 1999 (this "Amendment"),  to Key Employee Agreement,  dated as of May
15, 1997, 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 May 15, 1997 (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.   AMENDMENTS.  (a) 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 by the Company 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."

         (b) Section 2  (Compensation)  of Exhibit A to the Agreement is amended
by deleting the figure TWO HUNDRED AND SEVENTY-FIVE  THOUSAND DOLLARS ($275,000)
and replacing it with the figure THREE HUNDRED THOUSAND DOLLARS ($300,000).

         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.

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

         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/    Sarah Burgess Reed
                                                    ----------------------------
                                                    Name:  Sarah Burgess Reed
                                                    Title: General Counsel

/s/      Louis P. Valente
-----------------------------
         Louis P. Valente