LICENSE AGREEMENT

         THIS  AGREEMENT,  effective  as of August  18,  1995  (EFFECTIVE  DATE)
between THE GENERAL HOSPITAL  CORPORATION,  a not-for-profit  corporation  doing
business as Massachusetts General Hospital,  having a place of business at Fruit
Street,   Boston,   Massachusetts   02114   ("GENERAL")   and  Palomar   Medical
Technologies,  a Delaware  corporation  having  offices at 66 Cherry Hill Drive,
Beverly, MA 01915 ("PALOMAR").

                                   WITNESSETH

         WHEREAS,  under  research  programs  funded  by  GENERAL  and the  U.S.
Government,  GENERAL  through  research  conducted by Dr. R. Rox  Anderson,  has
developed an invention pertaining to the use of lasers for hair removal;

         WHEREAS,  GENERAL  and  PALOMAR  have  entered  into a  Clinical  Trial
Agreement  of  even  date,   attached  hereto  as  Exhibit  A  ("Clinical  Trial
Agreement"),  under which  PALOMAR is providing  funds and  equipment to support
clinical trials of said invention at GENERAL;

         WHEREAS,  GENERAL has filed a U.S.  Patent  Application  covering  said
invention and all of the rights,  title and interest of the named inventors--Dr.
R. Rox  Anderson,  Dr.  Melanie  C.  Grossman  and  William  Farinelli--in  said
application have been assigned to GENERAL;

         WHEREAS,  GENERAL  represents  to the best of its  knowledge and belief
that  it is the  owner  of  all  rights,  title  and  interest  in  said  patent
application  and has the right and  ability  to grant  the  license  hereinafter
described;

         WHEREAS, as a center for research and education,  GENERAL is interested
in  licensing  PATENT  RIGHTS and thus  benefiting  the  public  and  GENERAL by
facilitating  the  dissemination  of the results of its  research in the form of
useful products,  but is without capacity to commercially develop,  manufacture,
and distribute any such product; and

         WHEREAS, PALOMAR having such capacity, desires to commercially develop,
manufacture, use and distribute such products throughout the world;

         NOW  THEREFORE,  in  consideration  of the premises and of the faithful
performance  of the  covenants  herein  contained,  the parties  hereto agree as
follows:

                                       1
<PAGE>
                                 1. DEFINITIONS

         1.1 (a) The term  "ACCOUNTING  PERIOD" shall mean each six month period
ending June 30 and December 31.

                  (b) The term "AGREEMENT YEAR" shall mean the twelve (12) month
period beginning on August 18, 1995 and each succeeding twelve (12) month period
thereafter  for the term of the  Agreement.  If not otherwise  specified,  terms
involving  time periods shall be applied pro rata according to any time frame in
which less than the full specified period is involved.

         1.2 The term  "AFFILIATE"  shall mean any  corporation  or other  legal
entity other than PALOMAR in whatever country organized, controlling, controlled
by or under common control with PALOMAR.  The term "control"  means  possession,
direct or  indirect,  of the  powers to  direct  or cause the  direction  of the
management  and policies of an entity,  whether  through the ownership of voting
securities,  by contract or  otherwise.  The term  "AFFILIATE"  with  respect to
GENERAL  shall mean any  company  controlling,  controlled  by, or under  common
control, directly or indirectly, with GENERAL.

         1.3 The term "LICENSE FIELD" shall,  subject to Exhibit B hereof,  mean
hair reduction and/or removal.

         1.4 The term "FIRST COMMERCIAL EXPLOITATION" shall mean in each country
the  first  exploitation  by way of  sale of any  PRODUCT  or  performance  of a
SERVICE, by PALOMAR, its AFFILIATES or SUBLICENSES, (a) following approval, when
such approval is necessary, for the marketing of such PRODUCT or the performance
of such SERVICE, by the appropriate governmental agency for the country in which
the  exploitation  is to be made,  or (b) when such  government  approval is not
required in a country,  the first sale of such  PRODUCT or  performance  of such
SERVICE in that country.

         1.5 The term  "SUBLICENSEE"  shall mean any  non-AFFILIATE  third party
licensed  by  PALOMAR or by an  AFFILIATE  to make,  have made,  use or sell any
PRODUCT or SERVICE.

         1.6 The term "NET REVENUES" shall mean the GROSS REVENUES as defined in
(b) below received by PALOMAR or any of its AFFILIATES or  SUBLICENSEES  for the
sale or distribution of any PRODUCT or for the performance of any SERVICE,  less
(to the extent appropriately documented) the following amounts actually paid out
by PALOMAR, its AFFILIATE or SUBLICENSEES or credited against the GROSS REVENUES
received by them:

         (a)      (i) credits and allowances for price adjustment, rejection, or
                  return of  PRODUCTS  previously  sold or  SERVICES  previously
                  performed,  including reductions imposed by Medicare, Medicaid
                  or an HMO;

             (ii) rebates and cash discounts to customers allowed and taken;

            (iii) amounts for  transportation,  insurance,  handling or shipping
                  charges to customers;

                                       2
<PAGE>

             (iv) taxes,  duties  and other  governmental  charges  levied on or
                  measured by the sale of PRODUCTS or SERVICES, whether absorbed
                  by PALOMAR or paid by the purchaser so long as PALOMAR'S price
                  is reduced  thereby,  but not franchise or income taxes of any
                  kind whatsoever;

              (v) for any revenues in which the United States  government on the
                  basis  of its  royalty-free  license  pursuant  to 35 USC Sec.
                  202(C) to any PATENT RIGHT requires that the GROSS REVENUES of
                  any  PRODUCT  or  SERVICE  subject to such  PATENT  RIGHT,  be
                  reduced by the amount of such royalty owed GENERAL pursuant to
                  paragraph 3.1, the amount of such royalty.

         (b) For any bone fide sale, lease, license, rental or other disposition
of a PRODUCT or bona fide  performance  of a SERVICE to a bona fide  customer by
PALOMAR,  its AFFILIATES or  SUBLICENSEES,  the GROSS REVENUE shall be the gross
billing  price of the  PRODUCT  or the gross  billing  price  for the  SERVICES,
respectively.

         (c) If  PALOMAR  or any of its  AFFILIATES  or  SUBLICENSEES  sell  any
PRODUCT in a bona fide sale as a component of a combination of active functional
elements,  the GROSS REVENUE of the PRODUCT  shall be determined by  multiplying
the GROSS REVENUE of the  combination by the fraction A over A + B, in which "A"
is the  GROSS  REVENUE  of the  PRODUCT  portion  of the  combination  when sold
separately  during the  ACCOUNTING  PERIOD in the  country in which the sale was
made,  and  "B"  is the  GROSS  REVENUE  of the  other  active  elements  of the
combination sold separately  during said ACCOUNTING  PERIOD in said country.  In
the event that no separate sale of either such PRODUCT or active elements of the
combination  is made during said  ACCOUNTING  PERIOD in said country,  the GROSS
REVENUE of the PRODUCT shall be determined by  multiplying  the GROSS REVENUE of
such  combination  by the  fraction  C over C + D, in which "C" is the  standard
fully-absorbed  cost of the PRODUCT portion of such combination,  and "D" is the
sum  of  the  standard   fully-absorbed  costs  of  the  other  active  elements
component(s),  such  costs  being  arrived  at  using  the  standard  accounting
procedures of PALOMAR which will be in accord with generally accepted accounting
practices.

         (d) If PALOMAR, or any of its AFFILIATES or SUBLICENSEES,  commercially
uses or disposes of any PRODUCT by itself (as opposed to a use or disposition of
the PRODUCT as a component of a combination of active functional elements) other
than  in a bona  fide  sale to a bona  fide  customer,  the  GROSS  SALES  PRICE
hereunder  shall be the price  which  would be then  payable in an arm's  length
transaction. If PALOMAR, or any of its AFFILIATES or SUBLICENSEES,  commercially
uses or  disposes  of any  PRODUCT as a  component  of a  combination  of active
functional elements other than in a bona fide sale to a bona fide customer,  the
GROSS  SALES  PRICE  of the  PRODUCT 


                                       3
<PAGE>

shall be determined in accordance  with paragraph (c) above,  using as the GROSS
SALES PRICE of the  combination  that price  which  would be then  payable in an
arm's length transaction.

         (e)  Transfer  of a PRODUCT  within  PALOMAR or between  PALOMAR and an
AFFILIATE for sale by the transferee shall not be considered a sale,  commercial
use or disposition for the purpose of the foregoing  paragraphs;  in the case of
such  transfer  the GROSS  REVENUE  shall be based on sale of the PRODUCT by the
transferee.

         1.7 The term  "PATENT  RIGHT"  shall mean the U.S.  Patent  Application
filed by  Dr.Anderson,  et.al.  on February  1, 1995  entitled  "Permanent  Hair
Removal Using Optical Pulses," or the equivalent of such application,  including
any division,  continuation or any foreign patent  application or Letters Patent
or the equivalent thereof issuing thereon or reissue, reexamination or extension
thereof.  Subject to Exhibit B hereof,  PATENT  RIGHTS shall also include  those
claims in any  continuation-in-part  of the  aforementioned  patent  application
which claim an invention described or claimed in said patent application. PATENT
RIGHTS  shall  also  include   GENERAL's   rights  assigned  to  GENERAL  by  an
Investigator  under the Clinical Trial Agreement,  in any patent  application or
patent claiming a Study Invention as defined in the Clinical Trial Agreement and
as to which  PALOMAR has notified  GENERAL of PALOMAR's  desire to have a patent
application  filed  in  accordance  with  paragraph  2.3 of the  Clinical  Trial
Agreement.

         1.8 The term "PRODUCT"  shall mean any article,  device or composition,
the manufacture, use, or sale of which

         (a)      absent the licenses  granted  herein,  would  infringe a VALID
                  CLAIM of any PATENT RIGHT, or

         (b)      does not infringe a VALID CLAIM of any PATENT  RIGHT  licensed
                  to  PALOMAR   hereunder   but  the   discovery,   development,
                  manufacture or use of which employs TECHNOLOGICAL INFORMATION.

         1.9 The terms  "SERVICE"  shall  mean any  method or  service  the use,
performance of sale of which:

         (a)      absent the licenses  granted  herein,  would  infringe a VALID
                  CLAIM of any PATENT RIGHT, or

         (b)      does not infringe a VALID CLAIM of any PATENT  RIGHT  licensed
                  to  PALOMAR   hereunder   but  the   discovery,   development,
                  manufacture or use of which employs TECHNOLOGICAL INFORMATION.

         1.10 The term "TECHNOLOGICAL INFORMATION" shall mean any research data,
designs,  formulas,  process  information,  clinical data and other  information
pertaining  to any  invention  claimed  in  


                                       4
<PAGE>

PATENT RIGHT which is known to Dr.  Anderson on the EFFECTIVE DATE and disclosed
to Palomar  within thirty (30) days of the date on which this Agreement is fully
executed. This term shall also include information which is disclosed to PALOMAR
by GENERAL in  accordance  with,  and  during  the term of, the  Clinical  Trial
Agreement  and which  pertains  to any PATENT  RIGHT  claiming an  Invention  as
defined in said Agreement.

         1.11 The term "VALID  CLAIM"  shall mean any claim of any PATENT  RIGHT
that has not been (i)  finally  rejected  or (ii)  declared  invalid by a patent
office or court of competent  jurisdiction  in any unappealed  and  unappealable
decision.

                                   2. LICENSE

         2.1 GENERAL hereby grants PALOMAR,  subject to the rights of the United
States Government:

                  (a)      an exclusive,  worldwide,  royalty-bearing license in
                           the LICENSE  FIELD under  GENERAL's  rights in PATENT
                           RIGHTS to make,  have made, use and sell PRODUCTS and
                           to perform SERVICES;

                  (b)      the right to sublicense (i) PATENT RIGHTS exclusively
                           licensed   to   PALOMAR   and  (ii)   PATENT   RIGHTS
                           non-exclusively  licensed  to  PALOMAR  to the extent
                           such a sublicense is required for a customer to use a
                           PRODUCT or to practice a SERVICE.

         All licenses  pursuant to this paragraph 2.1 are subject to the rights,
conditions and  limitations  imposed by U.S. law with respect to inventions made
in the performance of federally funded research.

         The above  licenses to sell PRODUCTS  include the right to grant to the
purchaser of products from PALOMAR,  its AFFILIATES,  and SUBLICENSEES the right
to use such  purchased  PRODUCTS in a method  coming  within the scope of PATENT
RIGHT.

         2.2 The granting of any license  hereunder is subject to GENERAL's  and
GENERAL's  AFFILIATES' right to make and to use the subject matter described and
claimed in PATENT  RIGHT for  research  and  clinical  purposes but for no other
purpose.

         2.3 Within thirty (30) days of EFFECTIVE DATE, upon request by PALOMAR,
GENERAL shall disclose to PALOMAR,  TECHNOLOGICAL INFORMATION which PALOMAR will
be entitled to use to the extent such use does not infringe  any GENERAL  patent
not  licensed  to  PALOMAR  hereunder.  GENERAL  represents  to the  best of its
knowledge after reasonable  enquiry there are no GENERAL patents or applications
not licensed hereunder which would be infringed by such use.



                                       5
<PAGE>

         2.4  Subject  to  Exhibit B  hereof,  GENERAL  shall  have the right to
license any PATENT  RIGHT to any other  party for the purpose of  manufacturing,
using or selling of any PRODUCT or  performance  of any  SERVICE  outside of the
LICENSE FIELD.

         2.5 It is  understood  that nothing  herein shall be construed to grant
PALOMAR a license express or implied under any patent owned solely or jointly by
General  other than the PATENT RIGHTS  expressly  licensed  hereunder,  provided
that,  in the event  that  GENERAL's  Office of  Technology  Affairs  ("OTA") is
notified of a patentable  invention  assigned or assignable to GENERAL which OTA
believes would, if patented,  be infringed by the manufacture,  use or sale of a
PRODUCT or SERVICE ("Dominant Invention"), and in the event that at the time OTA
is  notified  of said  Dominant  Invention,  no third  party  has  been  granted
exclusive rights, or an option to exclusive rights, in said Dominant  Invention,
OTA shall give PALOMAR  notice of said  Dominant  Invention  and give PALOMAR an
opportunity to negotiate an exclusive or  non-exclusive  license under GENERAL's
rights in said Dominant Invention,  whichever is available,  it being understood
that GENERAL shall have no obligation to enter into such a license with PALOMAR.

                          3. DUE DILIGENCE OBLIGATIONS

         3.1 PALOMAR shall itself,  or through its  AFFILIATES or  SUBLICENSEES,
use reasonable  efforts to develop and make commercially  available PRODUCTS for
commercial  sales and  distribution  throughout  the world in the LICENSE FIELD.
Such efforts shall consist of:

         (a) Entering into the Clinical Trial  Agreement  with General  attached
hereto as Exhibit A and providing the funding specified in said Agreement;

         (b) Commencing the commercial  sale of the PRODUCT or SERVICES  outside
the United  States  within  three (3) months  after  tests on a normal mode ruby
laser have been  completed  and approval has been  received  from the  Principal
Investigator (see Clinical Trial Agreement) that such laser works acceptably;

         (c) Filing with the U.S. Food and Drug  Administration  for a 510(k) on
any PRODUCT  within  three (3) months of receipt of clinical  data from  GENERAL
sufficient for such filing,  it being  understood that GENERAL is providing such
data to PALOMAR  pursuant to the  Clinical  Trial  Agreement.  In the event that
GENERAL  fails to  provide  such  data,  GENERAL  and  PALOMAR  shall  confer to
establish  a  reasonable  procedure  and  schedule to secure  approval  for such
PRODUCT,  and in the  event  that  GENERAL  and  PALOMAR  cannot  agree  on such
procedure  and schedule  they shall  resolve this issue in  accordance  with the
dispute resolution provisions of paragraph 10.9;



                                       6
<PAGE>

         (d) Commencing the  commercial  sale of the PRODUCT or SERVICES  within
the United States within six (6) months after FDA clearance is received.

         However,  GENERAL  shall not  unreasonably  withhold its consent to any
revision  in such time  periods  whenever  requested  in writing by PALOMAR  and
supported by evidence of technical difficulties or delays in clinical studies or
regulatory processes that the parties could not have reasonably avoided. Failure
to achieve  one or more of the above  objectives  within the above  stated  time
periods or within any  extension  granted  by  GENERAL  shall  result in GENERAL
having the right to cancel upon thirty  (30) days notice any  exclusive  license
granted hereunder or convert any exclusive license to a non-exclusive license.

         3.2 At  intervals  no longer than every six (6) months,  PALOMAR  shall
report in writing to GENERAL on progress made toward the foregoing objectives.

             4. FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHT

         4.1  GENERAL  shall  be  responsible  for  the   preparation,   filing,
prosecution and maintenance of all patent  applications  and patents included in
PATENT  RIGHTS.  PALOMAR  shall  reimburse  GENERAL  for  all  reasonable  costs
("Costs")  incurred  by GENERAL for the  preparation,  filing,  prosecution  and
maintenance of all PATENT RIGHTS as follows:

         (a) Subject to paragraph  4.2,  for all Costs  incurred by GENERAL from
and after the EFFECTIVE  DATE,  PALOMAR  shall pay such Costs  directly to legal
counsel upon receipt of invoices from GENERAL or legal counsel;

         (b) For all Costs  incurred  by GENERAL  prior to the  EFFECTIVE  DATE,
PALOMAR  shall  reimburse  GENERAL  within thirty (30) days of the date on which
this Agreement is executed by the last party to sign.

         4.2 With respect to any PATENT RIGHT,  each document or a draft thereof
pertaining  to the filing,  prosecution,  or  maintenance  of such PATENT RIGHT,
including but not limited to each patent application, office action, response to
office  action,  request  for  terminal  disclaimer,  and request for reissue or
reexamination of any patent issuing from such  application  shall be provided to
PALOMAR as  follows.  Documents  received  from any patent  office or  counsel's
analysis thereof shall be provided promptly after receipt.  For a document to be
filed  in any  patent  office,  a  draft  of such  document  shall  be  provided
sufficiently  prior to its filing,  to allow for review and comment by the other
party.  If as a result of the review of any such  document,  PALOMAR shall elect
not to pay or continue to pay the Costs for such PATENT RIGHT,  PALOMAR shall so
notify GENERAL within thirty (30) days of


                                       7
<PAGE>

PALOMAR's  receipt of such document and PALOMAR shall  thereafter be relieved of
the obligation to pay any additional  Costs regarding such PATENT RIGHT incurred
after the  receipt  of such  notice by  GENERAL.  Such U.S.  or  foreign  patent
application or patent shall  thereupon  cease to be a PATENT RIGHT hereunder and
GENERAL shall be free to license its rights to that  particular  U.S. or foreign
patent application or patent to any other party on any terms. PALOMAR shall also
have the right to provide comments and recommendations on any action proposed to
be  taken  by  GENERAL  and  GENERAL  agrees  to  take  into  account  PALOMAR's
recommendations. Where a course of action is followed on a PATENT RIGHT which is
both contrary to PALOMAR's  recommendations  and which increases costs over such
recommendation,  PALOMAR  shall only be  responsible  for costs which would have
been incurred had its recommendation been followed.

                           5. ROYALTIES; LICENSE FEES

         5.1 (a) PALOMAR  shall pay  GENERAL a license  issue fee of Two Hundred
and Fifty Thousand Dollars ($250,000) as follows:

         (i)  Within  thirty  (30)  days of the  date of the  execution  of this
         Agreement  by the  last  party to sign  hereunder,  PALOMAR  shall  pay
         GENERAL Fifty Thousand  Dollars  ($50,000),  one half of which shall be
         creditable against future royalties paid pursuant to paragraphs 5.1 (b)
         hereunder;

         (ii) On or before  January  10,  1996,  PALOMAR  shall pay  GENERAL Two
         Hundred  Thousand  Dollars  ($200,000)  no  portion  of which  shall be
         creditable against future royalties.

                  (b) Beginning with the FIRST  COMMERCIAL  EXPLOITATION  in any
country,  on all  sales  of  PRODUCTS  anywhere  in the  world by  PALOMAR,  its
AFFILIATES or  SUBLICENSEES,  PALOMAR shall pay GENERAL  royalties in accordance
with the following  schedule,  subject to Exhibit B hereof, such undertaking and
schedule  having been agreed to for the purpose of reflecting  and advancing the
mutual convenience of the parties.

                  (i) For: (A) each  PRODUCT  sold by PALOMAR or its  AFFILIATES
                  and  SUBLICENSEES  consisting  of (1) a ruby  laser or (2) any
                  other laser sold solely for hair removal, or (3) any non-laser
                  equipment/disposables used for the practice of a SERVICE, and

                  (B) any  non-laser  equipment/disposable  sold by  PALOMAR  or
                  AFFILIATES and SUBLICENSEES  which are not PRODUCTS  hereunder
                  but which are used for the practice of a SERVICE,

                           (I) Five  percent (5%) of NET REVENUES so long as the
                           PRODUCT, its manufacture, use or sale is


                                       8
<PAGE>

                           covered by a VALID CLAIM of any PATENT RIGHT licensed
                           exclusively to PALOMAR in the country in question;

                           (II) Two and  one-half  percent  (2-1/2%)  of the NET
                           REVENUES whenever the PRODUCT,  its manufacture,  use
                           or sale is  covered  by a VALID  CLAIM of any  PATENT
                           RIGHT  licensed  non-exclusively  to  PALOMAR  in the
                           country in question;

                           (III)  During  each  of  the  eight  (8)  years  next
                           following the FIRST COMMERCIAL  EXPLOITATION anywhere
                           in the world by PALOMAR, its AFFILIATES or LICENSEES,
                           One and one  quarter  percent  (  1-1/4%)  of the NET
                           REVENUES  of  PRODUCT  on which no royalty is payable
                           under paragraph 5.1(a) or 5.1(b) above.

                  Paragraph  1.6(c)  notwithstanding,  it is understood that for
                  purposes of calculating the above royalty,  the royalty on any
                  PRODUCT  which  constitutes  a  laser  which  is  produced  or
                  manufactured  such that it incorporates,  is combined with, or
                  is designed to incorporate  or be combined  with,  accessories
                  that are used for hair  removal  ("Modified  Laser")  shall be
                  based on the NET REVENUES  for such  Modified  Laser,  and the
                  royalty on any PRODUCT which  constitutes  accessories used in
                  modifying a laser but which is sold independently of the laser
                  ("Modification  Kits")  shall be based on the NET REVENUES for
                  such Modification Kits.

         (ii) For each PRODUCT sold by PALOMAR consisting of a laser (other than
         the ruby laser, the sales of which shall in any event be subject to the
         5% royalty  described  is  subparagraph  5(b)(i)  above)  sold for hair
         removal as well as other uses,  the parties  agree to negotiate in good
         faith a  commercially  reasonable  royalty  to be paid  to  GENERAL  in
         accordance  with  the  formula  provided  for  in  paragraph  1.6  (c),
         provided,  that in no event  shall said  royalty be less than two and a
         half  percent  (2-1/2%)  of  NET  REVENUES  received  by  PALOMAR,  its
         AFFILIATES or SUBLICENSEES.

         (iii)  (A)  (1)  For  any  SERVICE  performed  by  (a)  PALOMAR  or its
         AFFILIATES  or  SUBLICENSEES  or (b) any other third party by virtue of
         any  right  or  license   granted  by  PALOMAR  or  its  AFFILIATES  or
         SUBLICENSEES, and

                  (2) For any  commercial  disposition  (other than sale) of any
         PRODUCT by PALOMAR or its AFFILIATES or SUBLICENSEES,

         PALOMAR shall pay GENERAL a commercially  reasonable  percentage of the
         NET REVENUES received by PALOMAR or its AFFILIATES or SUBLICENSEES, the
         percentage to be established by the parties


                                       9
<PAGE>

         at such  time as  PALOMAR  has  knowledge  of the  method  by which NET
         REVENUES for said SERVICES or PRODUCTS will be calculated and paid, and
         in no  event  later  than the  FIRST  COMMERCIAL  EXPLOITATION  of such
         PRODUCT or SERVICES by said method, and said percentage shall remain in
         effect for so long as the SERVICE or PRODUCT is marketed in  accordance
         with said  method.  In order to aid the  parties in  establishing  said
         percentage,  PALOMAR  shall provide  GENERAL with complete  information
         relevant  thereto,  including  projected  NET  REVENUES  and  PALOMAR's
         projected net profit margins.

                  (B) The  payments to be made to GENERAL  pursuant to paragraph
         5(b)(iii)  for PRODUCTS  and  SERVICES  covered by a VALID CLAIM of any
         PATENT RIGHT, shall be a commercially  reasonable royalty rate targeted
         to be in the  range of three to five  percent  (3-5%)  of NET  REVENUES
         received by PALOMAR its AFFILIATES or SUBLICENSEES  (which royalty rate
         the parties  anticipate  will fall within the range of twenty to thirty
         percent (20-30%) of PALOMAR's  estimated profit margin on said PRODUCTS
         or SERVICES).

                  (C) The  payments to be made to GENERAL  pursuant to 5(b)(iii)
         for  PRODUCTS  and  SERVICES not covered by a VALID CLAIM of any PATENT
         RIGHT,  shall be made for eight (8) years  following  FIRST  COMMERCIAL
         EXPLOITATION  of such PRODUCT or SERVICE,  and shall be a  commercially
         reasonable rate targeted to be in the range of seventy-five  hundredths
         of one  percent to one and one  quarter  percent  (.75%-1-1/4%)  of NET
         REVENUES received by PALOMAR, its AFFILIATES or SUBLICENSEES, which the
         parties  anticipate  will fall  within the range of five to six and one
         quarter percent (5-6 1/4%) of PALOMAR's estimated profit margin on said
         PRODUCTS or SERVICES.

                  (D) Annual minimum royalties:

                  (1) PALOMAR  shall pay GENERAL an annual  minimum  royalty due
                  and payable no later than the end of the AGREEMENT YEAR during
                  which the FDA grants  510K  approval  (actual or  deemed),  or
                  comparable approval, of any PRODUCT or SERVICE ("First 510K"),
                  and at the end of each  AGREEMENT  YEAR  thereafter,  provided
                  that no such payment shall be due in the event that the amount
                  of royalties  paid to GENERAL  hereunder in an AGREEMENT  YEAR
                  are equal to or greater  than the annual  minimum  royalty due
                  and payable for said AGREEMENT YEAR.

                  (2) The parties agree to establish the annual  amounts of such
                  minimum  royalties  due for all  Agreement  Years within sixty
                  (60) days of  PALOMAR's  receipt of notice of the First  510K.
                  The parties intend that the annual minimum royalty shall be an
                  amount   established  by  the  following


                                       10
<PAGE>

                  formula: Multiply one-tenth the royalty rate due hereunder for
                  PRODUCTS  and  SERVICES  (or,  in the event that more than one
                  royalty rate is  anticipated  to be due  hereunder,  a royalty
                  rate which  reflects a  reasonable  weighted  averaged  of the
                  anticipated  royalty  rates)  times  PALOMAR's  projected  NET
                  REVENUES for each Agreement Year.

                  (3) PALOMAR shall owe GENERAL  minimum  royalties  pursuant to
                  this paragraph until the expiration of the last AGREEMENT YEAR
                  in which PALOMAR  holds an exclusive  license to PATENT RIGHTS
                  hereunder.

         (iv) In the event that the  parties  fail to agree on the  payments  or
         annual minimum  royalties due and payable under paragraphs  5(b)(ii) or
         5(b)(iii),  the parties agree to resolve this issue in accordance  with
         the dispute resolution provisions set forth in paragraph 10.9 below.

         5.2 (a) In the event that more than one  royalty  rate under  paragraph
5.1 is  applicable  to a PRODUCT  or  SERVICE,  the  highest  of the  applicable
royalties shall apply.

         (b) Only one royalty  under  paragraph  5.1 shall be due and payable to
GENERAL by PALOMAR for any PRODUCT or SERVICE regardless of the number of PATENT
RIGHTS covering such PRODUCT or SERVICE.

         5.3 If any  license  granted  pursuant  to Section 2 shall be or become
non-exclusive and GENERAL shall license any PATENT RIGHT to another licensee for
the purpose of making, using,  practicing or selling PRODUCTS and/or SERVICES in
the LICENSE FIELD and accept  financial terms which,  taken as a whole, are more
favorable to such licensee than herein provided for PALOMAR,  GENERAL shall give
written  notice  thereof to PALOMAR  and  PALOMAR  shall have the  option,  upon
PALOMAR's  written  notice to GENERAL,  to revise its license  hereunder to such
more favorable terms, effective as of the effective date of GENERAL's license to
said other licensee.

         5.4 In addition to the royalties provided for above,  PALOMAR shall pay
GENERAL ten percent  (10%) of any and all income,  other than a royalty or other
payment made pursuant to paragraphs  5.1, above,  including,  by way of example,
license  issue  fees  and  milestone  payments  received  by  PALOMAR  from  its
AFFILIATES and SUBLICENSEES,  in consideration for the sublicensing of any right
or license granted to PALOMAR hereunder.

         5.5 In addition to the payments  provided for in paragraphs 5.1 through
5.4, PALOMAR shall pay GENERAL the following  amounts upon the occurrence of the
following events,  one half of which payments shall be creditable against future
royalties paid pursuant to paragraphs 5.1(b) hereof:



                                       11
<PAGE>

                  $20,000  upon  FDA  allowance  of  the  first  Investigational
                           Device   Exemption   with   respect   to  a   PRODUCT
                           incorporating  or combined  with a ruby,  alexandrite
                           and diode laser.

                  $35,000  upon FDA approval  (actual or deemed),  by the FDA of
                           the  first  510(k)  or  comparable  application  with
                           respect to each  PRODUCT  incorporating  or  combined
                           with a ruby, alexandrite laser and diode laser.

                  $75,000  upon first  issuance in the United States of a PATENT
                           RIGHT with claims that covers a PRODUCT or SERVICE.

         5.6 In the event that the  royalty  paid to  GENERAL  is a  significant
factor in the return realized by PALOMAR so as to diminish PALOMAR's  capability
to respond to competitive pressures in the market,  GENERAL agrees to consider a
reasonable  reduction in the royalty paid to GENERAL as to each such PRODUCT and
SERVICE  for the period  during  which such  market  condition  exists.  Factors
determining  the size of the reduction will include profit margin on PRODUCT and
SERVICES and on analogous products, prices of competitive products and services,
total prior sales by PALOMAR, and PALOMAR's  expenditures in PRODUCT and SERVICE
development.

         5.7 The  payments  due under this  Agreement  shall,  if overdue,  bear
interest  until  payment at a per annum rate equal to one percent (1%) above the
prime  rate in effect at the Bank of Boston on the due date,  not to exceed  the
maximum  permitted  by law.  The  payment of such  interest  shall not  preclude
GENERAL from  exercising  any other rights it may have as a  consequence  of the
lateness of any payment.

         5.8 PALOMAR shall provide  GENERAL at least twice each  AGREEMENT  YEAR
with reports  setting forth PALOMAR's  marketing plans  (including the financial
terms on which PRODUCTS and SERVICES will be made available to SUBLICENSEES  and
end-users)  and market  projections  (including  projected NET REVENUES) for any
PRODUCT  or  SERVICE  on which  payments  to  GENERAL  have not been  determined
hereunder and which PALOMAR contemplates marketing within said AGREEMENT YEAR or
the following AGREEMENT YEAR.

                             6. REPORTS AND PAYMENTS

         6.1 PALOMAR  shall keep,  and shall  cause each of its  AFFILIATES  and
SUBLICENSEES, if any, to keep full and accurate books of accounts containing all
particulars  that may be necessary for the purpose of calculating  all royalties
payable to GENERAL. Such books of account shall be kept at their principal place
of business and, with all necessary supporting data shall, during all reasonable
times for the three (3) years next  following  the end of the  calendar  year to
which  each shall  pertain be open for  inspection  at  reasonable  times and on
reasonable  notice by GENERAL


                                       12
<PAGE>

  or its  designee  at  GENERAL's  expense  for the
purpose of verifying royalty statements or compliance with this Agreement.  Such
inspections  shall be  conducted no more than twice during any twelve (12) month
period.

         6.2 In each  year  the  amount  of  royalty  due  shall  be  calculated
semiannually  as of the  end  of  each  ACCOUNTING  PERIOD  and  shall  be  paid
semiannually  within the sixty (60) days next  following  such date,  every such
payment to be supported by the accounting  prescribed in paragraph 6.3 and to be
made in United States  currency.  Whenever  conversion from any foreign currency
shall be required,  such conversion shall be at the rate of exchange  thereafter
published in the Wall Street  Journal for the business day closest to the end of
the applicable ACCOUNTING PERIOD.

         6.3 With each  semiannual  payment,  PALOMAR shall deliver to GENERAL a
full and accurate  accounting to include at least the following  information  to
the extent necessary to determine royalties:

                  (a)      Quantity of each  PRODUCT sold or leased (by country)
                           by PALOMAR, and its AFFILIATES or SUBLICENSEES;

                  (b)      Total billings for each PRODUCT (by country);

                  (c)      Quantities  of each  PRODUCT  used by PALOMAR and its
                           AFFILIATES or SUBLICENSEES;

                  (d)      Revenues  from  SERVICES  paid  to  PALOMAR  and  its
                           AFFILIATES OR SUBLICENSEES;

                  (e)      Names and addresses of all  SUBLICENSEES  of PALOMAR;
                           and

                  (f)      Total royalties payable to GENERAL.

                                 7. INFRINGEMENT

         7.1 GENERAL  will  protect  its PATENT  RIGHTS  from  infringement  and
prosecute infringers when, in its sole judgement,  such action may be reasonably
necessary, proper and justified.

         7.2 If PALOMAR  shall  have  supplied  GENERAL  with  written  evidence
demonstrating to GENERAL's reasonable satisfaction prima facie infringement of a
claim of a PATENT RIGHT by a third party,  PALOMAR may by notice request GENERAL
to take steps to protect the PATENT RIGHT.  GENERAL shall notify  PALOMAR within
sixty  (60) days of the  receipt  of such  notice  whether  GENERAL  intends  to
prosecute the alleged infringement.  If GENERAL notifies PALOMAR that it intends
to so prosecute, GENERAL shall, within three (3) months of its notice to PALOMAR
either (i) cause  infringement  to terminate or


                                       13
<PAGE>

(ii) initiate  legal  proceedings  against the  infringer.  In the event GENERAL
notifies  PALOMAR that GENERAL  does not intend to prosecute  said  infringement
PALOMAR may,  upon notice to GENERAL,  initiate  legal  proceedings  against the
infringer at PALOMAR's  expense and in GENERAL's  name if so required by law. No
settlement,  consent  judgment or other voluntary final  disposition of the suit
which  invalidates  or restricts the claims of such PATENT RIGHTS may be entered
into without the consent of GENERAL,  which  consent  shall not be  unreasonably
withheld,  and shall not be withheld unless GENERAL assumes  responsibility  for
future expenses in litigation. PALOMAR shall indemnify GENERAL against any order
for payment that may be made  against  GENERAL in such  proceedings.  During the
period of any such  proceedings  initiated  by PALOMAR,  PALOMAR  shall have the
right to escrow fifty percent (50%) of the  royalties  which would  otherwise be
paid under this Agreement and to use such escrowed funds to offset fifty percent
(50%) of the expenses of the proceedings. On the termination of the proceedings,
and the payment of (50%) of all  expenses  in  connection  therewith,  any funds
remaining in the escrow will be promptly paid to GENERAL.

         7.3 In the event one party shall initiate or carry on legal proceedings
to enforce any PATENT RIGHT against any alleged infringer, the other party shall
fully cooperate with and supply all assistance reasonably requested by the party
initiating or carrying on such proceedings.  The party which institutes any suit
to protect or enforce a PATENT  RIGHT  shall have sole  control of that suit and
shall bear the reasonable expenses (excluding legal fees) incurred by said other
party in providing such assistance and  cooperation as is requested  pursuant to
this paragraph. The party initiating or carrying on such legal proceedings shall
keep the other party informed of the progress of such proceedings and said other
party shall be entitled to counsel in such  proceedings  but at its own expense.
Any award paid by third  parties as the result of such  proceedings  (whether by
way of settlement or otherwise)  shall first be applied to  reimbursement of the
unreimbursed  legal  fees and  expenses  incurred  by  either  party,  including
reimbursement to GENERAL or any escrowed royalties not otherwise  refunded,  and
then the remainder shall be divided between the parties as follows:

         (a)      (i) If the  amount  is based on lost  profits,  PALOMAR  shall
                  receive an amount  equal to the damages  the court  determines
                  PALOMAR has suffered as a result of the infringement  less the
                  amount of any  royalties  that would have been due  GENERAL on
                  sales  of  PRODUCT   lost  by  PALOMAR  as  a  result  of  the
                  infringement had PALOMAR made such sales; and

                  (ii) GENERAL shall receive an amount equal to the royalties it
                  would have received if such sales had been made by PALOMAR; or



                                       14
<PAGE>

         (b)      As to awards  other than those  based on lost  profits,  sixty
                  (60)  percent to the party  initiating  such  proceedings  and
                  forty (40)  percent to the other party,  provided  that in the
                  event that GENERAL has paid for further litigation  subsequent
                  to  GENERAL's  refusal  to  agree  to  a  settlement,  consent
                  judgement or voluntary final disposition of a suit pursuant to
                  paragraph  7.2, such awards shall be divided  equally  between
                  the parties.

         7.4 For the purpose of the  proceedings  referred to in this Article 7,
the GENERAL and PALOMAR  shall  permit the use of their names and shall  execute
such  documents  and carry out such  other acts as may be  necessary.  The party
initiating  or  carrying  on such legal  proceedings  shall keep the other party
informed  of the  progress  of such  proceedings  and said other  party shall be
entitled to counsel in such proceedings but at its own expense, said expenses to
be off-set against any damages received by the party bringing suit in accordance
with the foregoing paragraph 7.3.

                               8. INDEMNIFICATION

         8.1 (a) PALOMAR shall  indemnify,  defend and hold harmless GENERAL and
its trustees,  officers,  medical and professional staff, employees,  and agents
and their respective successors, heirs and assigns (the "Indemnitees"),  against
any liability, damage, loss or expense (including reasonable attorney's fees and
expenses of litigation)  incurred by or imposed upon the  Indemnitees or any one
of them in  connection  with any claims,  suits,  actions,  demands or judgments
arising out of any theory of product liability  (including,  but not limited to,
actions  in the form of tort,  warranty,  or strict  liability)  concerning  any
product,  process or service made, used or sold pursuant to any right or license
granted under this Agreement.

         (b) Licensees'  indemnification  under (a) above shall not apply to any
liability,   damage,  loss  or  expense  to  the  extent  that  it  is  directly
attributable  to the negligent  activities,  reckless  misconduct or intentional
misconduct of the Indemnitees.

         (c) PALOMAR agrees, at its own expense to provide attorneys  reasonably
acceptable to the GENERAL to defend against any actions brought or filed against
any party  indemnified  hereunder  with  respect  to the  subject  of  indemnity
contained herein, whether or not such actions are rightfully brought.

         (d) This paragraph 8.1 shall survive  expiration or termination of this
Agreement.

         8.2 (a) At such time as any product, process or service relating to, or
developed pursuant to, this Agreement is being commercially  distributed or sold
(other than for the purpose of obtaining regulatory  approvals) by PALOMAR or by
a licensee,


                                       15
<PAGE>

AFFILIATE  or agent of PALOMAR,  PALOMAR  shall,  at its sole cost and  expense,
procure and maintain  comprehensive  general liability  insurance in amounts not
less than $2,000,000 per incident and $2,000,000 annual aggregate and naming the
Indemnitees  as  additional  insureds.   Such  comprehensive  general  liability
insurance  shall  provide (i)  product  liability  coverage  and (ii) broad form
contractual liability coverage for PALOMAR's indemnification under paragraph 8.1
of this  Agreement.  If PALOMAR elects to self-insure  all or part of the limits
described  above  (including  deductibles  or retentions  which are in excess of
$250,000 annual aggregate) such self-insurance program must be acceptable to the
GENERAL and the Risk  Management  Foundation.  The minimum  amounts of insurance
coverage  required  under this  paragraph 8.2 shall not be construed to create a
limit of PALOMAR's liability with respect to its indemnification under paragraph
8.1 of this Agreement.

         (b)  PALOMAR  shall  provide  GENERAL  with  written  evidence  of such
insurance  upon request of GENERAL.  PALOMAR shall provide  GENERAL with written
notice at least  fifteen  (15) days prior to the  cancellation,  non-renewal  or
material  change in such  insurance;  if  PALOMAR  does not  obtain  replacement
insurance providing  comparable coverage prior to the expiration of such fifteen
(15) day  period,  GENERAL  shall  have  the  right to  suspend  this  Agreement
effective  at the end of such  fifteen  (15) day  period  without  notice or any
additional waiting periods until such coverage is obtained.  If such coverage is
not obtained within forty-five (45) days of the original  cancellation,  GENERAL
shall have the right to immediately terminate this Agreement.

         (c)  PALOMAR  shall  maintain  such  comprehensive   general  liability
insurance  beyond the expiration or termination of this Agreement during (i) the
period that any product, process, or service, relating to, or developed pursuant
to, this Agreement is being commercially distributed or sold (other than for the
purpose  of  obtaining  regulatory  approvals)  by  PALOMAR  or  by a  licensee,
AFFILIATE  or agent of PALOMAR  and (ii) a  reasonable  period  after the period
referred to in (c) (i) above which in no event shall be less than  fifteen  (15)
years.

         (d) This paragraph 8.2 shall survive  expiration or termination of this
Agreement.

         8.3 Each  party  warrants  to the other  that it has the right to enter
into this  Agreement,  that this  Agreement  is not in  conflict  with any other
Agreement of the party,  and that the party will not do anything during the term
of this  Agreement,  or enter into any other  Agreement  during the term of this
Agreement which is inconsistent  herewith.  GENERAL further  warrants that it is
the owner of the PATENT RIGHTS,  that except for certain  non-exclusive  license
rights in the U.S. Government,  no other party has any rights or interest in the
PATENT  RIGHTS.  While  GENERAL  makes no


                                       16
<PAGE>

warranty  as to the  efficacy of this  technology  for hair  removal,  PRINCIPAL
INVESTIGATOR  does represent that he has completely and accurately  disclosed to
PALOMAR  all  information  in his  possession  as of the date of this  Agreement
concerning  the efficacy and safety of the PRODUCT and  SERVICES,  to the extent
the PRODUCT and  SERVICES are known to him, and  PRINCIPAL  INVESTIGATOR  agrees
that he will  continue to disclose any  information  which he learns of in these
areas to PALOMAR for so long as PALOMAR is funding his  research in the field of
lasers for hair removal at GENERAL.

         8.4 OTHER THAN WARRANTIES SET FORTH HEREIN,  GENERAL MAKES NO WARRANTY,
EXPRESS OR IMPLIED,  INCLUDING,  WITHOUT  LIMITATION,  ANY  IMPLIED  WARRANTY OF
MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO ANY PATENT,  TRADEMARK,  SOFTWARE,  TRADE SECRET,  TANGIBLE  RESEARCH
PROPERTY,  INFORMATION  OR  DATA  LICENSED  OR  OTHERWISE  PROVIDED  TO  PALOMAR
HEREUNDER AND HEREBY DISCLAIMS THE SAME.

                                 9. TERMINATION

         9.1 Unless otherwise terminated as provided for in this Agreement,  the
license to PATENT RIGHT granted hereunder will continue until the last to expire
of any  PATENT  RIGHT,  the  claims  of which  but for this  Agreement  would be
infringed by the manufacture, use, practice or sale of any PRODUCT or SERVICE.

         9.2 GENERAL  shall have the right to terminate  any license  under U.S.
PATENT RIGHTS  granted under this  Agreement in the event that,  after the FIRST
COMMERCIAL  EXPLOITATION in the United States there is a continuous two (2) year
period in which no NET REVENUES are generated in the United States. With respect
to PATENT RIGHTS in any other country,  GENERAL shall have the right to convert,
on a country by country basis, any exclusive license under PATENT RIGHTS granted
under this Agreement to a non-exclusive license upon written notice in the event
that, after the FIRST COMMERCIAL EXPLOITATION in a country there is a continuous
two (2) year period in any country in which no NET  REVENUES  are  generated  in
said country. Notwithstanding the foregoing, GENERAL shall not have the right to
terminate a license in the United  States or convert an  exclusive  license to a
non-exclusive  license in any other country, in the event that the generation of
NET  REVENUES  is  prevented  by  force   majeure,   government   regulation  or
intervention, or institution of a law suit by any third party.

         9.3 If  either  party  shall  fail  to  faithfully  perform  any of its
obligations under this Agreement except the due diligence  milestones  specified
in Section 3 herein,  the  nondefaulting  party may give  written  notice of the
default to the defaulting party.  Unless such default is corrected within thirty
(30) days after such notice,  the notifying  party may terminate  this Agreement
and the license  hereunder upon thirty (30) days prior written notice,  provided
that only one such thirty (30) day grace period shall be


                                       17
<PAGE>

available  in any twelve  (12)  month  period  with  respect to a default of any
particular  payment  provision  hereunder.  Thereafter,  at  the  option  of the
non-defaulting  party,  notice of default  of said  provision  shall  constitute
termination.

         9.4 In the  event  that any  license  granted  to  PALOMAR  under  this
Agreement is  terminated,  any  sublicense  under such license  granted prior to
termination  of said  license  shall  remain in full force and effect,  provided
that:

         (i) the SUBLICENSEE is not then in breach of its sublicense agreement;

         (ii) the  SUBLICENSEE  agrees to be bound to  GENERAL  as the  licensor
under the terms and conditions of this sublicense agreement,  as modified by the
provisions of this paragraph 9.4;

         (iii) the  SUBLICENSEE,  at  GENERAL's  written  request,  assumes in a
signed writing the same obligations to GENERAL as those assumed by PALOMAR under
Articles 8 and 10 hereof;

         (iv) GENERAL  shall have the right to receive any  payments  payable to
PALOMAR under such  sublicense  agreement to the extent they are  reasonably and
equitably  attributable to such SUBLICENSEE's right under such sublicense to use
and exploit PATENT RIGHTS and/or TECHNOLOGICAL INFORMATION;

         (v) any exclusive  SUBLICENSEE  agrees to be bound by the due diligence
obligations  of PALOMAR  pursuant to  paragraph  3.1 hereof  (whether set by the
parties or by arbitration) in the field and territory of the sublicense;

         (vi) GENERAL has the right to terminate  such  sublicense  upon fifteen
(15) days prior written  notice to PALOMAR and such  SUBLICENSEE in the event of
any material  breach of the obligation to make the payments  described in clause
(iv) of this paragraph 9.3,  unless such breach is cured prior to the expiration
of such fifteen (15) day period,  and shall  further have the right to terminate
such sublicense in the event of SUBLICENSEE's  failure to meet its due diligence
obligations pursuant to clause (v) hereof;

         (vii) GENERAL shall not assume,  and shall not be  responsible  to such
SUBLICENSEE  for, any  representations,  warranties or obligations of PALOMAR to
such  SUBLICENSEE,  other than to permit such SUBLICENSEE to exercise any rights
to PATENT  RIGHTS and  TECHNOLOGICAL  INFORMATION  that are  granted  under such
sublicense agreement consistent with the terms of this AGREEMENT.

         9.5 Upon  termination of any license granted  hereunder,  PALOMAR shall
pay GENERAL all royalties due or accrued on the NET REVENUES up to and including
the date of  termination.  In the event of any  termination,  PALOMAR shall also
have the right to fill all


                                       18
<PAGE>

existing order for PRODUCTS, provided the royalties set forth herein are paid on
such orders.  Further,  in the event of any  termination as a result either of a
default  by  GENERAL  or as a result  of the  bankruptcy,  insolvency,  or other
termination  of doing  business  by  GENERAL,  PALOMAR  shall have the option of
maintaining  the licenses  granted herein in effect provided it continues to pay
royalties on NET REVENUES.

                                10. MISCELLANEOUS

         10.1 This Agreement,  including the Exhibits  thereto,  constitutes the
entire  understanding  between the parties  with  respect to the subject  matter
hereof and all prior agreements, whether oral or written, are merged herein.

         10.2 In order to facilitate  implementation of this Agreement,  GENERAL
and PALOMAR are  designating  the following  individuals  to act on their behalf
with respect to this Agreement for the matter indicated below:

         (a)      with  respect  to all  royalty  payments,  any  correspondence
                  pertaining  to any PATENT  RIGHT,  or any notice of the use of
                  GENERAL's   name,   for  GENERAL,   Vice-President,   Patents,
                  Licensing and Industry  Sponsored  Research,  and for PALOMAR,
                  President;   provided  that  correspondence  relating  to  the
                  billing of patent costs shall be copied to, for  GENERAL,  the
                  Business  Manager,  Office  of  Technology  Affairs,  and  for
                  PALOMAR, the President.

         (b)      any amendment of or waiver under this  Agreement,  any written
                  notice  including  progress  reports  or  other  communication
                  pertaining to the Agreement:  for GENERAL, the Vice-President,
                  Patents,  Licensing and Industry Sponsored  Research,  and for
                  PALOMAR, the President.

         (c)      the above  designations may be superseded from time to time by
                  alternative  designations made by: for GENERAL,  the President
                  or the Senior  Vice  President  for  Research  and  Technology
                  Affairs, and for PALOMAR, the President.

         10.3 This  Agreement  may be amended and any of its terms or conditions
may be waived  only by a written  instrument  executed by the parties or, in the
case of a waiver, by the party waiving  compliance.  The failure of either party
at any time or times to require  performance of any provision hereof shall in no
manner  affect  its rights at a later  time to  enforce  the same.  No waiver by
either party of any condition shall be deemed as a further or continuing  waiver
of such condition or term or of any other condition or term.

         10.4 This  Agreement  shall be binding upon and inure to the benefit of
and be  enforceable by the parties  hereto and their  respective  successors and
permitted assigns.



                                       19
<PAGE>

         10.5 Any delays in or failures  of  performance  by either  party under
this Agreement  shall not be considered a breach of this Agreement if and to the
extent  caused  by  occurrences  beyond  the  reasonable  control  of the  party
affected,  including but not limited to: Acts of God; acts,  regulations or laws
of any  government;  strikes or their concerted acts of worker;  fires;  floods;
explosions;  riots;  wars;  rebellion;  and sabotage.  Any time for  performance
hereunder  shall  be  extended  by the  actual  time  of  delay  caused  by such
occurrence.

         10.6  Neither  party  shall use the name of the  other  party or of any
staff member, officer,  employee or student of the other party or any adaptation
thereof in any advertising, promotional or sales literature, publicity or in any
document  employed  to obtain  funds or  financing  without  the  prior  written
approval of the party or individual whose name is to be used. For GENERAL,  such
approval shall be obtained from the Director of Public  Affairs.  GENERAL agrees
to respond within ten (10) business days of GENERAL's receipt of any request for
approval  under this  paragraph,  provided that such request is delivered to the
Director of Public Affairs, 101 Merrimac Street,  Fourth Floor, Boston, MA 02114
(Tel. #617-726-2206;  fax #726-6465) and is prominently marked "Urgent -- Please
respond within ten days." GENERAL shall not unreasonably withhold its consent to
any  use  of  its  name  which  accurately  and   appropriately   describes  the
licensee-licensor  relationship  of the parties under this  Agreement and of the
parties'   participation  in  the  Study  conducted  under  the  Clinical  Trial
Agreement,  and which does not imply directly or indirectly  any  endorsement by
General of any product or service.  Company shall not unreasonably  withhold its
consent to any use of its name which accurately and appropriately  describes the
licensee-licensor  relationship  of the  parties  under this  Agreement  and the
parties' participation in the Study under the Clinical Trial Agreement.

         10.7 This Agreement  shall be governed by and construed and interpreted
in accordance with the laws of the Commonwealth of Massachusetts.

         10.8  This  Agreement  shall  not  be  assignable  by  GENERAL  without
PALOMAR'S  written  consent  except for the right to receive  royalties or other
payments payable herein.  PALOMAR may at its own discretion and without approval
by GENERAL  transfer its interest or any part thereof under this  Agreement to a
wholly-owned  subsidiary  or any  assignee  or  purchaser  of the portion of its
business  associated  with the  manufacture  and sale of PRODUCT or provision of
SERVICES. In the event of any such transfer,  the transferee shall assume and be
bound by the provisions of this  Agreement.  Otherwise  this Agreement  shall be
assignable by PALOMAR only with the consent in writing of GENERAL.



                                       20
<PAGE>

         10.9 For any and all claims,  disputes, or controversies arising under,
out of, or in connection  with this  Agreement,  except  issues  relating to the
validity, construction or effect of any PATENT RIGHT, which the parties shall be
unable to resolve  within sixty (60) days,  the party raising such dispute shall
promptly  advise the other party of such claim,  dispute,  or  controversy  in a
writing which describes in reasonable detail the nature of such dispute.  By not
later than five (5) business  days after the  recipient has received such notice
of dispute, each party shall have selected for itself a representative who shall
have the  authority to bind such party and shall  additionally  have advised the
other  party in  writing  of the name and title of such  representative.  By not
later than ten (10) business days after the date of such notice of dispute, such
representatives  shall  agree upon a third  party  which is in the  business  of
providing  Alternative  Dispute  Resolution  (ADR) services  (hereinafter,  "ADR
Provider")  and shall  schedule a date with such ADR  Provider to engage in ADR.
Thereafter,  the representatives of the parties shall engage in good faith in an
ADR process  under the  auspices of the selected  ADR  Provider,  and each party
shall pay fifty  percent  (50%) of the ADR  expenses.  If within  the  aforesaid
thirty  (30)  business  days  after  the  date  of the  notice  of  dispute  the
representatives  of the parties have not been able to agree upon an ADR Provider
and  schedule a date to engage in ADR,  or if they have not been able to resolve
the dispute  within thirty (30) business days after the  termination of ADR, the
parties shall have the right to pursue any other remedies  legally  available to
resolve such dispute in either the Courts of the  Commonwealth of  Massachusetts
or in the United States  District  Court for the District of  Massachusetts,  to
whose  jurisdiction  for such purposes  GENERAL and PALOMAR  hereby  irrevocably
consents and submits,  provided that,  with respect to royalties and payments to
be determined  pursuant to Section 5 above, and due diligence  obligations to be
determined in accordance with paragraph 3.1(a), the parties agree that, no later
than sixty (60) days after (a) they have failed to  designate an ADR provider in
accordance with this paragraph or (b) the termination of ADR without resolution,
either party may demand in writing submitted to the other party that the dispute
be  submitted  to binding  arbitration  as provided  for in the next  succeeding
paragraph.  Notwithstanding the foregoing,  nothing in this Paragraph 10.9 shall
be  construed  to waive  any  rights or timely  performance  of any  obligations
existing under this Agreement.

         The parties  agree that any dispute  submitted  to binding  arbitration
shall be conducted in Boston,  Massachusetts  under the then prevailing rules of
the American  Arbitration  Association ("AAA") before a single arbitrator agreed
upon by both parties  within  twenty (20) days after the serving of a demand for
arbitration.  In the event the parties fail to select an  arbitrator  within the
required time period,  the arbitrator  shall be selected in accordance  with the
rules  of the  AAA.  Each  party  shall  pay  fifty  percent  (50%)  of the  AAA
arbitration expenses.



                                       21
<PAGE>

         10.10 If any provision(s) of this Agreement are or become invalid,  are
ruled illegal by any court of competent jurisdiction or are deemed unenforceable
under then current  applicable  law from time to time in effect  during the term
hereof,  it is the intention of the parties that the remainder of this agreement
shall not be effected thereby,  provided the Agreement without such provision is
still  operative  to  accomplish  its  intended  functions.  It is  further  the
intention of the parties that in lieu of each such  provision  which is invalid,
illegal  or  unenforceable,  there  be  substituted  or  added  as  part of this
Agreement  a provision  which  shall be as similar as  possible in economic  and
business  objectives  as  intended by the  parties to such  invalid,  illegal or
enforceable provision, but shall be valid, legal and enforceable.

         THE PARTIES  have duly  executed  this  Agreement  as of the date first
shown above written.

PALOMAR                                         THE GENERAL HOSPITAL CORPORATION

BY   /s/ Michael H. Smotrich                    BY     /s/ Marvin C. Guthrie, JD
   -------------------------                       -----------------------------
TITLE    President                              TITLE     VP Patents, Licensing
                                                          and Industry Sponsored
                                                          Research

DATE     August 18, 1995                        DATE      August 18, 1995


                                       22
<PAGE>
EXHIBIT A
                                    EXHIBIT A

                            CLINICAL TRIAL AGREEMENT

         Agreement made this 18th day of August, 1995 ("Effective Date") between
The General Hospital Corporation, a not-for-profit corporation doing business as
Massachusetts  General  Hospital,  having a principal place of business at Fruit
Street,  Boston,   Massachusetts  02114  ("General"),   R.  Rox  Anderson,  M.D.
("Principal Investigator"), Wellman Laboratories of Photomedicine, Massachusetts
General Hospital,  Boston,  Massachusetts  02114 ("Principal  Investigator") and
Palomar  Medical  Technologies,  a Delaware  corporation  having an office at 66
Cherry Hill Drive, Beverly, MA 01915 ("Palomar").

         Whereas,  Dr. Anderson has conducted  clinical research on, and General
has filed a patent application relating to, the use of lasers for the removal of
hair (the  "Field") for which an exclusive  license to Palomar has been executed
as of the Effective Date hereof (the "License Agreement");

         Whereas, all of the parties to this Agreement share a common mission of
improving  the  public  health  by  engaging  in  research  for the  purpose  of
discovering  and making  available to the public new and improved  medical drugs
and devices.

         Whereas,  in connection  with this mission,  Palomar desires to use the
data already  generated by Dr.  Anderson and to have further  clinical  research
conducted on its device  described  below and General and Dr.  Anderson,  having
particular expertise and opportunity, desire to provide this research.

         Accordingly, the parties agree as follows.

SECTION 1: STUDY PERFORMANCE

         1.1  PROTOCOL  Subject to approval by  General's  Institutional  Review
Board ("IRB")  Principal  Investigator  agrees to conduct a clinical  study of a
ruby laser device  furnished by Palomar  (hereinafter  referred to as the "Study
Device,  and together with any other  devices  provided by Palomar in accordance
with  paragraph  1.4, as the "Study  Device(s)")  in  accordance  with the study
protocol  attached  hereto as  Schedule  A and  including  any  changes  to such
protocol as may be  required  by  General's  IRB (which  protocol  and any other
protocol added hereto in accordance with paragraph 1.4 are hereinafter  referred
individually to as the "Study" and collectively as the "Studies."). In the event
of any conflict  between  Schedule A and the provisions of this  Agreement,  the
provisions of this Agreement shall govern.


<PAGE>

         1.2 STUDY REVIEW  Principal  Investigator  shall conduct the Studies at
General  with the prior  approval  and  ongoing  review of all  appropriate  and
necessary  review  authorities  and in accordance  with all applicable  federal,
state  and  local  laws and  regulations.  Principal  Investigator  shall,  when
applicable,  provide Palomar with written evidence of review and approval of the
Studies by General's IRB prior to the initiation of the Studies and shall inform
Palomar of the IRB's  continuing  review promptly after such review takes place,
which shall be at least once per year. All  volunteers  shall meet the legal age
requirements of the Commonwealth of Massachusetts,  the state in which the Study
is to be conducted.

         1.3 STUDY DEVICES Palomar agrees to support the Study by delivering the
Study Devices,  placing such Study Devices in proper operating condition for the
conduct of the Study,  and  maintaining  such  Study  Devices in such  operating
condition  during  the term of this  Agreement,  all at no  charge  to  General.
General and  Principal  Investigator  shall have no liability for any failure to
fulfill their obligations as a result of unavailability of a Study Device. Study
Devices will remain Palomar's  property unless otherwise agreed. The General and
Principal  Investigator  shall  safeguard  such property with the degree of care
used for its own property and, in accordance with Palomar's  instructions at any
time,  shall  return or  otherwise  dispose of all such  property.  General  and
Principal Investigator shall not use any Study Device for any purpose other than
the Study, unless otherwise agreed.

         1.4 SECOND YEAR STUDY On or before July 1, 1996, Principal Investigator
shall submit to Palomar a study  protocol for an  additional  one year  clinical
study  pertaining  to the use of a Study  Device  provided  by Palomar  for hair
removal, and a budget attendant thereto,  which shall not exceed Two Hundred and
Thirty Thousand Seven Hundred and Sixty Seven Dollars ($230,767).  Palomar shall
have the  opportunity to review and comment on such  proposal.  Upon approval of
Palomar and General's IRB, said protocol shall be attached  hereto and the study
described therein shall be a Study hereunder subject to the terms and conditions
of this  Agreement,  and  payments  therefore  shall be made as set forth in the
proposal or as otherwise  agreed by the parties in writing.  It is the intent of
the parties that said Study shall commence or before September 1, 1996.

         1.5 STUDIES AT OTHER SITES

                  a. Palomar  agrees to use best efforts to sponsor Dr.  Melanie
C.  Grossman  in New York City,  New York,  to conduct a clinical  trial of hair
removal using a diode laser provided by Palomar.


<PAGE>

                 b. Principal  Investigator shall be consulted in the selection
of other  sites  and  investigators  participating  in  clinical  trials of hair
removal using laser devices provided by Palomar.

SECTION 2:   RESULTS OF THE STUDY; INVENTIONS

         2.1 OWNERSHIP OF RECORDS,  DATA AND INTELLECTUAL PROPERTY Palomar shall
own its case report forms and the data resulting  from the Study.  General shall
own its medical records,  research  notebooks and related  documentation and any
intellectual  property resulting from the Studies subject to paragraph 2.3 below
regarding Inventions. General shall have the right to use the data for research,
educational  and patient  care  purposes as well as to comply with any  federal,
state or local  government  laws or  regulations.  In  recognition  of Palomar's
legitimate business interest in keeping unpublished  research results from being
made available to its commercial competitors, General and Principal Investigator
agree that they shall not knowingly:

         (i)      disclose  the  research  results  to  third  party  commercial
                  entities in a form or in sufficient detail suitable for use to
                  obtain  pre-marketing   approval  from  the  FDA  prior  to  a
                  publication of the Study; and

         (ii)     provide  the  case  report  forms to  third  party  commercial
                  entities.

Notwithstanding  the above,  the  Palomar  shall not use any patient  names,  or
identifying  information,   photographs,   or  other  likenesses  without  first
obtaining the specific  written  informed  consent of such patient for such use,
except for purposes of obtaining FDA approval.

         2.2 PUBLICATION The Principal Investigator shall be free to publish the
results of the Studies  subject  only to the  provisions  of Section 3 regarding
Palomar's  Proprietary  Information.  The Principal  Investigator  shall furnish
Palomar with a copy of any proposed  publication for review and comment prior to
submission  for  publication,  at least thirty (30) days prior to submission for
manuscripts  and at least seven (7) days prior to submission for  abstracts.  At
the  expiration  of such  thirty  (30) day or seven  (7) day  period,  Principal
Investigator may proceed with submission for publication provided, however, that
upon  notice by Palomar  within  said  thirty  (30) or seven (7) day period that
Palomar  reasonably  believes a patent  application

<PAGE>

claiming an  Invention  (as defined in  paragraph  2.3) should be filed prior to
such  publication,  such submission for  publication  shall be delayed until any
patent  application  or  applications  have been filed by  General,  pursuant to
paragraph 2.3.

         2.3  INVENTIONS  The  Principal  Investigator  and  any  other  General
personnel performing the Study under his direction  ("Investigators")  who makes
an invention in the performance of the Study (" Study Invention") shall promptly
report and assign  such Study  Invention  to  General.  General  shall  promptly
disclose in writing any Inventions to Palomar. Within sixty (60) days of Palomar
receiving  an  enabling  disclosure  from  General  (except  in the  case of any
disclosure received by Palomar in a proposed publication, to which Palomar shall
have an  obligation to respond  within the time periods  designated in paragraph
2.2 above), Palomar shall notify General in writing if it wishes General to file
a patent application claiming the Study Invention at Palomar's expense. Any such
application  shall be added as a Patent Right under the License Agreement and to
the extent General has ownership  rights in the Study  Invention by virtue of an
assignment by an Investigator  hereunder,  such Patent Right shall be treated in
accordance  with the terms of such  License  Agreement.  In the  absence of such
notice,  General shall be free to license such patent  application  to any third
party on any terms.

         2.4  FURTHER RESEARCH

                  (a) Investigators shall be free at any time to seek and accept
funding for any research in the Field, from any state or federal agency, private
or public foundation except foundations owned or operated by a commercial entity
other than Palomar ("Non-Profit  Sponsored Study"). In the event that during the
term of this  Agreement an  Investigator  makes an invention in the Field and in
the performance of any Non-Profit  Funded Study,  General agrees to give Palomar
prompt notice of said  invention and to give Palomar an opportunity to negotiate
an  exclusive  license  under  General's  rights in said  invention  assigned to
General by an  Investigator,  it being  understood  that  General  shall have no
obligation to enter into such a license with Palomar.

         (b) In the event that an Investigator during the term of this Agreement
or for six (6)  months  thereafter  wishes to seek  funding  from any for profit
entity  for  additional  research  in the Field (it  being  understood  that for
funding  sought during the term of this  Agreement or any extension  hereof such
additional  research will be research  other than that which is described in the
study protocols appended hereto as Schedule A), said Investigator shall do so in
accordance  with this  paragraph.  The

<PAGE>

Investigator  shall submit to Palomar a description of such additional  research
and a budget of the costs to be funded by Palomar  and a schedule  of payment of
such costs.  Unless the parties shall otherwise  agree in writing,  negotiations
between them over any such  proposal  shall not extend  beyond the sixtieth (60)
day next following the date when the proposal shall have first been so made.

         (c) Whenever such negotiations  shall end without agreement between the
parties  to  proceed  with  the  proposed  research,  the  party  proposing  the
additional  research may go ahead  without the other party and seek funding from
any other  sponsor  including  but not limited to a commercial  sponsor for such
proposal,  so long as the  subject  matter  of the  proposal  is not so  closely
related  scientifically  to the Study that  sponsorship of such proposal by such
other  commercial  sponsor  (i)  would in the  opinion  of  General's  Trustee's
Committee  on  Technology  Affairs  after  consultation  with  Palomar  create a
conflict of interest  for General or any  Investigator  performing  the Study or
(ii) would  conflict  with the terms and  conditions  of this  Agreement.  It is
understood  that,  in the event that General  proceeds to seek support from such
other  commercial  sponsor,  for a period of one year after first  offering said
proposal  to Palomar,  General  shall not enter into an  agreement  with a third
party to fund such  proposal  upon more  favorable  financial  terms  than those
offered to Palomar without first offering Palomar the more favorable terms.

         (d) When such proposal is accepted by the General and Palomar, it shall
be appended  hereto as an additional  study protocol and shall be subject to the
terms and conditions of this Agreement unless otherwise specified, and the Study
described therein shall commence and budgeted amounts shall be paid as set forth
in the  proposal.  In the event  that the  parties  reach  agreement  under this
paragraph  2.4 (d) on a proposal  for a  non-clinical  study,  the parties  will
execute a separate  agreement  pertaining to said study,  it being the intent of
the  parties  that  the  terms  and  conditions  of said  non-clinical  study be
substantially  the same as those of this  agreement,  subject to the policies of
General in effect at the time with respect to non-clinical  sponsored  research.
The  budgeted  amounts  paid by  Palomar  in  support  of any such  clinical  or
non-clinical  study shall be credited  toward the sums made available to General
pursuant to paragraph 2.4(e) and 4.3.

         (e) On or before both September 1, 1997 and September 1, 1998,  Palomar
shall make  grants to General as  described  in  paragraph  4.3 for  research of
mutual  interest  to General  and  Palomar  and to be  conducted  in the Wellman
Laboratories of

<PAGE>

Photomedicine  under  the  direction  of Dr.  R.  Rox  Anderson,  or  any  other
investigator  at General  mutually  agreeable to General and  Palomar,  it being
understood  that said  grants may be used to  support  further  research  in the
Field.  Said research and the budgets  attendant thereto shall be agreed upon in
writing by General and Palomar prior to the  commencement  of said research.  In
the event that General and Palomar  reach  agreement  under this  paragraph on a
proposal and budget for a clinical study in the Field, said study shall become a
Study  hereunder and subject to terms and conditions as this  Agreement.  In the
event that  General  and  Wellman  reach  agreement  under this  paragraph  on a
proposal and budget for a clinical study outside the Field,  it is the intent of
the parties that said study be subject to terms and conditions substantially the
same as this  Agreement.  In the event that General and Wellman reach  agreement
under this paragraph on a proposal for a non-clinical study, it is the intent of
the  parties  that  the  terms  and  conditions  of said  non-clinical  study be
substantially  the same as those of this  agreement,  subject to the policies of
General in effect at the time with respect to non-clinical sponsored research.

         2.5 USE OF NAME No party to this  Agreement  shall  use the name of any
other  party or of any staff  member,  employee or student of any other party or
any  adaptation,  acronym or name by which any party is commonly  known,  in any
advertising,  promotional  or sales  literature or in any publicity  without the
prior written  approval of the party or individual whose name is to be used. For
General, such approval shall be obtained from the Director of Public Affairs and
for  Palomar,  from the  President.  GENERAL  agrees to respond  within ten (10)
business  days of  GENERAL's  receipt of any  request  for  approval  under this
paragraph,  provided  that such  request is  delivered to the Director of Public
Affairs,   101  Merrimac   Street,   Fourth  Floor,   Boston,   MA  02114  (Tel.
#617-726-2206;  fax  #726-6465)  and is  prominently  marked  "Urgent  -- Please
respond within ten days." General shall not unreasonably withhold its consent to
any use of its  name  which  accurately  and  appropriately  describes  parties'
participation  in the Study conducted under this Clinical Trial  Agreement,  and
which does not imply  directly or indirectly  any  endorsement by General of any
product or service.  Company shall not unreasonably  withhold its consent to any
use of its name which accurately and appropriately describes the relationship of
the  parties  under  this  Agreement  and the scope and  nature of the  parties'
participation in the Study under the Clinical Trial Agreement.

         2.6 STUDY RECORDS General shall make Study records available to Palomar
representatives  upon request for  comparison

<PAGE>

with case report  forms.  General  shall also make such records  available  upon
reasonable  request  for  review by  representatives  of the U.S.  Food and Drug
Administration. General shall retain records of the Studies including either the
original or a copy of all volunteer consent forms in conformance with applicable
federal regulations. Palomar shall notify Principal Investigator of the date the
required  approval  (e.g.,  510K,  Pre-Market  Approval  application  (PMA))  is
received for a Study Device;  or if the  application  is not  approved,  Palomar
shall notify  Principal  Investigator  when all clinical  investigations  of the
Study Devices have been discontinued and the FDA notified.

         2.7 USE OF DATA  GENERATED  UNDER  PRIOR STUDY  Principal  Investigator
shall  provide  to  Palomar  the data  generated  in the  prior  clinical  trial
referenced in the  introduction  to this  Agreement  ("Prior  Data") and Palomar
shall  pay  General  for  such  data  in  accordance   with   paragraph  4.2  as
reimbursement  to General for its  expenses  in  generating  such data.  General
grants to Palomar the right to use the Prior Data for  submission to the FDA for
approval of the use of a laser device for hair  removal,  provided  that Palomar
shall not use any patient names,  or identifying  information,  photographs,  or
other  likenesses  without first obtaining the specific written informed consent
of such patient for such use.

SECTION 3: PALOMAR PROPRIETARY INFORMATION

         3.1 It is anticipated  that in the performance of the Studies,  Palomar
shall provide to General, Principal Investigator and other General personnel who
are designated in writing by the Principal  Investigator as being  authorized to
receive  Proprietary  Information  and who agrees in  writing  to the  following
confidentiality  obligations  (each  such  institution  or  person  individually
referred  to  in  this  paragraph  3.1  as "a  Recipient"  and  collectively  as
"Recipients"), or shall give Recipients access to, certain information which the
Palomar  considers  proprietary.  The rights and obligations of the parties with
respect to such information are as follows:

         (a)  For the  purposes  of this  Agreement,  "Proprietary  Information"
refers to  information  of any kind which is disclosed by Palomar to a Recipient
and which, by appropriate marking, is identified as confidential and proprietary
at the time of disclosure.  In the event that  proprietary  information  must be
provided visually or orally, obligations of confidentiality shall attach only to
that  information  which is confirmed by Palomar in writing  within  twenty (20)
working days as being confidential.


<PAGE>

         (b) For a period of five (5) years  after  the  Effective  Date of this
Agreement,  each Recipient  agrees to use reasonable  efforts,  no less than the
protection  given  their  own  confidential  information,   to  use  Proprietary
Information  received  from the Palomar and accepted by that  Recipient  only in
accordance with this paragraph 3.1(b).

         (i) Each  Recipient  shall use the  Palomar's  Proprietary  Information
         solely for the purposes of conducting the Study, obtaining any required
         review  of the  Study  or  its  conduct,  or  ensuring  proper  medical
         treatment  of any patient or  subject.  Each  Recipient  agrees to make
         Proprietary  Information available only to those employees and students
         of General who require  access to it in the  performance  of this Study
         and to inform them of the confidential nature of such information.

         (ii) Except as provided in subsection  3.1(b)(i),  each Recipient shall
         keep all Proprietary Information  confidential unless the Palomar gives
         specific written consent for release.

         (iii) If any Recipient  becomes aware of any  disclosure not authorized
         hereunder,  that  Recipient  shall notify  Palomar and take  reasonable
         steps to prevent any further disclosure or unauthorized use.

         (c) No  Recipient  shall  be  required  to  treat  any  information  as
Proprietary  Information  under this Agreement in the event:  (i) it is publicly
available  prior to the date of the  Agreement  or  becomes  publicly  available
thereafter  through no wrongful act of any  Recipient;  (ii) it was known to any
Recipient  prior to the date of  disclosure  or becomes  known to any  Recipient
thereafter from a third party having an apparent bona fide right to disclose the
information; (iii) it is disclosed by any Recipient in accordance with the terms
of the Palomar's prior written approval; (iv) it is disclosed by Palomar without
restriction  on further  disclosure;  (v) it is  independently  developed by any
Recipient;  or, (vi) any  Recipient  is  obligated  to produce it pursuant to an
order of a court of competent  jurisdiction or a facially valid  administrative,
Congressional  or other  subpoena,  provided that the  Recipient  subject to the
order  or  subpoena  (A)  promptly  notifies  the  Palomar  and  (B)  cooperates
reasonably  with the  Palomar's  efforts  to  contest or limit the scope of such
order.

SECTION 4:  PAYMENTS

         4.1 (a)  Palomar  agrees to support  the agreed  expenses  of the Study
appended  hereto on the  Effective  Date with a  research

<PAGE>

grant of Two Hundred  Seventeen  Thousand Six Hundred and Sixty Seven Dollars ($
217,667) which includes  indirect  costs and indirect costs  attendant  thereto.
Agreed  expenses  by Palomar  are  enumerated  in  attached  Schedule B, and are
payable as follows:

         Fifty percent (50%)  equalling One Hundred Eight Thousand Eight Hundred
         and Thirty Three Dollars ($ 108,833) upon  execution of this  Agreement
         by all parties.

         Twenty Five Percent  (25%)  equalling  Fifty Four Thousand Four Hundred
         and Seventeen  Dollars  ($54,417) upon initial radiation of twenty five
         (25) patients in the Study.

         Twenty Five Percent  (25%)  equalling  Fifty Four Thousand Four Hundred
         and Seventeen Dollars ($54,417) upon completion of the study and notice
         thereof to Palomar.

         (b) Palomar agrees to support the expenses of the Study to be performed
pursuant  to  paragraph  1.4  hereof,  with a grant of Two  Hundred  and  Thirty
Thousand  Seven  Hundred  and  Sixty  Seven  Dollars  ($230,767)  to be  paid in
accordance with the terms of said paragraph.

         (c) General  agrees to keep  complete  records of expenses  incurred in
performing  the studies and Palomar  shall have a right to audit such records at
the place where such records are  maintained,  or at another  location  mutually
agreeable to the parties,  on reasonable  notice to General  provided such audit
shall be conducted no more than twice  during any twelve (12) month  period.  To
the extent such audit reveals an error in amounts  paid,  the parties agree that
suitable adjustments will be made.

         4.2 Pursuant to paragraph 2.7, Palomar shall pay General for Prior Data
the sum of Sixty Eight  Thousand Five Hundred  Dollars  ($68,500)  within thirty
(30) days of the date on which the last party signs this Agreement.

         4.3 On or before both September 1, 1997 and September 1, 1998,  Palomar
shall make grants to General of Two Hundred Thousand Dollars ($200,000) per year
to be used in accordance with paragraph 2.4(e) hereof.

         4.4 Checks should be made payable to "The General Hospital Corporation"
and sent, along with a letter indicating the name of the Principal  Investigator
and Project Number (#5950) for which the funds are intended, to:


<PAGE>

                           Vice President for Patents, Licensing and
                           Industry Sponsored Research
                           Office of Technology Affairs
                           Massachusetts General Hospital
                           Thirteenth Street, Building 149, Suite 1101
                           Charlestown, MA  02129

SECTION 5:  TERM AND TERMINATION

         5.1 (a) The term of this Agreement shall be until the completion of the
Studies,  which is  anticipated  to be two (2) year(s) from the Effective  Date,
unless  terminated in accordance with paragraph 5.2 or 5.3, or unless  continued
in accordance with paragraph 2.4 (e) above.

         5.2 Any  party  hereto  shall  have the  right to  terminate  any Study
hereunder in the event that the emergence of any adverse reaction or side effect
with the Study Device is of such magnitude or incidence,  in the opinion of such
party, to support termination.

         5.3. If either party shall substantially fail faithfully to perform any
of its  obligations  under  this  Agreement,  the  nondefaulting  party may give
written  notice of the default to the defaulting  party.  Unless such default is
corrected within sixty (60) days after such notice,  the notifying  party,  upon
thirty (30) days prior written  notice may terminate  this  Agreement,  provided
that only one such sixty (60) day grace  period shall be available in any twelve
(12)  month  period  with  respect  to a  default  of any  particular  provision
hereunder.

         5.4 Any delays in or failures of performance by either party under this
Agreement  shall  not be  considered  a breach of this  Agreement  if and to the
extent  caused  by  occurrences  beyond  the  reasonable  control  of the  party
affected,  including but not limited to: Acts of God; acts,  regulations or laws
of any government;  strikes or other concerted acts of workers;  fires;  floods;
explosions;  riots; wars; rebellion;  and sabotage; and any time for performance
hereunder  shall  be  extended  by the  actual  time  of  delay  caused  by such
occurrence,  provided the affected party has used reasonable efforts to overcome
the cause of delay.

         5.5 The  obligations  of the  parties  under  Sections 2, 3 and 6 shall
survive the termination or expiration of this Agreement.

SECTION 6: INDEMNIFICATION AND INSURANCE

         6.1  INDEMNIFICATION  (a)  Palomar  shall  indemnify,  defend  and hold
harmless General and its trustees,  officers,

<PAGE>

medical  and  professional  staff,  employees,  and agents and their  respective
successors,  heirs and  assigns  (the  "Indemnitees"),  against  any  liability,
damage, loss, or expense (including  reasonable  attorney's fees and expenses of
litigation)  incurred by or imposed upon the  Indemnitees  or any one of them in
connection with any claims, suits, actions, demands or judgements arising out of
any theory of product liability  (including,  but not limited to, actions in the
form of tort,  warranty,  or strict liability)  concerning a Study Device or any
modification  thereof including any side effect or adverse reaction,  illness or
injury  attributable  to a Study Device and occurring to any person  involved in
such Study,  provided Palomar shall have no obligation to indemnify,  defend and
hold harmless  Indemnitees  under this  paragraph to the extent that such claim,
suit, action, demand or judgement is attributable to any modification to a Study
Device  that is  physically  made by an  Indemnitee  without the  permission  of
Palomar.  General  agrees to notify  Palomar  promptly of any such claim,  suit,
action,  demand or judgement  and General and  Principal  Investigator  agree to
reasonably cooperate with Palomar in the handling thereof.

         (b)  Palomar's  indemnification  under (a) above shall not apply to any
liability, damage, loss or expense to the extent that it is attributable to the:
(i) negligent activities,  reckless misconduct or intentional  misconduct of the
Indemnitees;  or (ii) failure of the  Indemnitees  to adhere to the terms of the
protocol for a Study.

         (c) Palomar agrees, at its own expense, to provide attorneys reasonably
acceptable to the General to defend against any actions brought or filed against
any party  indemnified  hereunder  with  respect  to the  subject  of  indemnity
contained herein, whether or not such actions are rightfully brought.

         (d) Company also agrees to reimburse  General for the costs of the care
and  treatment of any illness or injury to a subject  resulting  from his or her
participation  in  a  Study  arising  under  any  theory  of  product  liability
pertaining  to a Study  Device to the extent  that such costs are not covered by
the subject's medical or hospital  insurance or governmental  programs providing
such coverage provided,  however, that Company's obligation under this paragraph
6.1(d)  shall not apply to any such  illness or injury to the extent  that it is
attributable to the negligence, reckless misconduct or intentional misconduct of
the  Indemnitees or the failure of the Indemnitees to adhere to the terms of the
protocol for a Study.


<PAGE>

         6.2  INSURANCE  (a) At such time as a Study Device or any  modification
thereof is being commercially distributed or sold (other than for the purpose of
obtaining regulatory approvals) by Palomar or by a licensee,  affiliate or agent
of Palomar,  Palomar shall,  at its sole cost and expense,  procure and maintain
commercial  general liability  insurance in amounts not less than $2,000,000 per
incident  and  $2,000,000   annual  aggregate  and  naming  the  Indemnitees  as
additional  insureds.  Such commercial general liability insurance shall provide
(i)  product  liability  coverage  and (ii)  broad  form  contractual  liability
coverage for Palomar's indemnification under paragraph 6.1 of this Agreement. If
Palomar  elects  to  self-insure  all or  part  of the  limits  described  above
(including  deductibles  or  retentions  which are in excess of $250,000  annual
aggregate) such self-insurance program must be acceptable to the General and the
Risk Management Foundation of the Harvard Medical Institutions, Inc. The minimum
amounts of insurance  coverage  required  under this  paragraph 6.2 shall not be
construed  to  create  a  limit  of  Palomar's  liability  with  respect  to its
indemnification under paragraph 6.1 of this Agreement.

         (b)  Palomar  shall  provide  General  with  written  evidence  of such
insurance  upon request of General.  Palomar shall provide  General with written
notice at least  fifteen  (15) days prior to the  cancellation,  non-renewal  or
material change in such insurance.

         (c) Palomar shall maintain such commercial general liability  insurance
during (i) the period that the Study Drug or any  modification  thereof is being
commercially  distributed  or sold  (other  than for the  purpose  of  obtaining
regulatory approvals) by Palomar or by a licensee, affiliate or agent of Palomar
and (ii) a reasonable  period after the period referred to in (c)(i) above which
in no event shall be less than fifteen (15) years.

SECTION 7: MISCELLANEOUS

         7.1 The terms of this Agreement can be modified only by a writing which
is signed by General, Principal Investigator and Palomar.

         7.2 The  provisions of this Agreement  shall be  interpreted  under the
laws of the Commonwealth of Massachusetts.

         7.3 No party to this  Agreement  may assign its  obligations  hereunder
without the prior written consent of the other parties.

         7.4 This Agreement  constitutes  the entire  understanding  between the
parties,  and  supersedes  and  replaces all prior

<PAGE>

agreements,  understandings,  writings and discussions between the parties, with
respect to the subject matter of this Agreement.

         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed as of the day and year first above written.

Palomar                                 THE GENERAL HOSPITAL CORPORATION
                                        (Federal Tax ID No.: 042 697 983)


BY:  /s/  Michael H. Smotrich           BY:  /s/  Marvin C. Guthrie
     -----------------------                 -----------------------------
TITLE:  President                       TITLE: Vice President For Patents,
                                               Licensing And Industry 
                                               Sponsored Research

DATE:  August 18, 1995                  DATE:  August 18, 1995

PRINCIPAL INVESTIGATOR


/s/ R. Rox Anderson
------------------------------
R. Rox Anderson, M.D.

DATE:  August 18, 1995

<PAGE>
                                                                      SCHEDULE A


               Evaluation of a Pulsed Laser System for Selective
                          Destruction of Hair Follicles

                              R. Rox Anderson, NID

                              John A- Parrish, NID

                             Christine Diericky, NM

OVERVIEW AND BACKGROUND:

          Unwanted  excess  growth of tem-dnal  (coarse)  hair due to  endocrine
disorders,  tumors, drugs, or heredity is a significant cosmetic problem. In the
extreme of hirsutism, abnormal hair growth is disfiguring.  Removal of hair from
skin grafts is a problem also. However,  the vast majority of people who dislike
excess  hair do not have a medical  or  iatrogenic  problem.  Removal of hair is
easily done  temporarily by shaving or by epilation with wax or various devices.
Permanent  hair  removal  is  traditionally  done with  electrolysis  in which a
negative electrode is inserted into each follicle individually.  Electrolysis is
painful,  tedious,  expensive,  and often  ineffective.  The  average  number of
treatments per follicle is about 6. An altemative,  more  effective,  safe, less
tedious  method is needed.  Selective  photothermolysis  using laser  pulses may
offer this method.

          In  a  previous   study  (MGH  accession  #  937286)  we  showed  that
normal-mode  ruby laser PULSES ARE  effective  and well  tolerated for producing
selective destruction of hair follicles in normal adult caucasians with brown or
black hair. Based on the principles of selective photothermolysis, and confirmed
in an in-vitro  study prior to human  studies,  we chose a wavelength  and pulse
duration which "targets" melanin in the hair follicles.  Because melanin is also
present in the epidermis, a handpiece for laser light delivery was devised which
tends to spare the  epidermis,  while  maximizing  light  intensity  deep in the
dermis where the follicles are. MGH filed a patent on this device, which will be
licensed under an agreement with Palomar, Inc, who will be supporting this human
study.

          In the first  human  study,  200 gs,  694nm  ruby  laser  pulses  were
delivered to shaved vs. EPILATED sites on the back or extremities, in a range of
fluences.  The exposures were moderately painful but typically tolerated without
local  anesthesia  (which  itself is painful).  No  significant  adverse  events
occured (e.g. ulceration, scarring,  depigmentation). In all subjects, there was
a  fluence-dependent  growth delay of approximately 6 months for regrowing hairs
in the exposure SITES. At the highest fluence, 6 months after exposure there was
an average of about 30% permanent hair loss. There was no significant difference
between epilated and shaved sites,  suggesting that the hair shaft itself is not
important for light absorption. Hypopigmentation was NOTED in most subjects, and
was transient.


<PAGE>

THE STUDY PROPOSED HERE:

     -    Uses a  longer  pulse  duration,  to  better  match  follicle  thermal
          relaxation times.

     -    Examines response to more than one treatment, given 4 weeks apart.


     -    Tests the hypothesis that hair growth cycle (anagen,  telogen, catagen
          phase) affects response.

     -    Provides  treatment of a hair-bearing  area of concern to the subject,
          based on response in each subject's test sites.

SUBJECTS:

EXCLUSIONS:

Fifty (50) adults with brown or black hair present on the back or legs.

         Keloid history,  pregnant, history of radiation treatment or surgery to
test  or  treatment  sites,  active  infections,  hypersensitivity  to  retin-A,
hydroquinone, or mupincin.

LASER AND DELIVERY DEVICE:

         A normal-mode ruby laser (Spectrum, Inc.) emitting up to 30 J pulses at
1-5 ms pulse  duration,~Arill  be used.  Pulses are delivered through an optical
handpiece  which  provides  refractive  index  matching,  cooling  to  -10*C,  a
convergent entrance beam at the skin surface, and compression of the skin.

         The  optical  manipulations  maxirnize  delivery of light deep into the
dern-iis; cooling raises the tolerated fluence, provides partial anesthesia, and
spares the  epidermis by  conduction  during LASER PULSE  DELIVERY;  compression
decreases  the distance to the deep  follicular  papillae and drives blood away,
eliminating  a  competing  chromophore.  We have  established  that under  these
conditions,  the  primary  site of  photothermal  injury is the  pigmented  hair
follicles, all the way down to their deep papillae.

PROTOCOL:

MAPPING AND DETERMINATION OF HAIR GROWTH CYCLES.

         One month  prior to laser  exposures,  ten test  areas of 5x5 cm,  each
containing  about 100200  follicles,  will be mapped on the thighs or back.  The
sites will be clipped, using a barber's clipper such that the hairs are all 3 mm
long. Digtal images with a CCD camera and COMPUTER FRAME-CAPTURE BOARD WILL THEN
BE taken at a normal  angle of  incidence,  to record the position and length of
each hair in each test area.  The same sites will be imaged again prior to laser
exposure.  Anagen  hairs will be  identified  as those with active  growth (much
greater than 3 nun length) between the two sets of images.  The images will also
provide  a  permanent  record of  follicle  density,  hair  shaft  density,  and
individual follicle locations.


<PAGE>

 PRE-TREATMENT WITH RETIN-A, HYDROQUINONE:

         For one month  prior to laser  exposures,  a standard  regimen of 0. 1%
retin-A cream and 4% hydroquinone cream will be applied daily by each subject to
the  test  sites.   Retin-A  causes  increased   epidermal  turnover  and  as  a
pre-treatment   improves  wound  healing.   Hydroquinone   decreases  epidermal
pigmentation without influencing follicular pigmentation.  Subjects will also be
instructed to avoid sun exposure to the test areas before and during this study.
Retin-A can be irritating  with prolonged use, and will be  discontinued  in any
subject experiencing irritation at the application sites.

LASER EXPOSURES AND FLUENCES:

         Subjects and investigators  will wear laser protective  eyewear.  Eight
sites will be shaved before laser exposures, two sites will be wax-epilated, and
all will be cleaned with  isopropanol.  Laser  exposures will be administered in
contiguous exposure spots covering each of the test areas, at a maximim of 1 Hz,
according to the table below.  Three  fluences  will be tested in each  subject,
beginning with 25, 50, and 75 j/CM2 as shown in the table below.  Fluence may be
increased to 50, 75 and 100 j/CM2 'based on  evaluation of response in the first
three subjects. Specifically, the fluence range will be increased if there is no
erosion,  ulceration,  scarring,  or  depigmentation  at the one-month  followup
visit.  Based on the same criteria,  fluence may be increased  again to 75, 100,
and 125 j/CM2 following evaluation of the second set of three subjects.

         Local anesthesia will be offered,  using 2% xylocaine with epinephrine,
given by intradermal  injections around each site. In our experience  anesthesia
will not be  routinely  needed,  but will  always be offered  for the  subjects'
comfort.

         Subjects will return 1 month after the first set of laser exposures for
evaluation  and a second set of exposures.  Each skin site will be  photographed
and digitally imaged using the CCD camera system.  Responses will also be scored
visually for changes in pigmentation,  inflammation, hair reqrowth, and textural
changes,  using an arbitrary scale shown in a table below. After evaluations are
recorded,  a second series of exposures will be performed in those test sites to
be treated twice (see table).

LASER EXPOSURES TABLE
<TABLE>
<S>                             <C>                           <C>

Test sites
(back or thigh)                 Single treatment              2 treatments at 1 month interval

                                   75 J/cn-L2                          75 J/cm2
                                   50 J/cm2                            50 J/cm2
                                   25 J/cm2                            25 J/cm17
                                   75 J/cm2                            75 J/cm2
                                      epilated                            epilated
                                   75 J/cm2                            75 J/cm2
                                      2 passes                            2 passes
</TABLE>

<PAGE>

SINGLE-TREATMENT:

         A treatment  may be  performed in a site up to 100 cm2 with excess hair
growth of concem to the subject,  using the maximum  tolerated fluence according
to  test  site  results.  We do not  expect  to  see  scarring,  ulcreation,  or
depigmentation.  However,  if any of these  unwarranted  effects  do occur,  the
treatment  fluence  will  be  less  than  that  causing  these  responses.  Skin
preparation,  anaesthesia,  exposure techniques,  and post-exposure care will be
identical to that of the test sites.

POST-EXPOSURE SKIN CARE:

         After  the  laser  exposures,  mupircin  ointment  (Bactroban)  will be
applied and a sterile  dressing  applied.  Subjects will be instructed to gently
cleanse  the sites with warrn water and mild soap (e.g.  Dove),  and to re-apply
mupiricin  ointment  twice a day until any  weeping or  crusting  has  subsided.
Subjects   will  also  be  asked  to  avoid  sun   exposure,   which  can  cause
hyperpigmentation.

RESPONSE GRADING (SUBJECTIVE SCALE)*

--------------------------------------------------------------------------------
hair regrowth            | none    |    sparse     |   moderate   |   full
-------------------------|---------|---------------|--------------|-------------
hypigmentation           | absent  |    present    |              |
-------------------------|---------|---------------|--------------|-------------
hyperpigmentation        | absent  |    present    |              |
-------------------------|---------|---------------|--------------|-------------
depigmentation           | absent  |    present    |              |
-------------------------|---------|---------------|--------------|-------------
erythema                 | none    |    mild       |   moderate   |   violaceous
-------------------------|---------|---------------|--------------|-------------
edema                    | none    |    mild       |   moderate   |   tumescent
-------------------------|---------|---------------|--------------|-------------
textural change          | none    |    mild       |   moderate   |   severe
(includes scarring)      |         |               |              |
-------------------------|---------|---------------|--------------|-------------
ulceration               | absent  |   present     |              |
--------------------------------------------------------------------------------

* objective and quantitative endpoints are also included in this study

FOLLOW-UP SCHEDULE:

Hair  regrowth  and skin  response  will be recorded at I month,  3 months and 6
months after exposures in all test and treatment sites.


<PAGE>


FLOW CHART OF SUBJECT VISITS

Month 0   Evaluation,  consent  and entry  into  study.  Mapping,  clipping  and
          imaging  of  10  test  sites.  Retin-A,  hydroquinone,  sun  avoidance
          instructions

Month 1   Mapping and imaging of test sites.  Shave,  anesthetize  if necessary.
          Laser   exposures  per  protocol.   Wound   dressing  and  wound  care
          instructions. Retin-A, hydroquinone, sun avoidance for site.

 Month 2  Mapping.and  imaging of test sties.  Response recording  (subjective).
          Mapping and recording of treatment site.  Laser exposures per protocol
          (test and treatment sites). Wound care and wound care instructions.

MONTH 3   MAPPING, imaging AND recording of responses.

Month 6   Mapping, imaging and recording of responses.

Month 9   Mapping,  imaging and  recording of  responses.  Conclusion  of study.
          Subject REMUNERATION ($500).


<PAGE>


DATA ANALYSIS:

Hair follicle  counts,  growth cycle and shaft diameter will be determined  from
digital  imaging  prior to laser  exposure.  The site  subject to wax  epilation
serves  primarily  as a control  for the  presence of hair shafts at the time of
exposure,  but will also produce a direct  measure of hair  follicle  depth,  by
measuring  the depth from skin surface,  to the papillae of the epilated  hairs.
Responses  graded  subjectively  and  objectively   (digital  imaging)  will  be
correlated  against laser fluence and number of treatments.  Computer mapping of
regrowing  hair  against  the  baseline  hair  follicle  images  will be used to
determine the relative sensitivity of amagen vs. telogen/catagen follicles. Data
at I month,  3 months,  and 6 months will be compared to establish  growth delay
patterns  and the  fraction  of  regrowing  hairs,  as a  function  of  exposure
conditions.  Changes in hair shaft  diameter  for those hairs which  regrow will
also be compared against baseline values.

RISKS:

The goal of this study is to selectively and permanently destroy hair follicles.
Alopecia  (baldness) may result in the test areas and in the treatment  area. As
with  any  form of  tissue  destruction,  there  is a risk of  infection  and/or
scarring, which is minin-dzed by proper wound care. In a previous human study of
this hair removal  technique,  there was no scarring seen in  approximately  100
test sites.  Therefore,  the risk of scarring appears to be low. Laser exposures
can also cause temporary or permanent changes in skin pigmentation (skin color).
A transient  decrease  in skin  pigmentation  occurred  in all of those  treated
previously,  lasting  about 3 months.  This is more  noticable  in darker  skin.
Permanent lightening or darkening of skin color is a possibility,  which HAS NOT
been observed.  The laser removes freckles and common brown "moles" permanently.
In people with extensive freckling,  this can cause a color change. New freckles
will eventually form in laser-treated skin, but may take years to do so.

BENEFITS:

The subjects  may or may not benefit  from removal of unwanted  hair in the test
and/or treatment sites. There is no guarantee of success.

REMUNERATION:

Subjects will be paid $500 for participation, to defray travel and other costs.


<PAGE>


                               VOLUNTEERS NEEDED

                             FOR HAIR REMOVAL STUDY

Healthy adult  volunteers  are sought for a medical  study at the  Massachusetts
General  Hospital,  aimed at permanent  hair removal.  A laser will be tested in
hair-bearing skin areas on the back or upper legs. One month later, an area with
unwanted  hair may also be treated,  depending on the test  results.  Six visits
will be required over nine months,  and  volunteers  must be able to accommodate
this schedule.  Subjects will be paid $500 for participation in the study. There
is no guarantee that permanent hair removal will be achieved.

For more information, contact:

Christine Diericky, MD
726-7900


<PAGE>
                                                                      SCHEDULE B



  INVESTIGATOR:          R.R. Anderson, M.D.

  TITLE OF STUDY:        TBD

  SPONSOR:               Palomar
  BUDGET PERIOD:         9/1/95-8/31/96

  PERSONNEL:
<TABLE>
  <S>                                       <C>                    <C>         <C>            <C>

                                                                                Fringe
                 Name                       % Effort               Salary      Benefits        Total
  HMS-APPNT.                                                                    26.04%
  R.R.Andemon,M-D.                             10%                 12,854        $3,347       $16,201
  Christine Dierickx, M.D.                    100%                 40,000       $10,416       $50,416

   NON-HMS APPNT.                                                                 21.51%
  Senior Technician                            50%                 17,500        $3,764       $21,264
  Engineer                                     50%                 17,500        $3,764       $21,264
  Secretary                                     5%                  1,500          $323        $1,823
  TEMPORARYSTAFF                                                                  11.02%
  Student                                     100%                  9,000          992         $9,092
                                      Total Personnel                                         120,960

  EQUIPMENT
     CCD, digital hair count system                                                             8,000

  SUPPLIES
  Misc. optics, sources, filters 
     and macro lens                                                                             1,800
  Imaging software                                                                              1,000
     Film purchase and developing                                                               1,000
  Epliators, mv, markers and tapes                                                                600
  Retin A                                                                                       2,500
  Hydroquinone                                                                                  2,000
  Sunscreen                                                                                     1,000
  Anesthetic (EEMLA; l.d.xylocaine)                                                             1,000
  Misc. disposables                                                                               600
  Misc. office supplies                                                                           600

  TRAVEL                                                                                        3,000

  PATIENT CARE COSTS
    50 patients @$500 each                                                                     25,000


  MISCELLANE0US COSTS
  Advertising and telephone expenses                                                            1,000

  TOTAL DIRECT COSTS                                                                          170,060

  INDIRECT COSTS(28%) -TDC-                                                                    47,617
                                                                                            ----------

  TOTAL COSTS                                                                                $218.788

                                                                                            ==========
</TABLE>
<PAGE>
                                                                       EXHIBIT B


                         MASSACHUSETTS GENERAL HOSPITAL
                          Office of Technology Affairs
                                  Buiding 149
                         Thirteenth Street - Suite 1101
                             Charlestown, MA 02129
                         617-726-2128 FAX: 617-726-1668

                            Marvin C. Guthrie, J.D.
                            Vice President, Patents,
                   Licensing and Industry Sponsored Research

                                 August 18, 1995

Michael Smotrich, Ph.D.
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA  01915
Tel:  508-921-9300
Fax:  508-921-5801

Dear Dr. Smotrich:

         A  License   Agreement   between  the  General   Hospital   Corporation
("General") and Palomar Medical Technologies,  Inc. ("Palomar") has been entered
into  on  this  date  ("License  Agreement")   pertaining  to  the  U.S.  Patent
Application  filed by Dr. R. Rox Anderson,  et.al.  on February 1, 1995 entitled
"Permanent Hair Removal Using Optical Pulses,"  (Licensed  Patent  Application")
and Palomar has  indicated  its  interest in paying the costs of seeking  advice
from General's  patent counsel with respect to the  possibility of adding to the
Licensed  Patent  Application  one or more cont inuat ions -in -part which would
expand the claimed  applications of the device  described in the Licensed Patent
Application  to uses other than hair  removal,  e.g.  for removal of  congenital
nevi,  tatoos and port wine stains ("New Use (s) 11) . In the event that counsel
advises in favor of filing such cont inuat ions - in-part,  we  understand  that
Palomar  will  pay the  costs of  preparing  and  filing  same.  General  hereby
acknowledges  that  Dr.  Anderson's  rights,   assigned  to  General,   in  said
continuations  - in-part will,  once so filed, be treated as PATENT RIGHTS under
the License Agreement subject to the following:

         1.  The  LICENSE  FIELD  described  in  paragraph  1.3 of  the  License
Agreement shall be amended to include the field(s) of the New Use(s)'.

         2. For each New Use  claimed  in a  continuation-in-part,  General  and
Palomar  shall  establish,  within  twelve  (12)  months  of the  filing of said
continuation-in-part,  due diligence milestones appropriate to the New Use which
shall be incorporated into Section 3 of the License Agreement.  It is understood
that General may require  funding of research at General in the field of the New
Use as part of the due  diligence  milestones,  which funding will be creditable
against the sums due General under paragraph 4.3 of the Clinical Trial Agreement
which is  appended  as  Exhibit A to the  License  Agreement.  In the event that
Palomar and General  fail to reach  agreement  on said  milestones,  this matter
shall be determined


<PAGE>


in accordance with the dispute resolution provisions set forth in paragraph 10.9
of the License Agreement.

         3. The royalty owed General by Palomar  under  paragraph  5.1(b)(ii) on
NET REVENUES for a PRODUCT  consisting of a non-ruby laser sold for hair removal
as well as other  uses  shall be five  percent  (5-%) so long as the other  uses
include as least one New Use.

         4. Royalties due General by Palomar on NET REVENUES derived by Palomar,
its AFFILIATES and SUBLICENSEES on:

            (a)  a  PRODUCT   constituting   either  a  laser,  or  any  product
constituting any non-laser  equipment/disposables,  which in either case is sold
solely f or New Uses or f or New Uses in  combination  with uses other than hair
removal, and

            (b)  SERVICES  and  other  commercial   dispositions   described  in
paragraph  5. 1 (b)  (iii)  (A)  (1)  and (2) of the  License  Agreement,  which
SERVICES and other commercial dispositions involve the use or sale of New Uses,

shall  be  negotiated  in good f aith by the  partids  in  accordance  with  the
procedure described in paragraph 5.1(iii) and 5.1(iv).

         5. Minimum annual royalties on PRODUCTS or SERVICES made, used, or sold
for New Uses  (whether  or not sold in  combination  with other  uses)  shall be
calculated in accordance with paragraph 5. 1 (b) (iii) (C) .

         6. In all other  respects,  the PATENT RIGHTS claiming New Use(s) shall
be treated as PATENT RIGHTS under the License Agreement.

         Kindly  sign the  enclosed  copy of this letter  agreement  to indicate
Palomar's assent to the above terms.

                                        Sincerely,


                                        /s/ Marvin C. Guthrie
                                        ---------------------
                                            Marvin C. Guthrie


   The terms of this Letter AGreement are agreed to by Palomar:


  Name:        /s/ Michael H. Smotrich
               -----------------------
  Title:           President
               -----------------------
  Date:            August 18, 1995
               -----------------------


<PAGE>