191

                             SUBSCRIPTION AGREEMENT

     This Subscription Agreement (this "Agreement"), dated as of March 10, 1997,
has been executed by the undersigned  (the  "Subscriber") in connection with the
purchase of 5% Convertible  Debentures due March 10, 2002 (the  "Debentures") of
Palomar Medical Technologies, Inc., a Delaware corporation, having an address at
66 Cherry Hill Drive, Beverly, Massachusetts 01915 (the "Company"),  convertible
into shares of Common Stock, par value $.01 per share (the "Common  Stock"),  of
the Company.  The Company is offering an aggregate  amount of up to 5,500,000 of
Debentures, at an aggregate price of up to $5,225,000 (the "Offering"). The form
of the  Debentures to be purchased by the  Subscriber  hereunder,  including the
terms on which such  Debentures may be converted into Common Stock,  is attached
hereto as Exhibit A. The  solicitation of this Agreement and, if accepted by the
Company,  the offer and sale of the  Debentures are being made by the Company in
reliance upon the provisions of Regulation D ("Regulation D") promulgated by the
Securities and Exchange  Commission ("SEC") under the Securities Act of 1933, as
amended (the  "Securities  Act"), or under the exemption from  registration  set
forth in Section 4(2) of the Securities Act. The shares of Common Stock issuable
upon the conversion of the Debentures are sometimes  collectively referred to in
this  Agreement as the  "Shares."  The  Debentures  and the Shares are sometimes
collectively referred to in this Agreement as the "Securities."

     The  Subscriber  wishes to subscribe  for, and the Company wishes to issue,
the aggregate principal amount of Debentures at the aggregate purchase price set
forth in Section 14 and in  accordance  with the other terms and  conditions  of
this  Agreement.  In  consideration  of the  mutual  promises,  representations,
warranties and  conditions  set forth herein,  and intending to be legally bound
hereby, the Company and the Subscriber agree as follows:

1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS.

     1.1. Purchase and Sale of Securities.

          (a) Purchase of Debentures.  The Company shall issue to the Subscriber
     and  the  Subscriber  shall  purchase  from  the  Company  such  number  of
     Debentures  as is set forth in Section 14 hereof for an aggregate  purchase
     price equal to  ____________________  Dollars  (U.S.  $_______)  
<PAGE>
                                      192

     ("Purchase Price"). The issuance, sale and purchase of the Debentures shall
     take place in one closing (the "Closing").

          (b) Form of Payment.  On the Closing Date (as defined below),  (i) the
     Subscriber shall pay the Purchase Price for the Debentures to be issued and
     sold at the Closing by wire transfer to the escrow agent ("Escrow  Agent"),
     in accordance  with the Escrow  Agent's  written wiring  instructions  (the
     "Escrow Agreement"), against delivery of duly executed Debentures which the
     Subscriber  is  purchasing,  and (ii) the Escrow Agent shall deliver to the
     Subscriber such Debentures against delivery of such Purchase Price.

          (c)  Closing  Date.  Subject to the  satisfaction  (or  waiver) of the
     conditions thereto set forth in Section 1.2 and Section 1.3 below, the date
     and  time of the  issuance  and  sale of the  Debentures  pursuant  to this
     Agreement shall be 12:00 noon Eastern  Standard Time on March 10, 1997 (the
     "Closing  Date"),  or at such other mutually  agreed upon time. The Closing
     shall occur on the Closing Date at such place and time as the parties shall
     determine.

     1.2.  Conditions  Precedent to the  Obligation  of the Company to Issue the
Debentures.  The obligation  hereunder of the Company to issue the Debentures to
the Subscriber at the Closing is subject to the  satisfaction,  at or before the
Closing Date, of each of the  conditions set forth below.  These  conditions are
for the  Company's  sole benefit and may be waived by the Company at any time in
its sole discretion.

          (a) Payment of Purchase Price.  The Subscriber shall have delivered to
     the  Escrow  Agent the  Purchase  Price  payable by the  Subscriber  at the
     Closing.

          (b) Accuracy of the Subscriber's  Representations and Warranties.  The
     representations and warranties of the Subscriber  contained herein shall be
     true and  correct  as of the date when made and as of the  Closing  Date as
     though made at such time.

          (c)  Performance  by  the  Subscriber.   The  Subscriber   shall  have
     performed,  satisfied  and  complied in all  respects  with all  covenants,
     agreements  and  conditions  required by this  Agreement  to be  performed,
     satisfied or complied with by the Subscriber at or prior to the Closing.

          (d) No Injunction.  No statute,  rule,  regulation,  executive  order,
     decree, ruling or injunction shall have been enacted, entered,  promulgated
     or  endorsed  by  any  court  or   governmental   authority   of  

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                                      193

     competent  jurisdiction  which  prohibits or  adversely  affects any of the
     transactions  contemplated  by this  Agreement  or any of the  transactions
     contemplated by any of the other  agreements  related to such  transactions
     (the "Related  Agreements"),  and no proceeding  shall have been  commenced
     which may have the effect of prohibiting or adversely  affecting any of the
     transactions   contemplated  by  this  Agreement  or  any  of  the  Related
     Agreements.

     1.3.  Conditions  Precedent to the  Obligation of the Subscriber to Acquire
the  Debentures.  The obligation of the Subscriber  hereunder to acquire and pay
for the Debentures at the Closing is subject to the  satisfaction,  at or before
the Closing Date, of each of the following conditions.  Each of these conditions
is for the  Subscriber's  sole  benefit  and may be  waived  in  writing  by the
Subscriber at any time in its sole discretion.

          (a) Accuracy of the  Company's  Representations  and  Warranties.  The
     representations  and warranties of the Company  contained herein and in the
     Related  Agreements  shall be true and correct as of the date when made and
     as of the Closing Date as though made at each such time.

          (b)  Performance  by the Company.  The Company  shall have  performed,
     satisfied and complied in all respects with all  covenants,  agreements and
     conditions  required by this Agreement or any of the Related  Agreements to
     be performed,  satisfied or complied with by the Company at or prior to the
     Closing.

          (c) No Injunction.  No statute,  rule,  regulation,  executive  order,
     decree, ruling or injunction shall have been enacted, entered,  promulgated
     or  endorsed  by  any  court  or   governmental   authority   of  competent
     jurisdiction  which prohibits or adversely  effects any of the transactions
     contemplated by this Agreement or any Related Agreement,  and no proceeding
     or investigation shall have been commenced or threatened which may have the
     effect of prohibiting or adversely affecting any of such transactions.

          (d) Adverse  Changes.  Since  December 31, 1995, no event has occurred
     which  has  had or is  likely  to have a  material  adverse  effect  on the
     condition  (financial or  otherwise),  earnings,  operations,  prospects or
     business of the Company,  other than continued  operating losses consistent
     with the  historical  operating  losses  of the  Company  disclosed  in the
     Exchange Act Reports (as defined in Section 2.4 hereof).

<PAGE>
                                      194

          (e) No Suspension of Trading In or Delisting of Common Stock. From the
     date hereof to and including  the Closing  Date,  the trading of the Common
     Stock shall not have been  suspended  by the SEC,  the Nasdaq  Stock Market
     ("Exchange") or the National  Association of Securities Dealers,  Inc. (the
     "NASD"),  and the  Common  Stock  shall  not have  been  delisted  from the
     Exchange and trading in securities generally on the New York Stock Exchange
     or the Exchange shall not have been suspended or limited.

          (f) The  Legal  Opinion.  The  Company  shall  have  delivered  to the
     Subscriber the opinion of Foley, Hoag & Eliot LLP,  independent  counsel to
     the  Company,  dated  as of the  Closing  Date  and in form  and  substance
     reasonably satisfactory to the Subscriber and its counsel.

          (g) Officer's  Certificate.  The Company  shall have  delivered to the
     Subscriber a certificate in form and substance  reasonably  satisfactory to
     the  Subscriber  and its counsel,  executed by an executive  officer of the
     Company as of the Closing  Date,  to the effect that all the  conditions to
     the  Closing  required  to be  satisfied  by the  Company  shall  have been
     satisfied.

          (h)  Registration  Rights  Agreement.  The Company and the  Subscriber
     shall have entered into the Registration  Rights Agreement,  in the form of
     Exhibit B annexed hereto (the "Registration Rights Agreement").

          (i) Transfer  Agent  Irrevocable  Instruction.  The Company shall have
     delivered  to the transfer  agent for its Common  Stock the Transfer  Agent
     Irrevocable Instruction, in the form of Exhibit C annexed hereto.

          (j)  Delivery of  Debentures.  The  Company  shall have  executed  and
     delivered  to the  Escrow  Agent  the  Debentures  being  purchased  by the
     Subscriber pursuant to the terms hereof.

2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER.

     The Subscriber represents and warrants to the Company that:

     2.1. No Government  Recommendation or Approval.  The Subscriber understands
that no United  States  federal or state  agency or similar  agency of any other
country has passed upon or made any 

<PAGE>
                                      195

recommendation or endorsement of the Company or the offering of the Securities.

     2.2.  Intent.  The  Subscriber is  purchasing  the  Securities  for its own
account and not with a view towards  distribution thereof and the Subscriber has
no present arrangement  (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by making
the representations herein, the Subscriber does not agree to hold the Securities
for any minimum or other  specific term and reserves the right to dispose of the
Securities  at any time in  accordance  with federal and state  securities  laws
applicable to such disposition.  The Subscriber  understands that the Securities
must be held  indefinitely  unless such Securities are  subsequently  registered
under the  Securities Act or an exemption from  registration  is available.  The
Subscriber has been advised or is aware of the provisions of Rule 144.

     2.3. Sophisticated Investor. The Subscriber is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D promulgated under the Securities
Act  ("Regulation  D")) and an  accredited  investor  (as defined in Rule 501 of
Regulation  D), and  Subscriber  has such  experience  in business and financial
matters that it is capable of  evaluating  the merits and risks of an investment
in  the  Securities.   The  Subscriber  acknowledges  that  the  Securities  are
speculative and involve a high degree of risk.

     2.4. Independent  Investigation.  The Subscriber, in making its decision to
purchase the Securities subscribed for hereunder, has relied upon an independent
investigation made by it and/or its representatives of the public filings of the
Company   described   below,   and  has  not  relied  on  any   information   or
representations made by third parties or on any oral or written  representations
or assurances  from the Company or any  representative  or agent of the Company,
other  than as set  forth  in this  Agreement.  Prior to the  date  hereof,  the
Subscriber has been  furnished with and has reviewed the Company's  latest proxy
statement and Annual Report on Form 10-K sent to the Company's  shareholders and
all documents filed by the Company with the SEC since December 31, 1995 pursuant
to sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")  (excluding  preliminary  proxy statement  filings)
(such documents are collectively  referred to in this Agreement as the "Exchange
Act Reports").  The Subscriber has had a reasonable opportunity to ask questions
of and receive answers from the Company concerning the Company and the Offering.
The Subscriber  acknowledges that the price and terms of the Securities  offered
hereby has been  determined by negotiation  based,  in part, on the market price
for the 

<PAGE>
                                      196

Common Stock,  and does not  necessarily  bear any  relationship  to the
assets,  book  value  or  potential  performance  of the  Company  or any  other
recognized criteria of value.

     2.5.  Authority.  This  Agreement  has been  duly  authorized  and  validly
executed and delivered by the Subscriber and is a valid and binding agreement of
the Subscriber  enforceable against the Subscriber in accordance with its terms,
subject  to  general  principles  of  equity  and to  bankruptcy  or other  laws
affecting the enforcement of creditors' rights generally.

     2.6. No Legal Advice From Company. The Subscriber  acknowledges that it has
had the opportunity to review this Agreement and the  transactions  contemplated
by this Agreement and the Related  Agreements  with his or its own legal counsel
and tax advisors.  Except for any statements or  representations  of the Company
made in this Agreement or any Related Agreement and in the Exchange Act Reports,
the  Subscriber  is relying  solely on such  counsel and advisors and not on any
statements or  representations  of the Company or any of its  representatives or
agents for legal, tax or investment advice with respect to this investment,  the
transactions  contemplated  by  this  Agreement  or the  securities  laws of any
jurisdiction.

     2.7. No Brokers.  The  Subscriber has taken no action which would give rise
to any claim by any person for brokerage  commissions,  finder's fees or similar
payments by the Company  relating to this Agreement,  the Related  Agreements or
the  transactions  contemplated  hereby or  thereby,  except for  dealings  with
Promethean  Investment  Group,  L.L.C.,  whose  fees  will  be  paid  for by the
Subscriber.

     2.8.  Not an  Affiliate.  The  Subscriber  is not an  officer,  director or
"affiliate"  (as that term is defined in Rule 405 of the Securities  Act) of the
Company.

     2.9. Reliance on Representations and Warranties. The Subscriber understands
that the  Securities  are being  offered  and sold to it in reliance on specific
provisions  of United  States  federal  and state  securities  laws and that the
Company  is  relying  upon  the  truth  and  accuracy  of  the  representations,
warranties, agreements, acknowledgments and understandings of the Subscriber set
forth  in this  Agreement  in  order  to  determine  the  applicability  of such
provisions.

     2.10.  Financial  Condition.  The Subscriber's  financial condition is such
that it is not under any  present  necessity  or  constraint  to  dispose of 


<PAGE>
                                      197


the Debentures to satisfy any existing or contemplated debt or undertaking.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company represents and warrants to the Subscriber that:

     3.1.  Company Status.  The Company has registered its Common Stock pursuant
to Section  12(b) or 12(g) of the Exchange Act, is in full  compliance  with all
reporting  requirements of the Exchange Act, and has maintained all requirements
for the  continued  listing  of its  Common  Stock,  and  such  Common  Stock is
currently listed on the Exchange.

     3.2.  Current  Public  Information.  The  Exchange Act Reports are the only
filings made by the Company since December 31, 1995 pursuant to Sections  13(a),
13(c), 14 and 15(d) of the Exchange Act.

     3.3. No Directed Selling Efforts or General  Solicitation in Regard to this
Transaction.  Neither the Company nor any of its affiliates nor any  distributor
or any person acting on its or their behalf has conducted any "directed  selling
efforts"  with  respect to the  Debentures,  nor has the Company  conducted  any
general  solicitation (as that term is used in Regulation D) with respect to any
of the  Securities,  nor has any such  person  made any  offers  or sales of any
security or solicited any offers to buy any security,  under  circumstances that
would require registration of the Securities under the Securities Act.

     3.4.  Capitalization;  Valid Issuance of Debentures and Capital Stock.  The
Company has an authorized  capitalization  consisting of  100,000,000  shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock,
par value $.01 per share,  convertible  notes and unit options  outstanding that
are convertible  into or exercisable for an aggregate of no more than 19,963,168
shares of Common Stock,  and stock options  granted to employees as described in
the Exchange  Act Reports.  There are no other  outstanding  options,  warrants,
scrip, rights to subscribe to, calls or commitments of any character  whatsoever
relating to, or securities or rights  convertible  into or exchangeable  for any
shares of capital stock of the Company or  arrangements  by which the Company is
or may become  bound to issue  additional  shares of its  capital  stock.  As of
February 26, 1997, the Company had 31,028,049  shares of Common Stock issued, of
which 31,028,049 of such shares were  outstanding.  The Company has no more than
16,000 shares of Preferred  Stock  issued,  of which no more than 16,000 of such
shares are  outstanding.  All of the issued shares of Common Stock and Preferred
Stock of the Company  


<PAGE>
                                      198


have  been  duly and  validly  authorized  and  issued  and are  fully  paid and
non-assessable; upon issuance of the Securities, the Securities will be duly and
validly  issued,  fully  paid and  non-assessable;  the  shares of Common  Stock
issuable  upon  conversion  of the  Debentures  when  issued  and  delivered  in
accordance  with the terms of the  Debentures,  will be duly and validly issued,
fully paid and  non-assessable;  and the holders of outstanding capital stock of
the  Company are not and shall not be entitled  to  preemptive  or other  rights
afforded by the Company to subscribe for the capital  stock or other  securities
of the  Company as a result of the sale of the  Securities  or the  issuance  of
Common Stock upon the conversion thereof.

     3.5.  Organization  and  Qualification.  The Company is a corporation  duly
incorporated  and validly  existing in good standing under the laws of the State
of Delaware  and has the  requisite  corporate  power and  authority  to own its
properties and to carry on its business as now being conducted. The Company does
not have any  subsidiaries,  except for those  listed on  Schedule  3.5  annexed
hereto and hereby made a part hereof.  The Company and each such  subsidiary  is
duly  qualified as a foreign  corporation to do business and is in good standing
in every  jurisdiction in which the nature of the business conducted or property
owned by it makes  such  qualification  necessary  other than those in which the
failure  so to  qualify  would not have a  Material  Adverse  Effect.  "Material
Adverse  Effect"  means any  effect  on the  business,  operations,  properties,
prospects,  or condition  (financial or otherwise) of the entity with respect to
which such term is used and which is  material  and adverse to such entity or to
other entities controlling or controlled by such entity, and/or any condition or
situation  which would  prohibit or otherwise  interfere with the ability of the
entity  with  respect to which said term is used to enter into and  perform  its
obligations  under this  Agreement,  the Debentures or the  Registration  Rights
Agreement or any other Related Agreements.

     3.6.  Authorization;   Enforcement.  (i)  The  Company  has  the  requisite
corporate  power and  authority  to enter into and perform this  Agreement,  the
Debentures,  the  Registration  Rights  Agreement  and such of the other Related
Agreements  to which it is a party;  and to issue the  Securities  in accordance
with the terms  thereof;  (ii) the execution,  delivery and  performance of this
Agreement,  the  Debentures,  the  Registration  Rights  Agreement and the other
Related  Agreements  by the Company and the  consummation  by the Company of the
transactions  contemplated hereby and thereby,  including without limitation the
issuance of the Shares,  have been duly  authorized by all  necessary  corporate
action,  and no further consent or  authorization of the Company or its Board of

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                                      199


Directors or stockholders is required; (iii) this Agreement, the Debentures, the
Registration  Rights  Agreement and the other Related  Agreements have been duly
executed and delivered by the Company; and (iv) this Agreement, the Registration
Rights Agreement and the other Related Agreements constitute,  and upon issuance
and delivery thereof the Debentures  shall be, valid and binding  obligations of
the Company  enforceable  against the Company in  accordance  with their  terms,
except  as  such  enforceability  may  be  limited  by  applicable   bankruptcy,
insolvency,  or similar laws relating to, or affecting generally the enforcement
of, creditors'  rights and remedies or by other equitable  principles of general
application.

     3.7.  Corporate  Documents.  The Company has furnished or made available to
the  Subscriber  true  and  correct  copies  of  the  Company's  Certificate  of
Incorporation,  as amended and in effect on the date hereof (the "Certificate"),
and the  Company's  By-Laws,  as amended  and in effect on the date  hereof (the
"By-Laws").

     3.8. No Conflicts.  The execution,  delivery and performance by the Company
of this Agreement,  the Debentures,  the  Registration  Rights Agreement and the
other Related Agreements and the consummation by the Company of the transactions
contemplated  hereby and thereby,  including without  limitation the issuance of
the Shares,  do not and will not (i) result in a violation of the Certificate or
By-Laws or (ii)  conflict  with or  constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of  termination,  amendment,  acceleration  or  cancellation  of, any
agreement,  indenture  or  instrument  to  which  the  Company  or  any  of  its
subsidiaries is a party, or result in a violation of any federal,  state,  local
or foreign law, rule,  regulation,  order, judgment or decree (including federal
and state securities laws and  regulations)  applicable to the Company or any of
its  subsidiaries or by which any property or asset of the Company or any of its
subsidiaries  is  bound  or  affected  (except  for  such  conflicts,  defaults,
terminations,  amendments, accelerations,  cancellations and violations as would
not, individually or in the aggregate,  have a Material Adverse Effect). Neither
the business of the Company nor any of its  subsidiaries  is being  conducted in
violation of any law, ordinance or regulation of any governmental entity, in any
manner  or in any  manner  that  is  inconsistent  with or in  violation  of the
Certificate  or By-laws,  or in  violation of any contract or agreement to which
the  Company  or  any  of its  subsidiaries  is a  party,  except  for  possible
violations  which either  singly or in the  aggregate do not and will not have a
Material  Adverse  Effect.  The Company is not required under federal,  state or
local  law,  rule or  regulation  in the United  States to obtain  any  consent,
authorization or 


<PAGE>
                                      200


order of, or make any filing or registration with, any court or
governmental  agency in order for it to  execute,  deliver or perform any of its
obligations  under this  Agreement,  the  Debentures,  the  Registration  Rights
Agreement and the other Related  Agreements or any of the Securities or to issue
and sell the  Securities in accordance  with the terms hereof and thereof (other
than any SEC, NASD,  Exchange or state securities  filings which may be required
to be made by the  Company  from time to time,  and any  registration  statement
which  may be filed  pursuant  hereto);  provided,  that,  for  purposes  of the
representation  made in this sentence,  the Company is assuming and relying upon
the accuracy of the relevant  representations  and  agreements of the Subscriber
herein.

     3.9.  Exchange Act Reports.  The Company has delivered or made available to
the Subscriber true and complete copies of the Exchange Act Reports  (including,
without limitation,  proxy information and solicitation materials).  The Company
has  not  provided  to  the  Subscriber  any  information  which,  according  to
applicable law, rule or regulation, should have been disclosed publicly prior to
the date hereof by the Company but which has not been so disclosed.  As of their
respective  dates,  the Exchange Act Reports  complied in all material  respects
with the  requirements  of the Exchange Act and rules and regulations of the SEC
promulgated  thereunder  and other  federal,  state and  local  laws,  rules and
regulations  applicable to such  Exchange Act Reports,  and none of the Exchange
Act Reports  contained  any untrue  statement  of a material  fact or omitted to
state a material  fact  required to be stated  therein or  necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.  The financial  statements of the Company  included in the
Exchange Act Reports comply as to form in all material  respects with applicable
accounting  requirements  and the published  rules and regulations of the SEC or
other  applicable  rules and regulations  with respect  thereto.  Such financial
statements have been prepared in accordance with generally  accepted  accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial  statements or the notes thereto
or (ii) in the case of unaudited interim statements,  to the extent they may not
include footnotes or may be condensed or summary  statements) and fairly present
in all material  respects the financial  position of the Company as of the dates
thereof and the results of operations  and cash flows for the periods then ended
(subject,  in the  case  of  unaudited  statements,  to  normal  year-end  audit
adjustments). As of the Closing Date, the Company has filed all reports required
to be filed by it  pursuant to the  Exchange  Act and is  otherwise  eligible to
effect registration of its Common Stock on Form S-3.


<PAGE>
                                      201


     3.10.  No Material  Adverse  Change.  Since  December 31, 1995, no event or
circumstance  has  occurred or arisen which has had or is  reasonably  likely to
have a Material Adverse Effect on the Company or any of its subsidiaries,  other
than continued operating losses consistent with the historical  operating losses
of the Company disclosed in the Exchange Act Reports.

     3.11. No Undisclosed Liabilities.  The Company and its subsidiaries have no
liabilities or obligations  which are not disclosed in the Exchange Act Reports,
other  than  those  incurred  in the  ordinary  course of the  Company's  or its
subsidiaries'   respective  businesses  since  December  31,  1995,  and  which,
individually  or in the aggregate,  do not or would not have a Material  Adverse
Effect on the Company or any of its subsidiaries.

     3.12. No Undisclosed Events or Circumstances.  No event or circumstance has
occurred or exists  with  respect to the  Company or its  subsidiaries  or their
respective businesses, properties, prospects, operations or condition (financial
or otherwise), which, under applicable law, rule or regulation,  requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.

     3.13.  No  Integrated  Offering.  Neither  the  Company,  nor  any  of  its
affiliates,  nor any  person  acting on its or their  behalf  has,  directly  or
indirectly,  at any time since August 26, 1996,  made any offers or sales of any
security or solicited any offers to buy any security  under  circumstances  that
would  eliminate the  availability  of the  exemption  from  registration  under
Regulation D promulgated  under the Securities Act in connection  with the offer
and sale of the Securities as contemplated hereby.

     3.14. No Brokers.  The Company has taken no action which would give rise to
any claim by any  person for  brokerage  commissions,  finder's  fees or similar
payments by the  Subscriber  relating to this  Agreement,  the  Debentures,  the
Registration  Rights  Agreement or any of the other Related  Agreements  for the
transactions contemplated hereby, except for dealings with Promethean Investment
Group, L.L.C., whose fees will be paid for by the Subscriber.


<PAGE>
                                      202


4. COVENANTS OF THE COMPANY.

     4.1.  Registration Rights. The Company agrees that, at the Closing, it will
enter into a Registration Rights Agreement.

     4.2.  Reservation of Common Stock.  As of the date hereof,  the Company has
reserved  and the Company  shall  continue to reserve and keep  available at all
times, free of preemptive  rights, a sufficient number of shares of Common Stock
for the purpose of  enabling  the  Company to satisfy  any  obligation  to issue
shares of its Common Stock upon conversion of the Debentures; provided, however,
that (i) the aggregate  number of shares so reserved,  except as provided herein
and in the Debentures,  shall initially be 1,320,000  shares and (ii) a pro rata
portion (based on the respective original principal amount of the Debentures) of
such aggregate  amount shall be reserved for conversion of each Debenture,  such
portion to be reduced by the number of shares actually issued upon conversion of
such Debenture. The number of shares so reserved may be reduced by the number of
shares actually delivered pursuant to conversion of Debentures (provided that in
no event shall the number of shares so reserved be less than the Minimum  Number
of Shares (as defined in the  Debentures)  applicable to any  Debenture) and the
number of shares so reserved  shall be increased to reflect stock splits,  stock
dividends and other distributions or reclassifications  and other adjustments in
accordance  with the terms of the  Debentures.  In the event  that the number of
shares so reserved  (either in the  aggregate or as to any  Debenture)  shall be
insufficient  for issuance upon  conversion of the  Debentures  (without  giving
effect to any  applicable  conversion  restrictions),  or if the  Holders of the
Debentures would at any time upon conversion thereof be entitled to the issuance
of shares of Common Stock in excess of the  limitation  in  Paragraphs  5(d) and
9(b) of the  Debentures,  then in either  case,  upon  receipt by the Company of
notice  from any  Holder,  the  Company  shall use its best  efforts and all due
diligence to increase the number of shares so reserved (without giving effect to
any applicable conversion restrictions) to cure all such deficiencies (either in
the aggregate or as to any Debenture), and, if necessary, to obtain the approval
by its  shareholders  therefor,  including the  authorization of such additional
number of shares of Common  Stock as may be  required in excess of the number so
reserved  (either in the aggregate or as to any  Debenture) or in excess of such
limitation, as the case may be.

     4.3. Listing of Underlying  Shares.  The Company hereby agrees to take such
action to cause  the  Shares to be  listed  on the  Exchange  on the first  date
permitted  by the rules of the  Exchange.  The Company  further  agrees,  if the
Company  applies to have the Common  Stock traded on any 


<PAGE>
                                      203


other  principal stock exchange or market,  it will include in such  application
the Shares and will take such other action as is necessary or desirable to cause
the  Shares to be listed  on such  other  exchange  or  market  as  promptly  as
possible.

     4.4. Exchange Act Registration.  The Company will cause its Common Stock to
continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will
comply in all  respects  with its  reporting  and filing  obligations  under the
Exchange Act, and will not take any action or file any document  (whether or not
permitted by the Exchange Act or the rules  thereunder)  to terminate or suspend
such   registration  or  to  terminate  or  suspend  its  reporting  and  filing
obligations  under the Exchange  Act. The Company will take all action under its
control to continue  the listing and trading of its Common Stock on the Exchange
and will comply in all respects with the Company's  reporting,  filing and other
obligations under the bylaws or rules of the NASD and the Exchange.

     4.5.  Legends.  The  Shares and  certificates  evidencing  the same  shall,
promptly upon the  effectiveness of the Registration  Statement  contemplated by
the Registration Rights Agreement,  be free of legends, "stop transfers," "stock
transfer  restrictions," or other restrictions,  provided,  that customary stock
transfer  restriction  legends may appear on any  certificate  evidencing any of
such  Shares  if the  SEC  or  other  governmental  authority  with  appropriate
jurisdiction  has issued an active  stop  order,  injunction  or other  order or
requirement suspending the effectiveness of the Registration Statement.

     4.6.  Corporate  Existence.  The Company  will take all steps  necessary to
preserve and continue its corporate existence.

5. LEGENDS.

     5.1. Legends.  The Company will issue one or more Debentures in the name of
the Subscriber and in such denominations (of not less than $100,000 each, unless
the  total  principal  amount  of  Debentures  held by such  Holder is less than
$100,000, then in a denomination equal to such lesser amount) to be specified by
the Subscriber  prior to (or from time to time  subsequent to) the Closing.  The
Debentures  and  certificates  evidencing any shares of Common Stock issued upon
conversion thereof prior to the effectiveness of the Registration Statement will
bear the following legend (the "Legend"):


<PAGE>
                                      204


          THESE  SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
          1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
          SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
          ACT  AND  ANY  APPLICABLE  STATE  SECURITIES  LAWS  OR  AN  APPLICABLE
          EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.

     Prior to Closing,  the  Company  will issue to the  transfer  agent for its
Common Stock (and to any substitute or replacement transfer agent for its Common
Stock  concurrently  with the Company's  appointment  of any such  substitute or
replacement transfer agent) instructions in substantially the form and substance
of the Transfer Agent Irrevocable Instruction in the form attached as Exhibit C.
Such instructions shall be irrevocable by the Company from and after the Closing
or from and after the issuance  thereof to any such  substitute  or  replacement
transfer  agent,  as the case may be. Such  instructions  shall provide that the
transfer agent will immediately  confirm its receipt of a Conversion  Notice (as
defined in the  Debentures)  by facsimile  to the Company.  It is the intent and
purpose of such instructions, as provided therein, to require the transfer agent
for the Common Stock from time to time to issue  certificates  evidencing Shares
free of the  Legend  during  the  following  periods  and  under  the  following
circumstances and without consultation by the transfer agent with the Company or
its counsel and without the need for any further  advice or  instruction  to the
transfer  agent by or from the Company,  or its counsel,  except with respect to
the Company's  ability to  immediately  verify the  calculation of the number of
Shares issuable upon conversion of the Debentures to the holder thereof:

          (a) At any time from and after the  effectiveness  of the Registration
     Statement,  and so long as no stop order,  injunction or other order of the
     SEC  or  other   applicable   governmental   authority   with   appropriate
     jurisdiction is then in effect suspending effectiveness of the Registration
     Statement:

               (i) upon any surrender of one or more  Debentures  for conversion
          into Shares;

               (ii) upon any  surrender of one or more  certificates  evidencing
          Shares and which bear the Legend; and

          (b) At any time from and after the Closing Date, upon any surrender of
     one or more  certificates  evidencing  Shares and 


<PAGE>
                                      205


     which bear the Legend, to the extent accompanied by a notice requesting the
     issuance  of  new  certificates   free  of  the  Legend  to  replace  those
     surrendered  and accompanied by  representations  and an opinion of counsel
     that (i) the Holder  thereof is  permitted to dispose  thereof  pursuant to
     Rule 144(k) under the  Securities  Act or (ii) the Holder intends to effect
     the sale or other  disposition  of such Shares,  whether or not pursuant to
     the Registration  Statement,  to a purchaser or purchasers in a transaction
     not subject to the  registration  requirements  of the  Securities  Act, or
     (iii) such Holder is not then subject to such requirements.

          If any Holder  does not  transfer  any Shares  received by such Holder
     upon conversion of its Debentures  within 20 business days after conversion
     of such Debentures,  the Holder will return any certificate evidencing such
     unsold Shares to the transfer  agent so that the transfer agent may add the
     Legend,  as  applicable,  unless  such Legend is not  required  pursuant to
     Section 5.1 herein.

     In addition,  and if  applicable,  the Company shall reissue the Debentures
without  the  Legend set forth  above at such time as (i) the Holder  thereof is
permitted to dispose thereof pursuant to Rule 144(k) under the Securities Act or
(ii) the Holder intends to effect a sale thereof to a purchaser or purchasers in
a transaction  not subject to the  registration  requirements  of the Securities
Act, or (iii) the Holder is not then subject to such requirements.

     5.2. No Other Legend or Stock Transfer Restrictions.  No Legend has been or
shall be placed on the share  certificates  representing  the  Securities and no
instructions  or  "stop  transfers,"  "stock  transfer  restrictions,"  or other
restrictions  have been or shall be given to the Company's  transfer  agent with
respect thereto other than as set forth in this Section 5.1.

     5.3. Subscriber's  Compliance.  Nothing in this section shall affect in any
way the  Subscriber's  obligations  under  and  agreement  to  comply  with  all
applicable securities laws upon resale of the Securities.

6. [INTENTIONALLY OMITTED]

7. CHOICE OF LAW AND VENUE.

THIS  AGREEMENT  SHALL  BE  CONSTRUED  UNDER  THE  LAWS OF THE  COMMONWEALTH  OF
MASSACHUSETTS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE 


<PAGE>
                                      206


OF LAW  THEREOF.  Each of the  parties  hereby  (i)  irrevocably  submits to the
exclusive  jurisdiction  of the United  States  District  Court for the Southern
District of New York for the purposes of any suit, action or proceeding  arising
out of or relating to this Agreement,  the Debentures,  the Registration  Rights
Agreement or any other  Related  Agreement  and (ii)  waives,  and agrees not to
assert  in any  such  suit,  action  or  proceeding,  any  claim  that it is not
personally  subject to the jurisdiction of such court,  that the suit, action or
proceeding  is brought in an  inconvenient  forum or that the venue of the suit,
action or proceeding is improper.  Each of the parties consents to process being
served in any such suit,  action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and agrees
that such service shall  constitute  good and sufficient  service of process and
notice  thereof.  Nothing in this  paragraph  shall affect or limit any right to
serve process in any other manner permitted by law.

8. ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT.

     8.1.  Assignment.  Neither this  Agreement nor any rights of the Subscriber
hereunder may be assigned by either party to any other  person.  Notwithstanding
the foregoing,  the provisions of this Agreement  shall inure to the benefit of,
and be  enforceable  by, any  transferee of any of the  Securities  purchased or
acquired by the Subscriber hereunder with respect to the Securities held by such
person.

     8.2. Entire Agreement;  Amendment.  This Agreement (including the Schedules
and Exhibits hereto),  the Debentures,  the Registration  Rights Agreement,  the
other Related  Agreements  and the other  documents  delivered  pursuant  hereto
constitute the full and entire  understanding  and agreement between the parties
with  regard to the subject  matter  hereof and  thereof,  and no party shall be
liable  or  bound  to  any  other  party  in  any  manner  by  any   warranties,
representations  or covenants except as specifically set forth in this Agreement
or  therein.  Except as  expressly  provided  in this  Agreement,  neither  this
Agreement nor any term hereof may be amended,  waived,  discharged or terminated
other than by a written  instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.

9. PUBLICITY.

     The Company  agrees that it will not disclose,  and will not include in any
public announcement,  the name of the Subscriber without its consent, unless and
until such disclosure is required by law or 


<PAGE>
                                      207


applicable regulation,  and then only to the extent of such requirement.  In the
case of any such  required  disclosure,  the  Company  shall,  prior to any such
disclosure,   (i)  notify  the  Subscriber,   (ii)  permit  the  Subscriber  the
opportunity  to  review  the  proposed  disclosure,  and (iii)  accommodate  all
reasonable  comments  and requests  for changes  made by the  Subscriber  or its
counsel.


10. NOTICES, ETC.; EXPENSES; INDEMNITY.

     10.1.  Notices.  Any notice,  demand or request required or permitted to be
given by either the  Company  or the  Subscriber  pursuant  to the terms of this
Agreement  shall be in  writing  and shall be deemed to have been duly  given if
personally  delivered or sent by registered or certified  mail,  return  receipt
requested,  postage prepaid with a copy in each case sent on the same day to the
party by facsimile,  Federal Express or other such expedited means to said party
at its address set forth at the end of this Agreement or such other address as a
party may request by notifying the other in writing and communications  shall be
deemed to have been received when  delivered  personally  or, if sent by mail or
facsimile,  when actually received by the party to whom it is addressed.  Copies
of all  notices to the  Company  shall be sent to Paul S.  Weiner,  Director  of
Finance of the  Company,  and to the  attention  of the  General  Counsel of the
Company.  Copies of all notices to the Subscriber  shall be sent to its designee
or representative.

     10.2.  Indemnification.  Each party shall  indemnify  the other against any
loss, cost, expenses,  liabilities or damages (including  reasonable  attorney's
fees  and  expenses)  incurred  as a  result  of  such  parties'  breach  of any
representation, warranty, covenant or agreement in this Agreement.

11. COUNTERPARTS.

     This Agreement may be executed in any number of counterparts, each of which
shall be enforceable  against the parties actually  executing such counterparts,
and all of which together shall constitute one instrument.
<PAGE>
                                      208


12. SURVIVAL; SEVERABILITY.

     The  representations,  warranties,  covenants and agreements of the parties
hereto  shall  survive  the  Closing,  provided  that  the  representations  and
warranties shall survive only until the fifth anniversary of the Closing. In the
event that any provision of this Agreement  becomes or is declared by a court of
competent  jurisdiction  to be illegal,  unenforceable  or void,  this Agreement
shall continue in full force and effect without said provision.

13. TITLE AND SUBTITLES.

     The titles and subtitles  used in this  Agreement are used for  convenience
only and are not to be considered in construing or interpreting this Agreement.

14. AMOUNT.

     The undersigned Subscriber hereby subscribes for U.S. $_______ in principal
amount of Debentures and agrees to pay therefor funds,  which  constitute 95% of
the    principal    amount    of   the    Debentures,    in   the    amount   of
_____________________________ Dollars (U.S. $________).

     The undersigned  acknowledges that this subscription shall not be effective
unless accepted by the Company as indicated below.

Subscriber's Representative:               Name of Subscriber:



---------------------------                ------------------------------
Attn:                                      By
                                           Name:
                                           Title:


                                           Subscription dated as of:
                                           March 10, 1997
Address:
                                           Place of Execution:

Telephone:                                 Place of Organization or Citizenship:


Fax:                                       Place of Residency and/or Principal
                                           Place of Business:

With a copy to:


--------------------------
Registration Instructions:


-------------------------                 ----------------------------------
(Name)
-------------------------
(Please Print)

     THIS  SUBSCRIPTION  IS ACCEPTED BY THE COMPANY AS OF THE 10TH DAY OF MARCH,
     1997.

                                            PALOMAR MEDICAL TECHNOLOGIES, INC.



                                            By:
                                                  ----------------------------
                                            Name:
                                            Title: