|Given to Each Participant Page 1 of 2


PERSONAL AND
CONFIDENTIAL


EXECUTIVE OFFICER LEVEL


Palomar Medical
Technologies, Inc. 2009 Incentive
Compensation Program Operating Period
 January 1, 2009 to December 31, 2009


General


The amount of bonus each participant
receives will depend on the 2009 actual performance of Palomar against the Palomar 2009
Operating Plan and each participants contribution toward achieving the Plan. The
payout is calculated based on each participants 2009 base salary that was effective
as of January 1, 2009.


Calculation of Incentive
Compensation Amounts:


Base
Bonus Level:


Up
to 36.29% of base salary if Palomar achieves the 2009 Operating Plan results from
operations before other income/expense and before taxes (including the P&L charge for
this Incentive Compensation Program), excluding the following items: (i) FAS123R non-cash
compensation expense, (ii) outside legal patent litigation costs and (iii) non-capitalized
costs related to the new building (Base Bonus Level).


Additional
Bonus Level:


Up
to an additional 1.82% of base salary or fraction thereof for each one hundred thousand
dollars ($100,000) that Palomar exceeds the Base Bonus Level.


As
an example, if the plan is exceeded by $50,000, the additional bonus will be up to 0.91%
(1.82% x $50,000/$100,000) of base salary.


As
another example, if the plan is exceeded by $200,000, the additional bonus will be up to
3.64% (1.82% x $200,000/$100,000) of base salary.


As
another example, if the plan is exceeded by $350,000, the additional bonus will be up to
6.37% (1.82% x $350,000/$100,000) of base salary.


The
Total Bonus payout shall be no more than 200% of each participants base
salary.



Given to Each Participant Page 2 of 2


PERSONAL AND
CONFIDENTIAL
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1. |  | No incentive compensation will paid unless Palomar achieves the Base Bonus Level
               as listed above. Even if the Base Bonus Level is achieved, the Compensation
               Committee of the Board of Directors (BOD) may adjust the incentive
               compensation based on the individuals performance.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | No incentive compensation will accrue to the benefit of any participant until
               December 31, 2009, at which time the participant must be an employee of Palomar.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Incentive compensation for the 2009 operating period will be paid by March 15,
               2010, unless otherwise determined by the Compensation Committee of the BOD.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | Where necessary the Compensation Committee of the BOD may adjust
               financial results to exclude unusual transactions not deemed to be part of
               normal current operations.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | This Incentive Compensation Program may be modified for any reason without
               notice to the employee in part or in its entirety by the Compensation
               Committee of the BOD of Palomar.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | Continuance of this particular Incentive Compensation Program beyond December
               31, 2009 is not guaranteed.
|-- |  | ------------------------------------------------------------------------------------------------------------------------

| |                                       
| | --------------------------------------
| | Approved by:                          
| |                                       
| | /s/ James G. Martin                   
| | James G. Martin                       
| | Chairman of the Compensation Committee
| | Palomar Medical Technologies, Inc.    
| | Approved by BOD on March 4, 2009      

|                     | 
|-------------------- | 
|Received by:         | 
|                     | 
|/s/ Louis P. Valente | 
|Participant          | 
|                     | 
|/s/ Joseph P. Caruso | 
|Participant          | 
|                     | 
|/s/ Paul S. Weiner   | 
|Participant          | 

|
|