FIRST ALLONGE AND AMENDMENT TO 4.5% SUBORDINATED
                   CONVERTIBLE DEBENTURE (ORIGINALLY) DUE 2003

Issuer:  Palomar Medical Technologies, Inc.
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Purchaser:  Banque SCS Alliance S.A.
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Date of Original Debenture:  on or about July 3, 1996
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Original Principal Amount:  SF 3,000,000
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Original Due Date:  2003
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1.   This First Allonge and Amendment  shall be and remain attached to and shall
     constitute an integral part of the above-described  Debenture ("Debenture")
     issued  pursuant  to the  original  Indenture  dated  as of June  24,  1996
     ("Indenture"),  as amended by the Second Supplemental Indenture dated as of
     April 21, 1999 (the "Second Supplemental Indenture"). Terms capitalized but
     not  otherwise  defined  herein shall have the meaning given to them in the
     Second Supplemental Indenture and in the Indenture.

2.   The Debenture is hereby amended in the following particulars:

     (a)  The  Debenture  is  hereby  amended  by the  deletion  of the  section
          captioned   "Redemption  at  the  Option  of  the  Company,"  and  the
          substitution of the following in lieu thereof:

                               Debentures Redeemable.
                               ---------------------

               The Debentures may be redeemed by the Company, as a whole or from
          time to time in part,  at any time,  if the Nasdaq  closing  price per
          share of Company  stock (or,  if the  Company is listed or quoted over
          the counter or on an exchange in the United  States other than Nasdaq,
          the  closing  price  on  such  exchange)  on the  date  of  notice  of
          redemption is (a) $5.00 or less (subject to equitable  adjustments for
          stock  splits,  stock  dividends,   combinations,   recapitalizations,
          reclassifications  and similar events), the Debentures may be redeemed
          by the Company, in whole or in part, in cash and at a redemption price
          equal to 100% of the principal  amount to be redeemed plus accrued and
          unpaid  interest to the date fixed for  redemption;  or (b) over $5.00
          (subject to equitable  adjustments for stock splits,  stock dividends,
          combinations,   recapitalizations,   reclassifications   and   similar
          events), the Debentures may be redeemed by the Company, in whole or in
          part, in cash and at a redemption price equal to 100% of the principal
          amount to be redeemed  plus  accrued  and unpaid  interest to the date
          fixed for  redemption (i) provided that in such case the Company shall
          pay to each  debentureholder  an additional amount equal to the profit
          each
<PAGE>

          debentureholder  would have realized had it converted  its  Debentures
          into  Company  stock at a price of $5.00 per share and sold said stock
          on the  business  day  prior  to that  set for  redemption,  and  (ii)
          provided further that said payment shall in no event exceed the amount
          of $1.50 per share.

               Notwithstanding  the  provisions  of Section 3. 1 (a) and (b) set
          forth above,  within thirty (30) business days after  consummation  of
          the sale by Palomar of its  majority-owned  subsidiary,  Star  Medical
          Technologies,  Inc. ("Star"),  or the sale of all or substantially all
          of the assets  held by Star,  Palomar  shall  redeem in cash,  without
          premium,  Debentures  in the  principal  amount of SF  6,000,000  plus
          accrued  and unpaid  interest to the date fixed for  redemption.  (The
          Company's  redemption of  Debentures  having a face value of 1,375,000
          Swiss francs, per paragraph 2 of the Settlement  Agreement dated April
          21,  1999,  shall  be  counted  towards  the face  value SF  6,000,000
          redemption.)

               Should the Company or any of its wholly owned subsidiaries decide
          to sell or pledge or convey  any other  assets  (other  than  sales or
          pledges or  conveyances  of  inventory or accounts  receivable  in the
          ordinary course of business), or make any loans or advances, having an
          aggregate  value over any twelve (12) month  period of  $2,500,000  or
          above, it will, prior to doing so, inform the Trustee and Paying Agent
          and agree upon an additional redemption of Debentures,  in cash and at
          a  redemption  price  equal  to 100%  of the  principal  amount  to be
          redeemed  plus  accrued  and  unpaid  interest  to the date  fixed for
          redemption.  (Only transactions having a value of over $25,000 will be
          counted towards the aggregate.) The amount of said redemption shall be
          negotiated by the Company and the  Debentureholders  in good faith and
          shall be based on the consideration received by the Company for assets
          pledged,  conveyed,  or sold, or the amount of any loan.  Furthermore,
          the terms  "loan" and  "advance" as used in this Section 3.1 shall not
          be deemed to include any investments listed in Section 5.9 (i) through
          (v) of the Indenture.

     (b)  The  Debenture  is  hereby  amended  by the  deletion  of the  section
          captioned "Sinking Fund" and the substitution of the following in lieu
          thereof:

                      Dates and Amounts of Sinking Fund Payments.
                      ------------------------------------------

               As and for a mandatory  sinking fund,  the Company  covenants and
          agrees that it shall pay to the  Trustee,  not less than one  Business
          Day on or before each of September 30, 2000,  December 31, 2000, March
          31, 2001 and June 30,  2001 (each a "Sinking  Fund  Payment  Date") an
          amount of money  equal to 25% of the  aggregate  amount of  Debentures
          outstanding  on September 30, 2000 at 100% of their  principal  amount
          with accrued and unpaid  interest  thereon to the  applicable  Sinking
          Fund Payment  Date.
<PAGE>

          The cash  amount of any  sinking  fund  payment  shall be  subject  to
          reduction as provided in Section 3.6(b).  The Trustee shall apply cash
          sinking  fund  payments  to  the   redemption  of  Debentures  on  the
          applicable  Sinking Fund Payment Date. In no event shall the Company's
          Sinking Fund payments exceed 100% of the aggregate principal amount of
          the  Debentures  then  outstanding  plus  accrued and unpaid  interest
          thereon.

               In lieu of making all or any part of any  mandatory  sinking fund
          payment in cash,  the Company may at its option deliver to the Trustee
          any Debentures  theretofore acquired by the Company or redeemed by the
          Company after  September 30, 2000 (other than pursuant to this Section
          3.6) and the  principal  amount of such  Debentures  shall be credited
          against the principal  amount  portion of the  mandatory  sinking fund
          payment (and the interest  portion shall be reduced as well,  provided
          that the Company  shall  receive  credit for any such  Debenture  only
          once).

     (c)  The Debenture is hereby amended by the deletion of the first paragraph
          of  the  section  captioned  "Right  of  Debentureholders  to  Convert
          Debenture into Common Stock" and the  substitution of the following in
          lieu thereof:

               The Debentures may be converted by Holders,  in whole or in part,
          from  time to time,  commencing  ninety  days  following  the  Initial
          Closing  Date and on or before the close of the  business  on June 29,
          2001, or the date of redemption (or if that day is not a Business Day,
          on the  preceding  Business  Day),  at any time on at least five days'
          written  notice  to the  Company  (except  that at least  eight  days'
          written notice will be required prior to any date for early redemption
          of which the Company has given notice  pursuant to Section 3.2, and at
          least  forty-five  days written  notice will be required  prior to any
          Sinking Fund Payment Date) at the conversion  prices  described herein
          (except that, in respect of any  Debenture or  Debentures,  or portion
          thereof,  called for  redemption  before such date pursuant to Article
          Three hereof,  such right shall  terminate at the close of business on
          the date fixed for such redemption unless the Company shall default in
          payment due upon  redemption  thereof).  The Holders may exercise said
          right to convert,  subject to the terms and provisions of this Article
          IV, the  principal  amount of any such  Debenture  or  Debentures,  or
          portion thereof as hereinafter provided, into (a) such whole number of
          duly authorized,  validly issued, fully paid and non-assessable shares
          of Common Stock (the "Debenture  Conversion  Shares") as determined by
          dividing (y) the principal amount of Debentures to be converted by (z)
          the Holder  Conversion  Price, (b) an amount of money payable in Swiss
          Francs equal to the accrued and unpaid interest thereon to the date of
          conversion,  and (c) an  amount  of money  equal  to the  value of the
          fractional  share  remainder,  if any,  resulting from the calculation
<PAGE>

          described in clause (a) above, to be paid in Swiss Francs based on the
          Holder Conversion Price per share.

     (d)  The Debenture is hereby  amended by the deletion of the  definition of
          "Stock   Price   Factor"   from  the  section   captioned   "Right  of
          Debentureholders  to Convert  Debentures  into  Common  Stock" and the
          substitution of the following in lieu thereof:

               "Stock Price  Factor"  means a factor,  to be  calculated  by the
          Company with respect to each December 15,  February 15, April 15, June
          15,  August  15,  and  October  15  (each a "Reset  Date"),  and to be
          applicable in the two full calendar  months  following the Reset Date,
          and equal to the average daily Nasdaq  closing price per Share (or, if
          the Company is listed or quoted on an  exchange  in the United  States
          other than Nasdaq, the closing price on such exchange), for the thirty
          trading days immediately preceding the applicable Reset Date; provided
          that in no event shall the Stock Price Factor be less than U.S.  $5.00
          (as adjusted,  if required, as provided in Section 4.5), regardless of
          the actual Stock Price Factor otherwise determined.

     (e)  The  Debenture  is  hereby  amended  by the  deletion  of the  section
          captioned "Right of Company to Convert Debentures into Common Stock of
          Company."

     (f)  The  Debenture  is hereby  amended  by the  substitution  of the words
          "Indenture,  as amended by the Second Supplemental  Indenture" for the
          word "Indenture" in the section captioned "Event of Default."

     (g)  The Debenture is hereby  amended by the deletion of the words from "At
          the option of the  Company . . ." to  "product  so achieved by 75%" in
          the section captioned "Right to Require Repurchase."

     (h)  The  Debenture  is  hereby  amended  by the  deletion  of the  section
          captioned  "Indentures  and  Debentures  to be Construed in Accordance
          with  the  laws of  State of New  York"  and the  substitution  of the
          following in lieu thereof:

               The  Indenture  and  each  Debenture  shall  be  governed  by and
          construed  in  accordance  with  the  internal  laws of the  State  of
          Delaware, without regard to its principles of conflicts of law.

3.   Except as expressly amended by  the  Second  Supplemental  Indenture,  the
     Indenture dated as of June 24, 1996 (the  "Indenture") is hereby  ratified,
     confirmed and approved.
<PAGE>

     IN  WITNESS  WHEREOF,  and  intending  to  be  legally  bound  hereby,  the
undersigned  has caused this First  Allonge and  Amendment to be executed by its
duly authorized officer on this ____ day of April, 1999.

                                             PALOMAR MEDICAL TECHNOLOGIES, INC.


                                             By:    /S/ LOUIS P. VALENTE
                                                -------------------------------
                                                Name:   Louis P. Valente
                                                Title:  Chief Executive Officer
                                                        and President

ATTEST:

By:  /S/  SARAH BURGESS REED
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     Assistant Secretary