EXECUTION COPY

                          SECURITIES PURCHASE AGREEMENT

        SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"),  dated as of September
30,  1997,  by and among  PALOMAR  MEDICAL  TECHNOLOGIES,  INC.,  a  corporation
organized  under  the  laws of the  State  of  Delaware  (the  "COMPANY"),  with
headquarters located at 66 Cherry Hill Drive,  Beverly,  Massachusetts 01915 and
each of the  purchasers  (the  "PURCHASERS")  set forth on the  execution  pages
hereof (the "EXECUTION PAGES").

        WHEREAS:

        A. The Company and each  Purchaser  are executing  and  delivering  this
Agreement in reliance upon the exemption from securities  registration  afforded
by Section  4(2) of the  Securities  Act of 1933,  as amended  (the  "SECURITIES
ACT");

        B. Each  Purchaser  desires to purchase,  upon the terms and  conditions
stated in this Agreement;  (i) 6%, 7% and 8% Convertible Debenture Due September
30, 2002 of the Company (each a "DEBENTURE" and, collectively, the "DEBENTURES")
convertible into its common stock, par value $.01 per share, of the Company (the
"COMMON STOCK") and (ii) shares of Common Stock (the "COMMON SHARES").  The form
of the Debenture,  including the terms upon which such Debenture are convertible
into  shares of Common  Stock,  is  attached  hereto as Exhibit A. The shares of
Common Stock issuable upon conversion of the Debenture or otherwise  pursuant to
the  Debentures  are  referred  to  herein  as  the  "CONVERSION   SHARES".  The
Debentures,  the  Common  Shares  and the  Conversion  Shares  are  collectively
referred to herein as the "SECURITIES."

        C.  Contemporaneous  with the execution and delivery of this  Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit B (the "REGISTRATION  RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain  registration rights
under the Securities Act and the rules and regulations  promulgated  thereunder,
and applicable state securities laws;

        NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:

        1. PURCHASE AND SALE OF DEBENTURES AND COMMON SHARES

                a. Purchase of Debentures and Common Shares. On the Closing Date
        (as  defined  below),  subject to the  satisfaction  (or  waiver) of the
        conditions set forth in Sections 6 and 7 below,  the Company shall issue
        and  sell to each  Purchaser  and each  Purchaser  severally  agrees  to
        purchase from the Company,  (i) a Debenture in such  original  principal
        amount as is set forth on such  Purchaser's  signature  page  hereto and
        (ii) a number of Common Shares equal to (A) fifteen percent (15%) of the
        original  principal  amount of the  Debenture  referred to in clause (i)
        divided by (B) the average of the closing bid prices of the Common Stock
        on the Nasdaq  SmallCap Market for the three (3) trading days commencing
        on the first trading day after Closing  Date.  Each Investor  represents
        and agrees that neither it nor its  affiliates has entered or will enter
        into any  transactions  with  respect to any  securities  of the Company
        (other than the  transactions  contemplated  by this  Agreement)  on the
        Closing Date or the three trading days  thereafter.  The purchase  price
        (the "PURCHASE PRICE") for such Debenture and Common Shares to be issued
        and sold to each Purchaser at such closing shall be as set forth on such
        Purchaser's Execution Page hereto.

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                b. Form of Payment.  On the Closing Date,  each Purchaser  shall
        pay the aggregate  Purchase  Price for the  Debentures and Common Shares
        being  purchased by such  Purchaser  hereunder  by wire  transfer to the
        Company,  in accordance with the Company's written wiring  instructions,
        against delivery of the duly executed  Debenture being purchased by such
        Purchaser hereunder and the Company shall deliver such Debenture against
        delivery of such aggregate Purchase Price. Within twenty (20) days after
        the second  trading day following  the Closing  Date,  the Company shall
        deliver to each Purchaser a duly executed  certificate  representing the
        Common Shares purchased by such Purchaser.

                c. Closing Date.  Subject to the satisfaction (or waiver) of the
        conditions  thereto set forth in Section 6 and Section 7 below, the date
        and time of the issuance and sale of the  Debentures  and Common  Shares
        pursuant to this  Agreement  (the  "CLOSING  DATE")  shall be 12:00 noon
        eastern  time  on  September  30,  1997,  or such  other  time as may be
        mutually  agreed  upon by the Company  and the  Purchasers.  The closing
        shall occur at the offices of Foley,  Hoag & Eliot LLP,  One Post Office
        Square, Boston, MA 02109.

        2. PURCHASERS' REPRESENTATIONS AND WARRANTIES

        Each Purchaser severally represents and warrants to the Company that:

                a.  Investment  Purpose.  Purchaser is purchasing the Debentures
        and Common Shares for  Purchaser's  own account for investment  only and
        not with a present view towards the public sale or distribution thereof,
        except  pursuant  to  sales  that  are  exempt  from  the   registration
        requirements  of the  Securities Act and/or sales  registered  under the
        Securities  Act.  Purchaser  understands  that  Purchaser  must bear the
        economic risk of this investment indefinitely, unless the Securities are
        registered  pursuant  to the  Securities  Act and any  applicable  state
        securities or blue sky laws or an exemption  from such  registration  is
        available,  and that the Company has no present intention of registering
        any such  Securities  other  than as  contemplated  by the  Registration
        Rights Agreement.  Notwithstanding  anything in this Section 2(a) to the
        contrary,  by making the representations  herein, the Purchaser 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 or pursuant to a registration  statement or an exemption
        under the Securities Act.

                b.  Accredited  Investor  Status.  Purchaser  is an  "Accredited
        Investor"  as defined in Rule 501(a)  promulgated  under the  Securities
        Act.

                c.  Reliance  on  Exemptions.  Purchaser  understands  that  the
        Debentures  and Common Shares are being offered and sold to Purchaser in
        reliance upon specific exemptions from the registration  requirements of
        United States federal and state  securities laws and that the Company is
        relying upon the truth and accuracy of, and Purchaser's compliance with,
        the  representations,   warranties,   agreements,   acknowledgments  and
        understandings  of Purchaser  set forth herein in order to determine the
        availability  of such  exemptions  and the  eligibility  of Purchaser to
        acquire the Debentures and Common Shares.

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<PAGE>

                d. Information.  Purchaser and its counsel or representative, if
        any,  have  been  furnished  all  materials  relating  to the  business,
        finances and  operations  of the Company and  materials  relating to the
        offer and sale of the  Debentures  and  Common  Shares  which  have been
        specifically  requested by  Purchaser or its counsel or  representative.
        Purchaser and its counsel, if any, have been afforded the opportunity to
        ask questions of the Company and have received what  Purchaser  believes
        to be complete and satisfactory  answers to any such inquiries.  Neither
        such  inquiries nor any other due diligence  investigation  conducted by
        Purchaser  or its counsel or any of its  representatives  shall  modify,
        amend  or   affect   Purchaser's   right   to  rely  on  the   Company's
        representations and warranties  contained in Section 3 below.  Purchaser
        understands  that  Purchaser's  investment in the Securities  involves a
        high degree of risk.

                e.  Governmental  Review.  Purchaser  understands that no United
        States federal or state agency or any other  government or  governmental
        agency has passed upon or made any  recommendation or endorsement of the
        Securities.

                f. Transfer or Resale.  Purchaser understands that (i) except as
        provided in the Registration  Rights Agreement,  the Securities have not
        been and are not being  registered under the Securities Act or any state
        securities  laws,  and may not be  transferred  unless (a)  subsequently
        registered  thereunder,  or (b)  Purchaser  shall have  delivered to the
        Company an opinion of counsel (which opinion shall be in form, substance
        and scope customary for opinions of counsel in comparable  transactions)
        to the effect that the Securities to be sold or transferred  may be sold
        or  transferred   pursuant  to  an  exemption  from  such  registration,
        including  without  limitation Rule 144 promulgated under the Securities
        Act (or a successor  rule)  ("RULE  144"),  or (c)  transferred  without
        consideration  to an  affiliate  of  Purchaser;  (ii)  any  sale of such
        Securities  made in reliance on Rule 144 may be made only in  accordance
        with the terms of said Rule and further, if said Rule is not applicable,
        any resale of such Securities  under  circumstances  in which the seller
        (or the  person  through  whom the sale is made)  may be deemed to be an
        underwriter  (as that term is defined in the Securities Act) may require
        compliance  with some other  exemption  under the  Securities Act or the
        rules and  regulations of the Securities  and Exchange  Commission  (the
        "SEC") thereunder; and (iii) neither the Company nor any other person is
        under any  obligation to register such  Securities  under the Securities
        Act or any  state  securities  laws or to  comply  with  the  terms  and
        conditions  of any  exemption  thereunder  (in  each  case,  other  than
        pursuant to the Registration Rights Agreement).

                g. Legends. Purchaser understands that the Debentures and Common
        Shares  and,  until  such  time  as  the  Conversion  Shares  have  been
        registered  under the Securities Act as contemplated by the Registration
        Rights Agreement or otherwise may be sold by Purchaser  pursuant to Rule
        144  without  any  restriction  as to the  public  resale  thereof,  the
        certificates for the Conversion Shares may bear a restrictive  legend in
        substantially  the  following  form  (and a  stop-transfer  order may be
        placed against transfer of the certificates for such Securities):

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<PAGE>

                The  securities  represented by this  certificate  have not been
                registered  under the  Securities  Act of 1933, as amended.  The
                securities  have been  acquired  for  investment  and may not be
                sold,  transferred  or assigned  in the absence of an  effective
                registration  statement for the securities under said Act, or an
                opinion of counsel,  in form,  substance and scope customary for
                opinions   of   counsel   in   comparable   transactions,   that
                registration  is not  required  under  said  Act or  unless  the
                Company  is  provided  with   reasonable   assurances  that  the
                securities were sold pursuant to Rule 144 under said Act.

                The legend set forth  above  shall be  removed  and the  Company
        shall issue a  certificate  without such legend upon  conversion  of the
        Debentures  to the holder of any Security  upon which it is stamped,  if
        (a) the resale of such Security is registered  under the Securities Act,
        or (b) such holder  provides the Company with an opinion of counsel,  in
        form,   substance  and  scope  customary  for  opinions  of  counsel  in
        comparable transactions, to the effect that a public sale or transfer of
        such Security may be made without  registration under the Securities Act
        or (c) such holder provides the Company with reasonable  assurances that
        such Security has been sold pursuant to Rule 144 or can be sold pursuant
        to Rule 144  without  any  restriction  as to the  number of  Securities
        acquired  as of a  particular  date that can then be  immediately  sold.
        Purchaser agrees to sell all Securities,  including those represented by
        a certificate(s) from which the legend has been removed,  pursuant to an
        effective   registration  statement  and  to  deliver  a  prospectus  in
        connection  with  such  sale  (if and to the  extent  such  delivery  is
        required)  or in  compliance  with an  exemption  from the  registration
        requirements  of the  Securities  Act. In the event the above  legend is
        removed  from  any  Security  and  thereafter  the  effectiveness  of  a
        registration  statement  covering  such  Security  is  suspended  or the
        Company determines that a supplement or amendment thereto is required by
        applicable  securities  laws,  then upon  reasonable  advance  notice to
        Purchaser the Company may require that the above legend be placed on any
        such  Security  that  cannot  then  be  sold  pursuant  to an  effective
        registration  statement  or Rule 144 without any  restriction  as to the
        number of Securities  acquired as of a particular  date that can then be
        immediately  sold,  which legend shall be removed when such Security has
        been sold  pursuant to Rule 144 or may be sold  pursuant to an effective
        registration  statement  or Rule 144 without any  restriction  as to the
        number of Securities  acquired as of a particular  date that can then be
        immediately sold.

                h.   Authorization;   Enforcement.   This   Agreement   and  the
        Registration  Rights  Agreement  have been duly and validly  authorized,
        executed and  delivered on behalf of Purchaser and are valid and binding
        agreements of Purchaser  enforceable in accordance with their respective
        terms.

                i. Location of Purchaser. Each of the Purchasers has advised the
        Company  in  writing  with  respect  to the  jurisdictions  wherein  the
        investment decision regarding Purchaser's  acquisition of the Debentures
        and the Common Shares has been made.

        3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

        The Company represents and warrants to each Purchaser that:

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<PAGE>

                a. Organization and  Qualification.  The Company and each of its
        subsidiaries  is a  corporation  duly  organized  and  existing  in good
        standing under the laws of the jurisdiction in which it is incorporated,
        and has the requisite corporate power to own its properties and to carry
        on its  business  as now being  conducted.  The  Company and each of its
        subsidiaries  is duly qualified as a foreign  corporation to do business
        and is in good  standing in every  jurisdiction  where the failure so to
        qualify would have a Material Adverse Effect.  "MATERIAL ADVERSE EFFECT"
        means  any  material  adverse  effect  on  the  operations,  properties,
        condition  (financial  or otherwise) or prospects of the Company and its
        subsidiaries, taken as a whole on a consolidated basis or on the ability
        of the  Company  to  perform  its  obligations  in  connection  with the
        transactions contemplated hereby on a timely basis. The Company does not
        have any significant subsidiaries (as defined in Rule 1-02 of Regulation
        S-X under the Securities Act) other than those subsidiaries set forth on
        Schedule 3(a).

                b. Authorization; Enforcement. (i) The Company has the requisite
        corporate  power and authority to enter into and perform this  Agreement
        and the Registration Rights Agreement,  to issue and sell the Debentures
        and Common Shares in accordance with the terms hereof,  and to issue the
        Conversion  Shares upon  conversion of the Debentures in accordance with
        their  terms;  (ii) the  execution,  delivery  and  performance  of this
        Agreement,  the Registration  Rights Agreement and the Debentures by the
        Company  and the  consummation  by it of the  transactions  contemplated
        hereby and thereby  (including  without  limitation  the issuance of the
        Debentures  and  Common  Shares and the  issuance  and  reservation  for
        issuance of the  Conversion  Shares)  have been duly  authorized  by the
        Company's Board of Directors and no further consent or  authorization of
        the Company,  its Board or Directors,  or its  stockholders  is required
        (under Rules  promulgated  by the  National  Association  of  Securities
        Dealers or  otherwise);  (iii) this Agreement has been duly executed and
        delivered by the Company; and (iv) this Agreement constitutes, and, upon
        execution  and  delivery  by  the  Company  of the  Registration  Rights
        Agreement and the  Debentures,  such agreement and such  instrument will
        constitute,  valid and binding  obligations  of the Company  enforceable
        against the Company in accordance with their respective terms.

                c.  Capitalization.  The capitalization of the Company as of the
        date hereof,  including  the  authorized  capital  stock,  the number of
        shares  issued  and  outstanding,  the  number  of shares  reserved  for
        issuance  pursuant to the Company's  stock option  plans,  the number of
        shares  reserved for  issuance  pursuant to  securities  (other than the
        Debentures) exercisable for, or convertible into or exchangeable for any
        shares of  Common  Stock and the  number  of shares to be  reserved  for
        issuance  upon  conversion  of the  Debentures  is set forth on Schedule
        3(c). All of such outstanding shares of capital stock have been, or upon
        issuance  will be,  validly  issued,  fully paid and  nonassessable.  No
        shares of capital stock of the Company  (including the  Debentures,  the
        Common  Shares and the  Conversion  Shares)  are  subject to  preemptive
        rights or any other similar rights of the stockholders of the Company or
        any liens or  encumbrances.  Except as disclosed in Schedule  3(c) or as
        contemplated herein, as of the date of this Agreement,  (i) there are no
        outstanding options,  warrants,  scrip, rights to subscribe to, calls or
        commitments  of any character  whatsoever  relating to, or securities or
        rights  convertible into or exercisable or exchangeable  for, any shares
        of  capital  stock  of  the  Company  or any  of  its  subsidiaries,  or
        arrangements  by which the Company or any of its  subsidiaries is or may
        become bound to issue additional  shares of capital stock of the Company
        or any  of its  subsidiaries,  and  (ii)  there  are  no  agreements  or
        arrangements  under  which the  Company  or any of its  subsidiaries  is
        obligated to register the sale of any of the Company's  securities under
        the  Securities  Act (except the  Registration  Rights  Agreement).  The
        Company has made  available to each Purchaser true and correct copies of
        the  Company's  Certificate  of  Incorporation  as in effect on the date
        hereof  ("CERTIFICATE OF  INCORPORATION"),  the Company's  By-laws as in
        effect on the date hereof (the "BY-LAWS"), and all other instruments and
        agreements  governing  securities  convertible  into or  exercisable  or
        exchangeable for Common Stock of the Company.  The Company shall provide
        each Purchaser with a written  update of this  representation  signed by
        the Company's  Chief  Executive  Officer or Chief  Financial  Officer on
        behalf of the Company as of the Closing Date.

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<PAGE>

                d. Issuance of Securities.  The  Debentures are duly  authorized
        and, upon issuance in accordance with the terms of this Agreement,  will
        be  validly  issued  and  free  from  all  taxes,   liens,   claims  and
        encumbrances  and will not be  subject  to  preemptive  rights  or other
        similar  rights of  stockholders  of the Company.  The Common Shares are
        duly  authorized and, upon issuance in accordance with the terms of this
        Agreement,  will be validly issued,  fully paid and non-assessable,  and
        free from all  taxes,  liens,  claims and  encumbrances  and will not be
        subject to preemptive  rights or other similar rights of stockholders of
        the Company.  The Conversion Shares are duly authorized and reserved for
        issuance,  and, upon conversion of the Debentures in accordance with the
        terms thereof,  will be validly issued,  fully paid and  non-assessable,
        and free from all taxes,  liens, claims and encumbrances and will not be
        subject to preemptive  rights or other similar rights of stockholders of
        the Company.

                e. No Conflicts. The execution, delivery and performance of this
        Agreement,  the Registration  Rights Agreement and the Debentures by the
        Company, the performance by the Company of its obligations hereunder and
        thereunder,  and the  consummation  by the  Company of the  transactions
        contemplated  hereby and thereby  (including,  without  limitation,  the
        issuance and reservation for issuance, as applicable,  of the Debentures
        and Common  Shares and the  Conversion  Shares) will not (i) result in a
        violation  of the  Certificate  of  Incorporation  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 law, rule,
        regulation,  order, judgment or decree (including U.S. 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 or
        reasonably be expected to result in a Material Adverse Effect).  Neither
        the  Company  nor  any  of  its  subsidiaries  is in  violation  of  its
        Certificate  of  Incorporation  or other  organizational  documents  and
        neither the Company nor any of its  subsidiaries  is in default  (and no
        event has occurred  which,  with notice or lapse of time or both,  would
        put the Company or any of its  subsidiaries in default)  under,  nor has
        there  occurred any event giving others (with notice or lapse of time or
        both) 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,  except for possible  defaults or rights
        as would not,  individually  or in the aggregate,  have or reasonably be
        expected to result in a Material  Adverse Effect.  The businesses of the
        Company and its subsidiaries  are not being conducted,  and shall not be
        conducted  so  long  as a  Purchaser  owns  any  of the  Securities,  in
        violation  of any  law,  ordinance  or  regulation  of any  governmental
        entity,  except for possible  violations  the sanctions for which either
        singly or in the  aggregate  would not have or reasonably be expected to
        result in a Material Adverse Effect. Except as specifically contemplated
        by this  Agreement  and  except  for  the  filing  of a Form D with  the
        Securities  and  Exchange  Commission,  the  filing of the  registration
        statement  contemplated by the  Registration  Rights Agreement under the
        Securities Act, any filings required by applicable state securities laws
        and the filing of an application  with NASDAQ (as defined below) to list
        or approve for quotation the  Conversion  Shares and the Common  Shares,
        the Company is not  required  to obtain any  consent,  authorization  or
        order  of,  or make  any  filing  or  registration  with,  any  court or
        governmental agency or any regulatory or self regulatory agency in order
        for it to execute,  deliver or perform any of its obligations under this
        Agreement, the Registration Rights Agreement or the Debentures,  in each
        case in accordance with the terms hereof or thereof.  The Company is not
        in violation of the listing  requirements  of the NASDAQ SmallCap Market
        ("NASDAQ") and does not reasonably  anticipate  (nor has it received any
        notices  to such  effect  from  NASDAQ)  that the  Common  Stock will be
        delisted by NASDAQ in the foreseeable future.

                                       6
<PAGE>

                f. SEC Documents, Financial Statements. Since December 31, 1993,
        the Company has timely filed all reports,  schedules,  forms, statements
        and other documents  required to be filed by it with the SEC pursuant to
        the reporting  requirements  of the Securities  Exchange Act of 1934, as
        amended (the "EXCHANGE  ACT") (all of the foregoing,  filed prior to the
        date hereof and after  December  31,  1993,  and all  exhibits  included
        therein and financial  statements  and  schedules  thereto and documents
        (other than exhibits)  incorporated by reference  therein  together with
        any  registration  statements  or other  documents  filed by the Company
        pursuant  to the  Securities  Act  prior to the date  hereof  and  those
        certain  news  releases   attached   hereto  as  Schedule  3(f),   being
        hereinafter referred to herein as the "SEC DOCUMENTS").  The Company has
        made  available to each  Purchaser  true and complete  copies of the SEC
        Documents,   except  for  such  exhibits,   schedules  and  incorporated
        documents.  As of their respective dates, the SEC Documents  complied in
        all material  respects with the  requirements of the Exchange Act or the
        Securities Act, as the case may be, and the rules and regulations of the
        SEC promulgated thereunder applicable to the SEC Documents,  and none of
        the SEC Documents,  at the time they were filed with the SEC,  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.  As of their  respective  dates,  the  financial
        statements of the Company included in the SEC Documents  complied in all
        material  respects  with  applicable  accounting  requirements  and  the
        published  rules and regulations of the SEC with respect  thereto.  Such
        financial   statements  have  been  prepared  in  accordance  with  U.S.
        generally accepted accounting principles,  consistently applied,  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 include footnotes
        or may not be condensed or summary statements) and fairly present in all
        material respects the consolidated financial position of the Company and
        its   consolidated   subsidiaries  as  of  the  dates  thereof  and  the
        consolidated  results of their operations and cash flows for the periods
        then ended  (subject,  in the case of  unaudited  statements,  to normal
        year-end  audit  adjustments).  Except  as set  forth  in the  financial
        statements of the Company included in the SEC Documents, the Company has
        no  liabilities,  contingent  or otherwise,  other than (i)  liabilities
        incurred in the ordinary  course of business  subsequent  to the date of
        the most recent financial  statements  included in the SEC Documents and
        (ii)  obligations  under  contracts  and  commitments  incurred  in  the
        ordinary  course of business and not required under  generally  accepted
        accounting  principles  to be  reflected in such  financial  statements,
        which,  individually  or in  the  aggregate,  are  not  material  to the
        financial condition or operating results of the Company.

                                       7
<PAGE>

                g.  Absence  of  Litigation.  Except  as  disclosed  in the  SEC
        Documents or in Schedule  3(g),  there is no action,  suit,  proceeding,
        inquiry  or  investigation   before  or  by  any  court,  public  board,
        government agency,  self-regulatory  organization or body pending or, to
        the  knowledge  of the  Company or any of its  subsidiaries,  threatened
        against or affecting  the Company,  any of its  subsidiaries,  or any of
        their  respective  directors  or officers in their  capacities  as such,
        wherein  an  unfavorable  decision,  ruling  or  finding  would or could
        reasonably be expected to result in a Material Adverse Effect.

                h.  Disclosure.  All  information  relating to or concerning the
        Company  set  forth in this  Agreement  or  provided  to the  Purchasers
        pursuant to Section  2(d) hereof and  otherwise in  connection  with the
        transactions  contemplated  hereby is true and  correct in all  material
        respects  and the  Company has not  omitted to state any  material  fact
        necessary  in order to make the  statements  made herein or therein,  in
        light of the  circumstances  under which they were made, not misleading.
        No event or  circumstance  has  occurred or exists  with  respect to the
        Company or its subsidiaries or their respective businesses,  properties,
        prospects,  operations or financial conditions,  which, under applicable
        law, rule or regulation,  requires public  disclosure or announcement by
        the Company but which has not been so publicly  announced  or  disclosed
        (assuming for this purpose that the  Company's  Exchange Act Reports are
        being incorporated into an effective registration statement filed by the
        Company under the Securities Act).

                i. Current Public Information. The Company is currently eligible
        to register the resale of its Common Stock on a  registration  statement
        on Form S-3 under the Securities Act.

                j. No General  Solicitation.  Neither the Company nor any person
        acting for the Company has conducted any "GENERAL SOLICITATION," as such
        term is defined in Regulation  D, with respect to any of the  Securities
        being offered hereby.

                k. No Integrated  Offering.  Neither the Company, nor any of its
        affiliates,  nor any person acting on its or their behalf,  has directly
        or indirectly  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 being offered hereby under the Securities
        Act.

                l. 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 any Purchaser  relating to this Agreement or the
        transactions  contemplated  hereby,  except for  dealings  with  Michael
        Arnouse whose commissions and fees will be paid for by the Company.

                m.  Acknowledgment of Dilution.  The number of Conversion Shares
        issuable upon conversion of the Debentures may increase substantially in
        certain  circumstances,  including the circumstance  wherein the trading
        price of the Common Stock declines.  The Company  acknowledges  that its
        obligation to issue Conversion  Shares upon conversion of the Debentures
        in accordance with their terms is absolute and unconditional, regardless
        of the dilution that such  issuance may have on the ownership  interests
        of other stockholders.

                                       8
<PAGE>

                n.   Intellectual   Property.   Each  of  the  Company  and  its
        subsidiaries  owns or possesses  adequate and enforceable  rights to use
        all patents,  patent applications,  trademarks,  trademark applications,
        trade  names,  service  marks,   copyrights,   copyright   applications,
        licenses,  know-how (including trade secrets and other unpatented and/or
        unpatentable  proprietary  or  confidential   information,   systems  or
        procedures)   and  other  similar  rights  and   proprietary   knowledge
        (collectively,  "INTANGIBLES") necessary for the conduct of its business
        as now being  conducted and as described in the Company's  Annual Report
        on Form 10-KSB for the fiscal year ended  December 31, 1996, as amended.
        Neither the Company nor any subsidiary of the Company infringes or is in
        conflict  with  any  right  of any  other  person  with  respect  to any
        Intangibles which,  individually or in the aggregate,  if the subject of
        an  unfavorable  decision,  ruling  or  finding,  would  have  or  could
        reasonably be expected to result in a Material Adverse Effect.

                o. Foreign Corrupt  Practices.  Neither the Company,  nor any of
        its subsidiaries,  nor any director,  officer,  agent, employee or other
        person  acting on behalf of the  Company or any  subsidiary  has, in the
        course of acting for, or on behalf of, the Company,  used any  corporate
        funds  for any  unlawful  contribution,  gift,  entertainment  or  other
        unlawful  expenses  relating to political  activity;  made any direct or
        indirect unlawful payment to any foreign or domestic government official
        or employee  from  corporate  funds;  violated or is in violation of any
        provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any
        bribe,  rebate,  payoff,  influence payment,  kickback or other unlawful
        payment to any foreign or domestic government official or employee.

        4. COVENANTS.

                a. Best Efforts. The parties shall use their best efforts timely
        to satisfy each of the  conditions  described in Section 6 and 7 of this
        Agreement.

                b. Blue Sky Laws.  The  Company  shall  take such  action as the
        Company or the  Purchasers  shall  reasonably  determine is necessary to
        qualify  the  Securities  for sale to the  Purchasers  pursuant  to this
        Agreement under  applicable  securities or "blue sky" laws of the states
        of the United States or obtain  exemption  therefrom,  and shall provide
        evidence of any such action so taken to the Purchasers.

                c. Reporting Status. So long as any Purchaser  beneficially owns
        any of the  Securities,  the  Company  shall  timely  file  all  reports
        required to be filed with the SEC pursuant to the Exchange Act.

                d. Use of Proceeds.  The Company shall use the proceeds from the
        sale of the  Debentures and Common Shares for internal  working  capital
        purposes,  mergers and  acquisitions,  investments and general corporate
        purposes.

                e.  Financial  Information.  Upon  the  written  request  of any
        Purchaser  holding any Securities,  the Company shall send the following
        reports to such  Purchaser:  a copy of its Annual Report on Form 10-KSB,
        its Quarterly Reports on Form 10-QSB, any proxy statements,  any Current
        Reports on Form 8-K and any press releases  issued by the Company or any
        of its subsidiaries.

                                       9
<PAGE>

                f.  Reservation  of Shares.  The Company shall at all times have
        authorized and reserved for the purpose of issuance a sufficient  number
        of shares of Common  Stock to  provide  for the full  conversion  of the
        outstanding   Debentures  and  issuance  of  the  Conversion  Shares  in
        connection therewith and as otherwise required by the Debentures.

                g.  Listing.  Promptly (and in no event more than ten (10) days)
        following  the Closing  Date,  the Company  shall  secure the listing or
        approval for quotation of all of the Common Shares and 3,500,000  shares
        of Common Stock  issuable upon  conversion of the  Debentures  upon each
        national securities exchange or automated quotation system, if any, upon
        which shares of Common Stock are then listed (subject to official notice
        of issuance) and thereafter shall maintain,  so long as any other shares
        of Common Stock shall be so listed,  such  listing of all Common  Shares
        and all Conversion  Shares from time to time issuable upon conversion of
        the  Debentures.  The Company  shall also file such  additional  listing
        applications  as may be  necessary  to cover the  issuance of all of the
        Common Shares and the Conversion  Shares as provided in the  immediately
        preceding  sentence.  The  Company  will take all  action  necessary  to
        continue the listing and trading of its Common Stock on the NASDAQ,  the
        NASDAQ National Market ("NNM"),  the New York Stock Exchange ("NYSE") or
        the  American  Stock  Exchange  ("AMEX") and will comply in all respects
        with the Company's  reporting,  filing and other  obligations  under the
        bylaws  or rules  of the  National  Association  of  Securities  Dealers
        ("NASD") and such exchanges, as applicable.

                h. Corporate Existence. So long as a Purchaser beneficially owns
        any  Debentures,  the Company shall  maintain its  corporate  existence,
        except  in the  event  of a  merger,  consolidation  or  sale  of all or
        substantially  all of the Company's  assets, as long as the surviving or
        successor   entity  in  such   transaction  (i)  assumes  the  Company's
        obligations  hereunder and under the agreements and instruments  entered
        into in  connection  herewith  regardless  of whether or not the Company
        would have had a sufficient  number of shares of Common Stock authorized
        and  available  for  issuance in order to effect the  conversion  of all
        Debentures  outstanding as of the date of such transaction and (ii) is a
        publicly traded  corporation whose common stock is listed for trading on
        the NASDAQ, NNM, NYSE or AMEX.

        5. TRANSFER AGENT INSTRUCTIONS.

        The Company  shall  instruct its transfer  agent to issue  certificates,
registered  in the name of each  Purchaser  or its nominee,  for the  Conversion
Shares in such amounts as specified  from time to time by such  Purchaser to the
Company  upon  conversion  of  the  Debentures.  Prior  to  registration  of the
Conversion  Shares under the Securities Act or resale of such  Securities  under
Rule 144, all such certificates  shall bear the restrictive  legend specified in
Section 2(g) of this Agreement.  The Company warrants that no instruction  other
than  such  instructions  referred  to in this  Section  5,  and  stop  transfer
instructions to give effect to Section 2(f) hereof in the case of the Conversion
Shares prior to registration of the Conversion  Shares under the Securities Act,
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely  transferable on the books and records of the Company as and
to the extent provided in this Agreement, the Registration Rights Agreement and

                                       10
<PAGE>

the Debentures. Nothing in this Section shall affect in any way each Purchaser's
obligations  and  agreement  set forth in Section  2(f) hereof not to resell the
Securities  except  pursuant  to an  effective  registration  statement  (and to
deliver a prospectus  in connection  with such a sale) or in compliance  with an
exemption from the registration  requirements of applicable securities law. If a
Purchaser  provides  the Company  with an opinion of counsel,  which  opinion of
counsel shall be in form,  substance and scope customary for opinions of counsel
in  comparable  transactions,  to the effect that the  Securities  to be sold or
transferred   may  be  sold  or  transferred   pursuant  to  an  exemption  from
registration,  the Company  shall permit the  transfer,  and, in the case of the
Conversion  Shares,  promptly  instruct its transfer  agent to issue one or more
certificates in such name and in such denominations as specified by a Purchaser.
The Company  acknowledges that a breach by it of its obligations  hereunder will
cause irreparable harm to a Purchaser by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly,  the Company acknowledges that the
remedy  at law for a breach  of its  obligations  under  this  Section 5 will be
inadequate  and  agrees,  in the event of a breach or  threatened  breach by the
Company of the provisions of this Section 5, that a Purchaser shall be entitled,
in addition to all other available  remedies,  to an injunction  restraining any
breach and requiring  immediate issuance and transfer,  without the necessity of
showing economic loss and without any bond or other security being required.

        6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

        The obligation of the Company hereunder to issue and sell the Debentures
and  the  Common  Shares  to a  Purchaser  at  the  closing  is  subject  to the
satisfaction, at or before the Closing Date, of each of the following conditions
thereto,  provided that these  conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion.

                (a) The applicable  Purchaser  shall have executed the Execution
        Page to  this  Agreement  and the  Registration  Rights  Agreement,  and
        delivered the same to the Company.

                (b) The applicable  Purchaser  shall have delivered the Purchase
        Price for the Debentures  and the Common Shares  purchased in accordance
        with  Section  1(b)  above  and the  aggregate  purchase  price  for the
        Debentures and Common Shares purchased by all Purchasers hereunder shall
        not be less than $5,000,000.

                (c)  The   representations  and  warranties  of  the  applicable
        Purchaser  shall be true and  correct as of the date when made and as of
        the Closing Date as though made at that time (except for representations
        and  warranties  that speak as of a specific  date),  and the applicable
        Purchaser shall have  performed,  satisfied and complied in all material
        respects with the covenants,  agreements and conditions required by this
        Agreement to be performed,  satisfied or complied with by the applicable
        Purchaser at or prior to the Closing Date.

                (d) 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 or any  self-regulatory  organization having authority over
        the matters  contemplated hereby which prohibits the consummation of any
        of the transactions contemplated by this Agreement.

                                       11
<PAGE>

        7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.

        The  obligation of each  Purchaser  hereunder to purchase the Debentures
and the Common  Shares to be  purchased  by it on the Closing Date is subject to
the  satisfaction  of each of the  following  conditions,  provided  that  these
conditions  are for such  Purchaser's  sole  benefit  and may be  waived by such
Purchaser at any time in the Purchaser's sole discretion:

                (a) The Company shall have  executed the signature  page to this
        Agreement and the Registration Rights Agreement,  and delivered the same
        to such Purchaser.

                (b) The Company  shall have  delivered to such  Purchaser a duly
        executed  Debenture  in the  principal  amount  being  purchased by such
        Purchaser in accordance with Section 1(b) above.

                (c) The aggregate  purchase  price for the Debentures and Common
        Shares purchased by all Purchasers hereunder shall be $5,000,000.

                (d) The Common Stock shall be authorized for quotation on NASDAQ
        and  trading in the Common  Stock (or NASDAQ  generally)  shall not have
        been suspended by the SEC or NASD.

                (e) The  representations  and warranties of the Company shall be
        true and correct as of the date when made and as of the Closing  Date as
        though made at that time (except for representations and warranties that
        speak as of a  specific  date) and the  Company  shall  have  performed,
        satisfied  and complied in all  material  respects  with the  covenants,
        agreements  and  conditions  required by this Agreement to be performed,
        satisfied  or  complied  with by the  Company at or prior to the Closing
        date. Such Purchaser shall have received a certificate,  executed by the
        chief executive officer of the Company,  dated as of the Closing Date to
        the  foregoing  effect and as to such other matters as may be reasonably
        requested by such Purchaser.

                (f) 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 or any  self-regulatory  organization having authority over
        the matters  contemplated hereby which prohibits the consummation of any
        of the transactions contemplated by this Agreement.

                (g) Such Purchaser shall have received the officer's certificate
        described in Section 3(c) above, dated as of the Closing Date.

                (h)  Such  Purchaser  shall  have  received  an  opinion  of the
        Company's  counsel,  dated as of the Closing  Date,  in form,  scope and
        substance reasonably  satisfactory to the Purchaser and in substantially
        the form of Exhibit C attached hereto.

                (i) The Company shall have  executed,  and shall have  delivered
        evidence  reasonably  satisfactory  to the Purchasers that the Company's
        transfer  agent has  agreed to act in  accordance  with the  irrevocable
        instructions  in the  form  attached  hereto  as  Exhibit  D;  PROVIDED,
        HOWEVER,  if such  evidence is not  delivered on or prior to the Closing
        Date, the Company shall use its best efforts to deliver such evidence as
        soon as practicable thereafter.

                                       12
<PAGE>

        8. GOVERNING LAW; MISCELLANEOUS.

                a. Governing Law; Jurisdiction. This Agreement shall be governed
        by and  construed in  accordance  with the laws of the State of Delaware
        applicable  to  contracts  made  and to be  performed  in the  State  of
        Delaware.  The Company  irrevocably  consents to the jurisdiction of the
        United States  federal courts located in the County of Kent in the State
        of Delaware  in any suit or  proceeding  based on or arising  under this
        Agreement and irrevocably agrees that all claims in respect of such suit
        or proceeding may be determined in such courts. The Company  irrevocably
        waives the defense of an  inconvenient  forum to the maintenance of such
        suit or proceeding.  The Company  further agrees that service of process
        upon the  Company  mailed by first  class  mail shall be deemed in every
        respect  effective  service of process  upon the  Company in any suit or
        proceeding arising hereunder.  Nothing herein shall affect a Purchaser's
        right to serve process in any other manner permitted by law. The Company
        agrees  that a  final  non-appealable  judgment  in  any  such  suit  or
        proceeding   shall  be   conclusive   and  may  be   enforced  in  other
        jurisdictions by suit on such judgment or in any other lawful manner.

                b.  Counterparts.  This Agreement may be executed in two or more
        counterparts,  all of  which  shall  be  considered  one  and  the  same
        agreement and shall become effective when  counterparts have been signed
        by each party and delivered to the other party.

                c. Headings.  The headings of this Agreement are for convenience
        of  reference  and shall not form part of, or affect the  interpretation
        of, this Agreement.

                d.  Severability.  If any provision of this  Agreement  shall be
        invalid  or  unenforceable  in  any  jurisdiction,  such  invalidity  or
        unenforceability  shall not affect the validity or enforceability of the
        remainder of this  Agreement or the validity or  enforceability  of this
        Agreement in any other jurisdiction.

                e.  Entire  Agreement;   Amendments.   This  Agreement  and  the
        instruments  referenced  herein contain the entire  understanding of the
        parties  with  respect to the matters  covered  herein and therein  and,
        except as specifically set forth herein or therein,  neither the Company
        nor the  Purchasers  make  any  representation,  warranty,  covenant  or
        undertaking with respect to such matters. No provision of this Agreement
        may be waived other than by an instrument in writing signed by the party
        to be charged with enforcement and no provision of this Agreement may be
        amended other than by an instrument in writing signed by the Company and
        the Purchasers.

                f. Notices.  Any notices required or permitted to be given under
        the terms of this  Agreement  shall be sent by certified  or  registered
        mail (return receipt  requested) or delivered  personally or by courier,
        overnight  delivery  service  or by  confirmed  telecopy,  and  shall be
        effective  five days after being placed in the mail, if mailed,  or upon
        receipt or refusal of receipt,  if delivered  personally  or by courier,
        overnight delivery service or confirmed telecopy, in each case addressed
        to a party. The addresses for such communications shall be:

        If to the Company:

                                       13
<PAGE>

                  Palomar Medical Technologies, Inc.
                  66 Cherry Hill Drive
                  Beverly, Massachusetts 01915
                  Telecopy:  (508) 921-5801
                  Attention:  Paul Weiner, Director of Finance

        with a copy to each of the Company's General Counsel at the same address
and to:

                  Foley, Hoag & Eliot LLP
                  One Post Office Square
                  Boston, Massachusetts  02109
                  Telecopy:  (617) 832-7000
                  Attention:  Dean F. Hanley, Esq.

        If to any  Purchaser,  to such address set forth under such  Purchaser's
name on the signature page hereto executed by such Purchaser.

        Each party shall  provide  notice to the other  parties of any change in
address.

                g. Successors and Assigns.  This Agreement shall be binding upon
        and  inure to the  benefit  of the  parties  and  their  successors  and
        assigns.  Neither  the  Company  nor any  Purchaser  shall  assign  this
        Agreement  or any  rights or  obligations  hereunder  without  the prior
        written  consent  of  the  other.  This  provision  shall  not  limit  a
        Purchaser's  right to transfer the  Securities  pursuant to the terms of
        the Debentures,  the Registration Rights Agreement and this Agreement or
        to assign such Purchaser's rights hereunder to any such transferee,  nor
        shall this  provision  limit the right of a  Purchaser  to  transfer  or
        assign its rights under such  agreements and instruments to an affiliate
        (provided that each Purchaser makes no more than two (2) such transfers)
        or a managed account,  provided that the  representations and warranties
        set  forth in  Section  2 are  true and  correct  with  respect  to such
        affiliate or managed account.

                h. Third Party Beneficiaries. This Agreement is intended for the
        benefit of the parties hereto and their respective  permitted successors
        and assigns, and is not for the benefit of, nor may any provision hereof
        be enforced by, any other person.

                i. Survival.  The  representations and warranties of the Company
        and the  agreements  and  covenants  set forth in Sections 3, 4, 5 and 8
        shall  survive  the  closing   hereunder  and  any   conversion  of  the
        Debentures, notwithstanding any due diligence investigation conducted by
        or on behalf of any Purchasers. The Company agrees to indemnify and hold
        harmless  each  Purchaser  and  each  of  such   Purchaser's   officers,
        directors, employees, partners, agents and affiliates for loss or damage
        arising as a result of or related to any breach or alleged breach by the
        Company of any of its representations, warranties or covenants set forth
        herein, including advancement of expenses as they are incurred.

                j.  Publicity.  The  Company and each  Purchaser  shall have the
        right to approve before issuance any press releases, SEC, NASDAQ or NASD
        filings, or any other public statements with respect to the transactions
        contemplated  hereby;  PROVIDED,  HOWEVER,  that  the  Company  shall be
        entitled,  without the prior approval of the Purchasers, to describe the
        transactions  contemplated hereby in any Form 10-Q or Form 10-K filed by
        it.

                                       14
<PAGE>

                k. Further Assurances. Each party shall do and perform, or cause
        to be done and  performed,  all such further acts and things,  and shall
        execute and deliver all such other agreements, certificates, instruments
        and  documents,  as the other party may  reasonably  request in order to
        carry out the intent and  accomplish  the purposes of this Agreement and
        the consummation of the transactions contemplated hereby.

                l.  Termination.  In the event that the  closing  shall not have
        occurred on or before  September  30,  1997,  unless the  parties  agree
        otherwise,  this Agreement  shall  terminate at the close of business on
        such date.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       15
<PAGE>

        IN WITNESS  WHEREOF,  the  undersigned  Purchaser  and the Company  have
caused this Agreement to be duly executed as of the date first above written.

PURCHASER:

Name:  JNC OPPORTUNITY FUND LTD..
         OLYMPIA CAPITAL (CAYMAN) LTD.
         c/o Olympia Capital (Bermuda) Ltd.
         Williams House
         20 Reid Street
         Hamilton HM11, Bermuda
         Fax:  441-295-2305
         Attn:  Philip Pedro

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

AGGREGATE SUBSCRIPTION AMOUNT

         Principal Amount of Debenture:
                                                  ----------
         Purchase Price:                         $
                                                  ----------

PALOMAR MEDICAL TECHNOLOGIES, INC.

By:  /s/  Louis P. Valente
   --------------------------------
Name:     Louis P. Valente
Title:    Chief Executive Officer 
          and President

                                       16
<PAGE>

        IN WITNESS  WHEREOF,  the  undersigned  Purchaser  and the Company  have
caused this Agreement to be duly executed as of the date first above written.

PURCHASER:

Name:    DIVERSIFIED STRATEGIES FUND, L.P.


By:  /s/  Neil T. Chau
   ---------------------------
Name:     Neil T. Chau
     -------------------------
Title:
      ------------------------

ADDRESS: Diversified Strategies Fund, L.P.
         c/o Encore Capital Management, L.L.C.
         12007 Sunrise Valley Drive, Suite 460
         Reston, VA 20191
         Facsimle No.:  703-476-7711
         Attn:  Neil T. Chau

          with a copy to:

          Bobinson Silverman Pearce Aronsohn & Berman LLP
          1290 Avenue of the Americas
          New York, NY  10104
          Facsimile No.:  (212) 541-4630
          Attn:  Kenneth L. Henderson and
                 Eric L. Cohen

AGGREGATE SUBSCRIPTION AMOUNT

         Principal Amount of Debenture:           $1,500,000
                                                  ----------
         Purchase Price:                          $1,500,000
                                                  ----------

PALOMAR MEDICAL TECHNOLOGIES, INC.

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


<PAGE>

        IN WITNESS  WHEREOF,  the  undersigned  Purchaser  and the Company  have
caused this Agreement to be duly executed as of the date first above written.

PURCHASER:

Name: SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.


By:  /s/  Kenneth L. Henderson
     --------------------------
Name:     Kenneth L. Henderson
     --------------------------
Title:    Attorney in Fact
     --------------------------

ADDRESS:   Southbrook INternational Investments, Ltd.
           c/o Trippoak Advisors, Inc.
           630 Fifth Avenue, Suite 2000
           New York, New York 10111
           Fax:  212-332-3256
           Attn:  Robert L. Miller

          with a copy to:

          Bobinson Silverman Pearce Aronsohn & Berman LLP
          1290 Avenue of the Americas
          New York, NY  10104
          Facsimile No.:  (212) 541-4630
          Attn:  Kenneth L. Henderson and
                 Eric L. Cohen

AGGREGATE SUBSCRIPTION AMOUNT

         Principal Amount of Debenture:            $2,000,000
         Purchase Price:                           $2,000,000

PALOMAR MEDICAL TECHNOLOGIES, INC.

By:
     -----------------------------
Name:
     -----------------------------
Title:
     -----------------------------
<PAGE>

        IN WITNESS  WHEREOF,  the  undersigned  Purchaser  and the Company  have
caused this Agreement to be duly executed as of the date first above written.

PURCHASER:

Name: JNC OPPORTUNITY FUND, LTD.


By:  /s/  Philip C. Pedro
     --------------------------
Name:     Philip C. Pedro
     --------------------------
Title:    Director
     --------------------------

ADDRESS:   JNC Opportunity Fund, Ltd.
           Olympia Capital (Cayman) Ltd.
           c/o Olympia Capital (Bermuda) Ltd.
           Williams House
           20 Reid Street
           Hamilton MH11 BERMUDA
           Fax:  (441)295-2305
           Attn:  Philip Pedro

          with a copy to:

          Bobinson Silverman Pearce Aronsohn & Berman LLP
          1290 Avenue of the Americas
          New York, NY  10104
          Facsimile No.:  (212) 541-4630
          Attn:  Kenneth L. Henderson and
                 Eric L. Cohen

          with a copy to:

          Encore Capital Management, L.L.C.
          12007 Sunrise Valley Drive, Ste. 460
          Reston, VA  20191
          Facsimile No.:  (703) 476-7711
          Attn:  Neil T. Chau

AGGREGATE SUBSCRIPTION AMOUNT

         Principal Amount of Debenture:            $3,500,000
         Purchase Price:                           $3,500,000

PALOMAR MEDICAL TECHNOLOGIES, INC.

By:
     -----------------------------
Name:
     -----------------------------
Title:
     -----------------------------
   
<PAGE>




                                                                  EXECUTION COPY
                                                                       EXHIBIT A
                                                                              TO
                                                             SECURITIES PURCHASE
                                                                       AGREEMENT

THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  (AND ANY SECURITIES  ISSUED OR
ISSUABLE IN RESPECT HEREOF, BY CONVERSION OR OTHERWISE) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE  REGISTRATION  STATEMENT  FOR THE  SECURITIES  UNDER  SAID ACT,  OR AN
OPINION OF COUNSEL,  IN FORM,  SUBSTANCE  AND SCOPE  CUSTOMARY  FOR  OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR UNLESS THE  CORPORATION IS PROVIDED WITH  REASONABLE  ASSURANCES THAT THE
SECURITIES WERE SOLD PURSUANT TO RULE 144 UNDER SAID ACT.

NO.                                                                 $           
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           6%, 7% AND 8% CONVERTIBLE DEBENTURE DUE SEPTEMBER 30, 2002

         THIS  CONVERTIBLE  DEBENTURE  (this  "DEBENTURE")  is  one  of  a  duly
authorized  issue  of  Debentures  of  Palomar  Medical  Technologies,   Inc.  a
corporation  duly organized and existing under the laws of the State of Delaware
and having its principal address at 66 Cherry Hill Drive, Beverly, Massachusetts
01915  (the  "CORPORATION"),  designated  as  its  6%,  7%  and  8%  Convertible
Debentures Due September 30, 2002 in an aggregate principal amount not exceeding
Seven Million U.S. Dollars (U.S. $7,000,000) (the "DEBENTURES").

         FOR   VALUE   RECEIVED,    the   Corporation   promises   to   pay   to
______________________,  at the address specified in the Debenture  Register (as
hereinafter  defined),  the  holder  hereof,  or its order (the  "Holder"),  the
principal sum of  ______________________  United States Dollars (U.S. $_______),
or such lesser principal sum as is then outstanding hereunder,  on September 30,
2002 (the "MATURITY  DATE") and to pay interest on the principal sum outstanding
under this Debenture (i) at the rate of 6% per annum during the period beginning
on the Closing Date (as hereinafter defined) and ending on the date which is one
hundred  seventy nine (179) days after the Closing Date,  (ii) at the rate of 7%
per annum during the period  beginning  on the date which is one hundred  eighty
(180) days after the  Closing  Date and ending on the date which is two  hundred
sixty nine (269)  days  after the  Closing  Date and (iii) at the rate of 8% per
annum  thereafter.  Interest shall be due and payable in arrears on the Maturity
Date or, if earlier,  on the Conversion Date (as hereinafter  defined) and shall
be  calculated  based on a 360 day  year of  twelve  equal  months.  Accrual  of
interest  shall  commence  


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on the date  hereof  and  shall  continue  daily  until  payment  in full of the
principal sum has been made.  The interest so payable will be paid to the person
in whose name this  Debenture is  registered  on the records of the  Corporation
regarding   registration   and  transfers  of  the  Debentures  (the  "DEBENTURE
REGISTER"); PROVIDED, HOWEVER, that the Corporation's obligation to a transferee
of this Debenture arises only if the transfer, sale or other disposition is made
in  accordance  with  the  terms  and  conditions  of  the  Securities  Purchase
Agreement,  dated as of September  30,  1997,  between the  Corporation  and the
original  Holder (as amended  from time to time and in effect,  the  "SECURITIES
PURCHASE  AGREEMENT").  The  Corporation  shall be entitled to withhold from all
payments of interest on this Debenture any amounts required to be withheld under
the  applicable  provisions of the United States income tax laws as evidenced by
an opinion of counsel of the  Corporation to the reasonable  satisfaction of the
Holder.  The  principal  of and interest on this  Debenture  are payable only in
United States Dollars at the address last appearing on the Debenture Register of
the Corporation as designated in writing by the Holder hereof from time to time.
Subject to the conversion hereof, in whole or in part, on or before the Maturity
Date pursuant to Article II hereof,  the  Corporation  will pay the principal of
and all accrued and unpaid  interest  due upon this  Debenture  on the  Maturity
Date,  to the Holder of this  Debenture  as of the tenth (10th) day prior to the
Maturity Date, and addressed to such Holder at the last address appearing on the
Debenture Register.

         This Debenture is subject to the following additional provisions:

                             I. CERTAIN DEFINITIONS

         For  purposes of this  Debenture,  the  following  terms shall have the
following meanings:

         A.  "CLOSING BID PRICE"  means,  for any  security as of any date,  the
closing  bid price of such  security  on the  principal  securities  exchange or
trading  market where such security is listed or traded as reported by Bloomberg
Financial  Markets or a  comparable  reporting  service of  national  reputation
selected by the Corporation  and reasonably  acceptable to holders of a majority
of the then outstanding  Debentures if Bloomberg  Financial  Markets is not then
reporting closing bid prices of such security (collectively, "BLOOMBERG"), or if
the foregoing  does not apply,  the last reported sale price of such security in
the  over-the-counter  market on the electronic bulletin board for such security
as reported by Bloomberg,  or, if no sale price is reported for such security by
Bloomberg,  the  average of the bid prices of any  market  makers  chosen by the
Holder for such  security  as  reported  in the "pink  sheets"  by the  National
Quotation  Bureau,  Inc. If the Closing Bid Price cannot be calculated  for such
security on such date on any of the  foregoing  bases,  the Closing Bid Price of
such  security  on such  date  shall be the  fair  market  value  as  reasonably
determined  by an  investment  banking  firm  selected  by the  Corporation  and
reasonably  acceptable  to  holders  of  a  majority  of  the  then  outstanding
Debentures, with the costs of such appraisal to be borne by the Corporation.

         B. "CLOSING DATE" means the Closing Date under that certain  Securities
Purchase Agreement dated September 30, 1997 by and among the Corporation and the
initial purchasers of the Debentures (the "SECURITIES PURCHASE AGREEMENT").

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         C.  "COMMON  STOCK"  shall  mean the Common  Stock,  par value $.01 per
share, of the Corporation.

         D.  "CONVERSION  DATE"  means,  for any Optional  Conversion,  the date
specified in the notice of optional  conversion in the form attached hereto (the
"NOTICE OF OPTIONAL CONVERSION"),  so long as the copy of the Notice of Optional
Conversion  is faxed (or  delivered  by other means  resulting in notice) to the
Corporation  before  Midnight,  New  York  City  time,  on the  Conversion  Date
indicated  in the  Notice of  Optional  Conversion.  If the  Notice of  Optional
Conversion is not so delivered  before such time, then the Conversion Date shall
be the date the  Holder  delivers  the  Notice  of  Optional  Conversion  to the
Corporation.  In the case of any Mandatory  Conversion,  the  "Conversion  Date"
shall mean the date  specified  in a written  notice (the  "NOTICE OF  MANDATORY
CONVERSION")  delivered by the Corporation to the Holder,  so long as the Notice
of  Mandatory  Conversion  is faxed (or  delivered  by other means  resulting in
notice) to the Holder before  Midnight,  New York City time,  not later than the
20th  trading day  preceding  such  specified  date.  If the Notice of Mandatory
Conversion is not so delivered  before such time, then the Conversion Date shall
be the 20th trading day following the date the  Corporation  delivers the Notice
of Mandatory  Conversion  to the Holder.  As used herein,  a "TRADING DAY" shall
mean any day on which  the  Nasdaq  Stock  Market  (or the  national  securities
exchange or automated quotation system on which the Common Stock is then traded)
is open for  business,  whether or not shares of Common Stock are traded on such
day.

         E.  "CONVERSION  PRICE"  means,  as of any date of  determination,  the
average of the Closing Bid Prices for the Common Stock for ten (10)  consecutive
trading  days  ending on the  trading  day  immediately  preceding  such date of
determination  (subject to equitable  adjustments  for any stock  splits,  stock
dividends,  reclassifications or similar events during such ten (10) trading day
period), and shall be subject to adjustment as provided herein.

         F.  "OUTSTANDING  AMOUNT " means, as of any date, the principal  amount
then  outstanding  under this  Debenture  and all  accrued  but unpaid  interest
thereon.

                                 II. CONVERSION

         A. CONVERSION AT THE OPTION OF THE HOLDER;  CONVERSION AT THE OPTION OF
THE  CORPORATION.  Subject  to  the  limitations  on  conversions  contained  in
Subparagraphs (i) and (ii) of Paragraph C of this Article II and in subparagraph
(i) of Article  V.C,  all or any portion of the  Outstanding  Amount may, at any
time and from time to time from and after the Closing  Date, be converted at the
option of the Holder (an "OPTIONAL  CONVERSION") into a number of fully paid and
nonassessable  shares of Common Stock equal to the Outstanding Amount divided by
the Conversion  Price then in effect.  Subject to the limitations on conversions
contained in Subparagraph  (iii) of Paragraph C of this Article II, beginning on
the date which is one (1) year after the Closing Date, all or any portion of the
Outstanding  Amount  may be  converted  at the  option  of  the  Corporation  (a
"MANDATORY  CONVERSION") into a number of fully paid and nonassessable shares of
Common Stock equal to the  Outstanding  Amount divided by the  Conversion  Price
then in effect, provided that the Closing Bid Price for the Common Stock on each
of the twenty (20) consecutive  trading days  immediately  preceding the date of
the Notice of Mandatory  Conversion  is equal to or greater than the Closing Bid
Price for the Common Stock on the Closing Date.

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         B.  MECHANICS OF  CONVERSION.  In order to convert this  Debenture into
shares of Common Stock pursuant to an Optional Conversion, the Holder shall: (x)
deliver (by  facsimile  or  otherwise)  a copy of the fully  executed  Notice of
Optional  Conversion  to the  Corporation  and  (y)  surrender  or  cause  to be
surrendered  this  Debenture  along  with  a  copy  of the  Notice  of  Optional
Conversion as soon as practicable thereafter to the Corporation.  At the request
of the  Holder and upon  receipt by the  Corporation  of a  facsimile  copy of a
Notice of Optional Conversion from the Holder, the Corporation shall immediately
send,  via facsimile,  a confirmation  to such holder stating that the Notice of
Optional  Conversion  has been  received,  the date upon  which the  Corporation
expects to deliver the Common Stock  issuable upon such  conversion and the name
and  telephone  number of a  contact  person at the  Corporation  regarding  the
conversion.  In order to convert  this  Debenture  into  shares of Common  Stock
pursuant to a Mandatory Conversion,  the Corporation shall deliver (by facsimile
or otherwise) a copy of the fully executed Notice of Mandatory Conversion to the
Holder,  which  notice shall  specify the  Outstanding  Amount to be  converted.
Promptly following receipt of a Notice of Mandatory Conversion, the Holder shall
surrender or cause to be  surrendered  this  Debenture as soon as practicable to
the  Corporation.  The  Corporation  shall not be  obligated  to issue shares of
Common Stock  issuable  upon any  Optional  Conversion  or Mandatory  Conversion
unless either this Debenture is delivered to the  Corporation as provided above,
or the holder notifies the Corporation  that such  certificates  have been lost,
stolen or destroyed (subject to the requirements of Article IX.A).

                  (i) DELIVERY OF COMMON STOCK UPON CONVERSION.  The Corporation
shall,  within one  trading  day after the later of (a) the second  trading  day
following  the  Conversion  Date in the case of DWAC  deliveries  and the  third
trading day following the Conversion Date in all other cases and (b) the date of
surrender  of this  Debenture  (or, in case this  Debenture  is lost,  stolen or
destroyed,  the date on which  indemnity  pursuant to Article  IX.A is provided)
(the  "DELIVERY  PERIOD"),  issue and deliver to or upon the order of the Holder
(x) that  number of  shares of Common  Stock  issuable  upon  conversion  of the
Outstanding  Amount being  converted  and (y) a new Debenture  representing  the
Outstanding Amount not being converted, if any.

                  (ii) TAXES. The Corporation  shall pay any and all taxes which
may be imposed  upon it with  respect to the issuance and delivery of the shares
of Common Stock upon the conversion of this Debenture.

                  (iii)  NO  FRACTIONAL   SHARES.  If  any  conversion  of  this
Debenture  would result in the  issuance of either a fractional  share of Common
Stock,  such  fractional  share shall be disregarded and the number of shares of
Common Stock  issuable upon  conversion of this  Debenture  shall be the closest
whole number of shares.

                  (iv) STATUS AS  STOCKHOLDER.  Upon the  Conversion  Date,  the
Outstanding  Amount being  converted  shall be deemed  converted  into shares of
Common Stock as of the  Conversion  Date and the Holder's  rights as a holder of
the Outstanding Amount being converted shall cease and terminate, excepting only
the right to receive  certificates  for such  shares of Common  Stock and to any
remedies  provided  herein or  otherwise  available  at law or in equity to such
holder because of a failure by the  Corporation to comply with the terms of this
Debenture  (including  its right to regain  its status as a Holder  pursuant  to
Article IV.E).

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<PAGE>

                  (v)  CONVERSION  DISPUTES.  In the  case of any  dispute  with
respect to a conversion,  the  Corporation  shall  promptly issue such number of
shares of Common Stock as are not disputed in accordance with  subparagraph  (i)
above.  If such dispute  involves the calculation of the Conversion  Price,  the
Corporation  shall submit,  at its sole cost, the disputed  calculations  to its
outside  accountant via facsimile  within two (2) trading days of receipt of the
Notice of Optional  Conversion.  The accountant shall audit the calculations and
notify  the  Corporation  and the  Holder of the  results  no later than two (2)
trading  days  from  the  date  it  receives  the  disputed  calculations.   The
accountant's calculation shall be deemed conclusive,  absent manifest error. The
Corporation shall then issue the appropriate number of shares of Common Stock in
accordance with subparagraph (i) above.

         C.  LIMITATIONS  ON  CONVERSIONS.  (i) In no event  shall the Holder be
entitled to receive  shares of Common Stock upon an Optional  Conversion  to the
extent  that the sum of (a) the  number of shares of Common  Stock  beneficially
owned by the  Holder  and its  affiliates  (exclusive  of shares  issuable  upon
conversion of the  unconverted  portion of this Debenture or the  unexercised or
unconverted  portion of any other  securities  of the  Corporation  subject to a
limitation  on  conversion or exercise  analogous to the  limitations  contained
herein)  and (b) the  number  of  shares  of  Common  Stock  issuable  upon  the
conversion of this  Debenture  with respect to which the  determination  of this
subparagraph is being made,  would result in beneficial  ownership by the holder
and its affiliates of more than 4.9% of the outstanding  shares of Common Stock.
For purposes of this subparagraph,  beneficial  ownership shall be determined in
accordance  with  Section  13(d) of the  Securities  Exchange  Act of  1934,  as
amended,  and  Regulation  13 D-G  thereunder,  except as otherwise  provided in
clause (i) above.  The  provisions of this  subparagraph  shall  terminate  upon
delivery by the Holder of a Mandatory  Prepayment  Notice. The Corporation shall
be entitled to rely, and shall be fully  protected in relying,  on any statement
or  representation  made by the Holder to the  Corporation in connection  with a
particular  conversion  without any obligation on the part of the Corporation to
make any  inquiry or  investigation  or to examine its records or the records of
any transfer agent for the Common Stock.

                  (ii)  During any thirty  (30) day period  ending  prior to the
earlier  of (a) that date  which is two  hundred  and nine  (209) days after the
Closing  Date and (b)  that  date (if any)  that  the  Corporation  delivers  an
Optional  Prepayment  Notice (as defined below) to the Holder pursuant to clause
(b) of  subparagraph  (i) of Article  V.C, the Holder may not effect an Optional
Conversion with respect to more than thirty-three  percent (33%) of the original
principal  amount  of this  Debenture  (and  the  accrued  but  unpaid  interest
thereon);  provided,  however,  if the Holder has  already  converted  sixty-six
percent  (66%) of such  original  principal  amount,  the Holder may convert the
remaining  thirty-four  percent (34%) of the original  principal  amount of this
Debenture (and the accrued but unpaid  interest  thereon) in the next succeeding
thirty (30) day period or thereafter.

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                  (iii) The  Corporation  may not effect a Mandatory  Conversion
pursuant  to this  Article  II unless,  on the date of the  Notice of  Mandatory
Conversion  and on the  date  of  delivery  of  such  Conversion  Shares,  (a) a
registration  statement  under the Securities Act of 1933, as amended,  covering
the resale of the Common Stock issuable upon  conversion of this Debenture is in
effect which names the Holder as a selling stockholder;  (b) the Corporation has
reserved the number of shares of Common  Stock  required by Article III; (c) the
Corporation  has  paid in full any  liquidated  damages  hereunder;  and (d) the
Holder has not, prior to such date,  delivered a Mandatory  Prepayment Notice to
the Corporation.

                   III. RESERVATION OF SHARES OF COMMON STOCK

         The Corporation shall at all times have authorized and reserved for the
purpose of issuance a sufficient number of shares of Common Stock to provide for
the full  conversion of the  outstanding  Debentures  in  accordance  with their
terms.

                       IV. FAILURE TO SATISFY CONVERSIONS

         A. CONVERSION DEFAULT PAYMENTS. If, at any time, (x) the Holder submits
a Notice of  Optional  Conversion  and the  Corporation  fails for any reason to
deliver,  on or prior to the first trading day  following the  expiration of the
Delivery  Period for such  conversion,  the shares of Common  Stock to which the
Holder is entitled  upon such  conversion in the manner  required  hereunder and
under the Purchase  Agreement,  or (y) the  Corporation  provides  notice to any
holder of the  Debentures  at any time of its  intention  not to issue shares of
Common Stock upon exercise by any holder of its conversion  rights in accordance
with  the  terms of the  Debentures  (each  of (x) and (y)  being a  "CONVERSION
DEFAULT"),  then the Corporation  shall pay to the Holder payments for the first
ten (10) trading days  following the expiration of the Delivery  Period,  in the
case of a Conversion Default described in clause (x), and for the first ten (10)
trading days of any other Conversion Default, an amount equal to $1,000 per day.
In the event any Conversion  Default  continues beyond such ten (10) trading day
period,  the Holder shall be entitled to interest on the Outstanding Amount at a
rate per annum equal to the lower of  twenty-four  percent (24%) and the highest
rate permitted by applicable law from the expiration of the ten (10) trading day
period described above through and including the Default Cure Date. In addition,
upon the occurrence of any Conversion Default, the Holder may, by written notice
to the  Corporation,  elect to revoke  any  Optional  Conversion  and obtain the
return of the  unconverted  Debenture.  As used herein,  the "DEFAULT CURE DATE"
means (i) with  respect to a Conversion  Default  described in clause (x) of its
definition,  the  date  the  Corporation  effects  the  conversion  of the  full
Outstanding  Amount  requested  to be  converted  and  (ii)  with  respect  to a
Conversion  Default  described  in clause  (y) of its  definition,  the date the
Corporation  begins to honor  conversions of the  Debentures in accordance  with
their terms.

         The  payments to which the Holder  shall be  entitled  pursuant to this
Paragraph A are referred to herein as "CONVERSION DEFAULT PAYMENTS" and shall be
liquidated  damages and not penalties.  The Holder may elect to receive  accrued
Conversion  Default  Payments  in cash or to convert  all or any portion of such
accrued  Conversion  Default  Payments,  at any time,  into Common  Stock at the
Conversion  Price in  effect  at the time of such  conversion.  In the event the
Holder elects to receive any  Conversion  Default  Payments in cash, it shall so
notify the Corporation in writing. Such payment shall be made in accordance with
and be subject to the provisions of Article IX.D. In the event the Holder elects
to convert all or any portion of the  Conversion  Default  Payments,  the Holder
shall indicate on a Notice of Optional Conversion such portion of the Conversion
Default Payments which the Holder elects to so convert and such conversion shall
otherwise be effected in accordance with the provisions of Article II.

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         B.  ADJUSTMENT  TO  CONVERSION  PRICE.  If the Holder has not  received
certificates  for all shares of Common Stock prior to the tenth  (10th)  trading
day after the expiration of the Delivery  Period with respect to a conversion of
this  Debenture  for any reason,  then the  Conversion  Price in respect of this
Debenture  shall  thereafter  be the lesser of (i) the  Conversion  Price on the
Conversion Date specified in the Notice of Optional Conversion which resulted in
the Conversion Default and (ii) the lowest Conversion Price in effect during the
period  beginning on, and including,  such Conversion Date through and including
the day such shares of Common Stock are delivered to the Holder.  If there shall
occur a Conversion  Default of the type described in clause (y) of Article IV.A,
then the Conversion Price with respect to any conversion thereafter shall be the
lower of (x) the lowest Conversion Price in effect at any time during the period
beginning  on, and  following,  the date of the  occurrence  of such  Conversion
Default through and including the Default Cure Date and (y) the Conversion Price
on the Conversion  Date specified in the Notice of Optional  Conversion for this
Debenture.   The  Conversion  Price  shall  thereafter  be  subject  to  further
adjustment for any events described in Article VI.

         C. BUY-IN CURE. If (i) the Corporation  fails for any reason to deliver
during  the  Delivery  Period  shares  of  Common  Stock  to the  Holder  upon a
conversion of this Debenture having a Conversion Date on or prior to a date upon
which the Corporation has notified the Holder in writing that the Corporation is
unable to honor  conversions and (ii) after the applicable  Delivery Period with
respect to such conversion,  the Holder purchases (in an open market transaction
or  otherwise)  shares of Common Stock to deliver in  satisfaction  of a sale by
such holder of the shares of Common Stock which the Holder anticipated receiving
upon such  conversion (a  "BUY-IN"),  the  Corporation  shall pay the Holder (in
addition to any other remedies  available to the Holder) the amount by which (x)
the Holder's total purchase price (including brokerage commissions,  if any) for
the  shares  of  Common  Stock  so  purchased  exceeds  (y) the  portion  of the
Outstanding Amount resulting in the Buy-In. For example, if the Holder purchases
shares of Common  Stock  having a total  purchase  price of  $11,000  to cover a
Buy-In with respect to an attempted  conversion of a total Outstanding Amount of
$10,000,  the Corporation will be required to pay the Holder $1,000.  The Holder
shall  provide  the  Corporation  written  notification  indicating  any amounts
payable to the Holder pursuant to this Paragraph C. The  Corporation  shall make
any  payments  required  pursuant  to this  Paragraph C in  accordance  with and
subject to the provisions of Article IX.D.

         D. MANDATORY  PREPAYMENT  RIGHT.  If the  Corporation  fails,  and such
failure  continues  uncured for five (5) trading days after the  Corporation has
been notified  thereof in writing by the Holder,  for any reason to issue shares
of Common  Stock  within  ten (10)  trading  days  after the  expiration  of the
Delivery  Period with  respect to any  conversion  of this  Debenture,  then the
Holder  may elect at any time and from time to time  prior to the  Default  Cure
Date for such Conversion 


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<PAGE>

Default,  by delivery of a  Mandatory  Prepayment  Notice (as defined in Article
V.B) to the Corporation,  to demand payment by the Corporation in cash of all or
any portion of the Outstanding  Amount.  If the  Corporation  fails to make such
payment within five (5) trading days after its receipt of a Mandatory Prepayment
Notice,  then the Holder shall be entitled to the  remedies  provided in Article
V.B.

         E.  RETENTION  OF RIGHTS AS  DEBENTURE  HOLDER.  If the  Holder has not
received  certificates  for all shares of Common Stock prior to the tenth (10th)
trading  day after the  expiration  of the  Delivery  Period  with  respect to a
conversion of this Debenture for any reason, then the Corporation shall, as soon
as  practicable,  return  this  Debenture  to the Holder and  (unless the Holder
otherwise  elects to retain its  status as a holder of Common  Stock) the Holder
shall regain the rights of a holder of this Debenture.  In all cases, the Holder
shall retain all of its rights and remedies (including,  without limitation, (i)
the right to receive  Conversion  Default Payments pursuant to Paragraph A above
to the extent required  thereby for such  Conversion  Default and any subsequent
Conversion  Default and (ii) the right to have the Conversion Price with respect
to subsequent  conversions  determined in accordance with Paragraph B above) for
the Corporation's failure to convert this Debenture.

                       V. PREPAYMENT DUE TO CERTAIN EVENTS

         A. MANDATORY PREPAYMENT.  In the event (each of the events described in
clauses  (i)-(v) below after  expiration of the applicable  cure period (if any)
being a "MANDATORY PREPAYMENT EVENT"):

                  (i) the Common  Stock  (including  all of the shares of Common
Stock issuable upon  conversion of this  Debenture) is suspended from trading on
any of, or is not  listed or  designated  for  quotation  (and  authorized)  for
trading on at least one of,  the New York Stock  Exchange,  the  American  Stock
Exchange,  the NASDAQ National Market or the NASDAQ Small Cap Market  ("NASDAQ")
for an aggregate of five (5) full trading days in any nine (9) month period,

                  (ii) the  Registration  Statement  required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement, dated
as of September 30, 1997, by and among the Corporation and the other signatories
thereto (the "REGISTRATION  RIGHTS AGREEMENT"),  has not been declared effective
by the 180th day  following  the Closing  Date or such  Registration  Statement,
after being declared effective,  cannot be utilized by the Holder for the resale
of all of their  Registrable  Securities (as defined in the Registration  Rights
Agreement)  for an  aggregate  of more than thirty (30) days in any  consecutive
twelve month period as a result of (x) the inclusion in the prospectus contained
in such  Registration  Statement  of an untrue  statement  of  material  fact or
omission to state a material fact required to be stated  therein or necessary to
make the  statements  therein not  misleading,  or (y) the  issuance of any stop
order or other suspension of effectiveness of such Registration Statement.

                  (iii) the Corporation  fails,  and any such failure  continues
uncured  for five (5)  trading  days  after the  Corporation  has been  notified
thereof in  writing  by the  Holder,  to remove  any  restrictive  legend on any
certificate  or any shares of Common Stock issued to the Holder upon  conversion
of this  Debenture  as and  when  required  by this  Debenture,  the  Securities
Purchase Agreement or the Registration Rights Agreement,

                                       8
<PAGE>

                  (iv) the  Corporation  provides  notice  to any  holder of the
Debentures,  including  by way of  public  announcement,  at  any  time,  of its
intention  not to issue shares of Common Stock to any holder of said  Debentures
upon conversion in accordance with the terms thereof,

                  (v) the Corporation shall:

                           (a) sell,  convey or dispose of all or  substantially
                  all of its assets;

                           (b)  merge,   consolidate  or  engage  in  any  other
                  business  combination  with any  other  entity  (other  than a
                  merger,  consolidation  or business  combination  in which the
                  holders of the  Corporation's  voting  securities  immediately
                  preceding such merger,  consolidation or business  combination
                  own,  on a pro  rata  basis,  at  least  50% of the  surviving
                  entity's voting securities); or

                           (c) have  fifty  percent  (50%) or more of the voting
                  power of its capital stock owned  beneficially  by one person,
                  entity or "group" (as such term is used under Section 13(d) of
                  the Securities Exchange Act of 1934, as amended),

                  (vi)  Bankruptcy,  reorganization,  insolvency or  liquidation
proceedings or other proceedings,  or relief under any bankruptcy law or any law
for the relief of debt shall be  instituted  by or against the  Company  and, if
instituted  against the Company,  shall not be dismissed within ninety (90) days
after such institution, or the Company shall by any action or answer approve of,
consent  to,  or  acquiesce  in any such  proceedings  or admit to any  material
allegations  of,  or  default  in  answering  a  petition  filed  in,  any  such
proceeding,

                  (vii) the  Corporation  shall  fail to comply in any  material
respect with the agreements and covenants  contained in the Purchase  Agreement,
the  Registration   Rights  Agreement  or  this  Debenture   (including  without
limitation a failure to comply with its conversion obligations hereunder), which
failure  continues  uncured for a period of ten (10) days following  delivery of
written notice thereof by the Holder to the Corporation,

                  (viii) the  Corporation  shall fail to pay when due any amount
due hereunder free of any claim of subordination, or

                  (ix) the  Corporation  shall be prohibited from complying with
its  conversion  obligations  hereunder  by reason of any  stockholder  approval
requirements of NASDAQ,

then,  upon the occurrence of any such Mandatory  Prepayment  Event,  the Holder
shall  thereafter  have the option,  exercisable in whole or in part at any time
and from time to time by delivery of a Mandatory  Prepayment  Notice (as defined
in Paragraph B below) to the Corporation  while such Mandatory  Prepayment Event
continues,  to  require  the  Corporation  to  pay  in  cash  any  or all of the
Outstanding  Amount.  For the  avoidance of doubt,  the  occurrence of any event
described  in  clauses  (i),  (ii),  (iv),  (v),  (vii)  and  (ix)  above  shall
immediately  constitute a Mandatory  Prepayment Event and there shall be no cure
period.

                                       9
<PAGE>

         B. MANDATORY PREPAYMENT  DEFAULTS.  If, within five (5) trading days of
the  Corporation's  receipt of a notice from the Holder  identifying a Mandatory
Prepayment  Event that has occurred and requiring the  Corporation to pay any or
all of the Outstanding Amount (a "MANDATORY PREPAYMENT NOTICE"), the Corporation
fails to pay to the Holder the  Outstanding  Amount  specified in the  Mandatory
Prepayment  Notice,  the  Holder  (i)  shall be  entitled  to  interest  on such
Outstanding Amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest  rate  permitted  by  applicable  law from the date of the
Mandatory Prepayment Notice until the date of payment hereunder,  and (ii) shall
have the right,  at any time and from time to time, to require the  Corporation,
upon written  notice,  to immediately  convert (in accordance  with the terms of
Paragraph A of Article II) all or any  portion of such  Outstanding  Amount into
shares of Common  Stock at the  lowest  Conversion  Price in effect  during  the
period  beginning on the date of the Mandatory  Prepayment  Notice and ending on
the Conversion Date with respect to the conversion of such  Outstanding  Amount.
In the event the Corporation is not able to pay all of the Debentures subject to
Mandatory Prepayment Notices, the Corporation shall pay the Debentures pro rata,
based on the total  Outstanding  Amount  under the  Debentures  included by each
holder in the  Mandatory  Prepayment  Notice  relative to the total  Outstanding
Amount under the Debentures in all of the Mandatory Prepayment Notices.

         C.       OPTIONAL PREPAYMENT.

                  (i) At any time (a) on or before  that  date  which is six (6)
months after the Closing Date or (b) on or after that date which is one (1) year
after  the  Closing  Date,  the  Corporation  shall  have the  right  to  prepay
("OPTIONAL PREPAYMENT") all or any portion of the Outstanding Amount,  provided,
however,  that any such prepayment  shall be subject to concurrent  payment of a
premium  (the  "OPTIONAL  PREPAYMENT  PREMIUM")  and  all  other  amounts  owing
hereunder.  An Optional  Prepayment shall be made by the Corporation in its sole
discretion by delivery of an Optional  Prepayment  Notice (as defined below). In
the case of an Optional  Prepayment during the period described in clause (a) of
this subparagraph,  the Optional  Prepayment Premium shall be in an amount equal
to seven and one half percent (7 1/2%) of the principal amount being prepaid and
the Holder's right to effect an Optional Conversion shalL terminate upon receipt
of an Optional  Prepayment Notice. In the case of an Optional  Prepayment during
the period described in clause (b) of this subparagraph, the Optional Prepayment
Premium shall be in an amount equal to ten percent (10%) of the principal amount
being  prepaid  and the Holder may  convert  all or any part of the  Outstanding
Amount into Common Stock by  delivering a Notice of Optional  Conversion  to the
Corporation  at any time prior to that date which is ten (10) trading days after
receipt of an Optional Prepayment Notice.

                  (ii) The Corporation  shall effect each prepayment  under this
Section VIII.B by giving at least twenty (20) trading days' prior written notice
(the "OPTIONAL PREPAYMENT NOTICE") of the date on which such prepayment is to be
made (the "OPTIONAL  PREPAYMENT DATE") and the Outstanding  Amount to be prepaid
to the Holder at the address and facsimile number of the Holder appearing in the
Debenture  Register,  which Optional  Prepayment  Notice shall be deemed to have

                                       10
<PAGE>

been delivered on the trading day after the  Corporation's fax (with a copy sent
by overnight  courier) of such notice to the Holder.  The Corporation  shall pay
the Outstanding  Amount specified in the Optional  Prepayment  Notice,  together
with the applicable  Optional  Prepayment Premium, to the Holder on the Optional
Prepayment  Date.  The  Corporation  may not  attempt  to  deliver  an  Optional
Prepayment Notice if it has previously received a Mandatory Prepayment Notice.

                  (iii) If the Corporation fails to pay, when due and owing, any
portion  of  the  Outstanding  Amount  or the  Optional  Prepayment  Premium  in
accordance with an Optional  Prepayment  Notice,  then the Holder shall have the
right,  at any time and from time to time,  to  require  the  Corporation,  upon
written  notice,  to  immediately  convert  (in  accordance  with  the  terms of
paragraph A of Article  II) any or all of the  Outstanding  Amount  which is the
subject of such prepayment into shares of Common Stock at the lowest  Conversion
Price  in  effect  during  the  period  beginning  on the  date of the  Optional
Prepayment Notice and ending on the earlier of the date the Corporation  effects
such prepayment in full and the date of the Holder's notice of conversion.

                     VI. ADJUSTMENTS TO THE CONVERSION PRICE

         The Conversion  Price shall be subject to adjustment  from time to time
as follows:

         A. ADJUSTMENT DUE TO MAJOR  ANNOUNCEMENT.  In the event the Corporation
(i) makes a public announcement that it intends to consolidate or merge with any
other entity (other than a merger in which the  Corporation  is the surviving or
continuing entity and its capital stock is unchanged) or to sell or transfer all
or substantially all of the assets of the Corporation or (ii) any person,  group
or entity  (including  the  Corporation)  publicly  announces a tender  offer to
purchase  50% or  more  of the  Corporation's  Common  Stock  (the  date  of the
announcement  referred  to  in  clause  (i)  or  (ii)  of  this  Paragraph  A is
hereinafter  referred to as the "ANNOUNCEMENT  DATE"), then the Conversion Price
shall,   effective  upon  the  Announcement  Date  and  continuing  through  the
Abandonment  Date  (as  defined  below),  be  equal  to the  lesser  of (x)  the
Conversion  Price which would have been  applicable  for an Optional  Conversion
occurring on the Announcement Date and (y) the Conversion Price which would have
been  applicable for an Optional  Conversion  occurring on the Conversion  Date.
From and after the Abandonment Date, the Conversion Price shall be determined as
set forth in Article I.E.  "ABANDONMENT DATE" means with respect to any proposed
transaction or tender offer for which a public  announcement  as contemplated by
this Paragraph A has been made, the date upon which the Corporation (in the case
of clause (i) above) or the person,  group or entity (in the case of clause (ii)
above)  publicly  announces  the  termination  or  abandonment  of the  proposed
transaction or tender offer which caused this Paragraph A to become operative.

         B. ADJUSTMENT DUE TO MERGER,  CONSOLIDATION,  ETC. If, at any time when
this Debenture is outstanding, there shall be (i) any reclassification or change
of the outstanding  shares of Common Stock (other than a change in par value, or
from par  value to no par  value,  or from no par  value to par  value,  or as a
result of a subdivision or combination), (ii) any consolidation or merger of the
Corporation  with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any  sale  or  transfer  of  all or  substantially  all  of  the  assets  of the
Corporation or (iv) any share exchange  pursuant to which all of the outstanding

                                       11
<PAGE>

shares of Common Stock are converted into other securities or property, then the
Holder shall  thereafter have the right to receive upon  conversion,  in lieu of
the shares of Common Stock  immediately  theretofore  issuable  (without  giving
effect to any limitations upon conversion  imposed by Article II.C), such shares
of stock,  securities  and/or  other  property as may be issued or payable  with
respect to or in exchange for the number of shares of Common  Stock  immediately
theretofore  issuable upon conversion  (without giving effect to any limitations
upon  conversion  imposed  by  Article  II.C)  had such  merger,  consolidation,
exchange of shares, recapitalization,  reorganization or other similar event not
taken place,  and in any such case,  appropriate  provisions  shall be made with
respect to the rights and interests of the Holder to the end that the provisions
hereof  (including,  without  limitation,   provisions  for  adjustment  of  the
Conversion  Price and of the  number of shares  of Common  Stock  issuable  upon
conversion of this Debenture) shall  thereafter be applicable,  as nearly as may
be  practicable  in  relation  to any shares of stock or  securities  thereafter
deliverable upon the conversion  thereof.  The Corporation  shall not effect any
transaction  described  in this  Paragraph B unless (i) the Holder has  received
written notice of such transaction at least ten (10) days prior thereto,  but in
any event on or before the record  date for the  determination  of  shareholders
entitled to vote with  respect  thereto,  and (ii) the  resulting  successor  or
acquiring  entity (if not the  Corporation)  assumes by written  instrument  the
obligations of this Paragraph B. The above  provisions shall apply regardless of
whether  or not there  would have been a  sufficient  number of shares of Common
Stock  authorized  and available for issuance upon  conversion of the Debentures
outstanding as of the date of such  transaction,  and shall  similarly  apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.

         C. PURCHASE RIGHTS.  If at any time when this Debenture is outstanding,
the Corporation  issues any Convertible  Securities or rights to purchase stock,
warrants,  securities or other property (the "PURCHASE  RIGHTS") pro rata to the
record holders of any class of Common Stock, then the Holder will be entitled to
acquire,  upon the terms  applicable  to such  Purchase  Rights,  the  aggregate
Purchase  Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock  acquirable  upon  complete  conversion of this
Debenture  (without giving effect to any limitations upon conversion  imposed by
Article  II.C)  immediately  before  the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.

         D. NOTICE OF  ADJUSTMENTS.  Upon the  occurrence of each  adjustment or
readjustment  of  the  Conversion   Price  pursuant  to  this  Article  VI,  the
Corporation,   at  its  expense,  shall  promptly  compute  such  adjustment  or
readjustment  and prepare and furnish to the Holder a certificate  setting forth
such adjustment or readjustment  and showing in detail the facts upon which such
adjustment or readjustment is based.  The  Corporation  shall,  upon the written
request at any time of the  Holder,  furnish  to the  Holder a like  certificate
setting forth (i) such adjustment or readjustment,  (ii) the Conversion Price at
the time in  effect  and (iii)  the  number  of  shares of Common  Stock and the
amount,  if any,  of other  securities  or  property  which at the time would be
received upon conversion of this Debenture.

                                       12
<PAGE>

                               VII. NOTICE RIGHTS

         The Corporation shall provide the Holder,  at its request,  with copies
of  proxy  materials  and  other  information  sent  to  shareholders.   If  the
Corporation  takes a record of its  shareholders  for the purpose of determining
shareholders   entitled  to  (a)  receive  payment  of  any  dividend  or  other
distribution,  any  right  to  subscribe  for,  purchase  or  otherwise  acquire
(including by way of merger, consolidation or recapitalization) any share of any
class or any other securities or property, or to receive any other right, or (b)
to vote in  connection  with any proposed  sale,  lease or  conveyance of all or
substantially  all of the assets of the  Corporation,  or any  proposed  merger,
consolidation,  liquidation,  dissolution or winding up of the Corporation,  the
Corporation  shall mail a notice to the  Holder,  on or before  the record  date
specified therein (or ten (10) days prior to the consummation of the transaction
or event, whichever is earlier, but in no event earlier than public announcement
of such  proposed  transaction),  of the date on which any such  record is to be
taken for the  purpose  of such  vote,  dividend,  distribution,  right or other
event,  and a brief  statement  regarding the amount and character of such vote,
dividend, distribution, right or other event to the extent known at such time.

                           VIII. PROTECTION PROVISIONS

         So long as this Debenture is outstanding,  the  Corporation  shall not,
without first obtaining the approval (by vote or written consent) of the holders
of all of the then Outstanding Amount under all Debentures:

                  (a)  adversely  alter or change  the  rights,  preferences  or
         privileges of the Debentures; or

                  (b) alter or change the rights,  preferences  or privileges of
any capital stock of the Corporation so as to affect adversely the Debentures.

                                IX. MISCELLANEOUS

         A. LOST OR STOLEN  DEBENTURES.  Upon receipt by the  Corporation of (i)
evidence of the loss,  theft,  destruction  or mutilation of this  Debenture and
(ii) (y) in the case of loss,  theft or  destruction,  of  indemnity  reasonably
satisfactory  to  the  Corporation,  or  (z) in the  case  of  mutilation,  upon
surrender and cancellation of this Debenture,  the Corporation shall execute and
deliver a new Debenture of like tenor and date.  However,  the Corporation shall
not be  obligated  to reissue  this  Debenture  if the Holder  contemporaneously
requests the Corporation to convert this Debenture.

         B.       [Intentionally omitted.]

         C.  STATEMENTS  OF  AVAILABLE  SHARES.  So long as  this  Debenture  is
outstanding,  the  Corporation  shall  deliver  to the  Holder a written  report
notifying it of any  occurrence  which  prohibits the  Corporation  from issuing
Common Stock upon any conversion.  In addition,  the Corporation  shall provide,
within ten (10) days after delivery to the  Corporation of a written  request by
the Holder, any 


                                       13
<PAGE>

of the  following  information  as of the date of such  request:  (i) the  total
Outstanding  Amount  under all  Debentures,  (ii) the total  number of shares of
Common Stock issued upon all prior conversions of the Debentures,  and (iii) the
total number of shares of Common  Stock which are  reserved  for  issuance  upon
conversion of the Debentures.

         D. PAYMENT OF CASH;  DEFAULTS.  Whenever the Corporation is required to
make any cash  payment  to the  Holder  under this  Debenture  (as a  Conversion
Default Payment, upon Mandatory or Optional Prepayment or otherwise),  such cash
payment shall be made within five (5) trading days after  delivery by the Holder
of a notice  specifying  that the Holder  elects to receive such payment in cash
and the method (E.G.,  by check,  wire transfer) in which such payment should be
made. If such payment is not delivered  within such five (5) trading day period,
the Holder shall  thereafter  be entitled to interest on the unpaid  amount at a
per annum rate equal to the lower of  twenty-four  percent (24%) and the highest
rate  permitted  by  applicable  law  until  such  amount is paid in full to the
Holder.  This provision  shall not operate to add any  additional  grace or cure
period to any grace or cure period expressly set for in this Debenture.

         E. REMEDIES  CUMULATIVE.  The remedies provided in this Debenture shall
be  cumulative  and in  addition  to all other  remedies  available  under  this
Debenture,  at law or in  equity  (including  a decree of  specific  performance
and/or other  injunctive  relief),  and nothing  herein shall limit the Holder's
right to pursue actual damages for any failure by the Corporation to comply with
the terms of this Debenture. The Corporation acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate.  The Corporation  therefore
agrees, in the event of any such breach or threatened  breach,  the Holder shall
be  entitled,  in addition to all other  available  remedies,  to an  injunction
restraining  any breach,  without the  necessity  of showing  economic  loss and
without any bond or other security being required.

         F.  OBLIGATIONS  ABSOLUTE.  No provision of this Debenture,  other than
conversion  as  provided  herein,  shall alter or impair the  obligation  of the
Corporation,  which is absolute and unconditional,  to pay the principal of, and
interest  on, this  Debenture  at the time,  place and rate,  and in the manner,
herein prescribed.

         G. WAIVERS OF DEMAND,  ETC. The  Corporation  hereby  expressly  waives
demand and presentment  for payment,  notice of nonpayment,  protest,  notice of
protest,  notice of dishonor,  notice of intent to  accelerate,  prior notice of
bringing of suit and  diligence in taking any action to collect  amounts  called
for hereunder and will be directly and primarily  liable for the payments of all
sums owing and to be owing hereon,  regardless of and without any notice (except
as  required  by law),  diligence,  act or  omission  as or with  respect to the
collection of any amount called for hereunder.

         H. SAVINGS CLAUSE. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent  possible,  and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.

                                       14
<PAGE>

         I. ENTIRE  AGREEMENT;  AMENDMENTS.  This  Debenture and the  agreements
referred to in this Debenture  constitute the full and entire  understanding and
agreement  between the  Corporation  and the Holder with  respect to the subject
hereof and,  except as  specifically  set forth  herein or therein,  neither the
Corporation  nor the Holder  makes any  representation,  warranty,  covenant  or
undertaking with respect to such matters. Any provision of this Debenture may be
waived or amended only by an instrument in writing signed by the Corporation and
by all holders of the then Outstanding Amount under all of the Debentures.

         J.  ASSIGNMENT,  ETC. The Holder may,  subject to  compliance  with the
Securities  Purchase  Agreement and the Registration  Rights Agreement,  without
prior notice,  transfer or assign this Debenture or any interest  herein (but in
no event in an amount less than $100,000 in Outstanding  Amount or, if less than
$100,000,  the total  Outstanding  Amount hereof) and may mortgage,  encumber or
transfer  any of its rights or  interest  in and to this  Debenture  or any part
hereof,  and each  assignee,  transferee  and  mortgagee  (which may include any
affiliate  of the  Holder)  shall  have the right to so  transfer  or assign its
interest.  Each such assignee,  transferee  and mortgagee  shall have all of the
rights and  obligations  of the Holder  under this  Debenture.  The  Corporation
agrees that,  subject to compliance with the Securities  Purchase  Agreement and
the Registration  Rights Agreement,  after receipt by the Corporation of written
notice  of  assignment  from the  Holder  or from  the  Holders'  assignee,  all
principal,  interest, and other amounts which are then due and thereafter become
due under this Debenture  shall be paid to such assignee at the place of payment
designated in such notice.  This Debenture shall be binding upon the Corporation
and its  successors  and  shall  inure  to the  benefit  of the  Holder  and its
successors  and  assigns.  The  Corporation  may  not  transfer  or  assign  its
obligation  under this  Debenture  without the consent of the Holder;  provided,
however,  that a merger,  consolidation or similar  business  combination of the
Corporation  or the  sale  of  all or  substantially  all of the  assets  of the
Corporation shall not constitute a transfer or assignment.

         K. NO WAIVER. No failure on the part of the Holder to exercise,  and no
delay in exercising,  any right,  remedy or power  hereunder  shall operate as a
waiver  thereof,  nor shall any single or partial  exercise by the Holder of any
right,  remedy or power  hereunder  preclude any other or future exercise of any
other  right,  remedy or power.  Each and every  right,  remedy or power  hereby
granted  to the  Holder  or  allowed  it by  law or  other  agreement  shall  be
cumulative  and not  exclusive of any other,  and may be exercised by the Holder
from time to time.

         L. MISCELLANEOUS. Unless otherwise provided herein, any notice or other
communication  to a party  hereunder  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  herein or such other  address as either may  designate
for  itself in such  notice to the other and  communications  shall be deemed to
have been received when delivered  personally or, if sent by mail, when actually
received  by the party to whom it is  addressed.  Copies of all  notices  to the
Corporation  shall  be sent  to  Paul S.  Weiner,  Director  of  Finance  of the
Corporation,  and to the  attention of the General  Counsel of the  Corporation.
Whenever the sense of this  Debenture  requires,  words in the singular shall be
deemed to include the plural and words in the plural  shall be deemed to include
the singular.  Paragraph  headings are for convenience only and shall not affect
the meaning of this document.

                                       15
<PAGE>

         M.  CHOICE OF LAW AND VENUE.  This  Debenture  shall be governed by and
construed in  accordance  with the laws of the State of Delaware  applicable  to
contracts  made and to be performed in the State of  Delaware.  The  Corporation
irrevocably  consents to the  jurisdiction  of the United States  federal courts
located in the County of Kent in the State of Delaware in any suit or proceeding
based on or arising under this Debenture and irrevocably  agrees that all claims
in respect of such suit or  proceeding  may be  determined  in such courts.  The
Corporation  irrevocably  waives  the  defense of an  inconvenient  forum to the
maintenance  of such suit or  proceeding.  The  Corporation  further agrees that
service  of process  upon the  Corporation  mailed by first  class mail shall be
deemed in every respect effective service of process upon the Corporation in any
suit or proceeding arising  hereunder.  Nothing herein shall affect the Holder's
right to serve  process in any other manner  permitted  by law. The  Corporation
agrees that a final non-appealable judgment in any such suit or proceeding shall
be  conclusive  and  may be  enforced  in  other  jurisdictions  by suit on such
judgment or in any other lawful manner.

         N. USURY LAWS.  In no event shall any  provision  of this  Debenture be
deemed to permit the Holder to  receive  any  payment,  whether of  interest  or
otherwise,  to the  extent  that  such  payment  would be  prohibited  under any
applicable  usury law or similar law  regarding  the rates of  interest  legally
chargeable or collectible hereunder.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                                       16
<PAGE>

         IN  WITNESS  WHEREOF,  this  Debenture  is  executed  on  behalf of the
Corporation as of the 30th day of September, 1997.

                                              PALOMAR MEDICAL TECHNOLOGIES, INC.

                                              By:
                                                 -------------------------------



                                       17
<PAGE>

                          NOTICE OF OPTIONAL CONVERSION

                    (To be Executed by the Registered Holder
                       in order to Convert the Debenture)

The undersigned  hereby elects to convert  $____________  in Outstanding  Amount
(the "CONVERSION"),  under that certain 6%, 7% and 8% Convertible  Debenture Due
September  30,  2002 the  ("DEBENTURE")  into  shares of common  stock  ("COMMON
STOCK") of Palomar Medical Technologies,  Inc. (the "CORPORATION")  according to
the conditions of the Debenture, as of the date written below. If securities are
to be issued in the name of a person other than the undersigned, the undersigned
will pay all  transfer  taxes  payable with  respect  thereto and is  delivering
herewith  such  certificates.  No fee  will be  charged  to the  holder  for any
conversion,  except for transfer  taxes,  if any. The  Debenture (or evidence of
loss, theft or destruction thereof) is attached hereto.

 The  undersigned  represents  and  warrants  that all  offers  and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Debenture  shall be made pursuant to  registration of the Common Stock under the
Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.

                                   Date of Conversion:
                                                      --------------------------
                          Applicable Conversion Price:
                                                      --------------------------
                         Amount of Conversion Default
                     Payments to be Converted, if any:
                                                      --------------------------

                                  Number of Shares of
                           Common Stock to be Issued:
                                                      --------------------------

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

                                   (Must be exactly as appears on the Debenture)

                                            Name:
                                                 -------------------------------
                                            Address:
                                                    ----------------------------
                                                    ----------------------------
                                  Social Security or
                                  Federal Tax I.D. Number:
                                                           ---------------------


<PAGE>


                                                                  EXECUTION COPY
                                                                       EXHIBIT B
                                                                              TO
                                                             SECURITIES PURCHASE
                                                                       AGREEMENT

                          REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of September
30,  1997  by and  among  PALOMAR  MEDICAL  TECHNOLOGIES,  INC.,  a  corporation
organized under the laws of the State of Delaware,  with headquarters located at
66 Cherry Hill Drive,  Beverly,  Massachusetts  01915 (the  "COMPANY"),  and the
undersigned  purchasers  of Debentures  and Common  Shares under the  Securities
Purchase Agreement (together with affiliates, the "INITIAL INVESTORS").

         WHEREAS:

         A. In connection  with the Securities  Purchase  Agreement of even date
herewith by and between the Company and the Initial  Investors (the  "SECURITIES
PURCHASE AGREEMENT"),  the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors (i) 6%,
7% and 8% Convertible  Debentures Due September 30, 2002 (the "DEBENTURES") that
are convertible  into shares (the  "CONVERSION  SHARES") of the Company's common
stock, par value $.01 per share (the "COMMON STOCK"), upon the terms and subject
to the limitations and conditions set forth in the Debentures and (ii) shares of
Common Stock (the "COMMON SHARES"); and

         B.  To  induce  the  Initial  Investors  to  execute  and  deliver  the
Securities  Purchase  Agreement,  the  Company  has  agreed to  provide  certain
registration rights under the Securities Act of 1933, as amended,  and the rules
and regulations thereunder, or any similar successor statute (collectively,  the
"SECURITIES ACT"), and applicable state securities laws;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency of which are hereby  acknowledged,  the Company and the
Initial Investors hereby agree as follows:

         1. DEFINITIONS.

                  a. As used in this  Agreement,  the following terms shall have
the following meanings:

                           (i) "INVESTORS"  means the Initial  Investors and any
                  transferees  or  assignees  who agree to  become  bound by the
                  provisions  of this  Agreement  in  accordance  with Section 9
                  hereof.

                                       1
<PAGE>

                           (ii)  "REGISTER,"  "REGISTERED,"  and  "REGISTRATION"
                  refer to a  registration  effected by  preparing  and filing a
                  Registration  Statement or Statements  in compliance  with the
                  Securities  Act and pursuant to Rule 415 under the  Securities
                  Act or any successor rule providing for offering securities on
                  a  continuous  basis  ("RULE  415"),  and the  declaration  or
                  ordering of  effectiveness of such  Registration  Statement by
                  the United  States  Securities  and Exchange  Commission  (the
                  "SEC").

                           (iii)  "REGISTRABLE  SECURITIES" means the Conversion
                  Shares  (including any Conversion Shares issuable with respect
                  to  Conversion  Default  Payments  under the  Debentures or in
                  redemption of any Debentures)  issued or issuable with respect
                  to the Debentures, the Common Shares and any shares of capital
                  stock  issued  or  issuable,  from  time  to  time  (with  any
                  adjustments),  on or in exchange for or otherwise with respect
                  to any of the foregoing.

                           (iv)  "REGISTRATION  STATEMENT"  means a registration
                  statement of the Company under the Securities Act.

                  b.  Capitalized  terms used herein and not  otherwise  defined
herein shall have the respective  meanings set forth in the Securities  Purchase
Agreement.

         2. REGISTRATION.

                  a. MANDATORY REGISTRATION.  The Company shall prepare, and, on
or prior to the sixtieth  (60th) day after the Closing Date (the "FILING DATE"),
file with the SEC a  Registration  Statement on Form S-3 (or, if Form S-3 is not
then available,  on such form of Registration  Statement as is then available to
effect a  registration  of all of the  Registrable  Securities,  subject  to the
reasonable  consent  of the  Investors)  covering  the  resale  of a  number  of
Registrable  Shares equal to at least 3,500,000 shares plus the amount of Common
Shares  (provided  that such number may be  proportionally  reduced if less than
$7,000,000  in principal  amount of Debentures  are issued under the  Securities
Purchase Agreement), which Registration Statement, to the extent allowable under
the Securities Act and the Rules  promulgated  thereunder  (including Rule 416),
shall state that such  Registration  Statement  also  covers such  indeterminate
number  of  additional  shares  of  Common  Stock as may  become  issuable  upon
conversion of the  Debentures to prevent  dilution  resulting from stock splits,
stock  dividends or similar  transactions  or as a result of fluctuations in the
market price of the Common Stock.  The  Registrable  Securities  included on the
Registration  Statement  shall be  allocated  to the  Investors  as set forth in
Section  11(k)  hereof.  The  Registration  Statement  (and  each  amendment  or
supplement thereto, and each request for acceleration of effectiveness  thereof)
shall be provided to (and  subject to the  reasonable  approval  of) the Initial
Investors and their counsel prior to its filing or other submission.

                  b.  UNDERWRITTEN  OFFERING.  If  any  offering  pursuant  to a
Registration  Statement pursuant to Section 2(a) hereof involves an underwritten
offering,  the  Investors  who hold a majority in  interest  of the  Registrable
Securities  subject  to such  underwritten  offering,  with the  consent  of the
Initial  Investors,  shall have the right to select a total of one legal counsel
to represent the  Investors  and an investment  banker or bankers and manager or
managers to  administer  the  offering,  which  investment  banker or bankers or
manager or managers  shall be  reasonably  satisfactory  to the Company.  In the
event the Company  determines such banker or manager to be  unsatisfactory,  the
Company  shall bear the  difference,  if any,  in costs of the banker or manager
ultimately accepted and such rejected underwriter or manager.

                                       2
<PAGE>

                  c.  PAYMENTS  BY THE  COMPANY.  The  Company  shall  cause the
registration  statement to become effective as soon as practicable after filing,
but in no event later than the one hundred  twentieth  (120th) day following the
Closing Date (the "REGISTRATION DEADLINE"). If (i) the registration statement(s)
covering the Registrable Securities required to be filed by the Company pursuant
to Section  2(a) hereof is not  declared  effective  by the SEC on or before the
Registration Deadline or if, after the registration  statement has been declared
effective by the SEC, sales of Registrable Securities (including any Registrable
Securities  required to be  registered  pursuant to Section 3(b) hereof) are not
permitted pursuant to the registration  statement (including by reason of a stop
order or the Company's failure to update the registration statement) or (ii) the
Common  Stock is not listed or included  for  quotation  on the NASDAQ  SmallCap
Market  ("NASDAQ"),  the NASDAQ National Market (the "NNM"),  the New York Stock
Exchange  (the "NYSE") or the American  Stock  Exchange (the "AMEX") at any time
after the  Registration  Deadline,  then the Company  will make  payments to the
Investors in such amounts and at such times as shall be  determined  pursuant to
this Section 2(c) as partial  relief for the damages to the  Investors by reason
of any such  delay in or  reduction  of their  ability  to sell the  Registrable
Securities (which remedy shall not be exclusive of any other remedies  available
at law or in equity).  The Company shall pay to each Investor an amount equal to
the sum of (i) the aggregate  principal  amount of the  Debentures  held by such
Investor  (including,  without  limitation,  Debentures that have been converted
into  Conversion  Shares then held by such  Investor) (the  "AGGREGATE  PURCHASE
PRICE")  multiplied by two hundredths (.02) if the Registration  Statement filed
pursuant  to  Section  2(a)  is  not  declared  effective  on or  prior  to  the
Registration  Deadline plus (ii) an amount equal to the Aggregate Purchase Price
multiplied  by two  hundredths  (.02)  for each  full  thirty  (30)  day  period
thereafter that the  Registration  Statement has not been declared  effective or
that sales are not permitted pursuant to the Registration Statement after it has
been  declared  effective  (including by reason of a stop order or the Company's
failure to update the  registration  statement)  or that the Common Stock is not
listed or included for quotation on NASDAQ, the NYSE or AMEX (which amount shall
not be pro rated for periods of less than thirty (30) days);  PROVIDED,  HOWEVER
that there shall be excluded  from each such period any delays  which are solely
attributable to changes (other than corrections of Company mistakes with respect
to information  previously  provided by the Investors) required by the Investors
in the  Registration  Statement  with  respect to  information  relating  to the
Investors,  including,  without limitation,  changes to the plan of distribution
and PROVIDED,  FURTHER,  that the aggregate amount payable to any Investor under
this  Section  2(c)  shall  not  exceed  ten  percent  (10%) of such  Investor's
Aggregate  Purchase Price.  (For example,  if the Registration  Statement is not
effective by the Registration  Deadline,  the Company would pay $20,000 for each
$1,000,000 of Aggregate  Purchase  Price and the Company would pay an additional
$20,000 for each  $1,000,000 of Aggregate  Purchase  Price  thereafter  for each
additional thirty (30) days the Registration Statement is not effective (up to a
maximum of $100,000 for each $1,000,000 Aggregate Purchase Price)). Such amounts
shall be paid in cash or, at each  Investor's  option,  may be convertible  into
Common  Stock at the  "CONVERSION  PRICE" (as  defined in the  Debentures).  Any
shares  of  Common  Stock  issued  upon  conversion  of such  amounts  shall  be
Registrable  Securities.  If the  Investor  desires to convert  the  amounts due
hereunder into Registrable  Securities it shall so notify the Company in writing
within two (2) business days of the date on which such amounts are first payable
in cash and such amounts shall be so convertible  (pursuant to the mechanics set
forth under Article II of the Debentures),  beginning on the last day upon which
the  cash  amount  would  otherwise  be due in  accordance  with  the  following
sentence.  Payments of cash  pursuant  hereto shall be made within five (5) days
after the end of each period that gives rise to such obligation.

                                       3
<PAGE>

                  d.  ELIGIBILITY  FOR FORM  S-3.  The  Company  represents  and
warrants that it meets the requirements for the use of Form S-3 for registration
of the sale by the Initial  Investors and any other Investor of the  Registrable
Securities  and the Company  shall file all reports  required to be filed by the
Company with the SEC in a timely manner so as to maintain such  eligibility  for
the use of Form S-3.

         3.  OBLIGATIONS OF THE COMPANY.  In connection with the registration of
the Registrable Securities, the Company shall have the following obligations:

                  a. The Company  shall  prepare  promptly and file with the SEC
the Registration Statement required by Section 2(a), and cause such Registration
Statement  relating to  Registrable  Securities  to become  effective as soon as
practicable  after such  filing,  but in no event  later  than the  Registration
Deadline,  and keep the Registration Statement effective pursuant to Rule 415 at
all times  until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which all Registrable
Securities (in the reasonable  opinion of counsel to the Initial  Investors) may
be  immediately  sold  by the  Investors  to  the  public  without  registration
(including, in accordance with Rule 144(k) promulgated under the Securities Act)
(the  "Registration  Period"),   which  Registration  Statement  (including  any
amendments or supplements  thereto and  prospectuses  contained  therein and all
documents  incorporated  by  reference  therein)  shall not  contain  any untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated therein, or necessary to make the statements therein not misleading.

                  b.  The  Company  shall  prepare  and  file  with the SEC such
additional Registration Statements and such amendments (including post-effective
amendments)  and  supplements to any  Registration  Statement and the prospectus
used in connection with the  Registration  Statement as may be necessary to keep
the  Registration  Statement  or  Statements  effective  as to  all  Registrable
Securities at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of  all  Registrable  Securities  of the  Company  covered  by the  Registration
Statement or Statements  until such time as all of such  Registrable  Securities
have been disposed of in accordance with the intended  methods of disposition by
the seller or sellers thereof as set forth in the Registration Statement. In the
event an  Investor  notifies  the  Company  that the number of shares  available
(including,  if  permissible,  shares  available by reason of Rule 416 under the
Securities Act) under a Registration  Statement filed pursuant to this Agreement
was, for any three (3) consecutive  trading days (the date the Investor notifies
the  Company  of  such  occurrence  being  the  "REGISTRATION   TRIGGER  DATE"),
insufficient  to cover a number of shares equal to the  applicable  Registration
Percentage (as defined below)  multiplied by all of the  Registrable  Securities
issued or issuable  upon  conversion  of the  Debentures  held by such  Investor
(without  giving effect to any  limitations  on conversion  contained in Article
II.C of the Debentures),  


                                       4
<PAGE>

the Company shall amend the Registration  Statement,  or file a new Registration
Statement (on the short form available therefor, if applicable),  or both, so as
to cover one hundred fifty percent (150%) of the Registrable  Securities  issued
or  issuable to such  Investor  (without  giving  effect to any  limitations  on
conversion  contained in Article II.C of the Debentures),  in each case, as soon
as practicable, but in any event within fifteen (15) days after the Registration
Trigger Date (based on the market  price of the Common Stock and other  relevant
factors on which the Company reasonably elects to rely). The Company shall cause
such amendment and/or new Registration  Statement to become effective as soon as
practicable  following  the filing  thereof.  In the event the Company  fails to
obtain the effectiveness of any such  Registration  Statement within ninety (90)
days after a Registration  Trigger Date, each Investor shall thereafter have the
option,  exercisable  in whole  or in part at any time and from  time to time by
delivery of a written notice to the Company (a "REGISTRATION  TRIGGER PREPAYMENT
NOTICE"), to require the Company to pay a portion of such Investor's Outstanding
Amount (as defined in Article I of the  Debentures),  such that the total number
of shares of Common  Stock  issuable to such  Investor  upon  conversion  of its
Debentures (without giving effect to any limitations on conversion  contained in
Article  II.C of the  Debentures)  does not  exceed  the  number of shares  then
registered under an effective Registration  Statement.  If the Corporation fails
to pay any portion of such  Outstanding  Amount  within five (5)  business  days
after its receipt of a Registration Trigger Prepayment Notice, then such failure
shall be deemed a Mandatory  Prepayment Event as defined in the Debentures,  and
the Investor  shall be entitled to the  remedies  provided in Article V.B of the
Debentures. As used herein,  "REGISTRATION PERCENTAGE" means one hundred percent
(100%) for the period  ending on the 150th day  following  the Closing  Date and
means one hundred and thirty-five percent (135%) thereafter.

                  c.  The  Company  shall   furnish  to  each   Investor   whose
Registrable  Securities are included in the Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed,  filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto,  each preliminary  prospectus and prospectus and each
amendment or supplement  thereto and, in the case of the Registration  Statement
referred  to in Section  2(a),  to counsel to the  Investors  only,  each letter
written by or on behalf of the  Company to the SEC or the staff of the SEC,  and
each item of  correspondence  from the SEC or the staff of the SEC, in each case
relating to such Registration Statement (other than the portion, if any, thereof
which  contains  information  for  which the  Company  has  sought  confidential
treatment)  and  (ii)  such  number  of  copies  of a  prospectus,  including  a
preliminary  prospectus,  and all  amendments and  supplements  thereto and such
other  documents as such Investor may reasonably  request in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

                  d. The Company  shall use  reasonable  efforts to (i) register
and qualify the Registrable  Securities  covered by the  Registration  Statement
under such other  securities  or "blue  sky" laws of such  jurisdictions  in the
United States as each Investor who holds  Registrable  Securities  being offered
reasonably  requests,   (ii)  prepare  and  file  in  those  jurisdictions  such
amendments  (including  post-effective   amendments)  and  supplements  to  such
registrations   and   qualifications   as  may  be  necessary  to  maintain  the
effectiveness  thereof  during the  Registration  Period,  (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times  during  the  Registration  Period,  and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable  Securities
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be


                                       5
<PAGE>

required in connection  therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d),  (b) subject  itself to general  taxation in any such
jurisdiction,  (c) file a general  consent  to  service  of  process in any such
jurisdiction,  (d) provide any undertakings that cause the Company undue expense
or burden,  or (e) make any change in its charter or bylaws,  which in each case
the Board of  Directors  of the  Company  determines  to be contrary to the best
interests of the Company and its stockholders.

                  e. In the event the  Investors who hold a majority in interest
of the Registrable  Securities being offered in an offering select  underwriters
for the offering, the Company shall enter into and perform its obligations under
an  underwriting  agreement,  in usual and customary  form,  including,  without
limitation,  customary  indemnification and contribution  obligations,  with the
underwriters of such offering.

                  f. As promptly as  practicable  after  becoming  aware of such
event,  the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the  statements  therein not  misleading,  and use its best
efforts  promptly  to prepare a  supplement  or  amendment  to the  Registration
Statement to correct such untrue statement or omission,  and deliver such number
of copies of such  supplement or amendment to each Investor as such Investor may
reasonably request.

                  g. The  Company  shall use its best  efforts  to  prevent  the
issuance  of  any  stop  order  or  other   suspension  of  effectiveness  of  a
Registration  Statement,  and,  if  such an  order  is  issued,  to  obtain  the
withdrawal of such order at the earliest  practicable  moment and to notify each
Investor  who holds  Registrable  Securities  being sold (or, in the event of an
underwritten  offering, the managing underwriters) of the issuance of such order
and the resolution thereof.

                  h.  The  Company   shall  permit  a  single  firm  of  counsel
designated by the Initial  Investors to review the Registration  Statement,  all
amendments and supplements  thereto and all written  responses by the Company to
the SEC regarding  the  Registration  Statement  which relate to the Investors a
reasonable  period of time (and in no event less than three (3)  business  days)
prior to their filing with the SEC, and not file any document in a form to which
such counsel  reasonably  objects.  In the event such counsel fails to convey to
the  Company  all  of  its  comments  (or  that  it has  no  comments)  to  such
Registration  Statement prior to the scheduled filing date of such  Registration
Statement  (which  date shall  comply  with the  requirements  set forth in this
Section  3(h)),  the sixty (60) and the one hundred and twenty (120) day periods
referred  to in  Section  2(a) and 2(c)  shall be  extended  by such  number  of
business days after such scheduled filing date that such counsel so conveys such
comments (or that it has no comments).

                  i. The Company shall make generally  available to its security
holders  as soon as  practical,  but not later than  ninety  (90) days after the
close of the period covered  thereby,  an earnings  statement (in form complying
with  the  provisions  of  Rule  158  under  the  Securities   Act)  covering  a
twelve-month  period  beginning  not later  than the first day of the  Company's
fiscal quarter next following the effective date of the Registration Statement.



                                       6
<PAGE>

                  j.  At the  request  of  any  Investor,  if  the  Registration
Statement  pertains  to an  underwritten  public  offering,  the  Company  shall
furnish,  on the date of  effectiveness  of the  Registration  Statement  (i) an
opinion,  dated as of such date, from counsel representing the Company addressed
to the Investors and in form, scope and substance as is customarily  given in an
underwritten  public  offering  and (ii) a letter,  dated  such  date,  from the
Company's  independent  certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters,  if any, and the
Investors.

                  k. The Company shall make  available for inspection by (i) any
Investor, (ii) any underwriter  participating in any disposition pursuant to the
Registration Statement,  (iii) one firm of attorneys and one firm of accountants
or other  agents  retained  by the  Investors,  and  (iv) one firm of  attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the  Company  (collectively,  the  "Records"),  as  shall be  reasonably  deemed
necessary  by each  Inspector  to enable  each  Inspector  to  exercise  its due
diligence  responsibility,  and  cause the  Company's  officers,  directors  and
employees to supply all information  which any Inspector may reasonably  request
for purposes of such due diligence; PROVIDED, HOWEVER, that each Inspector shall
hold in confidence and shall not make any disclosure  (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential,  and of which determination the Inspectors are so notified, unless
(a)  the  disclosure  of such  Records  is  necessary  to  avoid  or  correct  a
misstatement or omission in any Registration Statement,  (b) the release of such
Records  is  ordered  pursuant  to a  subpoena  or other  order  from a court or
government  body  of  competent  jurisdiction,  or (c) the  information  in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other  agreement.  The Company shall not be required
to disclose any confidential  information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and  substance  satisfactory  to the Company) with the Company with respect
thereto,  substantially  as set forth in this Section 3(k). Each Investor agrees
that it shall,  upon learning that disclosure of such Records is sought in or by
a court or governmental  body of competent  jurisdiction or through other means,
give prompt  notice to the Company and allow the  Company,  at its  expense,  to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records  deemed  confidential.  Nothing herein shall be deemed to
limit the Investor's ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.

                  l.  The  Company  shall  hold in  confidence  and not make any
disclosure of information  concerning an Investor provided to the Company unless
(i) disclosure of such  information is necessary to comply with federal or state
securities  laws, (ii) the disclosure of such  information is necessary to avoid
or correct a misstatement or omission in any Registration  Statement,  (iii) the
release of such  information  is ordered  pursuant  to a subpoena or other order
from  a  court  or  governmental  body  of  competent  jurisdiction,  (iv)  such
information  has been made  generally  available  to the  public  other  than by
disclosure  in violation of this or any other  agreement,  or (v) such  Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall,  upon  learning  that  disclosure  of such  information  concerning an
Investor  is  sought  in  or  by a  court  or  governmental  body  of  competent
jurisdiction  or through other means,  give prompt notice to such Investor prior
to making such disclosure,  and allow the Investor, at its expense, to undertake
appropriate  action to prevent  disclosure  of, or to obtain a protective  order
for, such information.

                                       7
<PAGE>

                  m. The Company  shall use its best efforts to promptly  either
(i) cause all the Registrable  Securities covered by the Registration  Statement
to be listed on the NYSE or the AMEX or another national securities exchange and
on each additional  national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if the listing of
such Registrable  Securities is then permitted under the rules of such exchange,
or (ii) secure the designation and quotation,  of all the Registrable Securities
covered by the Registration  Statement on the NASDAQ Small Cap Market or the NNM
and,  without  limiting  the  generality  of the  foregoing,  to arrange  for or
maintain at least two market makers to register with the National Association of
Securities  Dealers,  Inc.  ("NASD")  as such with  respect to such  Registrable
Securities.

                  n. The Company shall provide a transfer  agent and  registrar,
which may be a single entity, for the Registrable  Securities not later than the
effective date of the Registration Statement.

                  o. The Company  shall  cooperate  with the  Investors who hold
Registrable   Securities   being  offered  and  the  managing   underwriter   or
underwriters,  if any, to  facilitate  the timely  preparation  and  delivery of
certificates  (not bearing any  restrictive  legends)  representing  Registrable
Securities to be offered pursuant to the Registration  Statement and enable such
certificates to be in such denominations or amounts,  as the case may be, as the
managing  underwriter or  underwriters,  if any, or the Investors may reasonably
request  and   registered  in  such  names  as  the  managing   underwriter   or
underwriters,  if any, or the  Investors  may  request,  and,  within  three (3)
business  days  after  a  Registration   Statement  which  includes  Registrable
Securities  is ordered  effective  by the SEC,  the  Company  shall  cause legal
counsel  selected  by the  Company to  deliver,  to the  transfer  agent for the
Registrable   Securities  (with  copies  to  the  Investors  whose   Registrable
Securities  are  included  in such  Registration  Statement)  an opinion of such
counsel in the form attached hereto as EXHIBIT 1.

                  p. At the request of any  Investor,  the Company shall prepare
and file with the SEC such amendments (including post-effective  amendments) and
supplements  to a Registration  Statement and the prospectus  used in connection
with the Registration  Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.

         4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:

                  a. It shall be a condition precedent to the obligations of the
Company to complete the registration  pursuant to this Agreement with respect to
the  Registrable  Securities of a particular  Investor that such Investor  shall
furnish to the  Company  such  information  regarding  itself,  the  Registrable
Securities  held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such  Registrable  Securities  and shall execute such documents in connection
with such registration as the Company may reasonably  request. At least ten (10)
business  days prior to the first  anticipated  filing date of the  Registration
Statement,  the Company shall notify each Investor in writing of the information
the Company  reasonably  requires from each such Investor and each such Investor
shall  provide such  information  no later than five (5) business  days prior to
such anticipated filing date.

                                       8
<PAGE>

                  b.  Each  Investor,  by  such  Investor's  acceptance  of  the
Registrable  Securities,  agrees to  cooperate  with the  Company as  reasonably
requested by the Company in connection  with the  preparation  and filing of the
Registration Statement hereunder,  unless such Investor has notified the Company
in  writing  of such  Investor's  election  to  exclude  all of such  Investor's
Registrable Securities from the Registration Statement.

                  c. Each Investor whose Registrable  Securities are included in
a  Registration  Statement  understands  that  the  Securities  Act may  require
delivery of a prospectus  relating  thereto in connection  with any sale thereof
pursuant to such  Registration  Statement and each such Investor shall deliver a
prospectus in connection with any such sale.

                  d. Each Investor agrees to notify the Company promptly, but in
any event  within 72 hours after the date on which all  Registrable  Securities,
Debentures  and  Common  Shares  owned by such  Investor  have been sold by such
Investor, if such date is prior to the expiration of the Registration Period, so
that the Company may comply with its  obligation to terminate  the  Registration
Statement in accordance  with Item 512 of Regulation  S-K or Regulation  S-B, as
the case may be.

                  e. In the event  Investors  holding a majority  in interest of
the Registrable  Securities being offered determine to engage the services of an
underwriter,  each  Investor  agrees to enter into and perform  such  Investor's
obligations  under an  underwriting  agreement,  in usual  and  customary  form,
including,  without  limitation,   customary  indemnification  and  contribution
obligations,  with the managing underwriter of such offering and take such other
actions as are  reasonably  required  in order to  expedite  or  facilitate  the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.

                  f. Each Investor  agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind  described in Section 3(f)
or 3(g), such Investor will immediately  discontinue  disposition of Registrable
Securities  pursuant to the  Registration  Statement  covering such  Registrable
Securities  until such Investor's  receipt of the copies of the  supplemented or
amended  prospectus  contemplated by Section 3(f) or 3(g) and, if so directed by
the Company,  such Investor  shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a  certificate  of  destruction)
all  copies in such  Investor's  possession,  of the  prospectus  covering  such
Registrable Securities current at the time of receipt of such notice.

                  g. No Investor may participate in any underwritten offering of
Registrable  Securities  hereunder  unless such Investor (i) agrees to sell such
Investor's  Registrable  Securities  on the basis  provided in any  underwriting
arrangements  in usual and  customary  form entered  into by the  Company,  (ii)
completes  and executes  all  questionnaires,  powers of attorney,  indemnities,
underwriting  agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all  underwriting  discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.

                                       9
<PAGE>

         5. EXPENSES OF  REGISTRATION.  All expenses  incurred by the Company in
connection with registrations,  filings or qualifications pursuant to Sections 2
and  3,  including,   without   limitation,   all   registration,   listing  and
qualifications fees, printers and accounting fees, the fees and disbursements of
counsel for the Company and the fees and  disbursements  contemplated by Section
3(j) hereof shall be borne by the Company.  The Investors  shall be  responsible
for any underwriting  discounts and commissions  attributable to the Registrable
Securities to be sold by them and the legal fees and disbursements  contemplated
by Section  2(b)  hereof,  except to the extent  otherwise  set forth in Section
2(b).

         6.  INDEMNIFICATION.  In  the  event  any  Registrable  Securities  are
included in a Registration Statement under this Agreement:

                  a. To the extent permitted by law, the Company will indemnify,
hold  harmless  and  defend  (i)  each  Investor  who  holds  such   Registrable
Securities,  and (ii) the directors,  officers,  partners,  members,  employees,
agents and each person who controls  any Investor  within the meaning of Section
15 of the Securities  Act or Section 20 of the Securities  Exchange Act of 1934,
as amended (the  "EXCHANGE  ACT"),  if any,  (each,  an  "INDEMNIFIED  PERSON"),
against any joint or several losses,  claims,  damages,  liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or  self-regulatory  organization,  whether commenced or threatened,  in respect
thereof,  "CLAIMS")  to which any of them may  become  subject  insofar  as such
Claims  arise out of or are based  upon:  (i) any  untrue  statement  or alleged
untrue statement of a material fact in a Registration  Statement or the omission
or alleged  omission to state  therein a material  fact required to be stated or
necessary  to make the  statements  therein  not  misleading,  (ii)  any  untrue
statement  or alleged  untrue  statement  of a material  fact  contained  in any
preliminary  prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein,  in light of the circumstances under which the
statements therein were made, not misleading,  or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including,  without  limitation,  any  state  securities  law,  or any  rule  or
regulation  thereunder  relating  to  the  offer  or  sale  of  the  Registrable
Securities  (the  matters in the  foregoing  clauses  (i) through  (iii)  being,
collectively,  "VIOLATIONS").  Subject to the  restrictions set forth in Section
6(c) with respect to the number of legal  counsel,  the Company shall  reimburse
the Investors and each such underwriter or controlling person,  promptly as such
expenses are incurred and are due and payable,  for any reasonable legal fees or
other reasonable  expenses incurred by them in connection with  investigating or
defending  any such Claim.  Notwithstanding  anything to the contrary  contained
herein, the indemnification  agreement contained in this Section 6(a): (i) shall
not apply to a Claim  arising out of or based upon a Violation  which  occurs in
reliance upon and in  conformity  with  information  furnished in writing to the
Company  by  such  Indemnified  Person  expressly  for  use in the  Registration
Statement or any such amendment  thereof or supplement  thereto;  (ii) shall not
apply to amounts paid in settlement of any Claim if such  settlement is effected
without the prior  written  consent of the Company,  which  consent shall not be


                                       10
<PAGE>

unreasonably  withheld;  and (iii) with respect to any  preliminary  prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or  omission  of material  fact  contained  in the  preliminary  prospectus  was
corrected on a timely basis in the prospectus,  as then amended or supplemented,
if such corrected  prospectus was timely made available by the Company  pursuant
to Section  3(c) hereof,  and the  Indemnified  Person was  promptly  advised in
writing not to use the  incorrect  prospectus  prior to the use giving rise to a
Violation and such Indemnified  Person,  notwithstanding  such advice,  used it.
Such  indemnity  shall  remain  in  full  force  and  effect  regardless  of any
investigation  made by or on behalf of the Indemnified  Person and shall survive
the transfer of the Registrable  Securities by the Investors pursuant to Section
9.

                  b. In connection with any  Registration  Statement in which an
Investor is  participating,  each such Investor agrees severally and not jointly
to  indemnify,  hold  harmless  and  defend,  to the same extent and in the same
manner set forth in Section 6(a), the Company,  each of its  directors,  each of
its officers who signs the  Registration  Statement,  its employees,  agents and
each person,  if any, who controls the Company  within the meaning of Section 15
of the  Securities  Act or  Section  20 of  the  Exchange  Act,  and  any  other
stockholder selling securities pursuant to the Registration  Statement or any of
its  directors  or  officers  or any person who  controls  such  stockholder  or
underwriter  within the meaning of the  Securities Act or the Exchange Act (each
an  "INDEMNIFIED  PARTY"),  against  any Claim to which  any of them may  become
subject,  under the  Securities  Act, the Exchange Act or otherwise,  insofar as
such Claim  arises out of or is based  upon any  Violation,  in each case to the
extent (and only to the extent) that such Violation  occurs in reliance upon and
in conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses  (promptly
as such  expenses are incurred and are due and payable)  reasonably  incurred by
them in connection  with  investigating  or defending any such Claim;  PROVIDED,
HOWEVER,  that the indemnity  agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such  settlement is effected
without the prior written  consent of such Investor,  which consent shall not be
unreasonably withheld;  PROVIDED,  FURTHER,  HOWEVER, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that  amount as does not  exceed  the net  proceeds  actually  received  by such
Investor  as a result of the sale of  Registrable  Securities  pursuant  to such
Registration  Statement.  Such  indemnity  shall remain in full force and effect
regardless of any  investigation  made by or on behalf of such Indemnified Party
and shall  survive the transfer of the  Registrable  Securities by the Investors
pursuant  to Section  9.  Notwithstanding  anything  to the  contrary  contained
herein,  the  indemnification  agreement  contained  in this  Section  6(b) with
respect  to any  preliminary  prospectus  shall not inure to the  benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or  supplemented,  and the  Indemnified  Party failed to utilize
such corrected prospectus.

                  c.  Promptly  after  receipt  by  an  Indemnified   Person  or
Indemnified  Party  under this  Section 6 of notice of the  commencement  of any
action  (including  any  governmental   action),   such  Indemnified  Person  or
Indemnified  Party shall,  if a Claim in respect  thereof is to made against any
indemnifying  party under this  Section 6, deliver to the  indemnifying  party a
written notice of the commencement  thereof,  and the  indemnifying  party shall
have the right to participate in, and, to the extent the  indemnifying  party so
desires,  jointly with any other indemnifying party similarly noticed, 


                                       11
<PAGE>

to assume control of the defense thereof with counsel  mutually  satisfactory to
the indemnifying  party and the Indemnified  Person or the Indemnified Party, as
the case may be; PROVIDED,  HOWEVER,  that such indemnifying  party shall not be
entitled to assume such defense and an Indemnified  Person or Indemnified  Party
shall have the right to retain its own counsel  with the fees and expenses to be
paid by the  indemnifying  party,  if,  in the  reasonable  opinion  of  counsel
retained by the indemnifying  party, the  representation  by such counsel of the
Indemnified  Person or  Indemnified  Party and the  indemnifying  party would be
inappropriate  due to actual or  potential  conflicts  of interest  between such
Indemnified  Person or Indemnified Party and any other party represented by such
counsel in such proceeding or the actual or potential  defendants in, or targets
of, any such action include both the Indemnified Person or the Indemnified Party
and the indemnifying  party and any such Indemnified Person or Indemnified Party
reasonably  determines  that  there  may be  legal  defenses  available  to such
Indemnified  Person or Indemnified Party which are different from or in addition
to those available to such indemnifying  party. The indemnifying party shall pay
for  only  one  separate  legal  counsel  for  the  Indemnified  Persons  or the
Indemnified Parties, as applicable,  and such legal counsel shall be selected by
Investors holding a majority-in-interest  of the Registrable Securities included
in the  Registration  Statement to which the Claim relates (with the approval of
the Initial  Investors  if they holds  Registrable  Securities  included in such
Registration  Statement),  if the  Investors  are  entitled  to  indemnification
hereunder,  or by the  Company,  if the Company is  entitled to  indemnification
hereunder,  as  applicable.  The  failure  to  deliver  written  notice  to  the
indemnifying  party within a  reasonable  time of the  commencement  of any such
action  shall  not  relieve  such  indemnifying  party of any  liability  to the
Indemnified  Person or  Indemnified  Party  under this  Section 6, except to the
extent  that the  indemnifying  party is actually  prejudiced  in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by  periodic   payments  of  the  amount   thereof  during  the  course  of  the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

         7. CONTRIBUTION.  To the extent any  indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable  under  Section  6 to the  fullest  extent  permitted  by law;  PROVIDED,
HOWEVER,  that (i) no contribution shall be made under  circumstances  where the
maker would not have been liable for  indemnification  under the fault standards
set forth in Section 6, (ii) no person  guilty of  fraudulent  misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution  from any seller of  Registrable  Securities  who was not guilty of
such fraudulent  misrepresentation,  and (iii)  contribution  (together with any
indemnification  or other  obligations  under this  Agreement)  by any seller of
Registrable  Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.

         8. REPORTS UNDER THE EXCHANGE  ACT. With a view to making  available to
the Investors the benefits of Rule 144  promulgated  under the Securities Act or
any other  similar rule or regulation of the SEC that may at any time permit the
Investors to sell  securities of the Company to the public without  registration
("RULE 144"), the Company agrees to:

                  a.  file  with  the SEC in a timely  manner  and make and keep
available  all reports  and other  documents  required of the Company  under the
Securities  Act and the Exchange Act so long 



                                       12
<PAGE>

as the Company remains subject to such  requirements  (it being  understood that
nothing herein shall limit the Company's  obligations  under Section 4(c) of the
Securities  Purchase  Agreement) and the filing and availability of such reports
and other documents is required for the applicable provisions of Rule 144; and

                  b.  furnish to each  Investor  so long as such  Investor  owns
Debentures, Common Shares or Registrable Securities,  promptly upon request, (i)
a written  statement  by the Company  that it has  complied  with the  reporting
requirements  of Rule 144, the  Securities Act and the Exchange Act, (ii) a copy
of the most  recent  annual or  quarterly  report of the  Company and such other
reports and documents so filed by the Company,  and (iii) such other information
as may be reasonably  requested to permit the Investors to sell such  securities
pursuant to Rule 144 without registration.

         9.  ASSIGNMENT  OF  REGISTRATION  RIGHTS.  The rights of the  Investors
hereunder,  including  the  right  to  have  the  Company  register  Registrable
Securities pursuant to this Agreement, shall be automatically assignable by each
Investor  to any  transferee  of all or any  portion of the  Debentures,  Common
Shares or the Registrable Securities if: (i) the Investor agrees in writing with
the  transferee or assignee to assign such rights,  and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (ii)
the Company is,  within a  reasonable  time after such  transfer or  assignment,
furnished with written notice of (a) the name and address of such  transferee or
assignee,  and (b) the securities with respect to which such registration rights
are being transferred or assigned,  (iii) following such transfer or assignment,
the further  disposition  of such  securities  by the  transferee or assignee is
restricted  under the Securities Act and applicable  state securities laws, (iv)
at or before the time the Company  receives the written notice  contemplated  by
clause (ii) of this sentence,  the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions  contained herein, and (v) such
transfer shall have been made in accordance with the applicable  requirements of
the Securities Purchase Agreement.

         10. AMENDMENT OF REGISTRATION RIGHTS.  Provisions of this Agreement may
be amended and the observance  thereof may be waived  (either  generally or in a
particular  instance  and  either  retroactively  or  prospectively),  only with
written consent of the Company, the Initial Investors (to the extent the Initial
Investors  still own  Debentures,  Common Shares or Registrable  Securities) and
Investors  who hold a majority in interest of the  Registrable  Securities.  Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.

         11.      MISCELLANEOUS.

                  a. A person or entity is deemed to be a holder of  Registrable
Securities  whenever  such  person or entity  owns of  record  such  Registrable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or more  persons  or  entities  with  respect  to the  same
Registrable  Securities,  the Company shall act upon the basis of  instructions,
notice  or  election  received  from the  registered  owner of such  Registrable
Securities.

                  b. Any  notices  required or  permitted  to be given under the
terms of this  Agreement  shall be sent by certified or registered  mail (return
receipt  requested)  or  delivered  


                                       13
<PAGE>

personally or by courier or by confirmed  telecopy,  and shall be effective five
days after being  placed in the mail,  if mailed,  or upon receipt or refusal of
receipt, if delivered  personally or by courier or confirmed  telecopy,  in each
case addressed to a party. The addresses for such communications shall be:

         If to the Company:

                  Palomar Medical Technologies, Inc.
                  66 Cherry Hill Drive
                  Beverly, Massachusetts 01915
                  Telecopy:  (508) 921-5801
                  Attention:  Paul Weiner, Director of Finance

                  with a copy to each of the  Company's  General  Counsel at the
                  same address and to:

                  Foley, Hoag & Eliot LLP
                  One Post Office Square
                  Boston, Massachusetts  02109
                  Telecopy:  (617) 832-7000
                  Attention:  Dean F. Hanley, Esq.

and if to any Investor,  at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).

                  c.  Failure of any party to exercise any right or remedy under
this  Agreement or otherwise,  or delay by a party in  exercising  such right or
remedy, shall not operate as a waiver thereof.

                  d.  This  Agreement  shall be  governed  by and  construed  in
accordance  with the laws of the State of Delaware  applicable to contracts made
and to be performed in the State of Delaware.  The Company irrevocably  consents
to the jurisdiction of the United States federal courts located in the County of
Kent in the State of  Delaware  in any suit or  proceeding  based on or  arising
under this Agreement and  irrevocably  agrees that all claims in respect of such
suit or proceeding  may be determined  in such courts.  The Company  irrevocably
waives the defense of an  inconvenient  forum to the maintenance of such suit or
proceeding. The Company further agrees that service of process upon the Company,
mailed by first class mail shall be deemed in every respect effective service of
process upon the Company in any such suit or  proceeding.  Nothing  herein shall
affect the  Investors'  right to serve process in any other manner  permitted by
law. The Company agrees that a final non-appealable judgment in any such suit or
proceeding  shall be conclusive  and may be enforced in other  jurisdictions  by
suit on such judgment or in any other lawful manner.

                  e.  This  Agreement  and  the  Securities  Purchase  Agreement
(including all schedules and exhibits  thereto)  constitute the entire agreement
among the parties  hereto with respect to the subject matter hereof and thereof.
There are no  restrictions,  promises,  warranties or  


                                       14
<PAGE>

                                                                        
undertakings, other than those set forth or referred to herein and therein. This
Agreement and the Securities  Purchase Agreement  supersede all prior agreements
and  understandings  among the parties hereto with respect to the subject matter
hereof and thereof.

                  f.  Subject  to the  requirements  of  Section 9 hereof,  this
Agreement  shall inure to the benefit of and be binding upon the  successors and
assigns of each of the parties hereto.

                  g. The  headings  in this  Agreement  are for  convenience  of
reference only and shall not limit or otherwise affect the meaning hereof.

                  h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall  constitute one
and the same  agreement.  This  Agreement,  once  executed  by a  party,  may be
delivered to the other party hereto by facsimile  transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.

                  i. Each party  shall do and  perform,  or cause to be done and
performed,  all such further acts and things,  and shall execute and deliver all
such other  agreements,  certificates,  instruments and documents,  as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

                  j. All  consents  and other  determinations  to be made by the
Investors or the Initial  Investors  pursuant to this Agreement shall be made by
the  Investors or the Initial  Investors  holding a majority of the  Registrable
Securities  (determined as if all Debentures then outstanding had been converted
into or exercised for Registrable  Securities)  held by all Investors or Initial
Investors, as the case may be.

                  k. The initial  number of Registrable  Securities  included on
any  Registration  Statement  and each  increase  to the  number of  Registrable
Securities  included  thereon  shall be allocated  pro rata among the  Investors
based on the number of Registrable  Securities held by each Investor at the time
of such establishment or increase,  as the case may be. In the event an Investor
shall sell or otherwise  transfer any of such holder's  Registrable  Securities,
each  transferee  shall  be  allocated  a pro  rata  portion  of the  number  of
Registrable Securities included on a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining  Investors,  pro rata based on the number of
shares of Registrable Securities then held by such Investors.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                                       15
<PAGE>

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

PALOMAR MEDICAL TECHNOLOGIES, INC.


By:
   -------------------------------
Name:
     -----------------------------
Its:
    ------------------------------

Initial Investors:

Name:
     -----------------------------

By:
     -----------------------------
Name:
     -----------------------------
Its:
     -----------------------------

<PAGE>


                                                                         Exhibi1
                                                                    To Exhibit B
                                                   REGISTRATION RIGHTS AGREEMENT

[Date]

VIA FACSIMILE:  (718) 331-1852

Herbert Lemmer, Esq.
AMERICAN STOCK TRANSFER & TRUST COMPANY
                                                                  40 Wall Street
New York, NY  10005

RE:      PALOMAR MEDICAL TECHNOLOGIES, INC.

Dear Mr. Lemmer:

We are counsel to PALOMAR MEDICAL  TECHNOLOGIES,  INC., a corporation  organized
under the laws of the State of Delaware (the "COMPANY"),  and we understand that
[Name of Investor]  (the "HOLDER") has purchased from the Company (i) 6%, 7% and
8%  Convertible  Debentures Due September 30, 2002 (the  "DEBENTURES")  that are
convertible  into shares of the Company's Common Stock, par value $.01 per share
(the "COMMON STOCK") and (ii) shares of Common Stock (the "COMMON SHARES").  The
Debentures  and  Common  Shares  were  purchased  by the  Holder  pursuant  to a
Securities Purchase Agreement,  dated as of September 30, 1997, by and among the
Company  and  the  signatories   thereto  (the   "AGREEMENT").   Pursuant  to  a
Registration Rights Agreement,  dated as of September 30, 1997, by and among the
Company and the signatories thereto (the "REGISTRATION  RIGHTS AGREEMENT"),  the
Company agreed with the Holder,  among other things, to register the Registrable
Securities (as that term is defined in the Registration  Rights Agreement) under
the Securities Act of 1933, as amended (the  "SECURITIES  ACT"),  upon the terms
provided in the Registration Rights Agreement.  In connection with the Company's
obligations  under the Registration  Rights  Agreement,  on ________,  1997, the
Company   filed  a   Registration   Statement  on  Form  S-___  (File  No.  333-
_____________)  (the "REGISTRATION  STATEMENT") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable  Securities,  which names the
Holder as a selling stockholder thereunder.

[Customary introductory and scope of examination language to be inserted]

Based on the foregoing,  we are of the opinion that the  Registrable  Securities
have been registered under the Securities Act.

         [Other customary language to be included.]

Very truly yours,

cc:   [Name of Investor]


<PAGE>


                                                                       EXHIBIT C

                            As of September 30, 1997

JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11, Bermuda
Attn:    Philip Pedro

Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, Virginia  20191
Attn:    Neil T. Chau

Southbrook International Investments, Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, New York  10111
Attn:    Robert L. Miller

         Re:      PALOMAR MEDICAL TECHNOLOGIES, INC.

Ladies and Gentlemen:

         We have acted as special counsel to Palomar Medical Technologies, Inc.,
a Delaware  corporation (the  "Company"),  in connection with the sale of (a) $7
million  principal amount of the Company's 6%, 7% and 8% Convertible  Debentures
(the  "Debentures"),  which are convertible  into shares of the Company's Common
Stock,  par value $.01 per share (the  "Common  Stock"),  and (b) certain  other
shares  of  Common  Stock  (the  "Common  Shares")  pursuant  to the  terms  and
conditions of that certain  Securities  Purchase Agreement dated as of September
30,  1997 (the  "Purchase  Agreement")  by and  between the Company and you (the
"Purchasers").  


                                       1
<PAGE>

Capitalized  terms used herein and not otherwise  defined herein
shall  have the  respective  meanings  assigned  to such  terms in the  Purchase
Agreement.

         In connection  with our rendering of the opinions  expressed  below, we
reviewed

         (a) the Certificate of  Incorporation  (the "Charter") and By-Laws (the
"By-Laws") of the Company, each as amended to date;

         (b)  certificates  issued  by the  Secretary  of State of the  State of
Delaware dated  September 26, 1997, with respect to the legal existence and good
standing of the Company,  Palomar Medical  Products,  Inc., Nexar  Technologies,
Inc., Cosmetic Technology  International,  Inc., Spectrum Medical  Technologies,
Inc.,  Palomar  Electronics  Corporation  and Dynaco Corp.  in  Delaware,  and a
certificate  issued by the Secretary of State of the State of  California  dated
September  26, 1997,  with respect to the legal  existence  and good standing of
Comtel  Electronics  in  California  (such  entities,  other  than the  Company,
hereinafter referred to as the "Subsidiaries");

         (c) a certificate  issued by the Secretary of State of The Commonwealth
of  Massachusetts  dated  September  29, 1997,  as to the  qualification  of the
Company to conduct business as a foreign corporation;

         (d) a certified  copy of certain  resolutions of the Board of Directors
of the Company;

         (e) the Purchase  Agreement,  the Registration Rights Agreement and the
form of Debenture;

         (f) the other  documents  delivered at the closing of the  transactions
contemplated by the Purchase Agreement;

         (g)  certificates  of the  Company  with  respect  to  certain  factual
matters;

         (h) the  agreements,  instruments  and  documents  listed on  EXHIBIT A
attached hereto (the "Listed Agreements"); and

         (i) such other documents and  certificates as we have deemed  necessary
to enable us to render the opinions expressed below.

         In rendering  the opinions  expressed in paragraph 1 below with respect
to the legal  existence  and good standing of the Company in Delaware and of the
Subsidiaries in their respective jurisdictions of organization, and with respect
to  qualification  and good standing of the Company as a foreign  corporation in
The Commonwealth of  Massachusetts,  we have relied solely upon the certificates
referred to in clauses (b) and (c) of the preceding paragraph, and such 


                                       2
<PAGE>

opinions are given as of the date of such certificates. We express no opinion as
to the tax good standing of the Company or any Subsidiary.

         With respect to the opinion  expressed  in  paragraph 6 below,  we note
that we did not  observe  or  supervise  the  activities  of the  Company or its
representatives  in connection with the offering and sale of the Debentures.  In
rendering   such  opinion  we  have  assumed   based  solely  upon  the  factual
representation  of  the  Company  made  or  delivered  to us and  without  other
investigation  that in connection  with such offering and sale there has been no
general   solicitation   or   general   advertising   by  the   Company  or  its
representatives.  We have also  assumed  that no person  subject  to 950  C.M.R.
14.402(b)(9)(F)  has  engaged in any  activity  prohibited  thereby  and that no
subsequent  offer or sale of securities of the Company will adversely affect the
availability of the exemptions from  registration  referred to in paragraph 6 of
this opinion with respect to the offer or sale of the Debentures, the Conversion
Shares or the Common Shares.

         In rendering the opinions  expressed  herein, we have also examined and
have relied  completely  upon all of the  representations  and  warranties as to
matters of fact contained in the Purchase Agreement and contained in the related
instruments  and other  documents  delivered by the Company to you in connection
with  the  issuance  and  sale  of the  Debentures,  and  we  have  assumed  the
completeness   and   accuracy  of  all  factual   matters   described   in  such
representations and warranties.

         We have not, except as specifically  noted above,  made any independent
review or  investigation  of facts relating to the Company,  including,  without
limiting the generality of the foregoing,  any investigation as to the existence
of any actions,  suits or proceedings  pending or threatened against the Company
or  agreements,  judgments,  injunctions,  orders or  decrees  binding  upon the
Company or which might result in the imposition of any lien or other encumbrance
on any assets of the Company.

         We have assumed the  authenticity  and  completeness  of all  documents
furnished to us as originals,  the genuineness of all signatures  (other than on
behalf of the Company), the legal capacity of natural persons, the conformity to
the originals of all documents  furnished to us as copies,  and the accuracy and
completeness of all corporate records made available to us by the Company.

         When an  opinion  set  forth  below  is  given  to our  knowledge,  the
knowledge is limited to the conscious awareness of facts or other information of
Marcel A. Bryar,  Esquire,  Dean F.  Hanley,  Esquire,  and  Alexander  H. Pyle,
Esquire,  who are the individual  lawyers in our firm who were actively involved
in representation  of the Company with respect to the transactions  contemplated
by the Purchase  Agreement and, except as expressly  stated herein,  without any
special or additional investigation undertaken for the purposes of this opinion.

                                       3
<PAGE>

         You have not asked us to pass upon your  power and  authority  to enter
into the Purchase Agreement or the Registration  Rights Agreement.  Accordingly,
for the  purposes  of this  opinion,  we have  assumed  that each of you has all
requisite  power and  authority  to enter into the  Purchase  Agreement  and the
Registration Rights Agreement and to effect all of the transactions  thereunder,
and that the Purchase  Agreement,  the  Registration  Rights  Agreement and each
other agreement or instrument we have reviewed  constitutes the legal, valid and
binding obligation of all parties thereto other than the Company.

         We have made such examination of Massachusetts law, Federal law and the
corporation  law of the State of Delaware as we deem  necessary for the purposes
of this  opinion.  We do not  purport to pass herein on the laws of any state or
jurisdiction other than the federal law of the United States of America, the law
of The  Commonwealth  of  Massachusetts  and the corporation law of the State of
Delaware.  Our opinions  are given only as of the date hereof,  and we expressly
disclaim any continuing obligation or undertaking to supplement or update any of
our  statements  herein.  We have assumed  that no  Purchaser is an  "interested
stockholder"  within  the  meaning  of  Section  203  of  the  Delaware  General
Corporation Law.

         We note that the Purchase Agreement,  the Registration Rights Agreement
and the  Debentures  are governed by the law of the State of  Delaware.  We have
assumed,  with  your  permission,  that  the  substantive  law of the  State  of
Delaware,  other than the corporation law of the State of Delaware, is identical
in  all  respects  material  to  our  opinions  to  the  substantive  law of The
Commonwealth of Massachusetts.

         The opinions herein  expressed are qualified to the extent that (a) the
validity or  enforceability of any provisions of any agreement or instrument may
be  subject  to or  affected  by  any  bankruptcy,  reorganization,  insolvency,
moratorium, fraudulent conveyance, fraudulent transfer or similar law of general
application  from time to time in effect and relating to or affecting the rights
or remedies of creditors  generally,  (b) the remedy of specific  performance or
any other  equitable  remedy may be  unavailable in any  jurisdiction  or may be
withheld  as a matter of judicial  discretion,  and (c) the  enforcement  of any
rights or  remedies  is or may be subject to an implied  duty on the part of the
party seeking to enforce such rights to take action and make determinations on a
reasonable basis and in good faith. In addition, we express no opinion herein as
to:  prospective  waivers  of rights to notice or a hearing  or of other  rights
granted by constitution or statute; powers of attorney; provisions purporting to
relieve  parties of the  consequences  of their own  negligence  or  misconduct;
provisions purporting to establish evidentiary  standards;  or provisions to the
effect that rights or remedies are not exclusive,  that every right or remedy is
cumulative  and may be  exercised  in addition to any other right or remedy,  or
that failure to exercise or delay in  exercising  rights and  remedies  will not
operate as a waiver of any such right or remedy.  With your permission,  we have
assumed  for all  purposes  under this  opinion  that the  Company  is not,  and
following completion of the transactions  contemplated by the Purchase Agreement
will not be, insolvent,  left with unreasonably small capital,  or unable to pay

                                       4
<PAGE>

its debts as they mature.  We express no opinion as to the effect of the laws of
any  jurisdiction  wherein  the  Company  or you  may  be  located,  or  wherein
enforcement of the Purchase  Agreement or the  Debentures  may be limited,  with
respect to the rates of interest legally chargeable or collectible thereunder.

         Based upon and subject to the foregoing, we are of the opinion that:

         1. The Company is a corporation duly organized, validly existing and in
good  standing  under the laws of the State of  Delaware  and has all  requisite
corporate  power and authority to own its properties and to conduct its business
as currently  conducted.  The Company has power and  authority to enter into and
perform each of the Purchase Agreement and the Registration Rights Agreement and
to issue the Debentures and the Common Shares and to issue the Conversion Shares
upon  conversion of the  Debentures.  Each of the  Subsidiaries is a corporation
validly  existing  and  in  good  standing  under  the  laws  of  its  state  of
incorporation. We have advised you that Tissue Technologies,  Inc., a subsidiary
of the Company, is not in good standing in the State of Arizona.  The Company is
duly  qualified  as a  foreign  corporation  and  is in  good  standing  in  The
Commonwealth  of  Massachusetts,  and, based on factual  representations  by the
Company to us, there is no other state or  jurisdiction  in which the failure to
be so qualified would have a material adverse effect on the Company.

         2. The Purchase  Agreement,  the Registration  Rights Agreement and the
Debentures have been duly and validly  executed and delivered by the Company and
constitute the legal, valid and binding  obligations of the Company  enforceable
against the Company in accordance with their respective terms, except that we do
not  express  any  opinion  as  to  the  validity  or   enforceability   of  the
indemnification   and  contribution   provisions  of  the  Registration   Rights
Agreement.

         3.  The  authorized  capital  stock  of  the  Company  consists  of (a)
100,000,000  shares of Common Stock and (b) 5,000,000 shares of Preferred Stock,
par value $.01 per share.

         4. The Common Shares and the Conversion Shares are duly authorized and,
when  issued in  accordance  with the  Purchase  Agreement  and the  Debentures,
respectively, will be validly issued, fully paid and non-assessable. The Company
has reserved for issuance upon conversion of the Debentures  3,500,000 shares of
the Company's  authorized but unissued  Common Stock, as well as such additional
shares of Common  Stock as may be  required to be issued  upon  conversion  as a
result  of the  antidilution  provisions  of the  Debentures  or as a result  of
changes in the market price of the Common Stock.

         5. Except for certain contractual rights in favor of the holders of the
Company's  Series H  Convertible  Preferred  Stock  (the  "Series  H  Preemptive
Rights"),  to our  knowledge  there are no  preemptive  rights or other  similar
rights of  stockholders  of the  Company to acquire the  Debentures,  the Common
Shares or the  Conversion  Shares or any other  securities  of the 


                                       5
<PAGE>

Company upon issuance of the  Debentures,  the Common  Shares or the  Conversion
Shares contained in the Charter,  the By-Laws or the Listed Agreements.  We have
been  provided you with such  documentation  as has been  furnished to us by the
Company regarding the Company's  compliance with its obligations with respect to
the Series H Preemptive Rights, and, with your permission, we express no opinion
with respect to such matters.

         6.  Assuming  the  accuracy  of  the  respective   representations  and
warranties  of the  Company  and  the  Purchasers  set  forth  in  the  Purchase
Agreement, the offer, issuance, sale and delivery of the Debentures,  the Common
Shares and the  Conversion  Shares in accordance  with the terms of the Purchase
Agreement and the Debentures constitute exempt transactions under the Securities
Act of 1933, as amended.

         7. The execution,  delivery and  performance of the Purchase  Agreement
and  Registration  Rights  Agreement  by the  Company,  the  performance  of its
obligations  under the  Debentures,  and the  consummation by the Company of the
transactions  contemplated by the Purchase Agreement and the Registration Rights
Agreement, including, without limitation, the issuance of the Debentures and the
issuance and  reservation  for issuance of the  Conversion  Shares in accordance
with the terms of the  Debentures,  do not and will not result in a violation of
the Charter or By-Laws or 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 of the  Listed  Agreements  except  for  such  conflicts,
defaults, terminations, amendments, accelerations,  cancellations and violations
as would not,  individually or in the aggregate,  have a Material Adverse Effect
or a material adverse effect on the Company's ability to perform its obligations
under  the  Purchase  Agreement  or the  Registration  Rights  Agreement  or the
Purchasers' rights as holders of Debentures.

         8. The execution,  delivery and performance of the Purchase  Agreement,
the  Registration  Rights  Agreement  and the  Debentures by the Company and the
consummation  by the Company of the  transactions  contemplated  by the Purchase
Agreement and the Registration Rights Agreement,  including, without limitation,
the  issuance of the  Debentures  and the Common  Shares,  the  issuance and the
reservation  for issuance of the Conversion  Shares in accordance with the terms
of the  Debentures  (a)  do not  and  will  not  result  in a  violation  of the
corporation  law of the State of Delaware or any federal or  Massachusetts  law,
rule, or regulation, or by which, to our knowledge, any property or asset of the
Company is bound or affected,  and (b) except as set forth in paragraph 5 hereof
and  except  with  respect  to a breach of  certain  financial  covenants  under
$100,000  outstanding   principal  amount  of  the  Company's  4.5%  Convertible
Subordinated  Promissory  Note dated  October  24,  1996,  will not  require the
Company to obtain any approval,  consent,  authorization,  waiver,  exemption or
order of, or make any filing or registration  with, any court or governmental or
regulatory agency, self regulatory  organization or stock market or exchange or,
to our  knowledge,  any third  party,  in order for it to  execute,  deliver  or
perform any of its obligations under the Purchase  Agreement or the Registration
Rights Agreement or to issue and deliver the Debentures and the Common Shares or
to issue and deliver the Conversion  Shares 


                                       6
<PAGE>

in  accordance  with the terms of the  Debentures  or for you to  exercise  your
rights and  remedies  under any of the Purchase  Agreement  or the  Registration
Rights Agreement (other than any SEC, NASD,  NASDAQ or state securities  filings
which may be required to be made by the Company  subsequent to the  consummation
of the transactions  contemplated by the Purchase  Agreement and other than with
respect to any  registration  statement which may be filed or may be required to
be filed pursuant to the Registration  Rights Agreement).  We express no opinion
with respect to any provision of the  securities or "blue sky" laws of any state
or other  jurisdiction  other than, with respect to its securities or "blue sky"
laws, The Commonwealth of Massachusetts.

         9.  To our  knowledge,  the  Company  currently  meets  the  registrant
eligibility requirements to register the resale of the Common Shares on form S-3
under the Securities Act.

         These opinions are limited to the matters  expressly  stated herein and
are  rendered  solely for your  benefit and may not be quoted or relied upon for
any other purpose or by any other person.

                                                        Very truly yours,

                                                        FOLEY, HOAG & ELIOT LLP

                                                         By: David A. Broadwin
                                                             -------------------
                                                             A Partner


<PAGE>


                                                                       EXHIBIT A
                                                                              TO
                                                                       EXHIBIT C

Agreement  and Plan of  Reorganization  dated  March 9,  1996 by and  among  the
Company, TTI Acquisition Corp.,

Tissue Technologies, Inc. and Mario Barton

Amendment to the Merger  Agreement dated April 29,1996 by and among the Company,
TTI Acquisition Corp.,

Tissue Technologies, Inc. and Mario Barton

Letter from the Company to Tissue Technologies, Inc. waiving the Company's right
to receive  indemnification  under Section 6 of the Merger  Agreement in certain
circumstances

Plan of Merger  dated May 3, 1996 by and between the  Company,  TTI  Acquisition
Corp. and Tissue Technologies, Inc.

List of exhibits and schedules omitted from the Tissue Technologies, Inc. Merger
Agreement

Stock Purchase Agreement dated March 19, 1996, by and between Dynaco Acquisition
Corp.,  Comtel  Electronics,  Inc.,  Mikel C.  Green,  Peter  Rogal and  Palomar
Electronics Corp.

Agreement for Purchase of Stock dated July 12,1996,  by and between the Company,
Eleanor Roberts Weisman

and Wallace Roberts

Restated Certificate of Incorporation, as amended

Certificate  of Amendment to  Certificate  of  Incorporation,  as filed with the
Delaware Secretary of State on December 16, 1996

Certificate of Designation of Series G Convertible Preferred Stock as filed with
the Delaware Secretary of State on September 26, 1996

Certificate of Designation of Series H Convertible Preferred Stock as filed with
the Delaware Secretary of State on March 26, 1997

Bylaws, as amended

Form of Common Stock Certificate

Patent  License  Agreement  by and between  the Company and Patlex  Corporation,
effective as of January 1, 1992

1996 Stock Option Plan

1996 Employee Stock Purchase Plan

Form of Stock Option Agreement under the 1996 Stock Option Plan

Securities  Purchase  Agreement between the Company and The Travelers  Insurance
Company dated July 12, 1996

Warrant to purchase Common Stock of the Company, dated July 12, 1996

Subscription  Agreement  between the Company and  Genesee  Fund  Limited,  dated
September 26, 1996

Registration  Rights  Agreement  between the Company and Genesee  Fund  Limited,
dated September 26, 1996

 Warrant to purchase Common Stock of the Company, dated September 27, 1996

Warrant Agreement between the Company and American Stock Transfer & Trust Co. as
warrant agent, dated June 24, 1996

Palomar Medical  Technologies,  Inc. and American Stock Transfer & Trust Company
as trustee, Indenture dated as of June 24, 1996, SF 25,000,000, 4.5% Convertible
Subordinated Debentures due 2003

Form of Offshore Securities Subscription Agreement, dated July 3, 1996

Form of Registration Rights Agreement, dated July 3, 1996

Form of Debenture, dated July 3, 1996

Form of Warrant, dated July 3, 1996

Berckeley Subscription Agreement,  dated December 31, 1996 and Amendment thereto
dated January 10, 1997

Berckeley Debenture, dated December 31, 1996

High Risk Opportunities Hub Fund, Ltd. Subscription Agreement, dated January 14,
1997

High Risk Opportunities Hub Fund, Ltd. Debenture, dated January 13, 1997

Securities  Purchase  Agreement  between  Palomar  Electronics  Corporation  and
Clearwater Fund IV, LLC, dated December 31, 1996

Securities  Purchase  Agreement  between Palomar  Electronics  Corporation,  the
Company and The Travelers Insurance Company, dated as of December 18, 1996

Securities  Purchase Agreement between Palomar  Electronics  Corporation and GFL
Advantage Fund Limited dated December 31, 1996

Option  Agreement  between the  Company and GFL  Advantage  Fund  Limited  dated
December 31, 1996

 Common Stock Purchase Warrant dated December 31, 1996

Form of Net Warrant to Purchase Common Stock

Subscription  Agreement  between  the  Company  and  Finmanagement,  Inc.  dated
December 27, 1996

Subscription  Agreement dated as of April 12, 1996,  between the Company and GFL
Advantage Fund Limited

Registration  Rights  Agreement  dated as of April 17,  1996 by and  between the
Company and GFL Advantage Fund Limited

Warrant dated as of April 16, 1996

Form of Wan-ant to purchase Common Stock dated February 1, 1996

Form of Offshore Stock Subscription Agreement dated February 1, 1996

Form of Subscription Agreement dated as of March 10, 1997

Form Registration Rights Agreement dated as of March 10, 1997

Form of 5% Convertible Debenture due March 10, 2002

Subscription  Agreement between the Company and Soginvest Bank dated as of March
13, 1997

Asset  Purchase  and  Settlement  Agreement  by and  among  the  Company,  Nexar
Technologies, Inc., Technovation Computer Labs, Inc. and Babar I. Hamirani dated
February 28, 1997

List of exhibits omitted from the Asset Purchase and Settlement Agreement

Employment Agreement dated as of January 1, 1997, between the Company and Steven
Georgiev

Employment  Agreement  dated as of January  1, 1997,  between  the  Company  and
Michael H. Smotrich

Employment Agreement dated as of January 1, 1997, between the Company and Joseph
P. Caruso

Employment  Agreement  dated as of January  1, 1997,  between  the  Company  and
Anthony Fiorillo

Securities   Purchase  Agreement  between  the  Company  and  RGC  International
Investors, LDC, dated March 27, 1997

Registration   Rights  Agreement  between  the  Company  and  RGC  International
Investors, LDC, dated March 27, 1997

Form of Promissory Note dated October 17,1996

Form of Subscription Agreement dated October 16, 1996

 Supplement to Securities Purchase Agreement dated May 5, 1997

Supplement to Registration Rights Agreement dated May 5, 1997

Supplement to Securities Purchase Agreement dated May 23, 1997

Supplement to Registration Rights Agreement dated May 23, 1997

Consent of Arthur Andersen UP

Agreement,  dated  December  30,  1993,  by  and  between  the  Company,  Dynaco
Corporation and Dynaco West Corporation

First  Amendment  to Purchase  and Sale  Agreement,  by and between the Company,
Dynaco Corporation and Dynaco, West Corporation, dated January 24, 1994

Purchase and Sale Agreement dated March 14, 1995, by and between the Company and
SPMT Acquisition Corp., Spectrum Medical Technologies,  Inc., Sanford R Lane and
CSF Investments Ltd.

Purchase  and  Sale  Agreement  dated  June  5,  1995,  by  and  between  Dynaco
Acquisition Corporation and Inter-Connecting Products, Inc.

1991 Stock Option Plan, as amended

1993 Stock Option Plan

1995 Stock Option Plan

Form of Stock Option Grant under the 1991, 1993 and 1995 Stock Option Plans

Form of Company Warrant to Purchase Common Stock

Lease for premises at 66 Cherry Hill Drive,  Beverly,  Massachusetts,  dated May
25, 1993

The Company's 401(k) Plan


<PAGE>


                                                                       EXHIBIT D

October 8, 1997

VIA FACSILIME

Herbert Lemmer, Esq.
AMERICAN STOCK TRANSFER & TRUST COMPANY 
40 Wall  Street  
New York,  NY 10005
Facsimile (718) 331-1852

         RE: PALOMAR MEDICAL TECHNOLOGIES, INC.

Dear Mr. Lemmer:

         Reference is made to that certain Securities Purchase Agreement,  dated
September 30, 1997, by and among Palomar Medical  Technologies  Inc., a Delaware
corporation (the "Company") and the other signatories thereto (each, a "Holder")
pursuant to which the Company is issuing to the Holders $7,000,000 6%, 7% and 8%
Debentures (the "Debentures"). The Debentures are convertible into shares of the
Company's common stock, par value $.01 per share (the "Conversion Shares"). This
letter  shall serve as our  irrevocable  authorization  and  direction to you to
issue  Conversion  Shares to Holder from time to time upon the  direction of the
Company.  Certificates  for the  Conversion  Shares  shall  not bear any  legend
restricting  their  transfer  and should  not be  subject  to any  stop-transfer
restriction;  PROVIDED, HOWEVER that if the Conversion Shares are not registered
for resale under the Securities Act of 1933, as amended,  then the  certificates
for the Conversion Shares shall bear the following legend:

         "THE  SECURITIES   REPRESENTED  BY  THIS   CERTIFICATE  HAVE  NOT  BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR APPLICABLE
         STATE  SECURITIES  LAWS.  THE  SECURITIES  MAY NOT BE OFFERED FOR SALE,
         SOLD,   TRANSFERRED   OR  ASSIGNED  IN  THE  ABSENCE  OF  AN  EFFECTIVE
         REGISTRATION  STATEMENT FOR THE SECURITIES  UNDER THE SECURITIES ACT OF
         1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
         COUNSEL,  IN A GENERALLY  ACCEPTABLE  FORM,  THAT  REGISTRATION  IS NOT
         REQUIRED UNDER SAID ACT OR APPLICABLE  STATE  SECURITIES LAWS OR UNLESS
         SOLD PURSUANT TO RULE 144 UNDER THE ACT."

                                       1
<PAGE>

         Please be advised  that the Holder is  relying  upon this  letter as an
inducement to enter into the Securities  Purchase  Agreement  and,  accordingly,
Holder is a third party beneficiary to these instructions. Moreover, the Company
cannot revoke or modify these instructions  without the prior written consent of
Holder.

         Please execute this letter in the space  indicated to acknowledge  your
agreement  to act in  accordance  with these  instructions.  Should you have any
questions concerning this matter, please contact me at (508) 921-9300.

                                                     Very truly yours,

                                               PALOMAR MEDICAL TECHNOLOGIES INC.

                                               By:  
                                                  ------------------------------
                                               Name:    LOUIS P. VALENTE
                                               Title:   PRESIDENT, 
                                                        CHIEF EXECUTIVE OFFICER,
                                                        CHAIRMAN

Acknowledged:

AMERICAN STOCK TRANSFER
& TRUST COMPANY

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

Enclosure

cc: JNC Opportunity Fund, Ltd.
      Diversified Strategic Fund, L.P.
      Southbrook International Investment, Ltd.


<PAGE>




                                  SCHEDULE 3(A)

                      SCHEDULE OF SIGNIFICANT SUBSIDIARIES

    PALOMAR MEDICAL PRODUCTS, INC.           DYNACO CORP.
        66 Cherry Hill Drive                     1000 South Priest Drive
        Beverly, MA  01915                       Tempe, AZ  85281
        Tel:      508-921-9300                   Tel:     602-968-2000
        Fax:      508-921-5801                   Fax:     602-921-9830

   COSMETIC TECHNOLOGY INTERNATIONAL, INC.   COMTEL ELECTRONICS, INC.
        66 Cherry Hill Drive                     14101 Myford Road
        Beverly, MA  01915                       Tustin, CA  92680
        Tel:      508-921-9300                   Tel:     714-453-8754
        Fax:      508-921-5801                   Fax:     714-450-0276

   NEXAR TECHNOLOGIES, INC.                  TISSUE TECHNOLOGIES, INC.
        182 Turnpike Road                        4432 Anaheim Ave. NE
        Westboro, MA  01581                      Albuquerque, NM  87113
        Tel:      508-836-8700                   Tel:     505-880-1419
                  800-520-8455                            800-658-3185
        Fax:      508-836-8729                   Fax:     505-828-0525

   PALOMAR ELECTRONICS CORPORATION           SPECTRUM MEDICAL TECHNOLOGIES, INC.
        66 Cherry Hill Drive                     45 Hartwell Avenue
        Beverly, MA  01915                       Lexington, MA  02173
         Tel:     508-921-9300                   Tel:     617-676-7300
         Fax:     508-921-5801                                    888-876-5400
                                                 Fax:     617-676-7330


<PAGE>


                                  SCHEDULE 3(F)

                                                                    NEWS RELEASE

FOR   IMMEDIATE   RELEASE

CONTACTS:
<TABLE>
<S>                                         <C>                                 <C>
John J. Ingoldsby                           Jon Siegal                          Stanley Wunderlich
Director of Investor Relations              Associate                           Chairman
Palomar Medical Technologies, Inc.          Ronald Trahan Assoc., Inc.          Consulting for Strategic Growth, Ltd.
508-921-9300                                617-332-0101                        800-625-2236
</TABLE>

         PALOMAR'S PREVIOUSLY FILED PATENT LAWSUIT AGAINST MEHL/BIOPHILE
          PRE-DATES MEHL/BIOPHILE'S LEGAL ACTION ANNOUNCED TWO DAYS AGO

BEVERLY,  Mass., March 12, 1997 -- Palomar Medical  Technologies,  Inc. (NASDAQ:
PMTI) today  announced that it filed a declaratory  judgment  several months ago
against MEHL/Biophile  International Corp. (NASDAQ:  MEHL) seeking a declaration
that Palomar's Epilaser(TM) laser-based hair removal system does not infringe on
MEHL/Biophile's   laser   hair   removal   method,   and,   furthermore,    that
MEHL/Biophile's  patent is both invalid and  unenforceable.  Palomar's  suit was
filed in United States District Court in Boston, Mass.

Palomar's   declaratory   judgment   action  was  filed   substantially   before
MEHL/Biophile's announcement two days ago that its Selvac Acquisition Corp. unit
had  filed  a  lawsuit  against  Palomar  for  patent  infringement  and  unfair
competition,  essentially the same claims made previously by Palomar in its suit
against  MEHL/Biophile.  Selvac  licenses the patented laser hair removal method
owned by Dr. Nardo Zaias.

"We filed this declaratory judgment months ago after learning that MEHL/Biophile
was  misrepresenting  to our customers  that our product might infringe on their
patent," said Steven Georgiev,  chairman and chief executive officer of Palomar.
"We are announcing  our lawsuit today since our patent has only issued  recently
and, therefore, all of the information is now in the public domain, allowing for
resolution of these issues."

                                     (more)
<PAGE>

                                                                     PALOMAR / 2

MEHL/Biophile's  lawsuit was  announced  hours after  Palomar  announced  it had
received U.S. Food and Drug Administration (FDA) to sell and market its Epilaser
system. Palomar announced yesterday the issuance of a U.S. patent that discloses
and protects the  laser-based  hair removal  technology  developed by Dr. R. Rox
Anderson  at  Massachusetts   General  Hospital's  Wellman   Laboratories,   the
technology used in Epilaser and for which Palomar is the exclusive licensee.

Palomar Medical  Technologies,  Inc. is a leading supplier of proprietary  laser
systems for dermatological and cosmetic laser treatment, and also engages in the
development and sale of specialty electronic products.

   "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT

With the exception of the historical  information contained in this release, the
matters  described herein contain  forward-looking  statements that involve risk
and  uncertainties  that may  individually or mutually impact the matters herein
described,  including but not limited to product  demand and market  acceptance,
the effect of  economic  conditions,  the  impact of  competitive  products  and
pricing,   governmental  regulations,   results  of  litigation,   technological
difficulties and/or other factors outside the control of the company,  which are
detailed from time to time in the company's SEC reports, including the report on
Form 10-Q for the quarter ended September 30, 1996.

                                      ####
                 Palomar news releases are available through PR
                     Newswire Company News on-Call by fax at
                       800-758-5804, Extension 107555, or
                        http://www.prnewswire.com/(PMTI).

              Palomar's home page address is http://www.palmed.com

                                      ####

<PAGE>


                                                                    NEWS RELEASE

FOR   IMMEDIATE    RELEASE

CONTACTS:
<TABLE>
<S>                                         <C>                                 <C>
John J. Ingoldsby                           Jon Siegal                          Stanley Wunderlich
Director of Investor Relations              Associate                           Chairman
Palomar Medical Technologies, Inc.          Ronald Trahan Assoc., Inc.          Consulting for Strategic Growth, Ltd.
508-921-9300                                617-332-0101                        800-625-2236
</TABLE>

         PALOMAR REPORTS FINANCIAL RESULTS; ELECTRONIC BUSINESS SPIN-OUT
            IN PROCESS, SOLE FOCUS IS NOW ON COSMETIC LASER INDUSTRY

BEVERLY,  Mass., March 18, 1997 -- Palomar Medical  Technologies,  Inc. (NASDAQ:
PMTI) today  announced  that revenues for the fourth  quarter ended December 31,
1996, increased 235 percent to $20,944,453,  compared with the fourth quarter of
1995.  Palomar also reported a loss for the quarter  ended  December 31, 1996 of
($18,650,578),  or ($0.69)  per share,  of which  ($11,500,000),  or ($0.40) per
share, is attributable to non-recurring write-offs.

For the year  ended  December  31,  1996,  revenues  increased  220  percent  to
$70,098,443,  compared with the previous year.  Palomar also reported a loss for
the year ended  December 31, 1996, of  ($37,863,792),  or ($1.49) per share,  of
which  ($11,500,000),  or ($0.44) per share, is  attributable  to  non-recurring
write-offs.

"Our fourth  quarter net loss includes  approximately  $7.2 million of operating
losses attributed to the following four factors," said Steven Georgiev, chairman
and chief  executive  officer of Palomar,  "They are: the delay in receiving FDA
hair removal clearance for our EpiLaser(TM) system, which was only obtained this
month;  start-up costs  associated  with our new cosmetic laser center  services
division;  reduced sales volume in our Nexar subsidiary due to unavoidable parts
shortages;  and  interruption  in production  caused by the relocation to larger
facilities of our Nexar and Comtel manufacturing plants.

                                     (more)
<PAGE>

                                                                     PALOMAR / 2

"The majority of the non-recurring  losses are a result of the assessment of our
technology  and assets related to our  electronic  businesses.  We reserved $8.5
million  against  technology  assets  and other  costs in the  fourth  quarter,"
continued Georgiev.  "In addition,  Nexar settled claims with a former executive
for $1.4  million,  which was  charged to  operations,  and under which Nexar is
purchasing  previously-licensed  core technology and eliminating  future royalty
payments on the use of this core technology. As part of our strategy to maximize
shareholder  value,  we  are in the  process  of  spinning  out  our  electronic
businesses, preferably as majority-owned, publicly traded companies."

"The company also assessed its goodwill and joint  ventures in related  cosmetic
laser businesses and took a charge of $1.6 million," continued  Georgiev.  "This
write-down,  combined with the previously mentioned,  non-recurring costs in the
electronics  segment,  brings  the  total  one-time  charges  for  the  year  to
approximately ($11,500,000), or ($0.44) per share."

Georgiev  added,  "The  public  spin-out  of  Nexar is  anticipated  to close by
mid-April.  That offering registers 2,500,000 shares of Nexar common stock in an
anticipated range of $11 to $13 per share."

Georgiev  also said, "A spin-out of the  remainder of our  electronics  group is
planned for later in 1997. The investments  made in our  electronics  businesses
over the past two years are  expected to yield high  returns  and could  provide
liquid assets which can be used to fund our core cosmetic  laser business in the
future.

"We are  prepared  to  rapidly  expand  our  cosmetic  laser  business,"  stated
Georgiev,  "since we believe that all  important  elements are now in place.  We
accomplished a major strategic  alliance for the  establishment of laser centers
with  Columbia/HCA,  a $20 billion company and one of the world's largest owners
and  operators of medical  facilities;  we have FDA  clearance  for our complete
suite of laser  systems,  including  EpiLaser for hair  removal;  we have a very
strong proprietary  position in laser hair removal due to the recent issuance of
the  Massachusetts  General  Hospital  patent,  for  which we are the  exclusive
licensee; we have major laser production capacity in place; we have expanded and
strengthened   our   management   team;  we  are  broadening  our  research  and
development,  as  well  as  clinical,  relationships  with  the  highest-quality
institutions  in the world;  and we have  established a subsidiary in the United
Kingdom to rapidly penetrate European markets.

                                     (more)
<PAGE>

                                                                     PALOMAR / 3

Georgiev  concluded,  "With freed-up resources from the electronics  segment, we
intend to devote  resources  from the  electronics  segment  to solely  focus on
achieving  the largest  possible  market  share in 1997 in our core  business --
cosmetic laser products and services. We believe that we are strongly positioned
to  capitalize  on these  multi-billion  dollar  markets  and achieve a dominant
position within the next two years."

Palomar Medical  Technologies,  Inc. is a leading supplier of proprietary  laser
systems for  dermatological  and cosmetic laser treatment,  such as hair removal
and the treatment of wrinkles,  spider veins,  tattoos, age spots, warts, scars,
and  burns.  Palomar  also  engages  in the  development  and sale of  specialty
electronic products.

The condensed consolidated statement of operations for the company follows:

                       PALOMAR MEDICAL TECHNOLOGIES, INC.
                  (Amounts in thousands, except per share data)

<TABLE>
<S>                             <C>                      <C>              <C>                  <C>
                                       Three Months Ended                            Year Ended
                                           December 31                               December 31
                                   1996                    1995                 1996            1995


Revenues                         $20,944                  $6,241               $70,098          $21,907

Net loss                        ($18,651)*               ($6,589)         ($37,864)*           ($12,621)

Net loss per share                ($0.69)*                ($0.39)           ($1.49)*             ($0.89)

Weighted-average number
of shares used in computation
of per-share net loss             28,996                   17,082            26,167              14,165
</TABLE>

* INCLUDES  LOSS OF  ($11,500,000),  OR ($0.40) AND  ($0.44) PER SHARE,  FOR THE
THREE MONTHS AND YEAR ENDED  DECEMBER 31, 1996  RESPECTIVELY,  OF  NON-RECURRING
WRITE-OFFS.

A REGISTRATION  STATEMENT  RELATING TO THE NEXAR  SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE  COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.  THESE
SECURITIES  MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED  PRIOR TO THE TIME
THE  REGISTRATION  STATEMENT  BECOMES  EFFECTIVE.  THIS  COMMUNICATION  DOES NOT
CONSTITUTE  AN OFFER TO SELL OR THE  SOLICITATION  OF AN OFFER TO BUY NOR  SHALL
THERE  BE ANY SALE OF  THESE  SECURITIES  IN ANY  STATE  IN  WHICH  SUCH  OFFER,
SOLICITATION   OR  SALE  WOULD  BE  UNLAWFUL  PRIOR  TO  THE   REGISTRATION   OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

                                     (more)

                                                                     PALOMAR / 4

A copy of the Nexar prospectus may be obtained from John Ingoldsby,  Director of
Investor Relations,  Palomar Medical  Technologies,  Inc., 66 Cherry Hill Drive,
Beverly, MA 01915.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT

With the exception of the historical  information contained in this release, the
matters  described herein contain  forward-looking  statements that involve risk
and  uncertainties  that may  individually or mutually impact the matters herein
described,  including but not limited to product  demand and market  acceptance,
the effect of  economic  conditions,  the  impact of  competitive  products  and
pricing,   governmental  regulations,   results  of  litigation,   technological
difficulties and/or other factors outside the control of the company,  which are
detailed from time to time in the company's SEC reports, including the report on
Form 10-Q for the quarter ended September 30, 1996.

                                      ####


                 Palomar news releases are available through PR
                     Newswire Company News on-Call by fax at
                       800-758-5804, Extension 107555, or
                        http://www.prnewswire.com/(PMTI).

              Palomar's home page address is http://www.palmed.com