|Given to Each Participant Page 1 of 2



PERSONAL AND
CONFIDENTIAL

EXECUTIVE OFFICER LEVEL



Palomar Medical
Technologies, Inc. 2008 Incentive
Compensation Program Operating Period
 January 1, 2008 to December 31, 2008



Participant



General


The amount of bonus each participant
receives will depend on the 2008 actual performance of Palomar against the Palomar 2008
Operating Plan and each participants contribution toward achieving the Plan. The
payout is calculated based on each participants base salary as of January 1, 2008
and has both Corporate and Individual Objectives as shown below:



Specific Rules


     1.    
          Calculation of Incentive Compensation Amounts:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |    
|--------------------- | ---
|At base level $ **    |    
|Corporate Objective   | 40%
|Individual Objectives | 40%
|Total                 | 80%

|Additional
4% for every $** above base level:
|---------------------------------------------

| | The
Corporate Objective payout will be determined based on the 2008 Operating Plan
operating profit (including the P&L charge for this Incentive Compensation Program,
**).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Individual Objective payout will be determined based on evaluation of individual
performance.
| | -------------------------------------------------------------------------------------------------

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

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

|** | This
material was omitted pursuant to a request for confidential treatment and was separately
filed with the SEC on March 6, 2008.
|-- | ----------------------------------------------------------------------------------------------------------------------------------

|Given to Each Participant Page 2 of 2



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

|2. |  | No incentive compensation will accrue to the benefit of any participant until
               January 5, 2009, at which time the participant must be an employee of Palomar.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Incentive compensation for the 2008 operating period will be paid by March 15,
               2009, unless otherwise determined by the Compensation Committee of the BOD.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|6. |  | Continuance of this particular Incentive Compensation Program beyond December
               31, 2008 is not guaranteed.
|-- |  | ------------------------------------------------------------------------------------------------------------------------

| |                                       
| | --------------------------------------
| | Approved by:                          
| |                                       
| | /s/ James G. Martin                   
| | James G. Martin                       
| | Chairman of the Compensation Committee
| | Palomar Medical Technologies, Inc.    
| | Approved by BOD on February 5, 2008   
| |                                       

|                     | 
|-------------------- | 
|Received by:         | 
|                     | 
|/s/ Joseph P. Caruso | 
|Participant          | 

|
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