PALOMAR MEDICAL TECHNOLOGIES, INC.

                    AMENDED 1996 EMPLOYEE STOCK PURCHASE PLAN

1.   Purpose of the Plan

     The  purpose of the  Palomar  Medical  Technologies,  Inc.  Employee  Stock
Purchase Plan is to encourage  ownership of the common stock of Palomar  Medical
Technologies, Inc. ("Palomar") by its eligible employees and any and each of its
participating subsidiaries,  thereby enhancing such employees' personal interest
in the  continued  success  and  progress  of  Palomar.  The plan is intended to
facilitate  regular  investment  in the  common  stock of  Palomar  by  offering
employees a convenient  means to make  purchases at a discounted  price  through
payroll  deductions.  The Plan is  intended  to comply  with the  provisions  of
Section 423 of the Internal Revenue Code of 1986, as amended.

2.   Definitions

     For  purposes of the Plan,  the  following  terms  shall have the  meanings
indicated below:

     (a)  "Business  Day" shall mean a day on which  there is trading on the New
York Stock Exchange.

     (b)  "Code"  shall mean the  Internal  Revenue  Code of 1986,  as it may be
amended from time to time.

     (c)  "Committee"  shall  mean the  Compensation  Committee  of the Board of
Directors of Palomar.

     (d) "Common  Stock" shall mean Palomar's  common stock,  par value $.01 per
share.

     (e) "Company"  shall mean Palomar and any of its  subsidiaries  (within the
meaning of Section  424(f) of the Code) whose Board of Directors has adopted the
Plan,  with  approval of the Board of  Directors  of Palomar,  and which has not
terminated  participation  in or  withdrawn  from  the  Plan by  action  of such
subsidiary's Board of Directors or the Board of Directors of Palomar.

     (f)  "Compensation"  shall mean the amount of a  Participant's  base wages,
overtime, commissions, cash bonuses, premium pay and shift differential,  before
giving effect to any  compensation  reductions made in connection with any plans
described in Section 401(k) or Section 125 of the Code.

     (g)  "Custodian"  shall  mean  the  custodian  appointed  by the  Committee
pursuant to Section 7 hereof to hold the shares of Common Stock  purchased under
the Plan and subsequent Dividends reinvested or paid to Participant in cash.

     (h)  "Dividends"  shall  mean all cash  dividends  paid on shares of Common
Stock held in any Employee's Account.

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     (i) "Account" shall mean a separate account maintained by the Custodian for
each  Participant  which  reflects,  at any time, the number of shares of Common
Stock  purchased  under  the  Plan by  such  Participant  as well as  reinvested
Dividends held by the Custodian.

     (j) "Entry Date" shall mean the first Business Day of each Purchase Period.

     (k) "Eligible Employee" shall mean, with respect to any Purchase Period, an
employee  of the Company  who is  eligible  to  participate  in the Plan in such
Purchase Period under the rules set forth in Sections 5 and 8 hereof.

     (l) The "Fair Market  Value" of a share of Common Stock on any Business Day
shall be the closing bid price for such day of the Common Stock on the principal
securities  market on which the Common Stock is traded. If on the date for which
Fair  Market  Value is to be  determined  the Common  Stock is no  eligible  for
trading on any  securities  market,  the Fair Market  Value of a share of Common
Stock shall be determined by the Committee.

     (m)  "Participant"  shall mean, with respect to any Purchase  Period,  each
Eligible  Employee  who has  elected to have  amounts  deducted  from his or her
Compensation pursuant to Section 6 hereof for such Purchase Period.

     (n) "Plan" shall mean this 1996 Employee  Stock  Purchase Plan, as the same
may be amended from time to time.

     (o)  "Purchase  Date"  shall mean the last  Business  Day of each  Purchase
Period.

     (p) "Purchase  Period" shall mean each of the three month periods ending on
the last days of March, June,  September and December during the period when the
Plan is in effect.  The first Purchase Period shall begin on October 1, 1996 and
end on December 31, 1996.

3.   Common Stock Available Under the Plan

     The maximum  number of shares of Common Stock which may be purchased  under
the Plan  shall be  1,000,000  shares,  except  as such  maximum  number  may be
adjusted  as  provided in Section 12 hereof.  Shares of Common  Stock  purchased
under the Plan may be authorized and previously unissued shares, treasury shares
(including  shares  purchased from time to time by Palomar),  or any combination
thereof.

4.   Administration of Plan

     The Plan shall be administered  by the Committee.  The Committee shall have
the authority,  consistent with the Plan, to interpret the Plan, to adopt, amend
and rescind rules and regulations for the administration of the Plan and to make
all determinations in connection  therewith which may be necessary or advisable,
and all such actions shall be binding for all purposes  under the Plan. The Plan
shall be administered at the expense of the Company.

5.   Eligibility

     Each employee of the Company shall be eligible to  participate  in the Plan
during each  Purchase  Period,  provided  that he or she is not, as of the Entry
Date for such Purchase Period:

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     (a) an employee who is  customarily  employed by the Company for fewer than
20 hours per week, or for five or fewer months in any calendar year; or

     (b) an employee who owns (within the meaning of Section 424(d) of the Code)
stock  possessing 5% or more of the total combined  voting power or value of all
classes of stock of Palomar,  treating as owned on Entry Date,  for  purposes of
this clause,  Common Stock which such employee  would be entitled to purchase on
Purchase Date for such Purchase Period but for this Section 5(c).

6.   Participation

     (a) On the Entry date for each Purchase Period, Palomar shall grant to each
Participant  in the Plan for such  Purchase  Period an option to purchase on the
Purchase Date for such Purchase  Period,  at the applicable  price  specified in
Section 7 hereof, the number of shares of Common Stock, including any fractional
share, which may be purchased,  at such price, with such  participant's  payroll
deductions  received  during  such  Purchase  Period,  subject  to the terms and
conditions of the Plan.

     (b) Eligible Employees may elect to participate in the Plan as follows:

          (i) Each  Eligible  Employee  may  elect to  participate  in the Plan,
effective  on the Entry Date for any Purchase  Period,  by making an election to
participate  at least 15 days  prior to such entry  Date.  Such  election  shall
authorize  the Company to deduct an amount  chosen by the employee  equal to any
whole  percentage  between 1 and 15  percent,  inclusive  from  such  Employee's
Compensation paid during such Purchase Period.

          (ii) After making the election  pursuant to Section 6(b)(i) hereof,  a
Participant  shall  automatically  continue  to  participate  in the Plan during
subsequent Purchase Periods until the Participant either withdraws from the Plan
or  ceases to be an  Eligible  Employee.  The  percentage  of the  Participant's
Compensation  deducted in subsequent  Purchase  Periods shall be the  percentage
specified in the election made pursuant to Section 6(b)(i), as it may be changed
from time to time pursuant to Section 6(b)(iii) or 6(b)(iv) hereof.

          (iii) Except as provided in Section  6(b)(iv)  hereof,  after the last
date for making an election described in Section 6(b)(i) hereof for the Purchase
Period,  a  Participant  shall  not be  permitted  to  increase  or  reduce  the
percentage of  Compensation  deducted from his or her  Compensation  paid during
each  purchase  period.  A  Participant  may  elect to reduce  or  increase  the
percentage of his or her Compensation deducted pursuant to the Plan to any whole
percentage  between 1 and 15,  inclusive,  effective  for a subsequent  Purchase
Period by filing an election  not later than 15 days prior to the Entry Date for
such Purchase Period.

          (iv) A Participant  may elect at any time to reduce the  percentage of
his or her  Compensation  deducted  pursuant  to the  Plan  to  zero,  effective
commencing  with the next  payroll  period  beginning  after the  making of such
election.  All cash amounts  already  deducted during a Purchase Period prior to
the effectiveness of any such election shall be refunded to the Participant.

     (c) No interest will be paid to Participants on any payroll deductions.

     (d)  A  Participant  may  at  any  time  elect  to  withdraw  from  further
participation in the Plan,  effective as of the next Business day following such
election.  Any Participant whose employment with the Company  terminates for any
reason  (including  without  limitation   termination  by  reason  of  death  or
disability)  shall be  deemed  to have  made a  withdrawal,  effective  the next
Business Day following such 

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termination of employment.  Upon any withdrawal, (i) no further amounts shall be
deducted from such Participant's  Compensation  effective for any payroll period
beginning after the effective date of withdrawal,  (ii) any  outstanding  option
granted to such  Participant  under the Plan shall terminate as of the effective
date of the withdrawal,  and no further purchases of Common Stock under the Plan
shall be made for such  Participant  or after  such  date,  and (iii) as soon as
possible the Company will refund all cash deducted  during the Purchase  Period.
Following  any such  withdrawal  from the Plan,  an  employee's  eligibility  to
participate again in the Plan will be subject to all provisions of Section 5 and
8 hereof.

     (e)  Notwithstanding  any other  provision of the Plan, an employee who has
withdrawn  from the Plan pursuant to Section 6(d) hereof shall be deemed to have
made an  irrevocable  election  not to  participate  in the Plan  during the two
consecutive  Purchase  Periods  immediately  following  the  one in  which  such
withdrawal was made.

     (f) Any election permitted by this Section 6 (other than an election deemed
made pursuant to Section  6(e)) shall be made in writing on the form  prescribed
for such  purpose by the  Committee  from time to time and shall be delivered to
the person or persons  designated by the  Committee.  Any such election shall be
deemed made when such form is completed,  signed by the Participant and received
by such designee.

7.   Purchases of Common Stock

     On the Purchase Date for each Purchase  Period,  all options  granted under
the Plan on the first Business Day of such Purchase Period shall be deemed to be
exercised,  and all  amounts  deducted  pursuant  to  Section 6 hereof  from the
Participant's  Compensation during such Purchase Period shall be applied on such
date to purchase whole and  fractional  shares of Common Stock from the Company,
unless such  Participant has withdrawn from the Plan during such Purchase Period
effective on or prior to such  Purchase  Date.  With respect to shares of Common
Stock  purchased,  the  purchase  price  per  share  shall be the  lesser of (i)
eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on
the Entry Date of the Purchase Period, or (ii) eighty-five  percent (85%) of the
Fair  Market  Value  of a share of  Common  Stock  on the  Purchase  Date of the
Purchase  Period.  The Committee shall appoint the Custodian for the Plan and to
hold all whole and fractional  shares purchased under the Plan and to maintain a
separate Account for each  Participant,  in which Common Stock purchased by such
Participant  under  the  Plan  shall  be held  and  Dividends  received  will be
reinvested.  Each  Participant  shall receive a statement as soon as practicable
after  the end of  each  Purchase  Period  reflecting  purchases  for his or her
account under the Plan through the end of such Purchase Period.

8.   Limitation on Number of Shares purchased

     Notwithstanding  any other  provision  of the Plan,  the maximum  number of
whole and fractional  shares of Common Stock which a Participant may purchase in
a Purchase  Period under the Plan and under all other  "employee  stock purchase
plans" (within the meaning of Section 423 of the Code) maintained by Palomar and
its subsidiaries (within the meaning of Section 424(f) of the Code) shall be the
number  determined  by dividing  $6,250 by the Fair  Market  Value of a share of
Common Stock on the Entry Date for such Purchase  Period.  In the event that the
amount of  payroll  deductions  is  greater  than  $6,250 in any given  Purchase
Period,  the  Company  will  refund  the  excess to the  Participant  as soon as
practicable after such Purchase Date.

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9.   Rights as a Stockholder

     From and  after the  Purchase  Date on which  shares  of  Common  Stock are
purchased by the Participant  under the Plan, such Participant shall have all of
the rights and  privileges  of a  stockholder  of Palomar  with  respect to such
shares.  Prior to the  Purchase  Date on which  shares  of  Common  Stock may be
purchased  by a  Participant,  such  Participant  shall not have any rights as a
stockholder of Palomar.

10.  Notice of Disposition of Stock

     Each  Participant  agrees,  by his or her  participation  in the  Plan,  to
promptly  notify  Palomar  in  writing of any  disposition  of any Common  Stock
purchased  under the Plan  occurring  within 2 years after the Entry Date of the
Purchase Period in which such stock was purchased.

11.  Rights Not Transferrable

     Rights  under  the Plan are not  transferrable,  except  that the  right to
receive  shares  pursuant to the Plan may be  transferred by will or the laws of
descent and  distribution.  Options  granted to a  Participant  hereunder may be
exercised only by such Participant.

12.  Adjustment for Capital Changes

     In the event of any  capital  change by  reason  of any stock  dividend  or
split,  recapitalization,  merger  in which  Palomar  is the  surviving  entity,
combination or exchange of shares or similar  corporate  change,  the number and
type of shares or other  securities of Palomar which  Participants  may purchase
under the Plan,  and the maximum  aggregate  number of such shares or securities
which may be purchased under the Plan,  shall be  appropriately  adjusted by the
Board of Directors of Palomar.

13.  Amendments

     The Board of  Directors  of Palomar may at any time,  or from time to time,
amend the Plan in any respect,  except that, without  stockholder  approval,  no
amendment  shall be made (a)  increasing  the  number  of  shares  which  may be
purchased  under the Plan (other  than as  provided  in Section 12 herein),  (b)
materially  increasing the benefits  accruing to  Participants or (c) materially
modifying the requirements as to eligibility for participation in the Plan.

14.  Laws and Regulations

     (a)  Notwithstanding  any  other  provision  of the  Plan,  the  rights  of
Participants  to purchase  Common Stock hereunder shall be subject to compliance
with all applicable  Federal,  state and foreign laws, rules and regulations and
the rules of each stock  exchange  upon  which the Common  Stock is from time to
time listed.

     (b) The Plan and the purchase of Common Stock hereunder shall be subject to
additional  rules and regulations,  not inconsistent  with the Plan, that may be
promulgated from time to time by the Committee  regarding purchases and sales of
Common Stock.

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15.  Employment

     The Plan  shall not  confer  any  right to  continued  employment  upon any
employee of the Company.

16.  Effective Date of the Plan; Termination

     (a) The Plan shall become effective on October 1, 1996, subject to approval
by the  shareholders  of  Palomar  in  accordance  with  applicable  law and the
requirements of Section 423 of the Code.

     (b) The Plan and all rights  hereunder  shall  terminate on the earliest to
occur of:

          (i) the date on which the  maximum  number  of shares of Common  Stock
available for purchase  under the Plan as specified in Section 3 hereof has been
purchased;

          (ii) the termination of the Plan by the Board of Directors of Palomar;
or

          (iii)  the  effective  date of any  consolidation  or  merger in which
Palomar is not the surviving  entity,  any exchange or conversion of outstanding
shares  of  Palomar  for  or  into   securities  of  another   entity  or  other
consideration, or any complete liquidation of Palomar.

     In the event that on any Purchase Date the remaining shares of Common Stock
available  for  purchase  under  the Plan  are  insufficient  to  fully  satisfy
Participants'  outstanding  options,  such remaining  available  shares shall be
apportioned  among and sold to such  Participant in proportion to the amounts of
payroll  deductions  and the excess payroll  deduction  shall be returned to the
Participant as soon as practicable thereafter.

     Upon any  termination  of the Plan,  any shares in the  employee's  Account
shall  be  delivered  by the  Custodian  to  the  employee  or his or her  legal
representative as soon as practicable following such termination.