SECOND AMENDMENT

         This is a Second Amendment to the License Agreement between THE GENERAL
HOSPITAL   CORPORATION,   a   not-for-profit   corporation   doing  business  as
Massachusetts  General  Hospital,  having a place of business  at Fruit  Street,
Boston,  Massachusetts  02114  ("GENERAL") and Palomar Medical  Technologies,  a
Delaware  corporation having offices at 66 Cherry Hill Drive,  Beverly, MA 01915
("PALOMAR"), effective August 18, 1995 ("LICENSE AGREEMENT").

         For good and valuable consideration GENERAL and PALOMAR hereby agree to
amend the  License  Agreement  by  amending  certain  paragraphs  and adding the
following new paragraphs to the LICENSE  AGREEMENT,  effective February 14, 1997
("THE AMENDMENT EFFECTIVE DATE"):

Add the following "Whereas" clauses after the sixth existing "Whereas" clause:

         WHEREAS,  under  research  programs  funded  by  GENERAL  and the  U.S.
Government,  GENERAL,  through  research  conducted by Dr. R. Rox Anderson,  has
developed  inventions  pertaining  to methods of hair  removal  using  epilation
("Additional Invention"); and

         WHEREAS,  GENERAL and PALOMAR have  entered  into a Research  Agreement
effective March 1, 1997,  attached  hereto as Exhibit A-2  ("Epilation  Research
Agreement"),  under which  PALOMAR is providing  funds and  equipment to support
research  at GENERAL of said  invention  pertaining  to methods of hair  removal
using epilation; and

         WHEREAS, GENERAL is interested in licensing the Additional Invention to
PALOMAR  so  that  PALOMAR  can  commercially  develop,   manufacture,  use  and
distribute products and services based on said Additional  Invention  throughout
the world;

IN SECTION 1, "DEFINITIONS", AMEND PARAGRAPH 1.10 TO READ AS FOLLOWS:

         1.10 The term "TECHNOLOGICAL INFORMATION" shall mean any research data,
designs,  formulas,  process  information,  clinical data and other  information
pertaining  to any  invention  claimed  in  PATENT  RIGHT  which is known to Dr.
Anderson on the EFFECTIVE  DATE and disclosed to Palomar within thirty (30) days
of the date on which  this  Agreement  is fully  executed.  THE TERM  SHALL ALSO
INCLUDE ANY RESEARCH DATA, DESIGNS, FORMULAS, PROCESS INFORMATION, CLINICAL DATA
AND OTHER  INFORMATION  PERTAINING TO ANY INVENTION  CLAIMED IN EPILATION PATENT
RIGHT  WHICH  IS KNOWN  TO DR.  ANDERSON  ON THE  AMENDMENT  EFFECTIVE  DATE AND
DISCLOSED TO PALOMAR  WITHIN THIRTY (30) DAYS OF THE AMENDMENT  EFFECTIVE  DATE.
This term  shall  also  include  information  which is  disclosed  to PALOMAR by
GENERAL in accordance with, and during the term of, the Clinical Trial Agreement
OR THE  EPILATION  RESEARCH  AGREEMENT  and which  pertains to any PATENT  RIGHT
claiming an Invention as defined in EITHER said Agreement.


<PAGE>

IN SECTION 1, "DEFINITIONS", ADD THE FOLLOWING NEW PARAGRAPHS:

         1.12 The term  "EPILATION  PATENT  RIGHT"  shall  mean the U.S.  Patent
Application  Serial Number  08/314,082,  filed September 28, 1994, naming Dr. R.
Rox  Anderson as  inventor,  and titled  "Method of Hair  Removal",  and the PCT
Application  Serial  Number  PCT/US95/12275  filed  September  22, 1995,  or any
division, continuation and any foreign counterparts of the aforementioned patent
applications  or the  equivalent  claims of any Letters Patent or the equivalent
thereof  issuing  thereon  or  reissue,   reexamination  or  extension  thereof.
EPILATION   PATENT   RIGHTS   shall   also   include   those   claims   in   any
continuation-in-part  of the aforementioned  patent  applications which claim an
invention described or claimed in said patent applications.

         1.13 The term  "EPILATION  PRODUCT"  shall mean any article,  device or
composition,  the manufacture,  use or sale of which would,  absent the licenses
granted herein, infringe a VALID CLAIM of an EPILATION PATENT RIGHT, or does not
infringe  a VALID  CLAIM of any  EPILATION  PATENT  RIGHT  licensed  to  PALOMAR
hereunder but the  discovery,  development,  manufacture or use of which employs
TECHNOLOGICAL INFORMATION.

         1.14 The term "EPILATION SERVICE" shall mean any method or service, the
use,  performance,  or sale of which would,  absent the licenses granted herein,
infringe a VALID CLAIM of an  EPILATION  PATENT  RIGHT,  or does not  infringe a
VALID CLAIM of any EPILATION PATENT RIGHT licensed to PALOMAR  hereunder but the
discovery,  development,  manufacture  or use  of  which  employs  TECHNOLOGICAL
INFORMATION.

         1.15 The term  "EPILATION  LICENSE  FIELD"  shall  mean hair  reduction
and/or removal using chromophores  which, when excited by laser pulses,  destroy
hair follicles by mechanisms other than photochemical mechanisms.

IN SECTION 2, "GRANT", ADD THE FOLLOWING NEW PARAGRAPHS:

         2.6 GENERAL hereby grants PALOMAR,  subject to the rights of the United
States  Government,  an  exclusive,  worldwide,  royalty-bearing  license in the
EPILATION LICENSE FIELD to make, have made, use and sell EPILATION  PRODUCTS and
to  perform  EPILATION  SERVICES.  In the  event  an  exclusive  license  is not
available in a country,  GENERAL will grant PALOMAR the most  exclusive  license
available in that country.

         2.7 The above licenses to sell EPILATION  PRODUCTS include the right to
grant  to  the  purchaser  of  products  from  PALOMAR,   its  AFFILIATES,   and
SUBLICENSEES the right to resell and to use such purchased EPILATION PRODUCTS in
a method coming within the scope of the corresponding PATENT RIGHT.

         2.8 The granting of any license  hereunder is subject to GENERAL's  and
GENERAL's  AFFILIATES' right to make and to use the subject matter described and
claimed in EPILATION

<PAGE>

PATENT RIGHT for research and  clinical  purposes  but, for those PATENT  RIGHTS
exclusively licensed, for no other purpose.

IN SECTION 3, "DUE DILIGENCE", ADD THE FOLLOWING NEW PARAGRAPH:

         3.3 PALOMAR shall itself,  or through its  AFFILIATES or  SUBLICENSEES,
use  reasonable  efforts to develop and make  commercially  available  EPILATION
PRODUCTS or EPILATION SERVICES for commercial sales and distribution  throughout
the world in the EPILATION LICENSE FIELD. Such efforts shall consist of:

         (a)  Entering  into  the  Epilation  Research  Agreement  with  General
attached  hereto as Exhibit  A-2 and  providing  the funding  specified  in said
Agreement;

         (b) Within six (6) months of the conclusion of the research governed by
said  Agreement,  but in no case greater than three (3) years from the AMENDMENT
EFFECTIVE  DATE  hereof,  PALOMAR and GENERAL  shall  establish  (i)  additional
objective  milestones  for the  development  of EPILATION  PRODUCTS or EPILATION
SERVICES,  and (ii) a schedule of the dates by which  PALOMAR shall achieve such
milestones.

         Failure  to  achieve  one  or  more  of  the  above  objectives  or the
objectives  selected in  accordance  with (b) above  within the agreed upon time
periods or within any  extension  granted  by  GENERAL  shall  result in GENERAL
having the right to cancel upon thirty (30) days notice any exclusive license to
EPILATION  PATENT RIGHTS granted  hereunder or convert any exclusive  license to
EPILATION PATENT RIGHTS to a non-exclusive  license. If the parties do not agree
on any such milestones,  or if PALOMAR decides not to develop EPILATION PRODUCTS
or EPILATION  SERVICES,  PALOMAR's  license to EPILATION  PATENT RIGHTS shall be
terminated.   Notwithstanding  the  foregoing,   provided  that  PALOMAR  is  in
compliance  with the due  diligence  milestones  in paragraph 3.1 of the License
Agreement,  and has complied with milestone (a) in this  paragraph 3.3,  GENERAL
shall only be entitled to terminate PALOMAR's license to EPILATION PATENT RIGHTS
on account of PALOMAR's  breach of this Agreement,  including but not limited to
any failure by PALOMAR to make the annual minimum royalty payments  specified in
paragraph 5.12(a) herein.

IN SECTION 4: "FILING,  PROSECUTION  AND  MAINTENANCE OF PATENT RIGHT",  ADD THE
FOLLOWING NEW PARAGRAPHS:

         4.3  GENERAL  shall  be  responsible  for  the   preparation,   filing,
prosecution and maintenance of all patent  applications  and patents included in
EPILATION  PATENT RIGHTS,  and shall keep PALOMAR informed of the prosecution of
such patents and  applications  in accordance  with Paragraph 4.2 of the LICENSE
AGREEMENT.

         4.4 PALOMAR shall  reimburse  GENERAL for one-half of its Costs for the
prosecution  and  maintenance of EPILATION  PATENT RIGHTS  incurred prior to and
subsequent to the AMENDMENT  EFFECTIVE  DATE,  provided  that, if GENERAL grants
license rights in EPILATION PATENT RIGHTS to DUSA Pharmaceuticals,  Inc. and any
other

<PAGE>

entity,  PALOMAR shall pay the same  fraction of Costs as said other  licensees,
which in no event will exceed one-third.

IN SECTION 5, "ROYALTIES", ADD THE FOLLOWING NEW PARAGRAPHS:

         5.9 PALOMAR shall pay a license fee of ten thousand  ($10,000)  dollars
within thirty (30) days of execution of this Amendment, which is attributable to
EPILATION  PATENT  RIGHTS.  No portion of said  license fee shall be  creditable
against future royalties.

         5.10 For sales of any  PRODUCT or  SERVICE  as  defined in the  LICENSE
AGREEMENT  that is,  or  incorporates,  an  EPILATION  PRODUCT  or an  EPILATION
SERVICE, the royalties shall be determined as follows:

         (a) For sales governed by Paragraph 5.1(b)(i) of the LICENSE AGREEMENT,
the royalty  specified  therein shall be increased by one-half  (0.5%)  percent,
except  those  sales  governed  by  Paragraph  5.1(b)(i)(B)(III),  for which the
royalty specified therein shall be increased by one-quarter  (0.25%) percent, in
addition to any increase in accordance with Paragraph 5.10(a) hereunder.

         (b) For sales  governed by Paragraphs  5.1(b)(ii) or 5.1(b)(iii) of the
LICENSE AGREEMENT,  the parties will negotiate a commercially reasonable royalty
as specified in the LICENSE AGREEMENT, provided that the maximum value specified
for said  commercially  reasonable  royalty  rate shall be increased by one-half
(0.5%)  percent,  except those sales governed by Paragraph  5.1(b)(iii)(C),  for
which the maximum  value  specified for the royalty  specified  therein shall be
increased by one-quarter  (0.25%) percent,  either of which increase shall be in
addition to any increase in accordance with Paragraph 5.10(b) hereunder.

         5.11 For sales of any EPILATION PRODUCT or EPILATION SERVICE within the
LICENSE FIELD specified in Paragraph 1.3 of the LICENSE  AGREEMENT that is not a
PRODUCT  or  SERVICE,  as the case may be,  under  the  LICENSE  AGREEMENT,  the
applicable  royalty shall be that  specified in paragraph  5.1(b) of the LICENSE
AGREEMENT  which would have been the case if the EPILATION  PRODUCT or EPILATION
SERVICE, were a PRODUCT or a SERVICE, as the case may be.

         5.12 The annual minimum royalties specified in Paragraph 5.1(b)(iii)(D)
of the LICENSE AGREEMENT shall be calculated based on the royalty rates selected
for  PRODUCTS  and  SERVICES  in  accordance  with  paragraphs   5.1(b)(ii)  and
5.1(b)(iii) of the LICENSE  AGREEMENT and paragraph 5.10 of this  Amendment.  In
addition, PALOMAR shall pay the following annual minimum royalties.

         (a) In  consideration  for the  licenses  to  EPILATION  PATENT  RIGHTS
granted herein,  twenty thousand ($20,000) dollars per AGREEMENT YEAR, beginning
with the AGREEMENT YEAR next following the completion of PALOMAR-funded clinical
trials at  GENERAL,  until the last  AGREEMENT  YEAR in which  PALOMAR  holds an
exclusive  license in the  EPILATION  LICENSE  FIELD to EPILATION  PATENT RIGHTS
hereunder.


<PAGE>

IN SECTION 5, "ROYALTIES", AMEND PARAGRAPH 5.4 TO READ AS FOLLOWS:

         5.4 In addition to the royalties provided for above,  PALOMAR shall pay
GENERAL ten percent  (10%) of any and all income,  other than a royalty or other
payment made pursuant to paragraphS 5.1, 5.10 OR 5.11 of the LICENSE  AGREEMENT,
including, by way of example, license issue fees and milestone payments received
by PALOMAR  from its  AFFILIATES  and  SUBLICENSEES,  in  consideration  for the
sublicensing of any right or license granted to PALOMAR under this Amendment.

IN SECTION 7, "INFRINGEMENT", ADD THE FOLLOWING NEW PARAGRAPH:

         7.5 The  provisions  of this  Section 7 shall  apply only to any PATENT
RIGHTS exclusively or co-exclusively licensed to PALOMAR in the country in which
the alleged infringement is taking place.

Agreed to:

PALOMAR                                     THE GENERAL HOSPITAL CORPORATION

BY  /s/ Michael H. Smotrich                 BY  /s/ Nikki J. Zapol
TITLE   President                           TITLE   Managing Director
                                                    Office of Technology Affairs

DATE  February 14, 1997                     DATE  February 18, 1997
<PAGE>
                                                                     EXHIBIT A-2

                               RESEARCH AGREEMENT

         This  Agreement  is made as of the 1st day of March,  1997  ("Effective
Date"),  between Palomar Medical  Technologies,  a Delaware  corporation  having
offices at 66 Cherry Hill Drive,  Beverly,  MA 01915  ("PALOMAR"),  (hereinafter
called  "PALOMAR"),  and The  General  Hospital  Corporation,  a  not-for-profit
Massachusetts  corporation  doing business as  Massachusetts  General  Hospital,
Fruit Street, Boston, Massachusetts 02114 (hereinafter called "GENERAL").

         WHEREAS,  in an Amendment to the License  Agreement between GENERAL and
PALOMAR  effective August 18, 1995,  effective on February 14, 1997 and executed
on even date herewith  ("the AMENDED  LICENSE  AGREEMENT"),  GENERAL has granted
PALOMAR an exclusive  license within the EPILATION LICENSE FIELD (as hereinafter
defined) to certain patent rights relating to hair removal; and

         WHEREAS PALOMAR  desires GENERAL to perform  research and evaluation in
the field of hair removal relating to said patent rights,  herein described upon
the terms provided.

         NOW THEREFORE, the parties hereto agree as follows:

         1. The research  project  described in Appendix A and funded by PALOMAR
("Project")   shall  be  performed  by  Dr.  R.  Rox  Anderson  (the  "Principal
Investigator")  and other GENERAL  personnel  working under the direction of the
Principal  Investigator  ("Investigators").  At the conclusion of the Project, a
report  disclosing  the  results of the  research  shall be provided to PALOMAR,
which  shall have the right to use such  results to the extent such use does not
infringe any GENERAL patent not expressly licensed to PALOMAR herein.

         2. This  agreement  shall remain in effect for a term of two years from
the Effective  Date,  provided  however that,  prior to the  commencement of the
human  study that is the  subject of "Aim 4" in  Appendix  A, the  parties  will
execute a clinical  trial  agreement  substantially  equivalent to the agreement
included in Exhibit A of the AMENDED  LICENSE  AGREEMENT,  and the terms of said
clinical trial agreement shall govern said human study.

         3. PALOMAR agrees to provide  GENERAL with a grant of two hundred three
thousand  seven hundred fifty seven dollars  ($203,757)  which includes the full
direct costs of the Project and the full indirect costs  attendant  thereto,  as
shown in the Budget  attached hereto as Appendix B. The foregoing grant shall be
paid on the following schedule:

                  $50,090 upon execution of this Agreement;

                  $50,000 on or before September 1, 1997;

                  $ 51,833.50 on or before March 1, 1998; and
<PAGE>

                  $ 51,833.50 on or before September 1, 1998.

Payment shall be made to "The General  Hospital  Corporation"  and shall be sent
to:

         Vice President for Patents, Licensing and Industry Agreements
         Office of Technology Affairs
         Massachusetts General Hospital
         Thirteenth Street, Building 149, Suite 1101
         Charlestown, MA  02129

         4. In the event that  PALOMAR  discloses to any GENERAL  personnel  any
information  which relates to the Project that PALOMAR  considers  confidential,
the rights and obligations of the parties with respect to such information shall
be governed by the terms and conditions set forth in Appendix C.

         5. The  Principal  Investigator  shall  have the  right to  present  or
publish the results of the research  done at GENERAL and shall  provide an early
draft of any such  presentation  or manuscript or abstract for review by PALOMAR
prior to its first  presentation or submission for publication,  at least thirty
(30) days in advance in the case of a presentation  or manuscript,  and at least
seven (7) days in advance in the case of an abstract.  At the end of such thirty
or seven days,  as the case may be, the  Principal  Investigator  shall have the
right,  in  his/her  discretion,  to make such  presentation  or to submit  such
manuscript  for  publication,  provided,  however,  that upon  notice by PALOMAR
within said thirty or seven day period that PALOMAR reasonably believes a patent
application  claiming an  Invention  (as defined in  paragraph)  should be filed
prior to such  publication,  such  submission for  publication  shall be delayed
until  any  patent  application  or  applications  have been  filed by  GENERAL,
pursuant to paragraph 6.

         6. The  Principal  Investigator  and any other  Investigator  who shall
conceive  and  reduce  to  practice  an  invention,  solely or  jointly,  in the
performance of Project  (hereinafter  referred to as "Invention") shall promptly
report  such  Invention  to GENERAL  and shall  assign all of his or her rights,
title and interest in the Invention to GENERAL.  GENERAL shall  promptly  advise
PALOMAR in writing of each Invention disclosed to GENERAL and shall discuss with
PALOMAR whether a patent application or applications  (Hereinafter  referred to,
together with any patents issued thereon, as "Patent Rights") pertaining to such
Invention  should  be  filed  and in  which  countries.  In the  event  of joint
inventorship  between  PALOMAR  personnel  and  GENERAL  Investigators,  PALOMAR
personnel shall assign all of their rights,  title and interest in the Invention
to PALOMAR,  and GENERAL  Investigators shall assign all of their rights,  title
and interest in the Invention to GENERAL, and the Invention will be deemed to be
jointly  owned.  If both parties  mutually  agree that Patent  Rights  should be
filed,  applications  assigned solely to GENERAL shall be filed by GENERAL,  and
applications  owned  jointly by GENERAL and  PALOMAR  shall be filed as mutually
agreed upon by the parties.  In the event  PALOMAR is not  interested  in having
Patent Rights filed with respect to a particular Invention, PALOMAR shall advise
GENERAL  of such  fact  within  ninety  (90)  days  from the  date on which  the
Invention  was

<PAGE>

disclosed to PALOMAR by GENERAL and GENERAL  shall be free to file and prosecute
Patent  Rights on such  Invention  at its own expense and to license such Patent
Rights to any other party.

         All  information  given to PALOMAR by GENERAL in  accordance  with this
paragraph 6 will be held in  confidence  by PALOMAR so long as such  information
remains unpublished or publicly undisclosed by GENERAL.

         All  patent  costs  pertaining  to any  Patent  Rights  filed by mutual
agreement of PALOMAR and GENERAL,  including preparation,  filing,  prosecution,
issuance and maintenance  costs,  shall be borne by PALOMAR as follows.  For any
Patent Right, the scope of which is no broader than the EPILATION  LICENSE FIELD
defined  below,  PALOMAR shall bear one hundred  percent (100%) of patent costs,
and for any  Patent  Right,  the scope of which is  broader  than the  EPILATION
LICENSE FIELD or which contains embodiments outside the EPILATION LICENSE FIELD,
PALOMAR  shall bear patent  costs as provided  in  paragraph  4.4 of the AMENDED
LICENSE AGREEMENT.

         As to any Patent  Rights  assigned  in whole or in part to GENERAL  and
filed by mutual  agreement of the parties,  to the extent not  prohibited by the
United States Government or prevented by the obligations of GENERAL to any other
sponsor of research at  GENERAL,  PALOMAR  shall have for the twelve (12) months
next  following the filing of such Patent Rights in the United States Patent and
Trademark Office the option to obtain a world-wide,  royalty bearing,  exclusive
license under  GENERAL's  rights  therein with the right to  sublicense,  in the
field of hair reduction and/or removal using chromophores which, when excited by
laser  pulses,  destroy hair  follicles by mechanisms  other than  photochemical
mechanisms  (the  "EPILATION  LICENSE  FIELD").  In the event  that  GENERAL  is
prohibited or prevented as aforesaid  from granting an exclusive  license within
the EPILATION LICENSE FIELD to any Patent Right hereunder, GENERAL will grant to
PALOMAR the most exclusive license within the EPILATION LICENSE FIELD that it is
able to grant to PALOMAR.  It is understood  that GENERAL will reserve the right
to use any Invention for research,  clinical and educational purposes,  and that
if federal funding supports the Invention,  PALOMAR's license will be subject to
the royalty-free non-exclusive license granted to the U.S. government by statute
(35 USC sec.202(c)(4)).

         This option is to be exercised by written notice to GENERAL during said
twelve  month  period  and the  negotiation,  during  the six  (6)  months  next
following such notice, of an amendment to the AMENDED LICENSE AGREEMENT granting
PALOMAR a license to Patent Rights under the terms  thereof,  unless the parties
otherwise  agree in  writing.  In the  absence  of such  notice by  COMPANY  and
agreement on license terms, GENERAL may grant a license to such Patent Rights to
any other party.

         7.  GENERAL and PALOMAR  shall each be  responsible  and shall hold the
other  harmless  for any injury to persons or damage to  property  to the extent
that such injury or damage is caused by the negligence or willful  misconduct of
their employees or staff in carrying out the Project; provided, however, PALOMAR
will defend, indemnify and hold harmless GENERAL

<PAGE>

and its  trustees,  employees  and staff  against  any and all  actions,  suits,
claims,  demands  or  prosecutions  that may be brought  or  instituted  against
GENERAL and/or its trustees,  employees and staff based on or arising out of the
manufacture,  use,  sale or other  distribution  of any product by PALOMAR,  its
affiliates  or licensees  excepting  any such  action,  suit,  claim,  demand or
prosecution  which is based solely on the  negligence  or willful  misconduct of
GENERAL and/or its trustees, employees or staff in the use of such product.

         8. Each party agrees that it will not use the name or logo of the other
party or of any employee or staff member of the other party in any  advertising,
promotional  material or  publicity  without the prior  written  approval of the
party or person whose name or logo is to be used.

         9.  If  either  party  shall  fail  to  faithfully  perform  any of its
obligations  under this  Agreement,  the  non-defaulting  party may give written
notice of the default to the defaulting party.  Unless such default is corrected
within  thirty (30) days after such notice,  the  notifying  party may terminate
this Agreement upon written notice.

         10. The obligations of the parties under  Paragraphs  5,6,7 and 8 shall
survive the termination of this Agreement.

         11. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, regardless of the choice of law rules of any jurisdiction.

         IN WITNESS WHEREOF,  GENERAL and PALOMAR have caused this instrument to
be executed.

PALOMAR                             THE GENERAL HOSPITAL CORPORATION

BY:  /s/ Michael H. Smotrich        BY:  /s/ Nikki J. Zapol
TITLE:   President                  TITLE:   Manging Director
                                             Office of Technology Affairs

DATE:  February 14, 1997            DATE:    February 18, 1997

I have read  paragraphs 5 and 6 of the  foregoing  Agreement and agree to comply
with the obligations of the Principal  Investigator stated therein. In addition,
I have read  Appendix  C and agree to comply  with the  obligations  of  GENERAL
stated therein.


                                                /s/ R. Rox Anderson
                                               ---------------------------------

                                               DATE: February 14, 1997

<PAGE>
                                                                      APPENDIX A

                  Dye-assisted laser injury to hair follicles
                              R. Rox Anderson, MD
                             Christine Dierickx, MD
                             Salvadore Gonzales, MD

The broad goal is to evalute dye-assisted laser hair removal.

Aim 1: (6 months) Screen FDA=-approved  aqueous dyes which absorb at 690-800 nm.
for the ability to penetrate  deeply into hair follicles and/or stain follicular
epithelium, in skin IN VITRO.

         a.       3 dyes (ICG;  carbon  suspension;  MB) 

         b.       effect  of  vehiccle  (range  of  C1-C4  alcohols;  effect  of
                  surfactants; DMSO)

         c.       role of epilation

Aim 2: (4 months)  Quantify  follicular  injury with vs. without dye, in skin IN
VITRO.

         a.       most promising dye + ruby

         b.       most promising dye(s) + diode

Aim 3:  (2 months)  Write and submit human study for approval of IRB, FDA.

Aim 4: (9 months)  Compare  laser hair  removal  with vs.  witout dye in a pilot
human study.

         a.       one dye and one laser -- depends on findings of aims 1, 2

         b.       open-label   bilateral  comparison  study  in  12  volunteers,
                  backs/thighs

         c.       fluence and dye concentrations depend on findings in aims 1, 2

         d.       quantitative hair counts and re-growth  (paired  comparison in
                  each volunteer)
<PAGE>
                                                                      APPENDIX B

INVESTIGATOR:       R.R. Anderson, M.D.

TITLE OF STUDY:     Dye-assisted laser injury to hair follicles

SPONSOR:            Palomar
BUDGET PERIOD:      3/1/97-2/28/99

PERSONNEL

<TABLE>

<S>                            <C>           <C>                  <C>           <C>       <C>
NAME                           % EFFORT         SALARY           FRINGE         YEAR 1    YEAR 2
                                                                 BENEFITS       TOTAL     TOTAL

HMS-APPNT                                                           26.20%      
R.R. Anderson, MD                 A.N.       None Requested             0           0         0
Christine Dierickx, MD            A.N.       None Requested             0           0         0
Salvador Gonzalez, MD             80%        $48,000               12,576      60,576    62,999

NON-HMS APPNT                                                       21.90%
Senior Technician                 25%        $9000                  1,971      10,971    11,410
                                   Total Personnel                             71,547    74,409

EQUIPMENT                                                                           0          0

SUPPLIES
Misc. Disposables                                                               1,000      1,000
Misc. Dyes                                                                      1,000      1,000
Film And Film Developing                                                          525        525
Cryostat Baldes                                                                   500        500
Barrier Filters For Dye Detection                                                 400        400
Office Supplies And Screening Time                                                750        750
                                   Total Supplies                               4,175      4,175

TRAVEL                                                                            600        600

PATIENT CARE COSTS
Subject reimbursement (estimate)                                                2,000      2,000

MISCELLANEOUS COSTS                                                             
Advertising and telephone expenses                                                250        250
Histology                                                                       1,500      1,500
                                   Total Miscellaneous                          1,750      1,750

TOTAL DIRECT COSTS                                                             80,072     82,934

INDIRECT COSTS (25%)                                                           20,018     20,733

TOTAL COSTS                                                                  $100,090   $103,665
                                                                             ========   ========
</TABLE>



                                           /s/  Marcia L. Smith          2/13/97
                                           -------------------------------------
                                           Marcia L. Smith
                                           Director for Proposal and Award Mgmt.

<PAGE>

                                                                      APPENDIX C

                         PALOMAR PROPRIETARY INFORMATION

         It is anticipated that in the performance of the Project, the Principal
Investigator  will be  provided  with or given  access  by  PALOMAR  to  certain
information   which  PALOMAR  considers   proprietary   (GENERAL  and  Principal
Investigator  are referred to herein each as a "RECIPIENT"  and  collectively as
"RECIPIENTS.")  The rights and  obligations  of the parties with respect to such
information are as follows:

1.  PROPRIETARY  INFORMATION.  For the purposes of this Agreement,  "Proprietary
Information"  refers to information of any kind which is disclosed by PALOMAR to
RECIPIENTS and which, by appropriate  marking, is identified as confidential and
proprietary at the time of disclosure. In the event that proprietary information
must be provided visually or orally, obligations of confidence shall attach only
to that  information  which is confirmed  by PALOMAR in writing  within ten (10)
working days as being confidential.

2. USE AND CARE OF  PROPRIETARY  INFORMATION.  For a period  of three  (3) years
after  receipt  of  Proprietary  Information,   each  RECIPIENT  agrees  to  use
reasonable  efforts,  no less  than the  protection  given  its,  his or her own
confidential  information,  to use Proprietary Information received from PALOMAR
and accepted by that RECIPIENT only in accordance with this paragraph 2.

         (a) Each RECIPIENT shall use PALOMAR's  Proprietary  Information solely
for the purposes of carrying out the Project described in the Research Agreement
attached hereto. Each RECIPIENT agrees to make Proprietary Information available
only to those  employees and students of GENERAL who require access to it in the
performance  of the Research  Agreement  and to inform them of the  confidential
nature of such information.

         (b) Except as provided in subparagraph  2(a), each RECIPIENT shall keep
all Proprietary  Information  confidential unless PALOMAR gives specific written
consent for release.

         (c) If any RECIPIENT  becomes aware of any  disclosure  not  authorized
hereunder  that  RECIPIENT  shall notify  PALOMAR and take  reasonable  steps to
prevent any further disclosure or unauthorized use.

         (d) When the  Proprietary  Information  is no longer  required  for the
purposes of this Research  Agreement,  each RECIPIENT shall return or dispose of
any tangible records of it as directed by PALOMAR.

         (e)  It  is  agreed  by  PALOMAR  and  GENERAL  that  the  transfer  of
Proprietary  Information  shall  not be  construed  as a grant  of any  right or
license with respect to the information  delivered except as set forth herein or
in a duly executed research or license agreement.


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3.  INFORMATION NOT COVERED It is agreed by PALOMAR and GENERAL that information
shall not be deemed Proprietary Information in the event:

         (a) it is  publicly  available  prior to the date of the  Agreement  or
becomes publicly available thereafter through no wrongful act of GENERAL;

         (b) it was known to GENERAL  prior to the date of disclosure or becomes
known to GENERAL  thereafter  from a third party having no obligation to PALOMAR
to keep such information confidential;

         (c) it is  disclosed  by  GENERAL  in  accordance  with  the  terms  of
PALOMAR's prior written approval;

         (d)  it  is  disclosed  by  PALOMAR  without   restriction  on  further
disclosure;

         (e) it is independently developed by GENERAL; or

         (f) GENERAL is  obligated to produce it pursuant to an order of a court
of competent  jurisdiction or a valid administrative or Congressional  subpoena,
provided  that  GENERAL  (i)  promptly  notifies  PALOMAR  and  (ii)  cooperates
reasonably with PALOMAR's efforts to contest or limit the scope of such order.