|Given to Each Participant


Page 1 of 2


PERSONAL AND
CONFIDENTIAL


EXECUTIVE OFFICER LEVEL


Palomar Medical
Technologies, Inc. 2006 Incentive
Compensation Program Operating Period
 January 1, 2006 to December 31, 2006


Participant


General


The amount of bonus each participant
receives will depend on the 2006 actual performance of Palomar against the Palomar 2006
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, 2006
and has both Corporate and Individual Objectives as shown below:


Specific Rules


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

| |                                               |                       |    
| | --------------------------------------------- | --------------------- | ---
| | At base level $**:                            |                       |    
| |                                               |                       |    
| |                                               | Corporate Objective   | 25%
| |                                               | Individual Objectives | 20%
| |                                               | Total                 | 45%
| |                                               |                       |    
| | At plan of $**:                               |                       |    
| |                                               |                       |    
| |                                               | Corporate Objective   | 40%
| |                                               | Individual Objectives | 30%
| |                                               | Total                 | 70%
| |                                               |                       |    
| | Additional % for every $** above plan of $**:
| |                                               |                       |    
| |                                               | Corporate Objective   | 3% 

|The Corporate Objective payout will
be determined based on the 2006 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.
**Omitted pursuant to
request for confidential treatment by
                                                                  Palomar Medical
Technologies, Inc. and filed separately with the SEC.






Given to Each Participant


Page 2 of 2


PERSONAL AND
CONFIDENTIAL




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 CEO may
adjust the Corporate incentive compensation based on the individual's
              performance.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | No
incentive compensation will accrue to the benefit of any participant until January 5,
2007, at which time the participant               must be an employee of Palomar.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Incentive
compensation for the 2006 operating period will be paid by March 15, 2007, unless
otherwise determined by the               Compensation Committee of the Board of
Directors (BOD).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | Where
necessary, the CEO of Palomar, with the approval of 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 CEO of Palomar, with the
approval of the Compensation Committee of the BOD.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | Continuance
of this particular Incentive Compensation Program beyond December 31, 2006 is not
guaranteed.
|-- | ---------------------------------------------------------------------------------------------------------

| |                                                
| | -----------------------------------------------
| | Approved by:                                   
| |                                                
| |                                                
| | /s/ James G. Martin                            
| | James G. Martin                                
| | Chairman of the Compensation Committee         
| | Palomar Medical Technologies, Inc.             
| | Approved per BOD Minutes dated February 7, 2006

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

|
|