SECURITY AGREEMENT (PATENTS)


         WHEREAS,  PALOMAR MEDICAL  TECHNOLOGIES,  INC., a Delaware corporation,
with a principal place of business at 45 Hartwell  Avenue,  Lexington,  MA 02421
(the "Company") and FLEET NATIONAL BANK, with a place of business at One Federal
Street, Boston, Massachusetts 02110 (the "Bank") have entered into an Inventory,
Accounts  Receivable and Intangibles  Security Agreement dated November 16, 1998
(the "Security  Agreement")  and are also parties to a related letter  agreement
(the "Letter Agreement") between the Bank and the Company; and

         WHEREAS,  the Company is the owner and user of the United States Patent
Applications listed on Schedule A hereto and identified in said Letter Agreement
and said Security Agreement (collectively, the "U.S. Patent Applications"); and

         WHEREAS,  among the  security  interests  granted by the Company to the
Bank  pursuant  to the  Security  Agreement  is a security  interest in the U.S.
Patent  Applications  listed on Schedule A hereto and in any registered  patents
arising therefrom; and

         WHEREAS,  the parties to the Security Agreement  contemplate and intend
that,  if an Event of Default (as defined in the Letter  Agreement)  shall occur
and be continuing, the Bank shall have all rights of a foreclosing secured party
in and to the U.S.  Patent  Applications  and in any registered  patents arising
therefrom and any proceeds thereof,  including,  without limitation,  the right,
following  such  foreclosure,  to transfer to a purchaser  all of the  Company's
right,  title and  interest in and to the U.S.  Patent  Applications  and in any
registered patents arising therefrom;

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
sufficiency of which are hereby acknowledged, the parties reconfirm the terms of
the Security  Agreement,  as if set forth fully herein, and acknowledge that the
Bank has a security interest in the U.S. Patent  Applications listed on Schedule
A hereto and in any registered  patents arising  therefrom;  as security for the
Obligations   (as  defined  in  the  Security   Agreement)  the  Company  hereby
collaterally  assigns to the Bank, and grants a security interest to the Bank in
and to,  all of the  Company's  right,  title and  interest  in and to said U.S.
Patent Applications and in any registered patents arising therefrom; the Company
agrees that it will not sell or assign any of the U.S. Patent  Applications  nor
any of the  registered  patents  arising  therefrom  without  the prior  written
consent of the Bank; and the Company and the Bank request that the  Commissioner
of Patents and Trademarks  record this document with respect to the U.S.  Patent
Applications.

         The Company hereby appoints the Bank as the Company's  attorney-in-fact
(with  full  power  of  substitution  and  resubstitution)  with the  power  and
authority,  after the  occurrence  of any Event of  Default  (as  defined in the
Letter  Agreement),  to execute  and  deliver,  in the name and on behalf of the
Company,  and to cause the recording of all such further  assignments  and other
instruments as the Bank may  reasonably  deem necessary or desirable in order to
carry out the  intent of the  Security  Agreement  and this  Security  Agreement
(Patents).  The Company agrees that all third parties may  conclusively  rely on
any such further assignment or other instrument, so

<PAGE>

executed,  delivered  and  recorded  by the  Bank  (or the  Bank's  designee  in
accordance with the terms hereof) and on the statements made therein.

PALOMAR MEDICAL TECHNOLOGIES, INC.             FLEET NATIONAL BANK


By:  /s/ Joseph P. Caruso                      By:    /s/ Lucie Burke
   ------------------------------                 ------------------------------
     Name:  Joseph P. Caruso                          Its:  Vice President
     Title: Chief Financial Officer



COMMONWEALTH OF MASSACHUSETTS  )
                               ) ss.
COUNTY OF  MIDDLESEX           )


         Then personally  appeared  before me the above-named  JOSEPH P. CARUSO,
the CHIEF FINANCIAL  OFFICER of Palomar Medical  Technologies,  Inc., and stated
that he/she  executed  the  foregoing  instrument  under the  authority  of said
corporation's Board of Directors and acknowledged the foregoing instrument to be
the free act and deed of said corporation.

         WITNESS my hand and seal this 16th day of November, 1998.


                                               /s/ Marianne Barrett
                                               ----------------------------
                                               Notary Public
                                               My commission expires:


                                             - 2 -

<PAGE>


                                   SCHEDULE A

                                       TO

                          SECURITY AGREEMENT (PATENTS)


Patents with United States Registration

<TABLE>
<S>                                                          <C>                        <C>>

Patent Description                                           Reg. No.                   Issue Date
------------------                                           --------                   ----------
                                                         None.

Patent Applications
-------------------


Description                                                  Serial No.                 Filing Date
-----------                                                  ----------                 -----------

Laser applicator having thermoelectric cooling               08/759,136               April 24, 1997

Laser dermatology with feedback control                      08/759,036               December 2, 1996 

Method and apparatus for hair removal                        09/028,416               February 24, 1998

Method and apparatus for dermatology  treatment              09/178,055               May  13,  1998  

System for electromagnetic 
dermatology and head for use therewith                       60,077,794               March 12, 1998
</TABLE>