CONFIDENTIAL

          $2,000,000 Bridge Loan w/ Payment of Interest in Common Stock
                               Binding Term Sheet

Closing             Date: March 27, 1998

Issuer:             Palomar Medical Technologies, Inc. ("Palomar")

Securities:         Note,  Warrants  underlying  shares of Palomar  Common Stock
                    (the  "Warrants")  and shares of Palomar  Common  Stock (the
                    "Common  Stock"),  issued  pursuant to  Regulation  D of the
                    Securities Act of 1933.

Note                Amount: $2,000,000

Interest:           125,000 5 year Warrants  exercisable at $.01 per share to be
                    delivered no later than April 6, 1998.

Maturity            Date:  The  earlier  of (i)  May 26,  1998  or (ii)  one day
                    following  the sale of Dynaco or (iii) the sale of any other
                    Palomar assets in a transaction outside the normal course of
                    business or (iv) the raise of  additional  capital where the
                    use of proceeds to pay back debt is not prohibited.

Default:            If the loan is not repaid in full by the Maturity  Date, the
                    Note  shall  become  convertible  in whole or in part at the
                    option of the Note Holder (the "Holder") at Market Price (as
                    defined below) as follows:
<TABLE>
<S>                        <C>               <C>           <C>                       <C>

                            Conversion      Conversion          Conversion                  Penalty
                               DATE           AMOUNT          # OF SHS OF C/S           # OF SHS OF C/S

                           After 5/26/98     $250,000      $250,000/Market Price     $100,000/Market Price
                           After 6/2/98      $250,000      $250,000/Market Price               0
                           After 6/9/98      $250,000      $250,000/Market Price               0
                           After 6/16/98     $250,000      $250,000/Market Price               0
                           After 6/23/98     $250,000      $250,000/Market Price     $125,000/Market Price
                           After 6/30/98     $250,000      $250,000/Market Price               0
                           After 7/7/98      $250,000      $250,000/Market Price               0
                           After 7/14/98     $250,000      $250,000/Market Price               0
</TABLE>

                    The Penalty as stated  above shall be payable  effective  on
                    each  date as  stated  above  as long as any  amount  due is
                    outstanding  (i.e.,  if any amount due is outstanding  after
                    5/26/98 then the penalty is  $100,000/Market  Price,  and if
                    any amount is outstanding  after 6/23/98 then the additional
                    penalty is $125,000/Market  Price) regardless of whether the
                    Holder  elects to convert the Note into Common Stock or not.
                    The  Issuer  may repay  the loan in full or in part  without
                    additional  penalty  at any  time  prior  to  receiving  the
                    Holder's Notice of Conversion (as defined below). If paid in
                    part, the payment shall be applied to reduce the outstanding
                    balance,  however  the  conversion  schedule  will remain in
                    place until the entire balance is paid in full.

Market              Price:  The net  sell  price as  supplied  to  Palomar  from
                    Fechtor,  Detwiler & Co. evidencing the Holder's sale of the
                    Common Stock through Fechtor, Detwiler & Co. within 24 hours
                    of the sale of the Common Stock.

                                                                                
Conversion          Date: The business  day(s) on which the Holder gives written
                    notice  (the  "Notice of  Conversion")  of its  election  to
                    convert all or a portion of the Note.

                                       1
<PAGE>

Registration        Rights:  The  Holder  shall  have the right to  request  the
                    Company  to file with the SEC a  registration  statement  on
                    Form S-3  providing  for the resale of the  Warrants and the
                    Common Stock no earlier than May 18, 1998.

Use                 of Proceeds: General working capital purposes.
<TABLE>
<S>                        <C>                       <C>

Wire Instructions:         Name of Bank:             Fleet Bank
                           ABA#:                     011000206

                           For Further Credit to:    Palomar Medical Technologies, Inc.
                           Account #:                0501395874
</TABLE>

Binding             Agreement: Upon execution of this term sheet by the parties,
                    this  term  sheet  will  constitute  a legally  binding  and
                    enforceable agreement of each of the parties to their mutual
                    undertakings with respect to the matters set forth herein.

SUBSCRIPTION AMOUNT: $2,000,000

ACKNOWLEDGED AND ACCEPTED:                    ACKNOWLEDGED AND ACCEPTED:

SUBSCRIBER                                    PALOMAR MEDICAL TECHNOLOGIES, INC.

By:   /s/ Hector Wiltshire                    By:   /s/ Joseph P. Caruso
   -----------------------                       -------------------------------
Name:    Hector Wiltshire                        Name: Joseph P. Caruso, 
                                                       Chief Financial Officer

Date:    March 27, 1998                          Date: 
Phone:   (954) 345-8022                          Phone:   (781) 676-7300
Fax:     (954) 341-0664                          Fax:     (781) 676-7330