THESE  SECURITIES HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES
               ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
               OFFERED FOR SALE EXCEPT  PURSUANT  TO AN  EFFECTIVE  REGISTRATION
               STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
               OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.

NO.                                                             $
   -----------                                                   ---------------

                   5% CONVERTIBLE DEBENTURE DUE MARCH 10, 2002

     THIS CONVERTIBLE DEBENTURE  ("DEBENTURE") is one of a duly authorized issue
of Debentures of Palomar Medical Technologies, Inc. a corporation duly organized
and existing  under the laws of the State of Delaware  and having its  principal
address at 66 Cherry Hill Drive,  Beverly,  Massachusetts 01915 (the "COMPANY"),
designated as its 5%  Convertible  Debentures Due March 10, 2002 in an aggregate
principal  amount not exceeding Five Million Five Hundred  Thousand U.S. Dollars
(U.S. $5,500,000) (the "DEBENTURES").

     FOR VALUE RECEIVED, the Company promises to pay to  ______________________,
having an address at  ______________________,  the holder  hereof,  or its order
(the  "HOLDER"),  the  principal  sum of  ______________________  United  States
Dollars  (U.S.  $_______)  on March 10,  2002 (the  "MATURITY  DATE") and to pay
interest on the principal sum outstanding  under this Debenture,  at the rate of
5% per  annum due and  payable  in  arrears  on the  Maturity  Date and shall be
calculated  based on a 360 day year of twelve equal months.  Accrual of interest
shall  commence on the date hereof and shall  continue  until payment in full of
the  principal  sum has been made.  The  interest so payable will be paid to the
person in whose name this  Debenture is registered on the records of the Company
regarding   registration   and  transfers  of  the  Debentures  (the  "DEBENTURE
REGISTER");  PROVIDED, HOWEVER, that the Company's obligation to a transferee of
this Debenture arises only if the transfer, sale or other disposition is made in
accordance with the terms and conditions of the Subscription Agreement, dated as
of March 10, 1997,  between the Company and the subscriber to the original issue
of the Debentures (as amended from time to time and in effect, the "SUBSCRIPTION
AGREEMENT").  The Company  shall be entitled  to withhold  from all  payments of
interest

                                       1
<PAGE>

on this  Debenture  any amounts  required to be  withheld  under the  applicable
provisions  of the United  States  income tax laws as evidenced by an opinion of
counsel  of the  Company  to the  reasonable  satisfaction  of the  Holder.  The
principal of and interest on this Debenture are payable in United States Dollars
at the  address  last  appearing  on the  Debenture  Register  of the Company as
designated  in writing by the Holder  hereof  from time to time.  Subject to the
conversion  hereof, in whole or in part, on or before the Maturity Date pursuant
to Paragraph 5 hereof, the Company will pay the principal of and all accrued and
unpaid  interest due upon this  Debenture on the Maturity Date, to the Holder of
this  Debenture  as of the tenth  (10th)  day prior to the  Maturity  Date,  and
addressed  to  such  Holder  at the  last  address  appearing  on the  Debenture
Register.

     This Debenture is subject to the following additional provisions:

     1.  EXCHANGE.  The  Debentures  are  exchangeable  for an  equal  aggregate
principal  amount of  Debentures  of different  denominations,  of not less than
$100,000  (or the  total  principal  amount,  if  less  than  $100,000)  each as
requested by the Holder  surrendering  the same. No service  charge will be made
for such exchange.

     2.  TRANSFERS.  This  Debenture  has  been  issued  subject  to  investment
representations  of the  original  purchaser  hereof and may be  transferred  or
exchanged in the United States only in  compliance  with the  Securities  Act of
1933,  as  amended  (the  "ACT") and  applicable  state  securities  laws and in
accordance with other applicable provisions hereof. Prior to due presentment for
transfer of this Debenture,  the Company may treat the person in whose name this
Debenture is duly  registered on the Company's  Debenture  Register as the owner
hereof for the purpose of  receiving  payment as herein  provided  and all other
purposes,  whether or not this Debenture is then overdue,  and the Company shall
not be affected by notice to the contrary.

     3.  DEFINITIONS.  For purposes  hereof,  the following terms shall have the
following meanings:

          "CLOSING  DATE"  shall  mean the  date of  original  issuance  of this
     Debenture.

          "COMMON STOCK" shall mean the Common Stock,  par value $.01 per share,
     of the Company.

                                       2
<PAGE>

          "CONVERSION  DATE MARKET PRICE" shall mean,  at any Holder  Conversion
     Date or Forced  Conversion  Date,  as the case may be, the lesser of (i) an
     amount  that is equal to the  percentage  set forth in the table below (the
     "APPLICABLE PERCENTAGE") opposite the period in which the Holder Conversion
     Date or the  Forced  Conversion  Date shall have  occurred  of the  average
     Market  Price  for  Shares  of  Common  Stock  for the  five  trading  days
     immediately preceding the Holder Conversion Date or Forced Conversion Date,
     and (ii) an amount that is equal to the Applicable  Percentage opposite the
     period in which the Holder  Conversion  Date or the Forced  Conversion Date
     shall have occurred of the average  Market Price for Shares of Common Stock
     for the ten trading days immediately  preceding the Holder  Conversion Date
     or Forced Conversion Date.

          HOLDER CONVERSION DATE OR                        APPLICABLE PERCENTAGE
          FORCED CONVERSION DATE

          0 to 89 days after Closing Date                           100%
          90 days or more after Closing Date                         90%

          "CONVERSION  DEFICIENCY" shall have the meaning set forth in Paragraph
     9(b).

          "CONVERSION  NOTICE"  shall have the  meaning  set forth in  Paragraph
     5(c).

          "CONVERSION RATE" shall have the meaning set forth in Paragraph 5(b).

          "EQUITY  OFFERINGS"  shall mean the issuance or sale by the Company of
     any Common Stock or securities  which are convertible  into or exchangeable
     for Common  Stock,  or any warrants or other rights to subscribe  for or to
     purchase,  or any options for the  purchase  of,  Common  Stock or any such
     convertible or exchangeable securities (other than shares or options issued
     or which may be issued  pursuant  to the  Company's  employee  or  director
     option plans or shares issued upon exercise of options,  warrants or rights
     outstanding on the Closing Date and listed in the Exchange Act Reports).

          EVENT OF DEFAULT" shall have the meaning set forth in Paragraph 17.

          "FORCED CONVERSION DATE" shall have the meaning set forth in Paragraph
     (5)(c)(ii).

                                       3
<PAGE>

          "HOLDER CONVERSION DATE" shall have the meaning set forth in Paragraph
     5(c)(i).

          "MARKET  PRICE FOR SHARES OF COMMON STOCK" shall mean the price of one
     share of Common Stock determined as follows:

               (i) If the Common  Stock is listed on the  Exchange,  the closing
          bid price on the date of valuation, as reported by Bloomberg Financial
          Markets; or

               (ii)  If  the  Common  Stock  is  listed  on any  other  national
          securities  exchange,  the closing bid price on the date of valuation,
          as reported by Bloomberg Financial Markets; or

               (iii) If neither  (i) nor (ii)  apply,  but the  Common  Stock is
          quoted in the  over-the-counter  market on the pink sheets or bulletin
          board, the lowest sales price on the date of valuation, as reported by
          Bloomberg Financial Markets; or

               (iv) If none of clause  (i),  (ii) or (iii)  above  applies,  the
          market value as determined  by an  independent  nationally  recognized
          investment banking firm or financial advisor retained in good faith by
          the Company for such purpose,  taking into consideration,  among other
          factors,  the  earnings  history,  book  value and  prospects  for the
          Company,  and the prices at which shares of Common Stock recently have
          been traded. Such determination shall be conclusive and binding on all
          persons.

          "MINIMUM NUMBER OF SHARES" shall mean, at any time, the sum of (i) the
     number of shares of Common Stock issued prior to such time upon  conversion
     of all or any part of the  Debentures,  PLUS (ii) the  number of shares (as
     may be  adjusted  in  accordance  with the terms  hereof)  of Common  Stock
     issuable at such time upon  conversion of the  Debentures  (without  giving
     effect to any applicable conversion  restrictions),  MINUS (iii) the number
     of shares of Common Stock described in clause (i) above that have been sold
     prior to such time by the Holders  pursuant to a registration  statement or
     Rule 144.

          "OUTSTANDING  AMOUNT" shall mean the principal sum  outstanding  under
     this Debenture and all accrued but unpaid interest thereon.

          "PARAGRAPH 4 TRANSACTION" shall mean a merger, consolidation, or other
     transaction referred to in Paragraph 4.

                                       4
<PAGE>

          "REDEMPTION DATE" shall have the meaning set forth in Paragraph 6(c).

          "REGISTRATION  RIGHTS  AGREEMENT"  shall have the meaning set forth in
     the Subscription Agreement.

          "SUBSCRIPTION AGREEMENT" shall mean the Subscription Agreement,  dated
     as of March  10,  1997,  between  the  Company  and the  Subscriber  to the
     original issue of the  Debentures,  as such  Subscription  Agreement may be
     amended from time to time.

     Other terms defined in the Subscription Agreement and not otherwise defined
herein  shall have the same  meanings  herein as are set forth for such terms in
the Subscription Agreement.

     4. MERGER; CONSOLIDATION.  If at any time there occurs any consolidation or
merger of the  Company  with or into any other  corporation  or other  entity or
person  (whether or not the Company is the surviving  corporation)  or any other
corporate   reorganization   or  similar   transaction   or  series  of  related
transactions  in  which  greater  than  50% of the  Company's  voting  power  is
transferred (a "PARAGRAPH 4 TRANSACTION"),  the Holder of this Debenture, to the
extent then outstanding,  and notwithstanding  anything in Paragraph 5(a) to the
contrary,  shall  participate  in any such  transaction  as a class with  common
stockholders  of the  Company  on the same basis as if this  Debenture  had been
converted one day prior to the record date or effective date of such Paragraph 4
Transaction;  PROVIDED, HOWEVER, that if a Paragraph 4 Transaction or the record
date for determination of the Company's  stockholders entitled to participate in
such  Paragraph  4  Transaction  shall  occur  at  any  time  before  the  first
anniversary of the effectiveness of the Registration  Statement  contemplated by
the  Registration  Rights  Agreement,  then, at the option of the Holder of this
Debenture,  such  Holder  may  treat  the  effective  date of such  Paragraph  4
Transaction as a Redemption Date and shall be entitled to receive the redemption
price with respect to such  Redemption  Date as is provided in Paragraph 6. Such
Holder  shall  be  entitled  to make  such  election  at any time up to ten (10)
trading days after the effective  time and date of the Paragraph 4  Transaction.
Nothing in this Section 4 shall prohibit the Holder from  converting any part or
all of this Debenture in accordance  with the terms hereof,  up to and including
the effective time and date of the Paragraph 4 Transaction.

                                       5
<PAGE>

     5. CONVERSION. This Debenture is subject to conversion as follows:

          (a) (i) HOLDER'S RIGHT TO CONVERT. This Debenture shall be convertible
     at any  time and from  time to time  during  the  first 89 days  after  the
     Closing Date, in whole or in part, at the option of the Holder hereof, into
     fully paid,  validly issued and nonassessable  shares of Common Stock. This
     Debenture shall be convertible at any time and from time to time commencing
     with the 90th day after the Closing  Date and until the Maturity  Date,  in
     whole or in part,  at the option of the  Holder  hereof,  into fully  paid,
     validly issued and nonassessable shares of Common Stock; PROVIDED, THAT, in
     any 30 calendar  day period  commencing  on such 90th day after the Closing
     Date and  thereafter,  the Holder  hereof,  together with any affiliates of
     such Holder,  may convert no more than one-third of the original  principal
     amount of all  Debentures  held by such  Holder  and its  affiliates,  as a
     group. The foregoing conversion  restrictions shall immediately  terminate,
     and the  Holder  shall  be  permitted  to  convert  all or any part of this
     Debenture  without  regard  to  the  conversion   restrictions,   upon  the
     occurrence  of any Event of Default,  Paragraph 4  Transaction  or upon the
     commencement  by any person (other than the Holder) of any tender offer for
     shares of Common Stock. Notwithstanding anything herein to the contrary, if
     the Company  obtains any  financing  through the  issuance of  convertible,
     exercisable or exchangeable  securities at any time after February 1, 1997,
     and the holders of such securities are permitted to convert such securities
     in amounts that are any less restrictive than the restrictions contemplated
     by this paragraph (a)(i), then (A) the Company shall immediately notify the
     Holders  in  writing  of such  financing  and the  material  terms  of such
     securities,  and (B) at the  option of any Holder as  evidenced  by written
     notice  to the  Company,  the  conversion  restrictions  set  forth in this
     paragraph  (a)(i)  shall be  amended,  without  any  further  action by the
     Company or the Holders,  to be no more  restrictive  than the terms of such
     new securities.

               (ii) COMPANY'S RIGHT TO FORCE CONVERSION. The Company may require
          conversion of all or any part of this Debenture from time to time into
          fully paid,  validly issued and nonassessable  shares of Common Stock;
          PROVIDED, THAT

                    (A) in any 30 calendar day period commencing after the 365th
               day  described  in Paragraph  5(a)(ii)(B)  and until the Maturity
               Date,  the  Company  may  require  conversion  of  no  more  than
               one-third of the original principal amount of this Debenture;

                                       6
<PAGE>

                    (B) prior to the date on which the Company may require  such
               conversion,   the  Registration  Statement  contemplated  by  the
               Registration  Rights Agreement shall have been effective (and not
               subject  to any  stop  orders  or other  prohibitions  on sale of
               Common Stock  thereunder) for at least 365 days during which such
               Registration  Statement  shall have permitted the sale thereunder
               of not less than the Minimum Number of Shares;

                    (C) the  Registration  Statement shall be effective (and not
               subject  to any  stop  orders  or other  prohibitions  on sale of
               Common Stock thereunder) as of the date of delivery of the Forced
               Conversion Notice (as defined in Paragraph 5(c)(ii)) and for each
               trading  day  commencing  with the date of delivery of the Forced
               Conversion  Notice and ending on the Forced  Conversion  Date (as
               defined in Paragraph  5(c)(ii))  for the sale  thereunder  of not
               less than the Minimum Number of Shares;

                    (D) the closing bid price per share of Common Stock for each
               of the 20 trading days immediately proceeding the delivery of the
               Forced Conversion Notice shall have been greater than or equal to
               the  closing  bid price per share of Common  Stock on the Closing
               Date,  subject to  adjustments  for stock  splits,  reverse stock
               splits or other recapitalizations involving Common Stock;

                    (E) no Events of Default  shall have  occurred  prior to the
               Forced Conversion Date;

                    (F) no Conversion Deficiency,  as defined in Paragraph 9(b),
               shall have occurred prior to the Forced Conversion Date; and

                    (G) any such  required  conversion  shall be made  from each
               Holder,   PRO  RATA   according  to  the  portion  of  the  total
               Outstanding Amount of all Debentures held by each Holder.

               (iii) AUTOMATIC  CONVERSION.  At the Maturity Date, the principal
          indebtedness then outstanding  hereunder (including without limitation
          all interest accrued thereon plus any unpaid charges or amounts) shall
          automatically  be  converted  into  fully  paid,  validly  issued  and
          nonassessable  shares of Common  Stock and,  except  for the  Holder's
          right to receive  the  Common  Stock  into  which  this  Debenture  is
          automatically  so  converted,  and  except  for  any  portion  of this
          Debenture  which  cannot  be  converted  because  of  the  limitations
          contained in Sections 5(d) and 9(b) of this Debenture,  this Debenture
          shall be deemed to have been canceled  whether or not surrendered upon
          such automatic conversion.

                                       7
<PAGE>

               (iv)  ACCRUED BUT UNPAID  INTEREST.  Notwithstanding  anything in
          this  Debenture  to the  contrary,  the  Outstanding  Amount  of  this
          Debenture on any Holder Conversion Date or any Forced Conversion Date,
          as the case may be, shall include, without limitation, all accrued but
          unpaid interest under this Debenture through such date.

          (b) CONVERSION  PRICE FOR HOLDER  CONVERTED  SHARES.  The  Outstanding
     Amount of this  Debenture  that is  converted  into shares of Common  Stock
     shall be convertible  into the number of shares of Common Stock  determined
     in accordance with the following formula:

                                      P + I
                     -------------------------------------
                          Conversion Date Market Price

                  P =      principal amount of this Debenture submitted for
                           conversion

                  I =      accrued but unpaid interest on the principal amount
                           of this Debenture  submitted for conversion  plus any
                           unpaid   charges  or  amounts   through   the  Holder
                           Conversion  Date or Forced  Conversion  Date,  as the
                           case may be.

          The number of shares of Common Stock into which the Outstanding Amount
     of this Debenture may be converted  pursuant to this paragraph is hereafter
     referred to as the "CONVERSION RATE."

          (c) (i) MECHANICS OF  CONVERSION  BY HOLDER.  In order to convert this
     Debenture  (in whole or in part)  into full  shares  of Common  Stock,  the
     Holder shall surrender this Debenture,  duly endorsed,  by either overnight
     courier or two-day courier, to the Company,  and, in case of any conversion
     pursuant  to  Section  5(a)(i),  shall give  written  notice in the form of
     EXHIBIT A hereto (the "CONVERSION  NOTICE") by facsimile (with the original
     of such notice  forwarded  with the foregoing  courier) to the Company that
     the Holder elects to convert all or the portion of the  Outstanding  Amount
     of this  Debenture  specified  therein,  which notice and election shall be
     irrevocable  by the Holder  unless the Company  shall default in or fail to
     fulfill any or all of its  obligations  arising  hereunder  or otherwise by
     reason of such notice or election, in which case, in addition to and not in
     lieu of any and all other  rights  and  remedies  to which the  Holder  may
     thereby be and become entitled, such notice and election, by 


                                       8
<PAGE>

     further  notice to the Company may be revoked and rescinded at the election
     of the Holder exercised in its sole discretion; PROVIDED, HOWEVER, that the
     Company shall not be obligated to issue certificates  evidencing the shares
     of Common  Stock  issuable  upon  conversion  unless  this  Debenture  with
     evidence of the principal amount hereof to be converted is delivered to the
     Company as provided  above,  or the Holder  notifies  the Company that this
     Debenture  has been lost,  stolen or  destroyed  and  promptly  executes an
     agreement  reasonably  satisfactory to the Company to indemnify the Company
     from  any  loss  which  may  be  incurred  by it in  connection  with  this
     Debenture; and PROVIDED, FURTHER, that each Conversion Notice shall provide
     for the Holder's  election to convert  either (A) at least  $100,000 of the
     Outstanding  Amount of this Debenture,  or (B) if such  Outstanding  Amount
     shall then be less than $100,000,  the entire Outstanding  Amount. The date
     on which a Conversion Notice is given (the "HOLDER  CONVERSION DATE") shall
     be deemed to be the date the Company  received by facsimile the  Conversion
     Notice,  as evidenced by a printed  confirmation of receipt received by the
     Holder.   Upon  receipt  of  any  Conversion   Notice,  the  Company  shall
     immediately verify the Holder's calculation of the Conversion Rate.

               (ii)  MECHANICS  OF FORCED  CONVERSION  BY  COMPANY.  In order to
          require  conversion  of this  Debenture  pursuant to Section  5(a)(ii)
          above,  the Company shall give written notice in the form of EXHIBIT B
          hereto,  appropriately  completed (the "FORCED CONVERSION NOTICE"), by
          facsimile  (with  the  original  of such  notice  forwarded  with  the
          foregoing  courier)  to each  Holder of  Debentures  that the  Company
          elects  to force  conversion  of all or a portion  of the  Outstanding
          Amount of the Debenture of each Holder specified therein, which notice
          and  election  shall  be  irrevocable  by the  Company  and  shall  be
          delivered  at least 20 trading  days  prior to the date of  conversion
          specified  in the Forced  Conversion  Notice (the  "FORCED  CONVERSION
          DATE").  Each Holder will  within two  business  days after the Forced
          Conversion Date, to the extent the Debenture has not been converted by
          such  Holder  prior  to  the  Forced  Conversion  Date,  deliver  such
          Debenture  evidencing the  Outstanding  Amount of such Debenture to be
          converted to the Company,  duly endorsed,  by either overnight courier
          or two-day courier, or notify the Company that such Debenture has been
          lost, stolen or destroyed and promptly execute an agreement reasonably
          satisfactory  to the Company to  indemnify  the Company  from any loss
          which  may  be  incurred  by it in  connection  with  such  Debenture.
          Notwithstanding  anything  herein  to the  contrary,  any  Holder  may
          convert any portion of its Debentures  prior to the Forced  Conversion
          Date.

                                       9
<PAGE>

               (iii)  ISSUANCE OF  CERTIFICATES.  In the case of any  Conversion
          Notice  given by the Holder or any Forced  Conversion  Notice given by
          the  Company,  the  Company  shall use its best  efforts  to cause the
          transfer agent to issue and deliver as promptly as practicable  and in
          no event  later  than two (2)  business  days  after  delivery  to the
          Company  of the  Debenture,  or after  receipt of such  agreement  and
          indemnification,  to such Holder or to its designee,  a certificate or
          certificates  for the  number of  shares of Common  Stock to which the
          Holder shall be entitled,  together with a Debenture for the principal
          amount not submitted for conversion or forced to convert,  as the case
          may be. The person or persons entitled to receive the shares of Common
          Stock  issuable upon  conversion  shall be treated for all purposes as
          the record  holder or holders  of such  shares of Common  Stock on the
          Holder  Conversion Date or the Forced Conversion Date, as the case may
          be. If the Company  shall not have the  requisite  number of shares of
          Common Stock issuable upon conversion of the Debentures by any Holder,
          then, without limiting the Company's  obligation to convert all of the
          Debentures,  such conversion  shall be made for each Holder,  PRO RATA
          according  to the  portion  of the  total  Outstanding  Amount  of the
          portion of the  Debentures  sought to be  converted.  At the  Holder's
          option,  the  request  for  conversion  by the Holder or the  required
          conversion  by the  Company  shall be null and void for any portion of
          the  Debentures  for which the Company  does not have shares of Common
          Stock issuable upon conversion as of the Holder Conversion Date or the
          Forced Conversion Date.

          (d) LIMITATIONS ON CONVERSION. In connection with a conversion of this
     Debenture  effected  pursuant  to the terms of this  Section 5, in no event
     shall the  Company  issue to the Holder  more than that number of shares of
     Common Stock which,  together with the Common Stock theretofore issued upon
     conversion of Debentures  would exceed 6,151,451 shares of Common Stock, as
     such number is adjusted from time to time pursuant to the provisions hereof
     (the  "MAXIMUM  SHARE  AMOUNT").  Once the  Maximum  Share  Amount has been
     issued, the entire remaining  Outstanding Amount of this Debenture shall be
     immediately  due and  payable by the  Company to the Holder in  immediately
     available funds at an amount equal to the Redemption Price.

     6. REDEMPTION.

          (a)  COMPANY'S  OBLIGATION  TO REDEEM.  Any portion of this  Debenture
     which, at any time on or before the Maturity Date,  shall be required to be
     redeemed at the option of the Holder under the  provisions  hereof or under
     any  provision  of any Related  Agreement  (as defined in the  Subscription
     Agreement) shall be redeemed by the Company in accordance with this Section
     6.

                                       10
<PAGE>

          (b) COMPANY'S  OPTION TO REDEEM.  Any portion of this Debenture may be
     redeemed  at  the  Company's  option  expressed  by  a  written  notice  (a
     "REDEMPTION NOTICE") to the Holder; PROVIDED THAT

               (i) the  Redemption  Notice  delivered  by the  Company  shall be
          received by the Holder at least 20 trading  days (but not more than 40
          trading days) prior to the date (the "REDEMPTION DATE") of redemption;

               (ii) at all  times  from  and  after  the  effective  date of the
          Registration   Statement   contemplated  by  the  Registration  Rights
          Agreement (or, if earlier,  the 270th day after the Closing Date), the
          Registration  Statement  shall have been effective for sale thereunder
          (except   pursuant  to   suspension   periods   contemplated   by  the
          Registration  Rights Agreement) of not less than the Minimum Number of
          Shares;

               (iii) the  Registration  Statement  shall be  effective  (and not
          subject  to any stop  orders or other  prohibitions  on sale of Common
          Stock thereunder) on the date of delivery of the Redemption Notice and
          on each day from the date of such delivery through the Redemption Date
          for the sale thereunder of not less than the Minimum Number of Shares;

               (iv) on the date of the Redemption Notice, the Company shall have
          deposited at least seventy percent (70%) of the Redemption Price in an
          escrow account  reasonably  satisfactory to the Holder, and shall have
          otherwise  established  to the reasonable  satisfaction  of the Holder
          that the Company shall have adequate  liquidity to pay the  Redemption
          Price on the Redemption  Date,  and shall not be prohibited  under the
          terms of any  financing or other  agreements  or  applicable  law from
          redeeming the Debentures on the Redemption Date; and

               (v) no Conversion  Deficiency,  as defined in Section 9(b), shall
          have occurred prior to the Redemption Date.

If the Company delivers a Redemption Notice, and then for any reason, other than
conversion  by the Holder of this  Debenture or the failure for any other reason
of the Holder upon redemption to deliver such Holder's Debentures to the Company
or the failure of such Holder to notify the Company  that such  Debentures  have
been lost,  stolen or destroyed and to 


                                       11
<PAGE>

promptly  execute  an  agreement  reasonably  satisfactory  to  the  Company  to
indemnify  the Company  from any loss which may be incurred by it in  connection
with such Debentures, fails to pay the entire Redemption Price on the Redemption
Date for the portion of the Debentures identified in the Redemption Notice, then
the Company shall have no further right to require  redemption of any portion of
the Debentures pursuant to this Section 6(b).

          (c) REDEMPTION  PRICE.  The  redemption  price for the portion of this
     Debenture being  redeemed,  except as provided in the  Registration  Rights
     Agreement,  shall equal 110% of the  Outstanding  Amount of this  Debenture
     being so  redeemed,  plus all late  payment  charges and all other  amounts
     accrued  under this  Debenture  and not  previously  paid (the  "REDEMPTION
     PRICE").

          (d)  MECHANICS  OF  REDEMPTION.  In the  event  the  Company  shall be
     required or elects to redeem any part or all of the  Outstanding  Amount of
     the  Debentures,  the  Company  shall send by either  overnight  courier or
     two-day  courier  (with a copy  sent  by  facsimile)  confirmation  of such
     determination  or obligation to the record Holders of the Debentures  being
     redeemed  (the  "REDEMPTION  DEBENTURES"),   which  confirmation  shall  be
     included in the  Redemption  Notice,  if the redemption is made pursuant to
     Paragraph 6(b) above. Such confirmation  shall specify the Redemption Date,
     which shall be (i) no later than seven (7) business  days after the receipt
     by the Company of the notice  requiring  redemption  pursuant to  Paragraph
     6(a) above,  or (ii) at least 20 trading days (but not more than 40 trading
     days) after receipt by the Holder of the Redemption  Notice, as applicable.
     On the  Redemption  Date,  the  Redemption  Debentures  shall  be  redeemed
     automatically  without any further action by the Holders of such Debentures
     and whether or not the Debentures are  surrendered to the Company (but only
     to the extent  that the Company  complies  with its  obligation  to pay the
     Redemption Price therefor);  PROVIDED,  that the Company shall be obligated
     to pay the cash  consideration  due to a  Holder  of such  Debentures  upon
     redemption  when such  Debentures  are either  delivered  to the  principal
     office  of the  Company  or the  Holder  notifies  the  Company  that  such
     Debentures  have been lost,  stolen or destroyed  and executes an agreement
     reasonably  satisfactory  to the Company to indemnify  the Company from any
     loss  which  may be  incurred  by it in  connection  with  such  Debenture.
     Thereupon,  there shall be promptly  issued and  delivered  to such Holder,
     within seven (7) business  days after the  Redemption  Date and delivery to
     the Company of such  Debentures,  or after  receipt of such  agreement  and
     indemnification, at the address of such Holder on the books of the Company,
     payment in immediately available funds to the name as shown on the books of
     the  Company in the


                                       12
<PAGE>

     amount of the  redemption  price as  calculated  as set forth in  Paragraph
     6(c).  If the  Company  shall  not  have  the  funds  available  to pay the
     aggregate  Redemption  Price of all Redemption  Debentures,  then,  without
     limiting the Company's obligation to redeem all Redemption Debentures, such
     redemption  shall be made  from  each  Holder,  PRO RATA  according  to the
     portion of the total Outstanding  Amount of all Redemption  Debentures then
     held by each Holder and the Company  shall not be  permitted to require any
     further redemption in accordance with Paragraph 6(b).

          Notwithstanding   anything  to  the  contrary  contained  herein,  the
     Holders'  rights of  conversion  pursuant to Section 5 hereof  shall not be
     limited in any manner by the  Company's  rights of  redemption  pursuant to
     this Section 6(d).

          (e) FAILURE TO REDEEM.  In the event that the Company  fails to redeem
     any  portion of the  Outstanding  Amount of the  Debentures  required to be
     redeemed on any  Redemption  Date,  the Company shall pay, in cash, to each
     Holder on such  Redemption  Date, and on the last day of each 30-day period
     thereafter  until the Company  redeems such unredeemed  portion,  an amount
     equal to two  percent  (2%) of the  unredeemed  portion of the  Outstanding
     Amount of the Debentures of such Holder.

     7. STOCK SPLITS: DIVIDENDS, ADJUSTMENTS, REORGANIZATIONS.

          (a) STOCK SPLITS AND COMBINATIONS. The Company shall not effect or fix
     a record  date for any stock  split,  subdivision  or  combination  with an
     effective  date within ten (10)  trading  days of a  Redemption  Date,  the
     receipt of a Conversion  Notice, a Forced Conversion Date, or the effective
     date of a Paragraph 4 Transaction.

          (b) CERTAIN DIVIDENDS AND  DISTRIBUTIONS.  The Company shall not make,
     or fix a record  date for the  determination  of  holders  of Common  Stock
     entitled to receive, a dividend or other distribution payable in additional
     shares of Common Stock, with an effective date within ten (10) trading days
     of a  Redemption  Date,  the  receipt  of a  Conversion  Notice,  a  Forced
     Conversion Date, or the effective date of a Paragraph 4 Transaction.

          (c)  SUBDIVISIONS,  COMBINATIONS,  ETC. If the Company shall subdivide
     its  outstanding  Common Stock,  by split-up,  spin-off,  or otherwise,  or
     combine its outstanding Common Stock, then the Conversion Rate in effect as
     of the date of such  subdivision,  split-up,  spin-off or combination shall
     forthwith be proportionately adjusted.

                                       13
<PAGE>

          (d)  ADJUSTMENT  FOR  DIVIDENDS  AND  DISTRIBUTIONS.  In the event the
     Company at any time or from time to time after the Closing  Date makes,  or
     fixes a record  date for the  determination  of  holders  of  Common  Stock
     entitled to receive, a dividend or other distribution payable in securities
     of the  Company  other  than  shares of Common  Stock  (including,  without
     limitation,  rights to acquire Common Stock or such other securities), then
     and in each  such  event  provision  shall be made so that the  Holders  of
     Debentures  shall receive upon conversion  thereof  pursuant to Paragraph 5
     hereof,  in  addition  to the number of shares of Common  Stock  receivable
     thereupon,  the amount of such other  securities  of the Company to which a
     Holder on the relevant record or payment date, as applicable, of the number
     of shares of Common Stock so  receivable  upon  conversion  would have been
     entitled,  plus any dividends or other  distributions which would have been
     received  with  respect to such  securities,  had such  Holder  thereafter,
     during the period from the date of such event to and  including  the Holder
     Conversion  Date or Forced  Conversion  Date, as the case may be,  retained
     such securities,  subject to all other  adjustments  called for during such
     period under this  Paragraph 7 with respect to the rights of the Holders of
     the  Debentures.  For purposes of this Paragraph 7(d), the number of shares
     of Common Stock so receivable  upon  conversion  shall be deemed to be that
     number which the Holder would have received  upon  conversion of the entire
     Outstanding   Amount  hereof  if  the  Holder  Conversion  Date  or  Forced
     Conversion  Date,  as the case may be, had been the day  preceding the date
     upon  which the  Company  announced  the making of such  dividend  or other
     distribution.

          (e) ADJUSTMENT FOR MERGER,  REORGANIZATION;  ETC. In the event that at
     any time or from time to time after the  Closing  Date,  the  Common  Stock
     issuable upon  conversion  of the  Debentures is changed into the same or a
     different  number of shares of any class or  classes  of stock,  whether in
     connection   with  a  merger   or   consolidation,   by   recapitalization,
     reclassification,  reorganization or otherwise (other than a subdivision or
     combination  of shares or stock  dividend or  reorganization  provided  for
     elsewhere in this Paragraph 7 or a merger or consolidation  provided for in
     Paragraph 4), then and in each such event each Holder of  Debentures  shall
     have the  right  thereafter  to  convert  such  Debenture  into the kind of
     securities receivable upon such merger, recapitalization,  reclassification
     or other change,  all subject to further  adjustment as provided herein. In
     such event,  the formulae set forth herein for  conversion  and  redemption
     shall be equitably  adjusted to reflect such change in number of shares or,
     if shares of a new class of stock are issued,  to reflect the market  price
     of the  class or  classes  of stock  (applying  the  same  factors  used in
     determining  the  Market  Price  for  Shares  of  Common  Stock)  issued in
     connection with the above described transaction.

                                       14
<PAGE>

          (f)  CERTIFICATE  AS TO  ADJUSTMENTS.  Upon  the  occurrence  of  each
     adjustment  pursuant to this  Section 7, the  Company at its expense  shall
     furnish to each Holder a certificate  from its  independent  auditors or an
     investment  banking firm setting forth (i) in  reasonable  detail the facts
     upon  which  such  adjustment  is based,  and (ii) the  number of shares of
     Common  Stock and the amount of other  property  or  securities  that after
     giving effect  thereto  would be received by the Holder upon  conversion of
     this Debenture.

          (g) DISPUTES. In the event of a reasonable, good faith dispute between
     a Holder of  Debentures  and the Company  with  respect to the  adjustments
     required by Paragraphs  7(c), (d) or (e), then, at the option of either the
     Holders of Debentures evidencing 50% or more of the principal  indebtedness
     evidenced by all Debentures held by Holders involved in such dispute or the
     Company,  the  dispute  shall  be  submitted  to the  American  Arbitration
     Association for resolution  according to the then applicable rules thereof.
     The cost of such  proceeding  shall be shared  50% by the Holder or Holders
     involved  in the  dispute  and 50% by the  Company,  except that each party
     shall bear its own legal and other expenses.

     8.  FRACTIONAL  SHARES.  No  fractional  shares  of  Common  Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder.  The
number of shares of Common Stock that are issuable upon any conversion  shall be
rounded up or down to the nearest whole share.

     9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION.

          (a) RESERVATION REQUIREMENT.  The Company has reserved and the Company
     shall  continue  to  reserve  and  keep  available  at all  times,  free of
     preemptive  rights,  shares of Common Stock for the purpose of enabling the
     Company to satisfy any  obligation to issue shares of its Common Stock upon
     conversion of the  Debentures;  PROVIDED,  HOWEVER,  that (i) the aggregate
     number of shares so reserved shall initially be 1,320,000 shares and (ii) a
     PRO RATA portion (based on the respective  original principal amount of the
     Debentures)  of such  aggregate  amount shall be reserved for conversion of
     each Debenture, such portion to be reduced by the number of shares actually
     issued upon conversion of such Debenture.  The number of shares so reserved
     may be reduced  by the 


                                       15
<PAGE>

     number of shares  actually  delivered  pursuant to conversion of Debentures
     (provided  that in no event  shall the number of shares so reserved be less
     than the Minimum  Number of Shares  applicable  to any  Debenture)  and the
     number of shares so reserved shall be increased or decreased proportionally
     to reflect stock splits,  stock dividends and other  distributions.  In the
     event that the number of shares so reserved  (either in the aggregate or as
     to any Debenture) shall be insufficient for issuance upon conversion of the
     Debentures   (without   giving   effect   to  any   applicable   conversion
     restrictions),  or if the Holders of the Debentures  would at any time upon
     conversion thereof be entitled to the issuance of shares of Common Stock in
     excess of the limitation in Paragraphs 5(d) and 9(b) herein, then in either
     case,  upon  receipt by the Company of notice from any Holder,  the Company
     shall use its best efforts and all due  diligence to increase the number of
     shares so reserved  (without  giving  effect to any  applicable  conversion
     restrictions) to cure all such deficiencies  (either in the aggregate or as
     to any  Debenture)  and,  if  necessary,  to  obtain  the  approval  by its
     shareholders  therefor,  including  the  authorization  of such  additional
     number of shares of Common Stock as may be required to issue such shares in
     excess of the  number so  reserved  (either in the  aggregate  or as to any
     Debenture) or in excess of such limitation, as the case may be.

          (b) CONVERSION  DEFICIENCY.  If the Company does not have a sufficient
     number of shares  of  Common  Stock  available  to  satisfy  the  Company's
     obligations  to issue  Common  Stock upon  conversion  of all or any of the
     Debentures  (whether or not a Conversion  Notice shall have been given with
     respect thereto) (a "CONVERSION DEFICIENCY"),  any Holder of the Debentures
     shall have the right to demand from the Company immediate redemption of any
     portion of the Debentures with respect to which the Company does not have a
     sufficient   number  of  shares   available  to  satisfy  such   conversion
     obligations,  in cash at the Redemption Price pursuant to Section 6 hereof,
     without regard to Sections 6(d) or 6(e) hereof.

     Within three business days of the occurrence of any Conversion  Deficiency,
the Company shall notify each Holder whether the Company has adequate  liquidity
to redeem such portion of the Debentures as required by the foregoing  paragraph
(and, if requested by such Holder,  will provide  reasonable written support for
its position with respect  thereto within ten business days of the occurrence of
any Conversion  Deficiency) and whether such redemption is prohibited  under the
terms of any financing or other agreements or applicable law.

                                       16
<PAGE>

     In the event that the Company establishes to the reasonable satisfaction of
the  Holder  that  the  Company  has  adequate  liquidity  and is not  otherwise
restricted from redeeming such portion of this Debenture, then the Company shall
pay, in cash, to such Holder within three business days after which a Conversion
Deficiency  shall have  occurred  and on the last day of each 30-day  period for
which a Conversion Deficiency is continuing, an amount equal to one percent (1%)
of the amount of such  portion of the  Debentures  which  such  Holder  does not
require  the  Company to redeem,  for a maximum of three  percent  (3%) for such
Conversion Deficiency.

     In the  event  that  the  Company  does  not  establish  to the  reasonable
satisfaction  of the Holder that the Company has  adequate  liquidity  to redeem
such portion of the  Debentures or that the Company is not otherwise  restricted
from redeeming such portion of this  Debenture,  the Company shall pay, in cash,
to such Holder within three  business  days after which a Conversion  Deficiency
shall  have  occurred  and on the last day of each  30-day  period  for  which a
Conversion  Deficiency is continuing  (or until the Company  establishes  to the
reasonable satisfaction of the Holder that the Company has adequate liquidity to
and is not otherwise  prohibited  from  redeeming such Holder's  Debentures,  in
which case the provisions of the foregoing paragraph shall govern),  two percent
(2%) of the amount of such portion of the Debentures  which such Holder does not
require the Company to redeem.

     10. NO  IMPAIRMENT.  The Company  shall not  intentionally  take any action
which would impair the  contractual  rights and privileges of the Debentures set
forth herein or of the Holders thereof.

     11. HOLDERS' RIGHTS IF SHARES ARE DELISTED OR IF TRADING IN COMMON STOCK IS
SUSPENDED.  In the event that at any time on or after the date  hereof and prior
to the fifth  anniversary  of the  Closing  Date,  trading  in the shares of the
Company's  Common  Stock is  suspended  on the  Exchange  for a  period  of five
consecutive trading days, other than as a result of the suspension of trading in
securities  in general,  or if such Shares are delisted and not relisted  within
twenty (20) days  thereafter,  then,  at a Holder's  option,  the Company  shall
redeem such Holder's  Debentures on a Redemption Date designated by such Holder,
and at the  Redemption  Price and in accordance  with Section 6 hereof,  without
regard to Sections 6(d) or 6(e) hereof.

     12. LIMITATIONS ON HOLDER'S OBLIGATION TO CONVERT. Notwithstanding anything
to the  contrary  contained  herein,  no Holder shall be required to convert any
part of this  Debenture  in excess of the  portion  then  convertible  into that
number of shares of Common Stock specified in the Holder's representation to the
Company that, after giving


                                       17
<PAGE>

effect to the shares of the Company's Common Stock to be issued pursuant to such
Conversion   Notice,   the  total  number  of  shares  of  Common  Stock  deemed
beneficially  owned by the  Holder,  together  with all shares of the  Company's
Common Stock deemed  beneficially owned by the Holder's  "affiliates" as defined
in Rule 144 of the Act,  would exceed 4.9% of the total  issued and  outstanding
shares of the Company's Common Stock.

     13.  OBLIGATIONS  ABSOLUTE.  No  provision  of this  Debenture,  other than
conversion  as  provided  herein,  shall alter or impair the  obligation  of the
Company,  which is absolute  and  unconditional,  to pay the  principal  of, and
interest  on, this  Debenture  at the time,  place and rate,  and in the manner,
herein prescribed.

     14. WAIVERS OF DEMAND,  ETC. The Company hereby expressly waives demand and
presentment  for  payment,  notice of  nonpayment,  protest,  notice of protest,
notice of dishonor, notice of intent to accelerate,  prior notice of bringing of
suit and diligence in taking any action to collect  amounts called for hereunder
and will be directly and primarily liable for the payments of all sums owing and
to be owing hereon,  regardless of and without any notice (except as required by
law),  diligence,  act or omission as or with respect to the  collection  of any
amount called for hereunder.

     15.  REPLACEMENT  DEBENTURES.  In the event  that the Holder  notifies  the
Company that its  Debenture has been lost,  stolen or  destroyed,  a replacement
Debenture  identical  in all  respects  to the  original  Debenture  (except for
registration  number and Outstanding Amount, if different than that shown on the
original  Debenture)  shall be issued to the  Holder,  provided  that the Holder
executes and delivers to the Company an agreement reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
the  Debenture and provided that the Company is provided a form of Debenture for
such replacement purposes.

     16. PAYMENT OF EXPENSES.  The Company agrees to pay all debts and expenses,
including reasonable attorneys' fees and expenses,  which may be incurred by the
Holder in enforcing  the  provisions of this  Debenture  and/or  collecting  any
amount due under this Debenture,  the Subscription  Agreement,  the Registration
Rights Agreement or any other Related Agreement.

     17. DEFAULTS.  If one or more of the following events  (hereinafter  called
"EVENTS OF DEFAULT") shall occur:

                                       18
<PAGE>

          (a)  Any of the  representations  or  warranties  made by the  Company
               herein, in the Subscription Agreement, in the Registration Rights
               Agreement, in any other Related Agreement, or in any certificate,
               financial  statements or press releases of the Company heretofore
               or  hereafter  furnished  by or  on  behalf  of  the  Company  in
               connection with the execution and delivery of this Debenture, the
               Subscription Agreement,  the Registration Rights Agreement or any
               other Related  Agreement  shall be false or (when taken  together
               with other information  furnished by or on behalf of the Company,
               including  Exchange  Act  Reports)  misleading  in  any  material
               respect at the time made; or

          (b)  The  Company  shall fail to perform or observe  any  covenant  or
               agreement in the Subscription Agreement,  the Registration Rights
               Agreement or any other Related  Agreement or any other  covenant,
               term,  provision,  condition,  agreement  or  obligation  of  the
               Company under this  Debenture,  and such failure  shall  continue
               uncured for a period of ten (10)  business days after notice from
               the Holder of such failure, or the Company shall fail to make any
               payments  upon  redemption  of this  Debenture  or fail to  issue
               shares of Common Stock upon conversion of this Debenture; or

          (c)  The Company shall (i) become insolvent; (ii) admit in writing its
               inability to pay its debts generally as they mature; (iii) make a
               general  assignment  for the  benefit of  creditors  or  commence
               proceedings for its dissolution;  or (iv) apply for or consent to
               the  appointment  of a trustee,  liquidator or receiver for it or
               for a substantial part of its property or business; or

          (d)  A trustee,  liquidator  or receiver  shall be  appointed  for the
               Company or for a  substantial  part of its  property  or business
               without its consent and shall not be discharged within sixty (60)
               days after such appointment; or

          (e)  Any  governmental  agency or any court of competent  jurisdiction
               shall assume  custody or control of the whole or any  substantial
               portion of the  properties or assets of the Company and shall not
               be dismissed within sixty (60) days thereafter, or

                                       19
<PAGE>

          (f)  Any money  judgment,  writ or  warrant of  attachment  or similar
               process in excess of Five Hundred Thousand Dollars  ($500,000) in
               the  aggregate  shall be entered or filed  against the Company or
               any of its  properties  or other assets and shall remain  unpaid,
               unvacated,  unbonded and unstayed for a period of sixty (60) days
               or in any event later than ten (10) days prior to the date of any
               proposed sale thereunder; or

          (g)  Bankruptcy, reorganization, insolvency or liquidation proceedings
               or other  proceedings,  or relief under any bankruptcy law or any
               law for the relief of debt shall be  instituted by or against the
               Company  and, if  instituted  against the  Company,  shall not be
               dismissed within sixty (60) days after such  institution,  or the
               Company shall by any action or answer  approve of, consent to, or
               acquiesce  in any  such  proceedings  or  admit  to any  material
               allegations  of, or default in answering a petition filed in, any
               such proceeding;

then, or at any time thereafter prior to the date on which all continuing Events
of Default have been cured,  and in each and every such case,  unless such Event
of Default  shall have been waived in writing by the Holder  (which waiver shall
not be deemed to be a waiver of any  subsequent  default)  at the  option of the
Holder and in the  Holder's  sole  discretion,  the Holder may, by notice to the
Company declare this Debenture  immediately due and payable,  and the Holder may
immediately,  and without expiration of any period of grace, enforce any and all
of the  Holder's  rights and  remedies  provided  herein or any other  rights or
remedies  afforded by law. In such event,  the Debenture  shall be redeemed at a
redemption  price  per  Debenture  equal to the  redemption  price  provided  in
Paragraph 6(c).

     18.  SAVINGS  CLAUSE.  In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent  possible,  and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.

                                       20
<PAGE>

     19. ENTIRE AGREEMENT. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement between the
Company  and the  Holder  with  respect  to the  subject  hereof.  Neither  this
Debenture nor any term hereof may be amended,  waived,  discharged or terminated
other   than  by  a   written   instrument   signed   by  the   Company   and  a
two-thirds-in-interest of the Holders.

     20.  ASSIGNMENT,  ETC.  The  Holder  may,  subject to  compliance  with the
Subscription Agreement, without notice, transfer or assign this Debenture or any
interest  herein (but in no event in an amount less than $100,000 in Outstanding
Amount or, if less than $100,000,  the total Outstanding  Amount hereof) and may
mortgage,  encumber  or  transfer  any of its rights or  interest in and to this
Debenture or any part hereof, and each assignee, transferee and mortgagee (which
may include any  affiliate of the Holder) shall have the right to so transfer or
assign its interest;  PROVIDED,  HOWEVER, that before the Registration Statement
contemplated by the Registration Rights Agreement becomes effective, Holder will
furnish  the  Company  with an  opinion  of  counsel  to the  effect  that  such
assignment,   transfer,  mortgage  or  other  encumbrance  is  exempt  from  the
registration   requirements  under  the  Securities  Act.  Each  such  assignee,
transferee  and mortgagee  shall have all of the rights and  obligations  of the
Holder under this Debenture. The Company agrees that, subject to compliance with
the  Subscription  Agreement,  after receipt by the Company of written notice of
assignment  from  the  Holder  or from the  Holders'  assignee,  all  principal,
interest,  and other amounts which are then due and thereafter  become due under
this Debenture shall be paid to such assignee at the place of payment designated
in such  notice.  This  Debenture  shall be  binding  upon the  Company  and its
successors  and shall inure to the benefit of the Holder and its  successors and
assigns.

     21. NO WAIVER.  No failure  on the part of the Holder to  exercise,  and no
delay in exercising,  any right,  remedy or power  hereunder  shall operate as a
waiver  thereof,  nor shall any single or partial  exercise by the Holder of any
right,  remedy or power  hereunder  preclude any other or future exercise of any
other  right,  remedy or power.  Each and every  right,  remedy or power  hereby
granted  to the  Holder  or  allowed  it by  law or  other  agreement  shall  be
cumulative  and not  exclusive of any other,  and may be exercised by the Holder
from time to time.

     22.  MISCELLANEOUS.  Unless otherwise  provided herein, any notice or other
communication  to a party  hereunder  shall be deemed to have been duly given if
personally  delivered or sent by registered or certified  mail,  return  receipt
requested,  postage prepaid with a copy in each case


                                       21
<PAGE>

sent on the same day to the party by  facsimile,  Federal  Express or other such
expedited  means to said  party at its  address  set forth  herein or such other
address  as either  may  designate  for  itself in such  notice to the other and
communications  shall be deemed to have been received when delivered  personally
or,  if  sent  by  mail,  when  actually  received  by the  party  to whom it is
addressed. Copies of all notices to the Company shall be sent to Paul S. Weiner,
Director of Finance of the Company,  and to the attention of the General Counsel
of the Company.  Whenever  the sense of this  Debenture  requires,  words in the
singular  shall be deemed to include the plural and words in the plural shall be
deemed to include the singular.  Paragraph headings are for convenience only and
shall not affect the meaning of this document.

     23. CHOICE OF LAW AND VENUE:  WAIVER OF JURY TRIAL. THIS DEBENTURE SHALL BE
CONSTRUED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW THEREOF.  The Company hereby (i)
irrevocably submits to the exclusive  jurisdiction of the United States District
Court for the Southern District of New York for the purposes of any suit, action
or proceeding  arising out of or relating to this Debenture and (ii) waives, and
agrees not to assert in any such suit,  action or proceeding,  any claim that it
is not  personally  subject to the  jurisdiction  of such court,  that the suit,
action or  proceeding is brought in an  inconvenient  forum or that the venue of
the suit,  action or  proceeding  is improper.  The Company  consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
the Company at the address in effect for notices to it under this  Debenture and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.

                                       22
<PAGE>


         IN WITNESS  WHEREOF,  the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.

                           Dated as of: March 10, 1997

                           PALOMAR MEDICAL TECHNOLOGIES, INC.

                           By:     /s/
                              -------------------------------
                           Name:  Joseph P. Caruso
                                -----------------------------
                           Title:  Chief Financial Officer
                                 ----------------------------
                                   66 Cherry Hill Drive
                                   Beverly, MA  01915

ATTEST:


/s/ Paul S. Weiner
------------------
<PAGE>
   
                                    EXHIBIT A

                      (To Be Executed by Registered Holder
                         in order to Convert Debenture)

                                CONVERSION NOTICE
                                       FOR
             5% CONVERTIBLE SUBORDINATED DEBENTURE DUE MARCH , 2002

The undersigned,  as Holder of the 5% Convertible  Debenture Due February , 2002
of  Palomar  Medical  Technologies,  Inc.  ("Palomar"),  No.  ________,  in  the
outstanding  principal amount of  U.S.$____________  (the  "Debenture"),  hereby
irrevocably elects to convert  U.S.$________ of the outstanding principal amount
of the  Debenture  and  U.S.$________  of interest  accrued but unpaid under the
Debenture  into shares of Common  Stock,  par value $.01 per share (the  "Common
Stock"), of Palomar according to the conditions of the Debenture, as of the date
written below. The undersigned  hereby requests that share  certificates for the
Common Stock to be issued to the undersigned  pursuant to this Conversion Notice
be issued in the name of, and delivered to, the  undersigned  or its designee as
indicated  below.  If shares are to be issued in the name of a person other than
the  undersigned,  the  undersigned  will pay all  transfer  taxes  payable with
respect thereto. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any.

Accompanying  this Conversion  Notice is a Conversion Rate Computation  Schedule
setting forth the  determination  by the  undersigned of the number of shares of
Common Stock issuable pursuant to this Conversion Notice.

Conversion Information:         NAME OF HOLDER:
                                               ---------------------------------

                                By:
                                   ---------------------------------------------
                                   Print Name:
                                   Print Title:

                                   Print Address of Holder:

                                   ---------------------------------------------
                                   ---------------------------------------------

                                   Issue Common Stock to:
                                                         -----------------------

                                   at:
                                      ------------------------------------------

                                      ------------------------------------------
                                      Date of Conversion

<PAGE>

                      CONVERSION RATE COMPUTATION SCHEDULE

Conversion Date Market Price (as such term is defined in the Debenture) equal to
the lesser of (i) the average  Market  Price for shares of Common  Stock for the
five (5) trading days immediately  preceding the date of this Conversion  Notice
and (ii) the average  Market  Price for Shares of Common  Stock for the ten (10)
trading days immediately preceding the date of this Conversion Notice:

               Trading Day                           Closing Bid Price


               -----------                             -------------

               -----------                             -------------

               -----------                             -------------

               -----------                             -------------


Conversion Date Market Price:

   Average of Closing Bid Prices listed above:         -------------

   Applicable X% thereof:                              -------------%

Principal To Be Converted
         Plus
Interest To Be Converted:                              -------------

Divided by Conversion Date
     Market Price per above:                           -------------

Shares of Common Stock to be
   Issued on Conversion:                               -------------


<PAGE>


                                                                       EXHIBIT B

                            FORCED CONVERSION NOTICE
                          FOR 5% CONVERTIBLE DEBENTURES

                               DUE MARCH 10, 2002

         The undersigned, an authorized officer of Palomar Medical Technologies,
Inc. (the "Company"),  issuer of the 5% Convertible Debenture Due March 10, 2002
of the Company,  No.  ________,  held by  _______________  (the "Holder") in the
outstanding  principal amount of U.S.$__________ and accrued but unpaid interest
thereon in the amount of U.S.$____________ (the "Debenture"), hereby irrevocably
elects to require conversion of US.$________ of the outstanding principal amount
of the Debenture and U.S. $________ of interest,  fees and other amounts accrued
but unpaid under the Debenture  into shares of Common Stock,  par value $.01 per
share (the "Common Stock") of the Company  according to the terms and conditions
of the Debenture,  on the Forced  Conversion  Date written  below.1  Capitalized
terms used in this Forced Conversion Notice and not otherwise defined shall have
the meanings ascribed thereto in or by reference in the Debenture.

         Accompanying this Forced  Conversion  Notice is a Computation  Schedule
completed by the Company setting forth the  determination  by the Company of the
Outstanding  Amount of such Debenture,  plus fees and other charges and amounts,
to be  converted.  The  calculation  of the  number of  shares  of Common  Stock
issuable  pursuant to this Forced  Conversion Notice shall be made in accordance
with the terms of the Debenture.

         The Company  shall issue and deliver to the Holder  share  certificates
for the Common Stock issuable pursuant to this Forced Conversion  Notice. If the
Holder desires the shares to be issued in the name of, and delivered to a person
other than,  the Holder,  the Holder should so indicate below and deliver a copy
of this Forced Conversion  Notice to the Company,  Attention:  ____________,  at
least two  business  days prior to the Forced  Conversion  Date.  No fee will be
charged to the Holder for this conversion, except for transfer taxes, if any.


                                            ------------------------------------
                                            Forced Conversion Date

                                            PALOMAR MEDICAL TECHNOLOGIES, INC.

                                            By:
                                               ---------------------------------
                                               Name:
                                               Title:


                                            Issue Common Stock To:

                                            ------------------------------------
                                            At:
                                               ---------------------------------

                                               ---------------------------------
[FN]
--------
1  The Forced Conversion Date shall be at least 20 trading days from the date of
   delivery of this Forced Conversion Notice.
</FN>