SECURITIES PURCHASE AGREEMENT

         SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of March 27,
1997, by and among PALOMAR MEDICAL  TECHNOLOGIES,  INC., a corporation organized
under the laws of the  State of  Delaware  (the  "COMPANY"),  with  headquarters
located at 66 Cherry Hill Drive,  Beverly,  Massachusetts  01915 and each of the
purchasers  (the  "PURCHASERS")  set forth on the  execution  pages  hereof (the
"Execution Pages").

         WHEREAS:

         A. The Company and each  Purchaser are executing  and  delivering  this
Agreement in reliance upon the exemption from securities  registration  afforded
by Section  4(2) of the  Securities  Act of 1933,  as amended  (the  "SECURITIES
ACT");

         B. Each  Purchaser  desires to purchase,  upon the terms and conditions
stated in this  Agreement,  shares (the  "PREFERRED  SHARES")  of the  Company's
Series H  Convertible  Preferred  Stock,  par value  $.01 per share  ("PREFERRED
STOCK")  convertible  into its common  stock,  par value $.01 per share,  of the
Company (the "COMMON  STOCK").  The rights,  preferences  and  privileges of the
Preferred  Stock,  including  the  terms  upon  which  such  Preferred  Stock is
convertible into shares of Common Stock are set forth in the form of Certificate
of  Designations,  Preferences  and  Rights  attached  hereto as  EXHIBIT A (the
"CERTIFICATE  OF  DESIGNATIONS").  The  shares of  Common  Stock  issuable  upon
conversion of the Preferred  Shares or otherwise  pursuant to the Certificate of
Designations  are referred to herein as the "CONVERSION  SHARES".  The Preferred
Shares  and  Conversion  Shares  are  collectively  referred  to  herein  as the
"SECURITIES."

         C.  Contemporaneous  with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT B (the "REGISTRATION  RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain  registration rights
under the Securities Act and the rules and regulations  promulgated  thereunder,
and applicable state securities laws;

         NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:

1.       PURCHASE AND SALE OF PREFERRED SHARES.

         a.  PURCHASE  OF  PREFERRED  SHARES.  On the  Closing  Date (as defined
below),  subject to the  satisfaction (or waiver) of the conditions set forth in
Sections 6 and 7 below,  the Company shall issue and sell to each  Purchaser and
each  Purchaser  severally  agrees to purchase from the Company,  such number of
Preferred Shares as is set forth on such Purchaser's  signature page 


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<PAGE>

hereto.  The purchase price (the "PURCHASE  PRICE") per Preferred  Share at such
closing  shall be equal to One Thousand  Dollars  ($1,000.00)  and the aggregate
purchase price for all of the Preferred Shares to be purchased by the Purchasers
shall be Six Million Dollars ($6,000,000.00).  For the avoidance of doubt, in no
event  shall any  Purchaser  be  required  to  purchase  more than the number of
Preferred  Shares being  subscribed for hereunder by such Purchaser as set forth
on such Purchaser's  Execution Page. The Company may sell up to Fourteen Million
Dollars ($14,000,000.00) of additional Preferred Shares, at One Thousand Dollars
($1,000.00) per Preferred Share at one additional  closing within 60 days of the
Closing Date (such  closing,  if any, is herein  referred to as the  "ADDITIONAL
CLOSING").

         b. FORM OF PAYMENT.  On the Closing Date,  each Purchaser shall pay the
aggregate  Purchase  Price for the  Preferred  Shares  being  purchased  by such
Purchaser  hereunder by wire  transfer to the Company,  in  accordance  with the
Company's  written  wiring  instructions,  against  delivery  of  duly  executed
certificates representing the Preferred Shares being purchased by such Purchaser
hereunder and the Company shall deliver such  certificates  against  delivery of
such aggregate Purchase Price.

         c.  CLOSING  DATE.  Subject  to the  satisfaction  (or  waiver)  of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Preferred Shares pursuant to this Agreement (the
"CLOSING DATE") shall be 12:00 noon eastern time on March 31, 1997,  (subject to
a two (2)  business day grace period at either  party's  option),  or such other
time as may be  mutually  agreed upon by the  Company  and the  Purchasers.  The
closing shall occur at the offices of Foley,  Hoag & Eliot, LLP, One Post Office
Square, Boston, MA 02109.

2.       PURCHASERS' REPRESENTATIONS AND WARRANTIES

         Each Purchaser severally represents and warrants to the Company that:

         a. INVESTMENT PURPOSE. Purchaser is purchasing the Preferred Shares for
Purchaser's  own account for investment only and not with a present view towards
the public  sale or  distribution  thereof,  except  pursuant  to sales that are
exempt from the  registration  requirements  of the  Securities Act and/or sales
registered under the Securities Act.  Purchaser  understands that Purchaser must
bear the economic risk of this  investment  indefinitely,  unless the Securities
are  registered  pursuant  to  the  Securities  Act  and  any  applicable  state
securities or blue sky laws or an exemption from such registration is available,
and that the Company has no present intention of registering any such Securities
other than as contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section  2(a) to the  contrary,  by making the  representations
herein,  the Purchaser  does not agree to hold the Securities for any minimum or
other  specific term and reserves the right to dispose of the  Securities at any
time in accordance with or pursuant to a registration  statement or an exemption
under the Securities Act.

         b. ACCREDITED INVESTOR STATUS. Purchaser is an "ACCREDITED INVESTOR" as
that term is defined in Rule 501(a) of Regulation D.

                                       2
<PAGE>

         c. RELIANCE ON  EXEMPTIONS.  Purchaser  understands  that the Preferred
Shares  are being  offered  and sold to  Purchaser  in  reliance  upon  specific
exemptions from the registration requirements of United States federal and state
securities  laws and that the Company is relying upon the truth and accuracy of,
and Purchaser's  compliance with, the representations,  warranties,  agreements,
acknowledgments  and  understandings  of Purchaser  set forth herein in order to
determine the  availability  of such exemptions and the eligibility of Purchaser
to acquire the Preferred Shares.

         d. INFORMATION.  Purchaser and its counsel, if any, have been furnished
all materials  relating to the business,  finances and operations of the Company
and materials  relating to the offer and sale of the Preferred Shares which have
been  specifically  requested by Purchaser  or its  counsel.  Purchaser  and its
counsel,  if any,  have been  afforded the  opportunity  to ask questions of the
Company  and  have  received  what   Purchaser   believes  to  be  complete  and
satisfactory answers to any such inquiries. Neither such inquiries nor any other
due diligence  investigation conducted by Purchaser or its counsel or any of its
representatives  shall modify,  amend or affect Purchaser's right to rely on the
Company's representations and warranties contained in Section 3 below. Purchaser
understands that Purchaser's investment in the Securities involves a high degree
of risk.

         e.  GOVERNMENTAL  REVIEW.  Purchaser  understands that no United States
federal  or state  agency or any other  government  or  governmental  agency has
passed upon or made any recommendation or endorsement of the Securities.

         f.  TRANSFER  OR  RESALE.  Purchaser  understands  that (i)  except  as
provided in the Registration Rights Agreement,  the Securities have not been and
are not being  registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or (b)
Purchaser  shall have  delivered  to the  Company  an opinion of counsel  (which
opinion shall be in form,  substance and scope customary for opinions of counsel
in  comparable  transactions)  to the effect that the  Securities  to be sold or
transferred  may be sold or  transferred  pursuant  to an  exemption  from  such
registration or (c) sold pursuant to Rule 144  promulgated  under the Securities
Act (or a  successor  rule)  ("RULE  144"),  or (d)  sold or  transferred  to an
affiliate of  Purchaser;  (ii) any sale of such  Securities  made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if  said  Rule  is  not  applicable,   any  resale  of  such  Securities   under
circumstances  in which the seller (or the person through whom the sale is made)
may be deemed to be an  underwriter  (as that term is defined in the  Securities
Act) may require  compliance  with some other exemption under the Securities Act
or the rules and  regulations  of the Securities  and Exchange  Commission  (the
"SEC")  thereunder;  and (iii) neither the Company nor any other person is under
any obligation to register such Securities under the Securities Act or any state
securities  laws or to comply  with the terms and  conditions  of any  exemption
thereunder  (in each  case,  other  than  pursuant  to the  Registration  Rights
Agreement).

                                       3
<PAGE>

         g. LEGENDS.  Purchaser understands that the Preferred Shares and, until
such time as the Conversion Shares have been registered under the Securities Act
as contemplated by the Registration Rights Agreement or otherwise may be sold by
Purchaser  pursuant to Rule 144 without any  restriction as to the public resale
thereof,  the  certificates  for the  Conversion  Shares may bear a  restrictive
legend in  substantially  the following form (and a  stop-transfer  order may be
placed against transfer of the certificates for such Securities):

         The securities represented by this certificate have not been registered
         under the Securities Act of 1933, as amended.  The securities have been
         acquired for investment and may not be sold, transferred or assigned in
         the absence of an effective  registration  statement for the securities
         under said Act, or an opinion of counsel, in form,  substance and scope
         customary  for  opinions of counsel in  comparable  transactions,  that
         registration  is not required under said Act or unless sold pursuant to
         Rule 144(k) under said Act.

         The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such  Security  is  registered  under the  Securities  Act,  or (b) such  holder
provides the Company with an opinion of counsel,  in form,  substance  and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or  transfer of such  Security  may be made  without  registration
under the Securities Act or (c) such holder provides the Company with reasonable
assurances  that such Security has been sold pursuant to Rule 144 or can be sold
pursuant  to Rule 144  without any  restriction  as to the number of  Securities
acquired as of a particular  date that can then be immediately  sold.  Purchaser
agrees to sell all Securities,  including those  represented by a certificate(s)
from which the legend has been  removed,  pursuant to an effective  registration
statement and to deliver a prospectus  in  connection  with such sale (if and to
the extent such  delivery is required) or in compliance  with an exemption  from
the  registration  requirements  of the  Securities  Act. In the event the above
legend is removed  from any  Security  and  thereafter  the  effectiveness  of a
registration  statement  covering  such  Security  is  suspended  or the Company
determines  that a  supplement  or amendment  thereto is required by  applicable
securities  laws, then upon  reasonable  advance notice to Purchaser the Company
may require  that the above  legend be placed on any such  Security  that cannot
then be sold pursuant to an effective registration statement or Rule 144 without
any restriction as to the number of Securities  acquired as of a particular date
that can then be  immediately  sold,  which  legend  shall be removed  when such
Security  has  been  sold  pursuant  to Rule 144 or may be sold  pursuant  to an
effective  registration  statement or Rule 144 without any restriction as to the
number  of  Securities  acquired  as of a  particular  date  that  can  then  be
immediately sold.

         h.       [Intentionally Omitted]

                                       4
<PAGE>

         i.  AUTHORIZATION;  ENFORCEMENT.  This  Agreement and the  Registration
Rights Agreement have been duly and validly  authorized,  executed and delivered
on  behalf  of  Purchaser  and are valid and  binding  agreements  of  Purchaser
enforceable in accordance with their terms.

         j.  RESIDENCY.  Purchaser is a resident of the  jurisdiction  set forth
under such  Purchaser's  name on the  signature  page  hereto  executed  by such
Purchaser.

3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company represents and warrants to each Purchaser that:

         a.  ORGANIZATION  AND  QUALIFICATION.  The  Company  and  each  of  its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated,  and has the requisite
corporate  power to own its properties and to carry on its business as now being
conducted.  The  Company and each of its  subsidiaries  is duly  qualified  as a
foreign corporation to do business and is in good standing in every jurisdiction
where the failure so to qualify would have a Material Adverse Effect.  "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the operations, properties,
financial condition or prospects of the Company and its subsidiaries, taken as a
whole on a consolidated basis or on the transactions contemplated hereby.

         b.  AUTHORIZATION;  ENFORCEMENT.  (i) The  Company  has  the  requisite
corporate  power and authority to enter into and perform this  Agreement and the
Registration  Rights  Agreement,  to  issue  and sell the  Preferred  Shares  in
accordance  with the terms  hereof,  and to issue  the  Conversion  Shares  upon
conversion  of  the  Preferred  Shares  in  accordance  with  the  terms  of the
Certificate of  Designations;  (ii) the execution,  delivery and  performance of
this  Agreement  and the  Registration  Rights  Agreement by the Company and the
consummation  by  it  of  the  transactions   contemplated  hereby  and  thereby
(including  without  limitation  the  issuance of the  Preferred  Shares and the
issuance and reservation  for issuance of the Conversion  Shares) have been duly
authorized  by the  Company's  Board of  Directors  and no  further  consent  or
authorization  of the Company,  its Board or Directors,  or its  stockholders is
required  (under  Rule  4460(i)  promulgated  by  the  National  Association  of
Securities  Dealers or  otherwise);  (iii) this Agreement has been duly executed
and delivered by the Company;  and (iv) this  Agreement  constitutes,  and, upon
execution and delivery by the Company of the Registration Rights Agreement, such
agreement  will  constitute,  valid  and  binding  obligations  of  the  Company
enforceable against the Company in accordance with their terms.

         c.  CAPITALIZATION.  The  capitalization  of the Company as of the date
hereof,  including the authorized capital stock, the number of shares issued and
outstanding,  the  number  of  shares  reserved  for  issuance  pursuant  to the
Company's  stock  option  plans,  the  number of shares  reserved  for  issuance
pursuant to securities  (other than the Preferred  Shares)  exercisable  for, or
convertible  into or exchangeable  for any shares of Common Stock and the number
of shares to be reserved for issuance upon conversion of the Preferred Shares is
set forth on SCHEDULE 3(C). All of such outstanding shares of capital stock have
been, or upon issuance will be, validly issued, 


                                       5
<PAGE>

fully  paid and  nonassessable.  No  shares  of  capital  stock  of the  Company
(including  the  Preferred  Shares and the  Conversion  Shares)  are  subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any  liens or  encumbrances.  Except  as  disclosed  in  SCHEDULE  3(C) or as
contemplated  herein,  as of the  date  of  this  Agreement,  (i)  there  are no
outstanding  options,   warrants,  scrip,  rights  to  subscribe  to,  calls  or
commitments  of any  character  whatsoever  relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries,  or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional  shares of
capital stock of the Company or any of its  subsidiaries,  and (ii) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated  to register  the sale of any of the  Company's  securities  under the
Securities Act (except the Registration Rights Agreement).  The Company has made
available to each Purchaser true and correct copies of the Company's Certificate
of   Incorporation   as  in  effect  on  the  date   hereof   ("CERTIFICATE   OF
INCORPORATION"),  the  Company's  By-laws as in effect on the date  hereof  (the
"BY-LAWS"),  and all  other  instruments  and  agreements  governing  securities
convertible into or exercisable or exchangeable for Common Stock of the Company.
The  Certificate of  Designations,  in the form attached  hereto,  has been duly
filed  with the  Secretary  of State of the  State  of  Delaware  and,  upon the
issuance of the  Preferred  Shares in  accordance  with the terms  hereof,  each
Purchaser  shall be entitled to the rights set forth therein.  The Company shall
provide each Purchaser with a written  update of this  representation  signed by
the Company's  Chief Executive  Officer or Chief Financial  Officer on behalf of
the Company as of the Closing Date.

         d. ISSUANCE OF SHARES.  The Preferred  Shares are duly  authorized and,
upon issuance in accordance  with the terms of this  Agreement,  will be validly
issued,  fully paid and  non-assessable,  and free from all taxes, liens, claims
and encumbrances  and will not be subject to preemptive  rights or other similar
rights of stockholders of the Company. The Conversion Shares are duly authorized
and reserved for  issuance,  and, upon  conversion  of the  Preferred  Shares in
accordance  with the terms  thereof,  will be  validly  issued,  fully  paid and
non-assessable, and free from all taxes, liens, claims and encumbrances and will
not be subject to preemptive  rights or other similar rights of  stockholders of
the Company.

         e. NO  CONFLICTS.  The  execution,  delivery  and  performance  of this
Agreement and the Registration Rights Agreement by the Company,  the performance
by the Company of its obligations under the Certificate of Designations, and the
consummation by the Company of the transactions  contemplated hereby and thereby
(including,  without limitation,  the issuance and reservation for issuance,  as
applicable,  of the Preferred Shares and Conversion  Shares) will not (i) result
in a violation of the Certificate of  Incorporation  or By-laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment,   acceleration  or  cancellation  of,  any  agreement,  indenture  or
instrument to which the Company or any of its subsidiaries is a party, or result
in a  violation  of  any  law,  rule,  regulation,  order,  judgment  or  decree
(including U.S. federal and state securities laws and regulations) applicable to
the Company or any of 


                                       6
<PAGE>

its  subsidiaries or by which any property or asset of the Company or any of its
subsidiaries  is  bound  or  affected  (except  for  such  conflicts,  defaults,
terminations,  amendments, accelerations,  cancellations and violations as would
not, individually or in the aggregate,  have a Material Adverse Effect). Neither
the Company nor any of its  subsidiaries  is in violation of its  Certificate of
Incorporation or other organizational  documents and neither the Company nor any
of its subsidiaries is in default (and no event has occurred which,  with notice
or lapse of time or both,  would put the Company or any of its  subsidiaries  in
default)  under,  nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of  termination,  amendment,  acceleration  or
cancellation of, any agreement,  indenture or instrument to which the Company or
any of its  subsidiaries is a party,  except for possible  defaults or rights as
would not, individually or in the aggregate, have a Material Adverse Effect. The
businesses  of the Company and its  subsidiaries  are not being  conducted,  and
shall not be conducted  so long as a Purchaser  owns any of the  Securities,  in
violation of any law, ordinance or regulation of any governmental entity, except
for  possible  violations  the  sanctions  for  which  either  singly  or in the
aggregate  would not have a  Material  Adverse  Effect.  Except as  specifically
contemplated  by this Agreement and as required under the Securities Act and any
applicable  state  securities laws and the filing of an application  with NASDAQ
(as defined below) to list or approve for quotation the Conversion  Shares,  the
Company is not  required to obtain any  consent,  authorization  or order of, or
make any filing or registration  with, any court or  governmental  agency or any
regulatory  or self  regulatory  agency in order for it to  execute,  deliver or
perform any of its obligations  under this Agreement or the Registration  Rights
Agreement or to perform its obligations  under the Certificate of  Designations,
in each case in accordance with the terms hereof or thereof.  The Company is not
in  violation  of the  listing  requirements  of the  NASDAQ  Small  Cap  Market
("NASDAQ")  and does not  reasonably  anticipate  that the Common  Stock will be
delisted by NASDAQ in the foreseeable future.

         f. SEC DOCUMENTS,  FINANCIAL  STATEMENTS.  Since December 31, 1993, the
Company has timely filed all reports,  schedules,  forms,  statements  and other
documents  required  to be filed by it with the SEC  pursuant  to the  reporting
requirements  of the Securities  Exchange Act of 1934, as amended (the "EXCHANGE
ACT") (all of the  foregoing,  filed prior to the date hereof and after December
31,  1993,  and all  exhibits  included  therein and  financial  statements  and
schedules thereto and documents (other than exhibits)  incorporated by reference
therein  together with any  registration  statements or other documents filed by
the Company  pursuant to the  Securities  Act prior to the date hereof and those
certain  news  releases  attached  hereto as SCHEDULE  3(F),  being  hereinafter
referred to herein as the "SEC  DOCUMENTS").  The Company has  delivered to each
Purchaser  true  and  complete  copies  of the SEC  Documents,  except  for such
exhibits,  schedules and incorporated  documents.  As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Exchange  Act or the  Securities  Act,  as the case may be,  and the  rules  and
regulations of the SEC promulgated  thereunder  applicable to the SEC Documents,
and  none of the SEC  Documents,  at the  time  they  were  filed  with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated  therein or necessary in order to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  As of their  respective  dates,  the  financial  statements  of the
Company  included  in the SEC  Documents  complied  as to  form in all  material



                                       7
<PAGE>

respects with  applicable  accounting  requirements  and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in  accordance  with U.S.  generally  accepted  accounting  principles,
consistently  applied,  during  the  periods  involved  (except  (i)  as  may be
otherwise  indicated in such financial  statements or the notes thereto, or (ii)
in the case of  unaudited  interim  statements,  to the extent  they may include
footnotes or may not be condensed or summary  statements)  and fairly present in
all material respects the consolidated financial position of the Company and its
consolidated  subsidiaries as of the dates thereof and the consolidated  results
of their  operations and cash flows for the periods then ended (subject,  in the
case of unaudited statements,  to normal year-end audit adjustments).  Except as
set  forth  in the  financial  statements  of the  Company  included  in the SEC
Documents, the Company has no liabilities,  contingent or otherwise,  other than
(i) liabilities  incurred in the ordinary  course of business  subsequent to the
date of the most recent financial  statements  included in the SEC Documents and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted  accounting  principles to
be  reflected  in  such  financial  statements,  which,  individually  or in the
aggregate,  are not material to the financial  condition or operating results of
the Company.

         g. ABSENCE OF CERTAIN CHANGES.  Since December 31, 1995, there has been
no material adverse change and no material adverse  development in the business,
properties,  operations, financial condition, results of operations or prospects
of the Company, except as disclosed in the SEC Documents.

         h. ABSENCE OF LITIGATION.  Except for the  declaratory  judgment action
filed by the Company against  MEHL/Biophile  in the United States District Court
for the District of Massachusetts in October,  1996 and the Declaratory judgment
action filed by Selvac  Acquisitions Corp. against the Company and other parties
in the United  States  District  Court for the  District of New Jersey in March,
1997,  or except as disclosed in the SEC  Documents,  there is no action,  suit,
proceeding,  inquiry  or  investigation  before or by any court,  public  board,
government  agency,  self-regulatory  organization  or body  pending  or, to the
knowledge  of the  Company  or any of its  subsidiaries,  threatened  against or
affecting  the  Company,  any of its  subsidiaries,  or any of their  respective
directors  or  officers  in their  capacities  as such,  wherein an  unfavorable
decision,  ruling  or  finding  would  have a  material  adverse  effect  on the
properties,  business,  condition (financial or other), results of operations or
prospects  of  the  Company  and  its  subsidiaries  taken  as a  whole  or  the
transactions contemplated by this Agreement or any of the documents contemplated
hereby or which would adversely affect the validity or enforceability of, or the
authority  or ability of the  Company to perform  its  obligations  under,  this
Agreement or any of such other documents.

         i.  DISCLOSURE.  All information  relating to or concerning the Company
set forth in this  Agreement or provided to the  Purchasers  pursuant to Section
2(d) hereof and  otherwise  in  connection  with the  transactions  contemplated
hereby is true and  correct in all  material  respects  and the  Company has not
omitted to state any material  fact  necessary  in order to make the  statements
made  herein or  therein,  in light of the  circumstances  under which they were
made,  not  


                                       8
<PAGE>

misleading.  No event or circumstance has occurred or exists with respect to the
Company  or  its  subsidiaries  or  their  respective  businesses,   properties,
prospects, operations or financial conditions, which, under applicable law, rule
or regulation,  requires  public  disclosure or  announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this purpose
that the Company's Exchange Act Reports are being incorporated into an effective
registration statement filed by the Company under the Securities Act).

         j. ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF THE SECURITIES. The
Company  acknowledges  and agrees  that none of the  Purchasers  are acting as a
financial  advisor or fiduciary of the Company (or in any similar capacity) with
respect to this  Agreement  or the  transactions  contemplated  hereby,  and any
advice given by any Purchaser,  or any of their  representatives  or agents,  in
connection  with this  Agreement  and the  transactions  contemplated  hereby is
merely incidental to each Purchaser's  purchase of Preferred Shares. The Company
further  represents to each Purchaser that the Company's  decision to enter into
this Agreement has been based solely on an independent evaluation by the Company
and its representatives.

         k. CURRENT  PUBLIC  INFORMATION.  The Company is currently  eligible to
register the resale of its Common Stock on a registration  statement on Form S-3
under the Securities Act.

         l. NO GENERAL  SOLICITATION.  Neither the  Company nor any  distributor
participating on the Company's behalf in the  transactions  contemplated  hereby
(if any) nor any person  acting for the Company,  or any such  distributor,  has
conducted any "GENERAL  SOLICITATION,"  as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.

         m.  NO  INTEGRATED  OFFERING.  Neither  the  Company,  nor  any  of its
affiliates,  nor any  person  acting on its or their  behalf,  has  directly  or
indirectly  made any offers or sales of any security or solicited  any offers to
buy any security  under  circumstances  that would require  registration  of the
Securities being offered hereby under the Securities Act.

         n. NO BROKERS. The Company has taken no action which would give rise to
any claim by any  person for  brokerage  commissions,  finder's  fees or similar
payments  by any  Purchaser  relating  to  this  Agreement  or the  transactions
contemplated hereby,  except for dealings with Michael Arnouse whose commissions
and fees will be paid for by the Company.

         o. ACKNOWLEDGMENT OF DILUTION. The number of Conversion Shares issuable
upon conversion of the Preferred  Shares may increase  substantially  in certain
circumstances,  including  the  circumstance  wherein the  trading  price of the
Common Stock  declines.  The Company  acknowledges  that its obligation to issue
Conversion Shares upon conversion of the Preferred Shares in accordance with the
Certificate of  Designations  is absolute and  unconditional,  regardless of the
dilution  that  such  issuance  may  have on the  ownership  interests  of other
stockholders.



                                       9
<PAGE>

         p. INTELLECTUAL PROPERTY. Each of the Company and its subsidiaries owns
or  possesses  adequate  and  enforceable  rights  to use  all  patents,  patent
applications,  trademarks,  trademark applications,  trade names, service marks,
copyrights, copyright applications,  licenses, know-how (including trade secrets
and  other   unpatented   and/or   unpatentable   proprietary  or   confidential
information,  systems or procedures)  and other similar  rights and  proprietary
knowledge  (collectively,  "INTANGIBLES")  necessary  for  the  conduct  of  its
business as now being conducted and as described in the Company's  Annual Report
on Form 10-K for the fiscal year ended  December 31,  1995.  Neither the Company
nor any subsidiary of the Company  infringes or is in conflict with any right of
any other person with respect to any Intangibles  which,  individually or in the
aggregate,  if the subject of an unfavorable decision,  ruling or finding, would
have a Material Adverse Effect.

         q.  FOREIGN  CORRUPT  PRACTICES.  Neither the  Company,  nor any of its
subsidiaries,  nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary  has, in the course of acting for, or
on  behalf  of,  the  Company,   used  any  corporate  funds  for  any  unlawful
contribution,  gift,  entertainment  or  other  unlawful  expenses  relating  to
political activity;  made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.

4.       COVENANTS.

         a. BEST  EFFORTS.  The parties  shall use their best efforts  timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.

         b. BLUE SKY LAWS. The Company shall, on or before the Closing Date take
such action as the Company  shall  reasonably  determine is necessary to qualify
the  Securities  for sale to the  Purchasers  pursuant to this  Agreement  under
applicable  securities  or "blue sky" laws of the states of the United States or
obtain  exemption  therefrom,  and shall provide  evidence of any such action so
taken to the Purchasers on or prior to the Closing Date.

         c. REPORTING STATUS. So long as any Purchaser  beneficially owns any of
the Securities,  the Company shall timely file all reports  required to be filed
with the SEC pursuant to the Exchange  Act, and the Company  shall not terminate
its status as an issuer  required to file reports under the Exchange Act even if
the  Exchange  Act or the rules and  regulations  thereunder  would  permit such
termination.

         d. USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the  Preferred  Shares  for  internal  working  capital  purposes,  mergers  and
acquisitions, investments and general corporate purposes.



                                       10
<PAGE>

         e. ADDITIONAL EQUITY CAPITAL;  RIGHT OF FIRST OFFER. The Company agrees
that during the period  beginning on the date hereof and ending ninety (90) days
following the later of (i) the Closing Date and (ii) the date of the  Additional
Closing, if any (the "LOCK-UP PERIOD"),  the Company will not, without the prior
written consent of Purchasers (or their designated  agents) holding at least two
thirds  (2/3rds)  of the then  outstanding  Preferred  Shares,  issue or sell or
contract  with any party to issue or sell any Below Market  Security (as defined
below)  ("FUTURE  OFFERINGS").  In  addition,  the Company  will not conduct any
Future  Offering  during the period  beginning on the date hereof and ending 180
days  following  the  later of (i) the  Closing  Date  and  (ii) the  Additional
Closing, if any, unless it shall have first delivered to each Purchaser at least
five (5)  business  days prior to the closing of such Future  Offering,  written
notice  describing  the  proposed  Future  Offering,  including  the  terms  and
conditions thereof,  and providing each Purchaser and its affiliates,  an option
during the five (5)  business  day period  following  delivery of such notice to
purchase up to the  Applicable  Portion (as defined  below) of the Below  Market
Securities   being  offered  in  the  Future  Offering  on  the  same  terms  as
contemplated  by such Future Offering (the  limitations  referred to in this and
the immediately  preceding sentence are collectively referred to as the "CAPITAL
RAISING  LIMITATIONS").  The Capital Raising  Limitations shall not apply to the
sale of Preferred  Shares at the  Additional  Closing,  if any, on the terms set
forth  herein  or to  any  transaction  involving  issuances  of  securities  in
connection with a merger,  consolidation,  acquisition or sale of assets,  or in
connection with any strategic  partnership or joint venture (the primary purpose
of which is not to raise equity capital),  or in connection with the disposition
or acquisition  of a business,  product or license by the Company or exercise of
options by employees,  consultants or directors. The Capital Raising Limitations
also  shall  not  apply  to  (i)  the  issuance  of  securities  pursuant  to an
underwritten  public offering,  (ii) the issuance of securities upon exercise or
conversion of the Company's  options,  warrants or other convertible  securities
outstanding  as of the date hereof or (iii) the grant of  additional  options or
warrants,  or the issuance of  additional  securities,  under any Company  stock
option or  restricted  stock plan for the  benefit of the  Company's  employees,
directors or consultants. The "APPLICABLE PORTION" shall mean the product of (i)
a fraction,  the numerator of which is the number of Preferred  Shares purchased
by such Purchaser  hereunder and the denominator of which is the total number of
Preferred  Shares  purchased  by  all  of the  Purchasers  hereunder  (including
Preferred  Shares  issued on the Closing Date and on the date of the  Additional
Closing,  if any). "BELOW MARKET  SECURITIES" shall mean any Common Stock or any
security of the Company which is convertible into or exercisable or exchangeable
for  Common  Stock and  which is sold at a "gross  selling  price per  share" of
Common  Stock  which is less than the  average  of the  Closing  Bid  Prices (as
defined  in the  Certificate  of  Designations)  for the five (5)  trading  days
immediately preceding the date of issuance of such security, where the price per
share of Common  Stock for any  security  convertible  into or  exchangeable  or
exercisable  for Common  Stock shall be  determined  by  dividing  (i) the total
amount,  if any,  received or  receivable  by the Company as  consideration  for
issuance  or sale  of such  security,  plus  the  minimum  aggregate  amount  of
additional  consideration,  if any,  payable to the Company  upon the  exercise,
conversion  or exchange  thereof by (ii) the maximum  total  number of shares of
Common  Stock  issuable  upon  the  exercise,  conversion  or  exchange  of such
security.



                                       11
<PAGE>

         f.  EXPENSES.  On the date of the Closing,  the Company  shall pay Five
Thousand Dollars  ($5,000.00) to RGC International  Investors,  LDC ("RGC") as a
non-accountable  expense  allowance  to be applied by RGC against  all  expenses
incurred  by  RGC  and  its  affiliates  in  connection  with  the  negotiation,
preparation, execution, delivery and performance of this Agreement and the other
agreements to be executed in connection herewith, including, without limitation,
RGC and its affiliates' attorneys' fees and expenses.

         g.  FINANCIAL  INFORMATION.  Upon the written  request of any Purchaser
holding any  Securities,  the Company shall send the  following  reports to such
Purchaser:  a copy of its Annual Report on Form 10-K,  its Quarterly  Reports on
Form 10-Q, any proxy  statements,  any Current Reports on Form 8-K and any press
releases issued by the Company or any of its subsidiaries.

         h.  RESERVATION  OF  SHARES.  The  Company  shall  at  all  times  have
authorized  and  reserved  for the  purpose of issuance a  sufficient  number of
shares of Common  Stock to provide for the full  conversion  of the  outstanding
Preferred Shares and issuance of the Conversion  Shares in connection  therewith
and as otherwise required by the Certificate of Designations.  The Company shall
not reduce the number of shares  reserved for issuance  upon  conversion  of the
Preferred  Shares  without the consent of  Purchasers  holding a majority of the
Preferred Shares then held by all Purchasers.

         i.  LISTING.  Promptly  (and in no event more than  fifteen  (15) days)
following  the  Company's  receipt of a  Conversion  Notice  (as  defined in the
Certificate of  Designations)  with respect to any Preferred  Share, the Company
shall  secure the listing or approval  for  quotation  of all of the  Conversion
Shares upon each national  securities exchange or automated quotation system, if
any,  upon which  shares of Common  Stock are then  listed  (subject to official
notice of issuance) and thereafter  shall maintain,  so long as any other shares
of Common Stock shall be so listed,  such listing of all Conversion  Shares from
time to time issuable upon conversion of the Preferred Shares.  The Company will
take all action  necessary  to  continue  the  listing and trading of its Common
Stock on the NASDAQ,  the NASDAQ  National  Market  ("NNM"),  the New York Stock
Exchange ("NYSE") or the American Stock Exchange ("AMEX") and will comply in all
respects with the Company's  reporting,  filing and other  obligations under the
bylaws or rules of the National  Association of Securities  Dealers ("NASD") and
such exchanges, as applicable.

         j. CORPORATE  EXISTENCE.  So long as a Purchaser  beneficially owns any
Preferred Shares, the Company shall maintain its corporate existence,  except in
the event of a merger,  consolidation or sale of all or substantially all of the
Company's  assets,  as  long  as the  surviving  or  successor  entity  in  such
transaction  (i)  assumes  the  Company's  obligations  hereunder  and under the
agreements and  instruments  entered into in connection  herewith  regardless of
whether  or not the  Company  would  have had a  sufficient  number of shares of
Common  Stock  authorized  and  available  for  issuance  in order to effect the
conversion  of  all  Preferred  Shares  outstanding  as  of  the  date  of  such
transaction  and (ii) is a publicly  traded  corporation  whose  common stock is
listed for trading on the NASDAQ, NNM, NYSE or AMEX.

         k.       [Intentionally Omitted]



                                       12
<PAGE>

         l. If no  Additional  Closing  occurs,  or if it occurs  for fewer than
14,000  Preferred  Shares,  the Company shall promptly amend the  Certificate of
Designations to reduce the authorized  number of Preferred Shares from 20,000 to
the number actually issued and sold hereunder.

5.       TRANSFER AGENT INSTRUCTIONS.

         The Company shall  instruct its transfer  agent to issue  certificates,
registered  in the name of each  Purchaser  or its nominee,  for the  Conversion
Shares in such amounts as specified  from time to time by such  Purchaser to the
Company upon  conversion of the Preferred  Shares.  Prior to registration of the
Conversion  Shares under the Securities Act or resale of such  Securities  under
Rule 144, all such certificates  shall bear the restrictive  legend specified in
Section 2(g) of this Agreement.  The Company warrants that no instruction  other
than  such  instructions  referred  to in this  Section  5,  and  stop  transfer
instructions to give effect to Section 2(f) hereof in the case of the Conversion
Shares prior to registration of the Conversion  Shares under the Securities Act,
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely  transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration  Rights Agreement.
Nothing in this Section shall affect in any way each Purchaser's obligations and
agreement set forth in Section 2(g) hereof to resell the Securities  pursuant to
an effective  registration  statement  and to deliver a prospectus in connection
with  such  sale  or in  compliance  with an  exemption  from  the  registration
requirements of applicable  securities law. If a Purchaser  provides the Company
with an opinion of counsel, which opinion of counsel shall be in form, substance
and scope customary for opinions of counsel in comparable  transactions,  to the
effect that the Securities to be sold or transferred  may be sold or transferred
pursuant  to an  exemption  from  registration,  the  Company  shall  permit the
transfer,  and, in the case of the  Conversion  Shares,  promptly  instruct  its
transfer  agent  to  issue  one or more  certificates  in such  name and in such
denominations  as  specified  by a Purchaser.  The Company  acknowledges  that a
breach by it of its  obligations  hereunder  will  cause  irreparable  harm to a
Purchaser by vitiating  the intent and purpose of the  transaction  contemplated
hereby.  Accordingly,  the  Company  acknowledges  that the  remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened  breach by the Company of the  provisions of
this  Section 5, that a Purchaser  shall be  entitled,  in addition to all other
available  remedies,  to an  injunction  restraining  any breach  and  requiring
immediate issuance and transfer,  without the necessity of showing economic loss
and without any bond or other security being required.

6.       CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

         The obligation of the Company hereunder to issue and sell the Preferred
Shares to a  Purchaser  at the  closing is subject  to the  satisfaction,  at or
before the Closing Date, of each of the following  conditions thereto,  provided
that these  conditions  are for the Company's  sole benefit and may be waived by
the Company at any time in its sole discretion.

                                       13
<PAGE>

         (a) The applicable  Purchaser shall have executed the signature page to
this Agreement and the Registration Rights Agreement,  and delivered the same to
the Company.

         (b) The  applicable  Purchaser  shall have delivered the Purchase Price
for the Preferred Shares purchased in accordance with Section 1(b) above and the
aggregate number of Preferred Shares purchased by all Purchasers hereunder shall
not be less than 6,000.

         (c) The  representations  and  warranties of the  applicable  Purchaser
shall be true and correct as of the date when made and as of the Closing Date as
though made at that time (except for  representations  and warranties that speak
as of a specific  date),  and the  applicable  Purchaser  shall have  performed,
satisfied and complied in all material  respects with the covenants,  agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Purchaser at or prior to the Closing Date.

         (d) No statute,  rule,  regulation,  executive order, decree, ruling or
injunction  shall have been  enacted,  entered,  promulgated  or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization  having  authority  over  the  matters  contemplated  hereby  which
prohibits  the  consummation  of any of the  transactions  contemplated  by this
Agreement.

7.       CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.

         The  obligation of each  Purchaser  hereunder to purchase the Preferred
Shares to be purchased by it on the Closing Date is subject to the  satisfaction
of each of the following conditions, provided that these conditions are for such
Purchaser's  sole benefit and may be waived by such Purchaser at any time in the
Purchaser's sole discretion:

         (a)  The  Company  shall  have  executed  the  signature  page  to this
Agreement and the Registration Rights Agreement,  and delivered the same to such
Purchaser.

         (b) The Certificate of Designations shall have been accepted for filing
with the  Secretary  of  State  of the  State  of  Delaware  and a copy  thereof
certified  by the  Secretary of State of Delaware  shall have been  delivered to
such Purchaser.

         (c) The Company shall have  delivered  duly executed  certificates  (in
such  denominations as such Purchaser shall request)  representing the Preferred
Shares  being so purchased to such  Purchaser  in  accordance  with Section 1(b)
above.

         (d)  The  aggregate   number  of  Preferred  Shares  purchased  by  all
Purchasers hereunder shall be 6,000 (plus in the case of the Additional Closing,
if any, up to, but not more than, 14,000).



                                       14
<PAGE>

         (e) The Common Stock shall be  authorized  for  quotation on NASDAQ and
trading in the Common Stock (or NASDAQ  generally) shall not have been suspended
by the SEC or NASD.

         (f) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the  Closing  Date as though  made at
that time (except for representations and warranties that speak as of a specific
date) and the  Company  shall have  performed,  satisfied  and  complied  in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing date. Such Purchaser shall have received a certificate,  executed
by the chief executive  officer of the Company,  dated as of the Closing Date to
the foregoing effect and as to such other matters as may be reasonably requested
by such Purchaser.

         (g) No statute,  rule,  regulation,  executive order, decree, ruling or
injunction  shall have been  enacted,  entered,  promulgated  or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization  having  authority  over  the  matters  contemplated  hereby  which
prohibits  the  consummation  of any of the  transactions  contemplated  by this
Agreement.

         (h) Such  Purchaser  shall  have  received  the  officer's  certificate
described in Section 3(c) above, dated as of the Closing Date.

         (i) Such  Purchaser  shall have  received  an opinion of the  Company's
counsel,  dated as of the Closing Date, in form, scope and substance  reasonably
satisfactory  to the  Purchaser  and in  substantially  the  form of  EXHIBIT  C
attached hereto.

         (j) The Company shall have executed,  and shall have delivered evidence
reasonably  satisfactory to the Purchasers that the Company's transfer agent has
agreed  to act in  accordance  with  the  irrevocable  instructions  in the form
attached  hereto as  EXHIBIT  D;  PROVIDED,  HOWEVER,  if such  evidence  is not
delivered  on or prior to the  Closing  Date,  the  Company  shall  use its best
efforts to deliver such evidence as soon as practicable thereafter.

8.       GOVERNING LAW; MISCELLANEOUS.

         a. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in  accordance  with the laws of the State of Delaware  applicable  to
contracts  made and to be  performed  in the  State  of  Delaware.  The  Company
irrevocably  consents to the  jurisdiction  of the United States  federal courts
located in the County of Kent in the State of Delaware in any suit or proceeding
based on or arising under this Agreement and irrevocably  agrees that all claims
in respect of such suit or  proceeding  may be  determined  in such courts.  The
Company  irrevocably  waives  the  defense  of  an  inconvenient  forum  to  the
maintenance of such suit or proceeding.  The Company further agrees that service
of process upon the Company  mailed by first class mail shall be deemed in every
respect  effective service of process upon the Company 


                                       15
<PAGE>

in any suit or  proceeding  arising  hereunder.  Nothing  herein  shall affect a
Purchaser's  right to serve  process in any other  manner  permitted by law. The
Company  agrees  that a  final  non-appealable  judgment  in any  such  suit  or
proceeding  shall be conclusive  and may be enforced in other  jurisdictions  by
suit on such judgment or in any other lawful manner.

         b.  COUNTERPARTS.  This  Agreement  may be  executed  in  two  or  more
counterparts,  all of which shall be considered  one and the same  agreement and
shall  become  effective  when  counterparts  have been signed by each party and
delivered to the other party.

         c.  HEADINGS.  The headings of this  Agreement are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Agreement.

         d. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or  enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

         e. ENTIRE  AGREEMENT;  AMENDMENTS.  This Agreement and the  instruments
referenced  herein contain the entire  understanding of the parties with respect
to the matters covered herein and therein and, except as specifically  set forth
herein  or  therein,   neither  the   Company  nor  the   Purchasers   make  any
representation,  warranty, covenant or undertaking with respect to such matters.
No provision of this  Agreement  may be waived  other than by an  instrument  in
writing signed by the party to be charged with  enforcement  and no provision of
this  Agreement may be amended other than by an instrument in writing  signed by
the Company and the Purchasers.

         f.  NOTICES.  Any notices  required or  permitted to be given under the
terms of this  Agreement  shall be sent by certified or registered  mail (return
receipt  requested)  or  delivered  personally  or by  courier  or by  confirmed
telecopy,  and shall be effective  five days after being placed in the mail,  if
mailed,  or upon receipt or refusal of receipt,  if delivered  personally  or by
courier or confirmed telecopy,  in each case addressed to a party. The addresses
for such communications shall be:

                  If to the Company:

                  Palomar Medical Technologies, Inc.
                  66 Cherry Hill Drive
                  Beverly, Massachusetts 01915
                  Telecopy:  (508) 921-5801
                  Attention:  Paul Weiner, Director of Finance

                  with a copy to each of the  Company's  General  Counsel at the
                  same address and to:



                                       16
<PAGE>

                  Foley, Hoag & Eliot, LLP
                  One Post Office Square
                  Boston, Massachusetts  02109
                  Telecopy:  (617) 832-7000
                  Attention:  David Broadwin

                  If to RGC International Investors, LDC:

                  RGC International Investors, LDC
                  c/o Rose Glen Capital Management, L.P.
                  440 E. Swedesford Road

                  Suite 2025
                  Wayne, PA  19087
                  Telecopy: (610) 971-2212
                  Attention: Andrew Daley

         If to any  other  Purchaser,  to such  address  set  forth  under  such
Purchaser's name on the signature page hereto executed by such Purchaser.

         Each party shall  provide  notice to the other parties of any change in
address.

         g.  SUCCESSORS AND ASSIGNS.  This  Agreement  shall be binding upon and
inure to the benefit of the parties and their  successors  and assigns.  Neither
the Company nor any  Purchaser  shall  assign  this  Agreement  or any rights or
obligations   hereunder   without  the  prior  written  consent  of  the  other.
Notwithstanding the foregoing,  any Purchaser may assign its rights hereunder to
any of its "AFFILIATES," as that term is defined under the Exchange Act, without
the consent of the Company.  This provision shall not limit a Purchaser's  right
to  transfer  the  Securities  pursuant  to  the  terms  of the  Certificate  of
Designations and this Agreement or to assign such  Purchaser's  rights hereunder
to any such transferee.

         h. THIRD  PARTY  BENEFICIARIES.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

         i. SURVIVAL.  The representations and warranties of the Company and the
agreements  and  covenants set forth in Sections 3, 4, 5 and 8 shall survive the
closings hereunder  notwithstanding any due diligence investigation conducted by
or on  behalf of any  Purchasers.  The  Company  agrees  to  indemnify  and hold
harmless  each  Purchaser  and  each of such  Purchaser's  officers,  directors,
employees,  partners,  agents  and  affiliates  for loss or damage  arising as a
result of or related to any  breach or alleged  breach by the  Company of any of
its  representations  or covenants set forth herein,  including  advancement  of
expenses as they are incurred.



                                       17
<PAGE>

         j.  PUBLICITY.  The Company and each Purchaser  shall have the right to
approve before issuance any press releases,  SEC, NASDAQ or NASD filings, or any
other public  statements with respect to the transactions  contemplated  hereby;
PROVIDED,  HOWEVER,  that the  Company  shall be  entitled,  without  the  prior
approval of the  Purchasers,  to make any press  release or SEC,  NASDAQ or NASD
filings with respect to such  transactions  as is required by applicable law and
regulations  (although  the  Purchasers  shall be  consulted  by the  Company in
connection  with any  such  press  release  prior to its  release  and  shall be
provided with a copy thereof).

         k. FURTHER ASSURANCES.  Each party shall do and perform, or cause to be
done and  performed,  all such  further acts and things,  and shall  execute and
deliver all such other agreements,  certificates,  instruments and documents, as
the other  party may  reasonably  request  in order to carry out the  intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby.

         l.  TERMINATION.  In the event that the closing shall not have occurred
on or before March 31, 1997, unless the parties agree otherwise,  this Agreement
shall terminate at the close of business on such date.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       18
<PAGE>


         IN WITNESS  WHEREOF,  the  undersigned  Purchaser  and the Company have
caused this Agreement to be duly executed as of the date first above written.

PURCHASER:

RGC International Investors, LDC

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

RESIDENCE:        Cayman Islands
ADDRESS:

                  RGC International Investors, LDC
                  c/o Rose Glen Capital Management, L.P.
                  440 E. Swedesford Road
                  Suite 2025
                  Wayne, PA  19087
                  Telecopy: (610) 971-2212
                  Attention: Andrew Daley

AGGREGATE SUBSCRIPTION AMOUNT

         Number of Preferred Shares:                              6,000
         Purchase Price:                                       $6,000,000

PALOMAR MEDICAL TECHNOLOGIES, INC.

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

<PAGE>
   

                                                                       EXHIBIT A
                                                                              TO
                                                                      SECURITIES
                                                                        PURCHASE
                                                                       AGREEMENT

                          CERTIFICATE OF DESIGNATIONS,
                             PREFERENCES AND RIGHTS
                                       OF
                      SERIES H CONVERTIBLE PREFERRED STOCK
                                       OF
                       PALOMAR MEDICAL TECHNOLOGIES, INC.

                         Pursuant to Section 151 of the
                        Delaware General Corporation Law

         Palomar  Medical  Technologies,  a  corporation  organized and existing
under the laws of the State of Delaware (the  "CORPORATION"),  hereby  certifies
that the  following  resolutions  were  adopted by the Board of Directors of the
Corporation  pursuant  to  authority  of the Board of  Directors  as required by
Section 151 of the Delaware General Corporation Law.

         RESOLVED,  that pursuant to the authority  granted to and vested in the
Board of Directors of this Corporation (the "BOARD OF DIRECTORS" or the "BOARD")
in accordance with the provisions of its Certificate of Incorporation, the Board
of  Directors  hereby  authorizes  a  series  of  the  Corporation's  previously
authorized  Preferred Stock,  par value $.01 per share (the "PREFERRED  STOCK"),
and hereby states the designation  and number of shares,  and fixes the relative
rights, preferences, privileges, powers and restrictions thereof as follows:

         Series H Convertible Preferred Stock:

                            I. DESIGNATION AND AMOUNT

         The  designation  of this series,  which  consists of 20,000  shares of
Preferred  Stock,  is the Series H  Convertible  Preferred  Stock (the "SERIES H
PREFERRED  STOCK")  and the face  amount  shall  be One  Thousand  U.S.  Dollars
($1,000.00) per share (the "FACE AMOUNT").

                                II. NO DIVIDENDS

         The Series H Preferred Stock will bear no dividends, and the holders of
the Series H Preferred  Stock shall not be entitled to receive  dividends on the
Series H Preferred Stock.



                                       1
<PAGE>

                            III. CERTAIN DEFINITIONS

         For purposes of this Certificate of  Designations,  the following terms
shall have the following meanings:

         A.  "CLOSING BID PRICE"  means,  for any  security as of any date,  the
closing  bid price of such  security  on the  principal  securities  exchange or
trading  market where such security is listed or traded as reported by Bloomberg
Financial  Markets or a  comparable  reporting  service of  national  reputation
selected by the Corporation  and reasonably  acceptable to holders of a majority
of the then  outstanding  shares  of  Series  H  Preferred  Stock  if  Bloomberg
Financial  Markets is not then  reporting  closing  bid prices of such  security
(collectively,  "BLOOMBERG"),  or if the  foregoing  does  not  apply,  the last
reported  sale  price of such  security  in the  over-the-counter  market on the
electronic bulletin board for such security as reported by Bloomberg,  or, if no
sale price is reported for such  security by  Bloomberg,  the average of the bid
prices of any market  makers for such  security as reported in the "pink sheets"
by the  National  Quotation  Bureau,  Inc. If the  Closing  Bid Price  cannot be
calculated  for such  security on such date on any of the foregoing  bases,  the
Closing Bid Price of such  security on such date shall be the fair market  value
as  reasonably  determined  by  an  investment  banking  firm  selected  by  the
Corporation  and  reasonably  acceptable  to holders  of a majority  of the then
outstanding shares of Series H Preferred Stock, with the costs of such appraisal
to be borne by the Corporation.

         B. "CLOSING DATE" means the Closing Date under that certain  Securities
Purchase  Agreement  dated March 27, 1997 by and among the  Corporation  and the
initial  purchasers of the Series H Preferred  Stock (the  "SECURITIES  PURCHASE
AGREEMENT").

         C.  "CONVERSION  DATE"  means,  for any Optional  Conversion,  the date
specified in the notice of conversion  in the form attached  hereto (the "NOTICE
OF  CONVERSION"),  so long as the copy of the Notice of  Conversion is faxed (or
delivered  by  other  means  resulting  in  notice)  to the  Corporation  before
Midnight,  New York City time, on the Conversion Date indicated in the Notice of
Conversion.  If the Notice of Conversion  is not so delivered  before such time,
then the  Conversion  Date shall be the date the holder  delivers  the Notice of
Conversion to the Corporation.  The Conversion Date for the Required  Conversion
at Maturity shall be the Maturity Date (as such terms are defined in Paragraph D
of Article IV).

                                       2
<PAGE>

         D. "CONVERSION  PERCENTAGE"  shall have the following meaning and shall
be subject to adjustment as provided herein:

         IF THE CONVERSION DATE IS:           THEN THE CONVERSION PERCENTAGE IS:

         On or prior to the 179th day                        100%
         after the Closing Date

         On or after the 180th and on or prior
         to the 269th day after the Closing Date               90%

         On or after the 270th day after                       85%
         the Closing Date

         E.  "CONVERSION  PRICE" means,  (i) with respect to any Conversion Date
occurring prior to the 210th day after the Closing Date, the Variable Conversion
Price and (ii) with  respect to any  Conversion  Date  occurring on or after the
210th day after the Closing Date, the lower of the Conversion  Price Ceiling and
the  Variable  Conversion  Price,  each in effect as of such date and subject to
adjustment as provided herein.

         F.  "CONVERSION  PRICE  CEILING"  means the  average of the Closing Bid
Prices for the Common Stock for the twenty (20) consecutive  trading days ending
on the trading day  immediately  preceding  the 210th day after the Closing Date
(subject  to  equitable  adjustment  for  any  stock  splits,  stock  dividends,
reclassifications or similar events during such twenty (20) trading day period),
and shall be subject to adjustment as provided herein.

         G. "CONVERSION PRICE FLOOR" means (i) on or prior to that date which is
two hundred ten (210) days after the Closing  Date,  $6.00,  and (ii) after that
date which is two hundred ten (210) days after the  Closing  Date,  the lower of
(a) $6.00 and (b) the product of (.65) and the  Conversion  Price  Ceiling,  and
shall be subject to adjustment as provided herein.

         H. "N" means the sum of (a) the number of days from, but excluding, the
date of  issuance  of such  share  of  Series H  Preferred  Stock,  through  and
including  the  earlier  of (i) the  Conversion  Date for such share of Series H
Preferred  Stock and (ii) such date (if any) that the average of the Closing Bid
Prices for the Common  Stock for ten (10)  consecutive  trading  days is greater
than one hundred and seventy five percent (175%) of the initial Conversion Price
Ceiling  determined  under Paragraph F of this Article III (subject to equitable
adjustment for any of the events  described in Article XI.A) plus (b) the number
of days not  included  in clause  (a) of this  Paragraph  H (if any)  during the
period  beginning on, but  excluding,  the date such share of Series H Preferred
Stock was required to be (but was not) redeemed by the  Corporation  pursuant to
Article  VIII.B and the  subsequent  Conversion  Date for such share of Series H
Preferred Stock.

                                       3
<PAGE>

         I. "PREMIUM"  means an amount equal to: (i)  (.06)x(N/365)x(1,000)  for
the period  beginning  on the Closing  Date and ending on that date which is 179
days after the Closing Date, (ii) (.07)x(N/365)x(1,000) for the period beginning
on the 180th day after the  Closing  Date and  ending on that date  which is 269
days after the  Closing  Date,  and (iii)  (.08)x(N/365)x(1,000)  for the period
beginning on the 270th day after the Closing Date and thereafter.

         I. "VARIABLE  CONVERSION PRICE" means, as of any date of determination,
the amount obtained by multiplying  the Conversion  Percentage then in effect by
the  average  of the  Closing  Bid  Prices  for the  Common  Stock  for ten (10)
consecutive  trading days ending on the trading day  immediately  preceding such
date of  determination  (subject to equitable  adjustments for any stock splits,
stock  dividends,  reclassifications  or  similar  events  during  such ten (10)
trading day period), and shall be subject to adjustment as provided herein.

                                 IV. CONVERSION

         A.  CONVERSION AT THE OPTION OF THE HOLDER.  Subject to the limitations
on  conversions  contained  in  Paragraph  C of this  Article IV, each holder of
shares  of  Series H  Preferred  Stock  may,  at any time and from time to time,
convert  (an  "OPTIONAL  CONVERSION")  each of its shares of Series H  Preferred
Stock  into a number of fully  paid and  nonassessable  shares  of Common  Stock
determined in accordance with the following formula:

                               1,000 + THE PREMIUM
                              ---------------------
                                 CONVERSION PRICE

         B.  MECHANICS  OF  CONVERSION.  In order to convert  Series H Preferred
Stock into shares of Common Stock, a holder shall:  (x) deliver (by facsimile or
otherwise) a copy of the fully executed  Notice of Conversion to the Corporation
and  (y)  surrender  or  cause  to  be  surrendered  the  original  certificates
representing  the Series H Preferred Stock being converted (the "PREFERRED STOCK
CERTIFICATES"),  duly endorsed, along with a copy of the Notice of Conversion as
soon as practicable  thereafter to the  Corporation.  At the request of a holder
and  upon  receipt  by the  Corporation  of a  facsimile  copy  of a  Notice  of
Conversion from a holder, the Corporation shall immediately send, via facsimile,
a  confirmation  to such holder  stating that the Notice of Conversion  has been
received,  the date upon which the  Corporation  expects  to deliver  the Common
Stock  issuable  upon such  conversion  and the name and  telephone  number of a
contact person at the  Corporation  regarding the  conversion.  The  Corporation
shall  not be  obligated  to issue  shares of Common  Stock  issuable  upon such
conversion  unless either the Preferred Stock  Certificates are delivered to the
Corporation as provided above, or the holder notifies the Corporation  that such
certificates have been lost, stolen or destroyed (subject to the requirements of
Article XIV.B).

                  (i) DELIVERY OF COMMON STOCK UPON CONVERSION.  The Corporation
shall,  within one business  day after the later of (a) the second  business day
following  the  Conversion  Date in the case of DWAC  deliveries  and the  third
business day following the  Conversion  date in all other cases 


                                       4
<PAGE>

and (b) the date of such surrender (or, in the case of lost, stolen or destroyed
certificates, the date on which indemnity pursuant to Article XIV.B is provided)
(the "DELIVERY PERIOD"), and provided the holder has surrendered Preferred Stock
Certificates,  issue and  deliver  to or upon the order of the  holder  (x) that
number of shares of Common  Stock  issuable  upon  conversion  of such shares of
Series H Preferred Stock being converted and (y) a certificate  representing the
number of shares of Series H Preferred Stock not being converted, if any.

                  (ii) TAXES. The Corporation  shall pay any and all taxes which
may be imposed  upon it with  respect to the issuance and delivery of the shares
of Common Stock upon the conversion of the Series H Preferred Stock.

                  (iii) NO  FRACTIONAL  SHARES.  If any  conversion  of Series H
Preferred  Stock would result in the  issuance of either a  fractional  share of
Common  Stock,  such  fractional  share shall be  disregarded  and the number of
shares of Common Stock issuable upon  conversion of the Series H Preferred Stock
shall be the closest whole number of shares.

                  (iv) STATUS AS  STOCKHOLDER.  Upon  submission  of a Notice of
Conversion by a holder of Series H Preferred  Stock,  the shares covered thereby
shall be deemed  converted into shares of Common Stock as of the Conversion Date
and the  holder's  rights  as a holder  of such  converted  shares  of  Series H
Preferred  Stock shall cease and terminate,  excepting only the right to receive
certificates for such shares of Common Stock and to any remedies provided herein
or otherwise  available at law or in equity to such holder  because of a failure
by the Corporation to comply with the terms of this  Certificate of Designations
(including  its right to regain its status as a Series H  Preferred  Stockholder
pursuant to Article VI.E).

                  (v)  CONVERSION  DISPUTES.  In the  case of any  dispute  with
respect to a conversion,  the  Corporation  shall  promptly issue such number of
shares of Common Stock as are not disputed in accordance with  subparagraph  (i)
above.  If such dispute  involves the calculation of the Conversion  Price,  the
Corporation shall submit the disputed calculations to its outside accountant via
facsimile  within two (2) business days of receipt of the Notice of  Conversion.
The accountant  shall audit the  calculations and notify the Corporation and the
holder  of the  results  no later  than two (2)  business  days from the date it
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive,  absent  manifest  error.  The  Corporation  shall  then  issue  the
appropriate number of shares of Common Stock in accordance with subparagraph (i)
above.

         C. LIMITATIONS ON CONVERSIONS.  (i) Except in a Required  Conversion at
Maturity,  in no event shall a holder of shares of Series H  Preferred  Stock be
entitled to receive shares of Common Stock to the extent that the sum of (a) the
number of  shares  of Common  Stock  beneficially  owned by the  holder  and its
affiliates  (exclusive  of shares  issuable upon  conversion of the  unconverted
portion  of the  shares  of  Series  H  Preferred  Stock or the  unexercised  or
unconverted  portion of any other  securities  of the  Corporation  subject to a
limitation  on  conversion or exercise  analogous to the  limitations  contained
herein)  and (b) the  number  of  shares  of  Common  Stock  issuable  upon  the
conversion  of the shares of Series H Preferred  Stock with respect to which the
determination  of this


                                       5
<PAGE>

subparagraph is being made,  would result in beneficial  ownership by the holder
and its affiliates of more than 4.9% of the outstanding  shares of Common Stock.
For purposes of this subparagraph,  beneficial  ownership shall be determined in
accordance  with  Section  13(d) of the  Securities  Exchange  Act of  1934,  as
amended,  and  Regulation  13 D-G  thereunder,  except as otherwise  provided in
clause (i) above. The Corporation  shall be entitled to rely, and shall be fully
protected in relying,  on any  statement or  representation  made by a holder of
Series H Preferred  Stock to the  Corporation  in  connection  with a particular
conversion  without any  obligation on the part of the  Corporation  to make any
inquiry  or  investigation  or to  examine  its  records  or the  records of any
transfer agent for the Common Stock. The restriction contained in this Paragraph
C shall not be  altered,  amended,  deleted or changed in any manner  whatsoever
unless the holders of a majority of the Common Stock and each holder of Series H
Preferred Stock shall approve such alteration, amendment, deletion or change.

                  (ii) Except as otherwise  provided in Article XIII, during any
thirty (30) day period  beginning  on the Closing Date and ending on the earlier
of (a) that date which is two hundred and nine (209) days after the Closing Date
and (b) that date (if any) that the Corporation  delivers an Optional Redemption
Notice (as defined below) to the holders of Series H Preferred Stock pursuant to
Article  VIII.B,  no holder of Series H Preferred Stock may convert in excess of
thirty-three  percent (33%) of the shares of Series H Preferred  Stock initially
purchased  by such  Holder;  provided,  however,  if  such  holder  has  already
converted  sixty-six  percent (66%) of the shares of Series H Preferred Stock so
purchased,  such holder may convert the remaining  thirty-four  percent (34%) of
the shares so purchased in the next succeeding thirty day period or thereafter.

         D. REQUIRED CONVERSION AT MATURITY. Provided all shares of Common Stock
issuable upon conversion of all  outstanding  shares of Series H Preferred Stock
are then (i) authorized  and reserved for issuance,  (ii)  registered  under the
Securities  Act of 1933,  as amended  (the  "SECURITIES  ACT") for resale by the
holders of such  shares of Series H  Preferred  Stock and (iii)  eligible  to be
traded on either the NASDAQ,  the New York Stock  Exchange or the American Stock
Exchange, each share of Series H Preferred Stock issued and outstanding on March
27, 2002 (the "MATURITY  DATE") (and any accrued and unpaid  Conversion  Default
Payments),  automatically shall be converted into shares of Common Stock on such
date in accordance with the conversion formulas set forth in Paragraph A of this
Article IV (the "REQUIRED CONVERSION AT MATURITY").  If a Required Conversion at
Maturity  occurs,  the  Corporation  and the holders of Series H Preferred Stock
shall follow the  applicable  conversion  procedures set forth in Paragraph B of
this Article IV; PROVIDED, HOWEVER, that the holders of Series H Preferred Stock
are not required to deliver a Notice of Conversion to the Corporation.

                    V. RESERVATION OF SHARES OF COMMON STOCK

         A. RESERVED  AMOUNT.  Upon adoption of this Certificate of Designations
by the  Corporation's  Board of Directors,  the Corporation  shall have reserved
4,500,000  authorized  but unissued  shares of Common  Stock for  issuance  upon
conversion  of the  Series H  Preferred  Stock  and


                                       6
<PAGE>

thereafter  the number of  authorized  but  unissued  shares of Common  Stock so
reserved (the "RESERVED AMOUNT") shall at all times be sufficient to provide for
the conversion of the Series H Preferred  Stock  outstanding at the then current
Conversion  Price.  The  Reserved  Amount  shall be  allocated to the holders of
Series H Preferred Stock as provided in Article XIV.D.

         B. INCREASES TO RESERVED  AMOUNT.  If the Reserved Amount for any three
(3) consecutive  trading days (the last of such three (3) trading days being the
"AUTHORIZATION  TRIGGER  DATE")  shall (i) during the  period  beginning  on the
Closing Date and ending on that date which is one hundred fifty (150) days after
the  Closing  Date be less  than 100% of the  number  of shares of Common  Stock
issuable upon  conversion of the Series H Preferred  Stock on such trading days,
or (ii) on or after  that date which is one  hundred  fifty one (151) days after
the  Closing  Date,  be less than 135% of the  number of shares of Common  Stock
issuable upon  conversion of the Series H Preferred  Stock on such trading days,
the Corporation shall immediately notify the holders of Series H Preferred Stock
of  such  occurrence  and  shall  take  immediate  action   (including   seeking
shareholder  approval to authorize the issuance of  additional  shares of Common
Stock) to increase the Reserved Amount to 150% of the number of shares of Common
Stock into which the Series H Preferred Stock are then convertible. In the event
the Corporation fails to so increase the Reserved Amount within ninety (90) days
after an  Authorization  Trigger Date,  each holder of Series H Preferred  Stock
shall  thereafter  have the option,  exercisable in whole or in part at any time
and from time to time by delivery of a Redemption  Notice (as defined in Article
VIII.D) to the Corporation,  to require the Corporation to purchase for cash, at
an amount  per share  equal to the  Redemption  Amount  (as  defined  in Article
VIII.C),  a portion of the holder's  Series H Preferred  Stock such that,  after
giving effect to such purchase,  the holder's  allocated portion of the Reserved
Amount  exceeds 135% of the total  number of shares of Common Stock  issuable to
such holder upon conversion of its Series H Preferred  Stock. If the Corporation
fails to redeem  any of such  shares  within  five (5)  business  days after its
receipt of a  Redemption  Notice,  then such  holder  shall be  entitled  to the
remedies provided in Article VIII.D.

                       VI. FAILURE TO SATISFY CONVERSIONS

         A. CONVERSION DEFAULT PAYMENTS. If, at any time, (x) a holder of shares
of Series H Preferred  Stock submits a Notice of Conversion and the  Corporation
fails for any reason  (other  than  because  such  issuance  would  exceed  such
holder's allocated portion of the Reserved Amount, for which failure the holders
shall have the remedies  set forth in Article V) to deliver,  on or prior to the
fourth  business day  following the  expiration of the Delivery  Period for such
conversion,  the shares of Common  Stock to which such holder is  entitled  upon
such conversion,  or (y) the Corporation provides notice to any holder of Series
H Preferred  Stock at any time of its  intention  not to issue  shares of Common
Stock upon exercise by any holder of its  conversion  rights in accordance  with
the terms of this  Certificate of Designations  other than because such issuance
would exceed such holder's allocated portion of the Reserved Amount (each of (x)
and (y) being a "CONVERSION  DEFAULT"),  then the  Corporation  shall pay to the
affected  holder,  in the case of a Conversion  Default  described in clause (x)
above,  and to all  holders,  in the case of a Conversion  Default  described in
clause (y) above,  payments for the first ten (10) business  days  following the
expiration of the Delivery Period, in the case of a Conversion Default described
in clause (x), and for the first ten (10) business days of any other  Conversion
Default,  an amount equal to $1,000 per day. In the event any


                                       7
<PAGE>

Conversion  Default  continues  beyond such ten (10)  business  day period,  the
Corporation shall pay to the holder an additional amount equal to:

                     (.24) x (D/365) x (the Default Amount)

where:

         "D" means  the  number of days  after  the  expiration  of the ten (10)
business day period described above through and including the Default Cure Date;

         "DEFAULT  AMOUNT"  means (i) the  total  Face  Amount of all  shares of
Series H Preferred  Stock held by such holder plus (ii) the total  Premium as of
the first day of the  Conversion  Default  on all  shares of Series H  Preferred
Stock included in clause (i) of this definition; and

         "DEFAULT  CURE DATE"  means (i) with  respect to a  Conversion  Default
described in clause (x) of its definition,  the date the Corporation effects the
conversion  of the full  number of shares of Series H  Preferred  Stock and (ii)
with respect to a Conversion  Default described in clause (y) of its definition,
the date the  Corporation  begins to honor all conversions of Series H Preferred
Stock in accordance with Article IV.A.

         The  payments  to which a holder  shall be  entitled  pursuant  to this
Paragraph A are referred to herein as  "CONVERSION  DEFAULT  PAYMENTS." A holder
may elect to receive accrued  Conversion  Default Payments in cash or to convert
all or any portion of such accrued  Conversion  Default  Payments,  at any time,
into  Common  Stock  at the  Conversion  Price  in  effect  at the  time of such
conversion.  In the event a holder  elects to  receive  any  Conversion  Default
Payments in cash, it shall so notify the  Corporation  in writing.  Such payment
shall be made in  accordance  with and be subject to the  provisions  of Article
XIV.F.  In the  event a holder  elects  to  convert  all or any  portion  of the
Conversion Default Payments, the holder shall indicate on a Notice of Conversion
such portion of the Conversion  Default  Payments which such holder elects to so
convert and such  conversion  shall otherwise be effected in accordance with the
provisions of Article IV.

         B.  ADJUSTMENT  TO  CONVERSION  PRICE.  If a  holder  has not  received
certificates  for all shares of Common Stock prior to the tenth (10th)  business
day after the expiration of the Delivery  Period with respect to a conversion of
Series H Preferred  Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount, for which failure
the holders shall have the remedies set forth in Article V), then the Conversion
Price in respect of any shares of Series H  Preferred  Stock held by such holder
shall  thereafter be the lesser of (i) the  Conversion  Price on the  Conversion
Date  specified in the Notice of  Conversion  which  resulted in the  Conversion
Default  and (ii) the  lowest  Conversion  Price in  effect  during  the  period
beginning on, and including,  such Conversion Date through and including the day
such shares of Common Stock are delivered to the holder and (iii) the Conversion
Price  (calculated  in accordance  with Article  III.E) on the  Conversion  Date
specified  in the  Notice of  Conversion  for such  share of Series H  Preferred
Stock. If there shall occur a Conversion Default of the type described in clause
(y) of Article VI.A,


                                       8
<PAGE>

then the Conversion Price with respect to any conversion thereafter shall be the
lower of (x) the lowest Conversion Price in effect at any time during the period
beginning  on, and  following,  the date of the  occurrence  of such  Conversion
Default through and including the Default Cure Date and (y) the Conversion Price
(calculated in accordance  with Article III.E) on the Conversion  Date specified
in the Notice of  Conversion  for such share of Series H Preferred  Stock..  The
Conversion  Price  shall  thereafter  be subject to further  adjustment  for any
events described in Article XI.

         C. BUY-IN CURE. If (i) the Corporation  fails for any reason to deliver
during the Delivery  Period shares of Common Stock to a holder upon a conversion
of shares of Series H Preferred  Stock having a Conversion Date on or prior to a
date upon which the  Corporation  has notified the applicable  holder in writing
that  the  Corporation  is  unable  to honor  conversions  and  (ii)  after  the
applicable  Delivery  Period  with  respect  to  such  conversion,  such  holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in  satisfaction  of a sale by such holder of the shares of Common Stock
which such holder anticipated  receiving upon such conversion (a "BUY-IN"),  the
Corporation  shall pay such holder (in addition to any other remedies  available
to the  holder)  the  amount by which (x) such  holder's  total  purchase  price
(including  brokerage  commissions,  if any) for the  shares of Common  Stock so
purchased  exceeds (y) the total Face Amount (plus the accrued Premium  thereon)
of the  portion of the Series H Preferred  Stock  resulting  in the Buy-In.  For
example,  if a holder  purchases  shares of Common Stock having a total purchase
price of $11,000 to cover a Buy-In with  respect to an attempted  conversion  of
Series H  Preferred  Stock  having a total Face  Amount and  accrued  Premium of
$10,000,  the  Corporation  will be required to pay the holder $1,000.  A holder
shall  provide  the  Corporation  written  notification  indicating  any amounts
payable to such holder pursuant to this Paragraph C. The Corporation  shall make
any  payments  required  pursuant  to this  Paragraph C in  accordance  with and
subject to the provisions of Article XIV.F.

         D.  REDEMPTION  RIGHT.  If the  Corporation  fails,  and  such  failure
continues  uncured for five (5)  business  days after the  Corporation  has been
notified  thereof in writing by the holder,  for any reason  (other than because
such  issuance  would  exceed such  holder's  allocated  portion of the Reserved
Amount,  for which  failure the  holders  shall have the  remedies  set forth in
Article V) to issue shares of Common Stock within ten (10)  business  days after
the expiration of the Delivery Period with respect to any conversion of Series H
Preferred  Stock,  then the  holder  may elect at any time and from time to time
prior to the Default  Cure Date for such  Conversion  Default,  by delivery of a
Redemption Notice (as defined in Article VIII.D) to the Corporation, to have all
or any portion of such holder's  outstanding  shares of Series H Preferred Stock
purchased  by the  Corporation  for cash,  at an amount  per share  equal to the
Redemption  Amount (as defined in Article VIII.C).  If the Corporation  fails to
redeem any of such shares  within five (5) business  days after its receipt of a
Redemption  Notice,  then such holder shall be entitled to the remedies provided
in Article VIII.D.

         E. RETENTION OF RIGHTS AS SERIES H PREFERRED  STOCKHOLDER.  If a holder
has not received  certificates for all shares of Common Stock prior to the tenth
(10th)  business day after the expiration of the Delivery Period with respect to
a conversion of Series H Preferred  Stock for any reason,  then the  Corporation
shall,  as soon as  practicable,  return  such  unconverted  shares  of Series H
Preferred


                                       9
<PAGE>

Stock to the holder and (unless the holder otherwise elects to retain its status
as a holder of Common  Stock) the holder  shall regain the rights of a holder of
Series H Preferred Stock with respect to such shares.  In all cases,  the holder
shall retain all of its rights and remedies (including,  without limitation, (i)
the right to receive  Conversion  Default Payments pursuant to Paragraph A above
to the extent required  thereby for such  Conversion  Default and any subsequent
Conversion  Default and (ii) the right to have the Conversion Price with respect
to subsequent  conversions  determined in accordance with Paragraph B above) for
the Corporation's failure to convert Series H Preferred Stock.

                          VII. [INTENTIONALLY OMITTED]

                     VIII. REDEMPTION DUE TO CERTAIN EVENTS

         A. REDEMPTION BY HOLDER.  In the event (each of the events described in
clauses  (i)-(v) below after  expiration of the applicable  cure period (if any)
being a "REDEMPTION EVENT"):

                  (i) the Common  Stock  (including  all of the shares of Common
         Stock  issuable  upon  conversion  of the Series H Preferred  Stock) is
         suspended  from trading on any of, or is not listed or  designated  for
         quotation (and authorized) for trading on at least one of, the New York
         Stock Exchange, the American Stock Exchange, the NASDAQ National Market
         or the NASDAQ Small Cap Market  ("NASDAQ") for an aggregate of ten (10)
         trading days in any nine (9) month period,

                  (ii) the  Registration  Statement  required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement, dated
as of March 27, 1997,  by and among the  Corporation  and the other  signatories
thereto (the "REGISTRATION  RIGHTS AGREEMENT"),  has not been declared effective
by the 180th day  following  the Closing  Date or such  Registration  Statement,
after being  declared  effective,  cannot be utilized by the holders of Series H
Preferred  Stock  for the  resale  of all of their  Registrable  Securities  (as
defined in the  Registration  Rights  Agreement)  for an  aggregate of more than
thirty (30) days in any consecutive twelve month period,

                  (iii) the Corporation  fails,  and any such failure  continues
uncured  for five (5)  business  days after the  Corporation  has been  notified
thereof in  writing  by the  holder,  to remove  any  restrictive  legend on any
certificate  or any  shares of Common  Stock  issued to the  holders of Series H
Preferred  Stock upon  conversion  of the Series H  Preferred  Stock as and when
required by this Certificate of Designations,  the Securities Purchase Agreement
or the Registration Rights Agreement,

                  (iv) the Corporation provides notice to any holder of Series H
Preferred Stock,  including by way of public  announcement,  at any time, of its
intention  not to issue  shares  of  Common  Stock  to any  holder  of  Series H
Preferred Stock upon conversion in accordance with the terms of this Certificate
of Designations (other than due to the circumstances  contemplated by Article V,
for which the holders shall have the remedies set forth in such Article), or



                                       10
<PAGE>

                  (v) the Corporation shall:

                                    (a)  sell,  convey  or  dispose  of  all  or
                  substantially all of its assets;

                                    (b)  merge,  consolidate  or  engage  in any
                  other business combination with any other entity (other than a
                  merger,  consolidation  or business  combination  in which the
                  holders of the  Corporation's  voting  securities  immediately
                  preceding such merger,  consolidation or business  combination
                  own,  on a pro  rata  basis,  at  least  50% of the  surviving
                  entity's voting securities); or

                                    (c) have fifty  percent (50%) or more of the
                  voting power of its capital  stock owned  beneficially  by one
                  person,  entity or "group" (as such term is used under Section
                  13(d) of the Securities Exchange Act of 1934, as amended),

then, upon the occurrence of any such Redemption Event, each holder of shares of
Series H Preferred Stock shall thereafter have the option,  exercisable in whole
or in part at any time and from time to time by delivery of a Redemption  Notice
(as defined in Paragraph D below) to the Corporation while such Redemption Event
continues,  to require the  Corporation  to purchase  for cash any or all of the
then  outstanding  shares of Series H Preferred Stock held by such holder for an
amount per share  equal to the  Redemption  Amount (as  defined in  Paragraph  C
below) in effect at the time of the redemption  hereunder.  For the avoidance of
doubt,  the occurrence of any event  described in clauses (i), (ii), (iv) or (v)
above shall immediately constitute a Redemption Event and there shall be no cure
period.

         B. REDEMPTION BY CORPORATION.

         (i) If at any time  after  that date  which is two (2) years  after the
Closing Date, the average of the Closing Bid Prices for the Common Stock for ten
(10)  consecutive  trading days is greater  than the  Conversion  Price  Ceiling
multiplied  by 1.5 (subject to equitable  adjustments  for stock  splits,  stock
dividends,  reclassifications or similar events during such ten (10) trading day
period), then the Corporation shall have the right to redeem up to fifty percent
(50%)  of the  Series H  Preferred  Stock  for a price  per  share  equal to the
Optional  Redemption Amount (as defined below). If at any time after the Closing
Date the  average of the  Closing  Bid Prices for the Common  Stock for ten (10)
consecutive trading days is greater than the Conversion Price Ceiling multiplied
by 2.0 (subject to equitable  adjustments  for stock  splits,  stock  dividends,
reclassifications  or similar  events  during such ten (10)  trading day period)
then the  Corporation  shall have the right to redeem (such right,  collectively
with the Corporation's  redemption rights pursuant to the immediately  preceding
sentence, shall be referred to as "REDEMPTION AT CORPORATION'S ELECTION") any or
all of the  Series  H  Preferred  Stock  for an  amount  equal  to the  Optional
redemption  Amount. A Redemption at Corporation's  Election shall be exercisable
by the Corporation in its sole discretion by delivery of an Optional  Redemption
Notice (as defined  below).  Holders of Series H Preferred Stock may convert all
or any part of their  shares of Series H Preferred  Stock into  Common  Stock by
delivering a Notice of Conversion to the  Corporation  at any time prior to that
date which is ten (10) days after receipt of an Optional  Redemption Notice. The
"OPTIONAL REDEMPTION Amount" with respect



                                       11
<PAGE>

to each share of Preferred Stock means (a) for redemptions pursuant to the first
sentence of this subparagraph (i), an amount equal to:

                                (1,000 + P) X 1.5
                               -------------------
                                       CCP

and (b) for  redemptions  pursuant to the second  sentence of this  subparagraph
(I), an amount equal to:

                                (1,000 + P) X 2.0
                               --------------------
                                       CCP

where:

"P" means the accrued  Premium on such share of Series H Preferred Stock through
the date of redemption; and

"CCP" means the Conversion Price Ceiling on the date of the redemption.

         (ii) The Corporation  shall effect each  redemption  under this Section
VIII.B by giving at least ten (10)  trading  days but not more than  twenty (20)
trading days (subject to extension as set forth below) prior written notice (the
"OPTIONAL  REDEMPTION  NOTICE") of the date which such  redemption  is to become
effective  (the  "EFFECTIVE  DATE OF  REDEMPTION")  and the Optional  Redemption
Amount to (a) the holders of Series H Preferred Stock selected for redemption at
the address and facsimile number of such holder  appearing in the  Corporation's
register  for the Series H Preferred  Stock and (b) the  transfer  agent for the
Common  Stock,  which  Optional  Redemption  Notice shall be deemed to have been
delivered on the business day after the  Corporation's  fax (with a copy sent by
overnight courier) of such notice to the holders of Series H Preferred Stock.

         (iii) The Optional Redemption Amount shall be paid to the holder of the
Series H Preferred  Stock being  redeemed  within three (3) business days of the
Effective Date of Redemption;  PROVIDED, HOWEVER, that the Corporation shall not
be  obligated  to deliver any portion of the  Optional  Redemption  Amount until
either the  certificates  evidencing the Series H Preferred Stock being redeemed
are  delivered  to the office of the  Corporation,  or the holder  notifies  the
Corporation  that such  certificates  have been lost,  stolen or  destroyed  and
delivers  the   documentation   in   accordance   with  Article   XIV.B  hereof.
Notwithstanding  anything  herein  to  the  contrary,  in  the  event  that  the
certificates  evidencing the Series H Preferred Stock redeemed are not delivered
to the Corporation prior to the 3rd business day following the Effective Date of
Redemption,  the  redemption  of the Series H Preferred  Stock  pursuant to this
Article  VIII.B  shall still be deemed  effective  as of the  Effective  Date of
Redemption  and the  Optional  Redemption  Price  shall be paid to the holder of
Series H Preferred  Stock redeemed within five (5) business days of the date the



                                       12
<PAGE>

certificates  evidencing  the Series H Preferred  Stock  redeemed  are  actually
delivered to the Corporation.

         (iv)  Notwithstanding  the  provisions  of Article  IV  hereof,  if the
Conversion Price on the date a holder delivers a Conversion  Notice is less than
or equal to the Conversion  Price Floor then in effect,  the Corporation may, at
its option, elect to redeem the shares of Series H Preferred Stock which are the
subject  of such  Conversion  Notice  at a price  per  share  equal to the Floor
Redemption Amount (as defined below) in lieu of converting such shares to Common
Stock.  Each holder of Series H Preferred Stock shall have the right, by sending
a written  request to the  Corporation,  to require the  Corporation  to provide
advance written notice to such holder stating whether the Corporation will elect
to  exercise  its  redemption  rights  pursuant  to  this  paragraph  (iv).  The
Corporation  shall have five (5)  business  days from receipt of such request to
reply in writing to such  holder.  In the event  Corporation  either fails to so
reply or replies that it will not elect to exercise such redemption  rights, the
Corporation  shall  forfeit  its rights to redeem  shares of Series H  Preferred
Stock  pursuant  to this  paragraph  (iv)  during  the  thirty  (30) day  period
immediately  following  the  expiration  of the  Corporation's  reply  period or
receipt of such  election  not to  redeem,  as the case may be. In the event the
Corporation  notifies  a holder of its  intention  to redeem  shares of Series H
Preferred  Stock  pursuant  to this  paragraph  (v) and such  holder  delivers a
Conversion Notice at any time during which the Corporation has redemption rights
pursuant to this paragraph (iv) and the  Corporation,  prior to the date of such
Conversion  Notice,  has not provided such holder with written notice that it no
longer  intends to exercise its  redemption  rights  pursuant to this  paragraph
(iv),  the  Corporation  shall,  no later than thirty (30) days from the date of
such Conversion  Notice, pay to such holder the Floor Redemption Amount for each
share of series H  Preferred  which is covered by such  Conversion  Notice.  The
Floor Redemption Amount per share means an amount equal to:

                                (1000+P) x (RAP)

where:

         "P" means the accrued Premium on such share of Series H Preferred Stock
through the date of redemption.

         "RAP" means:

                  If the Redemption occurs:                            RAP

                  On or prior to the 209th

                  day after the Closing Date                           110%

                  On or after the 210th and on or prior
                  to the 299th day after the Closing Date              112%



                                       13
<PAGE>

                  On or after the 300th and on or prior
                  to the 394th day after the Closing Date              115%

                  On or after the 395th day

                  after the Closing Date                               120%

         (v) If the Corporation  fails to pay, when due and owing,  any Optional
Redemption  Amount  or Floor  Redemption  Amount,  then the  holder  of Series H
Preferred  Stock  entitled to receive such Optional  Redemption  Amount or Floor
Redemption  Amount,  as the case may be,  shall have the right,  at any time and
from  time to  time,  to  require  the  Corporation,  upon  written  notice,  to
immediately  convert (in accordance with the terms of paragraph A of Article IV)
any or all of the shares of Series H  Preferred  Stock  which are the subject of
such redemption,  into shares of Common Stock at the lowest  Conversion Price in
effect during the period beginning on the date the Corporation elected to redeem
such  shares of Series H  Preferred  Stock and ending on the earlier of the date
the Corporation  effects such redemption and the twentieth trading day following
either the  Conversion  Date which gave rise to the right of redemption  (in the
case of a redemption  pursuant to subparagraph  (iv) of this Paragraph B) or the
Effective  Date of  Redemption  (in the case of a  Redemption  at  Corporation's
Election),  as the case may be. In addition,  if the Corporation  fails to pay a
Floor Redemption  Amount,  when due and owing, the Corporation  shall thereafter
forfeit its rights this Paragraph B to effect any redemption with respect to any
or all issued and  outstanding  shares of Series H Preferred  Stock,  and in the
case of a failure to pay all or any  portion of an Optional  Redemption  Amount,
shall pay the holder entitled to such Optional Redemption Amount an amount equal
to:

                                            ORA
                                            ____    x  (ORF-LCBP)

                                            OCP

where:

         "ORA"  means the amount of the  Optional  Redemption  Amount  which the
Corporation failed to so pay;

         "OCP" means the  Conversion  Price in effect on the  Effective  Date of
Redemption;

         "ORF" means (i) with  respect to any  redemption  pursuant to the first
sentence of Article VIII.B (I), the product  obtained by multiplying  1.5 by the
Conversion Price Ceiling and (ii) with respect to any redemption pursuant to the
second sentence of Article  VIII.B(ii),  the product obtained by multiplying 2.0
by the Conversion Price Ceiling; and

         "LCBP" means the lowest Closing Big Price of the  Corporation's  Common
Stock during the Twenty (20) trading day period  beginning on the Effective Date
of redemption.



                                       14
<PAGE>

         C.  DEFINITION  OF  REDEMPTION  AMOUNT.  The  "REDEMPTION  AMOUNT" with
respect to a share of Series H Preferred Stock means an amount equal to:

                                    1,000 + P
                                   ------------        X     M
                                          
                                         CP

where:

         "P" means the accrued Premium on such share of Series H Preferred Stock
through the date of redemption;

         "CP" means the Conversion Price in effect on the date of the Redemption
Notice; and

         "M" means the  highest  Closing Bid Price of the  Corporation's  Common
Stock  during  the period  beginning  on the date of the  Redemption  Notice and
ending on the date of the redemption.

         D. REDEMPTION DEFAULTS.  If the Corporation fails to pay any holder the
Redemption  Amount with respect to any share of Series H Preferred  Stock within
five (5) business days of its receipt of a notice  requiring such  redemption (a
"REDEMPTION  NOTICE"),  then the holder of Series H Preferred  Stock  delivering
such  Redemption  Notice (i) shall be entitled  to  interest  on the  Redemption
Amount at a per annum rate equal to the lower of  twenty-four  percent (24%) and
the highest rate  permitted by  applicable  law from the date of the  Redemption
Notice until the date of redemption hereunder, and (ii) shall have the right, at
any time and from time to time, to require the Corporation, upon written notice,
to immediately  convert (in accordance  with the terms of Paragraph A of Article
IV) all or any portion of the  Redemption  Amount,  plus  interest as aforesaid,
into shares of Common Stock at the lowest  Conversion Price in effect during the
period  beginning  on the  date  of the  Redemption  Notice  and  ending  on the
Conversion Date with respect to the conversion of such Redemption Amount. In the
event  the  Corporation  is not able to  redeem  all of the  shares  of Series H
Preferred  Stock subject to Redemption  Notices,  the  Corporation  shall redeem
shares of Series H Preferred Stock from each holder pro rata, based on the total
number of shares of Series H  Preferred  Stock  included  by such  holder in the
Redemption  Notice  relative to the total number of shares of Series H Preferred
Stock in all of the Redemption Notices.

                                    IX. RANK

         All shares of the Series H Preferred  Stock shall rank (i) prior to the
Corporation's common stock, par value $.01 per share (the "COMMON STOCK");  (ii)
PARI  PASSU  with any class or series of capital  stock of the  Corporation  now
outstanding  or  hereafter  created  other than the  Common  Stock or classes or
series of capital stock of the Corporation specifically ranking, by their terms,
junior to the Series H Preferred Stock (the "PARI PASSU SECURITIES");  and (iii)
junior  to any class or series of  


                                       15
<PAGE>

         capital stock of the Corporation hereafter created (with the consent of
         the holders of Series H Preferred  Stock  obtained in  accordance  with
         Article XIII hereof) specifically  ranking, by its terms, senior to the
         Series H Preferred Stock (the "SENIOR SECURITIES"),  in each case as to
         distribution of assets upon  liquidation,  dissolution or winding up of
         the Corporation, whether voluntary or involuntary.

                            X. LIQUIDATION PREFERENCE

         A. If the  Corporation  shall  commence a voluntary case under the U.S.
Federal  bankruptcy  laws or any  other  applicable  bankruptcy,  insolvency  or
similar  law,  or consent to the entry of an order for relief in an  involuntary
case under any law or to the  appointment of a receiver,  liquidator,  assignee,
custodian,  trustee, sequestrator (or other similar official) of the Corporation
or of any  substantial  part of its  property,  or make  an  assignment  for the
benefit of its  creditors,  or admit in writing its  inability  to pay its debts
generally  as they  become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having  jurisdiction in the premises
in an  involuntary  case  under the U.S.  Federal  bankruptcy  laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver,  liquidator,  assignee,  custodian,  trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order  shall be  unstayed  and in effect for a period of sixty (60)  consecutive
days and,  on  account  of any such  event,  the  Corporation  shall  liquidate,
dissolve or wind up, or if the Corporation shall otherwise  liquidate,  dissolve
or wind up (a "LIQUIDATION EVENT"), no distribution shall be made to the holders
of any shares of capital stock of the Corporation (other than Senior Securities)
upon liquidation,  dissolution or winding up unless prior thereto the holders of
shares  of  Series  H  Preferred  Stock  shall  have  received  the  Liquidation
Preference with respect to each share.  If, upon the occurrence of a Liquidation
Event, the assets and funds available for distribution  among the holders of the
Series  H  Preferred  Stock  and  holders  of PARI  PASSU  Securities  shall  be
insufficient to permit the payment to such holders of the  preferential  amounts
payable  thereon,  then the entire assets and funds of the  Corporation  legally
available for  distribution  to the Series H Preferred  Stock and the PARI PASSU
Securities  shall be distributed  ratably among such shares in proportion to the
ratio that the  Liquidation  Preference  payable on each such share bears to the
aggregate  Liquidation  Preference payable on all such shares.  After payment in
full of the Liquidation Preference of the shares of the Series H Preferred Stock
and the PARI PASSU Securities,  the holders of such shares shall not be entitled
to any further participation in any distribution of assets by the Corporation.

         B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof,  be regarded
as a  liquidation,  dissolution  or winding up of the  Corporation.  Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall,  for the purposes hereof,  be deemed to be a liquidation,  dissolution or
winding up of the Corporation.



                                       16
<PAGE>

         C. The  "LIQUIDATION  PREFERENCE"  with  respect to a share of Series H
Preferred  Stock  means an  amount  equal to the Face  Amount  thereof  plus the
Premium  thereon  through  the  date  of  final  distribution.  The  Liquidation
Preference  with respect to any PARI PASSU  Securities  shall be as set forth in
the Certificate of Designations filed in respect thereof.

                     XI. ADJUSTMENTS TO THE CONVERSION PRICE

         The Conversion  Price shall be subject to adjustment  from time to time
as follows:

         A. STOCK  SPLITS,  STOCK  DIVIDENDS,  ETC. If at any time on or after a
determination  of the Conversion  Price Ceiling or Conversion  Price Floor,  the
number of  outstanding  shares of Common  Stock is  increased  by a stock split,
stock  dividend,  combination,  reclassification  or other  similar  event,  the
Conversion  Price Ceiling and  Conversion  Price Floor shall be  proportionately
reduced,  or if the number of outstanding shares of Common Stock is decreased by
a reverse  stock split,  combination  or  reclassification  of shares,  or other
similar event at anytime on or after the  determination  of the Conversion Price
Ceiling or Conversion  Price Floor,  the Conversion Price Ceiling and Conversion
Price Floor shall be proportionately  increased.  In such event, the Corporation
shall notify the transfer agent for the Common Stock of such change on or before
the effective date thereof.

         B. ADJUSTMENT DUE TO MAJOR  ANNOUNCEMENT.  In the event the Corporation
(i) makes a public announcement that it intends to consolidate or merge with any
other entity (other than a merger in which the  Corporation  is the surviving or
continuing entity and its capital stock is unchanged) or to sell or transfer all
or substantially all of the assets of the Corporation or (ii) any person,  group
or entity  (including  the  Corporation)  publicly  announces a tender  offer to
purchase  50% or  more  of the  Corporation's  Common  Stock  (the  date  of the
announcement  referred  to  in  clause  (i)  or  (ii)  of  this  Paragraph  B is
hereinafter  referred to as the "ANNOUNCEMENT  DATE"), then the Conversion Price
shall,   effective  upon  the  Announcement  Date  and  continuing  through  the
Abandonment  Date (as defined  below),  be equal to the  Conversion  Price which
would  have  been  applicable  for  an  Optional  Conversion  occurring  on  the
Announcement  Date.  From and after the Abandonment  Date, the Conversion  Price
shall be determined as set forth in Article III.F  "ABANDONMENT DATE" means with
respect  to any  proposed  transaction  or  tender  offer  for  which  a  public
announcement  as  contemplated  by this Paragraph B has been made, the date upon
which the Corporation (in the case of clause (i) above) or the person,  group or
entity (in the case of clause (ii) above) publicly  announces the termination or
abandonment  of the  proposed  transaction  or tender  offer  which  caused this
Paragraph B to become operative.

         C. ADJUSTMENT DUE TO MERGER,  CONSOLIDATION,  ETC. If, at any time when
any Series H Preferred Stock is issued and  outstanding,  there shall be (i) any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value,  or from par value to no par value,  or from no par value
to par  value,  or as a  result  of a  subdivision  or  combination),  (ii)  any



                                       17
<PAGE>

consolidation  or merger of the Corporation  with any other entity (other than a
merger in which the  Corporation  is the surviving or continuing  entity and its
capital stock is unchanged),  (iii) any sale or transfer of all or substantially
all of the assets of the  Corporation  or (iv) any share  exchange  pursuant  to
which all of the  outstanding  shares of Common Stock are  converted  into other
securities  or  property,  then the  holders of Series H  Preferred  Stock shall
thereafter have the right to receive upon  conversion,  in lieu of the shares of
Common Stock  immediately  theretofore  issuable  (without  giving effect to any
limitations  upon  conversion  imposed by Article  IV.C),  such shares of stock,
securities  and/or other property as may be issued or payable with respect to or
in exchange  for the number of shares of Common  Stock  immediately  theretofore
issuable  upon  conversion  (without  giving  effect  to  any  limitations  upon
conversion imposed by Article IV.C) had such merger, consolidation,  exchange of
shares, recapitalization, reorganization or other similar event not taken place,
and in any such case,  appropriate  provisions shall be made with respect to the
rights and  interests of the holders of the Series H Preferred  Stock to the end
that the  provisions  hereof  (including,  without  limitation,  provisions  for
adjustment of the  Conversion  Price and of the number of shares of Common Stock
issuable upon  conversion of the Series H Preferred  Stock) shall  thereafter be
applicable,  as nearly as may be  practicable in relation to any shares of stock
or  securities   thereafter   deliverable  upon  the  conversion  thereof.   The
Corporation  shall not effect any  transaction  described  in this  Paragraph  C
unless (i) each holder of Series H Preferred  Stock has received  written notice
of such  transaction  at least thirty (30) days prior  thereto,  but in no event
later  than ten (10) days  prior to the  record  date for the  determination  of
shareholders  entitled  to vote with  respect  thereto,  and (ii) the  resulting
successor  or  acquiring  entity  (if not the  Corporation)  assumes  by written
instrument the obligations of this Paragraph C. The above provisions shall apply
regardless of whether or not there would have been a sufficient number of shares
of Common Stock  authorized  and available  for issuance upon  conversion of the
shares  of  Series  H  Preferred  Stock  outstanding  as of  the  date  of  such
transaction,   and  shall  similarly  apply  to  successive   reclassifications,
consolidations, mergers, sales, transfers or share exchanges.

         D. ADJUSTMENT DUE TO DISTRIBUTION.  If the Corporation shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating  dividend,  by way of return of capital
or  otherwise  (including  any  dividend or  distribution  to the  Corporation's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
a subsidiary (I.E. a spin-off)) (a "Distribution"), then the holders of Series H
Preferred  Stock shall be entitled,  upon any  conversion  of shares of Series H
Preferred Stock after the date of record for determining  shareholders  entitled
to such Distribution, to receive the amount of such assets which would have been
payable to the holder with respect to the shares of Common Stock  issuable  upon
such  conversion  (without  giving  effect to any  limitations  upon  conversion
imposed  by Article  IV.C) had such  holder  been the  holder of such  shares of
Common Stock on the record date for the  determination of shareholders  entitled
to such Distribution.

         E. [Intentionally Omitted]

         F. PURCHASE RIGHTS. If at any time when any Series H Preferred Stock is
issued and  outstanding,  the Corporation  issues any Convertible  Securities or
rights to purchase stock, warrants,


                                       18
<PAGE>

securities  or other  property  (the  "PURCHASE  RIGHTS") pro rata to the record
holders of any class of Common  Stock,  then the  holders of Series H  Preferred
Stock will be entitled to acquire,  upon the terms  applicable  to such Purchase
Rights,  the aggregate  Purchase Rights which such holder could have acquired if
such  holder  had held the  number of shares of  Common  Stock  acquirable  upon
complete  conversion of the Series H Preferred  Stock (without  giving effect to
any limitations upon conversion  imposed by Article IV.C) immediately before the
date on which a record is taken for the grant, issuance or sale of such Purchase
Rights,  or, if no such record is taken, the date as of which the record holders
of  Common  Stock  are to be  determined  for the  grant,  issue or sale of such
Purchase Rights.

         G. NOTICE OF  ADJUSTMENTS.  Upon the  occurrence of each  adjustment or
readjustment  of  the  Conversion   Price  pursuant  to  this  Article  XI,  the
Corporation,   at  its  expense,  shall  promptly  compute  such  adjustment  or
readjustment  and prepare and furnish to each holder of Series H Preferred Stock
a certificate  setting  forth such  adjustment  or  readjustment  and showing in
detail the facts  upon  which such  adjustment  or  readjustment  is based.  The
Corporation  shall, upon the written request at any time of any holder of Series
H Preferred Stock,  furnish to such holder a like certificate  setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount,  if any, of other
securities or property which at the time would be received upon  conversion of a
share of Series H Preferred Stock.

                               XII. VOTING RIGHTS

         The  holders  of the  Series H  Preferred  Stock  have no voting  power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "GENERAL CORPORATE LAW"), in this Article XII and in Article XIII below.

         Notwithstanding the above, the Corporation shall provide each holder of
Series H Preferred  Stock,  at its request,  with copies of proxy  materials and
other information sent to shareholders. If the Corporation takes a record of its
shareholders for the purpose of determining shareholders entitled to (a) receive
payment of any  dividend  or other  distribution,  any right to  subscribe  for,
purchase or otherwise  acquire  (including  by way of merger,  consolidation  or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease  or  conveyance  of  all  or  substantially  all  of  the  assets  of  the
Corporation, or any proposed merger, consolidation,  liquidation, dissolution or
winding  up of the  Corporation,  the  Corporation  shall  mail a notice to each
holder, at least twenty (20) days prior to the record date specified therein (or
thirty  (30)  days  prior  to the  consummation  of the  transaction  or  event,
whichever is earlier,  but in no event earlier than public  announcement of such
proposed  transaction),  of the date on which any such record is to be taken for
the purpose of such vote,  dividend,  distribution,  right or other event, and a
brief  statement  regarding  the amount and  character  of such vote,  dividend,
distribution, right or other event to the extent known at such time.



                                       19
<PAGE>

         To the extent  that  under the  General  Corporate  Law the vote of the
holders of the Series H Preferred Stock, voting separately as a class or series,
as applicable,  is required to authorize a given action of the Corporation,  the
affirmative  vote or consent of the holders of at least a majority of the shares
of the Series H Preferred  Stock  represented  at a duly held meeting at which a
quorum is present or by written  consent of a majority of the shares of Series H
Preferred Stock (except as otherwise may be required under the General Corporate
Law) shall  constitute  the approval of such action by the class.  To the extent
that under the General Corporate Law holders of the Series H Preferred Stock are
entitled to vote on a matter with holders of Common  Stock,  voting  together as
one class,  each share of Series H Preferred Stock shall be entitled to a number
of votes  equal to the  number of shares of Common  Stock  into which it is then
convertible (without giving effect to any limitations upon conversion imposed by
Article IV.C) using the record date for the taking of such vote of  shareholders
as the date as of which  the  Conversion  Price is  calculated.  Holders  of the
Series H  Preferred  Stock  shall be  entitled to notice of (and copies of proxy
materials and other information sent to shareholders)  all shareholder  meetings
or written  consents with respect to which they would be entitled to vote, which
notice would be provided pursuant to the  Corporation's  by-laws and the General
Corporate Law.

                           XIII. PROTECTION PROVISIONS

         So long as any shares of Series H Preferred Stock are outstanding,  the
Corporation  shall not, without first obtaining the approval (by vote or written
consent,  as provided by the General Corporate Law) of the holders of at least a
majority of the then outstanding shares of Series H Preferred Stock:

                  (a) alter or change the rights,  preferences  or privileges of
the Series H Preferred Stock;

                  (b) alter or change the rights,  preferences  or privileges of
any capital  stock of the  Corporation  so as to affect  adversely  the Series H
Preferred Stock;

                  (c) create any new class or series of capital  stock  having a
preference  over the Series H Preferred  Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article IX hereof, "SENIOR SECURITIES");

                  (d)  increase  the  authorized  number  of  shares of Series H
Preferred Stock;

                  (e) issue any shares of Series H  Preferred  Stock  other than
pursuant to the Securities Purchase Agreement; or

                  (f)   redeem,   or  declare  or  pay  any  cash   dividend  or
distribution  on, any capital  stock of the  Corporation  ranking  junior to the
Series  H  Preferred  Stock  as to  distribution  of  assets  upon  liquidation,
dissolution or winding up of the Corporation (including the Common Stock).



                                       20
<PAGE>

If  holders of at least a majority  of the then  outstanding  shares of Series H
Preferred  Stock agree to allow the  Corporation  to alter or change the rights,
preferences or privileges of the shares of Series H Preferred  Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the holders of the Series H Preferred Stock that did not agree to such
alteration or change (the "DISSENTING Holders") and the Dissenting Holders shall
have the right, for a period of thirty (30) days, to convert all of their shares
of  Series H  Preferred  Stock  pursuant  to the  terms of this  Certificate  of
Designations  as they existed prior to such  alteration or change or to continue
to hold their shares of Series H Preferred Stock.

                               XIV. MISCELLANEOUS

         A.  CANCELLATION OF SERIES H PREFERRED STOCK. If any shares of Series H
Preferred  Stock are  converted  pursuant to Article IV, the shares so converted
shall be  canceled,  shall  return to the  status of  authorized,  but  unissued
preferred  stock of no  designated  series,  and  shall not be  issuable  by the
Corporation as Series H Preferred Stock.

         B. LOST OR STOLEN CERTIFICATES.  Upon receipt by the Corporation of (i)
evidence of the loss,  theft,  destruction or mutilation of any Preferred  Stock
Certificate(s)  and  (ii) (y) in the case of  loss,  theft  or  destruction,  of
indemnity  reasonably  satisfactory  to the  Corporation,  or (z) in the case of
mutilation,   upon   surrender  and   cancellation   of  the   Preferred   Stock
Certificate(s),  the  Corporation  shall execute and deliver new Preferred Stock
Certificate(s)  of like tenor and date.  However,  the Corporation  shall not be
obligated to reissue such lost or stolen Preferred Stock  Certificate(s)  if the
holder  contemporaneously  requests  the  Corporation  to convert  such Series H
Preferred Stock.

         C. [Intentionally Omitted]

         D.  ALLOCATIONS  OF  RESERVED  AMOUNT.  The  Reserved  Amount  and each
increase to the Reserved Amount shall be allocated pro rata among the holders of
Series H  Preferred  Stock  based on the number of shares of Series H  Preferred
Stock held by each holder at the time of the establishment of or increase in the
Reserved  Amount,  as the  case may be.  In the  event a  holder  shall  sell or
otherwise transfer any of such holder's shares of Series H Preferred Stock, each
transferee shall be allocated a pro rata portion of such  transferor's  Reserved
Amount. Any portion of the Reserved Amount which remains allocated to any person
or entity which does not hold any Series H Preferred Stock shall be allocated to
the remaining  holders of shares of Series H Preferred  Stock, pro rata based on
the number of shares of Series H Preferred Stock then held by such holders.

         E.  STATEMENTS OF AVAILABLE  SHARES.  So long as any shares of Series H
Preferred Stock are outstanding,  the Corporation shall deliver to each holder a
written  report  notifying  the holders of any  occurrence  which  prohibits the
Corporation  from issuing  Common Stock upon any  conversion.  In addition,  the
Corporation  shall  provide,   within  ten  (10)  days  after  delivery  to  the
Corporation of a written request by any holder, any of the following information
as of the date of such  request:  (i) the  total  number  of  shares of Series H
Preferred  Stock  outstanding,  (ii) the total


                                       21
<PAGE>

number of shares of Common Stock issued upon all prior  conversions  of Series H
Preferred  Stock,  (iii) the total  number of shares of Common  Stock  which are
reserved for issuance upon conversion of the Series H Preferred Stock,  (iv) the
total  number of shares of Common  Stock which may  thereafter  be issued by the
Corporation  upon  conversion  of  the  Series  H  Preferred  Stock  before  the
Corporation would exceed the Reserved Amount.

         F. PAYMENT OF CASH;  DEFAULTS.  Whenever the Corporation is required to
make any cash payment to a holder under this  Certificate of Designations  (as a
Conversion  Default  Payment,  upon redemption or otherwise),  such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice  specifying that the holder elects to receive such payment in
cash and the method (E.G., by check, wire transfer) in which such payment should
be made.  If such  payment is not  delivered  within such five (5)  business day
period,  such  holder  shall  thereafter  be  entitled to interest on the unpaid
amount at a per annum rate equal to the lower of  twenty-four  percent (24%) and
the highest rate  permitted by applicable  law until such amount is paid in full
to the holder.

         G. REMEDIES  CUMULATIVE.  The remedies  provided in this Certificate of
Designations shall be cumulative and in addition to all other remedies available
under this Certificate of Designations,  at law or in equity (including a decree
of specific  performance  and/or other  injunctive  relief),  and nothing herein
shall  limit a holder's  right to pursue  actual  damages for any failure by the
Corporation to comply with the terms of this  Certificate of  Designations.  The
Corporation  acknowledges that a breach by it of its obligations  hereunder will
cause  irreparable  harm to the holders of Series H Preferred Stock and that the
remedy at law for any such breach may be inadequate.  The Corporation  therefore
agrees,  in the event of any such breach or  threatened  breach,  the holders of
Series H Preferred  Stock shall be entitled,  in addition to all other available
remedies,  to an  injunction  restraining  any breach,  without the necessity of
showing economic loss and without any bond or other security being required.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       22
<PAGE>


         IN WITNESS  WHEREOF,  this  Certificate of  Designations is executed on
behalf of the Corporation this 26th day of March, 1997.

                                              PALOMAR MEDICAL TECHNOLOGIES, INC.



                                              By:   /s/  Sarah Burgess Reed
                                                 -------------------------------
                                                  Sarah Burgess Reed
                                                  Assistant Secretary

<PAGE>


                              NOTICE OF CONVERSION

                    (To be Executed by the Registered Holder
                in order to Convert the Series H Preferred Stock)

The undersigned  hereby  irrevocably  elects to convert  ____________  shares of
Series H Preferred Stock (the  "CONVERSION"),  represented by stock  certificate
No(s).  ___________ (the "PREFERRED STOCK  CERTIFICATES")  into shares of common
stock ("COMMON STOCK") of Palomar Medical Technologies, Inc. (the "CORPORATION")
according to the conditions of the Certificate of Designations,  Preferences and
Rights  of  Series  H  Convertible   Preferred   Stock  (the   "CERTIFICATE   OF
DESIGNATIONS"),  as of the date written below. If securities 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 and is  delivering  herewith such
certificates.  No fee will be charged to the holder for any  conversion,  except
for  transfer  taxes,  if any. A copy of each  Preferred  Stock  Certificate  is
attached hereto (or evidence of loss, theft or destruction thereof).

 The  undersigned  represents  and  warrants  that all  offers  and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series H Preferred  Stock shall be made pursuant to  registration  of the Common
Stock under the Securities  Act of 1933, as amended (the "ACT"),  or pursuant to
an exemption from registration under the Act.

                    Date of Conversion:

                    Applicable Conversion Price:

                    Amount of Conversion Default
                    Payments to be Converted, if any:

                    Number of Shares of
                    Common Stock to be Issued:

                    By:
                       Name:
                       itle:

                   (Must be _____ exactly as _____ appears on the Preferred
                    Stock Certificate)

                    Name:

                    Address:
                    Social Security or
                    Federal Tax I.D. Number:

* The  Corporation  is not  required to issue  shares of Common  Stock until the
original  Preferred  Stock   Certificate(s)  (or  evidence  of  loss,  theft  or
destruction  thereof)  to be  converted  are  received by the  Corporation.  The
Corporation  shall  issue and  deliver  shares of Common  Stock to an  overnight
courier not later than the  business day  following  the later of (a) the second
business day following the  Conversion  Date in the case of DWAC  deliveries and
the third business day following the Conversion  Date in all other cases and (b)
receipt of the original  Preferred  Stock  Certificate(s)  (or evidence of loss,
theft or destruction thereof) to be converted,  and shall make payments pursuant
to the  Certificate  of  Designations  for the number of business days that such
issuance and delivery is late.


<PAGE>

                                                                       EXHIBIT B
                                                                              TO
                                                             SECURITIES PURCHASE
                                                                       AGREEMENT

                          REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March 27,
1997 by and among PALOMAR MEDICAL  TECHNOLOGIES,  INC., a corporation  organized
under the laws of the State of Delaware,  with headquarters located at 66 Cherry
Hill Drive,  Beverly,  Massachusetts 01915 (the "COMPANY"),  and the undersigned
purchasers of Preferred Shares under the Securities Purchase Agreement (together
with affiliates, the "INITIAL INVESTORS").

         WHEREAS:

         A. In connection  with the Securities  Purchase  Agreement of even date
herewith by and between the Company and the Initial  Investors (the  "SECURITIES
PURCHASE AGREEMENT"),  the Company has agreed, upon the terms and subject to the
conditions  contained therein, to issue and sell to the Initial Investors shares
of its Series H  Convertible  Preferred  Stock (the  "PREFERRED  STOCK") that is
convertible into shares (the "CONVERSION SHARES") of the Company's common stock,
par value $.01 per share (the "COMMON STOCK"), upon the terms and subject to the
limitations and conditions set forth in the Certificate of Designations,  Rights
and  Preferences  with  respect to such  Preferred  Stock (the  "CERTIFICATE  OF
DESIGNATIONS"); and

         B.  To  induce  the  Initial  Investors  to  execute  and  deliver  the
Securities  Purchase  Agreement,  the  Company  has  agreed to  provide  certain
registration rights under the Securities Act of 1933, as amended,  and the rules
and regulations thereunder, or any similar successor statute (collectively,  the
"SECURITIES ACT"), and applicable state securities laws;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency of which are hereby  acknowledged,  the Company and the
Initial Investors hereby agree as follows:

         1. DEFINITIONS.

         a. As used in this  Agreement,  the  following  terms  shall  have  the
following meanings:

                  (i)   "INVESTORS"   means  the  Initial   Investors   and  any
transferees  or assignees  who agree to become bound by the  provisions  of this
Agreement in accordance with Section 9 hereof.

                  (ii) "REGISTER,"  "REGISTERED," and "REGISTRATION"  refer to a
registration  effected  by  preparing  and filing a  Registration  Statement  or
Statements in compliance  with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering  securities on a
continuous  basis ("RULE 415"), and the declaration or ordering of effectiveness
of such  Registration  Statement by the United  States  Securities  and Exchange
Commission (the "SEC").



                                       1
<PAGE>

                  (iii)  "REGISTRABLE  SECURITIES"  means the Conversion  Shares
(including any  Conversion  Shares  issuable with respect to Conversion  Default
Payments under the Certificate of Designations or in redemption of any Preferred
Stock) issued or issuable with respect to the Preferred  Stock and any shares of
capital stock issued or issuable,  from time to time (with any adjustments),  on
or in exchange for or otherwise with respect to any of the foregoing.

                  (iv) "REGISTRATION  STATEMENT" means a registration  statement
of the Company under the Securities Act.

         b. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.

         2. REGISTRATION.

         a. MANDATORY REGISTRATION.  The Company shall prepare, and, on or prior
to the sixtieth (60th) day after the Closing Date (the "FILING DATE"), file with
the SEC a  Registration  Statement  on Form  S-3  (or,  if Form  S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of all of the Registrable  Securities,  subject to the consent of
the Initial Investors (as determined pursuant to Section 11(j) hereof)) covering
the resale of at least 4,500,000 shares of Registrable Securities (provided that
such number may be proportionally reduced if fewer than 20,000 shares are issued
under the Securities Purchase Agreement),  which Registration  Statement, to the
extent allowable under the Securities Act and the Rules  promulgated  thereunder
(including Rule 416), shall state that such  Registration  Statement also covers
such  indeterminate  number of  additional  shares of Common Stock as may become
issuable upon  conversion of the Preferred Stock to prevent  dilution  resulting
from stock splits,  stock  dividends or similar  transactions.  The  Registrable
Securities  included on the  Registration  Statement  shall be  allocated to the
Investors as set forth in Section 11(k) hereof. The Registration  Statement (and
each  amendment or  supplement  thereto,  and each request for  acceleration  of
effectiveness thereof) shall be provided to (and subject to the approval of) the
Initial Investors and their counsel prior to its filing or other submission.

         b.  UNDERWRITTEN  OFFERING.  If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable  Securities subject
to such underwritten offering, with the consent of the Initial Investors,  shall
have the right to select a total of one legal counsel to represent the Investors
and an investment  banker or bankers and manager or managers to  administer  the
offering,  which  investment  banker or bankers or manager or managers  shall be
reasonably satisfactory to the Company.

         c. PAYMENTS BY THE COMPANY.  The Company  shall cause the  registration
statement to become  effective as soon as  practicable  after filing,  but in no
event later than the one hundred  twentieth  (120th) day  following  the Closing
Date  (the  "REGISTRATION  DEADLINE").  If  (i)  the  registration  statement(s)
covering the Registrable Securities required to be filed by the Company pursuant
to Section  2(a) hereof is not  declared  effective  by the SEC on or before the
Registration Deadline or if, after the registration  statement has been declared
effective by the SEC,  sales of all the  Registrable  Securities  (including any
Registrable  Securities  required  to be  registered  pursuant  to Section  3(b)
hereof)  cannot be made pursuant to the  registration  statement


                                       2
<PAGE>

(by reason of a stop order or the Company's  failure to update the  registration
statement or any other reason  outside the control of the Investors) or (ii) the
Common  Stock is not listed or included  for  quotation  on the NASDAQ Small Cap
Market  ("NASDAQ"),  the NASDAQ National Market (the "NNM"),  the New York Stock
Exchange  (the "NYSE") or the American  Stock  Exchange (the "AMEX") at any time
after the  Registration  Deadline,  then the Company  will make  payments to the
Investors in such amounts and at such times as shall be  determined  pursuant to
this Section 2(c) as partial  relief for the damages to the  Investors by reason
of any such  delay in or  reduction  of their  ability  to sell the  Registrable
Securities (which remedy shall not be exclusive of any other remedies  available
at law or in equity).  The Company shall pay to each Investor an amount equal to
the sum of (i) the aggregate  Purchase Price of the Preferred Stock held by such
Investor (including, without limitation, Preferred Stock that has been converted
into Conversion Shares then held by such Investor) (the "AGGREGATE SHARE PRICE")
multiplied by two hundredths (.02) if the Registration  Statement filed pursuant
to  Section  2(a) is not  declared  effective  on or prior  to the  Registration
Deadline  plus (ii) an amount equal to the Aggregate  Share Price  multiplied by
two hundredths  (.02) for each thirty (30) days thereafter that the Registration
Statement has not been declared  effective or that sales cannot be made pursuant
to the Registration  Statement after it has been declared  effective or that the
Common  Stock is not listed or included  for  quotation  on NASDAQ,  the NYSE or
AMEX;  PROVIDED,  HOWEVER that there shall be excluded from each such period any
delays  which are solely  attributable  to changes  (other than  corrections  of
Company  mistakes  with  respect  to  information  previously  provided  by  the
Investors) required by the Investors in the Registration  Statement with respect
to information relating to the Investors, including, without limitation, changes
to the plan of distribution  and PROVIDED,  FURTHER,  that the aggregate  amount
payable to any  Investor  under this  Section  2(c) shall not exceed ten percent
(10%)  of  such  Investor's   Aggregate  Share  Price.  (For  example,   if  the
Registration  Statement  is not  effective  by the  Registration  Deadline,  the
Company would pay $20,000 for each  $1,000,000 of Aggregate  Share Price and the
Company would pay an additional  $20,000 for each  $1,000,000 of Aggregate Share
Price thereafter for each additional thirty (30) days the Registration Statement
is not  effective  (up to a maximum of $100,000  for each  $1,000,000  Aggregate
Share Price)). Such amounts shall be paid in cash or, at each Investor's option,
may be convertible  into Common Stock at the  "CONVERSION  PRICE" (as defined in
the  Certificate  of  Designations).  Any  shares of Common  Stock  issued  upon
conversion  of such amounts  shall be  Registrable  Securities.  If the Investor
desires to convert the amounts due  hereunder  into  Registrable  Securities  it
shall so notify the Company in writing  within two (2) business days of the date
on which such  amounts are first  payable in cash and such  amounts  shall be so
convertible  (pursuant  to the  mechanics  set  forth  under  Article  IV of the
Certificate  of  Designations),  beginning  on the last day upon  which the cash
amount  would  otherwise  be due in  accordance  with  the  following  sentence.
Payments of cash  pursuant  hereto  shall be made within five (5) days after the
end of each period that gives rise to such obligation.

         d. [Intentionally Omitted]

         e.  ELIGIBILITY FOR FORM S-3. The Company  represents and warrants that
it meets the  requirements  for the use of Form S-3 for registration of the sale
by the Initial  Investors and any other Investor of the  Registrable  Securities
and the Company shall file all reports  required to be filed by the Company with
the SEC in a timely  manner so as to maintain  such  eligibility  for the use of
Form S-3.



                                       3
<PAGE>

         3. OBLIGATIONS OF THE COMPANY.

         In connection with the registration of the Registrable Securities,  the
Company shall have the following obligations:

                  a. The Company  shall  prepare  promptly and file with the SEC
the Registration Statement required by Section 2(a), and cause such Registration
Statement  relating to  Registrable  Securities  to become  effective as soon as
practicable  after such  filing,  but in no event  later  than the  Registration
Deadline,  and keep the Registration Statement effective pursuant to Rule 415 at
all times  until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which all Registrable
Securities (in the reasonable  opinion of counsel to the Initial  Investors) may
be  immediately  sold  by the  Investors  to  the  public  without  registration
(including, in accordance with Rule 144(k) promulgated under the Securities Act)
(the  "Registration  Period"),   which  Registration  Statement  (including  any
amendments or supplements  thereto and  prospectuses  contained  therein and all
documents  incorporated  by  reference  therein)  shall not  contain  any untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated therein, or necessary to make the statements therein not misleading.

                  b.  The  Company  shall  prepare  and  file  with the SEC such
amendments   (including   post-effective   amendments)   and  supplements  to  a
Registration   Statement  and  the  prospectus   used  in  connection  with  the
Registration  Statement as may be necessary to keep the  Registration  Statement
effective at all times during the Registration  Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of  all  Registrable  Securities  of the  Company  covered  by the  Registration
Statement  until  such  time as all of such  Registrable  Securities  have  been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration  Statement.  In the event an
Investor  notifies  the  Company  that the  number of shares  available  under a
Registration  Statement  filed pursuant to this Agreement was, for any three (3)
consecutive  trading  days (the date the  Investor  notifies the Company of such
occurrence being the  "REGISTRATION  TRIGGER DATE"),  is insufficient to cover a
number of shares equal to the  applicable  Registration  Percentage  (as defined
below)  multiplied by all of the Registrable  Securities issued or issuable upon
conversion of the Preferred  Stock held by such Investor  (without giving effect
to any limitations on conversion contained in Article IV.C of the Certificate of
Designations), the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both,  so as to cover  one  hundred  fifty  percent  (150%)  of the  Registrable
Securities  issued or issuable to such  Investor  (without  giving effect to any
limitations  on  conversion  contained  in Article  IV.C of the  Certificate  of
Designations),  in each case,  as soon as  practicable,  but in any event within
fifteen (15) days after the Registration Trigger Date (based on the market price
of the Common Stock and other relevant  factors on which the Company  reasonably
elects to rely).  The Company shall cause such amendment and/or new Registration
Statement  to become  effective  as soon as  practicable  following  the  filing
thereof.  In the event the Company fails to obtain the effectiveness of any such
Registration  Statement  within  ninety (90) days after a  Registration  Trigger
Date, each Investor shall thereafter have the option, exercisable in whole or in
part at any time and from time to time by  delivery  of a written  notice to the
Company (a "REDEMPTION NOTICE"), to require the Company to purchase for cash, at
an amount per share equal to the Redemption Amount (as defined in Article VIII.C
of the Certificate of Designations), a portion of the Investor's Preferred Stock
such that the total number of shares of Common Stock  issuable to such  Investor
upon conversion of its Preferred Stock (without giving effect to any limitations
on conversion contained in Article IV.C of the Certificate of Designations) does
not exceed 135% of the Registrable Securities issued or issuable upon conversion
of such Investor's  Preferred Stock (without giving effect to any limitations on
conversion contained in Article IV.C of the Certificate of Designations). If the


                                       4
<PAGE>

Corporation  fails to redeem any of such shares  within five (5)  business  days
after its receipt of a Redemption  Notice,  then such Investor shall be entitled
to the remedies  provided in Article VIII.D of the Certificate of  Designations.
As used herein,  "REGISTRATION  PERCENTAGE" means one hundred percent (100%) for
the period  ending on the 150th day  following  the  Closing  Date and means one
hundred and thirty-five percent (135%) thereafter.

                  c.  The  Company  shall   furnish  to  each   Investor   whose
Registrable  Securities are included in the Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed,  filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto,  each preliminary  prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the Registration  Statement
referred to in Section 2(a),  each letter written by or on behalf of the Company
to the SEC or the staff of the SEC, and each item of correspondence from the SEC
or the staff of the SEC, in each case  relating to such  Registration  Statement
(other than any portion,  if any,  thereof which contains  information for which
the Company has sought confidential  treatment),  and (ii) such number of copies
of a prospectus,  including a preliminary  prospectus,  and all  amendments  and
supplements  thereto and such other  documents as such  Investor may  reasonably
request in order to facilitate  the  disposition of the  Registrable  Securities
owned by such Investor.

                  d. The Company  shall use  reasonable  efforts to (i) register
and qualify the Registrable  Securities  covered by the  Registration  Statement
under such other  securities  or "blue  sky" laws of such  jurisdictions  in the
United States as each Investor who holds  Registrable  Securities  being offered
reasonably  requests,   (ii)  prepare  and  file  in  those  jurisdictions  such
amendments  (including  post-effective   amendments)  and  supplements  to  such
registrations   and   qualifications   as  may  be  necessary  to  maintain  the
effectiveness  thereof  during the  Registration  Period,  (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times  during  the  Registration  Period,  and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable  Securities
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be
required in connection  therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d),  (b) subject  itself to general  taxation in any such
jurisdiction,  (c) file a general  consent  to  service  of  process in any such
jurisdiction,  (d) provide any undertakings that cause the Company undue expense
or burden,  or (e) make any change in its charter or bylaws,  which in each case
the Board of  Directors  of the  Company  determines  to be contrary to the best
interests of the Company and its stockholders.

                  e. In the event the  Investors who hold a majority in interest
of the Registrable  Securities being offered in an offering select  underwriters
for the offering, the Company shall enter into and perform its obligations under
an  underwriting  agreement,  in usual and customary  form,  including,  without
limitation,  customary  indemnification and contribution  obligations,  with the
underwriters of such offering.

                  f. As promptly as  practicable  after  becoming  aware of such
event,  the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the  statements  therein not  misleading,  and use its best
efforts  promptly  to prepare a  supplement  or  amendment  to the  Registration
Statement to correct such untrue statement or omission,  and deliver such number
of copies of such  supplement or amendment to each Investor as such Investor may
reasonably request.



                                       5
<PAGE>

                  g. The  Company  shall use its best  efforts  to  prevent  the
issuance  of  any  stop  order  or  other   suspension  of  effectiveness  of  a
Registration  Statement,  and,  if  such an  order  is  issued,  to  obtain  the
withdrawal of such order at the earliest  practicable  moment and to notify each
Investor  who holds  Registrable  Securities  being sold (or, in the event of an
underwritten  offering, the managing underwriters) of the issuance of such order
and the resolution thereof.

                  h.  The  Company   shall  permit  a  single  firm  of  counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements  thereto a reasonable period of time (and in no event
less than three (3)  business  days) prior to their filing with the SEC, and not
file any document in a form to which such  counsel  reasonably  objects.  In the
event such  counsel  fails to convey to the Company all of its comments (or that
it has no comments) to such Registration Statement prior to the scheduled filing
date  of  such  Registration   Statement  (which  date  shall  comply  with  the
requirements  set forth in this Section 3(h), the sixty (60) and the one hundred
and twenty  (120) day  periods  referred  to in  Section  2(a) and 2(c) shall be
extended by such number of business days after such  scheduled  filing date that
such counsel so conveys such comments (or that it has no comments).

                  i. The Company shall make generally  available to its security
holders  as soon as  practical,  but not later than  ninety  (90) days after the
close of the period covered  thereby,  an earnings  statement (in form complying
with  the  provisions  of  Rule  158  under  the  Securities   Act)  covering  a
twelve-month  period  beginning  not later  than the first day of the  Company's
fiscal quarter next following the effective date of the Registration Statement.

                  j. At the request of any Investor,  the Company shall furnish,
on the date of effectiveness of the Registration Statement (i) an opinion, dated
as of  such  date,  from  counsel  representing  the  Company  addressed  to the
Investors  and in  form,  scope  and  substance  as is  customarily  given in an
underwritten public offering and (ii) in the case of an underwriting,  a letter,
dated such date, from the Company's  independent certified public accountants in
form and  substance as is  customarily  given by  independent  certified  public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and the Investors.

                  k. The Company shall make  available for inspection by (i) any
Investor, (ii) any underwriter  participating in any disposition pursuant to the
Registration Statement,  (iii) one firm of attorneys and one firm of accountants
or other  agents  retained  by the  Investors,  and  (iv) one firm of  attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the  Company  (collectively,  the  "RECORDS"),  as  shall be  reasonably  deemed
necessary  by each  Inspector  to enable  each  Inspector  to  exercise  its due
diligence  responsibility,  and  cause the  Company's  officers,  directors  and
employees to supply all information  which any Inspector may reasonably  request
for purposes of such due diligence; PROVIDED, HOWEVER, that each Inspector shall
hold in confidence and shall not make any disclosure  (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential,  and of which determination the Inspectors are so notified, unless
(a)  the  disclosure  of such  Records  is  necessary  to  avoid  or  correct  a
misstatement or omission in any Registration Statement,  (b) the release of such
Records  is  ordered  pursuant  to a  subpoena  or other  order  from a court or
government  body  of  competent  jurisdiction,  or (c) the  information  in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other  agreement.  The Company shall not be required
to disclose any confidential  information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality


                                       6
<PAGE>

agreements (in form and substance  satisfactory to the Company) with the Company
with  respect  thereto,  substantially  in the form of this Section  3(k).  Each
Investor agrees that it shall,  upon learning that disclosure of such Records is
sought  in or by a court  or  governmental  body of  competent  jurisdiction  or
through other means, give prompt notice to the Company and allow the Company, at
its expense,  to undertake  appropriate  action to prevent  disclosure of, or to
obtain a protective order for, the Records deemed  confidential.  Nothing herein
shall be deemed to limit the Investor's  ability to sell Registrable  Securities
in a manner which is otherwise consistent with applicable laws and regulations.

                  l.  The  Company  shall  hold in  confidence  and not make any
disclosure of information  concerning an Investor provided to the Company unless
(i) disclosure of such  information is necessary to comply with federal or state
securities  laws, (ii) the disclosure of such  information is necessary to avoid
or correct a misstatement or omission in any Registration  Statement,  (iii) the
release of such  information  is ordered  pursuant  to a subpoena or other order
from  a  court  or  governmental  body  of  competent  jurisdiction,  (iv)  such
information  has been made  generally  available  to the  public  other  than by
disclosure  in violation of this or any other  agreement,  or (v) such  Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall,  upon  learning  that  disclosure  of such  information  concerning an
Investor  is  sought  in  or  by a  court  or  governmental  body  of  competent
jurisdiction  or through other means,  give prompt notice to such Investor prior
to making such disclosure,  and allow the Investor, at its expense, to undertake
appropriate  action to prevent  disclosure  of, or to obtain a protective  order
for, such information.

                  m. The Company  shall use its best efforts to promptly  either
(i) cause all the Registrable  Securities covered by the Registration  Statement
to be listed on the NYSE or the AMEX or another national securities exchange and
on each additional  national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if the listing of
such Registrable  Securities is then permitted under the rules of such exchange,
or (ii) secure the designation and quotation,  of all the Registrable Securities
covered by the Registration  Statement on the NASDAQ Small Cap Market or the NNM
and,  without  limiting  the  generality  of the  foregoing,  to arrange  for or
maintain at least two market makers to register with the National Association of
Securities  Dealers,  Inc.  ("NASD")  as such with  respect to such  Registrable
Securities.

                  n. The Company shall provide a transfer  agent and  registrar,
which may be a single entity, for the Registrable  Securities not later than the
effective date of the Registration Statement.

                  o. The Company  shall  cooperate  with the  Investors who hold
Registrable   Securities   being  offered  and  the  managing   underwriter   or
underwriters,  if any, to  facilitate  the timely  preparation  and  delivery of
certificates  (not bearing any  restrictive  legends)  representing  Registrable
Securities to be offered pursuant to the Registration  Statement and enable such
certificates to be in such denominations or amounts,  as the case may be, as the
managing  underwriter or  underwriters,  if any, or the Investors may reasonably
request  and   registered  in  such  names  as  the  managing   underwriter   or
underwriters,  if any, or the  Investors  may  request,  and,  within  three (3)
business  days  after  a  Registration   Statement  which  includes  Registrable
Securities  is ordered  effective  by the SEC,  the  Company  shall  cause legal
counsel  selected  by the  Company to  deliver,  to the  transfer  agent for the
Registrable   Securities  (with  copies  to  the  Investors  whose   Registrable
Securities  are  included  in such  Registration  Statement)  an opinion of such
counsel in the form attached hereto as EXHIBIT 1.



                                       7
<PAGE>

                  p. At the request of any  Investor,  the Company shall prepare
and file with the SEC such amendments (including post-effective  amendments) and
supplements  to a Registration  Statement and the prospectus  used in connection
with the Registration  Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.

         4. OBLIGATIONS OF THE INVESTORS.

         In connection with the registration of the Registrable Securities,  the
Investors shall have the following obligations:

                  a. It shall be a condition precedent to the obligations of the
Company to complete the registration  pursuant to this Agreement with respect to
the  Registrable  Securities of a particular  Investor that such Investor  shall
furnish to the  Company  such  information  regarding  itself,  the  Registrable
Securities  held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such  Registrable  Securities  and shall execute such documents in connection
with such registration as the Company may reasonably  request. At least ten (10)
business  days prior to the first  anticipated  filing date of the  Registration
Statement,  the Company shall notify each Investor in writing of the information
the  Company  requires  from each such  Investor  and each such  Investor  shall
provide  such  information  no later than five (5)  business  days prior to such
anticipated filing date.

                  b.  Each  Investor,  by  such  Investor's  acceptance  of  the
Registrable  Securities,  agrees to  cooperate  with the  Company as  reasonably
requested by the Company in connection  with the  preparation  and filing of the
Registration Statement hereunder,  unless such Investor has notified the Company
in  writing  of such  Investor's  election  to  exclude  all of such  Investor's
Registrable Securities from the Registration Statement.

                  c. Each Investor whose Registrable  Securities are included in
a  Registration  Statement  understands  that  the  Securities  Act may  require
delivery of a prospectus  relating  thereto in connection  with any sale thereof
pursuant to such  Registration  Statement and each such Investor shall deliver a
prospectus in connection with any such sale.

                  d. Each Investor agrees to notify the Company promptly, but in
any event within 72 hours after the date on which all Registrable Securities and
Preferred Shares owned by such Investor have been sold by such Investor, if such
date is prior to the expiration of the Registration  Period, so that the Company
may comply with its  obligation  to  terminate  the  Registration  Statement  in
accordance  with Item 512 of Regulation  S-K or Regulation  S-B, as the case may
be.

                  e. In the event  Investors  holding a majority  in interest of
the Registrable  Securities being offered determine to engage the services of an
underwriter,  each  Investor  agrees to enter into and perform  such  Investor's
obligations  under an  underwriting  agreement,  in usual  and  customary  form,
including,  without  limitation,   customary  indemnification  and  contribution
obligations,  with the managing underwriter of such offering and take such other
actions as are  reasonably  required  in order to  expedite  or  facilitate  the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.



                                       8
<PAGE>

                  f. Each Investor  agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind  described in Section 3(f)
or 3(g), such Investor will immediately  discontinue  disposition of Registrable
Securities  pursuant to the  Registration  Statement  covering such  Registrable
Securities  until such Investor's  receipt of the copies of the  supplemented or
amended  prospectus  contemplated by Section 3(f) or 3(g) and, if so directed by
the Company,  such Investor  shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a  certificate  of  destruction)
all  copies in such  Investor's  possession,  of the  prospectus  covering  such
Registrable Securities current at the time of receipt of such notice.

                  g. No Investor may  participate in any offering of Registrable
Securities  hereunder  unless such  Investor (i) agrees to sell such  Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and  customary  form  entered  into by the  Company,  (ii)  completes  and
executes  all  questionnaires,  powers of  attorney,  indemnities,  underwriting
agreements  and  other  documents  reasonably  required  under the terms of such
underwriting  arrangements,  and (iii)  agrees to pay its pro rata  share of all
underwriting  discounts  and  commissions  and any  expenses  in excess of those
payable by the Company pursuant to Section 5 below.

         5. EXPENSES OF REGISTRATION.

         All expenses incurred by the Company in connection with  registrations,
filings or  qualifications  pursuant  to  Sections 2 and 3,  including,  without
limitation,  all registration,  listing and  qualifications  fees,  printers and
accounting  fees, the fees and  disbursements of counsel for the Company and the
fees and disbursements contemplated by Section 3(j) hereof shall be borne by the
Company.  The Company shall also reimburse the Investors for the reasonable fees
and  disbursements of one counsel selected by the Investors  pursuant to Section
2(b) hereof.  The Investors shall be responsible for any underwriting  discounts
and commissions attributable to the Registrable Securities to be sold by them.

         6. INDEMNIFICATION.

         In the event any Registrable  Securities are included in a Registration
Statement under this Agreement:

                  a. To the extent permitted by law, the Company will indemnify,
hold  harmless  and  defend  (i)  each  Investor  who  holds  such   Registrable
Securities,  and (ii) the directors,  officers,  partners,  members,  employees,
agents and each person who controls  any Investor  within the meaning of Section
15 of the Securities  Act or Section 20 of the Securities  Exchange Act of 1934,
as amended (the  "EXCHANGE  ACT"),  if any,  (each,  an  "INDEMNIFIED  PERSON"),
against any joint or several losses,  claims,  damages,  liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or  self-regulatory  organization,  whether commenced or threatened,  in respect
thereof,  "CLAIMS")  to which any of them may  become  subject  insofar  as such
Claims  arise out of or are based  upon:  (i) any  untrue  statement  or alleged
untrue statement of a material fact in a Registration  Statement or the omission
or alleged  omission to state  therein a material  fact required to be stated or
necessary  to make the  statements  therein  not  misleading,  (ii)  any  untrue
statement  or alleged  untrue  statement  of a material  fact  contained  in any
preliminary  prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented,  if
the Company files any amendment  thereof or supplement  thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements


                                       9
<PAGE>

made therein,  in light of the circumstances  under which the statements therein
were made, not  misleading,  or (iii) any violation or alleged  violation by the
Company of the  Securities  Act,  the Exchange  Act,  any other law,  including,
without  limitation,  any  state  securities  law,  or any  rule  or  regulation
thereunder  relating  to the offer or sale of the  Registrable  Securities  (the
matters  in  the  foregoing  clauses  (i)  through  (iii)  being,  collectively,
"VIOLATIONS").  Subject  to the  restrictions  set  forth in  Section  6(c) with
respect  to the  number  of legal  counsel,  the  Company  shall  reimburse  the
Investors and each such  underwriter  or  controlling  person,  promptly as such
expenses are incurred and are due and payable,  for any reasonable legal fees or
other reasonable  expenses incurred by them in connection with  investigating or
defending  any such Claim.  Notwithstanding  anything to the contrary  contained
herein, the indemnification  agreement contained in this Section 6(a): (i) shall
not apply to a Claim  arising out of or based upon a Violation  which  occurs in
reliance upon and in  conformity  with  information  furnished in writing to the
Company  by  such  Indemnified  Person  expressly  for  use in the  Registration
Statement or any such amendment  thereof or supplement  thereto;  (ii) shall not
apply to amounts paid in settlement of any Claim if such  settlement is effected
without the prior  written  consent of the Company,  which  consent shall not be
unreasonably  withheld;  and (iii) with respect to any  preliminary  prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or  omission  of material  fact  contained  in the  preliminary  prospectus  was
corrected on a timely basis in the prospectus,  as then amended or supplemented,
if such corrected  prospectus was timely made available by the Company  pursuant
to Section  3(c) hereof,  and the  Indemnified  Person was  promptly  advised in
writing not to use the  incorrect  prospectus  prior to the use giving rise to a
Violation and such Indemnified  Person,  notwithstanding  such advice,  used it.
Such  indemnity  shall  remain  in  full  force  and  effect  regardless  of any
investigation  made by or on behalf of the Indemnified  Person and shall survive
the transfer of the Registrable  Securities by the Investors pursuant to Section
9.

                  b. In connection with any  Registration  Statement in which an
Investor is  participating,  each such Investor agrees severally and not jointly
to  indemnify,  hold  harmless  and  defend,  to the same extent and in the same
manner set forth in Section 6(a), the Company,  each of its  directors,  each of
its officers who signs the  Registration  Statement,  its employees,  agents and
each person,  if any, who controls the Company  within the meaning of Section 15
of the  Securities  Act or  Section  20 of  the  Exchange  Act,  and  any  other
stockholder selling securities pursuant to the Registration  Statement or any of
its  directors  or  officers  or any person who  controls  such  stockholder  or
underwriter  within  the  meaning  of the  Securities  Act or the  Exchange  Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED  PARTY"),
against any Claim to which any of them may become subject,  under the Securities
Act, the Exchange  Act or  otherwise,  insofar as such Claim arises out of or is
based upon any  Violation,  in each case to the extent  (and only to the extent)
that such  Violation  occurs in reliance  upon and in  conformity  with  written
information  furnished  to the  Company by such  Investor  expressly  for use in
connection with such  Registration  Statement;  and subject to Section 6(c) such
Investor will reimburse any legal or other  expenses  (promptly as such expenses
are incurred and are due and payable)  reasonably incurred by them in connection
with  investigating  or defending any such Claim;  PROVIDED,  HOWEVER,  that the
indemnity  agreement  contained  in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written  consent  of such  Investor,  which  consent  shall not be  unreasonably
withheld;  PROVIDED,  FURTHER,  HOWEVER, that the Investor shall be liable under
this Agreement  (including this Section 6(b) and Section 7) for only that amount
as does not exceed the net  proceeds  actually  received  by such  Investor as a
result  of the sale of  Registrable  Securities  pursuant  to such  Registration
Statement.  Such indemnity  shall remain in full force and effect  regardless of
any  investigation  made by or on  behalf  of such  Indemnified  Party and shall
survive the transfer of the Registrable


                                       10
<PAGE>

Securities by the Investors pursuant to Section 9.  Notwithstanding  anything to
the contrary contained herein, the  indemnification  agreement contained in this
Section 6(b) with respect to any preliminary  prospectus  shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary  prospectus was corrected on a timely basis in
the  prospectus,  as then amended or  supplemented,  and the  Indemnified  Party
failed to utilize such corrected prospectus.

                  c.  Promptly  after  receipt  by  an  Indemnified   Person  or
Indemnified  Party  under this  Section 6 of notice of the  commencement  of any
action  (including  any  governmental   action),   such  Indemnified  Person  or
Indemnified  Party shall,  if a Claim in respect  thereof is to made against any
indemnifying  party under this  Section 6, deliver to the  indemnifying  party a
written notice of the commencement  thereof,  and the  indemnifying  party shall
have the right to participate in, and, to the extent the  indemnifying  party so
desires,  jointly with any other indemnifying party similarly noticed, to assume
control  of the  defense  thereof  with  counsel  mutually  satisfactory  to the
indemnifying  party and the Indemnified  Person or the Indemnified Party, as the
case may be;  PROVIDED,  HOWEVER,  that  such  indemnifying  party  shall not be
entitled to assume such defense and an Indemnified  Person or Indemnified  Party
shall have the right to retain its own counsel  with the fees and expenses to be
paid by the  indemnifying  party,  if,  in the  reasonable  opinion  of  counsel
retained by the indemnifying  party, the  representation  by such counsel of the
Indemnified  Person or  Indemnified  Party and the  indemnifying  party would be
inappropriate  due to actual or  potential  conflicts  of interest  between such
Indemnified  Person or Indemnified Party and any other party represented by such
counsel in such proceeding or the actual or potential  defendants in, or targets
of, any such action include both the Indemnified Person or the Indemnified Party
and the indemnifying  party and any such Indemnified Person or Indemnified Party
reasonably  determines  that  there  may be  legal  defenses  available  to such
Indemnified  Person or Indemnified Party which are different from or in addition
to those available to such indemnifying  party. The indemnifying party shall pay
for  only  one  separate  legal  counsel  for  the  Indemnified  Persons  or the
Indemnified Parties, as applicable,  and such legal counsel shall be selected by
Investors holding a majority-in-interest  of the Registrable Securities included
in the  Registration  Statement to which the Claim relates (with the approval of
the  Initial  Investors  if it holds  Registrable  Securities  included  in such
Registration  Statement),  if the  Investors  are  entitled  to  indemnification
hereunder,  or by the  Company,  if the Company is  entitled to  indemnification
hereunder,  as  applicable.  The  failure  to  deliver  written  notice  to  the
indemnifying  party within a  reasonable  time of the  commencement  of any such
action  shall  not  relieve  such  indemnifying  party of any  liability  to the
Indemnified  Person or  Indemnified  Party  under this  Section 6, except to the
extent  that the  indemnifying  party is actually  prejudiced  in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by  periodic   payments  of  the  amount   thereof  during  the  course  of  the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

         7.  CONTRIBUTION.

         To  the  extent  any   indemnification  by  an  indemnifying  party  is
prohibited or limited by law, the indemnifying  party agrees to make the maximum
contribution  with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; PROVIDED,  HOWEVER, that
(i) no contribution shall be made under  circumstances where the maker would not
have been  liable for  indemnification  under the fault  standards  set forth in
Section 6, (ii) no person  guilty of  fraudulent  misrepresentation  (within the
meaning  of  Section  11(f)  of  the  Securities   Act)  shall  be  entitled  to
contribution  from any seller of  Registrable  Securities  who was not guilty of
such fraudulent  misrepresentation,  and (iii)  contribution


                                       11
<PAGE>

(together with any indemnification or other obligations under this Agreement) by
any  seller of  Registrable  Securities  shall be  limited  in amount to the net
amount of proceeds  received  by such  seller from the sale of such  Registrable
Securities.

         8. REPORTS UNDER THE EXCHANGE ACT.

         With a view to making  available to the  Investors the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the  Investors to sell  securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:

                  a.  file  with  the SEC in a timely  manner  and make and keep
available  all reports  and other  documents  required of the Company  under the
Securities  Act and the Exchange Act so long as the Company  remains  subject to
such  requirements  (it being  understood  that  nothing  herein shall limit the
Company's  obligations under Section 4(c) of the Securities  Purchase Agreement)
and the filing and  availability of such reports and other documents is required
for the applicable provisions of Rule 144; and

                  b.  furnish to each  Investor  so long as such  Investor  owns
shares of Preferred Stock or Registrable Securities,  promptly upon request, (i)
a written  statement  by the Company  that it has  complied  with the  reporting
requirements  of Rule 144, the  Securities Act and the Exchange Act, (ii) a copy
of the most  recent  annual or  quarterly  report of the  Company and such other
reports and documents so filed by the Company,  and (iii) such other information
as may be reasonably  requested to permit the Investors to sell such  securities
pursuant to Rule 144 without registration.

         9. ASSIGNMENT OF REGISTRATION RIGHTS.

         The rights of the Investors hereunder,  including the right to have the
Company register  Registrable  Securities  pursuant to this Agreement,  shall be
automatically  assignable  by  each  Investor  to any  transferee  of all or any
portion of the shares of Preferred Stock or the  Registrable  Securities if: (i)
the Investor  agrees in writing with the  transferee  or assignee to assign such
rights,  and a copy of such  agreement  is  furnished  to the  Company  within a
reasonable time after such assignment,  (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such  transferee or assignee,  and (b) the  securities  with
respect to which such  registration  rights are being  transferred  or assigned,
(iii)  following  such transfer or assignment,  the further  disposition of such
securities by the transferee or assignee is restricted  under the Securities Act
and applicable  state  securities  laws,  (iv) at or before the time the Company
receives the written notice  contemplated  by clause (ii) of this sentence,  the
transferee or assignee  agrees in writing with the Company to be bound by all of
the provisions  contained herein,  and (v) such transfer shall have been made in
accordance  with  the  applicable   requirements  of  the  Securities   Purchase
Agreement.

         10. AMENDMENT OF REGISTRATION RIGHTS.

         Provisions of this Agreement may be amended and the observance  thereof
may  be  waived  (either  generally  or  in a  particular  instance  and  either
retroactively or prospectively),  only with written consent of the Company,  the
Initial  Investors  (to the extent  the  Initial  Investors  still own shares of
Preferred  Stock or  Registrable  Securities)  and Investors who hold a majority
interest of the  Registrable  Securities.  Any  amendment or waiver  effected in
accordance  with this  Section 10 shall be binding  upon each  Investor  and the
Company.



                                       12
<PAGE>

         11. MISCELLANEOUS.

                  a. A person or entity is deemed to be a holder of  Registrable
Securities  whenever  such  person or entity  owns of  record  such  Registrable
Securities.  If  the  Company  receives  conflicting  instructions,  notices  or
elections  from  two or more  persons  or  entities  with  respect  to the  same
Registrable  Securities,  the Company shall act upon the basis of  instructions,
notice  or  election  received  from the  registered  owner of such  Registrable
Securities.

                  b. Any  notices  required or  permitted  to be given under the
terms of this  Agreement  shall be sent by certified or registered  mail (return
receipt  requested)  or  delivered  personally  or by  courier  or by  confirmed
telecopy,  and shall be effective  five days after being placed in the mail,  if
mailed,  or upon receipt or refusal of receipt,  if delivered  personally  or by
courier or confirmed telecopy,  in each case addressed to a party. The addresses
for such communications shall be:

                  If to the Company:

                  Palomar Medical Technologies, Inc.
                  66 Cherry Hill Drive
                  Beverly, Massachusetts 01915
                  Telecopy:  (508) 921-5801
                  Attention:  Paul Weiner, Director of Finance

                  with a copy to each of the  Company's  General  Counsel at the
                  same address and to:

                  Foley, Hoag & Eliot, LLP
                  One Post Office Square
                  Boston, Massachusetts  02109
                  Telecopy:  (617) 832-7000
                  Attention:  David Broadwin

                  If to RGC International Investors, LDC:

                  RGC International Investors, LDC
                  c/o Rose Glen Capital Management, L.P.
                  440 E. Swedesford Road

                  Suite 2025
                  Wayne, PA  19087
                  Telecopy: (610) 971-2212
                  Attention: Andrew Daley

and if to any other  Investor,  at such  address  as such  Investor  shall  have
provided in writing to the Company,  or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b).



                                       13
<PAGE>

                  c.  Failure of any party to exercise any right or remedy under
this  Agreement or otherwise,  or delay by a party in  exercising  such right or
remedy, shall not operate as a waiver thereof.

                  d.  This  Agreement  shall be  governed  by and  construed  in
accordance  with the laws of the State of Delaware  applicable to contracts made
and to be performed in the State of Delaware.  The Company irrevocably  consents
to the jurisdiction of the United States federal courts located in the County of
Kent in the State of  Delaware  in any suit or  proceeding  based on or  arising
under this Agreement and  irrevocably  agrees that all claims in respect of such
suit or proceeding  may be determined  in such courts.  The Company  irrevocably
waives the defense of an  inconvenient  forum to the maintenance of such suit or
proceeding. The Company further agrees that service of process upon the Company,
mailed by first class mail shall be deemed in every respect effective service of
process upon the Company in any such suit or  proceeding.  Nothing  herein shall
affect the  Investors'  right to serve process in any other manner  permitted by
law. The Company agrees that a final non-appealable judgment in any such suit or
proceeding  shall be conclusive  and may be enforced in other  jurisdictions  by
suit on such judgment or in any other lawful manner.

                  e.  This  Agreement  and  the  Securities  Purchase  Agreement
(including all schedules and exhibits  thereto)  constitute the entire agreement
among the parties  hereto with respect to the subject matter hereof and thereof.
There are no  restrictions,  promises,  warranties or  undertakings,  other than
those set forth or  referred  to herein  and  therein.  This  Agreement  and the
Securities  Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

                  f.  Subject  to the  requirements  of  Section 9 hereof,  this
Agreement  shall inure to the benefit of and be binding upon the  successors and
assigns of each of the parties hereto.

                  g. The  headings  in this  Agreement  are for  convenience  of
reference only and shall not limit or otherwise affect the meaning hereof.

                  h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall  constitute one
and the same  agreement.  This  Agreement,  once  executed  by a  party,  may be
delivered to the other party hereto by facsimile  transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.

                  i. Each party  shall do and  perform,  or cause to be done and
performed,  all such further acts and things,  and shall execute and deliver all
such other  agreements,  certificates,  instruments and documents,  as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

                  j. All  consents  and other  determinations  to be made by the
Investors or the Initial  Investors  pursuant to this Agreement shall be made by
the  Investors or the Initial  Investors  holding a majority of the  Registrable
Securities  (determined as if all shares of Preferred Stock then outstanding had
been  converted  into  or  exercised  for  Registrable  Securities)  held by all
Investors or Initial Investors, as the case may be.

                  k. The initial  number of Registrable  Securities  included on
any  Registration  Statement  and each  increase  to the  number of  Registrable
Securities  included  thereon  shall be


                                       14
<PAGE>

allocated  pro rata  among the  Investors  based on the  number  of  Registrable
Securities held by each Investor at the time of such  establishment or increase,
as the case may be. In the event an Investor  shall sell or  otherwise  transfer
any of such holder's Registrable Securities,  each transferee shall be allocated
a pro rata  portion  of the  number  of  Registrable  Securities  included  on a
Registration Statement for such transferor.  Any shares of Common Stock included
on a Registration  Statement and which remain  allocated to any person or entity
which  does not hold  any  Registrable  Securities  shall  be  allocated  to the
remaining  Investors,  pro rata  based on the  number of  shares of  Registrable
Securities then held by such Investors.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       15
<PAGE>

         IN WITNESS  WHEREOF,  the parties have caused this Agreement to be duly
executed as of the date first above written.

PALOMAR MEDICAL TECHNOLOGIES, INC.


By:
   -------------------------------
Name:
     -----------------------------
Its:
    ------------------------------

Initial Investors:

         RGC International Investors, LDC


         By:
            -------------------------------
         Name:
              -----------------------------
         Its:
             ------------------------------


<PAGE>


                                                                       EXHIBIT 1
                                                                              TO
                                                                    REGISTRATION
                                                                          RIGHTS
                                                                       AGREEMENT

[Date]

VIA FACSILIME

Herbert Lemmer, Esq.

AMERICAN STOCK TRANSFER & TRUST COMPANY 
40 Wall  Street  
New York,  NY 10005
Facsimile (718) 331-1852

                           RE:      PALOMAR MEDICAL TECHNOLOGIES, INC.

Dear Mr. Lemmer:

         We are counsel to PALOMAR  MEDICAL  TECHNOLOGIES,  INC., a  corporation
organized  under  the laws of the  State of  Delaware  (the  "COMPANY"),  and we
understand that [Name of Investor] (the "HOLDER") has purchased from the Company
shares of the Company's  Series H Convertible  Preferred  Stock (the  "PREFERRED
STOCK") that are  convertible  into shares of the Company's  Common  Stock,  par
value $.01 per share (the "COMMON STOCK"). The Preferred Stock were purchased by
the Holder pursuant to a Securities  Purchase  Agreement,  dated as of March 27,
1997, by and among the Company and the  signatories  thereto (the  "AGREEMENT").
Pursuant to a Registration Rights Agreement,  dated as of March 27, 1997, by and
among  the  Company  and  the  signatories  thereto  (the  "REGISTRATION  RIGHTS
AGREEMENT"), the Company agreed with the Holder, among other things, to register
the Registrable  Securities (as that term is defined in the Registration  Rights
Agreement) under the Securities Act of 1933, as amended (the "SECURITIES  ACT"),
upon the terms provided in the Registration Rights Agreement. In connection with
the Company's obligations under the Registration Rights Agreement,  on ________,
1997,  the Company filed a  Registration  Statement on Form S-___ (File No. 333-
_____________)  (the "REGISTRATION  STATEMENT") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable  Securities,  which names the
Holder as a selling stockholder thereunder.

         [Customary  introductory  and  scope  of  examination  language  to  be
inserted]

         Based on the  foregoing,  we are of the  opinion  that the  Registrable
Securities have been registered under the Securities Act.

                   [Other customary language to be included.]

                                           Very truly yours,

cc:   [Name of Investor]


<PAGE>


                                                                       EXHIBIT C
                                                                              TO
                                                                      SECURITIES
                                                                        PURCHASE
                                                                       AGREEMENT


                             FOLEY, HOAG & ELIOT LLP
                             ONE POST OFFICE SQUARE
                        BOSTON, MASSACHUSETTS 02109-2170
                             TELEPHONE 617-832-1000
                             FACSIMILE 617-832-7000
                                http:/www.fhe.com

                                                              March 31, 1997

The Subscribers listed on
  EXHIBIT A attached hereto

Re:      Palomar Medical Technologies, Inc.

Ladies and Gentlemen:

         We have  acted as  counsel to Palomar  Medical  Technologies,  Inc.,  a
Delaware  corporation  (the  "Company"),  in  connection  with  the  sale of the
Company's  Series H Convertible  Preferred  Stock, par value $.01 per share (the
"Preferred Shares"),  convertible into shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"),  pursuant to the terms and conditions
of that certain Securities Purchase  Agreement,  dated as of March 28, 1997 (the
"Purchase  Agreement"),  by and between the Company and each of the  Subscribers
listed on EXHIBIT A attached hereto (the "Subscribers"). Capitalized terms- used
herein and not  otherwise  defined  herein  shall have the  respective  meanings
assigned to such terms in the Purchase Agreement.

         In connection  with our rendering of the opinions  expressed  below, we
reviewed (i) the Certificate of  Incorporation  (the "Charter") and By-Laws (the
"By-Laws") of the Company,  each as amended to date; (ii) certificates issued by
the  Secretary  of State of the State of  Delaware  dated March 27,  1997,  with
respect to the legal  existence  and good  standing  of the  Company and Palomar
Medical  Products,   Inc.,  Nexar   Technologies,   Inc.,   Cosmetic  Technology
International,  Inc., Spectrum Medical  Technologies,  Inc., Palomar Electronics
Corporation and Dynaco Corp. in Delaware,  a certificate issued by the Secretary
of State of the State of Arizona dated March 27, 1997, with respect to the legal
existence  and good  standing  of Tissue  Technologies,  Inc.  in Arizona  and a
certificate  issued by the Secretary of State of the State of  California  dated
March 27, 1997,  with respect to the legal existence and good standing of Comtel
Electronics in California  (such entities,  other than the Company,  hereinafter
referred to as the "Subsidiaries");  (iii) a certificate issued by the Secretary
of the Commonwealth of The Commonwealth of Massachusetts as to the qualification
of the Company to conduct business as a foreign  corporation;  (iv) the relevant
records of  meetings  of the  directors  and  stockholders  of the  Company  and
consents of the directors and  stockholders  filed  therewith;  (v) the Purchase
Agreement, the Certificate of Designation and the Registration Rights Agreement;
(vi) the other  documents  delivered at the Closing;  (vii) a certificate of the
Company with respect to certain factual matters; and (viii) such

<PAGE>

other  documents and  certificates  as we have deemed  necessary to enable us to
render the opinions expressed below.

         In rendering  the opinions  expressed in paragraph 1 below with respect
to the legal  existence and good  standing of the Company in Delaware,  and with
respect  to  qualification  and  good  standing  of  the  Company  as a  foreign
corporation in The Commonwealth of Massachusetts, we have relied solely upon the
certificates  referred to in clauses (ii) and (iii) of the preceding  paragraph,
and such opinions are given as of the date of such  certificates.  We express no
opinion as to the tax good standing of the Company.

         With respect to the opinion  expressed  in  paragraph 7 below,  we note
that we did not  observe  or  supervise  the  activities  of the  Company or its
representatives  in  connection  with the  offering  and  sale of the  Preferred
Shares. In rendering such, opinion we have assumed without investigation that in
connection with such offering and sale there has been no general solicitation or
general advertising by the Company or its representatives.

         With respect to the opinion  expressed  in paragraph 8 below,  the term
Material Agreement,  Indenture or Instrument shall mean those documents proposed
by the Company to be filed as exhibits to its Annual  Report on Form 10-KSB (and
any other  documents of which we have actual  knowledge  that in our opinion are
required to be so filed by the Company) in satisfaction  of the  requirements of
Item 13 of Part III of such Form,  which  previously  have not been filed by the
Company  as  an  SEC  Document  or an  exhibit  to an  SEC  Document  ("Material
Agreement,  Indenture or Instrument").  In rendering such opinion we have relied
completely  upon the  Company's  representation  that the  documents  listed  on
EXHIBIT JR attached hereto comprise all such documents.

         In rendering the opinions  expressed  herein, we have also examined and
have relied  completely  upon all of the  representations  and  warranties as to
matters of fact contained in the Purchase Agreement and contained in the related
instruments  and other  documents  delivered by the Company to you in connection
with the  issuance  and sale of the  Preferred  Shares,  and we have assumed the
completeness   and   accuracy  of  all  factual   matters   described   in  such
representations and warranties.

         We have not, except as specifically  noted above,  made any independent
review or  INVESTIGATION  OF FACTS RELATING TO THE COMPANY,  INCLUDING,  without
limiting the generality of the foregoing,  any investigation as to the existence
of any actions,  suits or proceedings  pending or threatened against the Company
or  agreements,  judgments,  injunctions,  orders or  decrees  binding  upon the
Company or which might result in the imposition of any lien or other encumbrance
on any assets of the Company.

<PAGE>

         We have assumed the  authenticity  and  completeness  of all  documents
furnished to us as originals,  the genuineness of all signatures  (other than on
behalf of the Company), the legal capacity of natural persons, the conformity to
the originals of all documents  furnished to us as copies,  and the accuracy and
completeness of all corporate records made available to us by the Company.

         When an opinion set forth below is given to our actual  knowledge,  the
knowledge is limited to the conscious awareness of facts or other information of
the individual  lawyers in our firm who were actively involved in representation
of the Company and without any special or  additional  investigation  undertaken
for the purposes of this opinion.

         You have not asked us to pass upon your  power and  authority  to enter
into the Purchase Agreement or the Registration  Rights Agreement.  Accordingly,
for the  purposes  of this  opinion,  we have  assumed  that each of you has all
requisite  power and  authority  to enter into the  Purchase  Agreement  and the
Registration Rights Agreement and to effect all of the transactions  thereunder,
and that the Purchase  Agreement,  the  Registration  Rights  Agreement and each
other agreement or instrument we have reviewed  constitutes the legal, valid and
binding obligation of all parties thereto other than the Company.

         We have made such examination of Massachusetts law, Federal law and the
corporation  law of the State of Delaware as we deem  necessary for the purposes
of this  opinion.  We do not  purport to pass herein on the laws of any state or
jurisdiction other than the federal law of the United States of America, the law
of The Commonwealth of Massachusetts and the Delaware General Corporation Law.

         We note that the Purchase Agreement is governed by the law of the State
of Delaware. We have assumed, with your permission,  that the substantive law of
the State of Delaware,  other than the corporation law of the State of Delaware,
is identical in all respects  material to our opinions to the substantive law of
The Commonwealth of Massachusetts.

         THE OPINIONS herein  expressed are qualified to the extent that (i) the
validity or  enforceability of any provisions of any agreement or instrument may
be  subject  to or  affected  by  any  bankruptcy,  reorganization,  insolvency,
moratorium,  fraudulent  transfer,  usury or similar law of general  application
from time to time in effect and relating to or affecting  the rights or remedies
of  creditors  generally,  (n) the remedy of specific  performance  or any other
equitable  remedy may be unavailable in any jurisdiction or may be withheld as a
matter  of  judicial  discretion,  and (iii) the  enforcement  of any  rights or
remedies  is or may be  subject  to an  implied  duty on the  part of the  party
seeking to enforce  such  rights to take  action  and make  determinations  on a
reasonable BASIS AND IN GOOD FAITH. In ADDITION, WE EXPRESS NO OPINION herein as
to:  prospective  waivers  of rights to notice or a hearing  or OF OTHER  RIGHTS
GRANTED BY CONSTITUTION or statute; powers of

<PAGE>

attorney;  provisions purporting to relieve parties of the consequences of their
own negligence or  misconduct;  provisions  purporting to establish  evidentiary
standards;  or  provisions  to the  effect  that  rights  or  remedies  are  not
exclusive,  that every right or remedy is  cumulative  and may be  exercised  in
addition to any other right or remedy,  or that  failure to exercise or delay in
exercising rights and remedies will not operate as a waiver of any such right or
remedy.

Based upon and subject to the foregoing, we are of the opinion that:

1.       The Company is a corporation duly organized,  validly existing, in good
         standing  under the laws of the State of Delaware and has all requisite
         corporate  power and  authority  to conduct its  business as  currently
         conducted.  Each of the  Subsidiaries is a corporation  duly organized,
         validly  existing,  in good  standing  under  the laws of its  state of
         incorporation  and has all requisite  corporate  power and authority to
         conduct  its  business  as  currently  conducted.  The  Company is duly
         qualified  as a  foreign  corporation  and is in good  standing  in The
         Commonwealth of Massachusetts,  which is the only jurisdiction in which
         failure to so qualify would have a Material Adverse Effect. The Company
         has power and  authority to enter into and perform each of the Purchase
         Agreement  and the  Registration  Rights  Agreement  and to  issue  the
         Preferred Shares and to issue the Conversion  Shares upon conversion of
         the Preferred Shares.

2.       The Purchase  Agreement,  the  Registration  Rights  Agreement  and the
         Certificate  of  Designation  have been duly and validly  executed  and
         delivered by the Company and  constitute  the legal,  valid and binding
         obligations  of  the  Company   enforceable   against  the  Company  in
         accordance with their  respective  terms. You have not requested and we
         do not express any opinion as to the validity or  enforceability of the
         indemnification and contribution  provisions of the Registration Rights
         Agreement.

3.       The authorized capital stock of the Company consists of (a) 100,000,000
         SHARES OF COMMON STOCK AND (B) 5,000,000 shares of Preferred Stock, par
         value $.01 per share.

4.       The  Certificate  of  Designation  has been filed with the Secretary of
         State of the State of Delaware, and the holders of the Preferred Shares
         are entitled to the rights and privileges set forth therein  subject to
         the exceptions set forth in paragraphs 8 and 9.

<PAGE>

5.       The Preferred Shares and the Conversion Shares are duly authorized, the
         Preferred Shares are validly issued,  fully paid and non-assessable and
         the Conversion  Shares,  when issued in accordance with the Certificate
         of Designation,  will be validly issued, fully paid and non-assessable.
         The Company has reserved for issuance upon conversion of the Conversion
         Shares  4,500,000  shares of Common Stock,  as well as such  additional
         shares of Common Stock as may be required to be issued upon  conversion
         as a result of the antidilution provisions of the Preferred Shares.

6.       To our  knowledge,  there  are no  preemptive  rights  to  acquire  the
         Preferred  Shares or the Conversion  Shares or any other  securities of
         the Company upon  issuance of the  Preferred  Shares or the  Conversion
         Shares. The Common Stock was authorized for trading on the NASDAQ Small
         Cap Market as of the close of business on March 28, 1997. No suspension
         of  trading in the  Common  Stock on the NASDAQ  Small Cap Market is in
         effect or threatened.

7.       Assuming the accuracy of the respective  representations and warranties
         of the Company and the Subscribers set forth in the Purchase Agreement,
         the offer, issuance,  sale and delivery of the Preferred Shares and the
         Conversion  Shares  in  accordance  with  the  terms  of  the  Purchase
         Agreement  and  the  Certificate  of  Designation   constitute   exempt
         transactions  or  exempt  securities,  as the  case may be,  under  the
         Securities Act of 1933, as amended.

8.       The execution,  delivery and performance of the Purchase  Agreement and
         Registration  Rights  Agreement by the Company and the  consummation by
         the Company of the transactions  contemplated by the Purchase Agreement
         and the Registration Rights Agreement,  including,  without limitation,
         the issuance of the Preferred Shares and the issuance of the Conversion
         Shares in accordance  with the terms of the Certificate of Designation,
         do not and will not result in a violation of the Company's  Certificate
         of  Incorporation  or By-Laws or conflict with, or constitute a default
         (or an event which with notice or lapse of time or both would  become a
         default) under, or give to others any rights of termination, amendment,
         acceleration or cancellation of, any agreement, indenture or instrument
         that is filed as an exhibit to the SEC Documents or any other  Material
         Agreement, Indenture or Instrument except for such conflicts, defaults,
         terminations,  amendments, accelerations,  cancellations and violations
         as would not, individually or in the aggregate, have a Material Adverse
         Effect or a material adverse effect


<PAGE>

         on the Company's  ability to perform its obligations under the Purchase
         Agreement or the  Registration  Rights  Agreement  or the  Subscribers'
         rights as a holder of Preferred Shares.

9.       The execution,  delivery and performance of the Purchase  Agreement and
         the  Registration  Rights Agreement by the Company and the consummation
         by  the  Company  of the  transactions  contemplated  by  the  Purchase
         Agreement and the Registration  Rights  Agreement,  including,  without
         limitation,  the issuance of the  Preferred  Shares and the issuance of
         the Conversion  Shares in accordance  with the terms of the Certificate
         of  Designation,  (i) do not and will not result in a violation  of any
         federal,  Delaware General  Corporation or Massachusetts  law, rule, or
         regulation,  or, to our  knowledge,  any  order,  judgment  or  decree,
         applicable  to the  Company,  or by which any  property or asset of the
         Company is bound or affected,  and (ii) will not require the Company to
         obtain any approval, consent, authorization, waiver, exemption or order
         of, or make any filing or registration  with, any court or governmental
         or regulatory agency,  self regulatory  organization or stock market or
         exchange  or, to our  knowledge,  any third  party,  in order for it to
         execute,  deliver or perform any of its obligations  under the Purchase
         Agreement or the Registration  Rights Agreement or to issue and deliver
         the Preferred  Shares or to issue and deliver the Conversion  Shares in
         accordance  with the terms  thereof or for you to exercise  your rights
         and remedies  under any of the Purchase  Agreement or the  Registration
         Rights Agreement (other than any SEC, NASD,  NASDAQ or state securities
         filings  which may be required to be made by the Company  subsequent to
         the  consummation  of the  transactions  contemplated  by the  Purchase
         Agreement,  and any registration  statement which may be filed pursuant
         to the Registration Rights Agreement). We express no opinion under this
         paragraph 9 with respect to any usury or similar laws or any  provision
         of the securities or "blue sky" laws of any state or other jurisdiction
         other than,  with  respect to its  securities  or "blue sky" laws,  The
         Commonwealth of Massachusetts.

 10.     Except as disclosed in the Purchase Agreement or the SEC Documents,  to
         our  knowledge,  there  is no  action,  suit,  proceeding,  inquiry  or
         investigation  before or by any court,  public board or body pending or
         threatened against or affecting the Company or any of its subsidiaries,
         wherein  an  unfavorable  decision,  ruling  or  finding  would  have a
         Material Adverse Effect.


<PAGE>

11.      To  our  knowledge,   the  Company   currently   meets  the  registrant
         eligibility requirements to register the resale of the Common Shares on
         form S-3 under the Securities Act.

         These opinions are limited to the matters  expressly  stated herein and
are  rendered  solely for your  benefit and may not be quoted or relied upon for
any other purpose or by any other person.

                                   Very truly yours,

                                   FOLEY, HOAG & ELIOT LLP


                                   By:  /s/ David A. Broadwin
                                      -----------------------
                                             A Partner


cc: Nancy Lau, American Stock Transfer
           & Trust Company
<PAGE>

                                                                       EXHIBIT A
                                                                              To
                                                                       Exhibit C

RGC International Investors, LDC


<PAGE>


                                                                       EXHIBIT B
                                                                              To
                                                                       Exhibit C

1.       Stock  Purchase  Agreement  dated March 19, 1996, by and between Dynaco
         Acquisition  Corp.,  Comtel  Electronics,  Inc., Mikel C. Green,  Peter
         Rogal and Palomar Electronics Corp.

2.       Agreement for Purchase of Stock dated July 12, 1996, by and between the
         Company, Eleanor Roberts Weisman and Wallace Roberts.

3.       Form of Stock Option Agreement under the 1996 Stock Option Plan.

4.       Securities Purchase Agreement between Palomar  Electronics  Corporation
         and Clearwater Fund IV, LLC, dated December 31, 1996.

5.       Securities Purchase Agreement between Palomar Electronics  Corporation,
         the Company and The Travelers  Insurance Company,  dated as of December
         18, 1996.

6.       Security Purchase Agreement between Palomar Electronics Corporation and
         GFL Advantage Fund Limited dated December 31, 1996.

7.       Option  Agreement  between the Company and GFL  Advantage  Fund Limited
         dated December 31,1996.

8.       Common Stock Purchase Warrant dated December 31, 1996.

9.       Form of Net Warrant to Purchase Common Stock

10.      Subscription  Agreement  between the Company  and  Finmanagement,  Inc.
         dated December 27, 1996.

11.      Subscription  Agreement dated as of April 12, 1996, between the Company
         and GFL Advantage Fund Limited.

12.      Registration  Rights  Agreement  dated as April 17, 1996 by and between
         the Company and GFL Advantage Fund Limited.

13.      Warrant dated as of April 16, 1996.

14.      Form of Warrant to Purchase Common Stock dated February 1, 1996.

15.      Form of Offshore Stock Subscription Agreement dated February 1, 1996.

16.      Form of Subscription Agreement dated as of March 10, 1997.
<PAGE>

17.      Form of Registration Rights Agreement dated as of March 10, 1997.

18.      Form of 5% Convertible Debenture due March 10, 2002.

19.      Subscription  Agreement between the Company and Soginvest Bank dated as
         of March 13, 1997.

20.      6% Convertible Debenture due March 13, 2002.

21.      Asset Purchase and Settlement Agreement by and among the Company, Nexar
         Technologies,  Inc.,  Technovation  Computer  Labs,  Inc. and Barbar I.
         Hamirani, dated February 28, 1997.

22.      List of  exhibits  omitted  from  the  Asset  Purchase  and  Settlement
         Agreement.

23.      (The  Company  hereby  undertakes  and agrees to furnish  copies of the
         exhibits  and  schedules  set forth in  exhibit  10(dddd)  above to the
         Commission upon its request.)

24.      Employment  Agreement dated as of January 1, 1997,  between the Company
         and Steven Georgiev.

25.      Employment  Agreement dated as of January 1, 1997,  between the Company
         and Michael H. Smotrich.

26.      Employment  Agreement dated as of January 1, 1997,  between the Company
         and Joseph P. Caruso.

27.      Employment  Agreement dated as of January 1, 1997,  between the Company
         and Anthony Fiorillo.

28.      Securities Purchase Agreement between the Company and RGC International
         Investors, LDC, dated March 27, 1997.

29.      Registration Rights Agreement between the Company and RGC International
         Investors, LDC, dated March 27, 1997.

30.       Consent of Arthur Andersen LLP.


<PAGE>



                                                                       EXHIBIT D
                                                                              TO
                                                                      SECURITIES
                                                                        PURCHASE
                                                                       AGREEMENT

March 31, 1997

VIA FACSILIME

Herbert Lemmer, Esq.
AMERICAN STOCK TRANSFER & TRUST COMPANY 
40 Wall Street  
New York,  NY 10005
Facsimile (718) 331-1852

         RE:      PALOMAR MEDICAL TECHNOLOGIES, INC.

Dear Mr. Lemmer:

Reference is made to that certain Securities  Purchase  Agreement,  of even date
herewith,  be  and  among  Palomar  Medical   Technologies,   Inc.,  a  Delaware
corporation (the "Company") and the other signatories thereto (each, a "Holder")
pursuant  to which the Company is issuing to the  Holders  20,000  shares of its
Series H Preferred  Stock, par value,  $.01 per share (the "Preferred  Shares").
The Preferred  Shares are convertible into shares of the Company's common stock,
par value $.01 per share (the "Conversion  Shares").  This letter shall serve as
our irrevocable authorization and direction to you to issue Conversion Shares to
Holder from time to time upon the direction of the Company. Certificates for the
Conversion  Shares  shall not bear any legend  restricting  their  transfer  and
should not be subject to any stop-transfer  restriction;  PROVIDED, HOWEVER that
if the Conversion  Shares are not registered for resale under the Securities Act
of 1933, as amended,  then the certificates for the Conversion Shares shall bear
the following legend:

                  THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE HAVE NOT BEEN
                  REGISTERED  UNDER THE SECURITIES  ACT OF 1933, AS AMENDED,  OR
                  APPLICABLE  STATE  SECURITIES  LAWS. THE SECURITIES MAY NOT BE
                  OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
                  OF AN  EFFECTIVE  REGISTRATION  STATEMENT  FOR THE  SECURITIES
                  UNDER THE  SECURITIES  ACT OF 1933, AS AMENDED,  OR APPLICABLE
                  STATE  SECURITIES  LAWS,  OR  AN  OPINION  OF  COUNSEL,  IN  A
                  GENERALLY  ACCEPTABLE FORM, THAT  REGISTRATION IS NOT REQUIRED
                  UNDER SAID ACT OR APPLICABLE  STATE  SECURITIES LAWS OR UNLESS
                  SOLD PURSUANT TO RULE 144 UNDER THE ACT.

         Please be advised  that the Holder is  relying  upon this  letter as an
inducement to enter into the Securities  Purchase  Agreement  and,  accordingly,
Holder is a third party beneficiary to these instructions. Moreover, the Company
cannot revoke or modify these instructions  without the prior written consent of
Holder.


<PAGE>



         Please execute this letter in the space  indicated to acknowledge  your
agreement  to act in  accordance  with these  instructions.  Should you have any
questions concerning this matter, please contact me at (508)921-9300.

                                     Very truly yours,

                                     PALOMAR MEDICAL TECHNOLOGIES, INC.

                                     By:     /s/ Paul S. Weiner
                                        -------------------------------
                                     Name:       Paul S. Weiner
                                     Title:      Director of Finance

Acknowledged:

AMERICAN STOCK TRANSFER
& TRUST COMPANY

By:
Name:
Title:
Date:

Enclosure

cc:      RGC International Investors, LDC


<PAGE>


                                                                   SCHEDULE 3(C)
                                                                              TO
                                                                      SECURITIES
                                                                        PURCHASE
                                                                       AGREEMENT
<TABLE>
<S>                              <C>          <C>         <C>         <C>        <C>       <C>          <C>             <C>

       Nasdaq Issue Symbol:   PMTI                       Total  C/S  Outstanding 31,971,145  10,687    None    None
                                                                                 ----------  ------

                                 Total Number
                                 of                         Number of                                     
                                 Authorized    Total         Shares     Number              Number of        Date
                                 Shares/       Shares       Reserved     of      Date of    Shares     Registration         Late 
                                 Conversion   Outstanding     for      Shares     Board      to be        must be       Registration
Specify Type of Plan/Reason for  Shares       Exercised     Issuance  Cancelled  Approval  Registered     Effective       Penalty
-------------------------------- --------     ----------- ----------- ---------  --------- -----------  -------------   ------------

1991 Stock Option Plan           350,000        248,100      101,900     0        8/30/91          0
                                                                                 & 9/1/92

1993 Stock Option Plan           500,000        175,000      325,000     0        4/23/93          0

1995 Stock Option Plan         1,000,000         29,400      970,600     0         8/3/94          0

1996 Stock Option Plan         2,500,000              0    2,500,000     0         6/7/96          0
                                --------       --------   ----------- -----                 ---------
  Total Stock Option Plans     4,350,000        452,500    3,897,500     0                         0

1996 ESPP Plan                 1,000,000            580      999,420     0         6/7/96          0

Employee 401(k) Plan             300,000         45,885      254,115     0        8/18/95          0

Warrants                      15,781,086      6,095,549    9,685,534     0     various dates  530,687     Various     None
                                                                                  FORM S-8  2,190,000     Various     None

Debentures 4.5% 
  SF9.375M=$7.432M               840,892              0      840,892     0        6/13/96     840,892     10/3/96     None
  Issued 7/3/96, Due 7/3/03                                                                                         S-3 Filed 3/4/97
  Conversion Discount                                                                                                 333-22725
      0% yr 1-3, 5% yr 4, 
      10% yr 5, 15% yr 6, 
      20% yr 7

Debentures 4.5% $5M              750,000         353,191     396,809     0       10/16/96          0
  Issued 10/17/96, Due
  10/17/99-10/17/01
  Conversion Discount 15%, 
  Floor $6.44,
  Ceiling $9.66

Debentures 5% $6M              1,200,000               0   1,200,000     0        1/23/97   1,020,000   3/31/97     Inc. interest 
  Issued 12/31/96 & 1/13/97,                                                                                          from 5% by .5%
  Due 12/31/01 &  1/13/02                                                                                             every 30 days
  Conversion Discount 15%,                                                                                           until effective
  Floor $5.25, Ceiling $15                                                                                          S-3 Filed 3/4/97
                                                                                                                         333-22725

Debentures 5% $5.5M             1,320,000              0   1,320,000     0        3/4/97    1,320,000    7/8/97    2% of face (max 
  Issued 3/10/97, Due 3/10/02                                                                                           of  10%)
  Conversion Discount
  greater than 90 days=0%   
  less than 89 days=10%

Debentures 6% $500K                45,455              0      45,455     0        3/__/97     45,455    9/7/97     2% of face (max 
  Issued 3/13/97, Due 3/13/02                                                                                           of  10%)
  Conversion at $11


Preferred Stock 4%-8% 
  Series F $6M                    600,000              0     600,000     0       7/12/96           0
  Issued 7/12/96                                                                &12/16/96
Conversion Discount 20%, Floor
$7, Ceiling $16

Preferred Stock 7% 
  Series G $10M                 1,700,000        362,824   1,337,176     0       9/23/96           0
  Issued 9/27/96                                                                &12/16/96
  Conversion Discount 15%, 
  Floor $6, Ceiling $8-$11.50

Nexar Technology Acquisition      250,000              0     250,000     0                    250,000  Pre Nexar
(Estimate)                                                                                             IPO Close
  Will Issue Prior to 
  Nexar IPO Closing
                                                          -----------                       ----------
                                               Total      20,826,901             Form S-3   4,017,721
                                               Reserved
                                               Shares

                                                          -----------
                                               Total      31,971,145             Form S-8   2,190,000
                                               Shares
                                               Outstanding

                                                          ===========                       ==========
                                               Total      52,798,046              Total     6,207,721
                                               Shares                             to be
                                               Outstanding                        Registered
                                               &
                                               Reserved

                                                          ===========
                                               Total      100,000,000
                                               Shares
                                               Authorized
  
                                                          ===========
                                               Total      47,201,954
                                               Shares
                                               Available
</TABLE>


<PAGE>


                                                                   SCHEDULE 3(F)
                                                                              TO
                                                                      SECURITIES
                                                                        PURCHASE
                                                                       AGREEMENT

                                                                    NEWS RELEASE

                             FOR IMMEDIATE RELEASE

CONTACTS:
<TABLE>
<S>                                 <C>                                <C>
John J. Ingoldsby                   Jon Siegal                         Stanley Wunderlich
Director of Investor Relations      Associate                          Chairman
Palomar Medical Technologies, Inc.  Ronald Trahan Assoc., Inc.         Consulting for Strategic Growth, Ltd.
508-921-9300                        617-332-0101                       800-625-2236
</TABLE>

         PALOMAR'S PREVIOUSLY FILED PATENT LAWSUIT AGAINST MEHL/BIOPHILE
          PRE-DATES MEHL/BIOPHILE'S LEGAL ACTION ANNOUNCED TWO DAYS AGO

BEVERLY,  Mass., March 12, 1997 -- Palomar Medical  Technologies,  Inc. (NASDAQ:
PMTI) today  announced that it filed a declaratory  judgment  several months ago
against MEHL/Biophile  International Corp. (NASDAQ:  MEHL) seeking a declaration
that Palomar's Epilaser(TM) laser-based hair removal system does not infringe on
MEHL/Biophile's   laser   hair   removal   method,   and,   furthermore,    that
MEHL/Biophile's  patent is both invalid and  unenforceable.  Palomar's  suit was
filed in United States District Court in Boston, Mass.

Palomar's   declaratory   judgment   action  was  filed   substantially   before
MEHL/Biophile's announcement two days ago that its Selvac Acquisition Corp. unit
had  filed  a  lawsuit  against  Palomar  for  patent  infringement  and  unfair
competition,  essentially the same claims made previously by Palomar in its suit
against  MEHL/Biophile.  Selvac  licenses the patented laser hair removal method
owned by Dr. Nardo Zaias.

"We filed this declaratory judgment months ago after learning that MEHL/Biophile
was  misrepresenting  to our customers  that our product might infringe on their
patent," said Steven Georgiev,  chairman and chief executive officer of Palomar.
"We are announcing  our lawsuit today since our patent has only issued  recently
and, therefore, all of the information is now in the public domain, allowing for
resolution of these issues."

                                     (more)

                                                                     PALOMAR / 2

MEHL/Biophile's  lawsuit was  announced  hours after  Palomar  announced  it had
received U.S. Food and Drug Administration (FDA) to sell and market its Epilaser
system. Palomar announced yesterday the issuance of a U.S. patent that discloses
and protects the  laser-based  hair removal  technology  developed by Dr. R. Rox
Anderson  at  Massachusetts   General  Hospital's  Wellman   Laboratories,   the
technology used in Epilaser and for which Palomar is the exclusive licensee.

Palomar Medical  Technologies,  Inc. is a leading supplier of proprietary  laser
systems for dermatological and cosmetic laser treatment, and also engages in the
development and sale of specialty electronic products.

   "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT

With the exception of the historical  information contained in this release, the
matters  described herein contain  forward-looking  statements that involve risk
and  uncertainties  that may  individually or mutually impact the matters herein
described,  including but not limited to product  demand and market  acceptance,
the effect of  economic  conditions,  the  impact of  competitive  products  and
pricing,   governmental  regulations,   results  of  litigation,   technological
difficulties and/or other factors outside the control of the company,  which are
detailed from time to time in the company's SEC reports, including the report on
Form 10-Q for the quarter ended September 30, 1996.

                                      ####
                   Palomar news releases are available through
                       PR Newswire Company News on-Call by
                         fax at 800-758-5804, Extension
                                   107555, or
                        http://www.prnewswire.com/(PMTI).

              Palomar's home page address is http://www.palmed.com

                                      ####

<PAGE>

                                                                    NEWS RELEASE

FOR IMMEDIATE RELEASE

CONTACTS:
<TABLE>
<S>                                 <C>                                <C>
John J. Ingoldsby                   Jon Siegal                         Stanley Wunderlich
Director of Investor Relations      Associate                          Chairman
Palomar Medical Technologies, Inc.  Ronald Trahan Assoc., Inc.         Consulting for Strategic Growth, Ltd.
508-921-9300                        617-332-0101                       800-625-2236

         PALOMAR REPORTS FINANCIAL RESULTS; ELECTRONIC BUSINESS SPIN-OUT
            IN PROCESS, SOLE FOCUS IS NOW ON COSMETIC LASER INDUSTRY

BEVERLY,  Mass., March 18, 1997 -- Palomar Medical  Technologies,  Inc. (NASDAQ:
PMTI) today  announced  that revenues for the fourth  quarter ended December 31,
1996, increased 235 percent to $20,944,453,  compared with the fourth quarter of
1995.  Palomar also reported a loss for the quarter  ended  December 31, 1996 of
($18,650,578),  or ($0.69)  per share,  of which  ($11,500,000),  or ($0.40) per
share, is attributable to non-recurring write-offs.

For the year  ended  December  31,  1996,  revenues  increased  220  percent  to
$70,098,443,  compared with the previous year.  Palomar also reported a loss for
the year ended  December 31, 1996, of  ($37,863,792),  or ($1.49) per share,  of
which  ($11,500,000),  or ($0.44) per share, is  attributable  to  non-recurring
write-offs.

"Our fourth  quarter net loss includes  approximately  $7.2 million of operating
losses attributed to the following four factors," said Steven Georgiev, chairman
and chief  executive  officer of Palomar,  "They are: the delay in receiving FDA
hair removal clearance for our EpiLaser(TM) system, which was only obtained this
month;  start-up costs  associated  with our new cosmetic laser center  services
division;  reduced sales volume in our Nexar subsidiary due to unavoidable parts
shortages;  and  interruption  in production  caused by the relocation to larger
facilities of our Nexar and Comtel manufacturing plants.

                                     (more)

                                                                     PALOMAR / 2

"The majority of the non-recurring  losses are a result of the assessment of our
technology  and assets related to our  electronic  businesses.  We reserved $8.5
million  against  technology  assets  and other  costs in the  fourth  quarter,"
continued Georgiev.  "In addition,  Nexar settled claims with a former executive
for $1.4  million,  which was  charged to  operations,  and under which Nexar is
purchasing  previously-licensed  core technology and eliminating  future royalty
payments on the use of this core technology. As part of our strategy to maximize
shareholder  value,  we  are in the  process  of  spinning  out  our  electronic
businesses, preferably as majority-owned, publicly traded companies."

"The company also assessed its goodwill and joint  ventures in related  cosmetic
laser businesses and took a charge of $1.6 million," continued  Georgiev.  "This
write-down,  combined with the previously mentioned,  non-recurring costs in the
electronics  segment,  brings  the  total  one-time  charges  for  the  year  to
approximately ($11,500,000), or ($0.44) per share."

Georgiev  added,  "The  public  spin-out  of  Nexar is  anticipated  to close by
mid-April.  That offering registers 2,500,000 shares of Nexar common stock in an
anticipated range of $11 to $13 per share."

Georgiev  also said, "A spin-out of the  remainder of our  electronics  group is
planned for later in 1997. The investments  made in our  electronics  businesses
over the past two years are  expected to yield high  returns  and could  provide
liquid assets which can be used to fund our core cosmetic  laser business in the
future.

"We are  prepared  to  rapidly  expand  our  cosmetic  laser  business,"  stated
Georgiev,  "since we believe that all  important  elements are now in place.  We
accomplished a major strategic  alliance for the  establishment of laser centers
with  Columbia/HCA,  a $20 billion company and one of the world's largest owners
and  operators of medical  facilities;  we have FDA  clearance  for our complete
suite of laser  systems,  including  EpiLaser for hair  removal;  we have a very
strong proprietary  position in laser hair removal due to the recent issuance of
the  Massachusetts  General  Hospital  patent,  for  which we are the  exclusive
licensee; we have major laser production capacity in place; we have expanded and
strengthened   our   management   team;  we  are  broadening  our  research  and
development,  as  well  as  clinical,  relationships  with  the  highest-quality
institutions  in the world;  and we have  established a subsidiary in the United
Kingdom to rapidly penetrate European markets.

                                     (more)

                                                                     PALOMAR / 3

Georgiev  concluded,  "With freed-up resources from the electronics  segment, we
intend to devote  resources  from the  electronics  segment  to solely  focus on
achieving  the largest  possible  market  share in 1997 in our core  business --
cosmetic laser products and services. We believe that we are strongly positioned
to  capitalize  on these  multi-billion  dollar  markets  and achieve a dominant
position within the next two years."

Palomar Medical  Technologies,  Inc. is a leading supplier of proprietary  laser
systems for  dermatological  and cosmetic laser treatment,  such as hair removal
and the treatment of wrinkles,  spider veins,  tattoos, age spots, warts, scars,
and  burns.  Palomar  also  engages  in the  development  and sale of  specialty
electronic products.

The condensed consolidated statement of operations for the company follows:

                                        PALOMAR MEDICAL TECHNOLOGIES, INC.
                                   (Amounts in thousands, except per share data)

                               Three Months Ended                       Year Ended
                                                December 31                          December 31
                                         1996                  1995             1996              1995

Revenues                              $20,944                 $6,241          $70,098           $21,907

Net loss                             ($18,651)*              ($6,589)        ($37,864)*        ($12,621)

Net loss per share                     ($0.69)*               ($0.39)          ($1.49)*          ($0.89)

Weighted-average number
 of shares used in computation

 of per-share net loss                  28,996                17,082           26,167           14,165
</TABLE>

* INCLUDES  LOSS OF  ($11,500,000),  OR ($0.40) AND  ($0.44) PER SHARE,  FOR THE
THREE MONTHS AND YEAR ENDED  DECEMBER 31, 1996  RESPECTIVELY,  OF  NON-RECURRING
WRITE-OFFS.

A REGISTRATION  STATEMENT  RELATING TO THE NEXAR  SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE  COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.  THESE
SECURITIES  MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED  PRIOR TO THE TIME
THE  REGISTRATION  STATEMENT  BECOMES  EFFECTIVE.  THIS  COMMUNICATION  DOES NOT
CONSTITUTE  AN OFFER TO SELL OR THE  SOLICITATION  OF AN OFFER TO BUY NOR  SHALL
THERE  BE ANY SALE OF  THESE  SECURITIES  IN ANY  STATE  IN  WHICH  SUCH  OFFER,
SOLICITATION   OR  SALE  WOULD  BE  UNLAWFUL  PRIOR  TO  THE   REGISTRATION   OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

                                     (more)

                                                                     PALOMAR / 4

A copy of the Nexar prospectus may be obtained from John Ingoldsby,  Director of
Investor Relations,  Palomar Medical  Technologies,  Inc., 66 Cherry Hill Drive,
Beverly, MA 01915.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT

With the exception of the historical  information contained in this release, the
matters  described herein contain  forward-looking  statements that involve risk
and  uncertainties  that may  individually or mutually impact the matters herein
described,  including but not limited to product  demand and market  acceptance,
the effect of  economic  conditions,  the  impact of  competitive  products  and
pricing,   governmental  regulations,   results  of  litigation,   technological
difficulties and/or other factors outside the control of the company,  which are
detailed from time to time in the company's SEC reports, including the report on
Form 10-Q for the quarter ended September 30, 1996.

                                      ####


                   Palomar news releases are available through
                       PR Newswire Company News on-Call by
                         fax at 800-758-5804, Extension
                                   107555, or
                        http://www.prnewswire.com/(PMTI).

              Palomar's home page address is http://www.palmed.com