<PAGE>

                                                                    EXHIBIT 10.1

                               WARRANT AGREEMENT

     AGREEMENT, made as of the 1st day of May, 2000, by and between
PHOTOELECTRON CORPORATION (the "Company") and KSH STRATEGIC INVESTMENT FUND I,
LP (the "Warrant Holder").

                                  WITNESSETH:

     WHEREAS, the Warrant Holder agreed to lend the Company up to a maximum
principal sum of $500,000 (the "Bridge Loan"), without interest, against receipt
of the proceeds of the  May 1, 2000 private placement of up to $10,500,000 of
10% convertible preferred debentures (the "Private Placement"); and

     WHEREAS, pursuant to the Bridge Loan commitment between the Company and the
Warrant Holder, the Company agreed to issue to the Warrant Holder, as
consideration for making the Bridge Loan commitment, 11,000 warrants to purchase
the Company's common stock, par value $.01 ("Common Stock") each warrant
entitling the Warrant Holder to purchase one (1) share of the Company's Common
Stock (the "Warrants"); and

     WHEREAS, the Warrants are issuable as of May 1, 2000 and are exercisable at
any time for five (5) years from June 30, 2000, the date of the final closing of
the Private Placement (the "Warrant Expiration Date") at an exercise price equal
to $4.00 per share of Common Stock; and

     WHEREAS, the Company desires to set forth the terms and conditions relating
to the issuance, registration, transfer, exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, substantially
in the form of Warrant Certificate annexed as Exhibit A hereto, with such
changes therein as shall be applicable to the particular Warrant, the exercise
of the Warrants, and the rights of the holder or holders thereof.

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company and the Warrant
Holder, the parties hereto agree as follows:

     1.  Definitions.  As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:

     (a) "Common Stock" shall mean the common stock of the Company which at the
date hereof consists of 20,000,000 authorized shares, $ 0.01 par value, and
shall also include any capital stock of any class of the Company thereafter
authorized which shall not be limited to a fixed sum or percentage in respect to
the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary liquidation, dissolution or winding up
of the Company; provided, however, that the shares issuable upon exercise of the
Warrants shall include (i) only shares of such class designated in the Company's
Certificate of Incorporation as

                                      -1-
<PAGE>

Common Stock on the date of the original issue of the Warrants, or (ii) in the
case of any reclassification, change, consolidation, merger, sale or conveyance
of the character referred to in Section 8(b) hereof, the stock, securities or
property provided for in such section; or (iii) in the case of any
reclassification or change in the outstanding shares of Common Stock issuable
upon exercise of the Warrants as a result of a subdivision or combination or a
change in par value, or from par value to no par value, or from no par value to
par value, such shares of Common Stock as so reclassified or changed.

     (b) "Corporate Office" shall mean the office of the Company at which at any
particular time its principal business shall be administered, which office is
located at the date hereof at 5 Forbes Road, Lexington, MA 02421.

     (c) "Exercise Date" shall mean, as to any Warrant, the date on which the
Company shall have received both (i) the Warrant Certificate representing such
Warrant, with the exercise form thereon duly executed by the Registered Holder
(as defined below) thereof or his attorney duly authorized in writing, and (ii)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Exercise Price (as defined below).

     (d) "Initial Warrant Exercise Date" shall mean, with respect to each
Warrant, the date of original issuance thereof in accordance with the provisions
hereof.

     (e) "Exercise Price," with respect to a Warrant issued on any date, shall
mean the Exercise Price to be paid upon exercise of such Warrant in accordance
with the terms hereof, which price shall be $4.00 per share of Common Stock.

     (f) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Company
pursuant to Section 6.

     (g) "Warrant Expiration Date" shall mean, with respect to the Warrants,
5:00 P. M. (Eastern Standard Time) on the fifth anniversary of the date of the
final closing of the Private Placement; provided that if any such date shall in
the Commonwealth of Massachusetts be a holiday or a day on which banks are
authorized or required to close, then in lieu thereof 5:00 P.M. (Eastern
Standard Time) on the next following day which in the Commonwealth of
Massachusetts is not a holiday or a day on which banks are authorized or
required to close. Upon thirty (30) days' written notice to all warrant holders,
the Company shall have the right to extend the Warrant Expiration Date.

     (h) "Warrant Shares" shall have the meaning ascribed thereto in Section
2(a).

     2.   Warrants and Issuance of Warrant Certificates.

     (a) A Warrant initially shall entitle the Registered Holder of the Warrant
to purchase the number of shares of Common Stock issuable upon the exercise
thereof (sometimes referred to as the "Warrant Shares"), in accordance with the
terms hereof and thereof, subject to modification and adjustment as provided in
Section 8.

                                      -2-
<PAGE>

     (b) The warrant certificates ("Warrant Certificates"), substantially in the
form of Exhibit A hereto, shall be issued and delivered by the Company to KSH
Strategic Investment Fund I, LP, as of May 1, 2000, representing 11,000 Warrants
as provided in the second WHEREAS clause at the head of this Agreement.

     (c) From time to time, up to the applicable Warrant Expiration Date, the
Company shall or shall cause its transfer agent to countersign and deliver stock
certificates in required whole number denominations representing the shares of
Common Stock issuable, subject to adjustment as described herein, upon the
exercise of Warrants in accordance with this Agreement.

     (d) From time to time, up to the applicable Warrant Expiration Date, the
Company shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the applicable Initial Warrant Exercise Date, upon the
exercise of fewer than all Warrants represented by any Warrant Certificate, to
evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; and (v) those issued at the option of the
Company, in such form as may be approved by the its Board of Directors, to
reflect any adjustment or change made pursuant to Section 8 hereof in the
Exercise Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants.

     3.   Form and Execution of Warrant Certificates.

     (a)  The Warrant Certificates shall be substantially in the form of Exhibit
A, which is annexed hereto and made a part hereof, and may have such letters,
numbers or other marks of identification or designation and such legends,
summaries or endorsements thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation, or to conform to usage or to
the requirements of Section 2(b). The Warrant Certificates shall be dated the
date of issuance thereof (whether upon initial issuance, transfer, exchange or
in lieu of mutilated, lost, stolen or destroyed Warrant Certificates) and issued
in registered form.

     (b)  Warrant Certificates shall be executed on behalf of the Company by its
President or  by its Chief Financial Officer by manual signatures.


     4.  Exercise.

     Each Warrant may be exercised by the Registered Holder thereof at any time
on or after the Initial Warrant Exercise Date, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the applicable Warrant Certificate.  A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the Exercise Date
and the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder of those securities upon the
exercise of the Warrant as of the close of business on the Exercise Date.
Promptly following, and in any event within three (3) business days after the
date of such exercise, the Company shall cause to be issued and

                                      -3-
<PAGE>

delivered to the person or persons entitled to receive the same, a certificate
or certificates for the securities deliverable upon such exercise (plus a
certificate for any remaining unexercised Warrants of the Registered Holder).


     5.   Reservation of Shares, Listing Payment of Taxes, etc.

     (a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof (other than those which the Company shall promptly pay or
discharge) and that upon issuance such shares shall be listed on each national
securities exchange or eligible for inclusion in each automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed or eligible for inclusion.

     (b) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Company the
amount of transfer taxes or charges incident thereto, if any.

     6.   Exchange and Registration of Transfer.

     (a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part to an officer, director, employee, agent or
partner of the Warrant Holder; provided, however, that such officer, director,
employee, agent or partner of the Warrant Holder is an accredited investor and
such transfer is otherwise in compliance with all applicable Federal and state
securities laws. Warrant Certificates to be exchanged shall be surrendered to
the Company at its Corporate Office, and upon satisfaction of the terms and
provisions hereof, the Company shall execute, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive. The Registered Holder shall
pay all transfer taxes, if any, for any transfer of Warrant Certificates.

     (b) The Company shall keep at its office books in which, subject to such
reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute, issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates of like kind and tenor
representing an equal aggregate number of Warrants.

                                      -4-
<PAGE>

     (c) With respect to all Warrant Certificates presented for registration or
transfer, or for exchange or exercise, the assignment or subscription form
attached thereto shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company, duly executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.

     (d) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly canceled by the Company
and thereafter retained by the Company until termination of this Agreement.

     (e) Prior to due presentment for registration of transfer thereof, the
Company may deem and treat the Registered Holder of any Warrant Certificate as
the absolute owner thereof and of each Warrant represented thereby
(notwithstanding any notations of ownership or writing thereon made by anyone
other than a duly authorized officer of the Company) for all purposes and shall
not be affected by any notice to the contrary.

     7.   Loss or Mutilation. Upon receipt by the Company of evidence
satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of any Warrant Certificate and (in case of loss, theft or
destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute (in the
absence of notice to the Company that the Warrant Certificate has been
transferred pursuant to the terms of Section 6(a) hereof) and deliver to the
Registered Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants.  Applicants for a substitute
Warrant Certificate shall comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.

     8.   Adjustment of Exercise Price and Number of Shares of Common Stock or
Warrants.

     (a) In the event the Company shall, at any time or from time to time after
the date hereof, issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares, then, and thereafter
upon each further such stock dividend, subdivision or combination, the Exercise
Price with respect to each Warrant in effect immediately prior to such stock
dividend, subdivision or combination shall be proportionately adjusted.

     Upon each adjustment of the Exercise Price with respect to a Warrant
pursuant to this Section 8, the total number of shares of Common Stock
purchasable upon the exercise of such Warrant shall (subject to the provisions
contained in Section 8(b) hereof) be such number of shares (calculated to the
nearest tenth) purchasable at the Exercise Price in effect immediately prior to
such adjustment multiplied by a fraction, the numerator of which shall be the
Exercise Price in effect immediately prior to such adjustment and the
denominator of which shall be the Exercise Price in effect immediately after
such adjustment.

     (b) In case of any reclassification, capital reorganization or other
similar change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is

                                      -5-
<PAGE>

the continuing corporation and which does not result in any reclassification,
capital reorganization or other similar change of outstanding shares of Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as, or substantially as, an entirety (other than a sale
leaseback, mortgage or other financing transaction), the Company shall cause
effective provision to be made so that each holder of a Warrant then outstanding
shall have the right thereafter, by exercising such Warrant, to purchase the
kind and number of shares of stock or other securities or property (including
cash) receivable upon such reclassification, capital reorganization or other
similar change, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Warrant immediately prior to such reclassification, capital reorganization
or other similar change, consolidation, merger, sale or conveyance. Any such
provision shall include provision for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
8. The Company shall not effect any such consolidation, merger or sale unless
prior to or simultaneously with the consummation thereof the successor (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Company, the obligation to
deliver to the holder of each Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations under this Agreement. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations and other similar changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.

     (c) Irrespective of any adjustments or changes in the Exercise Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore issued shall, unless the Company shall exercise
its option to issue new Warrant Certificates pursuant to Section 2(d)(v) hereof,
continue to express the Exercise Price per share and the number of shares
purchasable thereunder as the Exercise Price per share and the number of shares
purchasable were expressed in the Warrant Certificates when the same were
originally issued.

     (d) After each adjustment of the Exercise Price for any Warrant pursuant to
this Section 8, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Exercise Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of such Warrant after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly cause a brief summary thereof to be sent by ordinary first class mail
to each Registered Holder of Warrants at his last address as it shall appear on
the registry books of the Company. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity thereof. The
affidavit of the Secretary or an Assistant Secretary of the Company that such
notice has been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.

     (e) No adjustment of the Exercise Price shall be made unless such
adjustment would require an increase or decrease of at least $.10 in such price;
provided that any adjustments which by reason of this Section 8(e) are not
required to be made shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment which, together with any

                                      -6-
<PAGE>

adjustment(s) so carried forward, shall require an increase or decrease of at
least $.10 in the Exercise Price then in effect hereunder.

     (f) Any determination as to whether an adjustment in the Exercise Price in
effect hereunder is required pursuant to Section 8, or as to the amount of any
such adjustment, if required, shall be binding upon the holders of the Warrants
and the Company if made in good faith by the Board of Directors of the Company.

     (g) If and whenever the Company shall contemplate the grant to all the
holders of Common Stock, as such, rights or warrants to subscribe for or to
purchase, or any options for the purchase of, Common Stock or securities
convertible into or exchangeable for or carrying a right, warrant or option to
purchase Common Stock, the Company shall give each Registered Holder notice of
such contemplated grant at the same time it gives the holders of its Common
Stock notice of such grant, but in any event not later that 10 days prior to the
record date for such grant. No Registered Holder shall be entitled to such
rights, warrants or options unless, prior to the record date for such
transaction, such Registered Holder shall have exercised its Warrant and shall
have become a holder of Common Stock.  Any Registered Holder that does exercise
its Warrant prior to such record date shall be entitled to receive such rights,
warrants or options that are attributable to the number of shares of Common
Stock held by such Registered Holder.

     9.   Private Placement.

       The Warrants and the Warrant Shares have not been registered under the
Securities Act. Upon exercise, in part or in whole, of this Warrant,
certificates representing the Warrant 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,
  AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE
  REGISTRATION STATEMENT UNDER SUCH ACT AND REGISTRATION OR QUALIFICATION UNDER
  APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM THE
  REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS,
  SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND
  ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."

     10.   Registration Rights.

       Warrant Shares are entitled to the registration rights set forth in the
Registration Rights Agreement dated May 1, 2000 between the Company and the
Warrant Holder.

     11.  Fractional Warrants and Fractional Shares.

     If the number of shares of Common Stock purchasable upon the exercise of
each Warrant is adjusted pursuant to Section 8 hereof, the Company nevertheless
shall not be required to issue fractions of shares, upon exercise of the
Warrants or otherwise, or to distribute certificates that

                                      -7-
<PAGE>

evidence fractional shares. In such event, the Company may at its option elect
to round up the number of shares to which the Holder is entitled to the nearest
whole share or to pay cash in respect of fractional shares in accordance with
the following: With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the average closing bid price per share of Common
Stock, as reported on the American Stock Exchange, on the five (5) trading days
immediately preceding the Exercise Date.

     12.  Warrant Holders Not Deemed Stockholders.  No holder of Warrants shall,
as such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.

     13.  Rights of Action. All rights of action with respect to this Agreement
are vested in the respective Registered Holders of the Warrants and their
successors and assigns, and any Registered Holder of a Warrant or of the holder
of any other Warrant, or any successor or assign thereof, may, in his own behalf
and for his own benefit, enforce against the Company his right to exercise his
Warrants for the purchase of shares of Common Stock in the manner provided in
the Warrant Certificate and this Agreement.

     14.  Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, and every other holder
of a Warrant that:

     (a) The Warrants are transferable only on the registry books of the Company
by the Registered Holder thereof in person or by his attorney-in-fact duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Company, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Company in
its discretion, together with payment of any applicable transfer taxes; and

     (b) The Company may deem and treat the Registered Holder as the absolute,
true and lawful owner of the Warrants represented thereby for all purposes, and
the Company shall not be affected by any notice or knowledge to the contrary.

     15.  Cancellation of Warrant Certificates. If the Company shall purchase or
acquire any Warrant, the Warrant Certificate or Warrant Certificates evidencing
the same shall thereupon be delivered to the Company and canceled by it and
retired. The Company shall also cancel any Warrant Certificates following
exercise of any of the Warrants Certificates represented thereby or delivered to
it for transfer, split up, combination or exchange.

                                      -8-
<PAGE>

     16.  Modification of Agreement. This Agreement shall not be modified,
supplemented or altered in any respect except with the consent in writing of the
Company and the Warrant  Holder, other than such changes as are specifically
prescribed by this Agreement as originally executed or are made in compliance
with applicable law.

     17.  Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Company; if to the
Company, 5 Forbes Road, Lexington, MA 02421 or such other address as the Company
may specify.

     18.  Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts, without reference
to principles of conflicts of laws.

     19.  Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and the Registered Holders, and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.

     20.  Termination. This Agreement shall terminate at the close of business
on the later of (i) the Warrant Expiration Date, or (ii) the latest day the
Company shall be required to keep a registration statement current under Section
10 hereof.

     21.  Counterparts. This Agreement may be executed in several counterparts,
which taken together shall constitute a single document.

                                      -9-
<PAGE>

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

                                PHOTOELECTRON CORPORATION

                                By: /s/ Euan S. Thomson
                                  -----------------------------------
                                  Name:  Euan S. Thomson
                                  Title: President and Chief Executive
                                         Officer



                                KSH STRATEGIC INVESTMENT FUND I, LP

                                By: /s/ Cary Sucoff
                                  -----------------------------------
                                  Name:  Cary Sucoff
                                  Title: Managing Partner

                                      -10-
<PAGE>

                                   EXHIBIT A

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND REGISTRATION OR
QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.



                          FORM OF WARRANT CERTIFICATE(1)


No. ____
                                                        Right to Purchase ______
                                                          Shares of Common Stock
                                                         (Subject to Adjustment)

                WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK

                           PHOTOELECTRON CORPORATION

                              This Certifies That

     FOR VALUE RECEIVED _______________________________________ or registered
assigns (the "Registered Holder") is the owner of the number of Common Stock
Purchase Warrants ("Warrants") specified above. Each Warrant initially entitles
the Registered Holder to purchase, subject to the terms and conditions set forth
in this Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and non-assessable share of Common Stock, $.01 par value ("Common
Stock"), of PHOTOELECTRON CORPORATION, a Massachusetts corporation (the
"Company"), at any time between the Initial Exercise Date (as herein defined)
and the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form attached hereto
duly executed, at the corporate office of the Company, accompanied by payment of
$4.00 per share of common stock, subject to adjustment from time to time
pursuant to the terms and provisions of Section 8 of the Warrant Agreement in
lawful money of the United States of America in cash or by official bank or
certified check made payable to the Company.

     This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the

---------------------
(1) The blanks in the form of warrant certificate shall be completed in the
    actual Warrant Certificates in accordance with the terms and provisions of
    the Warrant Agreement.

                                      -11-
<PAGE>

"Warrant Agreement") made as of the 1st day of May, 2000 by and between the
Company and the Registered Holder. Terms not defined herein shall have the
meanings assigned to them in the Warrant Agreement.

     In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modifications or adjustment.

     Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.

     The term "Initial Exercise Date" shall mean as of the date hereof.

     The term "Expiration Date" shall mean 5:00 p.m. (Eastern Standard time) on
(see footnote 1), 2005.  If such date shall in The Commonwealth of Massachusetts
be a holiday or a day on which banks are authorized or required to close, then
the Expiration Date shall mean 5:00 p.m. (Eastern Standard time) the next
following day which in the Commonwealth of Massachusetts is not a holiday or a
day on which banks are authorized or required to close.

     This Warrant Certificate shall be governed by and construed in accordance
with the laws of The Commonwealth of Massachusetts, without reference to
principles of conflicts of laws.

     IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by its officer thereunto duly
authorized.

                                PHOTOELECTRON CORPORATION

                                By:_____________________________________
                                  Name:
                                  Title:

       Date:_________________________________

                                      -12-
<PAGE>

                               SUBSCRIPTION FORM

    (To Be Executed by the Registered Holder in Order to Exercise Warrants)

                           __________________________

     Date:______________________


          The Undersigned hereby elects irrevocably to exercise the within
     Warrant and to purchase ____________ Shares of Common Stock of
     Photoelectron Corporation and hereby makes payment of
     $_____________________ (at the rate of $4.00 per share) in payment of the
     Exercise Price pursuant thereto.  Please issue the shares as to which this
     Warrant is exercised in accordance with the instructions given below.

                                       OR

          The Undersigned hereby elects irrevocably to exercise the within
     Purchase Option and to purchase ___________ Shares of Common Stock of
     Photoelectron Corporation  by surrender of the unexercised portion of the
     within Warrant.  Please issue the Common Stock comprising the Warrant in
     accordance with the instructions given below.


                                           ______________________________
                                           Signature


                                           ______________________________
                                           Signature Guaranteed


                  INSTRUCTIONS FOR REGISTRATION OF SECURITIES

Name_________________________________________________________________________

                            (Print in Block Letters)

Address_______________________________________________________________________


     NOTICE:  The signature to this form must correspond with the name as
written upon the face of the within Warrant in every particular without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or by a trust company or by a firm having
membership on a registered national securities exchange.

                                      -13-
<PAGE>

                                   ASSIGNMENT

     (To Be Executed by the Registered Holder in Order to Assign Warrants)

                          ___________________________

     FOR VALUE RECEIVED, the Undersigned Registered Holder hereby sells, assigns
     and transfers unto

                   __________________________________________
                                 (insert name)

whose taxpayer identification or other identifying number is:
____________________ and whose address is:

                   __________________________________________

                   __________________________________________

                   __________________________________________

                   __________________________________________
                         (please print or type address)

the following number of the Warrants represented by this Warrant Certificate:
___________________, and hereby irrevocably constitutes and appoints
___________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.

                          ___________________________
                                     (Date)

                          ___________________________
                                  (Signature)

                                      -14-