March 5, 1999



VIA FACSIMILE (949/951-7218)
Premier Laser Systems, Inc.
3 Morgan
Irvine, CA  92618


Ladies and Gentlemen:

         I am writing to confirm the  following  understanding  between  Premier
Laser Systems, Inc. ("Premier") and Ophthalmic Imaging Systems ("OIS"):

1.       Manufacturing by Premier

o   Premier  will  manufacture  OIS's  products  ("OIS  Products")  listed on
Exhibit A hereto, at the prices as set forth in Exhibit A. This pricing is based
on OIS's and Premier's estimated cost of goods sold according to GAAP, including
without  limitation  labor,  material,  manufacturing  overhead and  anticipated
warranty-related  costs ("COGS"). The pricing on Exhibit A will be adjusted from
time to time based on Premier's actual COGS, including,  but not limited to, the
impact of engineering  change orders mutually  agreed by OIS and Premier.  For a
period of six (6) months from the date of this  letter,  Premier  will not:  (i)
increase  any prices set forth in Exhibit A; or (ii)  charge a profit  margin to
OIS.  After six (6) months from the date of this  letter,  Premier and OIS shall
readdress the basis of the pricing,  when to include such margin, and the amount
of such margin.  Premier will notify OIS, in writing, sixty (60) days in advance
of the effective date of any price increase.

     The  foregoing  not  withstanding,  at the end of 90 days  from the date of
first delivery from Premier of an OIS Product  ordered by OIS from Premier,  OIS
and Premier agree to readdress the basis of the pricing in Exhibit A solely with
respect to the  component  thereof  comprised  of  anticipated  warranty-related
costs,  and that any mutually  agreed  adjustment  resulting  therefrom  will be
effected as soon as  practicable  on a prospective  basis.  Such  adjustment may
include  a  change  in the  warranty  portion  of COGS  and/or  the  party to be
designated  with control over or  responsibility  for  satisfaction  of warranty
claims.

     With respect to purchases  from Premier by OIS of products and services not
included in Exhibit A, the pricing  and other terms for such  purchases  will be
subject to the terms and  conditions  of the  individual  transactions  and such
purchases are not contemplated under this agreement.

<PAGE>


o    OIS will place firm,  non-cancelable  purchase orders ("P.O.") to Premier
at least  thirty  (30) days in  advance  of OIS'  desired  delivery  date of OIS
Products,  which P.O. will stipulate,  among other things, the required delivery
method and  destination of the OIS Products  ordered.  Premier will commence the
ordering of  materials  and  manufacture  of the OIS Products  after  receipt of
payment in full for an order. Payments may be made in cash and/or applicable raw
materials.  To the extent that  inventory is supplied by OIS to Premier,  credit
for the value of said  inventory,  as mutually  agreed,  will be applied against
amounts charged by Premier to OIS for OIS Products  ordered by OIS from Premier.
Upon receipt of such payment or extension of credit,  Premier will:  (i) provide
OIS with the  estimated  delivery  date for the OIS Products  ordered;  and (ii)
manufacture the requested products as soon as commercially practical.

o   Premier  agrees  to  pay  to  OIS  all  reasonable  incidental  expenses
(excluding salaries and related) incurred by OIS, including additional airfares,
lodging,    subsistence,    contractor    fees   and    expenses    and    other
installation-related expenditures,  resulting from Premier's failure to meet its
estimated delivery date, provided,  however,  that: (i) no such payment shall be
required if Premier provides to OIS ten (10) day prior written notification that
the  estimated  delivery  date will not be met;  and (ii)  Premier  shall not be
liable under any  circumstances  for consequential or indirect damages including
without limitation loss of profits.

o   For a period  of not less  than  sixty  (60)  days  from the date of this
letter,  Premier agrees to pay all incidental  expenses  (excluding salaries and
related)  incurred by OIS to train and/or otherwise assist Premier  personnel in
the  manufacture  of OIS  Products,  including  airfare,  lodging,  subsistence,
contractor fees and expenses, if applicable,  and other travel-related expenses,
as mutually agreed.

o   Premier  agrees to manufacture  the OIS Products in compliance  with GMP,
QSR and all other pertinent federal,  state and international  agency standards,
including, but not limited to, CE compliance.

o    Shipment of the  completed  OIS  Products  shall be made  F.O.B.  Irvine.
Except for OIS Products shipped freight and related  insurance charges and taxes
collect,  which amounts are paid to the commercial  carrier  directly by a party
other than OIS or Premier,  OIS shall pay shipping and related  insurance costs,
except that Premier shall pay expediting and other related  charges in excess of
the cost of the delivery method  stipulated in the P.O. for delivery via methods
other than as specified in the P.O.

o  Premier  shall be  responsible  for all  warranties  concerning  the OIS
Products  for a period of not less than  thirteen  (13)  months from the date of
shipment  from  Premier,  including  airfares,  lodging,  subsistence  and other
reasonable  incidental expenses (excluding salaries and related) incurred by OIS
with  respect  to its  installers,  field  technicians  or third  party  service
providers  unless the warranty claim is a result of: (i) an OIS design  problem;
or (ii) damage following delivery,  including damage resulting from installation
by OIS.

     Premier  agrees to make its best efforts to comply with current OIS service
and support practices,  including:  (i) to effect in-plant  in-warranty  repairs
within forty eight (48) hours of receipt of products to be repaired at Premier's
facility;  and (ii) to ship in-warranty  replacement component parts on the date
requested,  provided,  however,  that requests  received after 3:00PM local time
will be filled the next business day.

o    Premier  shall  carry  product  liability  insurance  concerning  the OIS
Products  manufactured  by Premier.  Such policy shall name OIS as an additional
insured with respect to such OIS Products.

2.       Entire Agreement

                  This   document   sets   forth  the   entire   agreement   and
understanding  relating to the subject matters hereof,  and supersedes all prior
discussions, agreements, understandings, representations and any oral agreements
as may have been entered  into or made between  Premier and OIS relating to such
subject matters.

3.       Arbitration

                  Any dispute  between  the  parties,  whether  relating to this
letter  agreement  or  otherwise,  shall be resolved by binding  arbitration  in
Orange County pursuant to the Rules of the American Arbitration Association.

4.       Confidentiality

                  Each party agrees that except as otherwise provided herein, it
shall not  disclose  to any third  party any  information  concerning  the trade
secrets, methods,  concepts,  processes,  procedures, or customers, or any other
confidential,  financial,  or business  information  of the other party which it
learns during the course of its performance of this Agreement, without the prior
written consent of the other party. This obligation of confidentiality shall not
apply to any information  which (i) was known to the receiving party at the time
if receipt; (ii) was in the public domain at the time of receipt;  (iii) becomes
public through no fault of the party obligated to keep it confidential;  or (iv)
is required by applicable law to be divulged.

                  This provision  shall survive the termination or expiration if
this Agreement.

         5.       Termination

                  This  Agreement  shall only be  terminated:  (a) upon material
breach by either  party,  which breach is not cured  within  thirty (30) days of
receipt of written  notice  thereof;  (b) upon ninety (90) day written notice by
OIS to Premier;  (c) upon one hundred eighty (180) day written notice by Premier
to OIS;  or (d) by  mutual  written  agreement  of the  parties.  Upon  any such
termination:  (i) OIS shall purchase (at Premier's  actual direct material cost)
all  inventory  maintained  by  Premier,   including  inventory  procured  under
non-cancelable  purchase  orders but not yet received,  in connection  with open
P.O.s for OIS Products;  and (ii) Premier  shall deliver to OIS said  inventory,
together with all  documentation  related to OIS Products,  including  schematic
drawings, vendor lists, parts lists and bills of material.


<PAGE>



                  Assuming   that   this   letter   is   consistent   with  your
understanding of our agreement, please execute this letter in the space provided
below to reflect your acceptance of the terms set forth above.

                                        Sincerely,


                                       /S/ STEVEN R. VERDOONER


                                           Steven R. Verdooner
                                           President and Chief Executive Officer
                                           Ophthalmic Imaging Systems


The terms set forth in this letter
are accepted by Premier Laser Systems, Inc.
this     7th       day of  March     1999.

By:               /S/ COLETTE COZEAN, Ph.D. 

Name:             Colette Cozean, Ph.D.              

Title:            President and CEO