Document:

<PAGE>

                                                                   EXHIBIT 10.26
                                                                   -------------

                             SNN MEMBER AGREEMENT
                             --------------------

This AGREEMENT is made with effect as of the 30th day of June, 1999 (the
"Effective Date") between SURGICAL NAVIGATION SPECIALISTS INC., a corporation
under the laws of Ontario ("SNS") and PHOTOELECTRON CORPORATION
("PHOTOELECTRON"), a corporation incorporated under the laws of "MASSACHUSETTS".

This document describes the involvement, rights, obligations and duties of the
SNS and the SNN Member Companies, who together form the Surgical Navigation
Network.

A.   VISION

     The Surgical Navigation Network (SNN) is a voluntary organization that
     enables multiple medical equipment companies to provide their customers
     with surgical navigation network platform integrated with their own product
     lines, to deliver a broad range of solutions through plug and play
     compatibility, at a reasonable cost.

B.  MISSION
    (a)  Increase visibility of image-guided therapy in the market place with a
         high tech image.
    (b)  Secure market share for its members, through new integrated
         applications designed for image-guided surgery.
    (c)  Increase market share through new applications such as orthopedics,
         ENT, radiation therapy.
    (d)  Increase market access by increasing distribution channels through
         synergistic companies serving the OR.
    (e)  Guarantee compatibility of PHOTOELECTRON components with product and
         technology of  SNN products.
    (f)  Deliver a low cost platform with Windows NT based applications.
    (g)  Ensure compatible software and hardware platforms.
    (h)  Meet competition from others and preserve a competitive marketplace for
         products and services from OEM Supplier Members, Application Members,
         and others in the marketplace.

NOW THEREFORE the Parties, each intending to be legally bound, agree as follows:

                                  ARTICLE ONE
                                INTERPRETATION
                                --------------

1.1  DEFINITIONS.  In this Agreement, unless the context otherwise requires,
     -----------
each capitalized term shall have the meaning attributed thereto in Schedule "A".
All references to a member or members of SNN includes the PHOTOELECTRON.

1.2  SCHEDULES.   The following schedules are attached hereto and incorporated
     ---------
herein and form part hereof:

     Schedule "A"    -     Definitions
     Schedule "B"    -     Membership Criteria
     Schedule "C"    -     Description of SNS Technology
     Schedule "D"    -     SNN Professional Services
     Schedule "E"    -     Integration Policy
     Schedule "F"    -     Upstream/Downstream Marketing Services
     Schedule "G"    -     Additional Legal Terms and Conditions
<PAGE>

                                      -2-

                                  ARTICLE TWO
          ORGANIZATION AND MANAGEMENT OF SURGICAL NAVIGATION NETWORK

2.1  MEMBERSHIP OF SNN.
     -----------------

(a)  SNN is an open network.  Membership is available on an equal basis to any
     and all supplier(s) of relevant goods and services meeting the Membership
     Criteria set out in Schedule "B" to this Agreement, on application to SNS
     and execution by the member of this Agreement and all related scheduled
     agreements.

(b)  SNN is comprised of OEM Supplier Members and  Application Members,
     collectively known as SNN Members.  SNS as a separate entity provides SNN
     Products and Services to OEM Supplier Members and Application Members. It
     is intended that SNN will include members representing a number of sectors
     of medical equipment, including microscope, instrument, spine, scanner,
     radiotherapy, medical implants, Picture Archive and Communication Systems
     (PACS) and hospital information systems (HIS) companies.

(c)  There are two types of SNN Members.

     i.   Application Members who sell their proprietary products to the SNN for
          integration with the SNS developed Image Guided Surgery (IGS) Platform
          product. Application Members do not re-sell SNN products and services
          and have only the involvement, rights, obligations, and duties
          specified herein, and;

     ii.  OEM Supplier Members, who integrate their proprietary products and the
          proprietary products of Application Members with the SNS developed
          Image Guided Surgery Platform product and re-sell their SNN products
          and services. OEM Supplier Members may also be Application Members.

2.2       STEERING COMMITTEE.  SNS will create a formal Steering Committee
          ------------------
comprised of one delegate from each SNN Member and delegates from the SNS.
Subject to the discretion of SNS, and after considering advice from the
Scientific Advisory Committee, the Steering Committee will advise on interface
standards for SNN, which will be published for industry wide use and will
consider and advise on future product and technology directions. The Steering
Committee may discuss and exchange technical and market information but shall
not discuss or exchange the confidential business information (such as prices
and marketing plans) of any OEM Supplier Member or Application Member, nor
engage in any activities directed toward coordinating or lessening the
competitive actions of OEM Supplier Members or Application Members.

2.3  SCIENTIFIC ADVISORY BOARD.  SNS will create one or more scientific advisory
     -------------------------
boards, which will assist SNN in attaining its vision by advising the Steering
Committee on, among other matters, the advisability of new technologies and
product directions and evaluating new applications.

2.4  PRESIDENT OF SNS.  SNS shall appoint a President (the "President").  The
     ----------------
President shall be responsible for the day-to-day affairs of SNN.

The President shall, subject to such input as he may determine appropriate from
the Steering Committee and Scientific Advisory Committee, and after good faith
discussions with SNN Members, have the right to make reasonable modifications
to this Agreement and its Schedules as follows:

i.   the Scope of Business and Geographic Scope may be modified on six months
     notice and after good faith discussions with SNN Members, having regard to
     the SNN's ability to support new applications and to obtain regulatory
     approval in a given country.
<PAGE>

                                      -3-

ii   Other sections of this Agreement and its Schedules dealing with the
     products and services to be provided by the SNS to members and their
     integration may be modified on 3 months notice for purposes of addressing
     profitability concerns of the SNS or so as to enhance the market
     positioning of the SNN products and services, but no more than twice in
     each calendar year.

iii. By the Agreement of the SNN Members at any time.

2.5  ACCOUNT MANAGERS.    Communication is essential to the effective operation
     ----------------
of SNN.  On the Effective Date, the Parties shall designate specific account
managers, acceptable to the other in general terms, to deal with the day-to-day
matters arising under this Agreement.  Specifically, these individuals will, on
behalf of their respective employers, in accordance with the spirit of this
Agreement, use reasonable efforts to coordinate the provision of the products
and services contemplated herein including in respect of the delivery,
installation, acceptance, operation, maintenance and support of SNN Products.
Each Party may, at its discretion to be reasonably exercised, from time to time
change its account manager with another individual acceptable to the other
Party.

                                 ARTICLE THREE
                       DUTIES AND OBLIGATIONS OF THE SNS

3.1  The SNN provides its members, through SNS, with equal rights to integrate
SNN Products with their own product lines or to resell SNN Products on a
standalone basis. To fulfil this role, as more particularly described in this
Agreement:

     (i)  SNS will develop and provide the Image Guided Surgery platform
          product (" the SNS Technology", as more particularly described in
          Schedule "C") which is intended to be be capable of integration with
          the core products of SNN Members;
     (ii) SNS will fund certain research and development, clinical development,
          product marketing, sales support, service and production of IGS
          products in support of the SNS Technology;

     (iii)SNS will develop and promptly publish for industry-wide use interface
          standards, through the Steering Committee, for all SNS IGS products
          from time to time and will also monitor SNN Products and Services for
          quality and maximization of mutual interface with the products and
          services of all SNN members;
     (iv) SNS will provide marketing support services as set out in Schedule F.
          "Upstream/Downstream Marketing Services";
     (v)  SNS will deliver to Member Companies an annual report of SNS
          activities on behalf of the SNN;

3.2  Members shall deploy the IGS platform common to SNN, and can either deploy
IGS applications, which they source from SNS, other members or through internal
development pursuant to the Integration Policy.

3.3  SNS will play an integral role in sales support and shall be permitted to
assist in sales demonstrations upon the request of the SNN Member.

3.4  SNN's Scope of Business may vary but initially will include neurosurgery,
spine surgery, and expansion into orthopedic surgery and radiotherapy,
consistent with market maturity and within the Geographic Scope.   Subsequently,
SNS, in consultation with the Steering Committee, may choose to expand SNN's
scope of business into other market segments and geographic regions.  SNS may
reduce the Scope of Business and Geographic Scope on six month's notice after
good faith discussions with SNN Members.
<PAGE>

                                      -4-

                                 ARTICLE  FOUR
              RIGHTS, DUTIES AND OBLIGATIONS OF MEMBER COMPANIES

4.1  OEM SUPPLIER AGREEMENT. All those SNN members authorized to sell and
     ----------------------
distribute SNN Products and SNN Service and Maintenance Contracts will do so
under a separate OEM Supplier Agreement.

4.2  INTEGRATION RIGHTS.  All members, including PHOTOELECTRON, can integrate
     ------------------
their products with the SNN Products for the purpose of developing Integrated
Products.  SNS, in conjunction with the Steering Committee, has developed a
detailed procedure as set out in Schedule E (the "Integration Policy") which
must be followed by members who wish to integrate their products with the SNN
Products.

4.3  MARKETING  EFFORT. It is the intention of both parties that PHOTOELECTRON
     -----------------
shall at all times use commercially reasonable efforts and due diligence, at
least to the same extent and degree it accords to its own products, to promote
the sale of SNN Products and Services, whether standalone or together with its
own products. PHOTOELECTRON shall represent SNS in a manner intended to preserve
and enhance the reputation of SNS and the SNN as a provider of quality services
and products.  PHOTOELECTRON agrees that it shall not sell or service any third
party IGS product that competes directly with the SNS Technology.

4.4  INITIAL AND SUSTAINING MEMBER CONTRIBUTIONS. This Agreement is conditional
     -------------------------------------------
upon PHOTOELECTRON entering into a Distribution Agreement with Carl Zeiss Inc.,
or another mutually agreed upon SNN Member Company, and no amount is payable
until such Distribution Agreement is finalized. All SNN members are required to
pay the same initial and annual sustaining fees.  Payment of  SNS Membership fee
($US150,000) for the year commencing on the effective date will be as follows:
(a) $US37,500 directly, immediately by Photoelectron following execution of the
above mentioned Distribution Agreement;  and (b) $US37,500 by Photoelectron on
January 1, 2000; (c) with the balance in the amount of $US75,000 to be paid
under the Terms of the Distribution Agreement between Photoelectron and Carl
Zeiss, Inc., but no sooner than the completion of  the integration of
Photoelectron to Carl Zeiss' platform and results in end user revenues.   In
addition, on each anniversary date of the Effect Date, an annual sustaining fee
of $US150,000., Photoelectron hereby commits to pay the second year's annual
sustaining fee on the first anniversary date.  Said fees shall be non-
refundable.

4.5  RESALE BY PHOTOELECTRON.  PHOTOELECTRON shall be free to resell SNN
     -----------------------
products and services at such prices as it may, in its sole discretion,
determine from time to time.

                                 ARTICLE FIVE
                          OBLIGATIONS OF THE PARTIES

5.1  GENERAL OBLIGATIONS.  Both Parties shall:
     -------------------

(a)  promote and support in good faith the interests of the SNN  and its Purpose
     and Role;

(b)  maintain such competent staff and otherwise commit such other resources as
     are reasonably required to meet its day-to-day obligations hereunder
     (including, in the case of PHOTOELECTRON, the provision of maintenance and
     support for those elements of Integrated Products which are not part of the
     applicable SNN Product);

(c)  comply fully with all applicable laws and regulations of all relevant
     jurisdictions relative to its activities under this Agreement; and

(d)  obtain and maintain such permits and approvals as are required to meet its
     day-to-day obligations hereunder.
<PAGE>

                                      -5-

                                 ARTICLE  SIX
                            LIMITATION OF LIABILITY

6.1  LIMITATION OF LIABILITY.   The limitation of liability provisions of this
     -----------------------
Agreement reflect an informed voluntary allocation of the risks (known and
unknown) and such voluntary risk allocation represents a material part of the
agreement reached between SNS and PHOTOELECTRON.  Should SNS or PHOTOELECTRON be
in breach of any obligation,  each party agrees that its  remedies will be
limited to those set forth in this Agreement.

(a) Direct Damages Only. Subject to the restrictions in this Article 7 and
     subject to the Aggrieved Parties election, if so entitled in law, to
     rescind or be discharged from this Agreement, in the event of any breach by
     the other Party of its obligations under this Agreement, including any
     breach of a fundamental term or a fundamental breach, Each Party's
     exclusive remedy under this or any related agreement shall be to receive
     actual, direct damages up to US $1,000,000.

(b)  No Indirect Damages, etc.  IN NO EVENT, WHETHER BASED IN CONTRACT, TORT OR
     OTHERWISE, SHALL EITHER PARTY BE LIABLE FOR ANY CLAIM FOR:  (A) PUNITIVE,
     EXEMPLARY, OR AGGRAVATED DAMAGES; (B) DAMAGES FOR LOSS OF PROFITS OR
     REVENUE, FAILURE TO REALIZE EXPECTED SAVINGS, BUSINESS INTERRUPTION, OR
     LOSS OF USE OR LACK OF AVAILABILITY OF PHOTOELECTRON's FACILITIES,
     INCLUDING ITS COMPUTER RESOURCES AND ANY STORED DATA; (C) INDIRECT,
     CONSEQUENTIAL OR SPECIAL DAMAGES; OR (D) CONTRIBUTION OR INDEMNITY IN
     RESPECT OF ANY CLAIMS AGAINST THE OTHER PARTY OTHER THAN BY END USER.

(c)  Time Limit.  No action, regardless of form, may be brought by either Party
     more than 12 months after the facts giving rise to the cause of action
     becomes known or ought to have become known.

                                 ARTICLE SEVEN
                                  TERMINATION

7.1  TERM.  The term of this Agreement shall commence as of the Effective Date
     ----
and shall continue indefinitely, subject to early termination in accordance with
the terms hereof.

7.2  EARLY TERMINATION.
     -------------------

(a)  If the Member is in good standing with its initial and second annual
     contributions, it may terminate this Agreement at any time after it has
     been a member for at least two years, on six months' notice to SNS.

(b)  SNS may terminate the SNN and this Agreement in its discretion on twelve
     months' notice to all SNN members, but no sooner than two (2) years from
     the date of this Agreement.

(c)  Without prejudicing any other rights it may have, a Party may terminate
     this Agreement if:
          (i) the other Party is in breach of any material term hereof; and
              within thirty (30) days written notice of such breach the other
              Party fails to rectify such breach, or
          (ii)the other Party becoming insolvent or being unable to, or ceasing
              to, pay its debts as they come due, the making of an assignment
              for the benefit of creditors, its liquidation, winding up or
              dissolution or the commencement of any such proceedings.

7.3  SURVIVAL. Articles 6 and , and Schedule G shall survive the termination
     ---------
of this Agreement.
<PAGE>

                                      -6-

                                 ARTICLE EIGHT
                                    GENERAL

8.1  NOTICE. Any notice required or permitted to be given hereunder shall be
     ------
     considered given if delivered in person, if acknowledged by the receiving
     Party, or if sent by registered, prepaid mail addressed to the address
     below or such other address as the addressee may have given to the other
     Party from time to time.

     (i)      Notice to SNS:            (ii)        Notice to PHOTOELECTRON:
              6509 Airport Road                     5 Forbes Road, Suite #2
              Mississauga, ON                       Lexington, MA 02471
              L4V 1S7
              Attention:  President                 Attention:  The President
              Telephone No. (905) 672 2100          Telephone No. (781) 861 2069
              Fax No. (905) 672 2307                Fax No.(781) 259 0482

or at such other address as the Party to whom such notice is to be given shall
have last notified (in the manner provided in this Section) the Party giving
such notice.  Any notice delivered to the Party to whom it is addressed as
provided herein shall be deemed to have been given and received on the day it is
so delivered at such address, provided that if such day is not a Business Day,
then the notice shall be deemed to have been given and received on the next
Business Day.  Any notice mailed as provided herein shall be deemed to have been
given and received on the fifth Business Day following the date of its mailing
provided that no postal strike is then in effect or comes into effect within
five Business Days after such mailing.  Any notice transmitted by telecopier
shall be deemed given and received on the day of its transmission if such day is
a Business Day or, if not, on the next day that is a Business Day.

8.2  FORCE MAJEURE.   Except as expressly provided otherwise in this Agreement,
     -------------
dates and times by which a Party is required to render performance under this
Agreement or any schedule hereto shall be postponed automatically to the extent
and for the period of time that such Party is prevented from meeting them by
reason of any cause beyond its reasonable control, provided the Party prevented
from rendering performance notifies the other Party immediately and in detail of
the commencement and nature of such cause and the probable consequences thereof,
and provided further that such Party uses its reasonable efforts to render
performance in a timely manner utilizing to such end all resources reasonably
required in the circumstances, including obtaining supplies or services from
other sources if same are reasonably available.  The benefit of this Section
shall not apply to the performance of an obligation, which has 120 or more days
in default.

8.3  ENTIRE AGREEMENT.   The Parties agree that this Agreement constitutes the
     ----------------
complete and exclusive statement of the terms and conditions between them
covering the performance thereof and cannot be altered, amended or modified
except in writing executed by both Parties.  There are no warranties,
conditions, or representations (including any that may be implied by statute)
and there are no agreements in connection with such subject matter except as
specifically set forth or referred to in this Agreement.  No reliance is placed
on any warranty, representation, opinion, advice or assertion of fact made by
any Party hereto or its directors, officers, employees or agents, to any other
Party hereto or its directors, officers, employees or agents, except to the
extent that the same has been reduced to writing and included as a term of this
Agreement.  Accordingly, there will be no liability, in tort, contract, or any
other legal or equitable theory, assessed in relation to any such warranty,
representation, opinion, advice or assertion of fact, except to the extent
aforesaid.

8.4  GOVERNING LAW.   This Agreement shall be governed by and construed in
     -------------
accordance with the laws of the Province of Ontario and the federal laws of
Canada applicable therein and shall be treated, in all respects, as an Ontario
contract.  Subject to dispute resolution as set out in Schedule "H", the Parties
<PAGE>

                                      -7-

hereby irrevocably submit to the non-exclusive jurisdiction of the courts of the
Province of Ontario. The Parties expressly exclude the application of the United
Nations Convention on Contracts for the International Sale of Goods.

8.5  ADDITIONAL LEGAL TERMS AND CONDITIONS. The Parties agree that Schedule "G"
Additional Legal Terms and Conditions form an integral part of this Agreement

8.6  COUNTERPARTS AND FACSIMILE.  This Agreement may be executed in counterparts
and each of which so executed will be deemed to be an original and such
counterparts together will be one and the same instrument.  The execution and
delivery of this Agreement by either Party by facsimile transmission will
constitute valid execution and delivery of this Agreement.

IN WITNESS WHEREOF the Parties have duly executed this Agreement with effect as
of the Effective Date.

                                 SURGICAL NAVIGATION SPECIALISTS INC.

                            By:  /s/ Reinhard Schmidt
                                 ---------------------------------------
                                 President and General Manager

                                 PHOTOELECTRON CORPORATION

                            By:  /s/ Euan S. Thomson
                                 ---------------------------------------
                                 President and Chief Operating Officer

<PAGE>

                                 SCHEDULE "A"
                                 DEFINITIONS

As used in this Agreement, unless there is something in the subject matter or
context inconsistent therewith, the following terms shall have the following
respective meanings:

"Affiliate" means, with reference to a specified Person, a Person who directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such specified Person  "CONTROL" means direct or
indirect (i.e. through another corporation or company under control) ownership
of more than 50% of the voting shares of the Affiliate;

"Agreement" means this SNN Member Participation Agreement and all schedules
annexed to this agreement as the same may be amended from time to time in
accordance with the provisions hereof; "HEREOF", "HERETO" and "HEREUNDER" and
similar expressions mean and refer to this Agreement and not to any particular
article or section;  "ARTICLE" or "SECTION" means and refers to the specified
article or section of this Agreement;

"Application Member" means a member of the SNN who sells proprietary products to
the SNN for integration with the SNS developed Image Guided Surgery Platform
product.  Application Members do not resell SNN products and services, and have
only the involvement, rights, obligations and duties specified herein.

"Business Day" means any day other than a Saturday, Sunday or statutory or civic
holiday in Toronto, Ontario;

"Confidential Information"  means all information relating to any Party's
business including operations, processes, methods, equipment, products, sales,
customers, trade secrets, technology and financial position to which access is
obtained or granted hereunder or provided by virtue of the performance of this
Agreement or any agreement referred to or contemplated herein by one Party to
another which when provided is designated in writing as being confidential,
provided, however, that Confidential Information shall not include any
information which:

     (i)  is or becomes publicly available through no fault of the other Party;

     (ii) is already in the rightful possession of the other Party prior to its
          receipt from the other Party;

     (iii)is independently developed by the other Party;

     (iv) is rightfully obtained by the other Party from a third party;

     (v)  is disclosed with the written consent of the Party whose information
          it is; or

     (vi) is disclosed pursuant to any law, court order or other legal
          compulsion without a protective order to maintain the confidentiality
          of such information;

"Effective Date" has the meaning attributed thereto on the first page of this
Agreement;

"End User" means a Person, which is obtaining SNN Products and/or Services for
use with patients pursuant to an End User Agreement;

"End User Agreement" means either an End User Sale and License Agreement or End
User Service and Maintenance Agreement;
<PAGE>

                                      -2-

"End User Sale and License Agreement" means a written agreement entered into
between SNS and an End User for the sale and licensing of SNN Products or
between PHOTOELECTRON or Sub-Distributor and an End User for the use of an SNN
Product or Integrated Product;

"End User Service and Maintenance Agreement" means a written agreement entered
into between SNS and an End User or PHOTOELECTRON or Sub-Distributor and an End
User for the provision of SNS Services;

"Geographic Scope" means North America, Europe, and Japan and may be amended by
the President of the SNS from time to time.

"IGS" has the meaning attributed to it in section 3.1 of the Agreement of which
this Schedule is a part;

"Intellectual Property Rights" includes any proprietary right provided under (i)
patent law, (ii) copyright law, (iii) trade mark law, (iv) design patent or
industrial design law, (v) semi-conductor chip or mask work law, and (vi) any
other statutory provision or common law principle applicable to this Agreement
which may provide a right in either (a) ideas, formulae, algorithms, concepts,
inventions or know-how generally including trade secret law, or (b) the
expression of such ideas, formulae, algorithms, concepts, inventions or know-
how;

"IGS" has the meaning attributed to it in paragraph A of the Background;

"Integration Policy" has the meaning attributed thereto in Section 3.2;

"Integrated Products" means equipment and software developed to work with the
SNN Products in accordance with the Integration Policy;

"Modification" means all improvements, enhancements, additions and other
modifications made to the SNN Products or Services or underlying SNS Technology;

"Party" means either of SNS or PHOTOELECTRON and "PARTIES" means both of them;

"Person" includes an individual, corporation, partnership, joint venture, trust,
unincorporated organization, the Crown or any agency or instrumentality thereof
or any other judicial entity recognized by law; and

"OEM Supplier Member" means a member who integrates its own proprietary products
and the proprietary products of Application Members with the SNS-developed Image
Guided Surgery Platform product and resells SNN products and services.  OEM
Supplier Members may also be Application Members.

"SNN Products and Services" means those products and related services
incorporating the SNS Technology and generally offered from time to time by SNS
to PHOTOELECTRON for marketing and distribution (which currently consists of
those products and related services set out in Schedule "C and D");

"SNS Technology" has the meaning attributed thereto in Schedule "C".
<PAGE>

                                 SCHEDULE "B"
                              MEMBERSHIP CRITERIA

Any company, corporation, partnership or other legal entity which has the
expertise, skills and capacity to sell high quality products and services to the
medical profession and medical institutions such as hospitals and healthcare
delivery companies, which desires to and has the skills, expertise and capacity
to offer and sell the SNN Products and Services, either separately or together
with its own products and services, and which has had annual gross sales of its
products or services for the preceding years of not less than $U.S 10, 000,000
may apply to become a member of the SNN.

The SNS, in consultation with the Steering Committee, shall be the sole judge of
whether these criteria have been satisfied and SNS shall, in all cases, act
reasonably and with the objective that the SNN is to be a network open to the
widest possible group of qualified members throughout the world.

The minimum gross sales requirement above is intended only to ensure that each
Member will be financially viable and able to perform its obligations as a
member of the SNN.  Applicants for membership not meeting that criterion may
demonstrate financial qualification in other ways (e.g. the guarantee of its
bankers, parent company or affiliates), to the satisfaction of the President.
<PAGE>

                                 SCHEDULE "C"
                         DESCRIPTION OF SNS TECHNOLOGY

SNN 2.2 Product
     SNN 2.2 PRODUCT GMA RELEASE: MARCH 30, 1999
     Regulatory status: FDA cleared, CE marked
Clinical applications: Cranial, ENT, Spine, plus
associated instrumentation.  Integration to the
Zeiss OPMI Neuro NC4 and OPMI Neuro ES microscopes.

<TABLE>

<S>                                             <C>                                      <C>

SNN2.2 Feature
---------------------------------------------------------------------------------------------------------
ADDITION OF COMPANY LOGO
---------------------------------------------------------------------------------------------------------
Cranial application
---------------------------------------------------------------------------------------------------------
Cranial application with Microscope integration
---------------------------------------------------------------------------------------------------------
Spine application
---------------------------------------------------------------------------------------------------------
                                              PATIENT EXAMS
---------------------------------------------------------------------------------------------------------
Silhouette compatibility (3D data transfer)
---------------------------------------------------------------------------------------------------------
Load Dataset
---------------------------------------------------------------------------------------------------------
Import dataset
---------------------------------------------------------------------------------------------------------
Non-zero gantry tilt supported
---------------------------------------------------------------------------------------------------------
DICOM compatible (ISG validated scanners)
---------------------------------------------------------------------------------------------------------
Scanner Interface support (ISG validated
 connections)
---------------------------------------------------------------------------------------------------------
REMAINING DATABASE SPACE DISPLAYED ON
PATIENT LIST  MENU
---------------------------------------------------------------------------------------------------------
                                              3D OBJECT CREATION
---------------------------------------------------------------------------------------------------------
Simple threshold
---------------------------------------------------------------------------------------------------------
Threshold + 2D seeding
---------------------------------------------------------------------------------------------------------
Add/excise drawn region
---------------------------------------------------------------------------------------------------------
Quick 3D
---------------------------------------------------------------------------------------------------------
Edit/delete objects
---------------------------------------------------------------------------------------------------------
                                              DISPLAY
---------------------------------------------------------------------------------------------------------
Set quality of MPR views and 3D
reconstruction
---------------------------------------------------------------------------------------------------------
PROJECTION OF PROBE TRAJECTORY ON MPR VIEWS.
A BLUE LINE REPRESENTS THE PROBE.
---------------------------------------------------------------------------------------------------------
Projection of Trajectories along MPR
---------------------------------------------------------------------------------------------------------
Display of video image on one quadrant
of screen  with high resolution.

MAXIMIZED VIDEO VIEWPORT ON ALL VIDEO
LAYOUTS
---------------------------------------------------------------------------------------------------------
Video IN/OUT to record operation on tape
or display external video signal on screen
---------------------------------------------------------------------------------------------------------
Identify landmarks
---------------------------------------------------------------------------------------------------------
Re-register to landmarks
---------------------------------------------------------------------------------------------------------
Heads up display - OPMI neuro microscope
---------------------------------------------------------------------------------------------------------
Annotation
---------------------------------------------------------------------------------------------------------
                                              REGISTRATION
---------------------------------------------------------------------------------------------------------
Pre-registration point identification
---------------------------------------------------------------------------------------------------------
Point registration
---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                               -3-
<TABLE>
<S>                                         <C>                                       <C>
"UNDO" LAST POINT IN REGISTRATION
---------------------------------------------------------------------------------------------------------
Surface fitting registration
---------------------------------------------------------------------------------------------------------
"UNDO LAST SURFACE FIT"
---------------------------------------------------------------------------------------------------------
Identify landmarks
---------------------------------------------------------------------------------------------------------
Re-register to landmarks
---------------------------------------------------------------------------------------------------------
Auditory feedback for pre-registration
points,  registration points, surface points.
---------------------------------------------------------------------------------------------------------

                                               PLANNING
---------------------------------------------------------------------------------------------------------
Create/delete labeled points
---------------------------------------------------------------------------------------------------------
Create/delete paths
---------------------------------------------------------------------------------------------------------
Translate path, move path end points
---------------------------------------------------------------------------------------------------------
View path projection on orthogonal plane
---------------------------------------------------------------------------------------------------------
View path intersection with orthogonal plane
---------------------------------------------------------------------------------------------------------
Measure distance between points
---------------------------------------------------------------------------------------------------------
Delete annotations
---------------------------------------------------------------------------------------------------------
Change visibility of all annotations
VISIBILITY OF ANNOTATIONS FOR TRACKED OBJECTS
ONLY;  ALL ANNOTATIONS OR NONE.
---------------------------------------------------------------------------------------------------------
                                               SPINE PLANNING
---------------------------------------------------------------------------------------------------------
Display of screws in MPR and trajectory views
---------------------------------------------------------------------------------------------------------
Modify diameter and length of the screw
---------------------------------------------------------------------------------------------------------
Interactively translate screw position and
move end  points of screw.
---------------------------------------------------------------------------------------------------------
Attach the screw to the probe
---------------------------------------------------------------------------------------------------------
ROLL-ANGLE FEATURE ADDED
---------------------------------------------------------------------------------------------------------
                                               TRACKING ANNOTATIONS
---------------------------------------------------------------------------------------------------------
Annotation points
---------------------------------------------------------------------------------------------------------
Annotation paths
---------------------------------------------------------------------------------------------------------
Track distance to nearest landmark
---------------------------------------------------------------------------------------------------------
QUICK SELECTION BOX IN SURGERY FOR SELECTING PATH
TO BE TRACKED
---------------------------------------------------------------------------------------------------------
                                               MOUSE FUNCTIONS
---------------------------------------------------------------------------------------------------------
Manual crosshair positioning
---------------------------------------------------------------------------------------------------------
Rotation of 3D views + re-center 3D object in
 viewport (Spine Mode only)
---------------------------------------------------------------------------------------------------------
Window width/level of MPR views
---------------------------------------------------------------------------------------------------------
                                               IMAGE MANIPULATION
---------------------------------------------------------------------------------------------------------
QuickZoom
---------------------------------------------------------------------------------------------------------
Zoom individual viewports
---------------------------------------------------------------------------------------------------------
Panning of zoomed images
---------------------------------------------------------------------------------------------------------
Pre-set orientation of 3D views
---------------------------------------------------------------------------------------------------------
MPR view thickness adjustment
---------------------------------------------------------------------------------------------------------
Pre-set window/level selection of MPR views
---------------------------------------------------------------------------------------------------------
3D object color selection
---------------------------------------------------------------------------------------------------------
3D object visibility control
---------------------------------------------------------------------------------------------------------
3D object translucency control
---------------------------------------------------------------------------------------------------------
3D object cutplane control
---------------------------------------------------------------------------------------------------------
                                                LAYOUTS
---------------------------------------------------------------------------------------------------------
Preset layout selection
---------------------------------------------------------------------------------------------------------
Trajectory views
---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                             -4-
<TABLE>
<S>                                        <C>                                        <C>
MPR views
---------------------------------------------------------------------------------------------------------
Projection of pointer onto orthogonal views
---------------------------------------------------------------------------------------------------------
3D views
---------------------------------------------------------------------------------------------------------
Screen Save Utility
---------------------------------------------------------------------------------------------------------
Export View (disk or tape media)
---------------------------------------------------------------------------------------------------------
External Video Feed and views
---------------------------------------------------------------------------------------------------------
                                                NAVIGATION
---------------------------------------------------------------------------------------------------------
Probe and position updating
---------------------------------------------------------------------------------------------------------
Toggle probe and manual modes
---------------------------------------------------------------------------------------------------------
Virtual tip offset
---------------------------------------------------------------------------------------------------------
Priority assigned to tools (between probe and
 microscope)
---------------------------------------------------------------------------------------------------------
Probe-path trajectory alignment
---------------------------------------------------------------------------------------------------------
Auto selection of freehand probe
---------------------------------------------------------------------------------------------------------
Probe accuracy verification
---------------------------------------------------------------------------------------------------------
Probe button control of virtual offset (AAG)
---------------------------------------------------------------------------------------------------------
Probe button control of probe/manual toggle
(AAG)
---------------------------------------------------------------------------------------------------------
PROBE BUTTON CONTROL OF VIRTUAL ROLL-ANGLE
(AAG)
---------------------------------------------------------------------------------------------------------
Probe button control of "Alignment Mode"
(AAG)
---------------------------------------------------------------------------------------------------------
Ability to select path to track in surgery
---------------------------------------------------------------------------------------------------------
Diagnostic messages for tools
---------------------------------------------------------------------------------------------------------
Support for Passive Instrumentation
---------------------------------------------------------------------------------------------------------
Track separate rigid bodies
---------------------------------------------------------------------------------------------------------
                                             MICROSCOPE INTEGRATION
---------------------------------------------------------------------------------------------------------
Focal point location visible in views
---------------------------------------------------------------------------------------------------------
Injection of on 3D contour into
microscope eyepiece
---------------------------------------------------------------------------------------------------------
Injection of text into microscope
eyepiece
---------------------------------------------------------------------------------------------------------
                                   ALTERNATIVE INPUT/CONTROL DEVICES (STERILE USER)
---------------------------------------------------------------------------------------------------------
Voice control commands
---------------------------------------------------------------------------------------------------------
Foot switch control
---------------------------------------------------------------------------------------------------------
                                             OTHER FEATURES
---------------------------------------------------------------------------------------------------------
Support for Polaris Camera Array
---------------------------------------------------------------------------------------------------------
Support for Flashpoint Camera Array
---------------------------------------------------------------------------------------------------------
SUPPORT FOR FARO ARM POSITION SENSOR
---------------------------------------------------------------------------------------------------------
Diagnostics for system components
---------------------------------------------------------------------------------------------------------
GUI for licenses and system information
---------------------------------------------------------------------------------------------------------
GUI for log file browsing
---------------------------------------------------------------------------------------------------------
Display probe icon on UI
---------------------------------------------------------------------------------------------------------
Camera positioning aid
---------------------------------------------------------------------------------------------------------
Track tools and microscope
---------------------------------------------------------------------------------------------------------
Inform user of IR sources
---------------------------------------------------------------------------------------------------------
Archive to DAT tape
---------------------------------------------------------------------------------------------------------
Archive to ZIP disk
---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                      -5-

                                 SCHEDULE "D"

                           SNN PROFESSIONAL SERVICES

SNN PROFESSIONAL SERVICES SUPPORT FOR SNN MEMBERS
-------------------------------------------------

The SNN Professional Services group will support all SNN Member companies.  The
goal of the Professional Services group will be to provide a responsive,
customer focused service organization.

The initial focus will be on training the Member Companies' sales groups and
initiating sales activity. A high quality training program will be available to
prepare the PHOTOELECTRON representatives to pursue IGS business. Full marketing
support will also be provided with literature, trade show activity and resources
as reasonably requested and approved by the President of the SNS.

The SNN Professional Services group will publish a Policies and Procedure Manual
with detailed descriptions of the following services and procedural
requirements.

               Sales Training
               Sales Specialist Support
               End User Training
               PHOTOELECTRON Support
               Technical Service
               Marketing
               SNN Operations and Mechanics

SALES TRAINING
---------------

The sales training program will be available in March 1998. The program will
cover the SNN concept, product training, clinical applications, competitive
information, sales issues and marketing materials. The training is estimated to
be 2 days in duration and it is expected that update training will occur at
least once per year or at major software releases. This will be the full time
focus of training specialists. Purchase of Demo systems will be contingent on  a
SNN Member having personnel attend an SNN training program. At the "Initial
training" session (minimum 12 sales reps in attendance) three sales reps will
share one training system. Training material and equipment will be provided by
the SNS (along with demo systems purchased). The SNN Member will cover
accommodation, travel and personal expenses for their personnel.

SALES SPECIALISTS ROLE
-----------------------

Sales Specialists will be responsible for motivating, training, strategizing and
assisting lead closure with the SNN Member sales reps. A strong surgical sales
background, IGS experience and collaborative selling skills will be provided.
These people will work closely with the reps in qualifying all leads, planning
account strategies, leading demos, presenting competitive analyses, assisting in
site planning and quote preparation, and assisting in closure of sales. They
will act as an impartial resource to all SNN Members. These specialists will
also be in a unique position to promote "leveragability of sales costs" as they
will be able to identify appropriate situations to bring in a complementary SNN
Member in assisting sales closure.
<PAGE>

                                      -6-
END USER TRAINING
------------------

End user training specialists will be available to assist with initial
applications training upon installation of a new system. This resource can be
positioned as a large "value added" to customers.   The program will be offered
at SNN training sites or customer sites and includes 2 days of classroom
learning and 2 days of O.R. room experience.

PHOTOELECTRON COMMUNICATIONS
-----------------------------

The SNN Professional Services Account Managers will drive responsiveness at the
management level, creativity in leveraging Member sales, luminary customer
involvement, distribution strength and key relationship management. Acting as a
key contact point for the Member Companies they will be the conduits to all
areas of the SNN Professional Group.

TECHNICAL SERVICE - MAINTENANCE
-------------------------------

The SNN Professional Services will provide technical service to the installed
base and support sales activities with site planning and installations. The
Maintenance Contract (Schedule G) describes the terms and conditions of service
offerings. Additional service product offerings may also be considered.

MARKETING
-----------

The SNN Professional Services will provide product literature, sponsor clinical
papers, public relations support, advertising and trade show activity. Workshops
and symposia will also be supported with personnel and equipment at reasonable
levels and with sufficient notice. Clinical development activities will also be
used in support of SNN Members whenever possible in leveraging the profile of
the SNN and the SNN Member.

SNN MEMBERS USE OF SNS OPERATIONS
---------------------------------

The SNS will be the support infrastructure to all SNN Members and will provide
Service, Training and Sales Support in pursuit of SNN Product sales as required
by the Members. This section describes the overall mechanics of SNN Members' use
of the SNS. A SNN Member handbook, which describes these operations in much more
detail, will be available to each SNN Member. The first version of this handbook
will be published by the SNS in September 1998.

A SNN Member will first require training on the product as described above. This
training may be conducted at a location of the SNN Member's choice with
equipment of either the SNN Professional Services or the SNN Member.

A SNN Member will generate and qualify sales leads for SNN products and
communicate those leads to the SNS using the Qualified Lead Form. Response of
Sales Specialists will be within 5 business days, with pager response possible
at any time.

The Sales Specialists will then fully qualify these leads and together with the
SNN Member reps establish an account strategy for gaining the business
appropriate to that account.

Implementation of an account strategy will be carried out as a team with the SNN
Member rep acting as the key account contact. Presentations, product
demonstrations, site planning, competitive analyses,
<PAGE>

                                      -7-

RFP's and associated sales activities will be supported by the SNN Professional
Services Sales Specialists, service techs and application/training personnel as
required. The SNN Member rep maintains control of this process at all times.

If two SNN Members are competing at the site, the role of the SNN Professional
Services Sales Specialist does not change. The sale of the SNN product versus
competitive IGS systems is their key focus.

The Sales Specialist may also, at the request of the SNN Member, introduce
another SNN Member into a sale in order to leverage the strengths of both
companies. In such a case, the first company will be considered the SNN lead
company and provide the SNN product quotation to the hospital if requested.

SNS Services will be available to all SNN Members and customers via phone, fax
and email.

When a SNN Member receives an SNN product purchase commitment from an end-buyer,
the SNN Member will submit a PO to the SNS with the product configuration and
requirements indicated. The SNS will provide a PO template for SNN Members' use.

The SNS will then advise the Member/customer as to delivery date and training
schedule for that customer.

The SNN Member and the SNS will then complete delivery, installation and
training to customer requirements.
<PAGE>

                                 SCHEDULE  "E"
                              INTEGRATION POLICY

This document describes how SNN Member products can be integrated into the SNN
product. This will be planned as part of the roadmap creation.

CREATION OF THE SNN PRODUCT ROADMAP

The SNN Product Roadmap is a document that will be available to SNN Members. The
Roadmap describes the features that will be implemented in future product
releases by the SNS, and specifies the content and timing of each release.  This
document is confidential.

To create the Roadmap, product features (including requests for integration) are
proposed by the SNN Steering Committee.  Market requirements, technical
feasibility will be considered in creating the roadmap. The final roadmap has to
be approved by the President of the SNN Professional Services.

INTEGRATION OF PRODUCTS

Integration of the SNN PHOTOELECTRON product is subject to the following
process:

A.  Specifications provided by the SNS to integrate the PHOTOELECTRON product

The SNS will provide specifications on integration of the PHOTOELECTRON product
and its features.

B.  Specifications provided by the PHOTOELECTRON to integrate PHOTOELECTRON
components

The PHOTOELECTRON will provide a detailed specification list describing the
features, the interfaces required, as well as the communication process (if
required) to the image-guided surgery system.  In addition, the PHOTOELECTRON
will provide specifications on preferred additional features requested to be
integrated into the image-guided surgery system as well as a description of
their cohesion into the overall workflow of the system.  In order to ensure that
the integration is technically feasible and meets the requirements of the
PHOTOELECTRON, the method of integration is subject to approval by both parties.

C.  DEVELOPING A ROADMAP WITH MUTUALLY APPROVED MILESTONES

The roadmap must contain a description of the milestones, the timeline for
achieving these milestones as well as indicators to measure milestone
achievement.  The roadmap must be based on the specifications provided by the
SNS and the PHOTOELECTRON, a drawing of the UI, a description of workflow
integration and a description of compatibility with the image-guided surgery
system.

D.  PROJECT MANAGER IDENTIFIED BY BOTH PARTIES

A project manager must be assigned by both parties and information on name,
title, contact phone number, fax number and e-mail address provided.  The
project manager is responsible for ensuring that the required developments,
under his facility, are carried.  The project manager must indicate, by a
signature, approval of the roadmap milestone completion dates.  The project
manager must ensure that the described specifications are met and that the
timeline is adhered to. If the project manager is to be replaced by an alternate
designate, then the other partner must be notified at least two weeks in advance
to minimize disruption of the project.
<PAGE>

                                      -2-

E.  PRODUCT MANAGER DEFINED BY BOTH PARTIES TO MARKET PRODUCT.

A product manager must be assigned by both parties and information on name,
title, contact phone number, fax number and e-mail address provided.  The
product manager is responsible for ensuring that the specifications determined
are in accordance with market requirements.  The product manager must ensure
that the PHOTOELECTRON product is approved by appropriate persons and that both
a user manual as well as a service manual are available. Warranty, repair and
pricing policies must also be communicated to the SNS by the product manager of
the PHOTOELECTRON.

F.  INTEGRATION AND TESTING OF PRODUCT

The integration and testing of the integrated image-guided surgery product will
be performed at the SNS according to the specifications provided by the SNS as
well as the PHOTOELECTRON.  Once the integrated system has passed the internal
testing of the SNS, it will then be passed on to the PHOTOELECTRON. The
PHOTOELECTRON may at their sole discretion perform compliance tests to ensure
specifications are met.

G.   DEVELOPMENT ON BEHALF OF PHOTOELECTRON FOR PRODUCT INTEGRATION NOT INCLUDED
     IN GENERAL ROADMAP

If a PHOTOELECTRON requires integration of its' products and the requirement is
outside the approved general roadmap, then the integration will be performed
based on the hourly, daily or monthly rates generally applicable for R&D custom
engineering work.

     R&D custom engineering rates are as follows:

        Hourly  - US $150 for assignments not exceeding 10 days* duration.

        Daily  - US $1,000 for assignments exceeding, and including, 10 days*
duration.

        Monthly  -  US $18,750**.

        * Based on a 7.5 hour work day.

        ** Work days in a month do not include Saturdays and Sundays and are
        based on a 7.5 hour work day.

The above includes integration of a PHOTOELECTRON product applies as well as
custom integration of a PHOTOELECTRON product.

Responsibility of the PHOTOELECTRON for all regulatory approvals

The PHOTOELECTRON product to be integrated into the image-guided surgery product
must have all the required approvals prior to integration into the system.  The
PHOTOELECTRON must define the planned geographical territory for which to market
the product,   and therefore must also ensure compliance with all required
regulatory approvals for that territory.  The overall system integration will be
performed at the SNS.

Responsibility of the PHOTOELECTRON for user manual, service manual, warranty,
repair and pricing

The product of the PHOTOELECTRON must be delivered in conjunction with a user
manual, a service manual, both in hard and soft copy.  The soft copy is required
to ensure that the product of the PHOTOELECTRON can be integrated into the
overall manual at the SNS facility.  The PHOTOELECTRON must guarantee that they
will provide warranty for the components integrated into the image-guided
surgery product as well as repair for these components as legally required.  The
<PAGE>

                                      -3-

PHOTOELECTRON is also responsible for pricing of the product and providing this
information to the SNS.

SECURITY OF INTELLECTUAL PROPERTY PRIOR TO THE EXCHANGE OF IDEAS

Prior to the exchange of product ideas, concepts, inspirations, specifications,
features, workflow, user interfaces or any other material in written or verbal
form, all partners must secure their intellectual property.  During the process
of integration of the PHOTOELECTRON product, each party retains ownership of the
components and ownership of work completed by each respective party.  This
includes respective development of the PHOTOELECTRON product, its features,
abilities, etc.  The SNS retains the ownership rights for the development of the
source code and the specific integration into the image-guide surgery product.
The general spirit should be to exchange ideas as much as possible to make a
wide variety of products available to the surgeon.
<PAGE>

                                      -4-

                                  SCHEDULE "F"
                    UPSTREAM/DOWNSTREAM MARKETING SERVICES

<TABLE>
<CAPTION>
<S>                                              <C>
         UPSTREAM                                                DOWNSTREAM
------------------------------------------------------------------------------------------------------------------
  .  MARKET INTELLIGENCE                                      .  MARCOM
  .  PRODUCT MANAGEMENT AND INDUSTRIAL DESIGN                 .  CUSTOMER TRAINING
  .  CLINICAL DEVELOPMENT                                     .  SUPPORT TO SALES AND PLANNING
  .  REGULATORY                                               .  STRATEGIC ALLIANCE - FORMATION AND CONTRACTS
                                                              .  CUSTOMER VISITS
                                                              .  LUMINARY SITES
                                                              .  FIELD CLINICAL APPLICATIONS
                                                              .  EXHIBITIONS/TRADE SHOWS
                                                              .  APPLICATIONS SPECIALISTS
                                                              .  STEERING COMMITTEE
                                                              .  SALES SPECIALISTS BY DISEASE CLASS
                                                              .  MC DISTRIBUTION SUPPORT
                                                              .  ADVISORY PANEL MANAGEMENT
------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                 SCHEDULE "G"
                     ADDITIONAL LEGAL TERMS AND CONDITIONS

A.  STANDARD REPRESENTATIONS, WARRANTIES AND CONDITIONS.

A.1  ACKNOWLEDGEMENT OF SNN MEMBER RE:  SNS'S INTELLECTUAL PROPERTY RIGHTS.
     ---------------------------------------------------------------------
SNN Member recognizes the great value of the SNS Technology and of any products
or services derived therefrom and of the goodwill associated therewith and
acknowledges that all Intellectual Property Rights therein and goodwill
pertaining thereto belongs to SNS or its licensors and further acknowledges that
ownership of the SNS Technology and of any products or services derived
therefrom and the Intellectual Property Rights therein shall be held in the name
of SNS or such Person as SNS may designate.  SNN Member acknowledges that the
Intellectual Property Rights in any Modifications to the SNS Technology or any
products or services derived therefrom shall remain with SNS or such Person as
SNS may designate whether or not the work is performed by SNN Member, SNS or by
any other Person.

A.2  COVENANTS OF SNN MEMBER RE:  SNS'S INTELLECTUAL PROPERTY RIGHTS.   SNN
     ----------------------------------------------------------------
Member covenants to SNS that it shall:

(a)  assist and cooperate with SNS to the extent requested by SNS in the
     protection of SNS's or its licensor's Intellectual Property Rights
     including the execution of any document, including assignment
     documentation, to confirm SNS's or its licensor's title to and interest in
     the SNS Technology and of any products or services derived therefrom;

(b)  take no steps either directly or indirectly to claim or dispute ownership
     or the enforceability or validity of SNS's or its licensor's Intellectual
     Property Rights in the SNS Technology and of any products or services
     derived therefrom;

(c)  promptly notify SNS of any infringements or imitations by others of the SNS
     Technology or of any products or services derived therefrom when such
     becomes known to SNN Member;

(d)  promptly notify SNS of the failure of any End User to abide by any and all
     of the terms of the relevant End User Agreement that becomes known to SNN
     Member;

(e)  take all reasonable precautions and actions to ensure that none of the SNS
     Technology or products or services derived therefrom is marketed,
     distributed or otherwise made available to any Person except in accordance
     with the terms of this Agreement;

(f)  not manufacture, copy, translate, adapt, alter, reverse engineer,
     decompile, disassemble, download, change hardware formats, rent, lease,
     lend, sublicense, electronically distribute (e.g. telephonically or through
     broadcast signals), remote processing services, micro-mainframe linkups or
     multi-user/local area SNN machines, any of IGS Surgical Navigation
     Technology or products or services derived therefrom except as expressly
     provided for in writing by SNS;

(g)  not remove or deface any logo, notice or legend of copyright, trade marks
     or trade secrets from any packaging which contains the SNS Technology or
     products or services derived therefrom; and
<PAGE>

                                      -2-

(h)  SNN Member may not use the SNN name and Trademark except in conjunction
     with Products and Services approved by the President. SNN Member
     acknowledges that it obtains no rights or interest in any registered or
     unregistered trade mark or trade name of SNS , SNN or SNN Products and
     Services or in the goodwill accruing therefrom.

A.3  CONFIDENTIALITY.  Each Party covenants to the other Party that it shall
     ---------------
keep confidential the Confidential Information of the other Party to which such
Party obtains access to as a consequence of entering into this Agreement and
that it will take all reasonable precautions to protect such Confidential
Information from any use, disclosure or copying except as expressly authorized
by this Agreement.  Each Party shall implement such procedures as the other
Party may reasonably require from time to time to improve the security of the
Confidential Information in its possession.  This Section shall survive the
termination of the Agreement.

A.4  IRREPARABLE HARM.   SNN Member acknowledges that a breach of any of the
     ----------------
covenants in this Article Seven shall result in immediate irreparable and
irremediable damage to SNS.  The Parties agree that, in the event of such
failure, there is no adequate remedy at law and incurring such damage shall be
entitled to relief in the way of temporary or permanent injunctions and such
other and further relief as any Court with jurisdiction may deem just and
proper.

B.  DISPUTE RESOLUTION.

B.1  DISPUTE RESOLUTION PROCESS.
     --------------------------

(a)  Any dispute, disagreement, controversy or claim arising out of or relating
     to this Agreement including, without limitation, its formation, execution,
     validity, application, interpretation, performance, breach, termination,
     enforcement or damages, or remedies arising out of the breach of or non-
     compliance therewith which cannot be settled by discussion, conciliation or
     mediation within a period of thirty days after the dispute arises shall be
     finally settled by arbitration to be conducted by a single arbitrator under
     the provisions of the United Nations Commission for International Trade Law
     (UNCITRAL) Rules for International Commercial Arbitration, in the English
     language and in a mutually convenient place (or in Metropolitan Toronto,
     Ontario, Canada if the place can not be mutually agreed within 30 days of
     the demand for arbitration).  The appointing authority for the arbitrator
     shall be a Justice of the Court of Justice of Ontario, Canada, in
     accordance with the said UNCITRAL Rules and the Rules of said Court.The
     Parties acknowledge and agree that the award of the arbitrator shall be
     final and conclusive and there shall be no appeal therefrom, except as
     permitted by the said UNCITRAL Rules, and the award may be enforced in the
     jurisdiction of the relevant Party and anywhere else where a court or other
     relevant authority will accept the jurisdiction of the arbitrator for
     purposes of enforcement of his/her award.

(b)  Notwithstanding the foregoing, either Party may apply to the courts of the
     Province of Ontario or any other jurisdiction for injunctive or other
     equitable remedies to protect its rights in Intellectual Property Rights
     respecting the SNN Products and Services.

C.  OTHER TERMS OF GENERAL APPLICATION.

C.1  ASSIGNMENT.  The rights and obligations of SNN Member under this
     ----------
Agreement shall not be assigned, in whole or in part, by SNN Member without the
prior consent in writing of SNS and any purported assignment made without that
consent is void and of no effect.  No assignment of this
<PAGE>

                                      -3-

Agreement shall relieve SNN Member from any obligation under this Agreement or
impose any liability upon SNS, unless otherwise agreed to in writing by SNS. SNS
may assign its rights and obligations under this Agreement to any Affiliate or
to a party purchasing the part of its business with which the subject matter of
this Agreement is related, without SNN Member's prior written consent.

C.2  BINDING ON SUCCESSORS.   This Agreement shall ensure to the benefit of and
     ---------------------
be binding upon the Parties and their respective successors and permitted
assigns.

C.3  FURTHER ASSURANCES.   Each Party agrees that upon the written request of
     ------------------
any other Party, it will do all such acts and execute all such further
documents, conveyances, deeds, assignments, transfers and the like, and will
cause the doing of all such acts and will cause the execution of all such
further documents as are within its power to cause the doing or execution of, as
any other party hereto may from time to time reasonably request be done and/or
executed as may be necessary or desirable to give effect to this Agreement.

C.4  NO PARTNERSHIP.  The Member acknowledges and agrees that this Agreement is
     --------------
a contractual joint venture and does not create nor shall it deemed to create or
constitute a legal partnership or other formal legal association or comparable
relationship between the Member and SNS or among the Member and any other member
of the SNN or among any member of SNS or the SNN and any SNN Standards Adherent.
Without limiting the generality of the foregoing, neither Party is the agent of
the other nor has either Party any authority to enter into contracts or assume
other legal obligations binding the other;

C.5  GENDER AND NUMBER.   Words expressed in the singular include the plural and
     -----------------
vice versa and words expressed in one gender include all genders.

C.6  HEADINGS AND INDEX.   The headings and the index in this Agreement are for
     ------------------
convenience of reference only and shall not affect the construction or
interpretation hereof.

C.7  INVALIDITY.   If any of the provisions contained in this Agreement is found
     ----------
by a court of competent jurisdiction to be invalid, illegal or unenforceable in
any respect, the validity, legality or enforceability of the remaining
provisions contained herein shall not be in any way affected or impaired
thereby.<PAGE>

                                                       EXHIBIT 10.27
                            PHOTOELECTRON CORPORATION
                                  5 FORBES ROAD
                         LEXINGTON, MASSACHUSETTS 02421

                                 LOAN AGREEMENT

                          8% SHORT TERM LINE OF CREDIT

                         COMMON STOCK PURCHASE WARRANTS

                                                               November 15, 1999

PYC Corporation
c/o Aegeus Shipping Co., Ltd.
17-19 Akti Miaouli
Piraeus 18535
Greece

Dear Sirs:

     The undersigned, Photoelectron Corporation, a Massachusetts corporation
(the "Company"), agrees with you as follows:

     (S)1.  Authorization of Note and Warrants.  The Company has authorized the
(i) agreement to its 8% 6-month line of credit in the aggregate principal amount
of $2,250,000 evidenced by a note (the "Note") to be in the form of Exhibit A
hereto, and (ii) its Common Stock Purchase Warrants (the "Warrants") to be
substantially in the form of Exhibit B hereto, evidencing rights to purchase in
the aggregate a maximum of 450,000 shares of the Company's Common Stock (the
"Warrant Stock").

     (S)2.  Issue of the Note and the Warrants.  The Company will issue to you
and, subject to the terms and conditions hereof and in reliance upon the written
representations and warranties of the Company, you will make the loans as
described in the Note.  You shall be entitled to receive Warrants, to purchase
one share of the Company's common stock for each $5.00 which you have advanced
to the Company pursuant to the Note.  Such Warrants shall be issued at the time
of each advance under the Note.  The exercise price of each share which may be
purchased under each Warrant shall be (i) if the Company's common stock is then
traded on a securities exchange or the Nasdaq National Market, equal to the
average closing price of such stock on that exchange or the Nasdaq National
Market for the 10 trading days immediately preceding the date of such advance,
or (ii) if the Company's
<PAGE>

                                      -2-

common stock is then traded in an over-the-counter market, equal to the average
closing bid price for such stock on such market for the same period.

     (S)3.  Closing.  The closing hereunder shall take place at the offices of
Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts  02110, at such time
and on such date (no later than November 19, 1999) and at such time as the
Company shall designate by notice to you.

     (S)4.  Representations and Warranties.  The Company represents and warrants
as follows:

          (S)4.1 Organization, Good Standing and Authority. The Company is a
     corporation duly organized and validly existing under the laws of the
     Commonwealth of Massachusetts and has all requisite corporate power and
     authority to conduct its business as it is now conducted or proposed to be
     conducted, to enter into this Agreement, to issue the Note and the Warrants
     as contemplated herein and to carry out the provisions of this Agreement,
     the Note and the Warrants. The Company is not qualified as a foreign
     corporation in any jurisdiction and the conduct of its business and the
     nature of its activities require no such qualification. The Company is in
     good tax standing under the laws of the Commonwealth of Massachusetts.

          (S)4.2. Capitalization. As of October 2, 1999, the authorized capital
     stock of the Company consisted of 15,000,000 shares of Common Stock, $0.01
     par value (the "Common Stock"), of which 7,754,254 shares were duly issued
     and outstanding, and 7,500,000 shares of Preferred Stock, $0.01 par value,
     of which no shares were duly issued and outstanding. With the exception of
     (i) warrants to purchase 910,000 shares of Common Stock previously issued
     to you, (ii) warrants to purchase 50,000 shares of Common Stock to be
     issued to Needham & Company, Inc. pursuant to a letter agreement dated June
     8, 1999, (iii) a contractual obligation to issue an undetermined number of
     warrants to purchase shares of Common Stock (based on achieving certain
     sales objectives) to Carl Zeiss Oberkochen pursuant to the Development and
     Distribution Agreement dated as of August 21, 1999 between the Company and
     Carl Zeiss Oberkochen, (iv) a contractual obligation to issue up to 25,000
     shares of Common Stock (based on achieving certain technical objectives) to
     Pyramid Technical Consultants, Inc pursuant to the Product Development
     Agreement dated as of September 1, 1999 between the Company and Pyramid
     Technical Consultants, Inc., (v) an 8% Convertible Subordinated Demand Note
     dated as of May 13, 1992 previously issued to Mr. Peter
<PAGE>

                                      -3-

     M. Nomikos that is convertible into 235,000 shares of Common Stock
     (together with accrued interest of $42,670 that is convertible into shares
     of Common Stock at various conversion rates), and (vi) options to purchase
     888,442 shares of Common Stock granted to officers, directors, employees
     and consultants to the Company, as of October 2, 1999, there were not
     outstanding any warrants, options, convertible securities or other rights
     binding upon the Company or, to the knowledge of the officers of the
     Company, upon the shareholders of the Company, to subscribe for or to
     purchase any of the capital stock of the Company.

          (S)4.3 Subsidiaries; Other Investments. Except for Photoelectron
     (Europe) Ltd., a wholly owned subsidiary of the Company organized under the
     laws of England, the Company has no subsidiaries or other material
     investments in capital stock of other corporations.

          (S)4.4. Financial Statements; Changes. There have been delivered to
     you (i) unaudited balance sheets as at October 2, 1999, and statements of
     income and of changes in financial position for the periods then ended of
     the Company, and (ii) a balance sheet as at January 2, 1999, and statement
     of income for the 12-month period then ended of the Company. Such financial
     statements fairly represent the financial condition of the Company at the
     dates thereof and have been prepared in accordance with generally accepted
     accounting principles consistently followed. There are no contingent
     liabilities or guarantees of the indebtedness of others by the Company
     involving material amounts known to the Company and not disclosed in said
     financial statements and the footnotes thereto. Since October 2, 1999,
     there has been no change in the assets, liabilities, financial condition or
     business of the Company, other than changes in the ordinary course of
     business, the effect of which has not been in any case or in the aggregate
     materially adverse, and other than such changes as are described in a
     writing delivered to you referenced to this Section. The Company has not
     authorized, agreed to pay or paid any dividends.

          (S)4.5 Litigation. There is no action, suit or proceeding pending
     against the Company before any court or administrative agency, nor is there
     any known basis for any such litigation.

          (S)4.6. No Materially Adverse Contracts, etc. The Company is not
     obligated under any contract or agreement or under any law,
<PAGE>

                                      -4-

     regulation or decree, which materially and adversely affects its business,
     properties, prospects, assets or condition, financial or otherwise. Neither
     the execution nor the delivery of this Agreement, nor the consummation of
     the transactions contemplated hereby, nor the fulfillment of the terms
     hereof, will conflict with, or result in a breach of the terms, conditions
     or provisions of or By-laws of the Company or of any agreement or
     instrument under which the Company is obligated.

          (S)4.7. Compliance with Instruments, etc. The Company is not in
     violation of its Articles of Organization or By-laws or, to the knowledge
     of its officers, of any applicable law, or in default with respect to any
     order, writ, injunction or decree of any court, or in default under any
     order, license, regulation or demand of any governmental agency, which
     default or violation might have consequences which would materially and
     adversely affect the business, property, financial position or results of
     operations of the Company.

          (S)4.8. Taxes. The Company has filed all Federal and state tax returns
     required to be filed, and all taxes, assessments and other governmental
     charges now known by the officers of the Company to be due upon the Company
     or any of its income, property or assets have been duly paid and no
     extensions for the time of payment have been requested. The Company has
     paid or set up on its books accruals or reserves adequate for the payment
     of all Federal and state income tax liabilities.

          (S)4.9. Properties. The Company has good and marketable title to all
     properties and assets reflected in the financial statements referred to in
     (S)4.4 hereon, or acquired since October 2, 1999, such properties and
     assets include all of the fixed assets used in or necessary to the
     operation of the business of the Company as such business is presently
     being conducted; and none of the property or assets of the Company is
     subject to any liens or encumbrances, other than liens of materialmen,
     mechanics, contractors or subcontractors which do not materially or
     adversely affect the business, property, financial position or results of
     operations of the Company.

          (S)4.10. Patents, Franchises, etc. The Company owns or possesses the
     rights to use all the patents, trademarks, service marks, tradenames,
     copyrights, licenses and franchises currently used by it in the conduct of
     its business. Neither the Company nor any of its officers
<PAGE>

                                      -5-

     has received notice, oral or written, that any product of the Company
     infringes any patent or patent application of any other person and, to the
     best of the Company's knowledge, no such infringement exists.

          (S)4.11. Employment Relations. The Company is in material compliance
     with all federal and state laws, regulations and orders governing its
     relations with its employees and to the knowledge of the officers of the
     Company no dispute exists between the Company and any of its employees
     regarding employee organization or wages, hours or conditions of
     employment.

          (S)4.12. Disclosure. Neither the financial statements referred to in
     (S)4.4 nor any certificate, written statement or document furnished to you
     by or on behalf of the Company in connection with the transactions
     contemplated hereby nor this agreement (other than forecasts of future
     events) contains any untrue statement of a material fact or omits to state
     a material fact necessary to make the statements contained therein or
     herein not misleading.

All representations and warranties contained herein or made by or on behalf of
the Company in writing in connection with the transactions contemplated herein
shall survive the execution and delivery of this Agreement, the sale of purchase
of the Note and the Warrants and payment therefor and shall remain in effect so
long as the Note or the Warrants remain outstanding.  All statements contained
in any certificate or other instrument delivered by or on behalf of the Company
pursuant hereto or in connection with the transactions contemplated herein shall
constitute representations and warranties by the Company hereunder.

     (S)5.  Securities Act.  You represent to and agree with the Company (i)
that you are making the loans described by the Note and receiving the Warrants
for your own account without a view to any distribution thereof in violation of
the Securities Act of 1933, as amended, and that any shares of Warrant Stock
which you may acquire by reason of exercise of the Warrants will not be acquired
by you with a view to the distribution thereof in violation of the Securities
Act of 1933, as amended, (ii) that you have been fully informed that the Note
and Warrants being sold to you and the Warrant Stock have not been registered
pursuant to the provisions of Section 5 of the Securities Act of 1933, as
amended, and must be held indefinitely unless they are subsequently registered
under the provisions of said Act or an exemption from such registration is
available.
<PAGE>

                                      -6-

     You acknowledge that you have received all information that you requested
from the Company to make your decision to invest therein; that you have the
ability to bear the economic risk of such an investment, including the loss of
such investment, and that you have sufficient knowledge and experience in
business and financial matters to evaluate the merits and risks of such an
investment.

     The representations and agreements contained in this (S)5 shall survive the
sale and purchase of the Note and the Warrants and payment therefor as provided
in this Agreement, and it is understood that the Company is relying on your
representations and agreements contained in this (S)5 in entering into this
Agreement and in issuing the Note and the Warrants.

     (S)6.  Conditions of Purchaser's Obligations.  Your obligation to purchase
and pay for the Note and the Warrants to be sold and delivered to you is subject
to the accuracy of all representations and warranties by the Company contained
herein or otherwise made by the Company in writing in connection with the
transactions contemplated hereby and to the satisfaction of the following
conditions:

          (S)6.1 Legal Opinion. At the closing hereunder, you shall have
     received from Messrs. Goulston & Storrs, Counsel for the Company, a
     favorable opinion addressed to you, dated the date of the closing and
     satisfactory in form and substance to you an your counsel as to (a) the due
     organization and valid existence of the Company; (b) due authorization
     (including any consent of stockholders required by law or by the Articles
     of Organization or By-laws of the Company), execution and delivery by the
     Company and the validity and binding effect and enforceability as
     obligations of the Company, of this Agreement, the Note and the Warrants,
     including the due authorization and reservation for issuance of the shares
     of Common Stock of the Company initially issuable upon exercise of the
     Warrants and the validity, full payment and non-assessibility, when issued
     pursuant to the terms of the Warrants, of shares of Common Stock of the
     Company to be issued upon exercise of the Warrants; and (c) the Company
     having authorized capital stock as set forth in (S)4.2 hereof.

          (S)6.2. Representations and Warranties. The representations and
     warranties contained in (S)4 hereof shall be true on and as of the date of
     the closing hereunder (except to the extent that the facts upon which such
     representations are based may have been changed by transactions
     contemplated by this Agreement) with the same effect as though such
     representations and warranties had been made on and as
<PAGE>

                                      -7-

     of such date and the Company shall have delivered to you its certificate
     dated the date of the closing and signed on its behalf by its President and
     its Treasurer to the foregoing effects.

          (S)6.3 Proceedings. All corporate and other proceedings to be taken in
     connection with the transactions contemplated hereby and all documents
     incident thereto shall be satisfactory in substance and form to your and
     your special counsel, and you and such counsel shall have received all such
     counterpart originals or certified or other copies of such documents as you
     or they may request.

          (S)6.4. No Legal Impediment. No change shall have occurred in any law
     or in the regulations thereunder or interpretations thereof which, in the
     opinion of your counsel, would make it illegal for you to purchase any of
     the Note or the Warrants.

     (S)7.  Furnishing of Financial Data and Certificates.  So long as you shall
hold the Note, the Company shall deliver to you:

          (S)7.1. As soon as practicable, and in any event within 20 days after
     the close of each month beginning with the month of November, 1999 a copy
     of the internal financial statement for that preceding month in reasonable
     detail, certified subject to year-end adjustments by the principal
     accounting officer of the Company. Such monthly financial statements shall
     be accompanied by a statement of events anticipated to occur during the
     month commencing next following the date of delivery which are deemed
     significant by the Company; and

          (S)7.2 Promptly as they become available, copies of all financial
     statements and reports as you shall reasonably request.

     (S)8.  Inspection, etc.  So long as you shall hold the Note, the Company
will permit any person designated by you in writing and reasonably acceptable to
the Company, at no expense to the Company, to visit and inspect any of the
properties of the Company, including books of account, and to discuss its
affairs, finances and accounts with its officers, all at such reasonable times
and as often as may reasonably be requested.  All information so obtained by you
pursuant to this (S)8 or delivered to you pursuant to (S)7 will be kept
confidential by you.

     (S)9.  Negative Pledge.  So long as you shall hold the Note, the Company
will not mortgage, sell, exchange or otherwise dispose of, or permit any lien or
encumbrance to be imposed or remain on any of its patents,
<PAGE>

                                      -8-

trademarks, service marks copyrights, licenses or other proprietary rights used
or useful in the Company's business.

     (S)10.  Agreement as to Agents or Brokers.  The Company hereby agrees to
indemnify and hold you harmless against and in respect of any claim, arising as
a result of any act of the Company, for brokerage or other commissions relating
to this agreement or the transactions contemplated hereby.  You agree to
indemnify and hold the Company and each of the other parties to this Agreement
harmless against and in respect of any claim, arising as a result of any act of
yours, for brokerage or other commissions relating to this Agreement or the
transactions contemplated hereby.

     (S)11.  Expenses.  Whether or not the transactions contemplated hereby
shall be consummated, the Company will pay (a) the costs of (i) preparing this
Agreement and the other instruments mentioned herein, and (ii) the issue of the
Note and Warrants; and (b) the reasonable fees, expenses and disbursements of
your counsel, Messrs.  Bingham Dana LLP in connection with the transactions
contemplated hereby, including amendments, waivers and consents in connection
therewith.

     (S)12.  Parties in Interest.  All covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto.

     (S)13.  Use of Proceeds.  The Company will use the proceeds received from
the sale of the Note hereunder for working capital.

     (S)14.  Notices, etc.  All notices, requests, consents and other
communications hereunder shall be in writing and shall be sent by confirmed
facsimile transmission or forwarded by receipted courier.

     (a)  if to the Company, at the address set forth on the first page hereof,
     or at such other address as may have been furnished to you in writing by
     the Company, marked "Attention:  President",

     (b)  if to you, at the address set forth on the first page hereof, or at
     such other address as may have been furnished to you in writing by the
     Company, marked "Attention: President".

Any notice or other communication so addressed and so mailed shall be deemed to
have been given when mailed.
<PAGE>

                                      -9-

     (S)15.  Law Governing.  This Agreement is being executed and delivered in
the Commonwealth of Massachusetts and shall be construed in accordance with and
governed by the laws thereof.

     (S)16.  Changes, Waiver.  Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.  No such change, waiver,
discharge or termination by you shall be effective unless executed by you.

     If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed copy of this letter and return such copy to the
undersigned, whereupon this letter as so accepted shall become a binding
agreement between you and the undersigned.

                                         Very truly yours,

                                         PHOTOELECTRON CORPORATION

                                         By   /s/ Euan S. Thomson
                                           --------------------------------
                                                     President

The foregoing Loan Agreement
is hereby accepted as of the date
thereof.

PYC CORPORATION

By   /s/ Peter M. Nomikos
   ------------------------

<PAGE>

                                                                      EXHIBIT A
                                      -10-

                            Photoelectron Corporation

                                 Promissory Note

$2,250,000                                              November 15, 1999
                                                        Lexington, Massachusetts

     For value received, the undersigned hereby promises to pay to PYC
Corporation, a Liberian corporation ("PYC"), or order, the principal amount of
Two Million Two Hundred and Fifty Thousand and no/100 Dollars $2,250,000) (or
such lesser amount as shall have been advanced and remain outstanding and
unpaid) on six months from the date hereof as described in the Agreement
referred to below, in immediately available funds, and to pay interest on the
unpaid principal amount hereof in like funds, for the period commencing on the
date hereof until paid in full, at the rate of 8% per annum.

     Terms not otherwise defined herein shall be used as defined in such
Agreement.

     Overdue payments of principal (whether at stated maturity, by acceleration
or otherwise), and, to the extent permitted by law, overdue interest, shall bear
interest, payable on demand in immediately available funds, at a rate per annum
equal to 4% above the rate provided in such Agreement.

     The undersigned may request advances under this Note once every 30 days
during the period from the date of this Note until the maturity hereof, whether
stated maturity or accelerated maturity pursuant to the terms hereof.  Each such
request shall be in writing, addressed to PYC at the address thereof in the
Agreement and may be in any amount, not exceeding $400,000 or such lesser amount
which, together with all amounts advanced previously under this Note and
remaining outstanding, does not exceed $2,250,000 in the aggregate, as the
undersigned may specify.

     This Note is issued pursuant to, and entitled to the benefits of, and is
subject to, the provisions of a Loan Agreement dated November 15, 1999 by and
between the undersigned and PYC (herein, as the same may from time to time be
amended or extended, referred to as the "Agreement"), but neither this reference
to the Agreement nor any provision thereof shall affect or impair the absolute
and unconditional obligation of the undersigned maker of this Note to pay
principal of and interest on this Note as herein provided.
<PAGE>

                                      -11-

     In case any default in the terms hereof or of the Agreement shall occur, or
if the undersigned shall file for bankruptcy protection or become insolvent, the
aggregate unpaid principal of, plus accrued interest on, this Note shall become
or may be declared to be due and payable and no further advances pursuant to
this Note shall be required.

     The undersigned may, at its option, prepay all or any part of the principal
of this Note before maturity and is obligated to prepay this Note upon receipt
by the undersigned of the proceeds of any future financings of the undersigned,
the net proceeds of which to the undersigned in the aggregate equal or exceed
$5,000,000.

     Upon the maturity or entire prepayment of this Note, PYC shall have the
option, exercisable by written notice to the undersigned within 30 days
subsequent to such maturity or prepayment, to convert this Note into Common
Stock of the undersigned at a conversion price per share equal to the market
price per share of Common Stock as of the date of such conversion, determined
using the method set forth in the last sentence of (S)2 of the Agreement for
determining the exercise price per Warrant (as defined in the Agreement).

     The undersigned hereby waives presentment, demand, notice of dishonor,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note.

     This instrument shall have the effect of an instrument executed under seal
and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).

                              PHOTOELECTRON CORPORATION

                              By:
                                 ------------------------------

                              Title:
                                    ---------------------------
<PAGE>

                                      -12-

                                                        Exhibit B

NEITHER THIS WARRANT NOR ANY SECURITIES PURCHASABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.
NEITHER THIS WARRANT NOR ANY SECURITIES PURCHASABLE UPON EXERCISE HEREOF MAY BE
SOLD OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE
SECURITIES LAWS, OR EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND LAWS.

                            PHOTOELECTRON CORPORATION
                                  5 FORBES ROAD
                         LEXINGTON, MASSACHUSETTS 02421

                             STOCK PURCHASE WARRANT

Date of Issuance:                          Right to Purchase
                 ---------------------                      --------------------
                                                   Shares of Common Stock
                                                         (subject to adjustment)
Warrant #
         ---

          For value received, Photoelectron Corporation, a Massachusetts
corporation (the "Company"), hereby grants to CYP Corporation, or its registered
assigns (the "Registered Holder"), the right to purchase from the Company ______
shares of the Company's Common Stock (subject to adjustment pursuant to Section
3 hereof) at a price of $____ per share (as adjusted pursuant to Section 3
hereof, the "Exercise Price").  The amount and kind of securities purchasable
pursuant to the rights granted under this Warrant and the purchase price for
such securities are subject to adjustment pursuant to the provisions contained
in this Warrant.

     This Warrant is subject to the following provisions:

     1. Definitions. As used in this Warrant, the following terms have the
meanings set forth below:
<PAGE>

                                      -13-

         "Common Stock" means the Company's Common Stock, $.01 par value per
share.

         "Date of Issuance" shall have the meaning specified in Section 10 of
this Warrant.

         "Person" means an individual, a partnership, a corporation, a limited
liability company, a trust, a joint venture, an unincorporated organization or
any other entity or a government or any department or agency of a government.

         "Warrant" or "Warrants" means this Warrant and all stock purchase
warrants issued in exchange therefor pursuant to the terms thereof.

         "Warrant Stock" means shares of the Company's authorized but unissued
Common Stock; provided that if there is a change such that the securities
issuable upon exercise of the Warrant are issued by an entity other than the
Company or there is a change in the class of securities so issuable, then the
term "Warrant Stock" will mean one share of the security issuable upon exercise
of the Warrant if such security is issuable in shares, or will mean the smallest
unit in which such security is issuable if such security is not issuable in
shares.

     2.  Exercise of Warrant.

         2.1  Exercise Period.  The Registered Holder may exercise this
Warrant, in whole or in part (but not as to a fractional share of Warrant
Stock), at any time and from time to time prior to the fifth anniversary of the
Date of Issuance of the Warrant (the "Exercise Period").

     2.2  Exercise Procedure.

          (a) This Warrant may be exercised by the Registered Holder in whole or
in part (but not as to fractional shares of Warrant Stock) by the surrender of
this Warrant and delivery of an executed Notice of Exercise in the form appended
hereto duly executed by the Registered Holder to the Company at its principal
office at any time or times during the Exercise Period accompanied by payment
for the Warrant Stock as to which this Warrant is being exercised by wire
transfer to an account designated by the Company or by certified or bank check.
In the event of a partial exercise of this Warrant, this Warrant will be
canceled and the Company will deliver a new Warrant of like tenor representing
the balance of the shares of Warrant Stock purchasable hereunder.  This Warrant
will be deemed to have
<PAGE>

                                      -14-

been exercised as such time (the "Exercise Date") as the Company has received
the Notice of Exercise accompanied by this Warrant and a wire transfer to an
account designated by the Company or a certified or bank check in the amount of
the Exercise Price multiplied by the number of shares of Warrant Stock for which
the Warrant is being exercised. Alternatively, the Registered Holder may elect
to exercise the rights represented by this Warrant in whole or in part (but not
as to fractional shares of Warrant Stock) by the surrender of this Warrant and
delivery of an executed Notice of Exercise specifying that the Warrant shall be
exercised, and the exercise price therefor paid, by the Company's issuing to the
Registered Holder a number of shares of Warrant Stock computed using the
following formula:

     X = Y (A-B)
         -------
            A

Where:  X =    the number of shares of Warrant Stock to be issued to the
            Registered Holder.
        Y = the number of shares of Warrant Stock issuable upon exercise of
            this Warrant on the date of delivery of the Notice of Exercise.
        A = the current fair market value of one share of Warrant Stock.
        B = Exercise Price.

     As used herein, current fair market value of the Warrant Stock shall mean
the numerical average of the fair market value per share of Warrant Stock over
the 10 trading days immediately preceding the day on which the Notice of
Exercise is received by the Company.  If the Warrant Stock is then traded on a
securities exchange, the Nasdaq National Market or the Nasdaq SmallCap Market,
"fair market value per share" on any given day shall be the closing price of a
share of Warrant Stock on that exchange, the Nasdaq National Market or the
Nasdaq SmallCap Market for that day, or if the Warrant Stock is then traded in
an over-the-counter market, "fair market value per share" on any given day shall
be the closing bid price for a share of Warrant Stock on such market for that
day.  If at any time the Warrant Stock is not listed on any securities exchange
or quoted in the Nasdaq National Market or the Nasdaq SmallCap Market or the
over-the-counter market, the "current fair market value" of Warrant Stock shall
be the highest price per share which the Company could obtain from a willing
buyer (not a current employee or director) for shares of Warrant Stock sold by
the Company, from authorized but unissued shares, as determined in good faith by
the Board of Directors of the Company.  Notwithstanding the foregoing, if the
Company shall engage in an "Acquisition" transaction, as defined below, the
current fair market value of the Common Stock shall be determined with reference
to the value ascribed to the Company by the terms of the Acquisition
transaction.
<PAGE>

                                      -15-

          (b) Certificates for shares of Warrant Stock purchased upon exercise
of this Warrant will be delivered by the Company to the Purchaser within ten
days after the Exercise Date.  Unless this Warrant has expired or all of the
purchase rights represented hereby have been exercised, the Company will prepare
a new Warrant, substantially identical hereto, representing the rights formerly
represented by this Warrant which have not expired or been exercised.  The
Company will, within such ten-day period, deliver such new Warrant to the Person
designated for delivery in the Notice of Exercise.

          (c) The Warrant Stock issuable upon the exercise of this Warrant will
be deemed to have been issued to the Purchaser on the Exercise Date, and the
Purchaser will be deemed for all purposes to have been the record holder of such
Warrant Stock on the Exercise Date.

          (d) The issuance of certificates for shares of Warrant Stock upon
exercise of this Warrant will be made without charge to the Registered Holder or
the Purchaser for any issuance tax in respect thereof or any other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Warrant Stock.  The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer, in whole or in part, of
this Warrant (including the issuance of new Warrants in connection therewith) or
the delivery of stock certificates in a name other than that of the Registered
Holder of this Warrant presented for exercise, and any such tax shall be paid by
such Registered Holder at the time of presentation.

2.3  Notice of Exercise.  The Notice of Exercise will be substantially in the
form set forth in Exhibit I hereto, except that if the shares of Warrant Stock
are not to be issued in the name of the Registered Holder of this Warrant, the
Notice of Exercise will also state the name of the Person to whom the
certificates for the shares of Warrant Stock are to be issued, and if the number
of shares of Warrant Stock to be issued does not include all the shares of
Warrant Stock purchasable hereunder, it will also state the name of the Person
to whom a new Warrant for the unexercised portion of the rights hereunder is to
be delivered.
<PAGE>

                                      -16-

     3.  Exercise Price and Adjustments for Certain Events.

          3.1 General. The initial Exercise Price will be $___ , subject to
adjustment as set forth below.

          3.2 Stock Splits, etc. In case the Company shall at any time subdivide
its outstanding shares of Common Stock into a greater number of shares, whether
by way of a stock dividend or otherwise, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately reduced, and the
number of shares of Common Stock issuable upon exercise of this Warrant shall be
proportionately increased; and conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be proportionately reduced.

          3.3 Adjustments for Capital Reorganization or Reclassification. If any
capital reorganization or reclassification of the capital stock of the Company
is effected (other than an Acquisition, as defined below), then, as a condition
of such capital reorganization or reclassification, lawful and adequate
provision shall be made whereby the Registered Holder shall thereafter have the
right to purchase and receive upon the basis and upon the terms and conditions
specified in this Warrant, in lieu of shares of Warrant Stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, those shares of stock, securities or assets which would have
been issued or payable with respect to or in exchange for the Warrant Stock
issuable upon exercise of this Warrant had this Warrant been exercised
immediately prior to the record date (or the effective date, as the case may be)
for such capital reorganization or reclassification.

          3.4 Acquisition Transaction. If the Company is to be consolidated with
or acquired by another Person in a merger or otherwise, or in the event of a
sale of all or substantially all of the Company's assets (an "Acquisition"), the
Company may take such action with respect to this Warrant as the Company's Board
of Directors may deem to be equitable and in the best interests of the Company,
its stockholders and the Registered Holder under the circumstances, including,
without limitation, (i) making appropriate provision for the continuation of the
Warrant by substituting on an equitable basis for the shares then subject to the
Warrant either the consideration payable with respect to the outstanding shares
of Warrant Stock in connection with the Acquisition or securities of any
successor or acquiring entity or (ii) giving the Registered Holder reasonable
advance
<PAGE>

                                      -17-

notice of the pendency of the Acquisition and canceling the Warrant effective
upon the Acquisition if it is not exercised prior to the Acquisition.

     4. Notice of Adjustments. Immediately upon any adjustment of the Exercise
Price or increase or decrease in the number of shares of Common Stock
purchasable upon exercise of this Warrant, the Company will send written notice
thereof to all Registered Holders, stating the adjusted Exercise Price and the
increased or decreased number of shares purchasable upon exercise of this
Warrant and setting forth in reasonable detail the method of calculation for
such adjustment and increase or decrease.

     5. Reservation Of Common Stock. The Company will at all times reserve and
keep available for issuance upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants, and upon such issuance such
shares of Common Stock will be validly issued, fully paid and nonassessable.

     6. No Voting Rights. This Warrant will not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.

     7.  Transfer of Warrant.

          (a) Subject to the transfer conditions referred to in paragraph (b),
below, this Warrant and all rights hereunder may not be assigned or transferred,
in whole or in part, without the prior written consent of the Company. Any
assignment or transfer shall require the surrender of this Warrant with a
properly executed Assignment (in the form of Exhibit II hereto) at the principal
office of the Company.

          (b) Each Registered Holder of this Warrant acknowledges that this
Warrant has not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and agrees not to sell, pledge, distribute, offer for
sale, transfer or otherwise dispose of this Warrant or any Warrant Stock issued
upon its exercise in the absence of (i) an effective registration statement as
to this Warrant or such Warrant Stock under the Securities Act (or any similar
statute then in effect), or (ii) an opinion of counsel for the Company to the
effect that such registration is not, under the circumstances, required.

     8. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of
<PAGE>

                                      -18-

such new Warrants will represent such portion of such rights as is designated by
the Registered Holder at the time of such surrender. The date the Company
initially issues this Warrant will be deemed to be the "Date of Issuance" of
this Warrant regardless of the number of times new certificates representing the
unexpired and unexercised rights formerly represented by this Warrant are
issued.

     9. Representations, Warranties and Covenants of the Registered Holder. (a)
The Registered Holder represents, warrants, acknowledges and agrees as follows:
(i) the Registered Holder is an "accredited investor" within the meaning of that
term in Rule 501 under the Securities Act; (ii) the Registered Holder is
acquiring this Warrant and, has a present intention of acquiring the Warrant
Stock issuable upon exercise of this Warrant, for its own account for investment
and not with a view to any distribution thereof, and will not transfer this
Warrant or any shares of the Warrant Stock in violation of the provisions of any
applicable securities law; (iii) the Registered Holder has been granted access
to information and materials concerning the Company, this Warrant and the
Warrant Stock sufficient to permit it to evaluate the merits and risks of an
investment in this Warrant and the Warrant Stock and has had the opportunity to
its satisfaction to question and to receive answers from officers and other
representatives of the Company concerning the Company, this Warrant and the
Warrant Stock; (iv) the Registered Holder has taken full cognizance of and
understands all of the risks associated with an investment in this Warrant and
the Warrant Stock, including those described in documents filed by the Company
with the Securities and Exchange Commission the ("SEC"); (v) the Registered
Holder has not relied upon any representations or warranties made by the Company
or any of its officers or other representatives or agents except as set forth in
publicly available documents filed by the Company with the SEC; (vi) this
Warrant and the Warrant Stock issuable upon exercise of this Warrant have not
been registered under the Securities Act, or registered or qualified under any
state securities law, and they must be held indefinitely unless they are
subsequently registered under the Securities Act and registered or qualified
under any applicable state securities law or an exemption from such registration
or qualification is available; and (vii) neither the SEC nor any state
securities commission has approved or disapproved of this Warrant or the Warrant
Stock purchasable upon exercise of this Warrant and the Registered Holder
understands that any representation to the contrary is a criminal offense.

          (b) The Registered Holder further represents and warrants to, and
covenants with, the Company that the Registered Holder has full right,
<PAGE>

                                      -19-

power, authority and capacity to enter into this Warrant and to consummate the
transactions contemplated hereby

     10. Miscellaneous.

          10.1  Amendment and Waiver.  The provisions of the Warrants may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Registered Holders of Warrants representing
at least 50% of the shares of Warrant Stock obtainable upon the exercise of the
Warrants outstanding at the time of such consent.

          10.2  Notices. All notices and other communications under this Warrant
shall be (a) in writing (which shall include communications by fax), (b) (i)
delivered by hand, (ii) delivered by a nationally recognized air courier, or
(iii) sent by fax.  Notices and other communications hereunder shall be
effective or deemed delivered or furnished (1) if given by fax, when such
communication is transmitted and the appropriate answer back is received or
receipt is otherwise acknowledged and (2) if given by hand delivery or sent by
air courier, when received.  Any notices or other communications to be given to
a Registered Holder will be given to the address or fax number of such
Registered Holder shown on the books of the Company any notices or other
communications to be sent to the Company will be sent or delivered to the
Company at:

                    Photoelectron Corporation
                    5 Forbes Road
                    Lexington, Massachusetts 02421
                    Attention: President
                    Fax: 781-861-0129

          10.3  Descriptive Headings; Governing Law.  The descriptive headings
of the paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.  The construction, validity and
interpretation of this Warrant will be governed by the laws of the Commonwealth
of Massachusetts.
<PAGE>

                                      -20-

     IN WITNESS WHEREOF, the Company and the Registered Holder have caused this
Warrant to be executed by their duly authorized officers.

     PHOTOELECTRON CORPORATION

     By:
        ------------------------
     Euan S. Thomson
     President

                              Accepted and agreed to by the
 Registered
                              Holder

                              PYC CORPORATION

                              By:
                                 ------------------------------
<PAGE>

                                      -21-

                                                                       EXHIBIT I
                                                                       ---------

                               NOTICE OF EXERCISE
                               ------------------

(To be Executed by
the Registered Holder
in Order to Exercise the Warrant)

          The undersigned hereby irrevocably elects to exercise the right to
purchase ______________________________ (_________) shares of the common stock
of Photoelectron Corporation according to the conditions thereof and herewith
makes payment of the Exercise Price of such shares in full.  Such payment is
hereby made in the amount of $________ by wire transfer or by certified or bank
check.

                         Printed Name
                         of Registered Holder:

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

                         Signature:
                                   ----------------------------

                         Title (if signing
                         on behalf of a
                         Registered Holder):

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

                         Address:
                                   ----------------------------

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

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

                         Dated:
                                   ----------------------------
<PAGE>

                                      -22-

                                                                      EXHIBIT II
                                                                      ----------

                                   ASSIGNMENT
                                   ----------

          FOR VALUE RECEIVED, _________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the within Warrant with
respect to the number of shares of the Warrant Stock covered thereby set forth
below, unto:

Names of Assignees         Address              No. of Shares

Date:__________________________
                                           Signature____________________________

                                            Witness_____________________________

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