EMPLOYMENT AGREEMENT

Exhibit 10.17

EMPLOYMENT AGREEMENT

        THIS EMPLOYMENT AGREEMENT (“Agreement”) entered into as of this 1st day of July, 2001 between Palomar Medical Technologies, Inc., a Delaware corporation (the “Company”), and Joseph P. Caruso, an individual (the “Executive”),

WITNESSETH THAT:

        WHEREAS, the Company desires to employ Executive as its President and Chief Operating Officer for the period and upon and subject to the terms herein provided; and

        WHEREAS, the Company desires to be assured that Executive will not compete with the Company for the period and within the geographical areas hereinafter specified; and

        WHEREAS, Executive is willing to agree to be employed by the Company for the period and upon and subject to the terms herein provided; and

        WHEREAS, Executive does not desire to work for the Company in a position lower than that of President and Chief Operating Officer and is willing to agree not to compete with the Company;

        NOW, THEREFORE, in consideration of the premises, the parties hereto covenant and agree as follows:

        Section 1. Term of Employment; Compensation. The Company agrees to employ Executive from July 1, 2001 until June 30, 2003 (the “Term”) as its President and Chief Operating Officer, with the responsibilities normally associated with such position (the “Executive Position”). The Company will pay Executive for his services during the term of his employment hereunder at an annual rate of Two Hundred Fifty Thousand Dollars ($250,000.00) subject to increases thereafter as determined by the Company’s Board of Directors and Compensation Committee, payable in arrears, in equal installments, in accordance with standard Company practice, but in any event not less often than monthly, subject only to such payroll and withholding deductions as are required by law. Thereafter, this Agreement shall be automatically renewed for successive periods of two (2) years, unless you or the Company shall give the other party not less than three (3) months prior written notice of non-renewal.

        Section 2. Office and Duties. Executive shall have the usual duties, responsibilities and authority (the “Executive’s Authority”) of a President and Chief Operating Officer, and shall report to the Company’s Chief Executive Officer, and shall perform such specific other tasks, consistent with his position as President and Chief Operating Officer, as may from time to time be assigned to him by the Chief Executive Officer. Executive shall devote substantially all of his business time, labor, skill, undivided attention and best ability to the performance of his duties hereunder. Executive may not, without Executive’s consent, be required to perform Executive’s duties at any location that is more than fifty (50) miles from the Company’s principal office in Burlington, Massachusetts, except that Executive agrees that he will travel to whatever extent is reasonably necessary in the conduct of the Company’s business.

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        Section 3. Business Expenses. Executive shall be entitled to reimbursement for expenses incurred by him in connection with the performance of his duties hereunder upon receipt of vouchers therefor in accordance with such procedures as the Company has heretofore or may hereafter establish. The Company will reimburse you for automobile expenses during the term of this Agreement.

        Section 4. Vacation During Employment. Executive shall be entitled to such reasonable vacations as may be allowed by the Company in accordance with general practices to be established, but in any event not less than four (4) weeks during each twelve (12) month period.

        Section 5. Additional Benefits. The Company shall make available to Executive at least those perquisites presently granted to Executive. Nothing herein contained shall preclude Executive, to the extent he is otherwise eligible, from participation in all group insurance programs or other fringe benefit plans which the Company may hereafter in its sole and absolute discretion make available generally to its employees, but the Company shall not be required to establish or maintain any such program or plan.

        Section 6. Termination by the Company. The Company shall have the right to terminate Executive’s employment at any time for “Cause”. For purposes of this Agreement, “Cause” shall mean (a) termination by action of a majority of the members of the Company’s Board of Directors, acting on the written opinion of counsel, because of Executive’s willful and continued refusal, without proper cause, to perform substantially Executive’s duties under this Agreement; or (b) the conviction of Executive of a felony or an act of fraud or embezzlement against the Company or any of its divisions, subsidiaries of affiliates (which through lapse of time or otherwise is not subject to appeal). Such termination shall be effected by written notice thereof, personally hand delivered by the Company to Executive, and, except as hereinafter provided, shall be effective as of the thirtieth (30th) calendar day after such notice; provided, however, that if within such thirty (30) calendar day period Executive shall cease Executive’s refusal and shall use Executive’s best efforts to perform such obligations, the termination shall not be effective.

        Section 7. Termination by Death. In the event Executive dies during the Term, Executive’s employment shall terminate (effective on the date of Executive’s death) and the provisions of Section 10 shall be applicable.

        Section 8. Termination by Disability. In the event that Executive suffers a disability which prevents Executive from substantially performing Executive’s duties under this Agreement for a period of at least one hundred eighty (180) consecutive or nonconsecutive calendar days within any three hundred sixty-five (365) calendar day period, the Company shall have the right, after such one hundred eighty (180) calendar day period has elapsed, to terminate Executive’s employment hereunder upon thirty (30) calendar days written notice to Executive and the provisions of Section 10 shall be applicable.

        Section 9. Termination by Executive. Notwithstanding any other provisions of this Agreement, Executive may terminate Executive’s employment either (i) in the event of a “Change in Control” or (ii) by written notice served upon the Company within thirty (30) calendar days after Executive has knowledge of an event constituting “Good Reason.”

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        For purposes of this Agreement, “Change in Control” shall be deemed to be (i) the sale of all or substantially all of the assets of the Company; (ii) any person, together with its affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or any successor rule thereto) shall become the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act), including by merger or otherwise, of more than fifty percent (50%) of the total voting power of all classes of voting stock of the Company; or (iii) that any person, together with its affiliates and associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or any successor rule thereto) has succeeded as the result of or in response to actual or threatened election contests, whether by settlement or otherwise, in having elected to the Board of Directors of the Company, whether at one time or on a cumulative basis, a sufficient number of nominees to constitute (x) more than thirty percent (30%) of the members of the Company’s Board of Directors, rounded down to the nearest whole number, if the number of directors on the Company’s Board is eight or less, or (y) more than forty percent (40%) of the members of the Company’s Board, rounded down to the nearest whole number, if the number of directors on the Company’s Board is nine or more.

        For purposes of this Agreement, the term “Good Reason” shall mean:

    (i)        any action by the Company which results in a diminution in the Executive Position or in the Executive’s Authority;

    (ii)        any failure by the Company to timely pay the amounts or provide the benefits described in this Agreement, other than an isolated failure not occurring in bad faith and which is remedied promptly after receipt of written notice thereof given by Executive; or

    (iii)        a material breach by the Company of any of the provisions of this Agreement which failure or breach shall have continued for thirty (30) days after written notice from Executive to the Company specifying the nature of such failure or breach; or

    (iv)        any action by the Company that would result in a violation of Section 2.

        Section 10. Effect of Termination. (a) For Cause; and Death. In the event of termination of this Agreement (i) by the Company for Cause, or (ii) by reason of the death of the Executive, the Company shall pay Executive (or Executive’s beneficiary in the event of the Executive’s death) any base salary or other compensation earned (and a pro rata portion of the bonus payable with respect to the year in which termination occurred) but not paid to Executive prior to the effective date of such termination and, in the case of termination by reason of death, the Company shall pay Executive’s beneficiary (i) the base salary that Executive would have earned for a period of one (1) year following his death, plus (ii) a pro rata portion of any bonuses or other incentive compensation that Executive would have earned if he had been employed for the full fiscal year in which he died payable at the time of payment of similar bonuses made to other Executives of the Company, plus (iii) any death benefits that Executive is entitled to under the Company’s policies in effect on Executive’s date of death.

    (b)        Without Cause; For Good Reason. In the event of (i) termination or non-renewal of this Agreement by the Company other than for Cause, (ii) termination of this Agreement by Executive for Good Reason without a Change in Control, the Company shall pay Executive, in a lump sum within thirty (30) days after termination under this Section 10(b), the sum of (A) the amount described in Section 10(a) of this Agreement (other than the payments to be paid in case of termination by death), and (B) the amount equal to two times (2x) the Executive’s Annual Compensation in effect at the time of termination under this Section 10(b), and the Company shall continue all of the benefits and perquisites set forth in Section 5 for a period of two (2) years, notwithstanding the fact that Executive may no longer be an employee eligible to participate in one or more of the employee benefit plans maintained by the Company.

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    (c)        Change in Control. In the event of termination or non-renewal of this Agreement by Executive or the Company within one (1) year after a Change in Control, the Company shall pay Executive, in a lump sum payment within thirty (30) days after termination under this Section 10(c), the sum of (A) the amount described in Section 10(a) of this Agreement (other than the payments to be made in case of termination by death), and (B) the amount equal to three (3x) times Executive’s Annual Compensation, and the Company shall continue for a period of two (2) years all of the benefits and perquisites set forth in Section 5, notwithstanding the fact that Executive may no longer be an employee eligible to participate in one or more of the employee benefit plans maintained by the Company.

        For purposes of this Section 10(c) of this Agreement the term “Executive’s Annual Compensation” shall mean (i) the sum of (A) the Executive’s then-current salary pursuant to Section 1 and (B) any bonus compensation to which Executive would have been entitled if Executive continued to be employed under this Agreement or the Executive’s last paid bonus, whichever is higher.

    (d)        Disability. In the event of termination of this Agreement by reason of disability, the Company shall continue to pay Executive’s Annual Compensation at the time of such termination for a period of one (1) year, reduced by the maximum amount of salary which may be insured under the Company’s Long Term Disability Plan at the time of disability.

        Section 11. Acceleration and Expiration of Options. Any options or warrants to purchase capital stock of the Company (collectively, the “Options”) granted by the Company to Executive that have not yet become exercisable shall become exercisable upon the earliest to occur of (a) the termination of Executive’s employment as a result of Executive’s death or disability; (b) the termination by Executive with Good Reason; (c) the termination by Executive after a Change in Control; or (d) termination by the Company without Cause. Notwithstanding the foregoing, all Options, whether currently exercisable or not, shall expire and cease to be exercisable as follows:

    (a)        if the Company terminates Executive’s employment for Cause, immediately upon the effective date of such termination;

    (b)        if the Company terminates the Executive’s employment without cause or if Executive terminates Executive’s employment with the Company with Good Reason or after a Change in Control, ninety (90) days after the effective date of such termination (but in no event later than the date the Term would expire without giving effect to any automatic renewal).

    (c)        if Executive dies while employed by the Company, six (6) calendar months after Executive’s death (but in no event later than the date the Term would expire without giving effect to any automatic renewal); and

    (d)        if Executive’s employment is terminated as a result of disability, six (6) calendar months after the effective date of such termination (but in no event later than the date the Term would expire without giving effect to any automatic renewal).

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