SECOND LOAN AGREEMENT

         This Loan  Agreement is made and entered into this 7th day of May, 1998
by and between Coherent, Inc., a Delaware corporation ("Coherent"),  and Palomar
Medical Technologies, Inc., a Delaware corporation ("PMTI").

         Subject to the terms and conditions contained herein, the parties agree
as follows:

         1. LOAN. At Coherent's  sole election and  discretion,  Coherent  shall
loan PMTI from time to time  amounts to be agreed  upon  between  them,  to help
finance PMTI's working capital requirements (the "Loans"),  which loans shall be
evidenced by a promissory notes in the form set forth in Exhibit A (the "Note").
The parties  agree that the  outstanding  loan  balance as of the date hereof is
$1,780,315.22

         2.  PAYMENT.  In  accordance  with the Sales  Agency,  Development  and
License  Agreement  entered  into  between  parties on  November  17,  1997 (the
"Agreement"),  Coherent  will be using its  reasonable  best  efforts to collect
PMTI's  accounts  receivable  that are Collateral for the Note. As such accounts
receivable are collected by Coherent,  the amounts due PMTI under the Agreement,
less a one-time 1.5% interest charge,  shall be credited against the outstanding
balance of the Note.

         3.  SECURITY  INTEREST.  PMTI  hereby  creates and grants to Coherent a
security interest in the collateral  described in Section 3 hereof to secure the
payment and performance of the following obligations of PMTI to Coherent:

         (a) Payment of the  indebtedness  evidenced by the Note and any and all
modifications, extensions or renewals thereof,

         (b) Performance and discharge of each and every  obligation,  covenant,
condition and agreement of PMTI herein contained.

         4. COLLATERAL. The collateral in which the security interest is created
(the "Collateral") shall consist of those PMTI's accounts receivable  identified
on  Schedule  A to the Note  where  Coherent  has  acted as PMTI's  sales  agent
pursuant to the Agreement, together with all proceeds thereto.

         5.  RECORDING.  PMTI will execute,  deliver and cause to be recorded or
filed in the manner and place  required by law, any document or instrument  that
may  be  requested  by  Coherent,   including  financing   statements  or  other
instruments  of similar  character,  to  perfect  and  protect  the lien of this
Security Agreement upon any and all of the Collateral.

         6. EVENTS OF DEFAULT. An Event of Default (as hereinafter defined) of a
Note issued under this Agreement  shall cause the Note to be immediately due and
payable. As used herein, an "Event of Default" shall be any of the following:

         (a) The failure of PMTI to punctually and properly pay the indebtedness
evidenced by the Note in accordance with its terms.

         (b) The failure of PMTI  punctually  and  properly to observe,  keep or
perform any covenant,  agreement or condition  required to be observed,  kept or
performed by this Agreement.

         (c) The  failure of PMTI to make due and  punctual  performance  of any
covenant,  obligation or agreement in any note, bond, indenture, loan agreement,
note agreement,  mortgage,  security agreement or other instrument evidencing or
related thereto which  constitutes an event of default under any such instrument
(or would give the holder of such instrument the right to accelerate  payment of

<PAGE>

such  obligation),  or such  obligation  is not paid as to principal or interest
when due,  and such  default  shall  continue for more than the period of notice
and/or  grace,  if any,  therein  specified  and shall  not have been  waived or
otherwise cured.

         7.  RIGHTS OF SECURED  PARTY.  Coherent  shall have all the rights as a
secured party under the laws of California, including the right to sell any part
of the  Collateral  at a public or  private  sale or bid as a  purchaser  of the
Collateral.

         8.  APPLICATION  OF PROCEEDS OF SALE.  The  proceeds of the sale of any
Collateral  sold pursuant to Section 6 hereof
shall be applied as follows:

                  FIRST:  To the  payment  of costs and  expenses  of such sale,
including the fees and out-of-pocket  expenses of counsel employed in connection
therewith,  and the payment of all other costs and expenses incurred by Coherent
and in connection with the administration and enforcement of this Agreement;

                  SECOND:   To  the  payment  and   discharge  in  full  of  all
obligations  described in Section 3 hereof including,  without limitation,  sums
then owing in respect of the Note; and

                  THIRD:  The balance (if any) of such proceeds shall be paid to
PMTI, its successors and assigns, or as a
court of competent jurisdiction may direct.

         9.  COVENANTS  OF  PMTI.  PMTI  covenants  and  warrants  that,  unless
compliance is waived by Coherent in writing:

         (a) PMTI will immediately notify Coherent of any change in PMTI's name,
identity or corporate structure.

         (b)  PMTI  will  not  further  encumber,  sell,  contract  for  sale or
otherwise  dispose  of any of the  Collateral  until  such time as the  security
interest created by this Agreement has terminated.

         (e) PMTI will take all actions necessary or appropriate to preserve and
defend its title to the  Collateral and the validity of the lien created by this
Agreement.

         (f) PMTI will  promptly  notify  Coherent in writing of any event which
materially  and adversely  affects the ability of PMTI or Coherent to dispose of
the  Collateral,  or the rights or remedies  of  Coherent  in relation  thereto,
including,  but not  limited  to,  the levy of any  legal  process  against  the
Collateral.

         (g) PMTI will,  without expense to Coherent,  do, execute,  acknowledge
and deliver, or cause to be done, executed, acknowledged and delivered, all such
further  acts and  instruments  as Coherent  shall from time to time  require in
order to facilitate the performance of this Agreement.

         10.  MISCELLANEOUS.

         (a) No failure or delay by Coherent in exercising  any right,  power or
privilege hereunder shall operate as a waiver thereof,  and no single or partial
exercise thereof shall preclude any other of further exercise of the exercise of
any other right, power or privilege.

         (b) Should any one or more of the provisions hereof be determined to be
illegal or  unenforceable,  all other  provisions  hereof  shall be give  effect
separately therefrom and shall not be affected thereby.

         (c) The  security  interest  created  by  this  Agreement  shall  fully
terminate  immediately upon the full and complete  satisfaction and discharge of
all of the Obligations set forth in paragraph 3 hereof.  Upon such  termination,

<PAGE>

Coherent shall execute and deliver to PMTI such termination statements and other
instruments of release of such security interest as PMTI may reasonably require.

         (d) All notices,  requests,  demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if  delivered or
mailed first class,  postage prepaid,  to the parties at the following addresses
(or such  other  address  as shall be given in  writing  by either  party to the
other):

         To Coherent:

                  Coherent, Inc.
                  5100 Patrick Henry Drive
                  Santa Clara, CA  95054
                  Attn:  General Counsel
                  Facsimile No.:  (408) 970-9998

         To PMTI:

                  Palomar Medical Technologies, Inc.
                  45 Hartwell Avenue
                  Lexington, MA  02173
                  Attn:  President
                  Facsimile No.:            781-676-7377

         (e) This Agreement and security  interest created hereby shall inure to
the benefit of the Coherent, its successor and assigns and any transferee of any
of the  Obligations  secured  hereby,  and  shall be  binding  upon PMTI and his
successors and heirs.

         (f) The laws of the State of  California  shall  govern the validity of
this  Agreement,  the  construction of its terms and the  interpretation  of the
rights and duties of the parties.

         The foregoing  Agreement is hereby  executed as of the date first above
written.

                                    COHERENT, INC.
                                    a Delaware corporation



                                    By:      /s/
                                       ------------------------------ 
                                             Scott H. Miller
                                    Title:   Sr. VP and General Counsel

                                    PALOMAR MEDICAL TECHNOLOGIES, INC.
                                    a Delaware corporation



                                     By:     /s/
                                        -------------------------------
                                             Anthony A. Brandano
                                     Title:  Vice President of Finance


<PAGE>

                                 PROMISSORY NOTE

$1,780,315.22                                            Santa Clara, California
                                                                     May 7, 1998

         FOR VALUE RECEIVED,  the  undersigned,  Palomar  Medical  Technologies,
Inc., a Delaware  corporation  ("PMTI"),  promises to pay to  Coherent,  Inc., a
Delaware  corporation  ("Coherent"),  or order, the principal sum of ONE MILLION
SEVEN HUNDRED EIGHTY THOUSAND THREE HUNDRED FIFTEEN DOLLARS AND TWENTY-TWO CENTS
($1,780,315.22).

         In accordance with the Sales Agency,  Development and License Agreement
entered into between  parties on November 17, 1997 (the  "Agreement"),  Coherent
will be using its reasonable best efforts to collect PMTI's accounts  receivable
that  collateralize  this note. As such accounts  receivable are collected,  the
amounts due PMTI under the  Agreement,  less a one-time  1.5%  interest  charge,
shall be credited against the outstanding  balance of this Note. This Note shall
be  immediately  due and  payable  in the Event of  Default  (as  defined in the
Agreement).

         PMTI shall reimburse Coherent for all costs and expenses incurred by it
and shall pay the reasonable  fees and  disbursements  of counsel to Coherent in
connection with the enforcement of Coherent's rights hereunder.

         No amendment,  modification or waiver of any provision of this Note nor
consent to any departure by PMTI  therefrom  shall be effective  unless the same
shall be in writing and signed by Coherent and then such waiver or consent shall
be  effective  only in the specific  instance  and for the specific  purpose for
which given.

         PMTI hereby  waives any  requirement  of notice of dishonor,  notice of
protest and protest.

         This Note shall be deemed to be a  contract  made under the laws of the
State of California  and shall be construed in accordance  with the laws of said
State.  This Note shall be binding upon PMTI and its  successors and assigns and
the terms hereof shall inure to the benefit of Coherent and its  successors  and
assigns,  including  subsequent  holders hereof. The holding of any provision of
this Note to be invalid or  unenforceable  by a court of competent  jurisdiction
shall not  affect any other  provisions  and the other  provisions  of this Note
shall remain in full force and effect.

         This Note is secured with certain  collateral  pursuant to the terms of
an agreement  between the  undersigned  and Coherent,  Inc. dated May 7, 1998. A
description  of the accounts  receivables  constituting  the collateral for this
Note is set forth on the attached Schedule A.

                                        PALOMAR MEDICAL TECHNOLOGIES, INC.



                                        By:       /s/
                                             -----------------------------
                                             Anthony A. Brandano
                                             Vice President of Finance

<PAGE>





                                   SCHEDULE A

                       Description of Accounts Receivables
<TABLE>
<S>                        <C>                    <C>                               <C>        <C>

NAME OF CUSTOMER           AMOUNT OF A/R          DESCRIPTION OF EQUIPMENT          DATE       DUE DATE
----------------           -------------          ------------------------          ----       --------



</TABLE>