SALES AGENCY, DEVELOPMENT AND LICENSE AGREEMENT

                                     between

                                 COHERENT, INC.

                                       and


                       PALOMAR MEDICAL TECHNOLOGIES, INC.






COHERENT ADDRESS:                                  5100 Patrick Henry Drive
                                                   Santa Clara, CA 95054 U.S.A.

PALOMAR ADDRESS:                                   45 Hartwell Avenue
                                                   Lexington, MA 02173 U.S.A.

EFFECTIVE DATE:                                    November 17, 1997



*Indicates that material has been omitted pursuant to a request for confidential
treatment, and separately filed with the SEC.



<PAGE>

                                TABLE OF CONTENTS




ITEM                                                                PAGE NUMBER


AGREEMENT......................................................................1

DEFINITIONS....................................................................1

APPOINTMENT OF SALES AGENT.....................................................4

RESPONSIBILITIES OF COHERENT...................................................6

RESPONSIBILITIES OF PALOMAR....................................................6

COMMISSIONS;TERMS OF PURCHASE OF PRODUCTS BY COHERENT..........................9

COMPLIANCE WITH GOVERNMENT REGULATIONS........................................11

WARRANTY......................................................................11

SERVICE.......................................................................12

LIMITED LIABILITY TO COHERENT AND OTHERS......................................12

PROPERTY RIGHTS...............................................................13

TRADEMARKS AND TRADE NAMES....................................................13

PATENTS AND TRADE SECRETS.....................................................14

INFRINGEMENT..................................................................15

INDEMNIFICATION...............................................................16

DEVELOPMENT PROJECTS..........................................................17

MANUFACTURING RIGHTS..........................................................18

PATENT LICENSE GRANT..........................................................19

INTELLECTUAL PROPERTY NOTICES.................................................21

TERM AND TERMINATION..........................................................21

GENERAL PROVISIONS............................................................22

<PAGE>

         EXHIBITS

         A        Palomar Patents

         B        Wire Instructions

         C        Form of Warrant

         D        Terms and Conditions of Purchase

         E        Product Warranty

         F        Confidentiality Agreement

                                      -ii-

<PAGE>

                                    AGREEMENT

     THIS  AGREEMENT  is made and entered  into as of  November  17, 1997 by and
between  Palomar Medical  Technologies,  Inc., a Delaware  corporation  having a
place  of  business  at  45  Hartwell  Avenue,  Lexington,  Massachusetts  02173
(hereinafter  "Palomar")  and Coherent,  Inc., a Delaware  corporation  having a
principal place of business at 5100 Patrick Henry Drive, Santa Clara, California
95054 ("Coherent").

     WHEREAS,  Palomar  is  a  diverse  technology  company  that  promotes  the
development and sale of various  high-technology  products,  including a medical
hair laser removal device known as the EpiLaser;

     WHEREAS,  Coherent is an established  company in laser  technology  with an
established  worldwide  network  for  distribution,  sales and  service of laser
technology and related products;

     WHEREAS,   Coherent  and  Palomar  perceive  mutual  advantage  to  Palomar
providing  Coherent  with  EpiLaser and  successor  versions of the EpiLaser for
distribution, sales and service through Coherent's worldwide network;

     WHEREAS, Coherent desires to collaborate with Palomar in the development of
lasers for hair removal  applications,  and distribute such products pursuant to
the terms of this Agreement;

     NOW  THEREFORE,  in  consideration  of the  premises  and  of the  faithful
performance  of the  covenants  herein  contained,  the parties  hereto agree as
follows:


                                 1. DEFINITIONS

Terms not otherwise defined herein shall have the meanings set forth below:


     1.1 "Affiliate" shall mean any corporation or other legal entity other than
Coherent in whatever  country  organized,  controlling,  controlled  by or under
common control with Coherent.  The term "control"  means  possession,  direct or
indirect,  of the powers to direct or cause the direction of the  management and
policies of an entity,  whether through the ownership of voting  securities,  by
contract or otherwise.

     1.2 "Anderson Patent" shall mean U.S. Patent No.  5,595,698,  including any
division,  continuation  or any foreign patent  application or letters patent or
equivalent  thereof  issuing  thereon or reissue,  reexamination  or  extensions
thereof.

     1.3  "Clinical  Trial  Agreement"  shall mean the  agreement  entered  into
between  Massachusetts  General  Hospital,  Dr. R. Rox  Anderson  and Palomar on
August 18, 1995 relating to the use of lasers for the removal of hair.

                                      -1-
<PAGE>

     1.4 "Development  Projects" shall mean the development work done by Palomar
pursuant to Section 15 of this Agreement.

     1.5  "Distributed  Products"  shall mean Palomar's  current  EpiLaser laser
system  ("Epi1"),  its next  generation  EpiLaser in development  ("Epi2"),  the
StarLight  diode laser in  development,  any  upgrades  thereto,  and any future
Products  added to this list by mutual  agreement  of the parties or pursuant to
Section 16.2 hereof.

     1.6 "Effective Date" shall mean November 17, 1997.

     1.7 "GAAP" shall mean generally accepted accounting principles.

     1.8 "Gross Margin" shall mean the difference between the purchase price and
the cost of goods, calculated in accordance with GAAP.

     1.9  "Invention"  shall mean any new and useful  process,  manufacture,  or
composition  of matter in the field of laser  hair  removal  conceived  or first
reduced to practice  during the conduct of Development  Projects.  The term does
not include any invention made solely by one or more Coherent employees.

     1.10 "Licensed Field" shall mean hair reduction and/or hair removal.

     1.11 "Licensed Product" shall mean any article, device or composition,  the
manufacture,  use or sale of which,  absent the licenses  granted herein,  would
infringe a Valid Claim of any of the Palomar Patents.

     1.12 "License Term" shall be the period of time during which this Agreement
is in effect.

     1.13 "Net  Revenues"  shall mean the price at which  Coherent  invoices the
sale or lease of the Licensed  Products to its  customers,  less any  reasonable
charges for shipping,  import  duties,  brokerage and use or sales taxes.  It is
further  understood  and agreed that in respect of  inter-company  sales between
Coherent and any  Affiliate,  Net Revenues be calculated  off the price at which
the  Affiliate  invoices  the  sale or  lease of the  Licensed  Products  to its
customer.  If the  competitive  product  has  more  than one  application,  "Net
Revenues" shall be only that portion allocated to the hair removal product based
upon the average sales price of a stand-alone Distributed Product.

     1.14  "Palomar   Developments"  shall  mean  any  invention,   improvement,
modification,  enhancement, creation, design, method, documentation, know-how or
other  development or information of any kind made or acquired by Palomar during
the life of this  Agreement  that would  infringe  one or more of the  Palomar's
Patents if made, used or sold by an unlicensed person or entity.

     1.15  "Palomar  Patents"  shall mean any rights owned by Palomar in (i) the
patents and patent  applications  listed on the attached  Exhibit A,  including,
without   limitation,   the  Anderson  Patent,  (ii)  patents  issued  from  the
applications  listed in Exhibit A or from any division or  continuation of those
applications,  (iii)  claims of  continuation-in-part  applications,  and of any
resulting patents, that claim an invention claimed or specifically  described in
the  applications  listed on  Exhibit  A, and (iv) any  reissues  of or  patents
issuing upon  reexamination of any patents  described in preceding  clauses (i),
(ii), or (iii).

                                      -2-
<PAGE>

     1.16 "Palomar  Technology"  shall  include the Palomar  Patents and Palomar
Developments.

     1.17  "Patent  Right"  shall  mean any  United  States  or  foreign  patent
application,  or the  equivalent of such  applications,  including any division,
continuation,  or  continuation-in-part,  thereof,  or any Letters Patent or the
equivalent thereof issuing thereon or reissue or extension  thereof,  containing
one or more claims to an Invention.

     1.18  "Products"  shall  mean laser  products  for  cosmetic  applications,
including the Distributed Products.

     1.19 "Territory" shall mean all countries of the world, except Canada.

     1.20 "Valid Claim" shall mean any claim of any Palomar  Patent that has not
been finally rejected or declared invalid, in the jurisdiction in question, by a
patent office or court of competent jurisdiction in any unappealable decision.

                          2. APPOINTMENT OF SALES AGENT

     2.1  Subject  to the terms  and  conditions  set  forth in this  Agreement,
Palomar  hereby  appoints   Coherent  as  its  exclusive  sales  agent  for  the
Distributed Products in the Territory;  provided,  however, that Palomar retains
the  right  to  sell   Distributed   Products  in  the   Territory  to  existing
representatives  and distributors  until the effective date their termination by
Palomar.  Upon  the  signing  of  this  Agreement,  Palomar  agrees  to use  its
commercially  reasonable  best  efforts to  terminate  all  representatives  and
distributors  for its  Distributed  Products  consistent  with  its  contractual
obligations  and  governing  legal  authority.   As  these   relationships   are
terminated,  they shall  automatically  be added to the definition of Territory.
For so long as this Agreement is in effect,  Palomar shall not appoint any other
sales  agent or  distributor  with  responsibility  for the sale of  Distributed
Products in the Territory, or otherwise license other parties to manufacture the
Distributed Products; provided, however, that this limitation shall not apply to
third parties that contract with Palomar to manufacture the Distributed Products
or parts thereof for sale hereunder.

     2.2 In order  to  remain  the  exclusive  sales  agent,  Coherent  shall be
required  to  achieve a  customer  order  level of a minimum  of 75  Distributed
Products per quarter during the term of the Agreement,  except that the minimums
shall be 30 units per quarter  until such time as Palomar  notifies  Coherent in
writing  that it can deliver at least 30 units per quarter of either the Epi2 or
Starlight  diode laser system.  The minimums shall then increase to 50 units for
the next quarter before increasing to 75 per quarter. Orders that are already in
house at the time the  Agreement is signed,  and orders that are  received  from
Palomar's  distributors and  representatives  until their rights are terminated,
shall not count towards  these  minimums.  In the event that  Coherent  fails to
achieve such minimum  customer order level during any quarter during the term of
this Agreement,  until such time as Palomar notifies Coherent in writing that it
can deliver at least 30 units per quarter of either the Epi2 or Starlight  diode
laser  system,  Coherent  may,  in its sole  discretion,  pay Palomar the sum of
$25,000  per unit short of the  minimums  within ten (10) days of the end of any
such quarter,  and maintain  exclusivity.  Any such payments  after such time as
Palomar  notifies  Coherent in writing that it can deliver at least 30 units per
quarter of either the Epi2 or Starlight  diode laser system,  will be negotiated
by the  parties  in good  faith  at a later  date,  but in no event  shall  such
payments  be less than  $25,000.  If  Coherent  fails to  achieve  such  minimum
customer  order level during any quarter  during the term of this  Agreement and
elects not to make this payment  within the ten day period after the end of such
quarter, this Agreement may become non-exclusive,  at Palomar's sole discretion,
which  shall be  exercised  within  sixty (60) days of the end of any  quarterly
period that Coherent fails to achieve such minimum customer order level.

                                      -3-
<PAGE>

     2.3 The relationship of Palomar and Coherent  established by this Agreement
is that of  independent  contractors,  and  nothing  contained  herein  shall be
construed  to (i)  give  either  party  the  power to  direct  and  control  the
day-to-day  activities of the other,  (ii)  constitute  the parties as partners,
joint  venturers,  co-owners or otherwise as  participants  in a joint or common
undertaking,  or (iii)  allow one party to create or assume  any  obligation  on
behalf  of the  other  for  any  purpose  whatsoever.  Under  no  circumstances,
including without  limitation for purposes of this Section 2.3, will Coherent be
deemed  to be an  employee  or agent of  Palomar.  Each  party  shall be  solely
responsible for, and shall  indemnify,  defend and hold the other party free and
harmless from, any and all claims, damages,  liabilities,  fees, losses, claims,
allegations,  or lawsuits,  threatened or pending,  (including  attorneys' fees)
arising from or relating to the acts of their employees or its agents.

     2.4 Coherent may appoint an  independent  representative  or distributor to
handle its responsibilities under this Agreement in any particular Territory, in
which  case  Coherent's   obligations  hereunder  shall  be  satisfied  if  such
representative or distributor is in compliance with such obligations.

                         3. RESPONSIBILITIES OF COHERENT

     3.1 LUMP SUM PAYMENT. Upon execution of this Agreement,  Coherent shall pay
Palomar a lump sum of Three Million Five Hundred Thousand  Dollars  ($3,500,000)
by wire transfer in accordance with the instructions  attached hereto as Exhibit
B.

     3.2 PROMOTION OF PRODUCTS. During the term of the Agreement, Coherent shall
use its reasonable  best efforts to fully and actively  promote the purchase and
use of the  Distributed  Products in the  Territory  and to supply  Palomar with
regular reports  regarding  these  activities.  Without  limiting the foregoing,
Coherent shall have the following responsibilities throughout the Territory:

          3.2.1 Maintain active contacts with all potential and actual customers
     and users of the Distributed Products.

          3.2.2   Coherent   shall   pay   sales   commissions   to  its   sales
     representatives for the sale of Distributed Products which, calculated as a
     percentage of the sales price,  shall be at least as favorable as that paid
     for  sales of its own  comparable  products  it may sell  from time to time
     during the term of this Agreement.

                                      -4-
<PAGE>

          3.2.3 Obtain customer orders for the Distributed  Products and provide
     assistance to customers in fulfilling  them.  

          3.2.4 Use its  reasonable  best  efforts  to promote  the  Distributed
     Products  by  training  its  sales  and  service  forces,  and  organizing,
     implementing  and funding  physician  training  courses  and  preceptorship
     programs.  

          3.2.5 Undertake publicity in journals for the Distributed Products and
     exhibit the Products at suitable  trade fairs.  

          3.2.6 Achieve a sufficient  level of  understanding of the Distributed
     Products to enable  Coherent to provide  technical  support to the customer
     and effectively sell and service the Distributed Products.

          3.2.7 Provide technical liaison between Palomar and the customer.

          3.2.8 On or  before  the 15th of each  month  during  the term of this
     Agreement  commencing  January 1, 1998,  Coherent will provide Palomar with
     six-month  rolling  forecasts of  predicted  sales by  Distributed  Product
     ("Forecast").   It  is  understood  that  these  Forecasts  are  good-faith
     estimates  only,  and  Coherent  shall not be  obligated  to  purchase  any
     Distributed Products set forth in the Forecast. However, if during the term
     of this Agreement Coherent fails to sell to its customers,  or purchase for
     its own account,  at least fifty percent (50%) of the number of Distributed
     Products  set forth in the first  three  months  of the  Forecasts  for the
     months of January,  April, July and October, it shall pay Palomar a deposit
     equal to * times the number of Distributed  Products set forth in the
     first  three-months  of such Forecast minus the number actually sold during
     that period. This deposit shall be either returned to Coherent or used as a
     credit against future remittances to Palomar, at Coherent's option, at such
     time as  Coherent  thereafter  sells or  purchases  at least the  number of
     Distributed  Products  set forth in the three  months of any such  Forecast
     after any such  deposit.  Any  amounts on deposit  on  termination  of this
     Agreement shall be promptly returned to Coherent,  without the right of set
     off.

          3.2.9 Coherent will perform the necessary research, including, without
     limitation,  legal research,  to determine what limitations  exist, if any,
     for selling the Distributed Products in the Territory.

          3.2.10 Keep Palomar fully  informed of all  governmental,  commercial,
     and industrial  activities,  plans and regulations which do or could affect
     the sale of Distributed  Products in the Territory.  

          3.2.11  Coherent shall reimburse  Palomar for Palomar's  out-of-pocket
     expenses  for  advertisements,   trade  show  participation  and  marketing
     materials  related to the  Products  when such  marketing  activities  were
     requested  to be  undertaken  by Coherent in writing.  Such  reimbursements
     shall  be  paid  within  ten  (10)  days  of date  of  invoice.  


*Indicates that material has been omitted pursuant to a request for confidential
treatment, and separately filed with the SEC.  


                                      -5-
<PAGE>

     3.3 SALES  INFORMATION.  Coherent  shall  maintain  and  provide to Palomar
during  the  term of the  Agreement,  a  complete  record  of all  sales  of the
Distributed  Products,  showing  customer  name,  date of sale,  shipping  date,
instrument model, serial number, and sales order acknowledgment and invoices for
all Distributed Products covered by this Agreement,  as well as special terms of
the  sale,   including   warranty,   installation  date  and  other  appropriate
information.

     3.4 MATERIALS.  Coherent shall  promptly  provide  Palomar with examples of
marketing and technical information  concerning the Distributed  Products,  that
have been prepared to support the  Distributed  Products  within the  Territory.
Coherent  shall be  responsible  for preparing any foreign  language  verions of
operating manuals for the Disbtibuted Products.

     3.5 RESPONSE TO INQUIRIES. Coherent shall promptly respond to all inquiries
from  Palomar  concerning   matters  pertaining  to  this  Agreement.   

     3.6 NEW DEVELOPMENTS.  Coherent Medical shall inform Palomar of new Product
developments in the field of hair removal.  

     3.7 COMPLIANCE  WITH LAWS.  Coherent shall comply with all applicable  laws
relating  to the  sale  and  distribution  of the  Distributed  Products  in the
Territory.  

     3.8 CUSTOMER COMPLAINTS.  Coherent shall promptly advise Palomar in writing
of any customer  complaints  reported to it relating to the Products  that would
require  Palomar,  as  manufacturer  of the  Products,  to file reports with any
governmental  agency. 

     3.9 SALES AND USE TAX.  Coherent  shall be  responsible  for collecting and
remitting  any  sales  and use tax for  Distributed  Products  sold  under  this
Agreement. 

                         4. RESPONSIBILITIES OF PALOMAR

     4.1 WARRANT.  Upon  execution of this  Agreement,  Palomar shall provide to
Coherent a  three-year  warrant to  purchase  one  million  shares of the common
stock, par value $.01 per share, of Palomar, with an exercise price of $5.25 per
share in the form attached hereto as Exhibit C.

     4.2 MATERIALS.  Palomar shall promptly  provide Coherent with marketing and
technical  information  concerning  the  Distributed  Products,  that  have been
prepared by Palomar and its agents to support the  Distributed  Products  within
the Territory.  Palomar agrees to prepare,  with  Coherent's  collaboration  and
assistance,  and thereafter deliver to Coherent,  one copy of the service manual
and  operator's  manual for each  Distributed  Product,  which Coherent may then
copy.

     4.3 RESPONSE TO INQUIRIES.  Palomar shall promptly respond to all inquiries
from Coherent concerning matters pertaining to this Agreement.

     4.4 TESTING. Palomar shall test all Distributed Products before shipment to
Coherent  and  provide  a copy  to  Coherent  of  such  test  results  with  the
Distributed  Product.  

     4.5  DELIVERY  TIME.  Palomar  shall use its  reasonable  best  efforts  to
minimize  delivery time as much as possible and to fulfill delivery  obligations
as committed in acceptances.  

                                       -6-
<PAGE>


     4.6  TERRITORIAL  INQUIRIES.  Palomar  shall submit to Coherent any inquiry
(other than inquiries from or related to House Accounts (as hereinafter defined)
regarding  the  purchase  or  potential   purchase  of   Distributed   Products)
originating from the Territory rather than answering the inquiry  directly.  

     4.7 QUOTATIONS TO EXPORTERS.  Palomar shall refrain from giving  quotations
to exporters for Distributed Products to be shipped to the Territory (other than
those relating to House Accounts).  

     4.8  NEW  DEVELOPMENTS.  Palomar  shall  inform  Coherent  of  new  Product
developments in the field of hair removal. 

     4.9  TRAINING.  At  Coherent's  request,  Palomar will provide the training
necessary  for  Coherent to in turn train its sales and  service  forces and its
clinical  educators in the  operation and service of the  Distributed  Products.
Coherent shall reimburse Palomar for its reasonable  out-of-pocket  expenses for
such training.  Cost for transport and living expenses for Coherent's  personnel
to attend such seminars will also be borne by Coherent.  Coherent  shall pay for
any  training  sessions in excess of two per new Product or upgrade at Palomar's
standard rates. 

     4.10 CTI CENTERS.  In connection  with its CTI business,  Palomar agrees to
include Coherent's cosmetic laser systems on its list of preferred equipment and
use its commercially reasonable best efforts to place these laser systems in the
CTI center if Coherent has the technology needed.

     4.11 UPGRADE OBLIGATIONS.  Palomar agrees to upgrade all Epi1 products sold
prior to the Effective  Date by providing the following  upgrade  (including any
replacement parts deemed necessary to complete the upgrade) the Epi1 to Coherent
at no cost:

         -        Flexible fiber-optic delivery system
         -        Higher energy output for enhanced effectiveness
                    - 50 J/cm(2) with a 7 mm spot (+/- 10%) 
                    - 25 J/cm(2) with a 10 mm spot (+/- 10%)
         -        Streamlined handpiece with improved ergonomics

If the upgrade can be done in the field,  Coherent shall provide up to one day's
labor at no cost to Palomar  to install  the  upgrade on a next call  basis.  If
installing the upgrade takes longer than one day, Palomar shall pay Coherent its
standard  and  customary  rates to complete  the  upgrade.  Palomar  shall train
Coherent  service  personnel  in  installing  the upgrade at no cost to Coherent
other than its out-of-pocket travel expenses.  Coherent shall have the exclusive
right to contact  customers  to schedule  the  service  calls and to explain the
upgrade policy.  Palomar agrees to use its commercially  reasonable best efforts
to  manufacture  parts for at least ten (10)  upgrades  per month until all Epi1
units are upgraded,  and to  incorporate  the upgrades into the Epi1 by April 1,
1998.

     4.13 FDA  REPORTING  OF  CUSTOMER  COMPLAINTS.  Palomar  agrees to file any
required  reports  with the FDA  relating to customer  complaints  forwarded  to
Palomar by Coherent where Palomar is the manufacturer of the Distributed Product
in question.

                                      -7-
<PAGE>

            5. COMMISSIONS; TERMS OF PURCHASE OF PRODUCTS BY COHERENT

     5.1 Except as set forth in Sections  5.2 and 5.3 below,  Palomar  shall pay
Coherent a  commission  of $* for each  Distributed  Product  sold by Palomar to
Coherent's customers, subject to adjustment as set forth below:

          5.1.1 For  Distributed  Products sold after April 1, 1998,  Coherent's
     commission shall be increased by *% of any excess over a $* sales price and
     reduced by *% of any shortfall under $*.

          5.1.2 For Epi1 products sold between the Effective  Date and March 30,
     1998  with  the  upgrades  described  in  Section  4.12  above,  Coherent's
     commission shall be increased by *% of any excess over a $* sales price and
     reduced by *% of any shortfall under $*.

          5.1.3 For Epi1 products sold between the Effective  Date and March 30,
     1998  without the  upgrades  described  in Section  4.12 above,  Coherent's
     commission shall be increased by *% of any excess over a $* sales price and
     reduced by *% of any shortfall under $*.

          5.1.4   Notwithstanding   the   foregoing,   Palomar  agrees  to  sell
     Distributed   Products  to  Coherent's   independent   international  sales
     representatives for $* for the non-upgraded version and $* for the upgraded
     version,  in both  cases  Coherent's  commission  shall be $* (which  shall
     include the cost of service).  Coherent's  commission shall be increased by
     *% of any excess over a $* sales price for the non-upgraded  version and $*
     for the upgraded  version,  except that  Coherent  shall be entitled to its
     full  $*   commission   on  sales  to   independent   international   sales
     representatives  pursuant to quotes at lower prices given by Palomar  prior
     to the  Effective  Date.  Except as set forth  above,  without  the written
     approval of Palomar,  no non-upgraded Epi1 shall be sold under this Section
     for less than $*, and no upgraded Epi1 shall be sold under this Section for
     less than $*.

          5.1.5 Except as set forth in Section  5.1.4  above,  in no event shall
     the Epi1 be sold for less than $*.  

          5.1.6  Subject  to the  limitations  set  forth in this  Section  5.1,
     Coherent  shall have the right to set the sales price to the  end-customer,
     and will inform  Palomar of the  end-customer  price and the  corresponding
     payment to Palomar at the time the order is placed with Palomar.  

          5.1.7 For Distributed  Products with a list price to the  end-customer
     below $*, the  parties  shall  negotiate a fair and  reasonable  commission
     based upon the same  principles  they used to establish  the $*  commission
     herein.


*Indicates that material has been omitted pursuant to a request for confidential
treatment, and separately filed with the SEC.  

                                      -8-
<PAGE>


     5.2 For orders  that have been  received  by Palomar and not shipped by the
Effective Date, Coherent shall receive a $* commission, less Palomar's sales and
distribution expenses and commissions (not to exceed $*) on each such order.

     5.3 For sales by Palomar to House Accounts within the Territory  during the
term of this  Agreement,  Coherent  shall be  entitled  to  receive  $5,000  per
Distributed  Product.  House Accounts shall be defined as revenue  sharing sites
that are (i) existing as of the date of this Agreement;  and/or (ii) chains that
have at least ten sites (at different geographic locations),  including, but not
limited to, Columbia/HCA,  where, unless the chain requires otherwise, the laser
system is used under the  direction  of only one  doctor  (who can  designate  a
substitute when he or she is out of the office).  Palomar covenants that it will
not require, encourage, advocate or suggest that CTI centers permit doctors from
the surrounding  community to use the laser system for their  patients.  If this
happens at any previously  designated House Account,  notwithstanding  Palomar's
efforts,  any such site shall be  disqualified  as a House  Account and Coherent
shall be entitled to receive an additional  $15,000 per site. Palomar shall also
be permitted to place Distributed  Products into accounts that don't fall within
the  definition  of House  Accounts,  provided that Palomar  provides  marketing
services for such account,  does not transfer ownership of the laser, and shares
in the  revenues  generated  from its use. For these  sales,  Coherent  shall be
entitled to receive  $20,000 per unit. In no event shall Palomar be permitted to
place  Distributed  Products into more than 300 of the sites  referenced in this
paragraph  during the first three  years of this  Agreement.  The parties  shall
negotiate  additions to this number as part of the annual  evergreening  renewal
process,  which shall not be less than 50 additional  sites in year four (4), if
this Agreement is extended.

     5.4  PURCHASE  OF DEMO  UNITS.  From time to time  during  the term of this
Agreement,  Coherent may require demonstration units to bring to trade shows, as
well as demonstration units for its sales and service force. Accordingly, during
the term of this  Agreement,  Coherent  shall be  entitled  to purchase up to 25
Distributed  Products  for  demonstration   purposes.   The  purchase  of  these
demonstration  units shall count towards the minimum  purchase  requirements set
forth in Section 2.2. The purchase price for the demonstration  units ("Purchase
Price") shall be $* per unit, payable within ten (10) days of date of invoice by
check  or  wire  transfer,   at  Coherent's  election.  If  Coherent  resells  a
demonstration  unit within six months of its purchase,  it shall pay Palomar any
additional amounts as would be required to be paid pursuant to Section 5.1.

     5.5 TERMS AND CONDITIONS. All purchases of Distributed Products by Coherent
from Palomar  during the term of this  Agreement  shall be subject to Coherent's
standard terms and conditions, a copy of which are attached as Exhibit C to this
Agreement.  In the event of any inconsistencies between the terms and conditions
contained in Exhibit C and the terms and conditions contained in this Agreement,
this Agreement shall govern.

     5.6  SHIPPING.  All prices are F.O.B.  Palomar's  plant.  In the absence of
specific instructions,  Palomar will select the carrier and ship freight prepaid
and added to the price of the  Distributed  Product.  Coherent  shall insure all
shipments  to  Coherent's  customers.  Palomar  will not be deemed to assume any
liability in connection with any shipment  because of the selection of a carrier
or the failure of Coherent to obtain insurance. Title and risk of loss or damage
to each of the  Distributed  Products will pass to Coherent or its customer when
delivery is made to the possession of the carrier. 


*Indicates that material has been omitted pursuant to a request for confidential
treatment, and separately filed with the SEC.  


                                       -9-
<PAGE>


     5.7 ORDER AND ACCEPTANCE.  All orders for Distributed Products submitted by
Coherent  shall be  initiated  by written  purchase  orders  sent to Palomar and
requesting a delivery date during the term of this Agreement; provided, however,
that  an  order  may  initially  be  placed  orally  or   electronically   if  a
conformational written purchase order is received by Palomar within a reasonable
time after said oral or  electronic  order but in any case before  shipment.  No
order shall be binding upon Palomar  until  accepted by Palomar in writing,  and
Palomar shall have no liability to Coherent with respect to purchase orders that
are not accepted. Once Palomar has accepted an order, it may not be cancelled by
Coherent.  Palomar  shall notify  Coherent of the  acceptance or rejection of an
order and of the  assigned  delivery  date for accepted  orders  within ten (10)
working  days of receipt of the order.  Palomar  shall use its  reasonable  best
efforts to deliver  Distributed  Products at the times  specified  either in its
quotation or in its written acceptance of Coherent's purchase orders. Preprinted
language  in a  purchase  order is of no effect to modify  this  Agreement.  

     5.8 PAYMENTS TO PALOMAR.  Coherent shall invoice its customers for the sale
of the Distributed  Products on Palomar's behalf and act as collection agent for
the accounts receivable. When collected, Coherent shall remit the purchase price
to Palomar  within five (5)  business  days,  less its  commission  as set forth
herein. Customer deposits shall be forwarded to Palomar within five (5) business
days of receipt. Coherent makes no representations or guarantees relating to the
collection of accounts receivables hereunder.  The parties agree that the credit
risk is with the manufacturer of the Distributed  Product.  Coherent shall apply
its customary and standard  policies and procedures  for  evaluating  customers'
credit  worthiness  before such customers are permitted to purchase  Distributed
Products  under this  Agreement.  Any variances  shall be approved in advance by
Palomar in writing,  at its discretion.  The parties acknowledge that neither of
them is under any  obligation  to pay the  other  for any  sales of  Distributed
Products where the customer fails to pay for the Distributed  Product.  

     5.9 LATE CHARGES.  If Coherent  fails to pay the price or any other payment
due to Palomar  promptly and when due,  Palomar may recover,  in addition to the
price or payment,  interest  thereon at a rate equal to the lesser of 1-1/2% per
month and the maximum rate of interest allowable under applicable law.

                    6. COMPLIANCE WITH GOVERNMENT REGULATIONS

     6.1  Coherent  shall  not  sell any  Products  to,  or for the use of,  any
ultimate  purchaser  with  which  Palomar  could  not  deal  under  the  laws or
regulations of the United States, including, without limitation, the regulations
of the United States Food and Drug  Administration.  Coherent  shall comply with
all other  laws and  regulations  of the United  States and any other  cognizant
jurisdiction relating to the marketing and sale of the Products.

     6.2 Palomar and Coherent  shall comply with all other laws and  regulations
of the  United  States  and any other  cognizant  jurisdiction  relating  to the
manufacturing and labeling of the Distributed Products.

                                      -10-
<PAGE>


     6.3 During the term of this Agreement,  Palomar shall use its  commercially
reasonable  best  efforts to maintain in full force and effect all  governmental
approvals necessary for the sale and manufacture of the Distributed  Products in
the  Territory,  except for Japan,  including,  without  limitation,  the United
States and Europe (CE Mark).  The parties  shall meet within the next 90 days to
determine  whether  to  apply  for the  necessary  licenses  to sell  any of the
Distributed  Products in Japan.  Within that 90 day period,  Coherent may notify
Palomar that it will undertake to obtain such licenses, in which case, all costs
thereof shall be borne by Coherent, the licenses shall be in both Coherent's and
Palomar's name. If Coherent has obtained such licenses, upon termination of this
Agreement  Palomar  may  either  (i)  reimburse  Coherent  for its out of pocket
expenses  incurred in procuring  these  licenses,  in which case Coherent  shall
assign its  interest in the  licenses to Palomar or (ii) elect not to  reimburse
Coherent,  in which case Palomar  shall not sell  Distributed  Products in Japan
pursuant to such licenses.  Nothing  contained  herein shall restrict  Palomar's
ability  to obtain  its own  licenses  in  Japan.  

     6.4 During  the term of this  Agreement,  if  Coherent  determines  to sell
Distributed Products in a country within the Territory where regulatory approval
is required but not obtained,  Coherent  shall use its  commercially  reasonable
best  efforts to obtain,  at its sole cost and  expense,  any such  governmental
approvals  necessary  for the  sale of  Distributed  Products  in such  country.


                                  7. WARRANTY

For so long as Palomar  manufactures the Distributed  Product,  Palomar warrants
such Distributed  Product to the end-user under the terms of Palomar's  standard
warranty set forth in Exhibit E, as it may be modified or  superceded  from time
to time by Palomar.  All service work for  Distributed  Products  under warranty
shall be performed by Coherent in accordance with Section 8.

                                   8. SERVICE

     8.1  Coherent  shall  maintain  the  services  of a  sufficient  number  of
certified  service  engineers,  and shall  use its best  efforts  to  adequately
service and maintain (both in and out of warranty) all  Distributed  Products in
the Territory. Coherent shall purchase parts inventory and any specialized tools
necessary for the proper and prompt service of the Distributed  Products sold by
Coherent. Palomar agrees to use its commercially reasonable best efforts to ship
parts to  Coherent  as soon as possible  after  receipt of order.  In regards to
specialized  tools,  Palomar  agrees to sell them to Coherent for its costs plus
25% for tools it  manufactures,  and at its cost for  tools it buys  from  third
parties,  plus shipping and standard  handling  charges.  Coherent shall provide
Palomar with service  reports as to the work performed in each instance.  During
the term of this Agreement,  all warranty and service work on the Products shall
be performed by Coherent  personnel.  In addition,  following the  expiration of
this Agreement, Coherent shall continue to perform all warranty and service work
on Distributed Products sold by Coherent pursuant to this Agreement.

          8.1.1 For  Distributed  Products  sold by Palomar prior to the date of
     this Agreement and still under warranty,  Palomar shall supply the parts at
     no charge, and Coherent the labor.  Palomar shall pay Coherent its standard
     and customary service labor rates and out-of-pocket expenses within 30 days
     of date of invoice.

          8.1.2 For  Distributed  Products  manufactured  by Palomar and sold by
     Coherent  that are under  warranty,  Palomar  shall  supply the parts at no
     charge,  and  Coherent  the labor.  Coherent  shall be  permitted to deduct
     $4,000 for each such Epi1 manufactured and sold in the United States during
     the term of this  Agreement,  

                                      -11-
<PAGE>

     from the payments due Palomar under Section 5 and, if  applicable,  Section
     16.2 hereof.  Palomar  shall pay Coherent $* for each Epi1 it  manufactures
     and places in a CTI under  Section  5.3  within 30 days of such  placement.
     Coherent shall be responsible for providing the labor for warranty  service
     for these Distributed Products.  When the Epi2 and StarLight laser products
     are  manufactured  and sold, the parties shall negotiate an appropriate sum
     to be paid for domestic  warranty  service to be provided by  Coherent.  If
     Coherent  manufactures a Product,  then Coherent shall bear the entire cost
     of parts and service, including warranty service, for such Product.

          8.1.3 For Distributed  Products not under  warranty,  Palomar shall be
     the exclusive supplier of critical parts (e.g. parts that are not otherwise
     generally available) which Coherent shall purchase from Palomar at its cost
     plus 25%. 

                   9. LIMITED LIABILITY TO COHERENT AND OTHERS

IN NO EVENT  SHALL  PALOMAR BE LIABLE TO  COHERENT  OR ANY OTHER  ENTITY FOR ANY
SPECIAL  OR  CONSEQUENTIAL  DAMAGES,  HOWEVER  CAUSED,  WHETHER  FOR  BREACH  OF
CONTRACT,  NEGLIGENCE OR OTHERWISE,  AND WHETHER OR NOT PALOMAR HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE. THE ESSENTIAL PURPOSE OF THIS PROVISION IS TO
LIMIT THE POTENTIAL LIABILITY OF PALOMAR ARISING OUT OF THIS AGREEMENT.  NOTHING
IN THIS CLAUSE SHALL LIMIT  PALOMAR'S  OBLIGATION  TO INDEMNIFY  COHERENT AS SET
FORTH IN SECTION 14.

                               10. PROPERTY RIGHTS

     10.1 PROPERTY RIGHTS.  Coherent agrees that Palomar owns all right,  title,
and  interest in the product  lines that  include the  Products now or hereafter
subject to this  Agreement and in all of Palomar's  patents,  trademarks,  trade
names,  inventions,  copyrights,  know-how,  and trade  secrets  relating to the
design,  manufacture,  operation or service of the Products. The use by Coherent
of any of these property  rights is authorized  only for the purposes herein set
forth, and upon termination of this Agreement for any reason such  authorization
shall cease.  Coherent  shall not  challenge  Palomar's  attempt to register any
name, mark or logo in use as of the effective date of the Agreement or any name,
mark,  or logo  substantially  similar  thereto,  except as expressly  set forth
herein.

     10.2 SALE CONVEYS NO RIGHT TO MANUFACTURE OR COPY. The Products are offered
for sale and are sold by Palomar  subject in every  case to the  condition  that
such  sale  does  not  convey  any  license,  expressly  or by  implication,  to
manufacture,  duplicate or otherwise  copy or  reproduce,  either in whole or in
part, any of the Products,  except as expressly set forth herein. 


*Indicates that material has been omitted pursuant to a request for confidential
treatment, and separately filed with the SEC.  


                                       -12-
<PAGE>



                         11. TRADEMARKS AND TRADE NAMES

     11.1 USE. During the term of this Agreement,  Coherent shall have the right
to  indicate  to the  public  that  it is an  authorized  sales  agent  for  the
Distributed  Products.  Palomar  hereby  grants  Coherent  permission  to us any
trademarks, trade names, service marks and logos owned or claimed by Palomar and
used in connection with the Distributed  Products ("Palomar  Trademarks") solely
in conjunction  with the  performance by Coherent of its rights and  obligations
under this  Agreement.  To the extent  that  Coherent  is  permitted  under this
Agreement to use, sell,  promote and/or  distribute  Products,  this  permission
shall apply and pass through to Coherent's  distributors who distribute Products
(i.e.,   without  any   modification   to  the   Product,   product   packaging,
documentation,  or other  materials)  ("Distributor").  Coherent  shall  provide
notice of these  trademark  license terms of this Agreement to, and enforce such
terms  with and  against,  Coherent's  Distributors.  Palomar  is a third  party
beneficiary  of any  agreement  between  Coherent  and  Coherent's  Distributors
arising  from or  relating  to the use by  Coherent  or  Distributor  of Palomar
Trademarks,  and any such agreement  will so provide in express  terms.  Palomar
shall be  entitled  to  enforce  the terms of this  Trademark  License  directly
against any  Distributor in the event Coherent fails to do so. At Palomar's sole
cost and expense,  Coherent agrees to assist in the  registration of the Palomar
Trademarks in the Territory in the name of Palomar,  in renewal and  maintenance
of such  registration  and in such recording of Coherent as a registered user as
Palomar  may  reasonably  request.   Effective  upon  the  termination  of  this
Agreement, Coherent shall cease to use all trademarks, marks, and trade names of
Palomar.

     11.2 MANUFACTURING BY COHERENT. To the extent Coherent is permitted to make
Products  under  this  Agreement,  Coherent  agrees to insure  that the  Palomar
Trademarks  are only  associated  with  goods of equal or higher  value than the
Products  produced  by  Palomar.  Palomar  retains  the right to  inspect  goods
manufactured by Coherent for quality to ensure this provision is observed.  

     11.3 LIMITATIONS ON USAGE.  Coherent shall use the Palomar  Trademarks only
as approved by Palomar (which approval shall not be  unreasonably  withheld) and
in conformity with any guidelines or policies as provided by Palomar to Coherent
from time to time.  Coherent  agrees not to modify,  alter or remove any Palomar
Trademark.

     11.4 USE OF THE PARTY'S NAME. The parties agree that all Licensed  Products
sold  under  this  Agreement  and  all  related  materials,  including,  without
limitation,  brochures  and  advertising  materials,  shall be labeled with both
Coherent and  Palomar's  names,  each equally  prominently  displayed.  Coherent
expressly  disclaims  any  rights  to the  goodwill  and  intellectual  property
resident in such Distributed Products, except as expressly set forth herein.

     11.5 TRADEMARKS OF SUPPLIERS TO PALOMAR.  Palomar may  incorporate  into or
bundle with the Distributed  Products branded  products of Palomar's  suppliers,
and Palomar may enter into  agreements  requiring  Palomar to use or display the
marks or brand identifiers of suppliers in a manner specified in such agreement;
provided, however, that the foregoing shall not apply to competitors of Coherent
without Coherent's prior written approval.  Upon Coherent's receipt of notice of
such agreements from Palomar and thereafter,  Coherent agrees to comply with the
applicable  terms  and  conditions  of any  agreement  between  Palomar  and its
suppliers  relating to the use of the  trademarks,  trade names,  service  marks
and/or logo(s) of such suppliers.

                                      -13-
<PAGE>


                         12. PATENTS AND TRADE SECRETS

     12.1 Any  Invention  conceived  or  reduced to  practice  solely by Palomar
employees or anyone working with Palomar other than Coherent in the  performance
of any Development  Project,  shall be owned by Palomar.  Palomar shall promptly
advise Coherent in writing of each Invention  disclosed to Palomar. In the event
of joint inventorship between Coherent and Palomar employees, the Invention will
be deemed to be jointly owned.  Patent applications for Inventions owned jointly
by Palomar and Coherent  shall be filed as mutually  agreed upon by the parties,
except that any such agreement must be reached on terms reasonably calculated to
obtain such patents.

     12.2 All patent costs  pertaining to any Palomar Patent  Rights,  including
preparation, filing, prosecution, issuance and maintenance costs, shall be borne
by Palomar,  except for Patent Rights owned jointly by the parties,  which shall
be shared equally, and which shall be reimbursed as incurred. 

                                13. INFRINGEMENT

     13.1 Palomar will protect the Palomar Patent Rights from  infringement  and
prosecute infringers when, in its sole judgement,  such action may be reasonably
necessary, proper and justified.

     13.2  If  Coherent  shall  have  supplied  Palomar  with  written  evidence
demonstrating to Palomar's reasonable satisfaction prima facie infringement of a
claim of a Palomar Patent Right by a third party, Coherent may by notice request
Palomar  to take  steps to protect  such  Patent  Right.  Palomar  shall  notify
Coherent  within sixty (60) days of the receipt of such notice  whether  Palomar
intends to prosecute the alleged infringement. If Palomar notifies Coherent that
it intends to so prosecute, Palomar shall, within three (3) months of its notice
to Coherent  either (i) cause  infringement  to terminate or (ii) initiate legal
proceedings  against the infringer.  In the event that Palomar notifies Coherent
that Palomar does not intend to prosecute said infringement,  Coherent may, upon
notice  to  Palomar,   initiate  legal  proceedings  against  the  infringer  at
Coherent's  expense and in Palomar's  name if so required by law. No settlement,
consent  judgment  or  other  voluntary  final  disposition  of the  suit  which
invalidates  or restricts  the claims of such Patent Rights will be entered into
without  the  consent  of  Palomar,  which  consent  shall  not be  unreasonably
withheld,  and shall not be withheld unless Palomar assumes  responsibility  for
future  expenses in litigation.  Coherent shall  indemnify  Palomar  against any
order  for  payment  that  may  be  made  against  Palomar  as a  result  of any
settlement,  consent  judgment or other voluntary final  disposition of the suit
entered into without Palomar's consent.

                                      -14-
<PAGE>


     13.3 In the  event  that  one  party  shall  initiate  or  carry  on  legal
proceedings to enforce any Patent Right against any alleged infringer, the other
party shall fully cooperate with and supply all assistance  reasonably requested
by the party  initiating  or  carrying  on such  proceedings.  The  party  which
institutes any suit to protect or enforce a Patent Right shall have sole control
of that suit and shall  bear the  reasonable  expenses  (excluding  legal  fees)
incurred by said other party in providing such  assistance and cooperation as is
requested  pursuant to this paragraph.  The party initiating or carrying on such
legal  proceedings  shall keep the other party  informed of the progress of such
proceedings  and  said  other  party  shall  be  entitled  to  counsel  in  such
proceedings  but at its own  expense.  Any award  paid by third  parties  as the
result of such  proceedings  (whether by way of settlement  or otherwise)  shall
first be applied to reimbursement  of the  unreimbursed  legal fees and expenses
incurred by either  party,  including  reimbursement  to  Palomar,  and then the
remainder  shall be divided  between the  parties as follows:  

        13.3.1 (i) If the  amount  is based on lost  profits,  Coherent  shall
               receive  an amount  equal to the  damages  the  court  determines
               Coherent  has suffered as a result of the  infringement  less the
               amount of any royalties  and other  payments that would have been
               due Palomar on sales of products  lost by Coherent as a result of
               the infringement had Coherent made such sales; and

               (ii) Palomar  shall  receive an amount equal to the royalties and
               other payments it would have received if such sales had been made
               by Coherent, or

        13.3.2 As to awards other than those based on lost profits, sixty (60)
               percent to the party  initiating such  proceedings and forty (40)
               percent  to the other  party,  provided  that in the  event  that
               Palomar has paid for further  litigation  subsequent to Palomar's
               refusal to agree to a settlement,  consent judgement or voluntary
               final  disposition  of a suit  pursuant to paragraph  13.2,  such
               awards shall be divided equally between the parties.


     13.4 For the  purposes of the  proceedings  referred to in this Section 13,
Palomar and Coherent  shall permit the use of their names and shall execute such
documents  and  carry  out  such  other  acts  as may be  necessary.  The  party
initiating  or  carrying  on such legal  proceedings  shall keep the other party
informed  of the  progress  of such  proceedings  and said other  party shall be
entitled to counsel in such  proceedings but at tits own expense,  said expenses
to be  off-set  against  any  damages  received  by the party  bringing  suit in
accordance with the foregoing paragraph 13.3

                               14. INDEMNIFICATION

     14.1 DESIGN  DEFECT.  The party that  develops a Product  shall  indemnify,
defend and hold harmless the other party and its officers,  employees and agents
and  their  respective  successors,   heirs  and  assigns  (the  "Design  Defect
Indemnitees"),  against  any  liability,  damage,  loss  or  expense  (including
reasonable  attorney's  fees and expenses of litigation)  incurred by or imposed
upon the Design Defect  Indemnitees  or any one of them in  connection  with any
claims, suits, actions,  demands or judgment arising out of any theory of design
defect (including,  but not limited to, actions in the form of tort, warranty or
strict liability) concerning such Product.

                                      -15-
<PAGE>


     14.2  MANUFACTURING  DEFECT.  The party that  manufactures  a Product shall
indemnify, defend and hold harmless the other party and its officers,  employees
and  agents  and  their   respective   successors,   heirs  and   assigns   (the
"Manufacturing  Defect  Indemnitees"),  against any liability,  damage,  loss or
expense  (including  reasonable  attorney's  fees and  expenses  of  litigation)
incurred by or imposed upon the Manufacturing  Defect  Indemnitees or any one of
them in connection with any claims, suits, actions,  demands or judgment arising
out of any  theory of  manufacturing  defect  (including,  but not  limited  to,
actions  in the form of tort,  warranty  or strict  liability)  concerning  such
Product. 

     14.3  BREACH OF  WARRANTY.  The party  that sells a Product to the end user
under this Agreement shall  indemnify,  defend and hold harmless the other party
and its officers,  employees and agents and their respective  successors,  heirs
and assigns  (the  "Breach of  Warranty  Indemnitees"),  against any  liability,
damage,  loss or expense (including  reasonable  attorney's fees and expenses of
litigation)  incurred by or imposed upon the Breach of Warranty  Indemnitees  or
any one of them in  connection  with any  claims,  suits,  actions,  demands  or
judgment  arising  out of any  theory of breach of warrant  (including,  but not
limited  to,  actions  in the  form  of  tort,  warranty  or  strict  liability)
concerning such Product. 

     14.4  LIMITATION.  The  indemnifications  above  shall  not  apply  to  any
liability,   damage,  loss  or  expense  to  the  extent  that  it  is  directly
attributable to (i) the negligent activities, reckless misconduct or intentional
misconduct of the Indemnitees; or (ii) a claim that the manufacture, use or sale
of a Product infringes upon a patent or other  intellectual  property owned by a
third party. 

     14.5  ATTORNEYS.  The  indemnifying  party agrees,  at its own expense,  to
provide  attorneys  reasonably  acceptable  to the  indemnified  party to defend
against any actions  brought or filed  against any party  indemnified  hereunder
with respect to the subject of indemnity  contained herein,  whether or not such
actions  are   rightfully   brought.   

     14.6 PATENT,  COPYRIGHT AND TRADEMARK  INDEMNIFICATION.  Subject to Section
14.7  below,  Coherent  agrees that  Palomar has the right to defend,  or at its
option to settle,  and Palomar agrees,  at its own expense,  to defend or at its
option to settle,  any claim, suit or proceeding brought against Coherent or its
customer on the issue of infringement  of any patent,  copyright or trademark by
the  Products  sold  hereunder or the use  thereof,  subject to the  limitations
hereinafter  set forth.  Palomar  shall have sole  control of any such action or
settlement  negotiations,  and Palomar agrees to pay, subject to the limitations
hereinafter  set forth,  any final  judgment  entered  against  Coherent  or its
customer on such issue in any such suit or  proceeding  defended by Palomar.  If
Palomar receives any damage award and/or attorneys' fees in any such claim, suit
or  proceeding,  it shall not be  obligated  to share any portion  thereof  with
Coherent.  Palomar's obligation under this Section to indemnify, defend and hold
harmless  Coherent  shall  not  apply in the  case of any  Products  or  Palomar
Trademarks (i) manufactured to Coherent's design or modified by Coherent without
Palomar's  permission  (except in the situation where the  modification  did not
cause the Products to infringe the patent, copyright,  trademark at issue); (ii)
used in  combination  with other  technology or products not supplied by Palomar
(except in the  situation  where the  combination  did not cause the Products to
infringe the patent, copyright,  trademark at issue); or (iii) not used pursuant
to Palomar's  existing  instructions.  Coherent  agrees that Palomar at its sole
option shall be relieved of the  foregoing  obligations  unless  Coherent or its
customer  notifies Palomar promptly in writing of such claim, suit or proceeding
and gives Palomar authority to proceed as contemplated herein, and, at Palomar's
expense,  gives Palomar  proper and full  information  and  assistance to settle
and/or defend any such claim, suit or proceeding for infringement of any patent,
copyright or trademark, or it is adjudicatively determined that the Products, or
any part thereof, infringe any patent, copyright or trademark, or it the sale or

                                       -16-
<PAGE>


use of the  Products,  or any part  thereof,  is,  as a result,  enjoined,  then
Palomar  may,  at its option and  expense:  (i)  procure  for  Coherent  and its
customers the right under such patent, copyright or trademark to sell or use, as
appropriate,  the  Products or such part  thereof;  or (ii) replace the Products
with suitable  non-infringing  Products;  (iii) suitably modify the Products; or
(iv) if the use of the  Products,  or part  thereof,  is prevented by injunction
during the first three years of this  Agreement,  remove the  Products,  or part
thereof,  and pay  Coherent  an amount  equal to $3.0  million  multiplied  by a
fraction,  the numerator of which is thirty-six  (36) minus the number of months
expired  from  the  Effective  Date as of the  date of the  injunction,  and the
denominator  is  thirty-six  (36).  Palomar shall not be liable for any costs or
expenses  incurred by Coherent  without its prior  written  authorization.  

     14.7 ENTIRE  LIABILITY.  The foregoing  provisions of this Section 14 state
the entire  liability and  obligations  of Palomar and the  exclusive  remedy of
Coherent and its customers, with respect to any alleged infringement of patents,
copyrights,  trademarks or other intellectual property rights by the Products or
any part thereof. 

                            15. DEVELOPMENT PROJECTS

     15.1  During  the  term of  this  Agreement,  Coherent  and  Palomar  shall
collaborate  on the  definition of Products to be developed  hereunder.  Palomar
agrees to use its reasonable best efforts to develop Products,  and to share the
results  of  such  development  work  with  Coherent  during  the  term  of this
Agreement.

     15.2 Palomar agrees to spend at least the following amounts (based on GAAP)
for the development of Products during the next three full years ending December
31: 

                  Year 1:          $5,000,000

                  Year 2:          10% of Palomar's  gross  revenues  (after
                                   deducting  commissions  paid to Coherent) in
                                   Year 1 from  Products  developed  by Palomar
                                   and/or Coherent, and sold by Coherent.

                  Year 3:          10% of Palomar's  gross  revenues  (after
                                   deducting  commissions  paid to Coherent) in
                                   Year 2 from  Products  developed  by Palomar
                                   and/or Coherent, and sold by Coherent.

     15.3 The parties shall keep each other reasonably informed on the status of
their development  efforts related to hair removal  products.  At least once per
quarter,  each  party  shall  prepare a written  report and send it to the other
party  summarizing the development work done relating to the Products during the
preceding quarter. In addition,  Palomar's chief financial officer shall prepare
and  deliver to  Coherent a  certificate  on or before  January 31 of each year,
certifying to the level of development  expenditures by Palomar for the Products
for the preceding 12 months ending December 31.

     15.4  Palomar  shall use its  reasonable  best  efforts to maintain in full
force and  effect  its  Clinical  Trial  Agreement  with  Massachusetts  General
Hospital  during  the term of this  Agreement,  and not to  modify  or amend the
Clinical  Trial  Agreement  without  Coherent's  consent,   which  will  not  be
unreasonably withheld. 

                                      -17-
<PAGE>

                            16. MANUFACTURING RIGHTS


     16.1  From  time to time  during  the term of this  Agreement,  as  Palomar
develops a prototype  Product,  it shall notify Coherent in writing and Coherent
shall have 30 days  thereafter to notify Palomar in writing whether or not it is
interested in having an exclusive  right to sell such  Product.  For purposes of
this  provision,  the term  prototype  Product  shall be  defined  as a  Product
delivered to a clinical investigator and tested on no less than three patients.

     16.2  If  Coherent  notifies  Palomar  that it  wishes  to  distribute  the
prototype  Product,   such  Product  shall  automatically  be  included  in  the
definition  of  "Distributed  Products"  and Palomar and Coherent  shall meet to
discuss who shall manufacture the Product. Palomar may choose to (i) manufacture
the Product, in which case it shall pay Coherent a sales commission of *% of the
selling  price  (other  terms,  such as purchase  minimums  and prices  shall be
negotiated  at that time) or (ii) offer  Coherent the right to  manufacture  the
Product,  in which case, if Coherent decides to manufacture,  Coherent shall pay
Palomar *% of the Gross Margin for such Product. For purposes of calculating the
Gross Margin, the fully burdened cost of sales (exclusive of royalties under the
Anderson  Patent)  shall be determined  at the time of Palomar's  election,  and
shall not be revised thereafter. If the parties are unable to agree on terms for
manufacturing  or selling  future  Products  developed  hereunder,  Palomar  may
appoint  another  company to distribute such Products on terms no more favorable
than those  offered to Coherent  under this Section  16.2,  or sell any non-hair
removal  Products  directly.  Palomar shall be prohibited from directly  selling
hair removal products to physicians during the term of this Agreement.

     16.3 In the event Palomar is unable or unwilling to manufacture  any of the
Distributed Products for any reason,  including Palomar's  bankruptcy,  Coherent
shall  have the right to  manufacture  them,  on the same  terms as set forth in
Section 16.2. If Coherent acquires a license under this Section 16, it shall pay
a royalty to Palomar  in the  amount of *% of the Gross  Margin (as  hereinafter
defined)  less  out  of  pocket  expenses   incurred  by  Coherent  to  transfer
manufacturing  and lost profits on sales to customers who cancel their order due
to the delay. Coherent shall not include any such reimbursed  capitalized out of
pocket  expenses  or lost  profits in such Gross  Margin.  For  purposes of this
paragraph, "unable to manufacture" shall be defined as when the backlog for hair
removal products exceeds three months for a period of at least three months,  so
long  as  the  orders  were  within  10%  of  Coherent's   Forecast  during  the
corresponding  period,  and provided  that such backlog is not  attributable  to
failure by third parties to perform, including,  without limitation,  failure to
supply necessary parts.

     16.4 If during the term of this Agreement, Coherent manufactures,  sells or
otherwise  distributes  hair  removal  products  that  are  competitive  to  any
Distributed Product, it shall pay Palomar a royalty of *% of the Net Revenues of
any such hair  removal  product sold during the first year of any such sales and
*% for  such  product  sold in each  successive  year  during  the  term of this
Agreement.  These  percentages shall be reduced by one-half in the event Palomar
defaults  in its  obligations  to spend  money to  develop  new  cosmetic  laser
products as set forth in Section 15. Coherent's  royalty  obligations under this
Section 16 shall survive the  termination  of this Agreement if it is terminated
by Palomar for cause,  for a period of time equal to the remaining  term of this
Agreement if it weren't  terminated by Palomar and not otherwise extended by the
parties.


*Indicates that material has been omitted pursuant to a request for confidential
treatment, and separately filed with the SEC.  


                                      -18-
<PAGE>

     16.5 Palomar shall cooperate with Coherent in good faith for the purpose of
allowing  Coherent  to  exercise  its  rights  hereunder,   including,   without
limitation,  providing Coherent with copies of all technical data, manufacturing
know-how,  drawings  and  supplier  information  necessary  to  manufacture  the
Products,  all of  which  shall  be  subject  to the  Confidentiality  Agreement
attached hereto as Exhibit F.

                            17. PATENT LICENSE GRANT.

     17.1 On the terms and subject to the conditions  set forth herein,  Palomar
hereby grants to Coherent a non-exclusive,  royalty-bearing  sublicense (without
the right to sublicense  others) under the Palomar  Patents to make,  have made,
use and sell Distributed  Products and competitive  Coherent  products for which
royalties are paid to Palomar under  Section 16.4  ("Coherent  Products") in the
Territory  during the License Term. For  Distributed  Products  manufactured  by
Palomar and sold by Coherent, Palomar shall be solely responsible for paying all
royalty  obligations to MGH relating to the Anderson  Patent that may arise as a
result  of the  manufacture,  use or sale of  Distributed  Products  during  the
License Term. Licensed Products manufactured by Coherent shall bear a royalty of
* of Net Revenues.  During the term of this Agreement,  such royalty obligations
shall be fulfilled by payment to Palomar of the amounts set forth in Section 16.

     17.2 All rights not  expressly  granted are  reserved  to Palomar.  Nothing
herein shall be  construed as granting  Coherent,  by  implication,  estoppel or
otherwise,  including the first sale doctrine,  any license or other right under
any  patent or other  intellectual  property  right of  Palomar,  except for the
licenses expressly granted in Section 17.

     17.3 Upon  termination of this Agreement,  Palomar agrees to grant Coherent
any licenses required for Distributed  Products distributed by Coherent pursuant
to this  Agreement  to any other  patents it licenses or owns,  on  commercially
reasonable  terms to be negotiated.  The parties shall  negotiate in good faith,
but no license shall be granted if the parties are unable to reach  agreement on
reasonable terms.

     17.4 In addition to the license granted under Section 17.1 above,  from and
after the termination  date of this Agreement,  Palomar hereby grants Coherent a
non-exclusive,  worldwide, royalty-bearing license in the License Field to make,
have made, use and sell Licensed Products that infringe the Anderson Patent. The
sublicense  shall  include  the  right to grant to the  purchasers  of  Licensed
Products  from  Coherent  and its  Affiliates,  the  right to use such  Licensed
Products in a method  coming within the scope of the Anderson  Patent.  Coherent
shall have no right to grant further sublicenses to the Anderson Patent,  except
that it shall be permitted to transfer its rights in connection with the sale of
its hair removal product line.

        17.4.1 After termination of this Agreement,  and in no event less than
               three  years,  Coherent  shall pay Palomar  running  royalties of
               *%  of Net  Revenues  so long  as the  Licensed  Product,  its
               manufacture,  use or sale is  covered  by a  Valid  Claim  of the
               Anderson  Patent,  until  such  time as  Palomar  licenses  three
               companies with sales of aesthetic laser products in excess of $20


*Indicates that material has been omitted pursuant to a request for confidential
treatment, and separately filed with the SEC.  


                                       -19-
<PAGE>


               million  per year at rates in  excess  of *%,  at which  time the
               running  royalty  rate shall be  adjusted  to the average of such
               higher prices.  However,  if Palomar licenses the Anderson Patent
               at a rate less than the amount Coherent is then paying,  Coherent
               shall be  entitled to such lower rate for sales  occurring  after
               such lower rate is  effective.  The  sublicense  to the  Anderson
               Patent  granted in this  Section  17.4,  and  Coherent's  royalty
               obligations in connection therewith, shall survive termination of
               the Agreement.

        17.4.2 Royalties  due shall be  calculated  as of the last day of each
               month with  respect to  transactions  made  during that month and
               within 30 days  thereafter  Coherent  shall remit to Palomar full
               payment of royalties due, accompanied by a detailed report of the
               calculation   thereof,   Whenever  conversion  from  any  foreign
               currency shall be required,  such conversion shall be at the rate
               of exchange  thereafter  published in the Wall Street Journal for
               the business day closest to the end of the applicable  Accounting
               Period.

        17.4.3 With each payment, Coherent shall deliver to Palomar a full and
               accurate accounting to include at least the following information
               to the extent necessary to determine royalties:

               (a)  Quantity  of  each  Licensed  Product  sold  or  leased  (by
                    country) by Coherent and its Affiliates;

               (b)  Total billing for each Licensed Product (by country);

               (c)  Quantities of each Licensed Product used by Coherent and its
                    Affiliates;

               (d)  Revenues from Services paid to Coherent and its  Affiliates;
                    and

               (e)  Total royalties payable to Palomar.

        17.4.4 Unless otherwise terminated as provided for in this Section 17,
               the  license  to  the  Anderson  Patent  granted  hereunder  will
               continue until the expiration of the Anderson Patent. Palomar has
               the right to  terminate  this  sublicense  upon fifteen (15) days
               prior  written  notice to Coherent  in the event of any  material
               breach of the  obligation  to make  royalty  payments  hereunder,
               unless  such  breach  is cured  prior to the  expiration  of such
               fifteen  (15) day  period.  Upon  termination  of the  sublicense
               granted  hereunder,  Coherent shall pay Palomar all royalties due
               or accrued on the Net  Revenues up to and  including  the date of
               termination. In the event of any termination, Coherent shall also
               have the right to fill all existing orders for Licensed Products,
               provided the royalties set forth herein are paid on such orders.


*Indicates that material has been omitted pursuant to a request for confidential
treatment, and separately filed with the SEC.  


                                      -20-
<PAGE>


     17.5 Upon  termination of this Agreement,  Coherent agrees to grant Palomar
any licenses under any patents it licenses or owns to make,  use, offer for sale
or  sell  any  Licensed  Products,  on  commercially   reasonable  terms  to  be
negotiated.  The parties shall negotiate in good faith,  but no license shall be
granted if the parties are unable to reach agreement on reasonable terms.


                       18. INTELLECTUAL PROPERTY NOTICES.

Coherent  shall  reproduce on all copies of any  documentation  or  Confidential
Information, all copyright, trademark,  confidentiality and other notices on the
original.  Coherent  shall  reproduce  Palomar's  patent  notices on Distributed
Products.  Coherent shall place on all brochures,  flyers,  advertisements,  all
other  promotional,  instructional  or  merchandising  materials  collateral  to
Products sold by Coherent a notice  stating that the Products are  "Manufactured
and sold under patent license from Palomar Medical Technologies, Lexington, MA."

                            20. TERM AND TERMINATION

     19.1 TERM.  This  Agreement  shall commence on the date hereof and continue
for an  initial  period of three  years,  unless  terminated  earlier  under the
provisions  of this Section 19. At the end of each year,  this  Agreement  shall
automatically be renewed for an additional one year period,  unless either party
provides  the  other  with  written  notice  of its  intention  not to renew the
Agreement at least thirty (30) days prior to the renewal date.

     19.2  TERMINATION FOR CAUSE. If either party defaults in the performance of
any provision of this Agreement, or violates the covenant of good faith and fair
dealing implied by law, then the non-defaulting party may give written notice to
the  defaulting  party that if the default is not cured within  thirty (30) days
the Agreement will be terminated.  If the non-defaulting party gives such notice
and the default is not cured during the thirty-day  period, or reasonable action
isn't  taken to cure any  default  that can not be cured  during the  thirty-day
period,  then the  Agreement  shall  automatically  terminate at the end of that
period. 

     19.3  TERMINATION FOR INSOLVENCY.  This Agreement shall  terminate,  at the
election of the other party, (i) upon the institution by or against either party
of insolvency,  receivership or bankruptcy  proceedings or any other proceedings
for the settlement of debts, (ii) upon either party making an assignment for the
benefit of creditors,  or (iii) upon either party  dissolution  or ceasing to do
business.

     19.4  FULFILLMENT  OF ORDERS UPON  TERMINATION.  Upon  termination  of this
Agreement for other than  Coherent's  breach,  Palomar shall continue to fulfill
all orders accepted by Palomar prior to the date of termination,  and Coherent's
payment  obligations to Palomar  hereunder for such orders shall continue.  

     19.5 RETURN OF MATERIALS. All trademarks, trade names, patents, copyrights,
designs, drawings, formulas or other data, photographs, samples, literature, and
sales aids of every  kind  provided  by Palomar  shall  remain the  property  of
Palomar.  Within  thirty  (30) days  after the  termination  of this  Agreement,
Coherent shall prepare all such items in its possession for shipment, as Palomar
may direct, at Palomar's expense.

                                      -21-
<PAGE>

     19.6  LIMITATION ON LIABILITY.  In the event of termination by either party
in accordance with any of the provisions of this Agreement,  neither party shall
be  liable  to  the  other,  because  of  such  termination,  for  compensation,
reimbursement  or  damages  on  account  of the loss of  prospective  profits or
anticipated sales or on account of expenditures,  inventory, investments, leases
or  commitments  in  connection  with the  business  or  goodwill  of Palomar or
Coherent.  Termination shall not,  however,  relieve either party of obligations
incurred prior to the termination.

     19.7 SURVIVAL OF CERTAIN TERMS.  The provisions of Sections 1, 2.3, 3.2.11,
3.3, 3.8,  3.9,  4.12,  5.5, 5.8, 5.9, 7, 8, 9, 10, 11, 12, 13, 14, 16.4,  17.2,
17.3, 17.4, 17.5, 18, 19, and 20 shall survive the termination of this Agreement
for any reason. All other rights and obligations of the parties shall cease upon
termination of this Agreement. It is the intent of the parties that the licenses
of  intellectual  propoerty  as  contemplated  by Section  16 and  Section 17 by
Palomar shall be considered licenses of intellectual property as contemplated by
Section 325(n) of the Bankruptcy Code (11 U.S.C.  section  356(n)).  

                             20. GENERAL PROVISIONS

     20.1  CONFIDENTIALITY.  The parties  agree to enter into a  Confidentiality
Agreement in substantially the form attached hereto as Exhibit F.

     20.2 DISPUTE RESOLUTION. For any and all claims, disputes, or controversies
arising under,  out of, or in connection with this Agreement,  (other than those
relating to patent rights,  which shall be brought in the United States District
Court for the District of  Massachusetts),  which the parties shall be unable to
resolve  within sixty (60) days,  the party raising such dispute shall  promptly
advise the other party of such claim, dispute, or controversy in a writing which
describes in  reasonable  detail the nature of such  dispute.  By not later than
five (5) business  days after the recipient has received such notice of dispute,
each party shall have  selected for itself a  representative  who shall have the
authority to bind such party and shall additionally have advised the other party
in writing of the name and title of such  representative.  By not later than ten
(10)   business   days  after  the  date  of  such  notice  of   dispute,   such
representatives  shall  agree upon a third  party  which is in the  business  of
providing  Alternative  Dispute  Resolution  (ADR) services  (hereinafter,  "ADR
Provider")  and shall  schedule a date with such ADR  Provider to engage in ADR.
Thereafter,  the representatives of the parties shall engage in good faith in an
ADR process  under the  auspices of the selected  ADR  Provider,  and each party
shall pay fifty  percent  (50%) of the ADR  expenses.  If within  the  aforesaid
thirty  (30)  business  days  after  the  date  of the  notice  of  dispute  the
representatives  of the parties have not been able to agree upon an ADR Provider
and  schedule a date to engage in ADR,  or if they have not been able to resolve
the dispute  within thirty (30) business days after the  termination of ADR, the
parties shall have the rights to pursue any other remedies legally  available to
resolve such dispute in either the courts of the  Commonwealth of  Massachusetts
or in the United States  District  Court for the District of  Massachusetts,  to
whose jurisdiction for such purposes the parties hereby irrevocably consent. Any
written evidence  originally in a language other than English shall be submitted
in English  translation  accompanied by the original or true copy thereof.  

     20.3  INSURANCE.  Each party will obtain  comprehensive  general  liability
insurance in amounts  reasonable to ensure the performance of their  obligations
hereunder, and Coherent will

                                       -22-
<PAGE>

cause Palomar to be named as an  additional  insured.  Each party
shall provide the other with written  evidence of such  insurance  upon request.
Each party shall maintain such comprehensive  general liability insurance beyond
the expiration or  termination of this Agreement  during (i) the period that any
product,  process or  service,  relating  to, or  developed  pursuant  to,  this
Agreement is being commercially  distributed or sold (other than for the purpose
of obtaining regulatory approvals) and (ii) a reasonable period after the period
referred  to above  which in no event  shall be less than five (5)  years.  

     20.4 ENTIRE  AGREEMENT.  This Agreement sets forth the entire agreement and
understanding  of the parties  relating to the subject  matter herein and merges
all prior  discussions  between  them. No  modification  of or amendment to this
Agreement, nor any waiver of any rights under this Agreement, shall be effective
unless in writing signed by the party to be charged.

     20.5 NOTICES.  Any notice  required or permitted by this Agreement shall be
in writing and shall be sent by prepaid express courier,  addressed to the other
party at the address shown at the  beginning of this  Agreement or at such other
address for which such party gives notice hereunder. Such notice shall be deemed
to have been given three (3) days after deposit with such courier service.

     20.6 FORCE MAJEURE.  Nonperformance of either party shall be excused to the
extent  that  performance  is  rendered  impossible  by  strike,   fire,  flood,
governmental acts or orders or restrictions,  failure of suppliers, or any other
reason  where  failure to perform  is beyond the  control  and not caused by the
negligence of the non-performing party.

     20.7  NONASSIGNABILITY  AND BINDING EFFECT. A mutually agreed consideration
for the  parties'  entering  into this  Agreement  is the  reputation,  business
standing, and goodwill already honored and enjoyed by them, and accordingly, the
parties  agree that,  except as  otherwise  provided  herein,  their  rights and
obligations  under this Agreement may not be transferred or assigned directly or
indirectly  without the prior  written  consent of the other party,  except that
either party shall be permitted to assign its rights and  obligations  under the
Agreement,  without  the other's  consent,  in  connection  with the sale of the
company,  or  substantially  all of its assets  relating to its  cosmetic  laser
business.  Subject to the foregoing  sentence,  this Agreement  shall be binding
upon and inure to the  benefit  of the  parties  hereto,  their  successors  and
assigns.

     20.8  SEVERABILITY.  If any provision of this Agreement or any part thereof
shall be found to be invalid,  illegal or otherwise  unenforceable by a court of
competent  jurisdiction,  such provision shall to such extent be deemed null and
void and severed from this  Agreement,  and the remainder of the Agreement shall
remain in full force and effect.

     20.9 GOVERNING LAW. This Agreement  shall be governed by, and construed and
enforced  in  accordance  with,  and  the  relations  of the  parties  shall  be
determined in accordance  with,  the  substantive  laws of the  Commonwealth  of
Massachusetts without regard to its principles of conflicts of laws.

     20.10  COUNTERPARTS.  This  Agreement  may  be  executed  in  two  or  more
counterparts,  each of  which  shall  be  deemed  an  original  and all of which
together shall constitute one instrument.

                                      -23-
<PAGE>

     20.11 AUDIT  RIGHTS.  Each party shall keep  accurate  records and books of
account sufficient to permit verification of the other party's obligations under
this  Agreement.  The parties  shall have the right,  at their own expense,  and
under reasonable  conditions of time and place, to have an independent  auditor,
reasonably acceptable to the other party, audit from time to time all records of
the  other  party  relating  to any  of  such  party's  obligations  under  this
Agreement. In the event any such audit discloses any breach of this Agreement by
such party or its employees or agents,  the audited party shall,  in addition to
such other rights and remedies as may be available to the auditing  party as the
result of such breach, pay the full cost of such audit to the auditing party.



         IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written.

COHERENT, INC.                                PALOMAR MEDICAL TECHNOLOGIES, INC.


By:/s/  Bernard Couillard                     By:/s/  Louis P. Valente
   ----------------------                        ---------------------
Title:  Chief Executive Officer               Title:  Chief Executive Officer

Date:  November 17, 1997                      Date: November 17, 1997



<PAGE>


2

                                    EXHIBIT A



                                 PALOMAR PATENTS


Issued Patents:

    Patent Number                 Title                               Issue Date
-------------------           --------------                         ---------- 


5,595,568



Patent Applications:



    Serial Number                    Title                         Filing Date
----------------------            ------------                  --------------- 

US 08/314,082                METHOD OF HAIR REMOVAL                  9/28/94

PCT/US95/12275               METHOD OF HAIR REMOVAL                  9/25/95

US                           PERMANENT HAIR REMOVAL                  2/1/95
                             USING OPTICAL PULSES                 





<PAGE>


                                    EXHIBIT B


                                WIRE INSTRUCTIONS


         Bank:                                Citibank

         ABA Routing No.:                     021000089

         Account Name:                        Dean Witter Reynolds, Inc.

         Account Number:                      40611172

         For Further Credit to:               Palomar Medical Technologies, Inc.

         Account No.:                         593-109782



<PAGE>


                                    EXHIBIT C

                                 FORM OF WARRANT



<PAGE>


                                    EXHIBIT D


                        TERMS AND CONDITIONS OF PURCHASE


<PAGE>



                                    EXHIBIT E

                                PRODUCT WARRANTY



<PAGE>


                                    EXHIBIT F

                            CONFIDENTIALITY AGREEMENT