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                             SECURED PROMISSORY NOTE

                                   (Term Loan)
                             Los Angeles, California

$3,233,000                                                     December 31, 1997


         FOR VALUE RECEIVED, the undersigned (Borrower"), promises to pay to the
order of  COAST  BUSINESS  CREDIT,  a  division  of  Southern  Pacific  Bank,  a
California  corporation (Coast"),  at 12121 Wilshire Boulevard,  Suite 1111, Los
Angeles,  California,  or at such other address as the holder of this note shall
direct,  the principal sum of Three  Million Two Hundred  Thirty-Three  Thousand
Dollars  ($3,233,000.00),  or the then outstanding principal amount of this Term
Loan made by Coast to Borrower  (the "Term Loan" or  "Note"),  plus  interest as
hereinafter  provided.  The Term Loan plus interest  shall be due and payable in
equally monthly  installments of 1/24th of the original principal amount of such
Term Loan: such installments to commence on February 28, 1998, and continuing on
the last day of each month  thereafter.  The entire  remaining  unpaid principal
balance of this Note, plus any and all accrued and unpaid interest, shall be due
and payable on the earlier of: (i) January 31, 2000,  or (ii) the date this Term
Loan terminates by its terms or is terminated by either party in accordance with
its terms.

         This Note shall bear interest on the unpaid  principal  balance  hereof
from  time  to  time  compounding  at a rate  equal  to  the  "Prime  Rate"  (as
hereinafter  defined)  plus 2.25% per annum,  but in no event shall the interest
rate in any month be less than 9% per annum, interest shall be calculated on the
basis of a 360-day year for the actual number of days  elapsed.  As used herein,
the term "Prime Rate" shall mean the actual  "Reference  Rate" or the substitute
therefor  of the Bank of America  NT &SA  whether or not that rate is the lowest
interest rate charged by said bank.  The interest  rate  applicable to this Note
shall be adjusted  monthly,  as of the first day of each month, and the interest
rate  charged  during  each month  shall be based on the  highest  Prime Rate in
effect during said month. If the Prime Rate is  unavailable,  "Prime Rate" shall
mean the highest of the prime rates  published in the Wall Street Journal on the
first  business day of the month,  as the base rate of corporate  loans at large
U.S. money center banks.  Accrued interest shall be payable monthly, in arrears,
in addition to the principal  payments  provided  above,  commencing on March 1,
1998, and continuing on the first day of each succeeding month.

         Principal  of, and  interest  on,  this Note shall be payable in lawful
money of the United States of America.  If a payment  hereunder  becomes due and
payable on a Saturday,  Sunday or legal  holiday,  the due date thereof shall be
extended to the next most succeeding business day, and interest shall be payable
thereon during such extension.

         In the event any payment of  principal  or interest on this Note is not
paid within ninety (90) days from its due date, or if any other default or event
of default occurs under 

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this Note, the Security  Agreement-Stock Pledge entered into between the parties
hereto  of even  date  herewith  or any  other  present  or  future  instrument,
document,  or agreement between Borrower and Coast, Coast may, at its option, at
any time thereafter,  declare the entire unpaid  principal  balance of this Note
plus all accrued  interest to be immediately due and payable,  without notice or
demand.  Without  limiting the  foregoing,  and without  limiting  Coast's other
rights and remedies,  in the event any  installment  of principal or interest is
not paid in full on or before ten (10) days from the date due,  Borrower  agrees
that it would be  impossible  or extremely  difficult to fix the actual  damages
resulting  therefrom to Coast, and therefore the Borrower agrees  immediately to
pay to Coast an amount equal to 5% of the installment  (or portion  thereof) not
paid, as liquidated damages, to compensate Coast for the internal administrative
expenses in administering the default ("Liquidated Damages").  The acceptance of
any installment of principal or interest by Coast after the time when it becomes
due, as herein  specified,  shall not be held to establish a custom, or to waive
any rights of Coast to enforce  payment when due of any further  installments or
any other rights,  nor shall any failure or delay to exercise any rights be held
to waive the same.

         All payments  hereunder are to be applied first to Liquidated  Damages,
if any,  costs and fees referred to hereunder not otherwise  compensated  for by
the  Liquidated  Damages,  second to the  payment  of accrued  interest  and the
remaining  balance  to  the  payment  of  principal.  Any  principal  prepayment
hereunder  shall be applied against  principal  payments in the inverse order of
maturity.  Coast  shall  have the  continuing  and  exclusive  right to apply or
reverse and reapply any and all payments hereunder in its sole discretion.

         Borrower  agrees  to pay all  costs  and  expenses  (including  without
limitation  attorneys'  fees) incurred by Coast in connection with or related to
this Note, or its enforcement,  whether or not suit be brought.  Borrower hereby
further waives presentment,  demand for payment,  notice of dishonor,  notice of
nonpayment,  protest,  notice  of  protest,  and any and all other  notices  and
demands in connection with the delivery,  acceptance,  performance,  default, or
enforcement of this Note, and Borrower hereby waives the benefits of any statute
of limitations with respect to any action to enforce,  or otherwise  related to,
this Note.

         This Note is secured  by the  Security  Agreement-Stock  Pledge and all
other present and future security agreements between Borrower and Coast. Nothing
herein shall be deemed to limit any of the terms or  provisions  of the Security
Agreement-Stock  Pledge or any other present or future  document,  instrument or
agreement,  between  Borrower and Coast,  and all of Coast's rights and remedies
hereunder and thereunder are cumulative.

         In the event any one or more of the  provisions  of this Note shall for
any reason be held to be invalid,  illegal or unenforceable,  the same shall not
affect any other  provision of this Note and the  remaining  provisions  of this
Note shall remain in full force and effect.

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         No waiver or  modification  of any of the terms or  provisions  of this
Note  shall be valid or binding  unless set forth in a writing  signed by a duly
authorized  officer of Coast,  and then only to the extent therein  specifically
set  forth.  If more than one  person  executes  this  Note,  their  obligations
hereunder shall be joint and several.

         COAST  AND  BORROWER  HEREBY  WAIVE  THE  RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON,  ARISING OUT OF, OR IN ANY WAY RELATING TO: (I)
THIS NOTE; OR (II) ANY OTHER PRESENT OR FUTURE  INSTRUMENT OR AGREEMENT  BETWEEN
COAST AND SUCH  BORROWER;  OR (III) ANY  CONDUCT,  ACTS OR OMISSIONS OF COAST OR
SUCH BORROWER OR ANY OF THEIR DIRECTORS,  MANAGERS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR SUCH BORROWER.

         This Note is payable in, and shall be governed by, the internal laws of
the State of California.

                                            BORROWER:

                                            Palomar Medical Technologies, Inc.

                                            By:   /s/  Louis P. Valente
                                               ---------------------------------
                                            Name:      Louis P. Valente
                                            Title:     CEO and President