SEVERANCE AGREEMENT

     This Severance Agreement is made as of this 21st day of July, 1999 by and
between W. Keith Stoneback, an individual residing in Pennsylvania (the
"Employee"), and Surgical Laser Technologies, Inc., a Delaware corporation (the
"Company").

     WHEREAS, the Company and the Employee are currently parties to an
Employment Agreement dated August 5, 1996 (the "Employment Agreement") pursuant
to which the Employee serves as President and Chief Executive Officer of the
Company; and

     WHEREAS, the Employee has given notice to the Company that he is resigning
as President, Chief Executive Officer and a director of the Company, effective
as of the date hereof; and

     WHEREAS, in consideration of Employee assisting the Company in the
transition to a new President and Chief Executive Officer, and of the other
promises made by Employee hereby, the Company agrees to compensate the Employee
in accordance with the terms and conditions hereof.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:

     1. Resignation of Employee. The Employee hereby resigns as President, Chief
Executive Officer and as a director of the Company, as a member of the Executive
and any other committee of the Company's Board of Directors on which he may now
serve, and as an officer and director of any subsidiary or affiliate of the
Company, effective immediately. The Company and the Employee agree that through
December 31, 1999 the Employee shall make himself available to the Company at
reasonable times to perform such advisory duties as are from time to time
reasonably requested of him by the President and Chief Executive Officer who
shall succeed him. The foregoing duties shall include without limitation such
duties as are necessary to assist in the transition to the new President and
Chief Executive Officer and assisting in various ongoing litigation involving
the Company. Employee shall use reasonable efforts at reasonable times to
fulfill his obligations hereunder as best as possible to the extent that doing
so does not conflict with his efforts to secure new employment or consulting
opportunities or the fact that he has secured new employment or obtained
consulting contracts.

<PAGE>

     2. Compensation.
        -------------

          a. From the date hereof through December 31, 1999 (the "Severance
     Period"), the Company shall continue to pay the Employee his base salary of
     S225,000 per annum (less applicable deductions), at the same time and in
     the same amounts as if the Employee had remained as an Employee of the
     Company. During the Severance Period, the Company shall continue to provide
     at no cost to Employee fringe benefits contemplated by Sections 7.2 (other
     than gas and oil expenses), 7.4, 7.5, 7.6 and 8 of the Employment Agreement
     to which the Employee was entitled immediately prior to the date hereof,
     the remaining provisions of Sections 5 and 7 being terminated effective as
     of the date hereof. The Employee shall not be entitled to receive any
     incentive cash bonus for the current fiscal year, Section 6 being hereby
     terminated by Employee and the Company.

          b. Effective as of January 1, 2000, the Employee shall be entitled, by
     notice given to the Company on or before December 1, 1999, to take over the
     payments and ownership of the insurance policy or policies with respect to
     his insurance benefits described in Sections 7.4, 7.6 and 8 of the
     Employment Agreement to the extent that the then-existing terms of such
     policies permit or do not prohibit him from doing so. The Company shall
     also make available to Employee from the date hereof through June 30, 2001
     COBRA coverage to the extent the Company is permitted to do so.

          c. Set forth on Exhibit A attached hereto is a summary of Employee's
     options to purchase shares of the Company's Common Stock. The Company and
     the Employee hereby agree that, in accordance with the agreements pursuant
     to which such options were granted, effective as of the date hereof, the
     number of such options that shall be exercisable shall be as set forth on
     Exhibit B attached hereto, and such options shall remain exercisable until
     October 20, 1999.

     3. Release.
        --------

          a. In consideration of the execution of this Agreement by the Employee
     and the Company, the Employee, on his behalf and all persons claiming by,
     through and under him including, without limitation, each and every
     dependent, heir, executor and administrator, together with his agents,
     successors, assigns and legal representatives (collectively the "Employee
     Parties"), hereby waive, remise, release, settle and forever discharge the
     Company and its subsidiaries and joint venturers (the "Companies"), their
     respective affiliates, parents, subsidiaries and divisions, and any current
     or former director, officer, agent, employee or stockholder of the
     Companies, together with their agents, successors, assigns and legal
     representatives (collectively the "Company Parties") from any and all
     claims, sums of money, fees, compensation, counterclaims, crossclaims,
     rights, demands, losses, damages, trespasses, bonds, executions,
     liabilities, suits, actions and causes of action against the Company
     Parties and each of them that any of the Employee Parties, joindy or
     severally, ever had, now has or may have, in law or in equity, of every
     nature or

                                      -2-
<PAGE>



     description, whether known or unknown, suspected or unsuspected, foreseen
     or unforeseen, actual or potential, which exist as of the date of this
     Agreement or arise in connection with thc Employee's resignation as
     President, Chief Executive Officer and as a director or the termination of
     his employment as contemplated by this Agreement, in each case in whole or
     in part as a result of any act or omission in connection with the
     Employee's employment with any of the Companies and his resignation from
     such employment, including, without limitation by reason of specification,
     Tide VII of the Civil Rights Act of 1964, as amended, the Pennsylvania
     Human Relations Act, the Age Discrimination in Employment Act, the Employee
     Retirement Income Security Act, as amended, the Fair Labor Standards Act,
     the Americans with Disabilities Act, any other human relations or similar
     ordinance, any state statute or local ordinance similar to the foregoing
     federal acts, Pennsylvania wage payment law or other federal or state law,
     including any claim of alleged discrimination, defamation, slander, libel,
     invasion of privacy, breach of employment contract, breach of implied
     covenant of good faith and fair dealing, intentional or negligent
     infliction of emotional distress or wrongful discharge, up to the date of
     this Agreement.

          b. In consideration of the execution of this Agreement by the Employee
     and the Company, the Companies hereby waive, remise, release, settle and
     forever discharge the Employee Parties from any and all claims, sums of
     money, fees, compensation, counterclaims, crossclaims, rights, demands,
     losses, damages, trespasses, bonds, executions, liabilities, suits, actions
     and causes of action against the Employee Parties and each of them that any
     of the Company Parties, jointly or severally, ever had, now has or may
     have, in law or in equity, of every nature or description, whether known or
     unknown, suspected or unsuspected, foreseen or unforeseen, actual or
     potential, which exist as of the date of this Agreement or arise in
     connection with the Employee's resignation as President, Chief Executive
     Officer and as a director or the termination of his employment as
     contemplated by this Agreement, in each case in whole or in part as a
     result of any act or omission in connection with the Employee's employment
     with any of the Companies and his resignation from such employment.

          c. The releases contained in Section 3(a)-(b) hereof shall not apply
     to any claims that either party hereto may have against the other arising
     out of such party's performance under this Agreement.

     4. No Wrongdoing. Each party denies any wrongdoing or liability whatsoever
to the other party hereto, and the execution of this Agreement by each party
hereto does not constitute an admission of any liability whatsoever to the other
party hereto under statutory or common law.

     5. Advice of Counsel. Thc Employee acknowledges that the Company advised
him to consult with an attorney prior to executing this Agreement and that he
has not sought the advice of counsel in reviewing and executing this Agreement.
The Employee further acknowledges that he has read this Agreement and
understands all of its terms and that his execution of this Agreement has not
been induced by any representations, statements,

                                      -3-
<PAGE>

warranties or agreements other than those expressed or referred to herein. The
Employee acknowledges that he has executed this Agreement knowingly and
voluntarily, with ful1 knowledge of its significance.

     6. Review Period. The Employee acknowledges that the Company has advised
him that he has 21 days from receipt of this Agreement to consider it. In the
event the Employee signs this Agreement before the expiration of the twenty-one
day review period, he explicitly agrees hereby to waive the opportunity to use
the full review period. The provisions of Sections 2(c) and 3 of this Agreement
shall become effective seven days following the date of the Employee's signature
unless the Company shall have actually received, within such seven-day period,
written notice from the Employee of his revocation of the agreements set forth
in such Section 2(c) and 3.

     7. Entire Agreement. This Agreement sets forth the entire agreement between
the Employee and the Company and, except as and to the extent specifically
referenced herein, supersedes all prior agreements or understandings between the
Employee and any of the Companies, including without limitation, the Employment
Agreement; provided, however, that the provisions of Sections 12-14 shall
survive the termination of the Employment Agreement in accordance with the terms
thereof and that, for purposes of this Agreement, the references in Section 13
of the Employment Agreement to "a period of one (1) year following termination
of employment in accordance with this Agreement" shall mean a period extending
through December 31, 2000. In the event of any inconsistency betwesen the terms
of this Severance Agreement and the terms of the Employment Agreement, the terms
of this Severance Agreement shall govern.

     8. Unenforceability. In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision or provisions had never been
contained herein unless the deletion of such provision or provisions would
result in such a material change as to cause performance of this Agreement to be
unreasonable.

     9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.

     10. Successors and Assigns. This Agreement shall not be assignable by
either party without the prior written consent of the other party hereto, except
that the Company may assign its rigts and obligations hereunder to any successor
in interest to all or substantially all of the Company's business. This
Agreement shall inure to tbe benefit of and be binding upon the successors and
permitted assigns of the Company and the legal representatives, permitted
assigns and heirs of the Employee.

                                      -4-
<PAGE>


     11. Arbitration. Except as provided in Section 14 of the Employment
Agreement, which survives the execution of this Agreement as provided in Scction
7 hereof, any controversy or claim arising out of or relating to this Agreement,
or the breach hereof, shall be settled by arbitration in Philadelphia,
Pennsylvania, in accordance with the laws of the Commonwealth of Pennsylvania by
three arbitrators, one of whom shall be appointed by the Company, one by the
Employee and the third of whom shall be appointed by the first two arbitrators.
If either party fails to select an arbitrator within 30 days after written
notice of demand for arbitration from the other, the other party may have such
arbitrator appointed by the American Arbitration Association. If the first two
arbitrators cannot agree on the appointment of a third arbitrator within 30 days
after their selection, then the third arbitrator shall be appointed by the
American Arbitration Association. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association. Judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction hereof. In the event that it shall be necessary or desirabIe for
the Company and/or the Employee to retain legal counsel and/or incur other costs
and expenses in connection with the enforcement of any or all of either party's
rights under this Agreement, each party shall bear its own costs and expenses in
connection with the enforcement of its rights (including the enforcement of any
arbitration award in court), regardless of the final outcome.

     12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shal1 be deemed an original but all of which
together shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the undersigned have executed this Severance Agreement
as of the day and year first above written.

                       SURGICAL LASER TECHNOLOGIES; INC.

                       By: /s/ Michael R. Stewart
                           ----------------------

                           /s/ W. Keith Stoneback
                           ----------------------
                               W. Keith Stoneback

                                      -5-
<PAGE>


                                   EXHIBIT A


                       Number of              Number
Grant Date             Shares*                Vested*                Price
----------             ---------              -------               --------
8/12/96                60,000                 40,000                $10.3125

1/23/98                10,000                  3,333                $ 7.03125

* The number of shares subject to options has been adjusted to reflect the
  reverse stock split that occurred in January 1999.

                                      -6-