EXHIBIT 10.3


<PAGE>

                               SEVERANCE AGREEMENT


         This Severance Agreement is made as of this 5th day of November, 1996
by and between Terry A. Fuller, Ph.D., an individual residing in Rydal,
Pennsylvania (the "Employee") and Surgical Laser Technologies, Inc., a Delaware
corporation (the "Company").

         WHEREAS, the Employee currently serves as Executive Vice President and
Chief Operating Officer of the Company; and

         WHEREAS, the Company and the Employee now desire to restructure their
relationship effective on the date hereof in accordance with the terms and
conditions hereof.

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

         1. Resignation as Officer and Director. The Employee hereby resigns as
Executive Vice President, Chief Operating Officer and as a director of the
Company and as an officer and director of all subsidiaries and affiliates of the
Company, effective immediately, subject to the terms and conditions of this
Agreement.

         2. Change in Position for Employee. The Company and the Employee agree
that the Employee shall remain an employee of the Company through January 10,
1997 and shall perform such advisory or executive level duties as are from time
to time reasonably assigned to him by the President and Chief Executive Officer,
provided, however, that the Employee shall vacate his current office on or
before November 5, 1996 and shall hereafter be entitled to such secretarial and
other administrative support as is reasonably necessary in connection with the
performance of his duties as requested by the President and Chief Executive
Officer. The Employee shall make available his full business time, attention and
energies, to the performance of his duties as set forth in this Section 2;
provided, however, that the Company shall allow the Employee ample time within
which to locate and secure new employment or consulting opportunities. Upon his
termination of employment, the Employee will be paid vacation earned but not
taken by December 31, 1996. The Employee has loaned and/or leased certain
equipment, supplies and materials to the Company. The Employee will be given
adequate access to the properties of the Company to locate such items and to
arrange for their removal subject to agreement with the Company.

         3. Compensation.

                  a. From the date hereof through January 10, 1997, the Employee
shall continue to be compensated in an amount and in accordance with the terms
on which he was being compensated immediately prior to the date hereof, which
compensation shall include base salary and all fringe benefits to which the
Employee was entitled immediately prior to

                                      - 1 -

<PAGE>



the date hereof, including the $500,000 life insurance policy and the $500.00
per month car allowance (plus reimbursement for oil and fuel expenses).

                  b. From January 11, 1997 through January 10, 1998 (the
"Severance Period"), the Company shall continue to pay the Employee his base
salary of $192,102 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 also continue to
provide, at no cost to the Employee and to the extent permitted by law and the
terms of the applicable policies, the group medical, group dental and
supplemental $500,000 life insurance benefits to which the Employee was entitled
immediately prior to the date hereof unless and until the Employee becomes
entitled to comparable benefits from any new employer, at which time the
Company's obligations to provide the particular benefits as to which the
Employee has become entitled to comparable benefits shall cease. In the event of
the Employee's death prior to January 10, 1998, the payments of base salary and
the provision of health insurance as set forth above shall remain unaffected and
shall be made or provided to his estate, heirs or family, as the case may be.

         4. 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, their respective affiliates,
parents, subsidiaries and divisions (the "Companies"), 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,
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 Executive
Vice President, Chief Operating Officer, and as a director of the Companies 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 termination from
such employment, including, without limitation by reason of specification, Title
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 laws or other federal or state law, including any

                                      - 2 -

<PAGE>



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
Executive Vice President, Chief Operating Officer, and as a director of the
Companies 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 or the
resignation from such employment.

                  c. The releases contained in Section 4(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.

         5. 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.

         6. Advice of Counsel. The Employee acknowledges that the Company
advised him to consult with an attorney prior to executing this Agreement and
that he has had 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, warran ties or agreements other
than those expressed or referred to herein. The Employee acknowledges that he
has executed this Agreement knowingly and voluntarily, with full knowledge of
its significance.

         7. 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, 3 and 4
of this Agreement shall become effective seven days following the date of the
Employee's signature unless the Company shall have actually received,

                                      - 3 -

<PAGE>



within such seven-day period, written notice from the Employee of his revocation
of the agreements set forth in such Sections 2, 3 and 4.

         8. Entire Agreement. This Agreement and the Confidentiality and
Noncompetition Agreement between the Company and the Employee dated June 6,
1990, as amended on April 28, 1994 (the "Confidentiality Agreement")
collectively set forth the entire agreement between the Employee and the Company
with respect to the subject matter hereof and thereof, except as and to the
extent specifically referenced herein, supersede all prior agreements or
understandings, except those relating to stock options, between the Employee and
any of the Companies. The Company and the Employee agree that the
Confidentiality Agreement shall not be interpreted as precluding the Employee
from working for or with an entity that develops, manufactures, markets or sells
non-laser surgical products. The Company expressly acknowledges that the License
Agreement dated May 31, 1994 between the Company and Fuller Research Corporation
is neither an agreement between the Employee and the Company nor related to the
subject matter hereof or of the Confidentiality Agreement and, as such, shall
survive the execution of this Agreement in accordance with the terms thereof.

         9. 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.

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

         11. 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 rights and obligations hereunder to any
successor in interest to all or substantially all of the Company's business.
This Agreement shall inure to the 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.

         12. Arbitration. 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

                                      - 4 -

<PAGE>


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 desirable 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.


         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/ W. Keith Stoneback
                                             ------------------------------
                                             W. Keith Stoneback, President



                                             /s/ Terry A. Fuller, Ph.D
                                             ------------------------------
                                             Terry A. Fuller, Ph.D.





                                      - 5 -

<PAGE>