FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 29, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________ to ________.
Commission File Number 0-17919
Surgical Laser Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 31-1093148
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
147 Keystone Drive, Montgomeryville, PA 18936-9638
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 619-3600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
(Title of Class)
8% Convertible Subordinated Notes Due July 30, 1999
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X). No ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
As of March 26, 1997, the aggregate market value of the voting stock of the
registrant held by non-affiliates was approximately $12,157,410.
On March 26, 1997 the registrant had outstanding 9,882,349 shares of Common
Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of Proxy Statement for 1997
Annual Meeting of Stockholders
incorporated by reference in
Items 10, 11,12 and 13.
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PART I
Item 1. Business.
(a) GENERAL DEVELOPMENT OF BUSINESS.
Surgical Laser Technologies, Inc. ("SLT" or "Registrant") was incorporated
in December 1983 under the laws of the State of Delaware. Registrant's principal
offices are located at 147 Keystone Drive, Montgomeryville, Pennsylvania
18936-9638, and its telephone number is (215) 619-3600.
Registrant is engaged in the development, manufacture and sale of proprietary
laser systems for both contact and non-contact surgery. Registrant's Contact
Laser(TM) System, unlike conventional laser systems, enables the surgeon to use
the laser instrument in direct contact with the tissue being treated, thereby
significantly enhancing the ease of use and precision of laser surgery in many
applications. Registrant's Contact Laser was the first Contact Laser surgery
system developed for commercial application, and Registrant holds patents on the
Wavelength Conversion(TM) effect technology which is the technological
foundation for Contact Laser surgery. Registrant believes that Contact Laser
surgery represents a significant advancement in laser surgery. Registrant
supplements its contact offerings with non-contact products.
Registrant's Contact Laser System is comprised of a portable laser unit that
delivers laser energy through Contact Laser Delivery Systems. Registrant's
current product line includes four portable laser units of various power levels
and a family of over 100 Laser Probes, Laser Scalpels, fibers and handpieces
that provide different Wavelength Conversion(TM) effect properties, power
densities and configurations appropriate for cutting, coagulation or
vaporization. The Wavelength Conversion effect properties permit Registrant's
lasers to replicate the effect of several different laser systems. As a result
of the system's design, a single Contact Laser System can be used within most
surgical specialties to perform a broad range of minimally invasive and open
surgical procedures. Registrant began commercial shipments of its Contact Laser
Systems in June 1986 and each year seeks to expand and enhance its product line
for new and existing uses by surgical specialists.
In May 1996, the United States District Court for the Central District of
California granted Registrant's motion for summary judgment that its Contact
Laser(TM) products do not infringe U.S. Patent No. 4,773,413 which is owned by
Trimedyne, Inc. On November 9, 1995, the same court had ruled that Registrants
Contact Laser(TM) products did not infringe Trimedyne's U.S. Patent No.
4,636,737, known in the industry as a "hot metal tip" patent. Then, in July
1996, this court granted Registrant's summary judgment motion that its
side-firing probe does not infringe Trimedyne's U.S. Patent No. 5,380,317.
Following the third summary judgment, Registrant moved for final judgment, which
the court granted. Trimedyne has appealed the judgment. (See Item 3, Legal
Proceedings).
In July 1996, Registrant completed the sublease of its corporate headquarters
building in Oaks, Pennsylvania. The sublease provides for an initial three-year
term. At the end of the initial term, the sublessee has options to either
purchase the building or to renew the sublease for an additional two years (See
Note 3 to the Notes to the Consolidated Financial Statements).
In August 1996, Registrant named Mr. W. Keith Stoneback as President and
Chief Executive Officer, replacing Mr. James R. Appleby, Jr.
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In October 1996, Registrant acquired from Mediq PRN its 50% interest in the
joint venture previously known as Mediq PRN/SLT. Mediq PRN and Registrant had
formed the joint venture in August 1993 to provide short-term and per-procedure
rental services to hospitals, doctors and other healthcare providers. While
Mediq PRN will continue to contract to Registrant its logistics services,
Registrant is now fully responsible for the management, sales and operations of
the business. The business is now conducted under the trade name "Laser
OnCall(TM)." (See Note 5 to the Notes to the Consolidated Financial Statements).
In February 1997, the United States District Court for the Eastern District of
Pennsylvania granted Registrant's motion for partial summary judgment in the
suit brought by Norio Daikuzono, the inventor of three of Registrant's patents
in Contact Laser technology. (See Item 3, Legal Proceedings).
There were no other significant changes in Registrant's business during the
fiscal year ended December 29, 1996.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Not applicable because Registrant does not group its business into more than one
industry segment. See Note 15 of Notes to Consolidated Financial Statements for
geographic segment information.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
Registrant is engaged in the development, manufacture and sale of a proprietary
Contact Laser System for surgery. During fiscal 1996, 1995 and 1994, revenues
from sales of Registrant's products were $10,974,000, $14,839,000 and
$21,508,000, respectively.
Registrant introduced Contact Laser surgery by combining proprietary Contact
Laser Delivery Systems with its own Nd:YAG laser unit to create a
multi-specialty surgical instrument that can cut, coagulate or vaporize tissue.
Almost all of the surgery performed today, endoscopic or open-cavity, utilizes
two fundamental technologies -- mechanical cutting and clamping, and/or thermal
vaporization and coagulation. The mechanical scalpel, scissors and suture are
universally accepted. However, today's surgery increasingly requires additional
control of bleeding, more precision and better access to diseased sites. Lasers
are suited for this requirement.
With the use of Registrant's Contact Laser System, a precise temperature
profile, or gradient, is created upon contact with the tissue by Registrant's
Laser Probes and Laser Scalpels. It is the temperature that directly causes the
therapeutic effect. If the temperature is sufficiently high, the tissue will be
vaporized (turned from liquid or solid into gas), creating a precise surgical
incision or excision. Lower temperatures coagulate tissue and thus control
bleeding or destroy diseased tissue.
Registrant's proprietary Contact Laser probe and scalpel surface treatments
provide the ability to alter selectively the temperature profile of tissue,
replicating the clinical effect of many different types of lasers. These
treatments are marketed under the trademark "Wavelength Conversion(TM) effect"
treatments. In addition, Contact Laser surgery restores to the surgeon the
advantages of tactile feedback lost with conventional lasers.
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Registrant's revenues are generated by the sale of Contact Laser Delivery
Systems and accessories and Nd:YAG laser units. Registrant's Contact Laser
Delivery Systems consist of proprietary fiberoptic delivery systems which
deliver the laser beam from Registrant's Nd:YAG laser unit via an optical fiber
to the tissue, either directly or through a proprietary Laser Probe or Laser
Scalpel.
Disposable Fiberoptic Delivery Systems. Registrant has designed disposable
optical quartz fibers to channel the laser beam from Registrant's laser unit to
the fiber end, the Laser Probe or the Laser Scalpel or to one of 24
interchangeable, application-specific handpieces that hold the Laser Scalpel or
Laser Probe. These proprietary optical fibers and handpieces are intended for
single use and range currently in list price from $145 to $215.
Laser Probes and Laser Scalpels. Registrant's proprietary Laser Probes and Laser
Scalpels are made of either synthetic sapphire crystal or fused silica and have
high mechanical strength, high melting temperature and appropriate thermal
conductivity. Most of these Laser Probes and Laser Scalpels use Registrant's
patented Wavelength Conversion(TM) effect treatments or geometry. Registrant
offers over 60 interchangeable Laser Probes and Laser Scalpels that provide
different power densities through various geometric configurations appropriate
for cutting, coagulation or vaporization. Laser Probes and Laser Scalpels are
made with varying distal tip diameters and surface treatments, each with a
different balance between cutting and coagulation, so that the instrument can be
suited to the particular tissue type. Additionally, Registrant markets
side-firing and direct-firing free-beam laser probes. Instead of changing laser
units, surgeons may choose a different Laser Probe or Laser Scalpel to perform a
different procedure. The Laser Probes and Laser Scalpels are intended for
limited reuse, and the list prices currently range from $375 to $495.
Disposable Gas or Fluid Cartridge Systems. Registrant's proprietary cartridge
system provides gas or fluid to cool the junction between the optical fiber and
the Laser Scalpel or the Laser Probe. These cartridges are sterile and used in
one set of procedures. The list price of these cartridges is currently $60.
Reusable Laser Aspiration Handpieces. Registrant's proprietary reusable
stainless steel handpieces are all used with interchangeable laser aspiration
wands and flexible endoscopic fibers. These proprietary handpieces are intended
for intra-nasal/endoscopic sinus and oropharyngeal procedures requiring smoke
and/or fluid evacuation. Wands have a list price of $85 and the handpiece list
prices currently range from $345 to $395.
Laser Units. Registrant markets the CLMD line of Nd:YAG laser units for use with
its Contact Laser Delivery Systems, which consists of four units: the CLMD
25-watt to tissue, on 110 volts; the CLMD 40-watt to tissue, on 110 volts; the
CLMD Dual which operates up to 40-watts to tissue on 110 volts and up to
60-watts to tissue on 220 volts; and the CLMD 100-watt to tissue, on 220 volts.
The laser units are modularly designed to allow the customer to upgrade from the
25-watt laser to the 40-watt or Dual laser and from the 40-watt laser to the
Dual laser, and thus provide the customer the flexibility and versatility to
change its laser system easily to meet its changing surgery needs. Current list
prices for the lasers are as follows: CLMD 25-watt, 110-volt-$55,000; CLMD
40-watt, 110-volt - $70,000; CLMD Dual - $85,000; and CLMD 100 watt-$95,000.
These prices include a one-year warranty.
Virtually all of Registrant's products are manufactured and assembled at
Registrant's Montgomeryville, Pennsylvania manufacturing facility. The raw
materials used by Registrant are generally available in adequate supply.
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Registrant obtains all of its partially finished Laser Probes and Laser
Scalpels from three suppliers in the United States. Registrant performs
materials processing and final assembly on the Laser Probes and Laser Scalpels
using proprietary and patented treatment processes. The fiberoptic delivery
systems, with and without handpieces, are also manufactured by Registrant.
Registrant's sterile gas and fluid cartridge systems are manufactured
exclusively by a domestic supplier in accordance with Registrant's
specifications.
Registrant's strategy for long-term growth continues to be to expand the use of
Registrant's disposable delivery systems and to take advantage of Registrant's
unique market position as a provider of Contact Laser products and delivery
systems for multiple surgical specialties. Registrant will also seek to expand
the utilization of its infrastructure through strategic alliances and/or
acquisitions.
Marketing
Registrant sells its Contact Laser Systems by forming a responsive partnership
with surgeons and hospitals to develop and apply innovative technologies that
advance therapeutic benefit, improve cost-effectiveness and enhance access and
ease of use across a broad range of surgical procedures and specialties.
Registrant's marketing efforts include activities designed to educate physicians
and nurses in the use of Registrant's Contact Laser System.
Registrant also participates from time to time in various workshops and
educational programs relating to medical lasers that are sponsored by others.
These programs, together with direct mail, advertising, physician referrals and
trade shows at which Registrant participates, provide substantially all of
Registrant's potential customers. Registrant's sales organization provides
consultation and assistance to the surgeon and surgical staff on the effective
use of Registrant's products for Contact Laser Surgery. The consultative sales
effort varies depending on many factors, which include the nature of the
specialty involved and complexity of the procedures and continues throughout
Registrant's long-term relationship with its customers. The length of the sales
cycle for a laser unit varies from one month to one year, with the average sale
requiring approximately six months.
Registrant's Vice President of Sales and Marketing supervises sales and
marketing activities in the United States, which are conducted predominantly by
Registrant-employed sales personnel. The sale and post-sale support provided by
Registrant includes area managers who are trained in the utilization of Contact
Laser Systems, and who provide clinical consultation regarding laser safety,
efficacy and operating room procedures; clinical support specialists, who
provide similar consultation within Registrant's Laser OnCall(TM) rental
offering; and marketing and product managers and technology engineers, who
together provide the link between the surgeon and Registrant to create
innovative solutions and identify new applications for Contact Laser Surgery. In
certain geographic areas of the United States, Registrant utilizes
manufacturer's representatives, who are not Registrant's employees, to provide
these services. Registrant distributes its products internationally through
independent distributors supervised by a Vice President and Managing Director of
International Operations, who is based in the United States.
International Markets. During 1996, Registrant continued its international
marketing activities, working through distributors in various countries in
Europe, the Middle East, the Far East, South America, Mexico and Canada.
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Research and Development
Registrant focuses its research and product development efforts mainly on
Contact Laser Delivery Systems. Registrant's technological capabilities are
designed to be responsive to the surgeon's needs. Registrant has the ability to
respond to development requirements in the areas of optical/materials
technology, laser technology and mechanical and electronics technology. During
1996, 1995 and 1994, Registrant spent $1.4 million, $2.1 million and $2.1
million in product development expenses, respectively.
Registrant's corporate facility in Montgomeryville, Pennsylvania houses its
product development activities. Registrant utilizes the technologies developed
by Advanced Laser Systems Technology, Inc. ("ALST") and licensed to Registrant
in December 1990 in the development and manufacture of its CLMD laser units.
Registrant, in addition to its internal product development programs, works
closely with medical centers, universities and other companies worldwide in an
effort to develop additional products and applications for its technology.
Registrant's core Laser Probe and Laser Scalpel technology was acquired by
Registrant in 1985 in consideration for certain royalty payments on net sales of
probes and scalpels. The disposable fiberoptic delivery systems, with and
without hand-pieces, the disposable gas and fluid cartridge systems,
ceramic-enclosed probes and adjustable touch-control hand-pieces have been
developed by employees of Registrant; Registrant has retained ownership of all
such proprietary technology. In 1996 and 1995, Registrant has focused much of
its research and development efforts on improving its offerings in urology and
ENT.
Registrant continues to focus on applications in minimally invasive and open
surgery procedures where precision and hemostasis are critical to the procedure
being performed and where the Contact Laser System can demonstrate distinct
clinical advantages and cost-effectiveness relative to traditional surgical and
non-Contact Laser methods.
Competition
Registrant faces substantial competition from other manufacturers of surgical
laser systems, whose identity varies depending on the medical application for
which the laser system is being used, and from traditional surgical methods.
Registrant believes that other companies are developing surgical lasers and
related technologies and that certain of these companies are substantially
larger and have substantially greater resources than Registrant. These efforts
could result in additional competitive pressures on Registrant's operation.
Registrant continues to be aware that certain companies have introduced into the
market concepts or products that draw on Contact Laser technology. Registrant
does not perceive that such concepts or products have a significant impact on
Registrant's sales. Registrant has not determined whether these products
infringe upon Registrant's proprietary technology.
Registrant, through its patented Contact Laser Delivery Systems, is able to
produce a wide range of temperature gradients which address a broad range of
surgical procedures within multiple specialties. Registrant's multiple specialty
capability reduces a hospital's need to purchase several lasers to meet its
specialists' varied requirements. These factors, coupled with the precision,
hemostasis, tactile feedback and control provided by its Contact Laser Delivery
Systems, are Registrant's primary competitive strengths.
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FDA Matters
The FDA generally must approve the commercial sale of new medical devices.
Commercial sales of medical lasers must be preceded by either a premarket
notification filing pursuant to Section 510(k) of the Federal Food, Drug and
Cosmetic Act, or the granting of Premarket Approval for a particular medical
device.
The 510(k) notification filing must contain information that establishes
that the device in question is substantially equivalent to devices on the
market. The Registrant has received FDA clearance to commercially market its
Contact Laser System, including the laser unit, Laser Probes and Laser Scalpels
and Fiberoptic Delivery System, in a variety of surgical specialties and
procedures in gynecology, gastroenterology, urology, pulmonology, general and
plastic surgery, cardio-thoracic surgery, ENT surgery, ophthalmology, neurology
and head and neck surgery. These clearances were granted under Section 510(k) on
the basis of substantial equivalence to other laser or electrosurgical cutting
devices that had received prior clearances or were otherwise permitted to be
used in such areas.
The Pre-market Approval procedure involves a more complex and lengthy review
process by the FDA than the 510(k) premarket notification procedure, and the
necessity to comply with the Pre-market Approval procedure would require costly
and time-consuming studies by the Registrant, which could take two years or more
to complete.
Registrant anticipates that most of its new products will also be eligible for
the Section 510(k) procedure, although some new products, such as products for
which there are no substantial equivalents, may be subject to a lengthier
approval process. There can be no assurance that any future FDA approvals will
be granted on a timely basis, if at all. Failure to obtain FDA approval or
extensive delay in the FDA approval process for any new product which represents
a significant development for the Registrant would have a material adverse
effect on Registrant's business.
Following FDA clearance for commercial distribution, the primary form of
government regulation of medical products is the Good Manufacturing Practice
Regulations for medical devices. These regulations, administered by the FDA, set
forth requirements to be observed in the manufacture, storage, quality control
procedures and installation of medical products for human use. In addition,
there are a variety of registration and reporting requirements, with which the
Registrant must comply.
Registrant is also subject to the regulations under the Radiation Control for
Health and Safety Act (1968) of the Center for Devices and Radiological Health
("CDRH") of the FDA. These regulations require laser manufacturers to file new
product and annual reports, to maintain quality control, product testing and
sales records, to incorporate certain design and operating features in lasers
sold to end-users and to certify and label each laser sold as belonging to one
of four classes, based on the level of radiation from the laser that is
accessible to users. Various warning labels must be affixed and certain
protective devices installed, depending on the class of the product. CDRH is
empowered to seek fines and other remedies for violations of the regulatory
requirements. To date, Registrant has filed the documentation with CDRH for its
laser products requiring such filing, and has not experienced any difficulties
or incurred significant costs in complying with such regulations.
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In addition, federal law requires Medicare to establish guidelines for
hospital reimbursement based on patient diagnosis ("Diagnostic Related Group" or
"DRG"). Once a diagnosis is made, the payment to the hospital will be fixed
irrespective of the length of the hospital stay, the method of treatment, the
supplies used or the tests carried out. This provides the hospital with an
incentive to adapt cost reduction methods. Registrant believes that the Contact
Laser(TM) System may reduce costs to hospitals by reducing length of stay due
primarily to the reduced need for invasive surgery, general anesthesia or
related medical treatments.
The FDA and other governmental agencies, both in the United States and in
foreign countries, may adopt additional rules and regulations that may affect
the Company and its products.
Patents
Registrant's patents offer significant protection to the differentiation of
Registrant's Contact Laser Delivery Systems from competitors' products.
Registrant has sought and enjoys such protection principally in the United
States. Registrant's eleven patents issued by the U.S. Patent and Trademark
Office expire 17 years from their respective dates of issuance: September 15,
1987 (laser scalpels); April 12, 1988 (coatings); November 22, 1988 (two-piece
disposable laser delivery system); April 18, 1989 (laser probes and scalpels);
January 23, 1990 (supply system for sterile fluids and gases); January 23, 1990
(two-piece disposable laser delivery system); October 13, 1992 (unitary
scalpel); June 22, 1993 (adjustable touch control hand-piece); January 10, 1995
(contact or insertion laser probe having wide angle radiation); May 16, 1995
(fused tip and fiber); and May 28, 1996 (probe with inclusions). Registrant's
two Japanese patents, acquired in the fourth quarter of 1992, relate to an
improved laser scalpel and laser surgical apparatus and will aid in the
promotion of Registrant's products. Registrant has several other patents pending
before the U.S. Patent and Trademark Office, as well as other patents and
pending applications overseas.
Registrant intends to continue its policy of defending vigorously the ownership
and protection of its proprietary technology. However, no assurance can be given
that such policy will be successful. (See Item 3, Legal Proceedings).
Many of Registrant's products and services are offered under trademarks and
service marks. Registrant believes its trademarks encourage customer loyalty and
aid in the differentiation of Registrant's products from competitors' products.
Accordingly, Registrant has registered four of its trademarks with the U.S.
Patent and Trademark Office. It has filed its intent to register other
trademarks. Registrant has other registrations issued or pending abroad.
Employees
As of December 29, 1996, Registrant had 85 employees of whom 33 were engaged in
manufacturing, service and distribution, 11 in research and product development,
28 in sales and marketing and 13 in general administration. Registrant's
employees are not represented by a union. Registrant considers its relations
with employees to be good.
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(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES.
In addition to Registrant's domestic sales, Registrant currently sells its
products internationally, concentrating historically throughout Western Europe
and Canada, and more recently in certain countries in the Middle East, the Far
East and South America. During fiscal 1996, 1995 and 1994, domestic sales
represented 77%, 79% and 78% respectively, of Registrant's total sales.
Item 2. Properties.
Registrant owns approximately four acres in Oaks, Pennsylvania on which a 57,000
square foot office building is located. The property and improvements were
sublet in July 1996 (as discussed below), but remain subject to a first mortgage
with a balance at December 29, 1996 of $3,057,000. The loan bears interest at
10.5% per year and is being repaid in equal monthly payments, including
interest, of approximately $34,000 over 20 years.
The property and improvements also remain subject to a second mortgage held by
Montgomery County Industrial Development Corporation ("MCIDC") on behalf of
Pennsylvania Industrial Development Authority ("PIDA"), with a balance at
December 29, 1996 of $1,430,000. The loan bears interest at 3% per year, which
rate was subject to adjustment if Registrant did not satisfy certain job
creation targets as defined. Although Registrant did not fulfill those job
creation targets, PIDA has advised Registrant that it does not intend to adjust
the interest rate as a result of such nonfulfillment. The loan is being repaid
in equal monthly installments, including interest, of approximately $14,000 over
15 years.
As a condition to the second mortgage, Registrant is required to hold collateral
in favor of MCIDC, the terms of which will extend until Registrant has had four
consecutive profitable calendar quarters. At December 29, 1996, the required
amount of this security was $715,000; the form of the collateral was a standby
letter of credit of $515,000 with the remainder covered by a first security
interest in certain fixed assets and a second security interest in Registrant's
accounts receivable and inventories.
Registrant sublet its 57,000 sq. ft. facility to Suburban Cable TV Co. Inc.
("Suburban") under a sublease dated March 21, 1996, as later amended on June 14,
1996. Registrant moved all of its operations out of the facility by July 1996.
Suburban has begun occupancy of the facility and made significant improvements
to it for use in key central administrative functions. The sublease is for three
years. The sublease will significantly reduce Registrant's net facility costs,
resulting in annual cash savings of approximately $700,000. At the end of the
initial three-year term, Suburban has an option to purchase the facility or
extend the sublease for an additional two years. Appropriate subordination and
non-disturbance agreements have been obtained from the first and second
mortgagees of the facility, as well as from MCIDC.
While consummating the sublease with Suburban, Registrant identified a
42,000 sq. ft. leased facility in Montgomeryville, Pennsylvania that could house
both its administrative/research operations and its manufacturing operations.
Registrant entered a five-year lease for the Montgomeryville facility on May
29, 1996. In July 1996, the administrative and research operations were moved to
the new facility from the 57,000 sq. ft. owned facility in Oaks. By November
1996, Registrant's manufacturing operations had also been moved to the new
facility from its leased facility in Oaks. Having vacated the 36,300 sq. ft.
leased facility in Oaks which housed Registrant's manufacturing operations,
Registrant concluded its lease for that facility effective December 31, 1996.
Registrant has leased, on short-term basis, 5,000 sq.ft. close to its new
facility in order to store surplus property and records.
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Registrant also holds a lease on its former manufacturing facility in
Hebron, Kentucky. The facility comprises 32,000 sq. ft. and is under lease
through August 2000. Since the operations from this facility were transferred to
the Oaks, Pennsylvania leased facility during 1992, Registrant sought to sublet
the facility. A subtenant for 19,500 sq. ft. of the facility was secured in
April 1994; a subtenant for the balance of the space was secured in August 1996.
There can be no assurance that the subtenants will remain at the facility
through August 2000.
Item 3. Legal Proceedings.
Bard. On November 21, 1994, Registrant commenced litigation in the United States
District Court for the Eastern District of Pennsylvania against C. R. Bard, Inc.
and the Bard Urological Division claiming that Bard failed to comply with its
contractual obligations to Registrant. The complaint alleges causes of action
for breach of contract, anticipatory repudiation, negligent misrepresentation
and unfair competition. Registrant has also asked for specific performance and,
in addition or in the alternative, for monetary damages. Registrant also seeks
an injunction against, and indemnification from, Bard's enforcement against
Registrant with respect to patent rights potentially inuring to Bard. Finally,
Registrant has claimed punitive damages.
Registrant filed an amended complaint to add claims for contract interference
and civil conspiracy. Registrant also moved the court to add Trimedyne, Inc. as
a defendant. On October 3, 1995, the court granted Registrant's motion to join
Trimedyne, but Trimedyne filed a motion to be dismissed from the action for want
of personal jurisdiction in the Eastern District of Pennsylvania which the court
granted on April 5, 1996.
Discovery and depositions are proceeding. Registrant anticipates that discovery
should be completed by mid-year 1997. Trial may be set for the summer or fall of
1997.
Trimedyne. In January 1995, Trimedyne, Inc. filed a patent infringement
action against Registrant. The suit was brought in the United States District
Court for the Central District of California. Trimedyne had alleged that various
products of Registrant infringe its U.S. Patent Nos. 4,646,737 and 5,380,317. On
January 12, 1996, Trimedyne amended its complaint, alleging that most of
Registrant's probes and scalpels infringed a third patent in its possession,
U.S. Patent No. 4,773,413. Registrant answered the complaint and the amended
complaint, denying infringement and raising several affirmative defenses,
including the statute of limitations, laches and equitable estoppel.
U.S. Patent No. 4,646,737 was issued March 3, 1987, well after Registrant's
Contact Laser(TM) probes and scalpels had been in the marketplace. The patent
covers what is referred to in the laser industry as the "hot metal tip" that
Trimedyne had marketed for use in laser angioplasty a number of years ago. On
November 9, 1995, the court granted Registrant's motion for summary judgment
that its products do not infringe the `737 Patent, either literally or under the
doctrine of equivalents.
U.S. Patent No. 4,773,413 was issued on September 27, 1988. It is a divisional
patent of a continuation-in-part patent to the '737 Patent. It covers, among
other things, a form of hot metal tip that allows direct laser irradiation of
tissue by means of a central aperture in the tip. On March 6, 1996, Registrant
filed a motion for summary judgment that none of its accused probes infringe the
'413 Patent. The court granted Registrant's motion on May 6, 1996, ruling that
Registrant's probes do not infringe the '413 Patent either literally or under
the doctrine of equivalents.
U.S. Patent No. 5,380,317 was issued on January 10, 1995. Trimedyne has directed
this patent against Registrant's side-firing free-beam probe, called the SFB 1.
Registrant believes that the features of the SFB 1
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fall within the public domain, and thus outside the claims of Trimedyne's
patent. On April 29, 1996, Registrant filed a motion for summary judgment that
its products do not infringe the '317 Patent. On July 3, 1996, the court granted
Registrant's motion, ruling that its product does not infringe the '317 Patent
either literally or under the doctrine of equivalents.
On July 11, 1996, the court entered a final judgment in favor of Registrant,
dismissing Trimedyne's complaint. Trimedyne filed a motion for the court to
reconsider its judgment. On August 7, 1996, the court denied Trimedyne's motion.
On September 3, 1996, Trimedyne appealed from the lower court's judgment with
respect to the '413 and '317 Patents. Trimedyne has submitted its appeal brief
to the Court of Appeals for the Federal Circuit, and Registrant filed its reply
brief. Trimedyne has filed its answering brief on March 7, 1997. If the appeals
court desires oral argument, it will likely hear it by May 1997. It is not
possible to determine when the appeals court will decide the appeal.
Registrant has determined that the '737, '413 and '317 Patents are patents
that confer rights and obligations on C.R. Bard, Inc. pursuant to the June 1991
Development, Supply & License Agreement between Bard and Trimedyne.
Daikuzono. On February 7, 1995, suit was brought against Registrant by Norio
Daikuzono, the inventor of three of its patents in Contact Laser(TM) Technology.
The suit was initially brought in United States District Court for the Southern
District of Ohio but was transferred to the Eastern District of Pennsylvania.
Mr. Daikuzono was employed by Registrant from March 1, 1987 until October 31,
1988, when he resigned his position as Vice President of Research and
Development. He has not performed any services for Registrant since that date.
Registrant has paid, or set aside pending receipt of appropriate tax
documentation, the patent royalties to Mr. Daikuzono in accordance with its
understanding of the contract and Mr. Daikuzono's instructions. The suit
originally alleged that Registrant breached certain contractual requirements
regarding royalties and the inventor's former employment with Registrant. The
two fraud claims in the original complaint were dismissed. The suit seeks the
return of the patents to Mr. Daikuzono and payment of allegedly unpaid salary
and royalties.
In its answer, Registrant denied Mr. Daikuzono's allegations and asserted
various defenses, including equitable estoppel, laches, statute of limitations,
unclean hands, and accord and satisfaction. Registrant also filed counterclaims
against Mr. Daikuzono, including claims for unfair competition, fraud, trademark
infringement, failure to disclose and assign developments and inventions to
Registrant, breach of a territorial sales provision, failure to repay sums owed
Registrant, breach of Registrant's confidences and breach of a non-competition
obligation owed to Registrant.
On January 2, 1996, Mr. Daikuzono filed a motion seeking to impose a
constructive trust on his behalf on the settlement proceeds secured by
Registrant in a previous patent infringement suit. Registrant opposed this
filing on various grounds and the court denied the motion on April 30, 1996.
On May 3, 1996, Registrant filed a motion with the court for partial summary
judgment on three grounds: (a) the applicable statute of limitations barred the
claim for unpaid salary; (b) the claim for royalties on certain products of
Registrant which were sold prior to February 1991 is likewise time-barred; and
(c) the claim that Registrant owes him a royalty based on the proceeds from the
prior patent infringement settlement is barred as a matter of law. On February
4, 1997, the court granted Registrant's motion.
11
<PAGE>
Discovery and depositions are proceeding in this action. Registrant anticipates
that discovery will be completed in the Spring of 1997. Trial is preliminarily
set for this summer, and the court has ordered the parties to participate in
settlement discussions prior to trial.
Item 4. Submission of Matters to a Vote of Security Holders.
Registrant held its 1996 Annual Meeting of Stockholders on October 10,
1996. Sheldon M. Bonovitz, Richard J. DePiano, Jay L. Federman, Terry A. Fuller,
Vincenzo Morelli and W. Keith Stoneback, the director nominees set forth in the
Notice of Annual Meeting, were elected to serve as directors. The following
table gives the details of the votes cast for each director nominee:
Votes
-----
Nominee For Abstained
- ------- --- ---------
Sheldon M. Bonovitz 8,507,209 710,203
Richard J. DePiano 8,507,009 710,403
Jay L. Federman 8,507,209 710,203
Terry A. Fuller 8,507,009 710,403
Vicenzo Morelli 8,506,809 710,603
W. Keith Stoneback 8,507,209 710,203
Dr. Fuller resigned from the Board effective November 5, 1996.
The proposal to amend Registrant's Equity Incentive Plan by increasing the
number of shares reserved for issuance thereunder from 1,800,000 to 2,100,000
was approved at the Annual Meeting by 7,256,766 votes favoring the proposal,
1,576,664 votes opposing, and 165,676 votes abstaining.
Arthur Andersen LLP was ratified to serve as Registrant's independent
accountants for the fiscal year ending December 29, 1996, with 9,078,509 votes
favoring ratification, 105,303 votes opposing, and 33,600 votes abstaining.
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<PAGE>
Executive Officers
Certain information about the executive officers of Registrant as of March 26,
1997 is as follows:
Name Age Positions held with Registrant
- ---- --- ------------------------------
W. Keith Stoneback 43 President, Chief Executive Officer
and Director
Michael R. Stewart 39 Vice President, Finance, Chief Financial
Officer, and Treasurer
Davis Woodward 49 Vice President, Legal and Tax Affairs
and Secretary
Glenn H. Stahl 50 Vice President, Sales and Marketing
W. Keith Stoneback has served as President and Chief Executive Officer of
Registrant since August 1996. From 1988 until 1994, he served in several senior
management positions for AMSCO International, Inc., a leading manufacturer and
marketer of sterilizers, surgical tables, lights and decontamination equipment
for the hospital and life science markets, most recently as Corporate Vice
President, with responsibility for worldwide manufacturing, marketing and
research and development for the capital equipment and supplies business. From
November 1994 until joining Registrant, Mr. Stoneback pursued personal
investment and business related interests.
Michael R. Stewart has served as Vice President, Finance since January 1996
and as Vice President and Chief Financial Officer since October 1990. Mr.
Stewart has served as Treasurer since November 1990.
Davis Woodward has served as Vice President, Legal and Tax Affairs for
Registrant since January 1995. From July 1990 to January 1995, Mr. Woodward
served as Assistant General Counsel and Director of Tax Planning. He has served
as secretary since November 1990.
Glenn H. Stahl has served as Vice President, Sales and Marketing since January
1997. From September 1995 until November 1996, Mr. Stahl served as Vice
President, Strategic Development, for Circon Corporation. From November 1994 to
September 1995, he served as Vice President, Strategic Development for Cabot
Medical Corporation, where he also served as Vice President, Marketing from
September 1986 to October 1995.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Registrant's Common Stock, $.0l par value, is quoted on the Nasdaq Stock
Market under the symbol "SLTI." As of March 26, 1997, there were approximately
706 record holders of Registrant's Common Stock. On March 26, 1997, the closing
price of Registrant's Common Stock on the Nasdaq Stock Market was $1.41 per
share. The following table sets forth the high and low sales prices for
Registrant's Common Stock for each quarterly period within the two most recent
fiscal years.
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<PAGE>
High Low
---- ---
1996
First Quarter $4.19 $1.13
Second Quarter 3.94 2.13
Third Quarter 2.50 1.69
Fourth Quarter 2.38 1.19
High Low
---- ---
1995
First Quarter $2.88 $1.63
Second Quarter 2.00 1.38
Third Quarter 1.75 1.06
Fourth Quarter 1.88 1.00
Registrant has never paid any cash dividends on its Common Stock and does not
expect to pay cash dividends in the foreseeable future. Registrant's bank line
of credit agreement prohibits the declaration or payment of any dividends or
distributions on any shares of its capital stock without the bank's prior
written consent at any time when there are outstanding obligations to the bank.
Item 6. Selected Consolidated Financial Data.
The following table summarizes certain selected financial data for the five
years ended December 29, 1996. The selected financial data for the Registrant
for each of the three years in the period ended December 29, 1996 are
derived from, and are qualified by reference to, the financial statements of
Registrant, which are included elsewhere in this report. Such financial
statements have been audited by Arthur Andersen LLP, independent public
accountants, to the extent indicated in their report. The selected financial
data for the Registrant at January 1, 1995, January 2, 1994 and January 3, 1993
and for each of the two years in the period ended January 2, 1994 are
derived from the audited financial statements of Registrant not included herein.
This data should be read in conjunction with Registrant's financial statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this report.
14
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $10,974 $14,839 $21,508 $18,237 $21,736
Gross profit 6,912 8,702 13,494 11,053 13,687
Percentage of sales 63.0% 58.6% 62.7% 60.6% 63.0%
Selling, general and administrative expenses $8,072 $10,047 $10,786 $10,444 14,886
Product development expenses 1,404 2,143 2,068 2,485 2,764
Non-recurring charges (credits) 1,504(1) 1,915(1) (892)(1) 397(3) 2,750(4)
Net gain on settlement of litigation -- (5,926)(2) -- -- --
Operating income (loss) (4,068) 523 1,532 (2,273) (6,713)
Net income (loss) (4,508) (58) 913 (2,935) (7,248)
Net income (loss) per share ($0.46) ($0.01) $0.10 ($0.33) ($.081)
Shares used in calculation of net income
(loss) per share 9,866 9,851 9,309 9,011 8,982
Balance Sheet Data:
Cash, cash equivalents and short-term investments $6,120 $8,147 $4,143 $2,866 $2,918
Accounts receivable, net 2,899 3,225 4,468 3,404 2,896
Inventories 3,534 3,866 4,725 4,626 6,287
Total assets 21,490 24,821 26,454 25,079 27,312
Long-term debt 4,971 4,503 4,719 5,054 5,117
Convertible subordinated debentures 1,660 1,786 1,848 2,165 2,250
Stockholders' equity $11,308 $15,690 $15,685 $12,420 $15,207
=======================================================================================================================
</TABLE>
(1) See Note 11 of Notes to Consolidated Financial Statements.
(2) See Note 4 of Notes to Consolidated Financial Statements.
(3) Increase in the reserve established in 1991 for the
relocation of Kentucky operations.
(4) Stockholders' suit settlement.
No cash dividends were declared during any of the periods presented.
The accompanying Consolidated Financial Statements and Notes thereto are an
integral part of this information.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Net Sales
Registrant's net sales of Contact Laser(TM) Systems are primarily comprised of
Nd:YAG Laser Systems and Contact Laser Delivery Systems and related accessories.
The U.S market is serviced predominantly by a direct sales force, while sales
outside the United States are derived through a network of distributors. In
1996, net sales were $11.0 million, a decrease of $3.8 million, or 26%, from
1995 sales of $14.8 million. The 1995 sales of $14.8 million were a $6.7
million, or 31% decrease from 1994 sales of $21.5 million.
Net sales of Nd:YAG laser systems in 1996 declined by 29% on a 20% decline in
unit sales. The decrease was due primarily to the continued weakness in the
demand for capital purchases by hospitals. This
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<PAGE>
weakness was evidenced primarily in the United States and European markets.
Other international markets were also affected, however, to a lesser extent.
While average unit prices remained relatively constant in international markets,
U.S. average unit prices declined by 20% due mainly to a larger percentage of
the unit sales consisting of refurbished lasers.
Net sales of Nd:YAG laser systems in 1995 decreased by 61% on a 58% decline
in units. The decrease was mainly caused by the introduction in late 1994 of an
electrosurgical roller-ball-type product which competed with Registrant in the
urology market in 1995, negatively impacting sales of Nd:YAG laser systems in
the United States, as well as in international markets. In addition to the
impact specifically on the urology market, capital purchases by hospitals
continued to be generally weak, affecting particularly the U.S. and European
hospital markets. Two other factors were also operative. First, sales to C.R.
Bard in 1994, for which there were no corresponding sales in 1995, accounted for
15% of the decrease. Second, lower sales to Mediq PRN/SLT, Registrant's former
joint venture rental company (see below), accounted for 16% of the decrease.
During 1995, average unit prices were 4% and 7% lower than 1994 average unit
prices in the international and domestic markets, respectively. Net sales of
Contact Laser Delivery Systems and related accessories decreased 14% in 1995 due
mainly to competition within the urology market.
Net sales of Contact Laser Delivery Systems and related accessories declined 28%
in 1996 due to the lower level of sales of Nd:YAG laser systems and to
competition within the urology market, as well as in other specialty markets. In
1995, net sales of Contact Laser Delivery Systems decreased 14% due mainly to
competition within the urology market.
In October 1996, following the acquisition of the remaining 50% interest in the
Mediq PRN/SLT joint venture (see Note 5 of Notes to Consolidated Financial
Statements), revenues from the rental of the Company's Nd:YAG laser systems and
related Contact Laser Delivery Systems and accessories began to be included in
net sales. In the fourth quarter of 1996, rental revenues accounted for 11% of
the net sales reported.
Management believes that the general market conditions that were experienced
during the 1994-1996 time period will likely continue throughout 1997 and,
therefore, has taken actions aimed at positioning the Company for increased
sales of Contact Laser Delivery Systems and becoming more efficient in serving
its existing base of customers. The Company's domestic sales force was
reorganized in the third quarter of 1996 to focus on more effectively working
with customers to enhance the utilization of their lasers and thereby create
additional demand for the Company's delivery systems. In addition, the Company
acquired the 50% interest held by Mediq/PRN in the Mediq PRN/SLT joint venture
rental company. The rental customers are an integral part of the Company's
customer base and this acquisition will allow the Company to more closely align
its expertise with the specific needs of the rental customers.
Management will continue to invest in innovative product development and will
continue to develop and expand its strategic business relationships while
actively pursuing business combination or acquisition opportunities aimed at
enhancing the generation of new revenues and increasing shareholder value.
Gross Profit
Gross profit for the year ended December 29, 1996 decreased $1.8 million or 21%
from the prior year on a 26% decrease in net sales. As a percentage of net
sales, gross profit was 63%, up from 59% in 1995. The increase in gross profit
as a percentage of sales was due primarily to cost reduction measures taken
throughout 1996 in response to the lower sales being realized.
16
<PAGE>
Gross profit for the year ended December 31, 1995 decreased $4.8 million or 35%
from the prior year. As a percentage of net sales, gross profit was 59%, down
from 63% in the 1994 fiscal year. The decrease was attributable to higher fixed
manufacturing costs per unit due to the lower volume of net sales.
Operating Expenses
In response to the lower level of sales experienced over the last two
years, the Company implemented a course of actions aimed at bringing expense
levels in line with the requirements needed to support its actual sales. The
actions included reductions in workforce levels both in 1996 and 1995; the
sublease of the Company's former headquarters/research facility; and the
relocation of all of the Company's operations into a leased facility in
Montgomeryville, Pennsylvania.
Selling, general and administrative expenses were $8.1 million in 1996, compared
to $10.0 million in 1995, a decrease of 20%. The decrease was due primarily to
cost reduction actions which included reductions in manpower and associated
costs. Selling, general and administrative expenses in 1995 decreased 7% from
the 1994 level of $10.8 million due mainly to the cost reduction measures,
primarily workforce reductions, that were implemented in the second half of
1995.
Product Development
Product development costs were $1.4 million in 1996 and $2.1 million in 1995.
The reduction was due primarily to lower manpower related expenses and to the
inclusion in the 1995 expenditures of $.3 million of expense related to
consulting fees paid to the principals of Advanced Laser System Technology, Inc.
("ALST"), for which there are no corresponding expenses in 1996. SLT has
presently retrenched its new product development activities principally
refocusing them on refining and tailoring its current product line to meet the
needs of the market place.
Non-Recurring Charges (Credits)
In 1996, SLT recorded non-recurring charges of $1,504,000, representing third
quarter restructuring charges of $1,201,000 for severance and other related
costs, and a charge of $303,000 for the write-off of leasehold improvements at
the Company's former manufacturing facility in Oaks, PA. The manufacturing
operations have been consolidated with all other operations into the Company's
new headquarters facility in Montgomeryville, PA.
In 1995, Registrant recorded non-recurring charges of $1,915,000
representing fourth quarter charges of $828,000 for the write-down of certain
inventories, $697,000 for the write-off of certain intangible assets acquired in
the 1990 technology acquisition from ALST, and a second quarter charge of
$390,000 for severance and other costs incurred in connection with a workforce
reduction.
Net Litigation Settlement
In December 1995, Registrant received $8,125,000 in cash in settlement for
damages relating to the patent infringement suit which it had brought against
Sharplan Lasers, Inc. in May 1990, and later against its parent company, Laser
Industries Ltd. Netted against the gain from the settlement was the write-off of
$2,199,000 for previously capitalized patent litigation costs (See Note 4 of
Notes to Consolidated Financial Statements).
17
<PAGE>
Interest
Net interest expense of $253,000 in 1996 decreased by $259,000 from $512,000 in
1995. The decrease was due primarily to higher interest income or higher level
of short-term investments in 1995 versus 1996.
Net interest expense in 1995 of $512,000 decreased by $90,000 from $602,000 in
1994. The decrease was due primarily to reduced interest expense on long-term
debt and to higher interest income due to the higher level of cash and cash
equivalents.
Income Taxes
There was no provision for income taxes in 1996 due to the net taxable loss
incurred. The tax provision of $50,000 in 1995 was for federal alternative
minimum and state income taxes. The provision in 1994 of $26,000 was for state
income taxes. Registrant expects that its effective tax rate for 1997 will
remain significantly lower than the statutory rate due to continued availability
of its net operating loss carryforwards and tax credit carryforwards.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments at December 29, 1996 were $6.1
million, a decrease of $2.0 million over the December 31, 1995 balance of $8.1
million. In each of the two years, $100,000 was restricted and pledged in favor
of American United Life Insurance Company ("AULIC") as a condition of the first
mortgage with AULIC (See Note 9 of Notes to Consolidated Financial Statements).
At December 29, 1996 and December 31, 1995, letters of credit, issued under
Registrant's bank line of credit, were outstanding in favor of the Montgomery
County Industrial Development Corporation ("MCIDC") as a condition of the
security agreement with MCIDC (See Note 9 of Notes to Consolidated Financial
Statements). The letters of credit amounted to $515,000 at the end of 1996 and
$576,000 at the end of 1995. The letter of credit requirement extends until
Registrant records four consecutive quarters of profitability in a given
calendar year.
Registrant has a $2.75 million credit facility with a bank. This facility
includes a sub-line for letters of credit of $750,000, under which the
aforementioned letters of credit were issued. Other than the letter of credit
requirement by MCIDC, and one other minor letter of credit, there were no
borrowings outstanding under the line of credit. Borrowings under the line are
secured by Registrant's accounts receivable and inventories and, at December 29,
1996, were not subject to a borrowing base calculation which was a requirement
eliminated subsequent to the end of 1995. The line is subject to Registrant
maintaining certain financial covenants as defined. Management expects to renew
a line of credit facility when this facility expires on June 30, 1997.
Net cash used in operating activities was $1.3 million in 1996, primarily
resulting from losses incurred. This compares to net cash provided from
operating activities of $5.6 million in 1995, which resulted principally from
the patent litigation settlement with Laser Industries LTD. and its subsidiary
Sharplan Lasers Inc., whereby Sharplan paid Registrant $8.1 million in December,
1995.
Net cash used in investing activities decreased $4.0 million in 1996 to $0.5
million from $4.5 million in 1995. The reduction in net cash used was due
primarily to the purchase in 1995 of short-term investments. Capital
expenditures in 1997 of approximately $200,000 are anticipated, mainly for
manufacturing and research and development purposes. Registrant, however, is not
contractually committed to spend any of
18
<PAGE>
this amount. In 1996 and 1995, Registrant invested $61,000 and $672,000,
respectively, in its patents. In 1996, these costs mainly represent application
and other fees while in 1995 the investment in patents was primarily in defense
costs.
Net cash used in financing activities was $273,000 in 1996, compared to net cash
used in financing activities of $315,000 in 1995.
Management believes that Registrant's current cash position and available line
of credit will be sufficient to fund operations and meet its commitments for
long-term debt (See Note 9 of Notes to Consolidated Financial Statements), other
commitments and contingencies (See Note 16 of Notes to Consolidated Financial
Statements) and capital expenditures.
Management believes that inflation has not had a material effect on operations.
Risk Factors
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. Additionally, from time to time, Registrant or its
representatives have made or may make forward-looking statements, orally or in
writing. Such forward-looking statements may be included in, but are not limited
to, press releases, oral statements made with the approval of an authorized
executive officer or in various filings made by Registrant with the Securities
and Exchange Commission. These forward-looking statements reflect Registrant's
views as of the date they are made with respect to future events and financial
performance and are generally, but not exclusively, identified by the use of
such terms as "intends," "expects," "plans," "projects," "estimates,"
"anticipates," "should" and "believes." However, these forward-looking
statements are subject to many uncertainties and risks which could cause the
actual results of Registrant to differ materially from any future results
expressed or implied by such statements. Additionally, Registrant does not
undertake any obligation to update any forward-looking statements.
The risk factors identified in the cautionary statements below could cause
actual results to differ materially from those suggested in these
forward-looking statements. Also, Registrant may, from time to time, set forth
additional risk factors on Forms 10-Q and 8-K. However, the risk factors listed
below or in future reports of Registrant are not exhaustive. New risk factors
emerge from time to time and it is not possible for management to predict all of
such risk factors, nor can it assess the impact of all of such risk factors on
Registrant's business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results. The cautionary statements
below are being made pursuant to the "safe-harbor" provisions of the Private
Securities Litigation Reform Act of 1995 (the "Act"). Registrant intends that
all forward-looking statements made, in whatever form, be considered subject to
the Act.
Changes in the U.S. Health Care System. There has been substantial debate in the
political arena related to prospective changes in the U.S. health care system.
In addition, developments in both the public and the private sector have
significantly affected the financing and delivery of health care in the United
States, including the rapid expansion of managed care programs, the reduction of
reimbursements under the capital cost pass through system for the Medicare
program and the implementation of prospective governmental reimbursement
programs based on diagnosis related groups. Cost containment has been a major
element of
19
<PAGE>
these developments, which have had a material adverse effect on the
Registrant's results of operations over the past several years. There can be no
assurance that such changes in the financing and delivery of health care will
not continue to affect hospital capital equipment and supplies procurement
patterns or dictate which surgical procedures will be covered by applicable
insurance or government funded or subsidized programs, which could continue to
have a material adverse impact on Registrant. Registrant also cannot predict the
extent or impact of future legislation or regulations.
Competition. Registrant faces substantial competition from conventional
surgical methods, from other manufacturers of surgical lasers and from
manufacturers of alternatives to surgical lasers. For example, in late 1994, an
electrosurgical roller-ball type product was introduced that adversely affected
Registrant's results of operations in 1995. Competitive pressure could result in
price competition or the introduction of new products by Registrant's
competitors, which could have an adverse impact on Registrant's revenues and
results of operations. In addition, Registrant is engaged in an industry
characterized by extensive research efforts. Advances in medical lasers which
improve clinical effectiveness and other discoveries or developments in either
the medical device or drug industry could render Registrant's products obsolete.
Some of the companies with which Registrant competes or may compete in the
future have or may have more extensive research, marketing and manufacturing
capabilities and significantly greater financial, technical and personnel
resources than Registrant and may be better positioned to continue to improve
their technology in order to compete in an evolving industry.
Governmental Regulation. Government regulation in the U.S. and other countries
is a significant factor in the development, manufacturing and marketing of many
of Registrant's products and in Registrant's ongoing research and development
activities. Specifically, medical devices are subject to United States Food and
Drug Administration ("FDA") approval before they can be utilized for clinical
studies or sold commercially. The process for obtaining the necessary approvals
and compliance with applicable regulations can be costly and time consuming.
There can be no assurance that regulatory review will not involve delays or
other actions adversely affecting the marketing and sales of Registrant's
products. Registrant has received all of its FDA clearances to date using the
procedure under Section 510(k). There is no assurance Registrant will continue
to be able to obtain applicable government approvals or successfully comply with
such regulations in a timely and cost-effective manner, if at all, and failure
to do so may have an adverse effect on Registrant's financial condition and
results of operation. Further, there can be no assurances that more stringent
regulatory requirements and/or safety and quality standard will not be issued in
the future with an adverse effect on Registrant's business. Although Registrant
believes that it is in compliance with all applicable regulations of the FDA,
current regulations depend heavily on administrative interpretation and there
can be no assurance that future interpretations made by the FDA or other
regulatory bodies, with possible retroactive effect, will not adversely affect
Registrant.
Patents and Proprietary Technologies. Registrant's ability to compete
effectively with other companies depends, in part, on its ability to protect and
maintain the proprietary nature of its technology. Registrant owns eleven United
States patents, two Japanese patents and a number of pending patent applications
for its products. Registrant treats its design and technical data as
confidential, and relies on nondisclosure safeguards, such as confidentiality
agreements, laws protecting trade secrets and agreements to protect proprietary
information. Registrant has incurred substantial costs in enforcing its patents
against infringement by others and defending itself against similar claims of
others. Although Registrant has been successful to date in disputes involving
the validity and enforceability of its patents and in defending itself against
claims by others of patent infringement, there can be no assurance that
Registrant will continue to be successful in such matters in the future or that
Registrant's patents or other proprietary rights, even if
20
<PAGE>
continuing to be held valid, will be broad enough in scope to enable
Registrant to prevent third parties from producing products using similar
technologies or processes.
Item 8. Financial Statements and Supplementary Data. Page
- ------- -------------------------------------------- ----
Report of Independent Public Accountants............................... 22
Consolidated Balance Sheets at December 29, 1996
and December 31, 1995.............................................. 23
Consolidated Statements of Operations for each of
the three years in the period ended
December 29, 1996.................................................. 24
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended
December 29, 1996.................................................. 25
Consolidated Statements of Cash Flows for each of
the three years in the period ended
December 29, 1996.................................................. 26
Notes to Consolidated Financial Statements............................. 27
Schedule II - Valuation and Qualifying Accounts........................ 41
All other schedules are omitted because of the absence of conditions under which
they are required or because the required information is included in the
Consolidated Financial Statements or Notes thereto.
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To Surgical Laser Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Surgical Laser
Technologies, Inc. (a Delaware Corporation) and Subsidiaries as of December 29,
1996 and December 31, 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 29, 1996. These financial statements and schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Surgical Laser Technologies,
Inc. and Subsidiaries as of December 29, 1996 and December 31, 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 29, 1996 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule included in Item 8 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, Pa.
February 5, 1997
22
<PAGE>
Surgical Laser Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for par values)
<TABLE>
<CAPTION>
Dec. 29, 1996 Dec. 31, 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,795 $ 4,903
(including restricted amounts of $100)
Short-term investments 3,325 3,244
Accounts receivable, net of allowance for doubtful accounts
of $116 and $118, respectively 2,899 3,225
Inventories (Note 2) 3,534 3,866
Other 134 194
- ------------------------------------------------------------------------------------------------
Total current assets 12,687 15,432
Property and equipment, net (Note 3) 2,325 8,250
Property held for sale, net (Note 3) 5,636 --
Patents and licensed technology, net (Note 4) 610 564
Other assets 232 575
- ------------------------------------------------------------------------------------------------
Total assets $ 21,490 $ 24,821
================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 468 $ 212
Accounts payable 777 467
Accrued liabilities (Note 8) 2,306 2,163
- ------------------------------------------------------------------------------------------------
Total current liabilities 3,551 2,842
- ------------------------------------------------------------------------------------------------
Long-term debt (Note 9) 6,631 6,289
- ------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 16)
Stockholders' Equity:
Common stock, $.01 par value, 30,000 shares authorized,
9,882 shares and 9,854 shares issued and outstanding 99 99
Additional paid-in capital 32,714 32,588
Accumulated deficit (21,505) (16,997)
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 11,308 15,690
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 21,490 $ 24,821
================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
Surgical Laser Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended
Dec. 29, Dec. 31, Jan. 1,
1996 1995 1995
<S> <C> <C> <C>
Net sales $ 10,974 $ 14,839 $ 21,508
Cost of sales 4,062 6,137 8,014
- -----------------------------------------------------------------------------------------------------
Gross profit 6,912 8,702 13,494
- -----------------------------------------------------------------------------------------------------
Operating Expenses:
Selling, general and administrative 8,072 10,047 10,786
Product development 1,404 2,143 2,068
Non-recurring charges (credits) (Note 11) 1,504 1,915 (892)
- -----------------------------------------------------------------------------------------------------
10,980 14,105 11,962
- -----------------------------------------------------------------------------------------------------
Net litigation settlement (Note 4) -- 5,926 --
- -----------------------------------------------------------------------------------------------------
Operating income (loss) (4,068) 523 1,532
Equity in (income) loss of joint venture 164 19 (9)
Other loss 23 -- --
Interest expense 581 624 691
Interest income (328) (112) (89)
- -----------------------------------------------------------------------------------------------------
Income (loss) before income taxes (4,508) (8) 939
Income taxes -- 50 26
- -----------------------------------------------------------------------------------------------------
Net income (loss) $ (4,508) $ (58) $ 913
=====================================================================================================
Net income (loss) per share $ (0.46) $ (0.01) $ 0.10
=====================================================================================================
Shares used in calculation of net income (loss) per share 9,866 9,851 9,309
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
Surgical Laser Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
<S> <C> <C> <C> <C>
Balance, January 2, 1994 $90 $30,182 $(17,852) $12,420
Exercise of stock options (46 shares) -- 115 -- 115
Proceeds from issuance of common
stock, net of expenses (696 shares) 7 1,913 -- 1,920
Conversion of subordinated notes to
common stock (70 shares) 1 316 -- 317
Net income -- -- 913 913
- -----------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 98 32,526 (16,939) 15,685
Conversion of subordinated notes to
common stock (14 shares) 1 62 -- 63
Net loss -- -- (58) (58)
- -----------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 99 32,588 (16,997) 15,690
Conversion of subordinated notes to
common stock (28 shares) -- 126 -- 126
Net loss -- -- (4,508) (4,508)
- -----------------------------------------------------------------------------------------------------------
Balance, December 29, 1996 $99 $32,714 $(21,505) $11,308
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
Surgical Laser Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Year Ended
Dec. 29, Dec. 31, Jan. 1,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(4,508) $ (58) $ 913
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in (income) loss of joint venture 164 19 (9)
Depreciation and amortization 981 1,833 2,004
Imputed interest (18) (20) 28
Non-recurring charges (credits) 1,030 3,750 (838)
(Increase) decrease in assets:
Accounts receivable 560 1,243 (1,064)
Inventories 488 135 8
Other current assets 61 64 69
Other assets 7 (89) 88
Increase (decrease) in liabilities:
Accounts payable 308 (832) (55)
Accrued liabilities (422) (436) 3
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities: (1,349) 5,609 1,147
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Cash received in acquisition of joint venture 190 -- --
Net purchases of short-term investments (81) (3,244) --
Net additions to property and equipment (334) (468) (709)
Patent costs (61) (672) (476)
Investment in joint venture (200) (150) --
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (486) (4,534) (1,185)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Payments on long-term debt (273) (315) (606)
Proceeds from exercised stock options and warrants -- -- 1
Proceeds from issuance of common stock -- -- 1,920
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (273) (315) 1,315
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,108) 760 1,277
Cash and Cash Equivalents, Beginning of Year 4,903 4,143 2,866
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 2,795 $ 4,903 $ 4,143
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
Surgical Laser Technologies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 29, 1996
Note 1
Summary of Significant Accounting Policies:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Surgical Laser Technologies, Inc. and its wholly owned subsidiaries ("SLT"). All
material intercompany balances and transactions have been eliminated.
Nature of Operations
SLT is engaged in the development, manufacture, sale, and rental of
proprietary laser systems for both contact and non-contact surgery. SLT's
Contact Laser(TM) System is comprised of a portable laser unit that delivers
laser energy through Contact Laser Delivery Systems. SLT's current product line
includes four portable laser units of various power levels, a family of over 100
laser probes, laser scalpels, fibers and handpieces that provide different
Wavelength Conversion(TM) effect properties, power densities and configurations
appropriate for cutting, coagulation or vaporization.
Fiscal Year
SLT's fiscal year is the 52- or 53-week period ending the Sunday nearest to
December 31. Fiscal years 1996, 1995 and 1994 included 52 weeks.
Cash, Cash Equivalents and Short-term Investments
SLT invests its excess cash in highly liquid short-term investments included in
the balance sheet at amortized cost which approximates fair market value. For
the purpose of the statements of cash flows, SLT considers all highly liquid
investment instruments purchased with an original maturity of three months or
less to be cash equivalents. Investments purchased with an original maturity of
more than three months are considered short-term investments. Cash, cash
equivalents and short-term investments consist of the following:
December 29, 1996 December 31, 1995
----------------- -----------------
(In thousands)
Cash and money market accounts $543 $544
Repurchase agreements 540 274
Certificates of deposit-restricted 100 100
Commercial paper 832 3,985
U.S. Government securities 4,105 3,244
- --------------------------------------------------------------------------------
$6,120 $8,147
===============================================================================
Restricted cash at December 29, 1996 and December 31, 1995 consisted of a
$100,000 certificate of deposit pledged to American United Life Insurance
Company ("AULIC"), as a condition of the first mortgage agreement with AULIC
(See Note 9).
27
<PAGE>
Property, Equipment, Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, primarily
three to ten years for demonstration equipment, furniture and office equipment,
machinery and equipment, and 30 years for buildings. Leasehold improvements are
amortized over the lesser of their useful lives or the lease term. Expenditures
for major renewals and betterments to property and equipment are capitalized,
while expenditures for maintenance and repairs are charged to operations as
incurred.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
Patent Costs
Costs incurred to obtain or defend patents are capitalized and amortized over
the shorter of their estimated useful lives or eight years. Capitalized
litigation costs are netted against recoveries if and when a recovery is
attained (See Note 4).
Revenue Recognition and Warranty Costs
Upon shipment of its product or delivery of a service, SLT records a sale and
accrues the related estimated warranty costs, if any.
Product Development Costs
Costs of research, new product development and product redesign are charged to
expense as incurred.
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Supplemental Cash Flow Information
Interest paid was $581,000, $624,000 and $690,000 in 1996, 1995 and 1994,
respectively. Income taxes paid in 1996, 1995 and 1994 were immaterial.
The following non-cash investing and financing activities took place: (i) during
1996 and 1995, $126,000 and $62,000, respectively, of the 8% convertible
subordinated notes were converted at the request of the noteholders into common
stock at a conversion price of $4.50 per share; (ii) during 1994, SLT settled
lawsuits (see Note 6) which reduced the current portion of long-term debt by
$950,000 and accounts payable by $16,000; (iii) during 1994, SLT issued
additional common stock, valued at the time of issuance at $114,000, in the form
of restricted stock awards for bonuses previously accrued; (iv) on September 30,
1996, SLT acquired the remaining 50% interest in the Mediq PRN/SLT joint venture
for liabilities assumed (see Note 5).
Net Income (Loss) Per Share
Net income (loss) per share (primary and fully diluted) has been computed using
the weighted average number of common shares and common share equivalents
outstanding during each year. If the inclusion of common share equivalents would
have an anti-dilutive effect in the aggregate, they have been excluded
28
<PAGE>
from the calculation. There is no material difference between the shares
used for primary and fully diluted net income (loss) per share in each of the
years presented.
Impairment of Long-Lived Assets
Pursuant to Statement of Financial Accounting Standards ("SFAS") No.121,
"Accounting for the Impairment of Long-Lived Assets - and for Long-Lived Assets
to be Disposed of," SLT is required to evaluate the impairment of long-lived
assets and certain identifiable intangible assets on a periodic basis. SLT
reviews the realizability of its long-lived assets and other intangibles by
analyzing the projected undiscounted cash flows and adjusts the net book value
of the recorded assets when necessary. No such adjustments have been recorded in
1996, 1995 and 1994.
Note 2
Inventories:
(In thousands)
December 29, 1996 December 31, 1995
----------------- -----------------
Raw materials and work-in-process $2,012 $2,158
Finished goods 1,522 1,708
================================================================================
$3,534 $3,866
================================================================================
Note 3
Property and Equipment and Property Held for Sale:
(In thousands)
Property and Equipment: December 29, 1996 December 31, 1995
----------------- -----------------
Land -- $750
Building -- 6,047
Furniture and office equipment 3,534 3,729
Demonstration equipment 1,706 1,661
Machinery and equipment 2,535 1,957
Leasehold improvements 141 454
- --------------------------------------------------------------------------------
$7,916 $14,598
Less-Accumulated depreciation
and amortization (5,591) (6,348)
- --------------------------------------------------------------------------------
Property and equipment, net $2,325 $8,250
================================================================================
At December 29, 1996, net property and equipment included $440,000 for assets
recorded under capitalized lease arrangements (see Note 5). The related lease
obligation of $952,000 was included in long-term debt at December 29, 1996 (see
Note 9).
Property held for sale: December 29, 1996 December 31, 1995
----------------- -----------------
Land held for sale $750 --
Building held for sale 6,047 --
- -------------------------------------------------------------------------------
$6,797 --
Less-Accumulated depreciation
and amortization (1,161) --
===============================================================================
Property held for sale, net $5,636 --
===============================================================================
29
<PAGE>
In July 1996, SLT relocated its administration, research and manufacturing
operations from its owned facility in Oaks, Pennsylvania and its leased facility
in Oaks, Pennsylvania to a leased facility in Montgomeryville, Pennsylvania. The
land and building of the owned facility in Oaks has a net book value of
$5,636,000 at December 29, 1996, and is included in property held for sale in
the accompanying consolidated balance sheets. SLT entered into an agreement to
sublease this facility in July 1996, for three years. The agreement provides for
a $4,750,000 purchase option in 1999. The excess of the depreciation expense and
moving costs over the lease income is recorded as other expense in the
accompanying consolidated statements of operations. Future undiscounted cash
flows from rents and proceeds from the sale of the property exceed the net book
value of the property at December 29, 1996.
Note 4
Patents and Licensed Technology:
(In thousands)
December 29, 1996 December 31, 1995
----------------- -----------------
Patents, net of accumulated
amortization of $361 and $351 $571 $520
Licensed technology, net of
accumulated amortization
of $9 and $4 (see Note 6) 39 44
- -------------------------------------------------------------------------------
$610 $564
- -------------------------------------------------------------------------------
In December 1995, SLT settled its outstanding litigation with Laser Industries
Ltd. and its subsidiary Sharplan Lasers, Inc. for $8,125,000. In accordance with
SLT's accounting policy, that portion of the capitalized patent asset
representing legal fees of $2,199,000 was charged against the proceeds,
resulting in a net settlement of $5,926,000 (see Note 11).
In the fourth quarter of 1995, SLT wrote off the remaining unamortized portion
of the costs capitalized in the December 1990 technology acquisition from
Advanced Laser Systems Technology (see Note 6 and Note 11).
Note 5
Acquisition of Joint Venture:
On September 30, 1996, SLT acquired the remaining 50% interest in the Mediq
PRN/SLT joint venture held by Mediq PRN for the assumption of outstanding
liabilities. The joint venture company was formed in the third quarter of 1993
to provide rentals of lasers and related equipment to hospitals and other health
care providers. Prior to the acquisition, the investment in Mediq PRN/SLT was
recorded using the equity method of accounting. Sales to Mediq PRN/SLT were
recorded at an arms-length price. Under the equity method, 50% of the gross
margin from sales to the joint venture was deferred and amortized to income as
the related asset was used by the joint venture. SLT's sales to Mediq PRN/SLT
were $131,000, $916,000 and $1,440,000 for the nine months ended September 29,
1996 and the fiscal years ended December 31, 1995 and January 1, 1995,
respectively. SLT contributed $200,000 and $150,000 of capital to the joint
venture in 1996 and 1995, respectively.
The acquisition of Mediq PRN/SLT was accounted for as a purchase acquisition
and, accordingly, the results of operations of Mediq PRN/SLT for the periods
from the date of acquisition are included in the accompanying consolidated
financial statements.
On September 29, 1996, prior to the acquisition, SLT's investment in Mediq
PRN/SLT and the deferred gross profit on sales to Mediq PRN/SLT were $380,000
and $280,000, respectively, resulting in a net
30
<PAGE>
investment of $100,000. As of the acquisition date, the fair value of the
net assets of the joint venture exceeded SLT's net investment by $218,000 which
was used to reduce the net book value of rental equipment. The net investment of
$100,000 was allocated to the assets purchased and liabilities assumed, based
upon the fair values on the date of acquisition, as follows (in thousands):
Current assets, excluding cash acquired $360
Rental equipment 669
Other assets 17
Other liabilities (140)
Long-term debt (996)
- ----------------------------------------------------------------
(90)
Cash acquired 190
- ----------------------------------------------------------------
$100
================================================================
The rental equipment acquired includes $464,000 of lasers which are being
accounted for as capital lease equipment under the guidelines of SFAS No. 13 and
are recorded within property, plant and equipment on the balance sheet at
December 29, 1996 (see Note 3). These lasers are being depreciated over a three
year period. The long term debt associated with these lasers is recorded within
both current and long-term debt in the consolidated balance sheet at December
29, 1996 (see Note 9).
The pro forma combined results of operations of SLT and Mediq PRN/SLT on the
basis that the acquisition had taken place and was recorded as of the beginning
of the fiscal year for each period presented is as follows:
(In thousands, except per share amounts) 1996 1995
- -----------------------------------------------------------------------------
Net sales $11,790 $15,506
Net loss (4,813) 337
Net loss per share $(0.49) $0.03
In management's opinion, the unaudited pro-forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of 1996 or at the beginning of
1995 or of future operations of the combined companies under the ownership and
management of SLT.
Note 6
Purchase of Technology License:
In December 1990, SLT purchased from Advanced Laser Systems Technology, Inc.
("ALST") and its four principals an exclusive license for the use of certain
laser technology. The purchase price of $2,000,000 was recorded at its present
value and was being amortized on a straight-line basis over five to seven years.
In connection with the purchase of the license, SLT and the principals of ALST
entered into covenants not-to-compete. These agreements had aggregate payments
of $1,000,000, were recorded at their present value and were amortized on a
straight-line basis over five to eight years. Of the purchase price for the
license agreement and the covenants not-to-compete, $2,050,000 was paid through
1992 and the balance was paid in the June 1994 settlement of SLT's legal dispute
with ALST (see Note 11).
31
<PAGE>
In the fourth quarter of 1995, the remaining unamortized balances of the license
agreement and the non-compete agreements, amounting to $697,000, were written
off, reflecting that the major period of economic benefit from the agreements
had expired.
During 1995, SLT paid $252,000 to the principals of ALST under consulting
agreements. This amount was charged to expense as incurred.
Note 7
Short-Term Borrowings:
At December 29, 1996 and December 31, 1995, SLT had a $2,750,000 line of credit
with its bank. The line of credit provides for a $750,000 sub-line for letters
of credit. Under its sub-line, SLT issued a letter of credit for $515,000 at
December 31, 1996, which replaced the letter of credit issued in 1995 of
$576,000, in favor of Montgomery County Industrial Development Corporation
("MCIDC") under the terms of the Mortgage and Security Agreement. Additionally,
in 1996, SLT issued a letter of credit for $17,510 to its lessor, Nappen
Associates, in compliance with the lease agreement. Other than for these letters
of credit and other minor trade letters of credit issued from time to time,
there were no other borrowings on the line at any time during 1996 and 1995.
Borrowings on the line are secured by SLT's accounts receivable and inventories
and bear interest at the bank's prime rate plus 1/2%. Borrowings on the line are
subject to certain covenants, as defined, with which SLT was in compliance at
December 29, 1996 and December 31, 1995. This credit facility expires on June
30, 1997.
Note 8
Accrued Liabilities:
(In thousands)
December 29, 1996 December 31, 1995
----------------- -----------------
Consolidation and relocation
expenses (see Note 11) $1,113 $375
Accrued royalties 335 227
Deferred revenues an
gross profits 226 732
Accrued compensation 100 180
Other 532 649
- -------------------------------------------------------------------------------
$2,306 $2,163
===============================================================================
Note 9
Long-term Debt:
(In thousands)
December 29, 1996 December 31, 1995
----------------- -----------------
Mortgage loans $4,487 $4,689
Convertible subordinated
notes 1,660 1,786
Capital lease obligations
(see Note 3 and 5) 952 26
- --------------------------------------------------------------------------------
7,099 6,501
Less-Current portion (468) (212)
- -------------------------------------------------------------------------------
$6,631 $6,289
================================================================================
At December 29, 1996, mortgage loans included $3,057,000 remaining on a 10.5%
mortgage note, payable through 2011; and $1,430,000 remaining on a 3% mortgage
note, payable through 2006. The 10.5% note, held by AULIC, contains a provision
which prohibits prepayment until 2001 and is collateralized by
32
<PAGE>
restricted cash of $100,000 and property and improvements. The 3% note is
held by MCIDC on behalf of the Pennsylvania Industrial Development Authority. A
condition of this note requires SLT to grant a security interest in assets equal
to fifty percent of the principal balance. At December 29, 1996, this condition
was met by a letter of credit (see Note 7), a first security interest in certain
fixed assets and a second security interest in SLT's accounts receivable and
inventory. The 3% note also incorporated certain job creation targets which SLT
did not satisfy. PIDA has advised SLT that it does not intend to adjust the
interest rate as a result of such nonfulfillment.
The convertible subordinated notes bear interest at 8%, become due in July 1999
and require interest payments quarterly. The notes were issued as part of a
settlement of stockholder class-action litigation against SLT and certain
directors and officers in 1992. The notes are convertible at the option of the
holders into shares of SLT's common stock at a conversion price of $4.50 and may
be prepaid, without penalty, if the fair value of SLT's common stock exceeds
125% of the conversion price for a specified period.
The obligations under capital leases are at fixed interest rates ranging
from 1.75% to 13.44% and are collateralized by the related property, plant and
equipment (see Note 3).
Future minimum rentals for property under capital leases are as follows (in
thousands of dollars):
Year Amount
- -----------------------------------------------------------------------------
1997 $366
1998 353
1999 333
2000 138
- -----------------------------------------------------------------------------
Total minimum lease obligation 1,190
Less: Interest (238)
- -----------------------------------------------------------------------------
Present value of total minimum lease obligation $952
=============================================================================
The amount of long-term debt (excluding obligations under capital leases)
maturing in each of the next five years is $215,000 in 1997, $229,000 in 1998,
$1,904,000 in 1999, $260,000 in 2000, $278,000 in 2001 and $3,261,000 in 2002
and thereafter.
Note 10
Stock Options:
Under SLT's Non-Qualified Stock Option Plan, Incentive Stock Option Plan, Equity
Incentive Plan and Stock Option Plan for Outside Directors, an aggregate of
2,929,530 options for the purchase of Common Stock may be granted to certain
officers, directors, key employees and others. Options under all plans expire no
more than 10 years from the date of grant and have varying vesting schedules.
The Company accounts for the Option Plan under APB Opinion No.25, under which no
compensation cost has been recognized. Had compensation cost for the Option
Plan been determined consistent with SFAS No.123, "Accounting for Stock-Based
Compensation," the Company's net loss would have been increased by approximately
$251,000 and $95,000 for the years ended December 29, 1996 and December 31,
1995, respectively. The Company's net loss per share would have been increased
by
33
<PAGE>
approximately $.02 and $.01 for the year ended December 29, 1996 and
December 31, 1995, respectively.
The fair value of options granted at market during the year ended December 29,
1996 and December 31, 1995, was estimated at $854,000 and $378,262,
respectively. There were no options granted below market or above market during
the two years. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions: risk-free interest rate of 6.360% and 7.153% for 1996 and
1995 grants, respectively; an expected life of eight years; dividend yield of
zero; and the historical actual volatility of .777 for all grants. Because the
SFAS No.123 method of accounting is not required to be applied to options
granted prior to January 2, 1995, the resulting pro forma compensation charge
may not be representative of that to be expected in future years.
The following table summarizes the option activity under the option plan
<TABLE>
<CAPTION>
Option Average
Shares Price Price
------ ----- -----
<S> <C> <C> <C>
Outstanding options at January 2, 1994 919,873 $2.30-20.17 $7.71
Granted 669,624 2.38- 4.25 3.03
Exercised (46,075) 2.50- 4.00 2.52
Canceled (36,294) 2.30-16.33 5.21
- --------------------------------------------------------------------------------------
Outstanding options at January 1, 1995 1,507,128 2.38-20.17 5.85
Granted 195,900 1.56- 2.63 2.42
Canceled (208,742) 2.00-15.00 5.65
- --------------------------------------------------------------------------------------
Outstanding options at December 31, 1995 1,494,286 1.56-20.17 5.43
Granted 625,900 1.25- 3.13 1.72
Canceled (199,539) 1.25-20.17 10.36
- --------------------------------------------------------------------------------------
Outstanding options at December 29, 1996 1,920,647 $1.25 -15.00 $3.71
======================================================================================
</TABLE>
At December 29,1996, there were 1,059,656 options vested and exercisable and
546,923 options were available for grant. The following table summarizes the
options outstanding and exercisable by price range at December 29, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
Weighted
Average Weighted
Remaining Average Weighted
Range of Exercise Number Contractual Exercise Number Average
Prices Outstanding Life Price Exercisable Exercise Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.2500 - $3.5000 1,194,852 8.40 $2.1146 426,921 $2.2519
$3.6875 - $5.3800 221,002 6.02 $4.3604 169,942 $4.3931
$5.5000 - $7.0000 322,036 5.13 $6.0572 280,036 $6.0943
$8.6000 - $15.0000 182,757 3.32 $9.2238 182,757 $9.2238
- --------------------------------------------------------------------------------------------------------
$1.2500 - $15.0000 1,920,647 7.10 $3.7106 1,059,656 $4.8131
========================================================================================================
</TABLE>
34
<PAGE>
Note 11
Non-recurring Items:
In 1996, SLT recorded non-recurring special charges of $1,504,000, which
included $303,000 in leasehold improvement write-offs related to the Company's
Oaks, PA manufacturing facility, $1,151,000 for severance and other costs
associated with manpower reductions and restructuring and $50,000 for additional
costs associated with sub-leases in Hebron, Kentucky.
In 1995, SLT recorded non-recurring special charges of $1,915,000, which
included an $828,000 write-down of certain sharpened fiber inventories, a
$697,000 write-off of certain intangible assets acquired in the 1990 technology
acquisition from ALST (see Note 6) and $390,000 for severance and other costs
associated with a workforce reduction.
In 1994, SLT recorded a net benefit of $838,000, which was the net effect of the
settlement of a lawsuit with ALST and its principals (see Note 6) partially
offset by a separate legal settlement with a former distributor. As part of the
settlement with ALST and principals thereof, payments due to ALST from SLT under
the original 1990 agreements were offset against amounts due in settlement of
such lawsuits, resulting in a benefit of $966,000. In the same period, SLT
settled a lawsuit with a former distributor for a total charge to SLT of
$250,000, of which all but $128,000, including $54,000 of interest expense, had
previously been accrued by SLT. The net benefit is reflected in the consolidated
statement of operations as a non-recurring credit to operating expenses of
$892,000 and interest expense of $54,000.
Note 12
Retirement Savings Plan:
SLT has a defined contribution retirement plan for the benefit of all eligible
employees. The plan is qualified under Section 401(k) of the Internal Revenue
Code and provides for discretionary matching contributions by SLT of 50% of
pretax contributions by an employee, up to a maximum of 6% of the employee's
compensation. SLT has not made matching contributions in 1996, 1995 or 1994.
Note 13
Income Taxes:
SLT accounts for income taxes pursuant to SFAS No. 109, "Accounting for
Income Taxes". SFAS No. 109 is an asset-and-liability approach that requires the
recognition of deferred tax assets and liabilities for the expected tax
consequences of events that have been recognized in SLT's financial statements
or tax returns.
In 1994 and 1995, the Company recorded provisions for accrued Federal
alternative minimum taxes ("AMT") and certain state income taxes. No provision
was recorded in 1996 due to incurred losses. Any other tax provisions in 1994,
1995 and 1996, including accrual adjustments for prior periods, were completely
offset by changes in the deferred tax valuation allowances, primarily due to the
utilization of operating loss carryforwards.
35
<PAGE>
Income tax expense (benefit) consists of the following
(in thousands of dollars):
1996 1995 1994
---- ---- ----
Federal including AMT tax
Current $ - $25 $ -
Deferred (1,711) (140) 355
State
Current - 25 26
Deferred (61) (52) 118
- ------------------------------------------------------------------------------
(1,772) (142) 499
Change in valuation allowance 1,772 192 (473)
- ------------------------------------------------------------------------------
Income tax expense $0 $50 $26
==============================================================================
SLT has no income that is subject to foreign taxes.
A reconciliation of the effective tax rate with the Federal statutory tax rate
is as follows (in thousands of dollars):
1996 1995 1994
---- ---- ----
Expected Federal tax expense
(benefit) at 34% rate $(1,532) $(3) $319
Change in valuation allowance 1,772 192 (473)
Other (240) (189) 154
State income tax, net of
Federal benefit - 25 26
AMT tax - 25 -
- -------------------------------------------------------------------------------
Income tax expense $0 $50 $26
===============================================================================
As of December 29, 1996, SLT had approximately $23,426,000 of Federal net
operating loss carryforwards, which begin to expire in 2001. Included in the
aggregate net operating loss carryforward are $6,865,000 of tax deductions
related to equity transactions, the benefit of which will be credited to
stockholders' equity, if and when realized against taxes not reducible by other
deductions. In addition, SLT had approximately $711,000 of Federal tax credit
carryforwards which begin to expire in 1998. Net deductible temporary
differences were approximately $2,421,000 at December 29, 1996.
The balance of the net deferred tax asset as of the beginning of 1994 was
$8,529,000, comprised of: $6,708,000 ascribed to net operating loss
carryforwards; $1,306,000 ascribed to temporary differences; $515,000 ascribed
to tax credit carryforwards and expected credits from AMT tax payments.
Offsetting the beginning balance was a commensurate valuation allowance. The
ending balances of the net deferred tax asset have also been fully reserved,
reflecting the uncertainties as to realizability evidenced by SLT's historical
results and the general market conditions being experienced.
36
<PAGE>
The changes in the net deferred tax asset are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning balance, gross $8,248 $8,056 $8,529
Net changes due to:
Operating loss carryforwards, valued at 35% 1,346 (193) 338
Temporary differences, valued at 40% 150 378 (866)
Carryforward & AMT credits 276 7 55
- -------------------------------------------------------------------------------------------------
Ending balance, gross 10,020 8,248 8,056
Less: valuation allowance 10,020 8,248 8,056
- -------------------------------------------------------------------------------------------------
Ending balance, net $0 $0 $0
=================================================================================================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Assets:
Temporary differences
Bad debts $151 $75 $72
Deferred R&D costs 176 287 423
Inventoriable costs 26 25 53
Inventory reserves 470 463 466
Relocation reserve 155 175 155
Severance 249 34 -
Warranty 9 38 67
Misc. temporary differences 167 156 -
Loss carryforwards 8,199 6,853 7,046
Carryforward & AMT credits 853 577 570
- ------------------------------------------------------------------------------------------
Gross deferred tax assets 10,455 8,683 8,852
- ------------------------------------------------------------------------------------------
Liabilities:
Temporary differences
Depreciation (435) (435) (466)
Misc. temporary differences - - (330)
- ------------------------------------------------------------------------------------------
Gross deferred tax liabilities (435) (435) (796)
- ------------------------------------------------------------------------------------------
Net deferred net tax asset, before valuation 10,020 8,248 8,056
Valuation allowance (10,020) (8,248) (8,056)
- ------------------------------------------------------------------------------------------
Net deferred tax asset, after valuation $0 $0 $0
==========================================================================================
</TABLE>
The average Federal and state income tax rate (net of Federal benefit) used to
value operating loss carryforwards is 35%, due principally to more stringent
usage requirements for loss carryforwards in Pennsylvania.
37
<PAGE>
Note 14
Related Party Transactions:
A partner in the firm which acts as primary legal counsel to SLT is also a
director and stockholder of SLT. In 1996, 1995 and 1994, the firm's legal fees
were approximately $388,000, $491,000 and $237,000 respectively.
In September 1995, SLT made an $82,000 equity investment, which represents an
11% interest, in the common stock of one of its international distributors. SLT
accounts for this investment using the cost method. SLT's sales to the
distributor were $144,000, $533,000 and $392,000 for the fiscal years ended
December 29, 1996, December 31, 1995 and January 1, 1995, respectively. Accounts
receivable from sales to the distributor were $245,000 and $256,000 at December
29, 1996 and December 31, 1995, respectively. SLT's Chief Executive Officer is a
member of the distributor's Board of Directors.
During 1994, SLT entered into a License Agreement with Fuller Research
Corporation for certain fiber delivery system technology. The principal
stockholder of Fuller Research Corporation was an executive officer of SLT until
November 1996. The licensed technology was patented by Fuller Research
Corporation before its principal stockholder became an executive of SLT. SLT
paid $34,213, $24,000 and $14,000 in royalties under the terms of the license
agreement in 1996, 1995 and 1994 respectively.
During 1994, SLT entered into an Investment Agreement with Kontron Instruments
Holding N.V. (Kontron Instruments) under the terms of which Kontron Instruments
made a $2.0 million equity investment in SLT, representing a 7% ownership
position in SLT. Kontron Instruments Holding N.V. is the parent company of
Kontron Instruments group, a European medical instruments manufacturer, which
operates as SLT's market development and distribution partner throughout most of
Europe. SLT's sales to Kontron Instruments were $433,000, $792,000 and
$1,021,000 for the fiscal years ended December 29, 1996, December 31, 1995 and
January 1, 1995, respectively. Accounts receivable from sales to Kontron
Instruments were $149,000 and $279,000 at December 29, 1996 and December 31,
1995, respectively. The Chief Executive Officer of Kontron Instruments Holding,
N.V. is a member of SLT's Board of Directors.
Note 15
Business Segment and Geographic Data:
SLT is engaged in one business segment: the design, development, manufacture and
marketing of laser products for medical applications. SLT's customers are
primarily hospitals and medical centers. Net sales by geographic areas are as
follows (in thousands of dollars):
1996 1995 1994
---- ---- ----
Domestic $8,444 $11,758 $16,756
Foreign 2,530 3,081 4,752
- ---------------------------------------------------------------------------
$10,974 $14,839 $21,508
===========================================================================
38
<PAGE>
Note 16
Commitments and Contingencies:
As of December 29, 1996, SLT was a defendant in two pending lawsuits for which
management believes SLT has meritorious defenses. SLT therefore has not made any
accrual for the ultimate resolution of these lawsuits. Based on its defenses in
these actions, SLT firmly believes that neither Trimedyne nor Norio Daikuzono,
the plaintiffs in the two lawsuits pending against SLT, will prevail, although
no assurance can be given that SLT will not sustain an unfavorable outcome. If
SLT does not prevail, SLT cannot now provide any reliable measure of its
prospective loss.
SLT leases office space and equipment under various non-cancelable operating
leases. For fiscal 1996, 1995 and 1994, rent expense was $540,000, $427,000, and
$445,000, respectively, and related primarily to facilities in Montgomeryville,
Pennsylvania; Oaks, Pennsylvania; and Hebron, Kentucky. The Hebron facility was
vacated in 1991 as a result of SLT's decision to consolidate and relocate
manufacturing and warehousing activities to Pennsylvania and has subsequently
been sublet (see Note 11). The Oaks, Pennsylvania facility lease expired in
January 1997 and was not renewed. Future minimum rental payments under operating
leases are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
2001 and
1997 1998 1999 2000 Thereafter
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Minimum rental payments $533 $521 $509 $410 $106
Less: Sublease payments (180) (168) (150) (100) 0
- ----------------------------------------------------------------------------------------
Net rental payments $353 $353 $359 $310 $106
========================================================================================
</TABLE>
SLT has severance agreements with certain key executives which create certain
liabilities in the event of their termination of employment without cause, or
following a change in control of SLT. The aggregate commitment under these
executive severance agreements, should all covered executives be terminated
other than for cause, was approximately $588,000 at December 29, 1996. Should
all covered executives be terminated following a change in control of SLT, the
aggregate commitment under these executive severance agreements at December 29,
1996 was approximately $668,000.
39
<PAGE>
Note 17
Quarterly Financial Data (Unaudited):
<TABLE>
<CAPTION>
For the Quarter Ended
(In thousands, except per share)
- ---------------------------------------------------------------------------------------------
1996 March 31 June 30 Sept. 29 Dec. 29
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $2,765 $2,784 $2,416 $3,009
Gross profit 1,715 1,855 1,576 1,766
Net loss (1) (820) (941) (2,483) (264)
Net loss per share $(0.08) $(0.10) $(0.25) $(0.03)
- ---------------------------------------------------------------------------------------------
1995 April 2 July 2 Oct. 1 Dec. 31
- ---------------------------------------------------------------------------------------------
Net sales $4,167 $3,806 $3,082 $3,784
Gross profit 2,503 2,164 1,749 2,286
Net income (loss) (2) (1,261) (1,684) (996) 3,883
Net income (loss) per share $(0.13) $(0.17) $(0.10) $(0.39)
- ---------------------------------------------------------------------------------------------
1994 April 3 July 3 Oct. 2 Jan. 1
- ---------------------------------------------------------------------------------------------
Net sales $4,665 $5,304 $5,833 $5,706
Gross profit 2,833 3,388 3,642 3,631
Net income (loss) (3) (255) 950 203 15
Net income (loss) per share $(0.03) $0.10 $0.02 $0.01
=============================================================================================
</TABLE>
(1) Includes non-recurring charge of $1,504,000 for the quarter ended September
29, 1996 (see Note 11).
(2) Includes net non-recurring charges of $390,000 and $1,525,000 for the
quarters ended July 2 and December 31, 1995, respectively (see Note 11),
and net patent litigation settlement of $5,926,000 for the quarter ended
December 31,1995 (see Note 4).
(3) Includes net non-recurring credits of $838,000 for the quarter ended July
3, 1994 (see Note 11).
40
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
Additions Charged to
--------------------
Balance at Balance at
Beginning of Cost and Other End of
Description Period Expenses Accounts Deductions (1) Period
- -----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 29, 1996
Reserve for Doubtful
Accounts
$118 $258 - $260 $116
=======================================================================================================================
FOR THE YEAR ENDED
DECEMBER 31, 1995
Reserve for Doubtful
Accounts
$110 $8 - - $118
=======================================================================================================================
FOR THE YEAR ENDED
JANUARY 1, 1995
Reserve for Doubtful
Accounts.
$105 $27 - $22 $110
=======================================================================================================================
</TABLE>
(1) Represents write-offs of specific accounts receivable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable.
41
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The response to this item with respect to Registrant's directors is incorporated
by reference to Registrant's Proxy Statement for its 1997 Annual Meeting of
Stockholders, which will be filed separately with the Securities and Exchange
Commission pursuant to Rule 14a-6 under the Securities Exchange Act of 1934. The
response to this item with respect to Registrant's executive officers is
incorporated by reference to Part I of this Form 10-K Report.
Item 11. Executive Compensation
The response to this item is incorporated by reference to Registrant's Proxy
Statement for its 1997 Annual Meeting of Stockholders, which will be filed
separately with the Securities and Exchange Commission pursuant to Rule 14a-6
under the Securities Exchange Act of 1934, as amended.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The response to this item is incorporated by reference to Registrant's Proxy
Statement for its 1997 Annual Meeting of Stockholders, which will be filed
separately with the Securities and Exchange Commission pursuant to Rule 14a-6
under the Securities Exchange Act of 1934, as amended.
Item 13. Certain Relationships and Related Transactions
The response to this item is incorporated by reference to Registrant's Proxy
Statement for its 1997 Annual Meeting of Stockholders, which will be filed
separately with the Securities and Exchange Commission pursuant to Rule 14a-6
under the Securities Exchange Act of 1934, as amended.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements Page
------------------- ----
Consolidated Balance Sheets at December 29, 1996
and December 31, 1995.................................................. 23
Consolidated Statements of Operations for each of
the three years in the period
ended December 29, 1996................................................ 24
Consolidated Statements of Stockholders' Equity
for each of the three years in the
period ended December 29, 1996 ........................................ 25
Consolidated Statements of Cash Flows for each
of the three years in the
period ended December 29, 1996 ........................................ 26
Notes to Consolidated Financial Statements............................... 27
Report of Independent Public Accountants................................. 22
42
<PAGE>
2. Financial Statement Schedules Page
------------------- ----
Schedule II - Valuation and Qualifying Accounts
for the Years Ended December 29, 1996
and December 31, 1995................................................. 41
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
consolidated financial statements or notes thereto.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fourth quarter of the fiscal year
ended December 29, 1996.
(c) Exhibits
-------------------
Exhibit Number Description of Exhibit
- -------------- ----------------------
3.1 Restated Certificate of Incorporation of Registrant, incorporated by
reference to Exhibit 3.1 filed with Registrant's Annual Report on Form
10-K for the fiscal year ended December 29, 1991 filed on March 30,
1992 (the "1991 Form 10-K").
3.2 By-laws of Registrant, as amended, incorporated by reference to Exhibit
3.2 filed with Registrant's Annual Report on Form 10-K for the fiscal
year ended December 30, 1990 filed on March 29, 1991 (the "1990 Form
10-K").
10.1 Lease dated September 12, 1991 between Registrant and SLT Properties,
Inc., incorporated by reference to Exhibit 10.1 filed with Registrant's
1991 Form 10-K.
10.2 Lease Agreement dated October 9, 1991 between Registrant and Tioga
Leasing Corporation, incorporated by reference to Exhibit 10.2 filed
with Registrant's 1991 Form 10-K, as amended pursuant to Termination
and Release Agreement dated January 10, 1997 between Registrant and
Suburban Management Co. Inc.
10.3 1986 Incentive Stock Option Plan of Registrant, as amended through
November 29, 1989, incorporated by reference to Exhibit 4(A) filed with
Registrant's Form S-8 Registration Statement filed on December 29,
1989, Registration No. 33-32835 (the "1989 Form S-8").
10.4 1986 Non-Qualified Stock Option Plan of Registrant, as amended through
November 29, 1989, incorporated by reference to Exhibit 4(B) filed with
the 1989 Form S-8.
10.5* Registrant's Equity Incentive Plan, as amended through October 10,
1996, incorporated by reference to Exhibit 4 filed with Registrant's
Form S-8 Registration Statement filed on January 3, 1997, Registration
No. 333-19229.
10.6* Second Amended and Restated Stock Option Plan for Outside Directors of
Registrant, incorporated by reference to Exhibit 4(B) filed with
Registrant's Form S-8 Registration Statement filed on August 19, 1994,
Registration No. 33-83074 (the "1994 Form S-8").
43
<PAGE>
10.7 Collaboration and Assignment Agreement dated as of March 7, 1995 among
Registrant, Daniel M. Schuman, M.D. and the AMERICA Charitable Fund,
incorporated by reference to Exhibit 10.7 filed with Registrant's
Amendment No. 1 to Annual Report on Form 10-K/A filed on August 28,
1996 (the "1995 Form 10-K/A").
10.8* Employment Agreement dated as of May 11, 1990 between Registrant and
James R. Appleby, Jr., incorporated by reference to Exhibit 10.10 filed
with the 1990 Form 10-K; as amended pursuant to a Letter Agreement
between Registrant and Mr. Appleby dated January 7, 1992, incorporated
by reference to Exhibit 10.11 filed with Registrant's 1991 Form 10-K;
as amended pursuant to Letter Agreements between Registrant and Mr.
Appleby dated June 11, 1992 and February 3, 1993, incorporated by
reference to Exhibit 10.9 filed with Registrant's Annual Report on Form
10-K for the fiscal year ended January 3, 1993 filed on April 19, 1993
(the "1992 Form 10-K"); and as amended pursuant to a Letter Agreement
dated March 15, 1994 between Registrant and Mr. Appleby, incorporated
by reference to Exhibit 10.8 filed with Registrant's Annual Report on
Form 10-K for the fiscal year ended January 2, 1994 filed on April 1,
1994 (the "1993 Form 10-K"), and as amended pursuant to Severance
Agreement dated August 11, 1996 between Registrant and Mr. Appleby,
incorporated by reference to Exhibit 10.1 filed with Registrant's Form
10-Q for the fiscal quarter ended September 29, 1996 filed on November
15, 1996 (the "Third Quarter 1996 Form 10-Q").
10.9 Employment Agreement dated March 1, 1987 between Registrant and Norio
Daikuzono, incorporated by reference to Exhibit 10.22 filed with the
Form S-1.
10.10* Registrant's 1992 Executive Staff Bonus Program, incorporated by
reference to Exhibit 10.13 filed with Registrant's 1991 Form 10-K.
10.11 License Agreement dated December 11, 1990 among Registrant, Advanced
Laser Systems Technology, Inc., Robert E. McKinney, Dennis R. Bellar,
Randel W. Owen, and Jim D. Keatley, incorporated by reference to
Exhibit 10.11 filed with the 1990 Form 10-K.
10.12 Agreement of Sale dated September 14, 1990 between Oaks Associates and
SLT Properties, Inc., incorporated by reference to Exhibit 10.12 filed
with the 1990 Form 10-K.
10.13 Installment Sale Agreement dated September 14, 1990 between SLT
Properties, Inc. and Montgomery County Industrial Development
Corporation, incorporated by reference to Exhibit 10. 14 filed with the
1990 Form 10-K, as amended pursuant to the Amended and Restated
Installment Sale Agreement dated November 25, 1991 between SLT
Properties, Inc. and Montgomery County Industrial Development
Corporation, incorporated by reference to Exhibit 10.22 filed with
Registrant's 1991 Form 10-K.
10.14 Acquisition Agreement dated September 14, 1990 between SLT Properties,
Inc. and Montgomery County Industrial Development Corporation,
incorporated by reference to Exhibit 10.15 filed with Registrant's 1990
Form 10-K.
10.15 Amended and Restated Loan Agreement dated December 1, 1992 among
Registrant, Meridian Bank, SLT Properties, Inc., SLT Technology, Inc.,
Diversified Properties-Equity Group, Inc. and Surgical Laser
Technologies Development, Inc., incorporated by reference to Exhibit
10.20 filed with Registrant's 1992 Form 10-K; as amended pursuant to a
First Amendment thereto dated July
44
<PAGE>
26, 1993, incorporated by reference to Exhibit 10. 15 filed with
Registrant's 1993 Form 10-K; as amended pursuant to a Second Amendment
thereto dated January 19, 1995, incorporated by reference to Exhibit
10.15 filed with Registrant's Annual Report on Form 10-K for the
fiscal year ended January 1, 1995 filed on April 3, 1995 (the "1994
Form 10-K"); as amended pursuant to a Third Amendment thereto dated
December 20, 1995 and as amended pursuant to a Letter Agreement
accepted March 14, 1996 filed with Registrant's 1995 Form 10-K/A.
10.16 Turnkey Development Agreement dated September 14, 1990 between SLT
Properties, Inc. and Oaks Associates, incorporated by reference to
Exhibit 10.21 filed with Registrant's 1990 Form 10-K.
10.17 Sixth Amended and Restated Line of Credit Note in the principal amount
of $2,750,000 dated January 19, 1995, of Registrant to Meridian Bank,
incorporated by reference to Exhibit 10.17 filed with Registrant's 1994
Form 10-K.
10.18 Amended and Restated Security Agreement amended through December 1,
1992 dated December 1, 1992 among Registrant, Meridian Bank, SLT
Properties, Inc., SLT Technology, Inc., Diversified Properties-Equity
Group, Inc. and Surgical Laser Technologies Development, Inc.,
incorporated by reference to Exhibit 10.22 filed with Registrant's 1992
Form 10-K.
10.19 Pledge Agreement dated April 13, 1992 by SLT Technology, Inc. to
Meridian Bank, as amended by First Amendment to Pledge Agreement dated
December 1, 1992, incorporated by reference to Exhibit 10.23 filed with
Registrant's 1992 Form 10-K.
10.20 Mortgage Note in the principal amount of $3,400,000 dated August 16,
1991 and delivered September 12, 1991 by Registrant, SLT Properties,
Inc. and Montgomery County Industrial Development Corporation in favor
of American United Life Insurance Company, incorporated by reference to
Exhibit 10.35 filed with Registrant's 1991 Form 10-K.
10.21 Mortgage dated August 16, 1991 and delivered September 12, 1991 among
SLT Properties, Inc., Montgomery County Industrial Development
Corporation and American United Life Insurance Company, incorporated by
reference to Exhibit 10.36 filed with Registrant's 1991 Form 10-K.
10.22 Guaranty Agreement dated August 16, 1991 and delivered September 12,
1991 between Registrant and American United Life Insurance Company,
incorporated by reference to Exhibit 10.37 filed with Registrant's 1991
Form 10-K.
10.23 Assignment of Rents and Leases dated August 16, 1991 and delivered
September 12, 1991 by SLT Properties, Inc. and Montgomery County
Industrial Development Corporation to American United Life Insurance
Company, incorporated by reference to Exhibit 10.38 filed with
Registrant's 1991 Form 10-K.
10.24 Security and Pledge Agreement dated September 12, 1991 by SLT
Properties, Inc. in favor of American United Life Insurance Company,
incorporated by reference to Exhibit 10.39 filed with Registrant's 1991
Form 10-K.
45
<PAGE>
10.25 Loan Agreement effective November 25, 1991 between Montgomery County
Industrial Development Corporation and Pennsylvania Industrial
Development Authority, incorporated by reference to Exhibit 10.40 filed
with Registrant's 1991 Form 10-K.
10.26 Note in the principal amount of $2,000,000 dated November 20, 1991 and
delivered December 2, 1991 by Montgomery County Industrial Development
Corporation to Pennsylvania Industrial Development Authority,
incorporated by reference to Exhibit 10.41 filed with Registrant's 1991
Form 10-K.
10.27 Open-end Mortgage made November 20, 1991 and delivered December 2, 1991
between Montgomery County Industrial Development Corporation and
Pennsylvania Industrial Development Authority, incorporated by
reference to Exhibit 10.42 filed with Registrant's 1991 Form 10-K.
10.28 Consent, Subordination and Assumption Agreement dated November 20, 1991
and delivered December 2, 1991 by SLT Properties, Inc. and Montgomery
County Industrial Development Corporation in favor of Pennsylvania
Industrial Development Authority, incorporated by reference to Exhibit
10.43 filed with Registrant's 1991 Form 10-K.
10.29 Assignment of Installment Sale Agreement dated November 20, 1991 and
delivered December 2, 1991 among Montgomery County Industrial
Development Corporation, SLT Properties, Inc. and Pennsylvania
Industrial Development Authority, incorporated by reference to Exhibit
10.44 filed with Registrant's 1991 Form 10-K.
10.30 Assignment of Lease Agreement dated November 20, 1991 and delivered
December 2, 1991 among Registrant, SLT Properties, Inc. and
Pennsylvania Industrial Development Authority, incorporated by
reference to Exhibit 10.45 filed with Registrant's 1991 Form 10-K.
10.31 Guaranty and Surety Agreement dated December 2, 1991 by Registrant in
favor of Pennsylvania Industrial Development Authority, incorporated by
reference to Exhibit 10.46 filed with Registrant's 1991 Form 10-K.
10.32 Agreement for Additional Security dated September 14, 1990 among
Registrant, SLT Properties, Inc. and Montgomery County Industrial
Development Corporation, incorporated by reference to Exhibit 10.47
filed with Registrant's 1991 Form 10-K; as amended by Pledge Agreement
dated December 1, 1992, incorporated by reference to Exhibit 10.36
filed with Registrant's 1992 Form 10-K.
10.33 Pledge and Security Agreement effective December 2, 1991 among
Registrant, SLT Properties, Inc. and Montgomery County Industrial
Development Corporation, incorporated by reference to Exhibit 10.48
filed with Registrant's 1991 Form 10-K.
10.34 Security Agreement dated December 1, 1992 among Registrant, SLT
Properties, Inc. and Montgomery County Industrial Development
Corporation, incorporated by reference to Exhibit 10.38 filed with
Registrant's 1992 Form 10-K.
10.35 Form of Registrant's 8% Convertible Subordinated Note due July 30,
1999, incorporated by reference to Exhibit 10.39 filed with
Registrant's 1992 Form 10-K.
46
<PAGE>
10.36* Form of Agreements dated June 12, 1992 between Registrant and Executive
Officers with respect to severance and change of control benefits,
incorporated by reference to Exhibit 10.40 filed with Registrant's 1992
Form 10-K, as amended by Letter Agreement dated January 24, 1997.
10.37 Lease Agreement dated March 5, 1990 between Duke Associates #77 Limited
Partnership and Registrant and Lease Addendum Number One dated March
30, 1990, incorporated by reference to Exhibit 10.41 filed with
Registrant's 1992 Form 10-K.
10.38* Form of Restricted Stock Award dated as of January 18, 1993 between
Registrant and Executive Officers, incorporated by reference to Exhibit
10.42 filed with Registrant's 1992 Form 10-K.
10.39* Form of Restricted Stock Award, dated as of January 18, 1994 between
Registrant and Executive Officers, incorporated by reference to Exhibit
10.39 filed with Registrant's 1993 Form 10-K.
10.40* License Agreement dated May 31, 1994 between Registrant and Fuller
Research Corporation, incorporated by reference to Exhibit 10.40 filed
with Registrant's 1994 Form 10-K.
10.41* Lease dated April 20, 1993 between Registrant and Fuller Research
Laboratories, incorporated by reference to Exhibit 10.41 filed with
Registrant's 1994 Form 10-K.
10.42 Investment Agreement dated December 8, 1994 between Registrant and
Kontron Instruments Holding N.V., incorporated by reference to Exhibit
10.42 filed with Registrant's 1994 Form 10-K.
10.43 Amendment to Confidentiality and Non-Compete Agreement dated April 28,
1994 between Registrant and Terry A. Fuller, amending Confidentiality
and Non-Compete Agreement dated June 6, 1990, incorporated by reference
to Exhibit 10.43 filed with Registrant's 1994 Form 10-K, as amended
pursuant to Severance Agreement dated November 5, 1996, between
Registrant and Dr. Fuller, incorporated by reference to Exhibit 10.3
filed with Registrant's Third Quarter 1996 Form 10-Q, and as further
amended pursuant to Addendum dated December 20, 1996, between
Registrant and Dr. Fuller.
10.44 Guaranty dated December 29, 1994 from Registrant to KCI Financial
Services, Inc., incorporated by reference to Exhibit 10.44 filed with
Registrant's 1994 Form 10-K.
10.45 Negative Pledge Agreement dated January 19, 1995 between Registrant and
Meridian Bank, incorporated by reference to Exhibit 10.45 filed with
Registrant's 1994 Form 10-K.
10.46 International Facilities Agreement dated January 19, 1995 between
Registrant and Meridian Bank, incorporated by reference to Exhibit
10.46 filed with Registrant's 1994 Form 10-K.
10.47 $629,430.53 Standby Letter of Credit dated as of January 1, 1995 issued
by Meridian Bank to Montgomery County Industrial Development
Corporation for the account of Registrant, incorporated by reference to
Exhibit 10.47 filed with Registrant's 1994 Form 10-K, as amended by an
Amendment dated December 22, 1995 reducing the amount of the Letter of
Credit to $575,607, incorporated by reference to Exhibit 10.47 filed
with Registrant's 1995 Form 10-K.
47
<PAGE>
10.48 Sublease Agreement dated March 21, 1996 among Registrant; SLT
Properties, Inc.; and Suburban Cable TV Co., Inc., incorporated by
reference to Exhibit 10.48 filed with Registrant's Form 10-Q for the
fiscal quarter ended June 30, 1996 filed on August 19, 1996 (the
"Second Quarter 1996 Form 10-Q").
10.49 Subordination, Non-Disturbance and Attornment Agreement dated April 30,
1996, and delivered May 13, 1996, among Registrant; SLT Properties,
Inc.; Suburban Cable TV Co., Inc.; and American United Life Insurance
Company, incorporated by reference to Exhibit 10.50 filed with
Registrant's Second Quarter 1996 Form 10-Q.
10.50 Non-Disturbance, Subordination and Attornment Agreement dated August 1,
1996, among Montgomery County Industrial Development Corporation; SLT
Properties, Inc., Registrant; and Suburban Cable TV Co., Inc.,
incorporated by reference to Exhibit 10.6 filed with Registrant's Third
Quarter 1996 Form 10-Q.
10.51 Non-Disturbance, Subordination and Attornment Agreement dated October
22, 1996 among Pennsylvania Industrial Development Authority; SLT
Properties, Inc.; Registrant; and Suburban Cable TV Co., Inc.
10.52 Lease Agreement dated May 29, 1996, between Registrant and Nappen &
Associates, incorporated by reference to Exhibit 10.51 filed with
Registrant's Second Quarter 1996 Form 10-Q.
10.53 Employment Agreement dated August 5, 1996, between Registrant and W.
Keith Stoneback, incorporated by reference to Exhibit 10.1 filed with
Registrant's Third Quarter 1996 Form 10-Q.
10.54* Registrant's 1997 Executive Staff Bonus Program adopted January 17,
1997.
10.55 Property Agreement dated October 30, 1996, among Registrant, Terry A.
Fuller, and Fuller Research Corporation, incorporated by reference to
Exhibit 10.4 filed with Registrant's Third Quarter 1996 Form 10-Q.
10.56 Amendment to the Joint Venture and other Agreements dated September 30,
1996, among Registrant; Mediq/PRN Life Support Services, Inc.; and
Mediq PRN/SLT, incorporated by reference to Exhibit 10.5 filed with
Registrant's Third Quarter 1996 Form 10-Q.
21 Subsidiaries of Registrant, incorporated by reference to Exhibit 22
filed with Registrant's 1993 Form 10-K.
23 Consents of Arthur Andersen LLP.
27 Financial Data Schedule.
* This exhibit represents a management contract or compensatory plan or
arrangement.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 1997 SURGICAL LASER TECHNOLOGIES, INC.
By: /s/ W.Keith Stoneback
------------------------------
W. Keith Stoneback
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ W. Keith Stoneback President, Chief March 30, 1997
- ----------------------------- Executive Officer and
W. Keith Stoneback Director (principal executive
officer)
/s/ Michael R. Stewart Vice President, Chief March 30, 1997
- ----------------------------- Financial Officer, and
Michael R. Stewart Treasurer (principal financial
and accounting officer)
/s/ Richard J. DePiano Chairman of the Board March 30, 1997
- ----------------------------- and Director
Richard J. DePiano
/s/ Sheldon M. Bonovitz Director March 30, 1997
- -----------------------------
Sheldon M. Bonovitz
/s/ Jay L. Federman Director March 30, 1997
- -----------------------------
Jay L. Federman
/s/ Vincenzo Morelli Director March 30, 1997
- -----------------------------
Vincenzo Morelli
</TABLE>
49
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit No. Exhibit
10.2 Termination and Release Agreement dated January 10, 1997
between Registrant and Suburban Management Co., Inc.
10.36 Form of Letter Agreement dated January 24, 1997 between
Registrant and Executive Officers.
10.43 Addendum to Severance Agreement dated December 20, 1996
between Registrant and Dr. Fuller, amending Confidentiality
and Non-Compete Agreement dated June 6, 1990, as amended on
April 28, 1994, between Registrant and Dr. Fuller.
10.51 Non-Disturbance, Subordination and Attornment Agreement date
October 22, 1996 among Pennsylvania Industrial Development
Authority; SLT Properties, Inc.,; Registrant; and Suburban
Cable TV Co., Inc.
10.54 Registrant's 1997 Executive Staff Bonus Program,
adopted January 17, 1997.
23 Consents of Arthur Andersen LLP
27 Financial Data Schedule
50
EXHIBIT 10.2
51
<PAGE>
TERMINATION AND RELEASE AGREEMENT
Surgical Laser Technologies, Inc. ("Lessee") leased Unit T-2020 at the 422
Business Center (the "Premises"), under a Lease Agreement dated October 9, 1991
(the "Lease Agreement"), from Tioga Leasing Corporation, succeeded by Suburban
Management Co., Inc. ("Lessor") . Lessee vacated the Premises on November 22,
1996 so as to allow Lessor to let the space to the U.S. Post Office.
In consideration of the following promises, Lessor and Lessee hereby agree as
follows:
1. Lessee shall pay to Lessee its security deposit of $5,000 plus
interest, as provided in Section 29 of the Lease Agreement. Lessor
shall make such payment to Lessee upon the mutual execution of this
Termination and Release Agreement, without claims or offsets.
2. Lessee shall pay, upon the mutual execution of this Termination and
Release Agreement, rent in the amount of $13,310, and shall waive any
claim for refund of rent paid for the portion of November 1996 during
which Lessee had vacated the Premises.
3. The Lease Agreement shall be deemed terminated by mutual agreement
effective December 31, 1996.
4. Subject to the foregoing provisions of this Termination and Release
Agreement, Lessor and Lessee do hereby release and forever discharge
each other, their heirs, executors, administrators, agents,
shareholders, directors, officers, employees, subsidiaries and
affiliates, from any and all claims, demands, costs, expenses, losses
or liabilities arising from the Lease Agreement.
IN WITNESS WHEREOF, Lessor and Lessee, intending to be legally bound hereby,
have hereunder set their hand this the day of January 1997.
Lessee Lessor
SURGICAL LASER TECHNOLOGIES, INC. SUBURBAN MANAGEMENT CO. INC.
By: /s/ Michael R. Stewart By: /s/ Gene Call, Vice President
------------------------------- ---------------------------------
Michael R. Stewart, Gene Call, Vice President
Vice President
Attest: Attest:
By: /s/ Davis Woodward By:
------------------------------- ---------------------------------
Davis Woodward, Secretary
52
EXHIBIT 10.36
53
<PAGE>
January 24, 1997
Dear:
Pursuant to a letter dated June 12, 1992 (the "Letter") from the Company's then
President and Chief Executive Officer, you were provided certain severance
benefits under certain circumstances following a Change in Control (as defined
in the Letter). In the event you became entitled to such benefits in accordance
with the term of the Letter, such benefits included the right to exercise all
options that you then hold for a period equal to the lesser of five years or the
remaining term of the option.
The Company now desires to modify those arrangements with respect to any options
granted on or after the date hereof. In view of the Company's operations over
the past year and in consideration of the Company's willingness to grant you
options to purchase shares under the Company's Equity Incentive Plan, the
Company agrees, and you agree by signing where indicated below, that under the
circumstances described in the Letter in which you become entitled to severance
benefits following a Change in Control, the provisions regarding unexercised
stock options shall not be applicable with respect to any options granted on or
after the date hereof. Instead, under such circumstances, any unexercised
options granted on or after the date hereof will become exercisable in full but
will remain exercisable for the lesser of the period during which you are
entitled to receive severance payments based on your base salary or the
remaining term of the option.
If the foregoing accurately reflects our agreement, please so indicate by
signing below.
Sincerely, Accepted and agreed to as of
this 24th day of January, 1997:
/s/ W. Keith Stoneback
- -----------------------------------
W. Keith Stoneback, President
54
EXHIBIT 10.43
55
<PAGE>
ADDENDUM TO SEVERANCE AGREEMENT
This Addendum is made as of this 20th day of December, 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 and the Company desire to modify the Severance Agreement
dated November 5, 1996 entered into between the Employee and the Company (the
"Severance Agreement") as more fully described below:
NOW, THEREFORE, the parties, intending to be legally bound, hereby agree to
modify the Severance Agreement as follows:
1. Change in Position for Employee. The Employee and the Company hereby agree
that the initial date in the first sentence of Paragraph No. 2 of the
Severance Agreement should be modified from January 10, 1997 to January 18,
1997.
2. Compensation. The Employee and the Company agree that the date in the first
sentence of Paragraph No. 3(a) of the Severance Agreement should be
modified from January 10, 1997 to January 18, 1997.
The Employee and the Company agree that the initial dates in Paragraph No.
3(a) and 3(b) of the Severance Agreement should be modified to state: "From
January 19, 1997 through January 18, 1998..."
The Employee and the Company agree that the date in the last sentence of
Paragraph 3(b) should be modified from January 10, 1998 to January 18,
1998.
3. The Employee and the Company agree that, in all other respects, the
provisions of the Severance Agreement dated November 5, 1996 shall remain
unchanged.
IN WITNESS WHEREOF, the undersigned have executed this Addendum to the 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
-------------------------------
TERRY A. FULLER, Ph.D.
56
EXHIBIT 10.51
57
<PAGE>
NON-DISTURBANCE, SUBORDINATION AND
ATTORNMENT AGREEMENT
THIS NON-DISTURBANCE, SUBORDINATION AND ATTORNMENT AGREEMENT (this "Agreement")
dated October 22, 1996 is by and among PENNSYLVANIA INDUSTRIAL DEVELOPMENT
AUTHORITY ("PIDA"), SLT PROPERTIES, INC., a Delaware corporation ("Owner"),
SURGICAL LASER TECHNOLOGIES, INC., a Delaware corporation ("Sublandlord") and
SUBURBAN CABLE TV CO. INC., a Pennsylvania corporation ("Subtenant").
BACKGROUND
A. PIDA is the holder of a mortgage ("Mortgage") dated August 16, 1991 and
recorded in the public records of Montgomery County, Pennsylvania, granted
by the Owner and by Montgomery County Industrial Development Corporation to
PIDA, in the original principal amount of $2,000,000, which Mortgage
creates a mortgage lien on premises commonly known as 200 Cresson
Boulevard, Oaks, Pennsylvania ("Premises").
B. Owner and Sublandlord entered into a Lease Agreement dated August 16, 1991
("Lease") pursuant to which Owner leased the Premises to Sublandlord.
C. Sublandlord and Subtenant have entered into a Sublease Agreement dated
March 21, 1996 ("Sublease"), pursuant to which Sublandlord has agreed to
sublease the Premises to Subtenant. The Sublease provides that Subtenant
has the right to terminate the Sublease if PIDA does not execute this
Agreement.
D. By the execution of this Agreement, the parties wish to provide for the
nondisturbance of Subtenant's possession of the Premises and the
subordination of the Subtenant's leasehold estate to the lien of the
Mortgage.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound, the parties
agree as follows:
1. Subtenant hereby acknowledges and agrees that its leasehold estate created
under the terms of the Sublease and all of its rights thereunder will be
subject and subordinate to the rights and lien of PIDA under the terms of
the Mortgage and any modifications, replacements, renewals or extensions
thereof.
2. So long as Subtenant is not in default in performing its obligations under
the terms of the Sublease, PIDA agrees, for itself and its successors and
assigns, that it will not disturb or interfere with the enjoyment by
Subtenant of Subtenant's leasehold estate in the Premises, including all
rights granted by the Sublease. However, in no event shall PIDA, or any
subsequent purchaser or grantee; (a) be liable for any act or omission or
Owner or Sublandlord; (b) be subject to any offset or deficiency which
Subtenant may have against Owner or Sublandlord; or (c) have any obligation
with respect to any security deposited under the Sublease unless such
security has been delivered to PIDA.
3. If PIDA succeeds to the Owner's interest as landlord, either as a result of
mortgage foreclosure proceedings or as a result of any conveyance in lieu
of mortgage foreclosure, and Sublandlord ceases to be entitled to
possession under the Lease, then Subtenant agrees that it will attorn
directly to PIDA (or in the event of a foreclosure or sale of the Premises
to any purchaser or grantee) as if PIDA were the landlord named in the
Sublease; PIDA, in turn, will accept the Subtenant's attornment and will
recognize the leasehold interest of Subtenant under the terms of the
Sublease, to the end that Subtenant may continue to
58
<PAGE>
peaceably and quietly have, hold and enjoy the Premises, provided that
Subtenant has then complied and continues to comply with the terms of
the Sublease.
4. Subtenant acknowledges that it has notice that the Lease and the Sublease
and the rent and all sums due thereunder have been assigned to the PIDA as
part of the security for the note secured by the Mortgage. If PIDA notifies
Subtenant of a default under the Mortgage or note, and demands that
Subtenant pay its rent and all other sums due under the Sublease to PIDA,
Subtenant agrees that it will honor such demand and pay its rent and all
other sums due under the Sublease, directly to PIDA.
5. Subtenant covenants and acknowledges that except to the extent provided in
the Sublease, it has no right or option of any nature whatsoever, whether
pursuant to the Sublease or otherwise, to purchase the Premises or any
portion thereof, or any interest in the Premises. To the extent that
Subtenant has any such right or option, the same is hereby acknowledged to
be subject to and subordinate to the Mortgage. PIDA shall have no
obligation, nor incur any liability, with respect to any warranties of any
nature whatsoever, whether pursuant to the Sublease or otherwise including,
without limitation, any warranties respecting use, compliance with zoning,
habitability, fitness for purpose or possession.
6. Anything herein or in the Sublease to the contrary notwithstanding, if PIDA
shall acquire title to the Premises, PIDA shall have no obligation, nor
incur any liability, beyond PIDA's then interest, if any, in the Premises
for the payment and discharge of any obligations imposed upon PIDA
hereunder or under the Sublease, and PIDA is hereby released or relieved of
any other obligations hereunder and under the Sublease. Provided that funds
have been paid directly to PIDA in return for PIDA's promise to use such
fund for a specific purpose and provided further that PIDA has failed to
use funds for such specific purpose, Subtenant agrees that with respect to
any money judgment against PIDA, Subtenant will look solely to the estate
or interest owned by PIDA in the Premises or any portion thereof, and
Subtenant will not collect or attempt to collect any such judgment out of
any other assets of PIDA. Subtenant acknowledges that it has not paid any
money directly to PIDA as of the date of this Agreement for any purpose
other than payment of lease payments as required under the Lease.
7. Subtenant will neither offer nor make prepayment of rent (for a period in
excess of one month) nor further change the terms, covenants, conditions
and agreements of the Sublease in any manner without the express consent in
writing of PIDA, which consent shall not be unreasonably withheld.
8. The foregoing provisions shall be self-operative and effective without the
execution of any further instrument of any party hereto. However, Subtenant
agrees to execute and deliver to PIDA or to any person to whom Subtenant
herein agrees to attorn, such other instruments as either shall reasonably
request, in order to effectuate the foregoing provisions.
9. No modification, amendment, waiver or release of any provision of this
Agreement shall be valid or binding unless in writing and duly executed by
the party against whom the same is sought to be asserted.
10. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Provided,
however, that in the event of the assignment or transfer of the interest of
the lender, all obligations and liabilities of PIDA under this Agreement
shall terminate and all such obligations and liabilities shall be the
responsibility of the party to whom PIDA's interest is assigned or
transferred; and provided further that the interest of Subtenant under this
Agreement may not be assigned or transferred without the written consent of
PIDA.
11. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania.
12. This Agreement may be executed in multiple counterparts, all of which,
taken together, shall constitute an original.
59
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.
PENNSYLVANIA INDUSTRIAL DEVELOPMENT
AUTHORITY
By: /s/ Marguerite Harris, Administrator
-----------------------------------
ATTEST OR WITNESS: /s/ Evelyn Shepley, Assistant Secretary
---------------------------------------
SLT PROPERTIES, INC.
By: /s/ Michael R. Stewart, V.P.
----------------------------
ATTEST OR WITNESS: /s/ Davis Woodward, Secretary
-----------------------------
SURGICAL LASER TECHNOLOGIES, INC.
By: /s/ Michael R. Stewart, V.P.
----------------------------
ATTEST OR WITNESS: /s/ Davis Woodward, Secretary
-----------------------------
SUBURBAN CABLE TV CO. INC.
By: /s/ Robert Lawrence, Executive V.P.
----------------------------
ATTEST OR WITNESS: /s/ Henry F. Brooks, V.P.
------------------------------
60
EXHIBIT 10.54
61
<PAGE>
1997 SLT EXECUTIVE STAFF ANNUAL BONUS PROGRAM
Program Objective:
1. Motivate Key SLT Management to achieve 1997 Operating Profit Target.
Participants and Parameters:
- ----------------------------
<TABLE>
<CAPTION>
NAME BONUS % OF BASE SALARY
---- ----------------------
<S> <C> <C>
Category I
1. CEO Keith Stoneback *40% of Base
Category II
1. CFO Mike Stewart 40% of Base
2. Assistant General Counsel Davis Woodward 40% of Base
3. VP, Sales & Marketing Glenn Stahl 40% of Base
Category III
Five specific Director level participants 25% of Base
</TABLE>
* Employment Agreement calls for 50% - 1997 Plan at 40%.
Bonus opportunity for the Category I, II and III participants is based on 100%
achievement of 1997 Operating Profit Plan. There are no subjective aspects of
the 1997 Bonus Program. In order for the Category I, II and III employees to
qualify, 100% of the Operating Profit Target must be met.
62
EXHIBIT 23
63
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Surgical Laser Technologies, Inc.:
As independent public accountants, we hereby consent to the inclusion in this
Form 10-K of our report dated February 5, 1997. It should be noted that we have
not audited any financial statements of the Company subsequent to February 5,
1997 or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
March 30, 1997
Philadelphia, Pa.
64
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Surgical Laser Technologies, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statements File Nos. 33-32835, 33-38748, 33-42451, 33-49730,
33-83074 and 333-19229.
ARTHUR ANDERSEN LLP
March 30, 1997
Philadelphia, Pa.
65
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE (UNAUDITED)
(In thousands, except per share data)
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> $2,795
<SECURITIES> 3,325
<RECEIVABLES> 3,015
<ALLOWANCES> (116)
<INVENTORY> 3,534
<CURRENT-ASSETS> 12,687
<PP&E> 14,713
<DEPRECIATION> (6,752)
<TOTAL-ASSETS> 21,490
<CURRENT-LIABILITIES> 3,551
<BONDS> 0
0
0
<COMMON> 99
<OTHER-SE> 11,209
<TOTAL-LIABILITY-AND-EQUITY> 21,490
<SALES> 10,974
<TOTAL-REVENUES> 10,974
<CGS> 4,062
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,982
<LOSS-PROVISION> (2)
<INTEREST-EXPENSE> 581
<INCOME-PRETAX> (4,508)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,508)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,508)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
