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 patent rights 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 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.
During 1997, Registrant redefined its strategy for growth to include a specific focus in the surgical specialties of Otolaryngology and Head and Neck (ENT) surgery. In conjunction with this focused strategy, Registrant has entered and will continue to seek to enter into relationships with other companies to expand the use of Registrant's products in surgical specialties other than ENT, and has utilized and will continue to seek to utilize its strengths in supplying other companies with products that draw on Registrant's expertise and competencies. While refocusing its strategy in ENT, Registrant will take these other actions in an effort to enhance sales and to promote continued utilization of its products and services in those other surgical specialties.
Registrant expanded its product offerings during 1997 to include non-laser based products specifically targeted at the Otolaryngology and Head and Neck (ENT) surgical market. Those new product offerings include a line of reusable handheld instruments and a line of fluid absorption products for the control of bleeding. Registrant will continue to seek to expand its product offerings within the ENT surgical market.
In December 1997, Registrant entered into an agreement with CorMedica Corporation which calls for Registrant to develop and supply lasers and fiberoptic delivery systems for CorMedica to incorporate into its proprietary catheter tracking and navigation system. CorMedica Corporation is a privately-held
company engaged in the design, development and manufacture of proprietary integrated systems for catheter-based percutaneous transluminal endocardial revascularization (PTER(TM)) procedures.
In November 1997, a settlement was reached in the suit brought in February 1995, against Registrant, by Norio Daikuzono, the inventor of three of Registrant's patents in Contact Laser technology. The settlement confirmed that Registrant will continue to calculate royalties due to Mr. Daikuzono under the Contact Laser patents as it had done historically. Certain royalty payments which Registrant had set aside since 1993 pending receipt of proper tax documentation from Mr. Daikuzono were paid to Mr. Daikuzono upon his presentation of the required documentation. No other financial payments were required by the terms of the settlement (See Part I, Item 3, Legal Proceedings).
In September 1997, Registrant was audited by TUV Product Services to the Quality System requirements defined in the ISO 9001, EN46001 standards and Annex II of the Medical Device Directive. This audit resulted in Registrant's Quality System certification to the aforementioned standards. Registrant is now permitted to apply the CE Mark to its products. Application of the CE Mark is mandatory for the sale of medical products in the European Union after July 1998.
In July 1997, Registrant entered into a marketing rights agreement with MedTREK Corporation and its President, Mr. Dom L. Gatto. The marketing rights agreement provides Registrant with exclusive worldwide rights to certain new products and medical devices used within minimally invasive Otolaryngology and Head and Neck (ENT) surgery.
In July 1997, a settlement was reached in the suit brought by Registrant in November 1994 against C.R. Bard, Inc. and the Bard Urological Division. The suit had alleged failure on the part of Bard to comply with its contractual obligations to Registrant. Registrant received a cash settlement of $1,000,000.
In June 1997, Registrant entered into a private label supply agreement with Diomed Limited, a U.K. based manufacturer and marketer of diode lasers and related supplies. Under the agreement, Diomed will purchase its requirements for contact probes and disposable fiber delivery systems, made to its specifications and trademarks, for use with its diode laser systems.
In March 1997, Registrant and Kontron Instruments agreed to terminate the distribution agreement entered into in 1993, under which Kontron Instruments has been Registrant's distribution representative for most of Europe. Kontron Instruments has agreed to continue to represent Registrant in certain countries in Europe until successor distribution partners are identified by Registrant.
There were no other significant changes in Registrant's business during the fiscal year ended December 28, 1997.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Registrant operates predominantly in a single industry: development, manufacture and sale of proprietary laser systems for both contact and non-contact surgery. See Note 16 of Notes to Consolidated Financial Statements for geographic segment information.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
Registrant is primarily engaged in the development, manufacture and sale of a proprietary Contact Laser System for surgery. During 1997, Registrant redefined its strategy for growth to include a specific focus in the surgical specialties of Otolaryngology and Head and Neck (ENT) surgery. In conjunction with this focused strategy, Registrant has and will continue to seek to enter into relationships with other companies to expand the use of Registrant's products in surgical specialties other than ENT, and has and will continue to seek to utilize its strengths in supplying other companies with products that draw on Registrant's expertise and competencies. While refocusing its strategy in ENT, Registrant will take these other actions in an effort to enhance sales and to promote continued utilization of its products and services in those other surgical specialties. During fiscal 1997, 1996 and 1995, revenues from sales of Registrant's products and services were $11,665,000, 10,974,000 and $14,839,000, 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 effect" treatments. In addition, Contact Laser surgery restores to the surgeon the advantages of tactile feedback lost with conventional lasers.
Registrant's revenues are generated primarily 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 $225.
Laser Probes and Laser Scalpels. Registrant's proprietary Laser Probes and Laser Scalpels are made of either synthetic sapphire 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 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 $95, and the handpiece list prices currently range from $235 to $395.
Laser Units. Registrant markets the CLMD line of Nd:YAG laser units for use with its Contact Laser Delivery Systems. The line 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 laser systems and laser delivery systems are manufactured and assembled at Registrant's Montgomeryville, Pennsylvania facility. The raw materials used by Registrant are generally available in adequate supply.
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. Registrants non-laser based product offerings, including hand-held surgical instruments and fluid absorption products, are manufactured by domestic suppliers.
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. In addition, Registrant is currently targeting its marketing activities in the Otolaryngology and Head and Neck (ENT) surgical market. Registrant will also seek to expand the utilization of its infrastructure through strategic alliances and/or acquisitions.
Marketing
Registrant sells its Contact Laser Systems to end users by forming a responsive partnership with surgeons and hospitals to develop and apply innovative technologies that advance therapeutic benefit. Registrant's products are designed to 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 products.
Registrant also participates from time to time in various workshops and educational programs that are sponsored by others. These programs, together with direct mail, advertising, physician referrals and trade shows at which Registrant participates, provide a significant majority 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. 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 these 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 Registrant's products, and who provide clinical consultation regarding safety, efficacy and operating room procedures; per diem clinical support specialists and per diem 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 and product opportunities. In certain geographic areas of the United States, Registrant utilizes manufacturer's representatives or distributors, who are not Registrant's employees, to provide these services. Registrant distributes its products internationally through independent distributors supervised by a Manager of International Operations, who is based in the United States.
Contract Development and Private Label Manufacturing. As part of Registrant's efforts to refocus its business strategy, Registrant has sought and will continue to seek to augment its sales to end-user customers by entering into specific contract development and private label manufacturing agreements with other manufacturers. These activities are designed to utilize Registrant's product strengths and capabilities.
International Markets. During 1997, 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. In 1997, Registrant terminated its distribution agreement with Kontron Instruments, which had been Registrant's distributor in most of Europe. Registrant is actively seeking replacement distributors in many of the countries formerly served by Kontron Instruments.
Research and Development
Registrant has historically focused its research and product development efforts mainly on Contact Laser Delivery Systems. More recently, these efforts have been focusing on both tissue effect technologies that include laser and non-laser based technologies and improving its offerings in ENT. 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 1997, 1996 and 1995, Registrant spent $910,000, $1,404,000 and $2,143,000 in product development expenses, respectively.
Registrant's facility in Montgomeryville, Pennsylvania houses its product development activities. Registrant utilizes the technologies developed by Advanced Laser Systems Technology, Inc. ("ALST") which was 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.
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 Registrant's products can demonstrate distinct clinical advantages and cost-effectiveness relative to traditional surgical methods.
Competition
Registrant faces substantial competition from other manufacturers of surgical systems, whose identity varies depending on the medical application for which the surgical system is being used, and from traditional surgical methods. Other companies are developing competitive surgical systems and related technologies and 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 operations.
In addition, Registrant faces substantial competition in ENT from well-established manufacturers of non-laser products. These well-established companies have substantially greater resources than Registrant and could exert considerable competitive pressure on Registrant.
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, 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 hospitals 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.
FDA and Related 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. 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, neurosurgery 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 premarket 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 premarket approval procedure would require costly and time-consuming studies by 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 few substantially equivalent devices or uses, may be subject to a lengthier review process. There can be no assurance that any future FDA clearances will be granted on a timely basis, if at all. Failure to obtain FDA clearance or extensive delay in the FDA clearance process for any new product which represents a significant development for Registrant would likely 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 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.
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 adopt cost reduction methods. Registrant believes that the Contact Laser 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 Registrant 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 twelve 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); May 28, 1996 (probe with inclusions); and March 4, 1997 (surgical tool for use with Contact Laser). Two of Registrant's 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 against significant encroachments. However, no assurance can be given that such policy will be successful. (See Part I, 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 five 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 28, 1997, Registrant had 79 employees of whom 29 were engaged in manufacturing, service and distribution, 12 in research and product development, 26 in sales and marketing and 12 in general administration. Registrant's employees are not represented by a union. Registrant considers its relations with employees to be good.
(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 1997, 1996 and 1995, domestic sales represented 84%, 77% and 79% respectively, of Registrant's total sales. All export sales are transacted in U.S. currency.
Item 2.
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 June 1996 (as discussed below), but remain subject to a first mortgage with a balance at December 28, 1997 of $2,966,000. 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 28, 1997 of $1,306,000. The loan bears interest at 3% per year and is being repaid in equal monthly payments, 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 28, 1997, the required amount of this security was $653,000; the form of the collateral was a standby letter of credit of $453,000 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 Oaks, Pennsylvania property 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 began occupying this facility in June 1996 and has made significant improvements to it for use in key central administrative functions. The sublease is for three years and contains a purchase option for the facility. Suburban and Registrant are in discussions regarding the potential acceleration of the purchase option.
Registrant currently leases a 42,000 sq. ft. facility in Montgomeryville, Pennsylvania that houses all of its administrative and manufacturing operations. Registrant entered a five-year lease for the Montgomeryville facility on May 29, 1996. Registrant has leased on a short-term basis approximately 5,000 sq.ft. close to its new facility in order to store surplus property and records.
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 during 1992 to the leased facility located near Registrant's former headquarters in Oaks, Pennsylvania, 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. In 1997, the first subtenant went out of business. Registrant has found a replacement subtenant, though at reduced rates. There can be no assurance that the subtenants will remain at the facility through August 2000.
Item 3.
Item 3. Legal Proceedings. - ------- ------------------
Bard. In November 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 alleged a cause of action for breach of contract, anticipatory repudiation, negligent misrepresentation and unfair competition. Registrant also asked for specific performance and, in addition or in the alternative, for monetary damages. Registrant also sought an injunction against, and indemnification from, Bard's enforcement against Registrant with respect to patent rights
potentially inuring to Bard. Finally, Registrant had claimed punitive damages. As of July 18, 1997, Registrant settled this suit, pursuant to which Bard has paid Registrant $1,000,000.
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 May 6, 1996, the court granted Registrant's motion for summary judgment that none of its accused probes 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 fall within the public domain, and thus outside the claims of Trimedyne's patent. On July 3, 1996, the court granted Registrant's motion for summary judgment 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. Briefs were filed, and oral argument was held on May 8, 1997. It is not known when the Court of Appeals will render its decision.
Daikuzono. On November 14, 1997, a settlement was reached in the suit brought against Registrant by Norio Daikuzono, the inventor of three of its patents in Contact Laser technology. The suit, brought by Mr. Daikuzono on February 7, 1995, had alleged breach of contract related to a 1984 agreement between Registrant and himself, breach of contract related to a 1987 employment agreement between Registrant and himself, and patent infringement of the Contact Laser patents. Mr. Daikuzono sought rescission of his assignment to Registrant of the Contact Laser patents, royalties on an expanded product group as well as an unspecified portion of the settlement proceeds from Registrant's prior patent infringement actions, compensatory damages in excess of $1 million related to the breach of the employment agreement, treble damages on those royalties that allegedly had been willfully unpaid, and attorney's fees, costs and interest.
The settlement confirmed that Registrant will continue to calculate royalties due to Mr. Daikuzono under the Contact Laser patents as it has done from the beginning. Registrant agreed to release to Mr. Daikuzono certain royalties which it had set aside since 1993 pending receipt from Mr. Daikuzono of proper tax documentation. In
conjunction with the settlement of the suit, Mr. Daikuzono provided the documentation sufficient for Registrant to release those royalties. No other financial payments are required by the terms of the settlement.
Moreover, the settlement with Mr. Daikuzono and his affiliated company, SLT Japan Co. Ltd., confirmed the continuing validity of the prior assignment by Mr. Daikuzono to Registrant of all rights in the Contact Laser patents and any other related European and Japanese patent applications and patents issued pursuant thereto. As a result of the settlement, Registrant remains free to sell its products worldwide, including Japan, although it has agreed, subject to certain legal requirements, not to use its own name in Japan to reduce potential market confusion with SLT Japan Co. Ltd. Registrant also agreed, for a three year period, not to import into Japan certain laser units previously manufactured in conjunction with NEC Electronics, Inc. Mr. Daikuzono and SLT Japan Co. Ltd. remain free to sell products that do not infringe Registrant's patents, and Registrant granted to Mr. Daikuzono a royalty-free, non-exclusive license to practice in Japan all rights under any patents that may be issued pursuant to Registrant's Japanese patent applications related to the Contact Laser patents.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. - ------- ----------------------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter ended December 28, 1997.
PART II
Item 5.
Item 5. Market for 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 15, 1998, there were approximately 644 record holders of Registrant's Common Stock. On March 15, 1998, the closing price of Registrant's Common Stock on the Nasdaq Stock Market was $1.31 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.
1997 High Low ---- --- First Quarter $1.63 $1.06 Second Quarter 1.56 1.06 Third Quarter 2.06 1.19 Fourth Quarter 2.88 1.25
1996 High Low ---- --- First Quarter $4.19 $1.13 Second Quarter 3.94 2.13 Third Quarter 2.50 1.69 Fourth Quarter 2.38 1.19
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.
Item 6. Selected Consolidated Financial Data. - ------- -------------------------------------
The following table summarizes certain selected financial data for the five years ended December 28, 1997. The selected financial data for Registrant at December 28, 1997 and December 29, 1996 and for each of the three years in the period ended December 28, 1997 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 Registrant at December 31, 1995, January 1, 1995 and January 2, 1994, and for each of the two years in the period ended January 1, 1995, 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.
(1) See Note 12 of Notes to Consolidated Financial Statements. (2) See Note 4 of Notes to Consolidated Financial Statements. (3) Settlement of lawsuit with ALST partially offset by a separate legal settlement with a former distributor. (4) Increase in the reserve established in 1991 for the relocation of Kentucky operations.
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.
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 1997, net sales were $11,665,000, an increase of $691,000, or 6%, from 1996 sales of $10,974,000. The 1996 sales of $10,974,000 were a $3,865,000, or 26% decrease from 1995 sales of $14,839,000.
Net sales of Nd:YAG laser systems in 1997 was relatively constant with 1996, despite an increase of 34% in unit sales. Unit sales of new Nd:YAG laser systems in 1997 remained relatively constant with 1996, while sales of used and demonstration laser systems accounted for the percentage increase in unit sales. The increase in unit sales was due to both a higher volume of sales of Registrant's laser systems for ENT surgery as well as Registrant's continuing efforts to reduce demonstration laser inventory levels through a reduction in average unit prices. As a result, in 1997 the overall average unit selling price of an Nd:YAG laser system declined by 24% as compared to 1996.
Net sales of Nd:YAG laser systems in 1996 decreased by 29% on a 20% decline in units. The decrease was due primarily to the continued weakness in the demand for capital purchases by hospitals. This weakness was evidenced primarily in the United States and European markets. Other international markets were also affected, though 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 Contact Laser Delivery Systems and related accessories declined 12% and 28% in 1997 and 1996, respectively, 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.
Contract development activities accounted for 8% of net sales in 1997. There were no contract development sales in 1996 and 1995.
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 Registrant's Nd:YAG laser systems and related Contact Laser Delivery Systems and accessories began to be included in net sales. In 1997, rental revenue accounted for 9% of net sales.
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 28, 1997 was constant with the prior year on a 6% increase in net sales. As a percentage of net sales, gross profit was 59%, down from 63% in 1996. The decrease in gross profit as a percentage of sales was due primarily to three factors. The main factor was a reduction in the selling price on certain Contact Laser Systems, enacted in an effort to reduce inventory levels. The second factor was the inclusion in all of 1997 of the Laser OnCall(TM) rental business which operated at a
lower percentage gross profit as compared to the sale of lasers and delivery systems. A partial offset to those two factors was the higher percentage gross profit realized from contract development activities in 1997 for which there were no corresponding activities in 1996.
Gross profit for the year ended December 29, 1996 decreased $1,790,000 or 21% from the prior year. As a percentage of net sales, gross profit was 63%, up from 59% in the 1995 fiscal year. The increase was attributable to cost reduction measures taken throughout 1996 in response to the lower sales being realized.
Operating Expenses
In response to the lower level of sales experienced from 1994 to 1996, Registrant implemented a course of actions aimed at bringing expense levels in line with the requirements needed to support its actual sales. These actions included reductions in workforce levels both in 1996 and 1995; the sublease of Registrant's former headquarters/research facility; and the relocation of all of Registrant's operations into a leased facility in Montgomeryville, Pennsylvania.
Selling, general and administrative expenses were $6,613,000 in 1997, compared to $8,072,000 in 1996, a decrease of 18%. The comparative decrease was due primarily to cost reduction actions taken in the third quarter of 1996. Such actions included reductions in workforce and related employee expenses and a reduction in the operating costs due to the consolidation of Registrant's facilities into one location. Also contributing to the decrease was a reduction in legal fees due to the settlement in 1997 of two of Registrant's outstanding lawsuits (see Part I, Item 3, Legal Proceedings). Selling, general and administrative expenses in 1996 decreased 20% from the 1995 level of $10,047,000 due mainly to the cost reduction actions which included reductions in manpower and associated costs.
Product Development
Product development costs were $910,000, $1,404,000, and $2,143,000 in 1997, 1996 and 1995, respectively. The reduction in 1997 versus 1996 was due primarily to personnel expense reduction actions taken in the third quarter of 1996. The reduction in 1996 compared to 1995 was due primarily to lower manpower related expenses and to the inclusion in the 1995 expenditures of $300,000 of expenses related to consulting fees paid to the principals of Advanced Laser System Technology, Inc. for which there were no corresponding expenses in 1996.
Non-Recurring Charges (Credits)
In 1997, Registrant recorded a benefit from the settlement of litigation with C.R. Bard and the Bard Urological Division (see Part I, Item 3 Legal proceedings) of $1,000,000. In addition, Registrant recorded non-recurring facility related charges of $542,000 related to Registrant's former headquarters facility and $281,000 related to Registrant's former manufacturing facility in Kentucky. The $542,000 charge resulted from a write-down in the carrying value of the former headquarters facility necessitated by the provision under which the facility is expected to be sold at the end of the tenant's initial sublease term. The $281,000 charge resulted from the loss of Registrant's former subtenant and subsequent signing of a new subtenant at a lower rental rate.
In 1996, Registrant 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 Registrant's former leased facility in Oaks, Pennsylvania. The manufacturing
operations have been consolidated with all other operations into Registrant's leased facility in Montgomeryville, Pennsylvania.
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 Patent 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).
Other Income
Other income increased to $366,000 in 1997 from a loss of $23,000 in 1996. This increase resulted from the inclusion of a full year of sublease income in 1997 as compared to only six months of sublease income in 1996 and the inclusion of a charge to other income in 1996 of moving expenses to relocate Registrant's headquarters for which there were no corresponding costs in 1997.
Interest
Net interest expense of $282,000 in 1997 increased by $29,000 from $253,000 in 1996. The increase was due to the inclusion of a full year of interest expense on the capital leases acquired in the purchase of the Mediq PRN/SLT joint venture offset in part by higher interest income earned on cash, cash equivalents and short-term investments in 1997.
Net interest expense in 1996 of $253,000 decreased by $259,000 from $512,000 in 1995 due to higher interest income earned on cash equivalents and short-term investments in 1996 versus 1995.
Income Taxes
The tax provision in 1997 of $12,000 was for state 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. Registrant expects that its effective tax rate for 1998 will remain significantly lower than the statutory rate due to continued availability of its net operating loss carryforwards and tax credit carryforwards.
MedTREK Agreement
In 1997, Registrant acquired exclusive worldwide rights to certain new products and medical devices used in minimally invasive otolaryngology and head and neck (ENT) surgery, pursuant to an agreement with MedTREK Corporation and its President, Mr. Dom L. Gatto. In accordance with the terms of the agreement, Registrant is required to make cash payments to MedTREK when certain products have been commercially introduced and has issued stock warrants to MedTREK that will vest when predetermined
revenue targets have been achieved. The acquisition cost of $480,000 was recorded within other long-term assets and is being amortized over a five year period, the initial term of the agreement (See Note 7 and Note 11 of Notes to Consolidated Financial Statements).
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments at December 28, 1997 were $6,549,000, an increase of $429,000 over the December 29, 1996 balance of $6,120,000. Registrant invests its excess cash in high- quality, liquid, short-term investments. 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 10 of Notes to Consolidated Financial Statements). At December 28, 1997 and December 29, 1996, 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 10 of Notes to Consolidated Financial Statements). The letters of credit amounted to $453,000 at the end of 1997 and $515,000 at the end of 1996. The letter of credit requirement extends until Registrant records four consecutive quarters of profitability in a given calendar year.
Registrant has a $2,535,000 credit facility with a bank. This facility includes a sub-line for letters of credit of $535,000, 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. 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 May 31, 1998.
Net cash provided by operating activities was $987,000 in 1997, primarily resulting from net non-cash adjustments of $1,917,000, a decrease in accounts receivable of $974,000, the net loss incurred of $381,000 and a decrease in accounts payable and accrued liabilities of $1,500,000. The net non-cash adjustments of $1,917,000 include non-recurring charges of $847,000. The decrease in accounts payable and accrued liabilities included royalty payments of $391,000 to Norio Daikuzono in connection with the litigation settlement (See Part I, Item 3, Legal Proceedings). In 1996, net cash used in operating activities was $1,349,000, which resulted principally from losses incurred of $4,508,000 offset by net non-cash adjustments of $2,157,000 and a decrease in accounts receivable and inventory of $560,000 and $488,000, respectively. The net non-cash adjustments of $2,157,000 included non-recurring charges of $1,030,000.
Net cash used in investing activities increased $1,486,000 in 1997 to $1,972,000 from $486,000 in 1996. The increase in net cash used was due primarily to the purchase in 1997 of short-term investments.
Net cash used in financing activities was $255,000 in 1997, compared to net cash used in financing activities of $273,000 in 1996.
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 10 of Notes to Consolidated Financial Statements), other commitments and contingencies (See Note 17 of Notes to Consolidated Financial Statements) and capital expenditures.
Management believes that inflation has not had a material effect on operations for the three years in the period ended December 28, 1997.
Year 2000 Compliance
Registrant has analyzed its management information systems for year 2000 compliance issues. Registrant has purchased the latest version of its software package which has eliminated the Year 2000 issue. The costs of conversion to the new version of the software package have not been material.
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 diagnostic related groups. Cost containment has been a major element of these developments, which have had a material adverse effect on 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 or clearance 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.
Registrant's products are similarly subject to foreign regulating bodies. Typically, foreign bodies readily allow Registrant's products to be traded within their jurisdictions, based on the fact that Registrant's products have secured clearance from the FDA. However, there can be no assurance that such foreign bodies will not impose different, additional requirements that may materially hamper Registrant's ability to compete in overseas markets.
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 twelve United States patents, two Japanese patents and a number of issued foreign patents and 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 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.
As Registrant attempts to broaden its offerings in ENT and, to a lesser extent, in other surgical fields, Registrant perceives that it may be obliged to license technology from third parties in order to have competitive offerings. There can be no assurance that Registrant will be successful in obtaining such licenses, or that if obtained, such licenses will not be at disadvantageous terms.
Product Development. Registrant is actively engaged in identifying market needs and in developing products to satisfy those unmet needs. Such products are not necessarily laser products. Registrant attempts to validate the existence of such unmet needs as well as the potential revenues, costs and profits involved in satisfying such needs. There is a material risk that Registrant's competitors may satisfy those needs with more effective or less expensive products. There is also a material risk that Registrant's estimates of the economic potential from such unmet needs may be incomplete or inaccurate, or that the products which Registrant develops to meet such needs will be untimely introduced or insufficiently effective clinically or economically to gain market acceptance.
Change in Marketing Approach. Registrant is taking, or is contemplating taking, certain actions to transition its marketing approach from addressing a wide range of surgical specialties to providing a broader array of products to a more select market segment. Although Registrant believes that this transition will have a long-term positive financial impact, no assurance can be given that the actions taken will provide the intended results, or that Registrant will not experience short-term disruptions or an adverse impact of operations during the transition to this new marketing approach.
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.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 28, 1997 and December 29, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 28, 1997. These financial statements and the 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 28, 1997 and December 29, 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1997 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
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. ---------------------------------------------------------------------
Not applicable.
PART III - --------
Item 10.
Item 10. Directors and Executive Officers of Registrant - ------- ----------------------------------------------
Executive Officers - ------------------
Certain information about the executive officers of Registrant as of March 15, 1998 is as follows:
Name Age Positions held with Registrant - ---- --- ------------------------------
W. Keith Stoneback 44 President, Chief Executive Officer and Director
Michael R. Stewart 40 Vice President, Finance, Chief Financial Officer, and Treasurer
Glenn H. Stahl 51 Vice President, Sales and Marketing
Davis Woodward 50 Vice President, Legal & Tax Affairs and Secretary
W. Keith Stoneback has served as President, Chief Executive Officer and a director 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.
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.
Davis Woodward has served as Vice President, Legal & Tax Affairs 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.
Directors - ---------
The names of the Directors, and certain information about them as of March 15, 1998, are set forth below.
Directors will serve until the 1998 Annual Meeting and until the due election of their respective successors.
Except as set forth below, each of the nominees has been engaged in his principal occupation described above for the past five years. There are no family relationships among directors or officers of Registrant.
Richard J. DePiano has served as the Chairman of the Board of Directors of Registrant since July 1995. Mr. DePiano has been the Chief Executive Officer of The Sandhurst Company, L.P. and the Managing Director of The Sandhurst Venture Fund since 1986. Since March 1997, Mr. DePiano also has served as Chief Executive Officer of Escalon Medical Corp., of which he is also a director.
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.
Sheldon M. Bonovitz has been a partner in the law firm of Duane, Morris & Heckscher LLP, Philadelphia, Pennsylvania, since 1969, where he also serves as Chairman and a member of the management committee. Mr. Bonovitz also serves as a director of Comcast Corporation and Mediq Incorporated. Mr. Bonovitz has also taught at the University of Pennsylvania Law School.
Jay L. Federman, M.D. has been an attending surgeon at Wills Eye Hospital, Philadelphia, Pennsylvania, since 1980 and an ophthalmologist in private practice since 1968. Dr. Federman was a founder of SITE Microsurgical Systems, Inc. and serves as a director of Escalon Medical Corp.
Vincenzo Morelli has served as Chief Executive Officer and a director of Kontron Instruments Holding N.V. since 1993.
Item 11.
Item 11. Executive Compensation - ------- ----------------------
Director Compensation - ---------------------
Each director of Registrant who is not an officer or employee of Registrant (an "Outside Director") receives an annual retainer of $15,000 and a fee of $500 for each committee meeting attended other than meetings held in conjunction with meetings of the Board of Directors.
Registrant also maintains the Second Amended and Restated Stock Option Plan for Outside Directors (the "Outside Director Plan"), pursuant to which: (a) on May 11, 1990, each Outside Director on such date received options to purchase 9,000 shares of Common Stock; (b) on May 11, 1990, each Outside Director who was a member of the Executive Committee on such date received options to purchase an additional 3,750 shares of Common Stock; (c) each Outside Director who had completed three years of service as an Outside Director on or before April 30, 1992 received options to purchase 4,500 shares of Common Stock on such date; (d) each Outside Director who had completed at least three years of service as an Outside Director on May 26, 1994 (the "1994 Grant Date") was granted options to purchase 45,000 shares, provided that if the Outside Director served as Chairman on the 1994 Grant Date, the option granted was for 60,000 shares; (e) each Outside Director who had not completed three years of service as an Outside Director on the 1994 Grant Date will, on the last trading day coinciding with or immediately following the completion of such three years of service, be granted options to purchase 30,000 shares, provided that if the Outside Director serves as Chairman throughout such three-year period, such option will be for 45,000 shares; (f) for each three years of service after the 1994 Grant Date since the most recent grant of options to an Outside Director, the Outside Director will be granted options to purchase 30,000 shares, provided that if the Outside Director served as Chairman throughout such three-year period, the option will be for 45,000 shares and (g) each person who became an Outside Director after the 1994 Grant Date or hereafter becomes an Outside Director in the future received or will receive options to purchase 30,000 shares of Common Stock on the fifteenth day after election as an Outside Director, provided that if the Outside Director is elected to serve as Chairman, the option granted will be for 45,000 shares.
All such options are exercisable at 100% of the fair market value of the Common Stock on the date of grant and remain exercisable to the extent vested until the earliest to occur of the expiration of ten years from the date of grant, three years from cessation of service as a director due to disability, one year from cessation of service as a director due to death or three months from cessation of service as a director for any other reason. Options granted on May 11, 1990 were fully exercisable when granted. Options granted on the 1994 Grant Date were exercisable 15,000 shares on the date of grant, with the balance exercisable in three equal consecutive annual installments commencing one year from the 1994 Grant Date. All other options granted under the Outside Director Plan are or will be exercisable in three equal consecutive annual installments commencing one year from the date of grant. Notwithstanding the foregoing, all options granted under the Outside Director Plan become fully exercisable upon consummation of any business combination transaction involving the sale of all or substantially all of the assets of Registrant to, or the acquisition of shares of Registrant's Common Stock representing more than 50% of the votes which all stockholders of Registrant are entitled to cast by, any person not affiliated with Registrant, directly or indirectly, through one or more affiliates, or any other transaction or series of transactions having a similar effect.
An aggregate 385,000 shares of Common Stock are currently reserved for issuance under the Outside Director Plan, of which 9,000 shares have been issued and 318,000 shares are subject to outstanding options.
Executive Officer Compensation - ------------------------------
The following table sets forth certain information with respect to compensation paid by Registrant during each of the three fiscal years ended December 28, 1997, December 29, 1996 and December 31, 1995 to the chief executive officers of Registrant and the other three executive officers of Registrant whose annual salary and bonus in 1997 exceeded $100,000.
- ------------ (1) Except as noted in footnotes 3 and 4, represents payments of premiums for certain supplementary life insurance coverage. (2) Mr. Stoneback joined Registrant as President, Chief Executive Officer and a director in August 1996. (3) Includes $32,314 in moving and relocation payments made by Registrant to Mr. Stoneback pursuant to the terms of his Employment Agreement. (4) Includes $18,054 in moving and relocation payments made by Registrant to Mr. Stoneback pursuant to the terms of his Employment Agreement. (5) Mr. Stahl joined Registrant as Vice President, Sales and Marketing in January 1997. (6) These options were granted in 1998 for services rendered in 1997. (7) These options were granted in 1997 for services rendered in 1996. (8) These options were granted in 1996 for services rendered in 1995.
The following table sets forth information with respect to options granted during the fiscal year ended December 28, 1997 to the persons named in the Summary Compensation Table above.
The following table sets forth information with respect to options held at December 28, 1997 by the persons named in the Summary Compensation Table above. No options were exercised by such persons during the fiscal year ended December 28, 1997.
Employment and Other Agreements
In August 1996, Registrant entered into an employment agreement with W. Keith Stoneback pursuant to which Mr. Stoneback will serve as Registrant's President and Chief Executive Officer through December 31, 1999 and, thereafter, for successive one-year terms absent at least three months' prior written notice of termination by either party. Mr. Stoneback's annual base salary under the agreement is $225,000, and his agreement provides that he will be eligible for a bonus of 50% of base salary pursuant to bonus programs developed by the Board of Directors based on objective criteria related to Registrant's results of operations. No bonus was paid for services under the 1997 bonus program. Under the 1998 bonus program, Mr. Stoneback will be entitled to a bonus opportunity of 50% of base salary. If Mr. Stoneback's employment is terminated by Registrant without cause during the initial or any renewal term of the agreement (other than following a change in control as described below), Mr. Stoneback will be entitled to severance benefits equal to continuation of his base salary, health, disability and life insurance for a one-year period and the right to exercise options which are not then exercisable but would have become exercisable on the next anniversary of the agreement. If Mr. Stoneback's employment is terminated without cause within three months following a change in control, Mr. Stoneback will be entitled to severance benefits equal to continuation of his base salary and his health, disability and life insurance for a period of eighteen months, subject to mitigation in the last six months of such period, and the right to exercise any options granted
under the agreement which are not otherwise exercisable, which options will remain exercisable during the period in which he continues to receive the aforementioned severance benefits. Mr. Stoneback was also granted under the agreement options to purchase 300,000 shares of Registrant's Common Stock at the market price. Registrant provides long-term disability insurance equal to 60% of Mr. Stoneback's base salary, a $1 million life insurance policy and automobile, vacation and other insurance benefits as are available to Registrant's other senior executive officers. During the term of the agreement and for a period of one year thereafter, Mr. Stoneback is prohibited from competing with Registrant in any respect, interfering with Registrant's business relationships or soliciting business from Registrant's customers.
In June 1992, Registrant adopted a severance benefits program for certain key employees, including Messrs. Stewart and Woodward. Under the terms of this program, a participant whose employment is terminated by Registrant other than for cause and other than following a change in control is entitled to continue receiving his then-current base salary and coverage under the medical, dental, supplemental life and supplemental disability insurance policies, if any, being provided at the time of termination for a specified period, with the obligation to provide such insurance coverage terminating in the event the participant is provided substantially the same coverage from a new employer. Each of Messrs. Stewart and Woodward is entitled to continue receiving such base salary and insurance coverage for a period of one year under the foregoing circumstances. In addition, if, within two years following a change in control of Registrant, a participant's employment is terminated without cause or the participant resigns following (a) the relocation of his principal business location, (b) a significant reduction in the duties or responsibilities from those existing prior to the change in control, or (c) a reduction in his then-current base salary, then, in any such event, the participant is also entitled to continue receiving his then-current base salary and coverage under the aforementioned insurance program (subject to the restriction described above) for a specified period. Messrs. Stewart and Woodward are entitled to continue receiving their respective base salaries for a period of 12 months under such circumstances. In addition, under such circumstances, each of Messrs. Stewart and Woodward is also entitled to continue receiving the aforementioned insurance coverages for a period of 12 months, and all unvested options which they hold become exercisable in full and all outstanding options remain exercisable for the lesser of the remaining scheduled term thereof or an extended exercise period, which is one year for options granted after December 1996 and five years for options granted before January 1997.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - ------- --------------------------------------------------------------
As of March 15, 1998, the following persons were known to Registrant to be the beneficial owners of more than 5% of Registrant's Common Stock:
- ------------ (1) Information furnished by stockholder as of February 10, 1998
Security Ownership of Management
The following table sets forth the beneficial ownership of the Common Stock of Registrant as of March 15, 1998 by each director, each executive officer named in the Summary Compensation Table and by all directors and executive officers as a group. The persons named in the table below have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the table and notes thereto.
- ------------ * Less than one percent.
(1) Includes 96,000 shares which Dr. Federman has the right to acquire under outstanding stock options exercisable within 60 days after March 15, 1998 and 12,499 shares owned by Dr. Federman's child. Dr. Federman disclaims beneficial ownership of such 12,499 shares.
(2) Includes 137,250 shares which Mr. DePiano has the right to acquire under outstanding stock options exercisable within 60 days after March 15, 1998. Also includes 90,000 shares owned by Mr. DePiano's wife. Mr. DePiano disclaims beneficial ownership of such 90,000 shares.
(3) Includes 77,250 shares which Mr. Bonovitz has the right to acquire under outstanding stock options exercisable within 60 days after March 15, 1998, 25,027 shares owned by Mr. Bonovitz' wife and 29,238 shares owned by trusts of which Mr. Bonovitz is trustee for the benefit of Mr. Bonovitz' children. Mr. Bonovitz disclaims beneficial ownership of the 48,265 shares owned by his wife and such trusts. Also includes 29,119 shares owned by the Marital Trust Under the Will of Robert H. Fleisher, Deceased. Mr. Bonovitz is one of the four trustees of such trust and disclaims beneficial ownership of such 29,119 shares. Also includes 25,500 shares owned by a pension trust of which Mr. Bonovitz is the beneficiary.
(4) Includes 100,000 shares which Mr. Stoneback has the right to purchase under outstanding stock options exercisable within 60 days after March 15, 1998.
(5) Includes 102,366 shares which Mr. Stewart has the right to purchase under outstanding stock options exercisable within 60 days after March 15, 1998.
(6) Includes 86,533 shares which Mr. Woodward has the right to purchase under outstanding stock options exercisable within 60 days after March 15, 1998.
(7) Includes 15,000 shares held of record by Olive Branch Corp., a Liberian corporation controlled by members of Mr. Morelli's family. Mr. Morelli disclaims beneficial ownership of such shares. Also includes 30,000 shares which Mr. Morelli has the right to purchase under outstanding stock options exercisable within 60 days after March 15, 1998.
(8) Represents 8,000 shares owned jointly with his spouse and includes 25,000 shares which Mr. Stahl has the right to purchase under outstanding stock options exercisable within 60 days after March 15, 1998.
(9) Includes 654,399 shares which such persons have the right to purchase under stock options exercisable within 60 days after March 15, 1998.
Item 13.
Item 13. Certain Relationships and Related Transactions - -------- ----------------------------------------------
Certain Transactions
Kontron Instruments Holding N.V., which owns more than 5% of Registrant's outstanding Common Stock, has affiliates that have served as Registrant's distributors throughout most of Europe. In March, 1997, Registrant and Kontron Instruments agreed to terminate the distribution agreement entered into in 1993, under which Kontron Instruments had been Registrant's distribution representative for most of Europe. Kontron Instruments has agreed to continue to represent Registrant in certain countries in Europe until successor distribution partners are identified by Registrant. During 1997, total sales by Registrant to such affiliates were $112,000. Vincenzo Morelli, a director of Registrant, is the Chief Executive Officer and a director of Kontron Instruments.
PART IV
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 28, 1997.
(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 May 29, 1996, between Registrant and Nappen & Associates, incorporated by reference to Exhibit 10.51 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").
10.3* Employment Agreement dated August 5, 1996, between Registrant and W. Keith Stoneback, 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").
10.4* 1986 Non-Qualified Stock Option Plan of Registrant, as amended through November 29, 1989, incorporated by reference to Exhibit 4(B) filed with the Registrant's Form S-8 Registration Statement filed on December 29, 1989, Registration No. 33-32835 (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").
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* Registrant's 1997 Executive Staff Bonus Program adopted January 17, 1997, incorporated by reference to Exhibit 10.54 filed with Registrant's Amendment No. 1 to Annual Report on Form 10-K/A for the fiscal year ended December 29, 1996 filed on April 7, 1997 ("the 1996 Form 10-K/A").
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, as amended by Settlement Agreement and Limited Mutual Release dated November 7, 1997.
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 Annual Report on Form 10-K for the fiscal year ended January 3, 1993 filed on April 19, 1993 (the "1992 Form 10-K"); as amended pursuant to a First Amendment thereto dated July 26, 1993, incorporated by reference to Exhibit 10.15 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"); 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; and as further
amended by Letter Agreement dated November 5, 1997 from CoreStates Bank (successor to Meridian Bank) to Registrant.
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.
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.
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 incorporated by reference to Exhibit 10.36 filed with Registrant's 1996 Form 10-K/A.
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 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.
10.39 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.
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, as terminated effective February 28, 1998 by letter dated November 14, 1997 from Registrant to Fuller Research Corporation.
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, as terminated by Property Agreement dated October 30, 1996, incorporated by reference to Exhibit 10.4 filed with Registrant's Third Quarter 1996 Form 10-Q.
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, incorporated by reference to Exhibit 10.43 filed with Registrant's 1996 Form 10-K/A.
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/A, as further amended by an Amendment dated December 24, 1997.
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 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., incorporated by reference to Exhibit 10.51 filed with Registrant's 1996 Form 10-K/A.
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, December 28, 1997
27.1 Amended Financial Data Schedule December 29, 1996
27.2 Amended Financial Data Schedule December 31, 1995
- ------------ * This exhibit represents a management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 23, 1998 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.