<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ______________
COMMISSION FILE NUMBER: 0-16937
-------
SUMMIT TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Massachusetts 04--2897945
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21 Hickory Drive, Waltham, Massachusetts 02154
- ---------------------------------------- ----------
(Address of principal executive officer) (Zip Code)
(781) 890-1234
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK AND COMMON SHARE PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
On July 31, 1998, 31,283,765 shares of common stock, par value $0.01 per
share were outstanding.
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, 1998 DEC. 31, 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 57,594 $ 33,720
Short-term investments 24,827 26,770
Receivables, net of allowances 13,541 8,896
Inventories 13,875 14,494
Prepaid expenses and other current assets 3,182 2,533
Due from related party 72 4
Restricted cash -- 1,264
-----------------------
Total current assets 113,091 87,681
Long-term investments 30,615 13,583
Property and equipment, net 9,248 8,593
Patents, net 4,538 4,769
Other assets 477 477
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $157,969 $115,103
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,620 $ 4,482
Accrued expenses 11,962 7,197
Current maturities of long-term debt 5,208 5,142
Deferred revenue 2,227 2,937
Due to related party -- 28
-----------------------
Total current liabilities 24,017 19,786
Long-term debt, less current maturities 2,739 6,330
- ----------------------------------------------------------------------------------------------
Total liabilities 26,756 26,116
- ----------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares -- --
Common stock, $.01 par value. Authorized 60,000,000
shares; Issued 31,321,038 shares in 1998
and 31,299,803 in 1997 314 313
Additional paid-in capital 152,788 153,982
Accumulated deficit (29,632) (60,313)
-----------------------
123,470 93,982
Net unrealized gain (loss) on investment 8,080 (4,835)
Treasury stock, at cost, 38,615 shares
in 1998 and 6,125 shares in 1997 (337) (160)
- ----------------------------------------------------------------------------------------------
Total stockholders' equity 131,213 88,987
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $157,969 $115,103
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
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SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues:
Systems $ 5,395 $ 1,873 $ 8,683 $ 3,281
License fees, service and other 7,459 7,461 14,294 12,668
Contact lens and related products 10,542 11,772 22,259 23,510
-----------------------------------------------
Total net revenues 23,396 21,106 45,236 39,459
Cost of revenues 14,155 12,443 27,463 24,424
-----------------------------------------------
Gross profit 9,241 8,663 17,773 15,035
-----------------------------------------------
Operating expenses:
Selling, general and administrative 7,242 5,323 14,417 11,774
Research, development and regulatory 1,761 1,513 3,599 3,236
-----------------------------------------------
Total operating expenses 9,003 6,836 18,016 15,010
-----------------------------------------------
Operating income (loss) 238 1,827 (243) 25
Litigation settlement, net of related expenses 34,386 -- 34,386 --
Other income 776 762 1,458 1,255
-----------------------------------------------
Income before provision for income taxes 35,400 2,589 35,601 1,280
Provision for income taxes 4,896 17 4,920 108
- ---------------------------------------------------------------------------------------------------
Net income $30,504 $ 2,572 $30,681 $ 1,172
===================================================================================================
Earning per share:
Basic earnings per share $ 0.98 $ 0.08 $ 0.98 $ 0.04
Diluted earnings per share $ 0.97 $ 0.08 $ 0.98 $ 0.04
Weighted average number of common
shares used for basic earnings
per share calculation 31,277 31,158 31,178 31,020
Weighted average number of common
shares and dilutive securities used for
diluted earnings per share calculation 31,327 31,312 31,209 31,191
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
=========================================================================================
<S> <C> <C> <C> <C>
Net income $30,504 $2,572 $30,681 $1,172
-------------------------------------------
Net unrealized gain on investment 8,213 -- 12,915 --
Provision for income taxes at 39% 3,203 -- 5,037 --
-------------------------------------------
5,010 -- 7,878 --
=========================================================================================
Comprehensive income $35,514 $2,572 $38,559 $1,172
=========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
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SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $30,681 $ 1,172
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,743 2,086
Changes in operating assets and liabilities:
Accounts receivable, net (4,645) (635)
Inventories, net 619 (1,168)
Prepaid expenses and other current assets (649) 590
Accounts payable 138 (190)
Accrued expenses 4,765 (915)
Deferred revenue (710) (1,046)
Related party, net (96) 2,546
Discontinued operations -- 1,433
- ------------------------------------------------------------------------------------------
Net cash provided by operating activities 31,846 3,873
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in short-term investments 1,943 (14,499)
(Increase) decrease in long-term investments (4,229) 3,426
Additions to property and equipment (2,167) (1,434)
Decrease in restricted cash 1,264 149
Other -- 1,242
- ------------------------------------------------------------------------------------------
Net cash used by investing activities (3,189) (11,116)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) of long-term debt (3,525) (2,619)
Proceeds from exercise of stock options 34 24
Proceeds from other shares issued 68 301
Purchases of treasury stock (1,360) --
- ------------------------------------------------------------------------------------------
Net cash used by financing activities (4,783) (2,294)
- ------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 23,874 (9,537)
Cash and cash equivalents at beginning of period 33,720 44,013
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $57,594 $ 34,476
==========================================================================================
Supplemental cash flow information:
Interest paid $ 548 $ 782
Income taxes paid $ 70 $ 35
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Summit Technology, Inc. and subsidiaries (the "Company") develops, manufactures
and markets ophthalmic laser systems designed to correct common vision disorders
such as nearsightedness, farsightedness and astigmatism. The Company also
collects per procedure license fees from users of its systems and participated
in per procedure license fees paid to Pillar Point Partners, a partnership,
formed by the Company and VISX, Inc. ("VISX") to hold certain U.S. patents
covering excimer laser systems and procedures. On June 4, 1998, the Company and
VISX dissolved Pillar Point Partners and have granted to each other worldwide,
royalty-free cross-licenses to all of their respective U.S. and foreign patents
in the field of laser ablation of corneal tissue, including all patents included
or includable in Pillar Point Partners. Through its wholly-owned subsidiary,
Lens Express, Inc., the Company primarily sells contact lenses and related
products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying consolidated financial statements have
been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of the
Company, these consolidated financial statements contain all adjustments
(consisting of only normal, recurring adjustments) necessary to present fairly
the consolidated financial position, results of operations and cash flows of the
Company for the interim period.
The accompanying consolidated financial statements and related notes should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1997. The results of operations for the six months ended June
30, 1998 are not necessarily indicative of the results to be expected for the
full year.
Net Income Per Share: Basic earnings per share are computed by dividing net
income by the weighted-average number of common shares outstanding during the
year. The number of shares used to compute basic earnings per share were (in
thousands) 31,277 for the second quarter of 1998 and 31,158 for the second
quarter of 1997. The number of shares used to compute basic earnings per share
were (in thousands) 31,178 for the first half of 1998 and 31,020 for the first
half of 1997. Diluted earnings per share includes the effect of all dilutive
potential common shares that were outstanding during the period. Diluted
earnings per share are computed by dividing net income by the weighted-average
number of common shares and dilutive securities. The number of shares used to
compute diluted earnings per share were (in thousands) 31,327 for the second
quarter of 1998 and 31,312 for the second quarter of 1997. The number of shares
used to compute diluted earnings per share were (in thousands) 31,209 for the
first half of 1998 and 31,191 for the first half of 1997.
New Accounting Standards: The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income at the beginning of
fiscal 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements.
The Company will adopt SFAS No. 131, Disclosure about Segments of an Enterprise
and Related information in the fourth quarter of 1998. SFAS No. 131 establishes
standards for the way that public business enterprises report selected
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial statements. SFAS No. 131 is not expected to have a material
impact on the Company's financial position or results of operations.
Reclassifications: Prior to 1998, the Company recorded gross license fee
revenues upon allocation from Pillar Point Partners and the net license fee
liability owed to Pillar Point Partners as cost of revenues. Administrative
expenses paid to Pillar Point Partners were classified as operating expenses as
incurred. Effective January 1, 1998, license fee revenues due the Company from
Pillar Point
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Partners are recorded net of license fees payable to Pillar Point Partners and
net of related expenses. Certain prior year information has been reclassified to
conform with present year presentation of data.
3. DISCONTINUED OPERATIONS
In August 1997, the Company sold Refractive Centers International, Inc., (RCII)
a wholly owned subsidiary of the Company , to LCA-Vision Inc. (LCA) in exchange
for 16,164,361 newly issued shares of LCA common stock. RCII owned and operated
the Company's vision center business. The sale of the discontinued operation
resulted in a net gain of $10.7 million in 1997, which includes a gain on the
sale of net assets held for discontinued operation and accruals for other
estimated costs to be incurred in connection with the sale of RCII and
distribution of LCA common stock. On December 29, 1997, the Company distributed
9.0 million shares of LCA common stock to its shareholders in the form of a
dividend. A dividend of one share of common stock of LCA was issued for every
3.5 (approximate) shares of the Company's common stock outstanding. The
remaining shares, which represent approximately 19.5 percent of LCA's
outstanding shares have been classified as a long-term investment. The operating
loss from discontinued operations for the year ended December 31, 1997 was $3.3
million.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
(in thousands) 1998 1997
=============================================================
<S> <C> <C>
Raw materials and subassemblies $ 3,581 $ 3,195
Work in process 1,937 2,147
Finished goods 8,357 9,152
-------------------------------------------------------------
Total $13,875 $14,494
=============================================================
</TABLE>
5. CONTINGENCIES
Pillar Point Partners Antitrust And Patent Litigation. Pillar Point Partners,
the Company, VISX, Inc. ("VISX") and certain affiliates of the Company and VISX
are presently involved in a series of patent and antitrust lawsuits which have
been administratively consolidated for pretrial purposes in the United States
District Court for the District of Arizona by the Federal Judicial Panel on
Multidistrict Litigation ("MDL Panel"). These cases are presently pending as IN
RE: PILLAR POINT PARTNERS ANTITRUST AND PATENT LITIGATION (CIVIL ACTION NO. MDL
1202) and are described below.
Patent Litigation. Pillar Point Partners commenced patent infringement
litigation against certain ophthalmologists believed to have used or be using
homemade laser systems not licensed under patents held by Pillar Point Partners,
as well as one alleged manufacturer of such laser systems. These actions were
originally pending as PILLAR POINT PARTNERS, et al. v. DAVID DULANEY, et al.
(U.S. DISTRICT COURT, DISTRICT OF ARIZONA, CIVIL ACTION NO. 96-2051PHXPGR),
PILLAR POINT PARTNERS, et al. v. JON G. DISHLER, et al. (U.S. DISTRICT COURT,
DISTRICT OF COLORADO, CIVIL ACTION NO. 96-N-2351), and PILLAR POINT PARTNERS, et
al. v. JUI-TENG LIN, et al. (U.S. DISTRICT COURT, MIDDLE DISTRICT OF FLORIDA,
CIVIL ACTION NO. 97-54-CV-ORL-22). The defendants in the Dulaney and Dishler
actions have asserted counterclaims seeking declarations that the patents in
suit are invalid and unenforceable. Those defendants have also raised antitrust
and Lanham Act counterclaims.
Antitrust Litigation. In June, 1996, a Texas ophthalmologist, Robert G.
Burlingame, sued Pillar Point, VISX, the Company and certain affiliates of VISX
and the Company in the Federal District Court for the Northern District of
California alleging that the defendants have violated and are violating federal
and state antitrust laws. The plaintiff seeks damages of an unspecified amount,
treble damages, attorneys' fees and a permanent injunction against future
violations. On September 5, 1996, a Nevada
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ophthalmologist, John R. Shepherd, through his professional corporation,
commenced a similar lawsuit against the same parties, in the same court,
alleging substantially similar claims and seeking substantially similar relief.
Pillar Point Partners has stated that it believes these California lawsuits are
without merit and is contesting the suits vigorously. Plaintiff's counsel in the
Shepherd case has indicated that he intends to seek certification of the case as
a class action.
On November 5, 1997, Antoine Garabet, M.D., Inc. and Abraham Shammas, M.D.,
d/b/a Laser Eye Center, sued Pillar Point, VISX, the Company and certain
affiliates of VISX and the Company in the Federal District Court for the
Northern District of California seeking a declaratory judgment that the patents
held by Pillar Point are invalid and unenforceable on account of alleged
antitrust violations and alleging fraud in connection with certain of the
Company's sales and marketing activities. The plaintiffs seek compensatory
damages of at least $48,585.69, punitive damages of an unspecified amount,
injunctions against enforcement of the Pillar Point patents and against alleged
continuing violations of the antitrust laws, attorneys' fees and costs.
Defendants' motion to dismiss this case is pending.
In May, 1998, The Eye Professionals, P.A. of Millville, New Jersey commenced an
action in the Federal District Court for the District of New Jersey against the
Company and VISX. The case purports to be a class action on behalf of all
individuals or entities that have paid a per-procedure fee directly to either
defendant for use of a Summit or VISX laser to perform laser vision correction
surgery. The complaint alleges, inter alia, price-fixing in violation of Section
1 of the Sherman Act. The action seeks, inter alia, treble damages, costs of
suit, attorneys' fees, and various forms of declaratory and injunctive relief.
Similar actions were also filed in May, 1998 by Metropolitan Eye Center and
Outpatient Surgical Facility, Inc. in the U.S. District Court for the Northern
District of California against the Company, VISX, Summit Partner, Inc., and VISX
Partner, Inc., and by New England Laser Vision, Inc. in the U.S. District Court
for the District of New Jersey against the Company and VISX. In June, 1998,
Leslie L. Chisholm, Jr., M.D. filed another similar action in the Federal
District Court for the District of Arizona against the Company, VISX, Summit
Partner, Inc., VISX Partner, Inc., and Pillar Point Partners. In addition to
price-fixing claims, the CHISHOLM action also asserts, inter alia, claims for
monopolization, attempted monopolization, and conspiracy to monopolize in
violation of Section 2 of the Sherman Act, as well as claims under the
California Cartwright Act and other California statutes, for which disgorgement
of alleged illegal profits and ill-gotten gains is sought. Plaintiffs in each of
these cases have indicated that they will agree to consolidation of the four
purported class actions and file a single consolidated amended complaint. The
Company has yet to be served with that complaint.
In late March, 1998, Janice Camp of Atlanta, Georgia commenced an action in
Federal District Court for the District of Massachusetts against the Company
and VISX. As amended in April, 1998, the complaint adds as a named plaintiff
Jon Singer of Congers, New York. The case has been transferred to Federal
District Court for the District of Arizona for consolidated pretrial
proceedings. The case purports to be a class action on behalf of all similarly
situated individuals who have undergone laser vision correction surgery. The
complaint alleges, inter alia, price-fixing, monopolization, conspiracy to
monopolize, violations of the Clayton Act, violations of the RICO Act, and
violations of state consumer protection statutes. The action seeks, inter alia,
treble damages, punitive or exemplary damages, costs of suit, attorneys' fees,
and various forms of equitable relief. In response to defendants' motion to
dismiss, plaintiffs have abandoned their federal antitrust claims. Defendants'
motion to dismiss the RICO and state law claims is pending.
There can be no assurance that the federal antitrust actions pending as part of
IN RE PILLAR POINT PARTNERS ANTITRUST AND PATENT LITIGATION will be resolved in
the Company's favor or that an adverse judgment or settlement would not have a
material adverse effect on the Company.
Consolidated California State Litigation. Beginning in late March, 1998, a
number of actions brought by individuals under the Cartwright Act and California
unfair competition laws were commenced against the Company, VISX, and related
defendants in Superior Court of Santa Clara County. In May, 1998, these actions
were consolidated as IN RE PRK/LASIK CONSUMER LITIGATION. In June, 1998,
plaintiffs B.J. Snyder, Donna McMahan, Paula Mobsby, Helen Thomas, Carmen
Ocariz, Martin Hermans, Ken Bartlett, Grace Geniusz, Jocelyn Joseph, Andrew
Stoddard, and Cynthia Brubecker filed an Amended Consolidated Master Complaint
for Damages ("Amended Complaint") in this matter against the Company, Summit
Partner, Inc., VISX, and VISX Partner, Inc. The Amended Complaint purports to be
filed on behalf of a nationwide class of persons who have undergone excimer
laser surgery with a laser manufactured by the Company or VISX. The Amended
Complaint seeks, inter alia, unspecified compensatory damages, restitution
and/or disgorgement of alleged ill-gotten gains, prejudgment and postjudgment
interest, costs of suit, and attorneys' fees, as well as various forms of
declaratory and injunctive relief, including an order permitting any person or
entity with which the Company or VISX or both have entered into any agreement
since June 3, 1992, for the purchase, license, or use of any of the Pillar Point
Patents to withdraw from such agreement without penalty or obligation. The
Company and Summit Partner, Inc. have filed an answer denying generally the
allegations of the Amended Complaint in this litigation. James Ballard filed a
similar suit against the Company,
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Summit Partner, Inc., VISX, VISX Partner, Inc., Pillar Point Partners, and other
individual defendants in Superior Court of San Diego County. This suit has been
transferred to Santa Clara County and may be consolidated as part of IN RE
PRK/LASIK CONSUMER LITIGATION.
There can be no assurance that the actions described above will be resolved in
the Company's favor or that an adverse judgment or settlement would not have a
material adverse effect on the Company.
Unconsolidated Antitrust and Patent Cases. In April, 1998, Penny Marks, an
individual who allegedly has had laser vision correction surgery performed,
commenced an action in Florida state court against the Company and VISX. The
case purports to be a class action on behalf of all individuals similarly
situated in the State of Florida. The complaint alleges various violations of
the Florida Deceptive Trade and Unfair Practices Act. The complaint seeks
unspecified damages, costs, expenses, and attorneys' fees, as well as
declaratory and injunctive relief. Defendants have removed this case to Federal
District Court in Florida, and plaintiff has filed a motion to remand the action
to state court.
In June, 1998, Barbara Worcester, an individual who allegedly has had laser
vision correction surgery performed, filed an action in Wisconsin state court
against the Company, Summit Partner, Inc., VISX, VISX Partner, Inc., and Pillar
Point Partners. The case purports to be a class action on behalf of all
Wisconsin purchasers of refractive laser surgery procedures. The complaint
alleges violations of Chapter 133 of the Wisconsin Statutes. The complaint seeks
unspecified treble damages, attorneys' fees and costs, and declaratory and
injunctive relief. Defendants have removed this action to Federal District Court
in Wisconsin.
There can be no assurance that these actions will be resolved in the Company's
favor or that an adverse judgment or settlement would not have a material
adverse effect on the Company.
In October, 1996, Autonomous Technologies Corporation ("ATC") sued Pillar Point
Partners, the Company and VISX (and certain affiliates of the Company and VISX)
in the Federal District Court for the District of Delaware. In this action,
Autonomous seeks, inter alia, a declaratory judgment that it does not infringe a
certain United States Patent held by Pillar Point Partners, or, alternatively, a
judgment ordering that all U.S. patents held by Pillar Point Partners, together
with their foreign counterparts, be deemed unenforceable and/or be licensed to
Autonomous.
In July, 1997, John Taboada filed a complaint in the United States District
Court for the Western District of Texas against Stephen L. Trokel, VISX, VISX
Partner, Inc., Summit Partner, Inc., and Pillar Point Partners. In December,
1997, Taboada amended his complaint to include the Company as an additional
defendant. Taboada seeks a declaration that he is either the sole inventor or a
joint inventor of U.S. Patent No. 5,108,388 (the " `388 Patent") which names Dr.
Trokel as the inventor. The `388 Patent has been assigned to VISX and is
licensed to Pillar Point Partners. Taboada also seeks to recover royalties paid
to one or more of the defendants for licenses granted under `388 Patent, charges
defendants with infringement of the `388 Patent, alleges Lanham Act claims, and
seeks monetary damages and injunctive relief.
Seriani Litigation. On October 26, 1992, Joseph Seriani brought suit against
Lens and certain of its former shareholders in the Florida Circuit Court. The
suit alleged violations of the Florida Civil Remedies for Criminal Practices Act
- - the Florida civil RICO statute -- based on events which allegedly occurred in
the mid-1980s. Seriani's claims against Lens were dismissed several times for
failure to state a viable claim, but in each instance with leave to amend and
refile. On May 15, 1996, the date of the Company's acquisition of Lens, Seriani
and his wife Rhonda Seriani filed an amended complaint which included the
Company as an additional defendant. On November 25, 1996, the Serianis
voluntarily dismissed their action against the Company and on March 7, 1997
voluntarily dismissed their action against the remaining defendants, in each
case without prejudice. On March 24, 1997, the Serianis commenced a new lawsuit
against Lens and others in the United States District Court for the Southern
District of Illinois, alleging substantially similar claims. The Company
believes that the Serianis' suits against the Company and Lens are and were
without merit.
Lens Express Employee Litigation. On or about February, 1997, a former employee
allegedly filed an administrative complaint with the Florida Commission on Human
Relations against Lens and a former employee of Lens, alleging sexual
discrimination and harassment by the former employee, retaliatory demotion, and
constructive discharge. On or about May, 1997, a current employee filed an
administrative complaint with the same Florida agency, also alleging sexual
discrimination and harassment by the same former employee. The Florida
Commission referred both complaints to the U.S. Equal Employment Opportunity
Commission for investigation. No investigations were completed before each
complainant, represented by the same counsel, sued Lens and the former employee
in Florida Circuit Court on or about September, 1997. Each complaint alleges
sexual discrimination and harassment under the Florida Civil Rights Act and
various other state common law claims; the former employee also alleges
retaliatory demotion under
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the Florida Civil Rights Act. Each plaintiff seeks a court order prohibiting
such alleged discrimination as well as unspecified compensatory and punitive
damages. Lens answered each complaint, denying the allegations. On or about June
15, 1998, Lens settled all claims of the current employee for a nominal amount
and without admitting any wrongdoing or liability. While Lens believes the
claims of the former employee to be without merit, there can be no assurance
that it will prevail in either litigation. Lens cannot predict the range of
possible compensatory damages, if any, or whether punitive damages may be
assessed.
Lens Express Woodstock Litigation. On or about April, 1997, three current and
two former employees sued Lens, ten employees and four former employees of Lens,
alleging racial discrimination under 42 USC ss. 1981. The plaintiffs seek an
unspecified amount of compensatory damages, punitive damages, lost wages and a
court order declaring the alleged conduct unlawful. Lens and the other employees
have denied the allegations; the former employees apparently have never been
served with the complaint. After the Court sua sponte dismissed the complaint
for improper pleading and Lens moved to dismiss the second amended complaint,
plaintiffs filed a third amended complaint, which alleges the same causes of
action. Lens also moved to dismiss most of the third amended complaint, and the
Court granted the motion with leave for plaintiffs to file a fourth amended
complaint. This case is presently pending as WOODSTOCK, et al. v. LENS EXPRESS,
INC., et al., In the United States District Court for the Southern District of
Florida, Case No. 97-6529-Civ-Hurley. Lens intends to move to dismiss the fourth
amended complaint as well. Lens made offers of judgement for $750 to each
plaintiff; one plaintiff accepted the offer. While Lens believes the claims to
be without merit, there can be no assurance that it will prevail. Lens cannot
predict the range of possible compensatory damages, if any, or whether punitive
damages may be assessed.
Shareholder Actions. Between August, 1996 and February, 1997 various shareholder
actions were commenced against the Company and certain of its officers in the
United States District Court for the District of Massachusetts (the "District of
Massachusetts") claiming, among other things, violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 arising out of public statements
made by defendants. The actions were consolidated, by order of the Court entered
December 2, 1996, as IN RE SUMMIT TECHNOLOGY SECURITIES LITIGATION, Civil Action
No. 96-11589-JCT (the "Securities Litigation"). Plaintiffs seek certification of
the action as a class action on behalf of all purchasers of the Company's common
stock, other than defendants and certain affiliated persons and entities,
between March 31, 1995 and July 3, 1996. They seek unspecified damages,
interest, costs and expenses.
On October 1, 1996 an additional action was commenced in the District of
Massachusetts against the Company, its directors, certain of its officers and
the four underwriters of the Company's October, 1995 Common Stock offering
claiming violations of Sections 11, 12(2) and 15 of the Securities Act of 1933
arising out of alleged material misstatements of fact in the Registration
Statement issued in connection with the offering. The action was coordinated
with the Securities Litigation by order of the Court dated December 2, 1996. It
also seeks unspecified damages, interest, costs and expenses.
On December 20, 1996, a shareholder of the Company filed in the District of
Massachusetts a derivative action, purportedly on behalf of the Company, against
the Company as nominal defendant, its directors and certain of its present or
former officers. This action was consolidated with the Securities Litigation by
order of the Court entered July 22, 1997. The complaint alleges that the conduct
of the individual defendants has exposed the Company to the expense and
inconvenience of defending the Securities Litigation and has harmed the
Company's reputation, thereby limiting its access to capital markets. It also
alleges that the individual defendants improperly traded in the Company's Common
Stock based upon material non-public information.
The Company believes that the allegations in all of the complaints in the
actions described herein are without merit, and it intends to defend the actions
vigorously. There can be no assurance that the Company will not be served with
additional complaints of a similar nature in the future, that the Company will
ultimately prevail in the pending or any possible additional actions, or that
the actions, individually or in the aggregate, will not have a material adverse
effect on the Company.
10
<PAGE> 11
PART I: FINANCIAL INFORMATION (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The operations of Summit Technology, Inc. and subsidiaries (the "Company")
presently consist of (i) manufacturing, selling and servicing laser systems and
related products to correct vision disorders; (ii) collecting per procedure
license fees from users of its systems and (iii) selling contact lenses and
related products by mail order through its wholly-owned subsidiary Lens Express,
Inc. ("Lens"), which the Company acquired on May 15, 1996. On June 4, 1998, the
Company and VISX Inc. ("VISX") dissolved Pillar Point Partners and have granted
to each other worldwide, royalty-free cross-licenses to all of their respective
U.S. and foreign patents in the field of laser ablation of corneal tissue,
including all patents included or includable in Pillar Point Partners. In August
1997, the Company sold its wholly-owned subsidiary Refractive Centers
International, Inc. ("RCII") to LCA-Vision Inc. ("LCA") for 16,164,361 shares of
LCA common stock. Prior to the sale, RCII owned and operated the Company's
vision center business, which was accounted for as a discontinued operation in
1996.
The Company is continuing to evaluate its operations and strategies, which may
result in the acquisition by the Company of one or more additional businesses,
or additional dispositions of all or part of one or more of the Company's
businesses.
SECOND QUARTER RESULTS OF OPERATIONS
Revenues: Revenues for the three months ended June 30, 1998 increased 11% to
$23.4 million from $21.1 million for the three months ended June 30, 1997.
Revenues from system sales in the second quarter of 1998 increased substantially
compared to the same period a year ago. Revenues from the Company's vision
correction business increased 38% to $12.9 million in the second quarter of 1998
compared to $9.3 million in the same period a year ago. In the second quarter of
1998, sales of contact lens and related products decreased to $10.5 million from
$11.8 million in the second quarter of 1997.
Cost of Revenues: Cost of revenues as a percentage of revenues increased to 61%
in second quarter of 1998 from 59% in the second quarter of 1997. This increase
was primarily attributable to higher cost of revenues associated with system
sales offset by the favorable impact from increased manufacturing levels.
Operating Expenses: Selling, general and administrative expenses in the second
quarter of 1998 were $7.2 million compared to $5.3 million in the same period a
year ago, a 36% increase. Selling, general and administrative expenses as a
percentage of revenues were 31% and 25% in the second quarter of 1998 and 1997,
respectively. The Company has been making significant investments in the sales
and marketing areas in order to grow laser vision correction procedure volume.
To help offset this increase, the Company has worked aggressively to reduce its
legal expenses. In the second quarter of 1997, the Company received a net
payment of $4.5 million from VISX resulting from the settlement of patent
litigation. This settlement resulted in a reduction of legal costs of $0.6
million in the second quarter of 1998 and $1.7 million in the second quarter of
1997. Research, development and regulatory expenses in the second quarter of
1998 increased to $1.8 million from $1.5 million in the second quarter of 1997,
primarily as a result of increased spending on the Company's research and
development efforts.
Net Income: In the second quarter of 1998, the Company and VISX, Inc. agreed to
dissolve Pillar Point Partners and settled all pending litigation between the
two companies. Under the settlement agreement, VISX paid the Company a total of
$35.0 million. Excluding this settlement and related taxes and expenses, net
income for the second quarter of 1998 was $0.9 million, or $0.03 per diluted
share as compared to $2.6 million, or $0.08 per diluted share in the second
quarter of 1997. Including the litigation settlement and related taxes and
expenses, net income in the second quarter of 1998 was $30.5 million, or $0.97
per diluted share. Basic earning per share was $0.98 for the second quarter of
1998 and $0.08 per share for the second quarter of 1997.
Income Taxes: The Company has continued to provide a 100% valuation allowance
against its net deferred tax asset of $20.6 million as of December 31, 1997.
11
<PAGE> 12
FIRST HALF RESULTS OF OPERATIONS
Revenues: Revenues for the six months ended June 30, 1998 increased 15% to $45.2
million from $39.5 million for the six months ended June 30, 1997. Revenues from
system sales in the first half of 1998 increased substantially compared to the
same period a year ago. Revenues from the Company's vision correction business
increased 44% to $23.0 million in the first half of 1998 compared to $15.9
million in the same period a year ago. In the first half of 1998 and 1997, sales
of contact lens and related products were $22.3 million and $23.5 million,
respectively.
Cost of Revenues: Cost of revenues as a percentage of revenues decreased to 61%
in first half of 1998 from 62% in the first half of 1997. This decrease was
primarily attributable to the favorable impact from increased manufacturing
levels which more than offset the higher cost of revenues associated with system
sales.
Operating Expenses: Selling, general and administrative expenses in the first
half of 1998 were $14.4 million compared to $11.8 million in the same period a
year ago, a 22% increase. Selling, general and administrative expenses as a
percentage of revenues were 32% and 30% in the first half of 1998 and 1997,
respectively. The Company has been making significant investments in the sales
and marketing areas in order to grow laser vision correction procedure volume.
To help offset this increase, the Company has worked aggressively to reduce its
legal expenses. In the first half of 1997, the Company received a net payment of
$4.5 million from VISX resulting from the settlement of patent litigation. This
settlement resulted in a reduction of legal costs of $0.6 million in the first
half of 1998 and $1.7 million in the first half of 1997. Research, development
and regulatory expenses in the first half of 1998 increased to $3.6 million from
$3.2 million in the first half of 1997, primarily as a result of increased
spending on the Company's research and development efforts.
Net Income: In the first half of 1998, the Company and VISX, Inc. agreed to
dissolve Pillar Point Partners and settled all pending litigation between the
two companies. Under the settlement agreement, VISX paid the Company a total of
$35.0 million. Excluding this settlement and related taxes and expenses, net
income for the first half of 1998 was $1.1 million, or $0.04 per diluted share
as compared to net income of $1.2 million, or $0.04 per diluted share in the
first half of 1997. Including the litigation settlement and related taxes and
expenses, net income for the first half of 1998 was $30.7 million, or $0.98 per
diluted share. Basic earning per share for the first half of 1998 and 1997 was
$0.98 and $0.04, respectively.
Income Taxes: The Company has continued to provide a 100% valuation allowance
against its net deferred tax asset of $20.6 million as of December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements have been met through external debt and
equity financing. As of June 30, 1998, the Company's cash and cash equivalent
balances and short and long-term investments increased to $113.0 million from
$74.1 million as of December 31, 1997. Shares of LCA common stock valued at
$20.9 million and $8.1 million were included in long-term investments as of June
30, 1998 and December 31, 1997, respectively. Working capital increased to $89.1
million as of June 30, 1998 from $67.9 million as of December 31, 1997. In the
first half of 1998, net cash provided by operating activities was $31.8 million
compared to $3.9 million in the first half of 1997. As previously discussed, the
Company received a $35.0 million payment in the second quarter of 1998 under a
settlement agreement with VISX. Net income before depreciation and amortization
in the first half of 1998 and 1997 was $32.4 million and $3.3 million,
respectively.
In the first half of 1998, net cash used by investing activities of $3.2 million
resulted primarily from a net increase in short and long-term investments of
$2.3 million and capital expenditures of $2.2 million offset by a decrease in
restricted cash of $1.3 million. In the first half of 1997, net cash used by
investing activities of $11.1 million resulted primarily from a net increase in
short and long-term investments of $11.1 million and capital expenditures of
$1.4 million offset by a decrease in patents due to settlement of litigation of
$1.3 million.
In the first half of 1998, net cash used by financing activities of $4.8 million
were attributable to net repayments of long-term debt of $3.5 million and
purchases of 250,000 shares of treasury stock for $1.4 million. In the second
quarter of 1998, the Company agreed to privately place an aggregate of 217,510
shares of treasury stock with the former Lens shareholders as part of a
litigation settlement. In the first half of 1997, net cash used by financing
activities of $2.3 million were primarily attributable to repayments of
long-term debt of $2.6 million.
12
<PAGE> 13
In March 1996, the Company obtained a $20.0 million unsecured revolving credit
facility. The facility expires in March 1999 and allows the Company to borrow at
LIBOR plus 75 basis points or Prime Rate. At June 30, 1998, the Company had no
borrowings under this facility. Also in March 1996, the Company's then wholly
owned subsidiary, RCII, obtained a $20.0 million unsecured term loan, which was
guaranteed by the Company. In July 1997, the Company and RCII entered into a
Loan Modification Agreement with their lenders pursuant to which, inter alia,
RCII was released from liability and the Company became the principal obligor
under the term loan. At June 30, 1998, $7.5 million of borrowings were
outstanding under this loan.
13
<PAGE> 14
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
a) See Note 5 to Notes to Condensed Consolidated Financial Statements
above (Part I, Item 1 of this filing), for description of pending
material litigation
b) Material developments since March 31, 1998:
(i) In July, 1998, the Company reached a consent agreement
with the FTC staff resolving all charges against the
Company. The agreement includes a consent order
requiring that Pillar Point Partners be dissolved and
also prohibits the Company from entering into license
fee agreements with VISX. In addition, the consent order
requires that various rights and information be provided
to customers. The consent agreement does not prohibit
the Company from charging a per procedure fee for use of
its equipment, nor is it an admission or finding of any
wrongdoing. Under the FTC's regulations, the consent
agreement has been presented to the FTC Commissioners.
If accepted by the Commissioners, it will be published
in the Federal Register for public comment.
(ii) On June 4, 1998, the Company and VISX settled all
outstanding litigation between them, including the
equipment royalty litigation in Federal Court in
Massachusetts, and the LASIK royalty and Partnership
dissolution litigation in Santa Clara County,
California. Under the settlement, VISX and Summit have
dissolved Pillar Point Partners and have granted to each
other worldwide, royalty-free cross-licenses to all of
their respective U.S. and foreign patents in the field
of laser ablation of corneal tissue, including all
patents presently included or includable in Pillar
Point. These cross-licenses permit each company, inter
alia, to license each other's patents to users of their
equipment. The Company and VISX will retain all rights
to license their own patents to other manufacturers. As
part of the settlement, VISX made a single, lump sum
cash payment to the Company in the amount of $35
million.
ITEM 4: MATTERS SUBMITTED TO SHAREHOLDERS
The following matters were submitted to a vote of the shareholders at the
Company's annual meeting held on May 28, 1998:
PROPOSAL 1: Jeffrey A. Bernfeld and Richard M. Traskos were reelected to
the Board of Directors, each for a three-year term.
THE FOLLOWING TABLE SUMMARIZES THE ELECTION RESULTS:
<TABLE>
<CAPTION>
PROPOSAL 1
-----------------------------------
FOR WITHHOLD AUTHORITY
---------- ------------------
<S> <C> <C>
Jeffrey A. Bernfeld 25,892,143 1,734,331
Richard M. Traskos 25,886,522 1,739,952
</TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits:
10 Settlement and Dissolution Agreement with VISX, Inc. dated June 4,
1998
14
<PAGE> 15
11 Statement Re: Computation of per share earnings
27 Financial Data Schedule (For EDGAR Filing Purposes Only)
b.) Reports on Form 8-K:
During the second quarter of 1998, the Company filed the following
reports on Form 8-K:
(i) Form 8-K dated June 4, 1998 regarding settlement with
VISX and dissolution of Pillar Point Partners
(ii) Form 8-K dated June 18, 1998 regarding change in
registrant's certifying accountant
CAUTIONARY STATEMENTS AND RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
Statements made in this Report contain information about the Company's future
business prospects. These statements are considered "forward-looking" as defined
by the Private Securities Litigation Reform Act of 1995 and are subject to risks
and uncertainties. Important factors that could cause actual results to differ
materially from those set forth in or implied by such forward-looking statements
include competition in the vision correction industry, the uncertain market
acceptance of laser vision correction, risks related to the Company's patent
portfolio, safety and efficacy concerns, risks and uncertainties of litigation
and possible failure to obtain regulatory approvals.
For additional information and risks associated with the Company's business,
please review the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, a copy of which is available from the Company without charge.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT TECHNOLOGY, INC.
Date: August 13, 1998 By: /s/ Robert J. Palmisano
--------------------------------
Robert J. Palmisano
Chief Executive Officer
Date: August 13, 1998 By: /s/ Robert J. Kelly
--------------------------------
Robert J. Kelly
Executive Vice President, Chief
Financial Officer and Treasurer
16
<PAGE> 1
EXHIBIT 10
SETTLEMENT AND DISSOLUTION AGREEMENT
This Settlement and Dissolution Agreement is made and entered into this
4th day of June, 1998 (the "Effective Date"), between and among Summit
Technology, Inc., a corporation organized under the laws of the Commonwealth of
Massachusetts ("Summit"), Summit Partner, Inc., a corporation organized under
the laws of the State of Delaware ("SPI"), VISX, Incorporated, a corporation
organized under the laws of the State of Delaware ("VISX"), VISX Partner, Inc.,
a corporation organized under the laws of the State of Delaware ("VPI") and
Pillar Point Partners, a Delaware general partnership whose general partners are
SPI and VPI ("Pillar Point").
W I T N E S S E T H:
WHEREAS, Summit and VISX caused Pillar Point to be formed in 1992 to
resolve certain patent disputes and, in connection therewith, entered into a
Formation Agreement dated June 3, 1992 ("Formation Agreement") and caused their
affiliates SPI and VPI to enter into a Partnership Agreement of even date
("Partnership Agreement"); and
WHEREAS, in accordance with the provisions of the Formation Agreement
and the Partnership Agreement, Summit and VISX, through SPI and VPI, each caused
to be contributed to Pillar Point the exclusive licensing rights in and to
certain of their patents containing claims covering methods and apparatus for
performing ultraviolet laser corneal surgery in the United States and agreed
automatically to contribute to Pillar Point similar rights in any subsequently
issued patents under any U.S. patent application having a filing or priority
date in whole or in part occurring on or before June 3, 1993, as well as rights
in certain Precluding Patents (as defined in the Formation Agreement); and
WHEREAS, Summit and VISX each entered into License Back Agreements with
Pillar Point ("License Back Agreements"), pursuant to which Pillar Point granted
to each a non-exclusive license to the Pillar Point patents (the License Back,
Formation and Partnership Agreements, together with all amendments thereto and
the collateral documentation executed and delivered in connection therewith, are
hereinafter collectively referred to as the "Pillar Point Agreements"); and
WHEREAS, on June 17, 1997, Summit and VISX entered into a settlement
agreement (the "Azema Settlement Agreement"), pursuant to which the parties
resolved certain patent disputes, released various claims, cross licensed
certain of each other's foreign patents, covenanted not to sue each other for
patent infringement, and caused the exclusive licensing rights to Summit's
United States Azema Patents (as defined in the Azema Settlement Agreement) to be
contributed to Pillar Point; and
WHEREAS, Pillar Point, Summit and VISX are involved in numerous
disputes between and among themselves and with third parties relating to Pillar
Point; and
WHEREAS, Summit and VISX desire to reach a final and complete
settlement of all claims, disputes and lawsuits between them, dissolve Pillar
Point, cross license patents and
exchange general releases, all in accordance with the terms and conditions of
this Settlement and Dissolution Agreement;
NOW, THEREFORE, in consideration of the payments, releases, licenses,
covenants and undertakings hereinafter set forth, Pillar Point, Summit and VISX
agree as follows:
A G R E E M E N T:
1. AFFILIATES. For purposes of this Settlement and Dissolution
Agreement, the term "Affiliate" means (a) any corporation, entity or person that
now or in the future owns or acquires at least 85% of the shares entitled to
vote of Summit or VISX or that otherwise acquires Summit or VISX by merger,
consolidation, or acquisition of substantially all of the assets of Summit or
VISX or (b) any corporation, entity or person with respect to which, now or in
the future, Summit or VISX owns or acquires at least 85% of the shares entitled
to vote of such corporation, entity or person or that is otherwise acquired by
Summit or VISX by merger, consolidation or acquisition of substantially all of
the assets of such corporation, person or entity. Under no circumstances shall a
cooperative venture (as defined at Section 11, below) be deemed to qualify a
third party as an Affiliate of VISX or Summit, absent compliance with the
specific provisions of this Section 1. Hereinafter, references to Summit and
VISX in this Settlement and Dissolution Agreement (including, for example,
references to cross licenses granted between Summit and VISX) shall be deemed to
include their respective Affiliates.
<PAGE> 2
2. PATENTS. (a) For purposes of this Settlement and Dissolution
Agreement, the term "Summit Patents" means all U.S. and foreign patents issued
to Summit or in which Summit in the future acquires an ownership interest or the
right to license others to practice the art embodied in the patent, AND which
relate to a method or apparatus for laser ablation of corneal tissue. (b) For
purposes of this Settlement and Dissolution Agreement, the term "VISX Patents"
means all U.S. and foreign patents issued to VISX or in which VISX in the future
acquires an ownership interest or the right to license others to practice the
art embodied in the patent, AND which relate to a method or apparatus for laser
ablation of corneal tissue. Without limitation, the Summit Patents and the VISX
Patents include all of the Patents included or includable in Pillar Point by
virtue of the Pillar Point Agreements.
3. PAYMENT. In consideration for the settlement of litigation and
releases described in Sections 8, 12 and 14, below, within one (1) business day
of the Effective Date, VISX shall make a single lump sum cash payment to Summit
in the amount of Thirty-Five Million Dollars ($35,000,000), in good, immediately
available funds, wired to the following account: BankBoston, Account #551-06959,
ABA #011000390, 100 Federal Street, Boston, Massachusetts 02110 (or such other
account as Summit may direct). In the event VISX fails to timely make the
payment described in this Section 3, Summit shall have the option of either (i)
terminating this Agreement and treating it as null and void or (ii) treating the
Agreement as effective and suing VISX in the United States District Court for
the District of Massachusetts or any other court of competent jurisdiction for
breach of contract and/or to specifically enforce VISX's payment and other
obligations hereunder. In the event of such suit, VISX (i) consents to the
jurisdiction and venue selected by Summit and (ii) shall be liable for all of
Summit's costs of suit, including attorneys' fees.
4. ROYALTY-FREE LICENSE TO VISX. Pillar Point hereby grants to VISX an
irrevocable, perpetual, non-exclusive, non-transferable, fully paid up license
under the Summit Patents to make, have made, use, offer to sell, sell, lease and
otherwise dispose of products that come within the claims of the Summit Patents,
whether directly or indirectly through distributors or other resellers, and to
perform and sublicense others to perform procedures using those products or
which are covered by method claims of the Summit Patents, in the United States.
5. ROYALTY-FREE LICENSE TO SUMMIT. Pillar Point hereby grants to Summit
an irrevocable, perpetual, non-exclusive, non-transferable, fully paid up
license under the VISX Patents, to make, have made, use, offer to sell, sell,
lease and otherwise dispose of products that come within the claims of the VISX
Patents, whether directly or indirectly through distributors or other resellers,
and to perform and sublicense others to perform procedures using those products
or which are covered by method claims of the VISX Patents, in the United States.
6. DISSOLUTION OF PILLAR POINT. Effective immediately following the
grant of the licenses described in Sections 4 and 5, above ("Payment Date"),
Pillar Point is hereby dissolved, and, subject only to the terms of this
Agreement, the Pillar Point Agreements are terminated and all rights to license,
prosecute, defend and otherwise deal in and with the VISX Patents shall revert
back to VISX or its designee (subject to, among other terms of this Agreement,
the terms of Section 5, above), and all rights to license, prosecute, defend and
otherwise deal in and with the Summit Patents shall revert back to Summit or its
designee (subject to, among other terms of this Agreement, the terms of Section
4, above). From and after the Payment Date, neither Summit nor VISX shall have
any further payment or other obligation to Pillar Point in respect of equipment
royalties, procedure royalties, or otherwise.
7. WINDING UP AND TERMINATION OF PILLAR POINT. Notwithstanding the
provisions of Section 6, above, Pillar Point shall remain in existence after the
Payment Date for the sole purpose of winding up its affairs, defending or
settling remaining litigation in which it is or becomes a defendant and/or
completing the defense of any such litigation. Except as specifically set forth
below, liability for costs and expenses incurred by Pillar Point prior to
dissolution, and for ongoing expenses of Pillar Point incurred in connection
with the winding up activities described above, shall be allocated 60% to VISX
and 40% to Summit. Rights to remaining Pillar Point assets, including cash,
claims against third parties (such as patent infringement) and receivables held
by Pillar Point which accrued prior to the Payment Date or which otherwise
remain in Pillar Point after winding up, shall be allocated 60% to VISX and 40%
to Summit. Until the Payment Date, the License Back Agreements will remain in
force and the parties will remain liable for royalties to Pillar Point accruing
prior thereto, provided that each party may calculate royalties using the same
assumptions and contract interpretations as were used in the immediately prior
month.
8. [REDACTED]
9. VISX CROSS LICENSE. Summit hereby grants to VISX an irrevocable,
perpetual, worldwide, non-exclusive, non-transferable, fully paid up license
under the Summit Patents, and any divisions, reissues, re-examinations,
continuations, continuations in part, renewals, extensions and additions
thereto, to make, have made, use, offer to sell, sell, import, lease and
otherwise dispose of products that come within the claims of the Summit Patents,
whether directly or indirectly through distributors or other resellers, and to
2
<PAGE> 3
perform and sublicense others to perform procedures using those products or
which are covered by method claims of the Summit Patents. As used herein, the
term "non-transferable" is not intended to alter or diminish the parties'
intention that their present or future Affiliates shall enjoy the benefits of
the cross licenses described in this Agreement without necessity of further
action (subject to Section 11 below).
10. SUMMIT CROSS LICENSE. VISX hereby grants to Summit an irrevocable,
perpetual, worldwide, non-exclusive, non-transferable, fully paid up license
under the VISX Patents and any divisions, reissues, re-examinations,
continuations, continuations in part, renewals, extensions and additions
thereto, to make, have made, use, offer to sell, sell, import, lease and
otherwise dispose of products that come within the claims of the VISX Patents,
whether directly or indirectly through distributors or other resellers, and to
perform and sublicense others to perform procedures using those products or
which are covered by method claims of the VISX Patents. As used herein, the term
"non-transferable" is not intended to alter or diminish the parties' intention
that their present or future Affiliates shall enjoy the benefits of the cross
licenses described in this Agreement without necessity of further action
(subject to Section 11 below).
11. [REDACTED]
12. DISMISSAL OF LITIGATION. Within five (5) days of the Effective Date,
Summit, VISX and Pillar Point shall cause all of the Summit/VISX Litigation (as
hereinafter defined) to be dismissed with prejudice, with each party to bear its
own costs and attorneys' fees. As used herein, "Summit/VISX Litigation" means
VISX Partner, Inc. v. Summit Partner, Inc., Santa Clara County Superior Court,
Case No. CV 772057; VISX, Incorporated v. Pillar Point Partners, et al., Santa
Clara County Superior Court, Case No. 770042; and VISX Partner, Inc., on behalf
Pillar Point Partners, United States District Court, District Of Massachusetts,
Case No. 96-11739-PBS. The term "Summit/VISX Litigation" includes all
counterclaims, cross-claims and the like asserted in the foregoing actions.
13. RELEASE BY VISX. Except for Claims (as defined in this Paragraph 13)
for breach of this Settlement and Dissolution Agreement, VPI, VISX, and Pillar
Point, on behalf of themselves and their respective officers, directors,
employees, representatives, predecessors, successors, agents, assigns and
attorneys (together, the "VISX Releasors"), do hereby forever release and
discharge SPI, Summit, and their respective officers, directors, employees,
representatives, predecessors, successors, agents, assigns and attorneys
(together, the "Summit Releasees"), from any and all actions, causes of action,
suits, debts, sums of money, accounts, reckonings, bonds, bills, contracts,
controversies, agreements, promises, damages, judgments, awards, executions,
claims and demands whatsoever, including without limitation costs and attorneys'
fees, in law, admiralty or equity, or as a result of any arbitration, whether
known or unknown to any of the VISX Releasors (collectively, "Claims"), which
the VISX Releasors, or any of them, ever had, now have or hereafter can, shall,
or may have, whether in their own right or by assignment, transfer or grant from
any other person, upon or by reason of any matter, cause or thing whatsoever,
from the beginning of the world to the Effective Date, including, but not
limited to, any Claims relating directly or indirectly to Pillar Point and the
Pillar Point Agreements (including royalties and payments alleged to be due and
owing thereunder), unfair trade practices, false or misleading advertising
claims or otherwise.
14. RELEASE BY SUMMIT. Except for (i) the possible claims relating to
the Trokel Patents described in Section 8(a)(vi), above, below and in the
Tolling Agreement, and (ii) Claims (as defined in this Paragraph 14) for breach
of this Settlement and Dissolution Agreement, Pillar Point, SPI, Summit, and
Summit's Affiliates, on behalf of themselves and their respective officers,
directors, employees, representatives, predecessors, successors, agents, assigns
and attorneys (together, the "Summit Releasors"), effective on the Payment Date
do hereby forever release and discharge VPI, VISX and VISX's Affiliates, and
their respective officers, directors, employees, representatives, predecessors,
successors, agents, assigns and attorneys (together, the "VISX Releasees") from
any and all actions, causes of action, suits, debts, sums of money, accounts,
reckonings, bonds, bills, contracts, controversies, agreements, promises,
damages, judgments, awards, executions, claims and demands whatsoever, including
without limitation costs and attorneys' fees, in law, admiralty or equity, or as
a result of any arbitration, whether known or unknown to any of the Summit
Releasors (collectively, "Claims"), which the Summit Releasors, or any of them,
ever had, now have or hereafter can, shall, or may have, whether in their own
right or by assignment, transfer or grant from any other person, upon or by
reason of any matter, cause or thing whatsoever, from the beginning of the world
to the Effective Date, including, but not limited to, any Claims relating
directly or indirectly to Pillar Point and the Pillar Point Agreements
(including royalties and payments alleged to be due and owing thereunder or
Claims of wrongful dissolution thereof).
15. COVENANTS NOT TO SUE. (a) Summit hereby covenants never to sue or
threaten to sue VISX or VISX's distributors, customers, or users and never to
make any claim whatsoever against VISX or VISX's distributors, customers or
users anywhere in the world, for any alleged infringement of any patent
(whenever issued) which relates to a method or apparatus for laser ablation of
corneal tissue, or for any alleged infringement of any patent owned by Summit as
of the Effective Date and which relates to refractive correction of the eye, on
the basis of the manufacture, use, offer to sell, sale, sublicense to customers
or users, lease or other disposition of products that come within the claims of
such patents; (b) VISX hereby covenants never to sue or threaten to sue Summit
or Summit's distributors,
3
<PAGE> 4
customers, or users and never to make any claim whatsoever against Summit or
Summit's distributors or customers, anywhere in the world, for any alleged
infringement of any patent (whenever issued) which relates to a method or
apparatus for laser ablation of corneal tissue, or for any alleged infringement
of any patent owned by VISX as of the Effective Date and which relates to
refractive correction of the eye, on the basis of the manufacture, use, offer to
sell, sale, sublicense to customers or users, lease or other disposition of
products that come within the claims of such patents.
16. ADMISSIBILITY. Nothing in this Settlement and Dissolution Agreement
shall be construed as an admission by any party of any liability of any kind to
the other party. This Settlement and Dissolution Agreement shall not be
admissible as evidence against any party hereto or its Affiliates in any
proceeding other than in a proceeding to enforce an obligation of a party
hereunder or as proof of the dissolution of Pillar Point.
17. NOTICES. Any notice given pursuant to this Settlement and
Dissolution Agreement shall be in writing and, except as otherwise expressly
provided herein, shall be deemed to have been duly delivered if delivered in
person or by certified or registered or overnight express mail, postage and
mailing expense prepaid, or by facsimile transmission with hard copy to follow
by regular mail, and, if given or rendered to Summit or its Affiliates addressed
to:
Summit Technology, Inc.
21 Hickory Drive
Waltham, Massachusetts 02154
Attention: Chief Executive Officer
or if given or rendered to VISX or its Affiliates addressed to:
VISX, Incorporated
3400 Central Expressway
Santa Clara, California 95051
Attention: Chief Executive Officer
Either party may specify a different address by notifying the other in writing
of such different address.
18. SEVERABILITY. If any provision of this Settlement and Dissolution
Agreement, or the application of such provision to any person or circumstance,
shall be held to be invalid or unenforceable, the remainder of this Settlement
and Dissolution Agreement, or the application of such provision to such persons
or circumstances other than those to which it is held invalid or unenforceable,
shall not be affected thereby, provided that such invalid or unenforceable
provisions shall be replaced by valid and enforceable provisions which will
achieve as far as possible the economic and business intentions of the parties
to this Settlement and Dissolution Agreement.
19. SUMMIT ACKNOWLEDGMENT. Summit hereby warrants and represents that
(a) it has read and understood the terms of this Settlement and Dissolution
Agreement; (b) it has the full right and authority (i) to enter into this
Settlement and Dissolution Agreement, (ii) to grant the licenses, releases,
covenants and undertakings recited herein on its own behalf and on behalf of
each Summit Affiliate, and (iii) to enter into the agreements received herein on
its own behalf and on behalf of each Summit Affiliate; and (c) there are no
outstanding agreements, assignments, or encumbrances inconsistent with the
provisions set forth in this Settlement and Dissolution Agreement.
20. VISX ACKNOWLEDGMENT. VISX hereby warrants and represents that (a) it
has read and understood the terms of this Settlement and Dissolution Agreement;
(b) it has the full right and authority (i) to enter into this Settlement and
Dissolution Agreement, (ii) to grant the licenses, releases, covenants and
undertakings recited herein on its own behalf and on behalf of each VISX
Affiliate, and (iii) to enter into the agreements recited herein on its own
behalf and on behalf of each VISX Affiliate; and (c) there are no outstanding
agreements, assignments, or encumbrances inconsistent with the provisions set
forth in this Settlement and Dissolution Agreement.
21. INTEGRATION. Except as otherwise specifically set forth herein, this
Settlement and Dissolution Agreement, together with its Exhibits, represents the
entire agreement and understanding between and among the parties hereto with
respect to the subject matter hereof and supersedes any and all prior or
contemporaneous discussions, agreements and understandings relating thereto.
Specifically, except as otherwise expressly provided herein, each of the
following agreements is expressly terminated and superseded as of the Effective
Date by operation of this Settlement and Dissolution Agreement.
4
<PAGE> 5
- Formation Agreement dated June 3, 1992 among VISX, Summit,
VPI, and SPI
- General Partnership Agreement, dated June 3, 1992, between SPI
and VPI
- License-back to Summit Agreement dated June 3, 1992
- License-back to VISX Agreement dated June 3, 1992
- Contribution Agreement between SPI and Pillar Point dated June
3, 1992
- Contribution Agreement between VPI and Pillar Point dated June
3, 1992
- The following sections of the Azema Settlement Agreement: 4
(Definition of Affiliate); 9(b) (License to VISX); 10(b)
(License to Summit); 11(a) and 12(a) (Covenants Not to Sue);
and 24 (Integration).
- Tolling Agreement dated February 12, 1998, between Summit and
VISX
It is the intent of the parties that the Joint Defense Agreement among
them relating to the Third Party Litigation shall survive execution of this
Settlement Agreement. This Settlement and Dissolution Agreement may not be
varied or modified other than by a writing executed on behalf of each of the
parties hereto. With the exception of transfers of rights to present or future
Affiliates (which occurs without necessity of further action), neither VISX nor
Summit shall assign, transfer, or delegate any of its rights, duties and
obligations under this Settlement and Dissolution Agreement without the express
written consent of the other party, which consent shall not be unreasonably
withheld.
22. STRICT PERFORMANCE. The failure by any party to insist upon the
strict performance of any covenant, duty, agreement or condition of this
Settlement and Dissolution Agreement or to exercise any right or remedy
consequent upon a breach thereof shall not constitute waiver of any such breach
or any other covenant, duty, agreement or condition.
23. INDEMNIFICATION. Each of Summit and VISX (for purposes of this
Paragraph 23, each a "Licensee") shall indemnify, defend and hold harmless the
other party and its successors and assigns (for purposes of this Paragraph 23,
each a "Licensor") from and against any loss, damage, cost or expense of
whatsoever kind or nature (including reasonable attorneys' fees and professional
expenses) incurred by the Licensor by reason of any product liability claim
arising out of the manufacture, use, sale, lease, license or other disposition
of products manufactured or marketed by Licensee or any Licensee Affiliate or
any distributor of Licensee or any Licensee Affiliate and licensed hereunder.
The foregoing indemnification and agreement to defend and hold harmless shall
include, without limitation, any cost or expense incurred or to be incurred by
the Licensor or any Licensor Affiliate by reason of its having been or being
made a party or being threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative in connection with any actual or alleged act or omission in
connection with any such manufacture, use, sale, lease, license or other
disposition of products manufactured or assembled by Licensee or any Licensee
Affiliate or performance of any procedures using those products. The foregoing
indemnification and agreement to defend and hold harmless shall not extend to
any acts or omissions by or on behalf of the Licensor or its Affiliates in bad
faith or as a result of negligence. A party claiming indemnification shall not
be entitled to indemnification with respect to any action to which it consented
in writing or any claim as to which it did not give written notice to the party
from which indemnification is sought within ninety (90) days after having
received notice of such claim. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER FOR ANY INCIDENTAL, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES. In the
event any claim for indemnification arises from a claim of a third party, the
party from whom indemnification is sought shall have the right to defend against
such third party claim and, in such event, the party seeking indemnification
shall cooperate with all reasonable requests in the defense thereof at the
expense of the party from whom indemnification is sought.
24. NO AGENCY. Nothing in this Settlement Agreement shall be deemed to
appoint or authorize any party to act as an agent of the other party or to
assume or incur any liability or obligation in the name or on behalf of the
other party.
25. LABELS. (a) VISX shall affix to each product covered by one or more
of the Summit Patents that is sold, licensed, leased or otherwise disposed of
after the Effective Date a label reasonably requested by Summit listing the
applicable Summit Patent(s). The purpose of the label is to provide notice of
the Summit Patents to other parties to establish or support a claim by Summit
against any such
5
<PAGE> 6
other party of damages due to infringement. Summit and VISX agree that any such
label will not be introduced into evidence, produced, relied upon, or used in
any way in any proceeding between Summit and VISX, except in a proceeding
related to enforcement of the terms of this Settlement and Dissolution
Agreement; (b) Summit shall affix to each product covered by one or more of the
VISX Patents that is sold, licensed, leased or otherwise disposed of after the
Effective Date a label reasonably requested by VISX listing the applicable VISX
Patent(s). The purpose of the label is to provide notice of the VISX Patents to
other parties to establish or support a claim by VISX against any such other
party of damages due to infringement. Summit and VISX agree that any such label
will not be introduced into evidence, produced, relied upon, or used in any way
in any proceeding between Summit and VISX, except in a proceeding related to
enforcement of the terms of this Settlement and Dissolution Agreement.
26. GOVERNING LAW. This Settlement and Dissolution Agreement shall be
governed by the laws of the State of Delaware. The terms of this Settlement and
Dissolution Agreement may be enforced in any court of competent jurisdiction.
Both parties hereby acknowledge and submit to the jurisdiction of the Federal
District Court for the District of Delaware to hear and resolve any dispute over
terms of the Settlement and Dissolution Agreement, to protect and enforce the
parties' rights hereunder, to rectify the contract if necessary, and to order
specific performance, injunction or similar equitable relief.
27. COUNTERPARTS. This Settlement and Dissolution Agreement may be
executed in separate counterparts, each of which shall be considered an original
but all of which shall constitute one agreement.
28. PUBLIC STATEMENTS. Summit and VISX agree that neither of them shall
make any public statements about this Settlement and Dissolution Agreement or
its terms, except as may be set forth in the joint press release referred to
below or as required by applicable securities laws. VISX and Summit shall be
permitted to disclose the terms of this Settlement and Dissolution Agreement to
the Federal Trade Commission, and to any other person or entity if ordered to do
so by a court of competent jurisdiction, and VISX and Summit shall be permitted
to issue a joint press release, after the Effective Date, announcing the fact
that they have settled outstanding disputes and agreed to dissolve Pillar Point
Partners and the general terms of the Agreement.
6
<PAGE> 7
WHEREFORE, the parties hereto, having been duly authorized to do so, have
caused this Settlement and Dissolution Agreement to be executed as of the date
first above written.
SUMMIT TECHNOLOGY, INC. VISX, INCORPORATED
By: /s/ Robert J. Palmisano By: /s/ Elizabeth Davila
---------------------------------- ----------------------------
Robert J. Palmisano Elizabeth Davila
Chief Executive Officer Executive Vice President,
Chief Operating Officer
SUMMIT PARTNER, INC. VISX PARTNER, INC.
By: /s/ Robert J. Palmisano By: /s/ Elizabeth Davila
---------------------------------- ----------------------------
Robert J. Palmisano Elizabeth Davila
Title: Chief Executive Officer Vice President
By: /s/ James Lightman By: /s/ Katrina Church
---------------------------------- ----------------------------
James Lightman Katrina Church
Secretary Secretary
PILLAR POINT PARTNERS PILLAR POINT PARTNERS
By: SUMMIT PARTNER, INC. By: VISX PARTNER, INC.
ITS GENERAL PARTNER ITS GENERAL PARTNER
By: /s/ Robert J. Palmisano By: /s/ Elizabeth Davila
---------------------------------- ----------------------------
Robert J. Palmisano Elizabeth Davila
Chief Executive Officer Vice President
7
<PAGE> 1
EXHIBIT 11
SUMMIT TECHNOLOGY, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
==============================================================================================
<S> <C> <C> <C> <C>
Net income $30,504 $ 2,572 $30,681 $ 1,172
==============================================================================================
BASIC EARNINGS PER SHARE:
Weighted average common shares outstanding 31,277 31,158 31,178 31,020
----------------------------------------------
Net income per share $ 0.98 $ 0.08 $ 0.98 $ 0.04
==============================================================================================
DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding 31,277 31,158 31,178 31,020
Weighted average stock options outstanding 50 154 31 171
----------------------------------------------
Total weighted average 31,327 31,312 31,209 31,191
----------------------------------------------
Net income per share $ 0.97 $ 0.08 $ 0.98 $ 0.04
==============================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 57,594
<SECURITIES> 24,827
<RECEIVABLES> 13,331
<ALLOWANCES> 790
<INVENTORY> 13,875
<CURRENT-ASSETS> 113,091
<PP&E> 23,256
<DEPRECIATION> 14,008
<TOTAL-ASSETS> 157,969
<CURRENT-LIABILITIES> 24,017
<BONDS> 2,739
0
0
<COMMON> 314
<OTHER-SE> 130,899
<TOTAL-LIABILITY-AND-EQUITY> 157,969
<SALES> 45,236
<TOTAL-REVENUES> 45,236
<CGS> 27,463
<TOTAL-COSTS> 45,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 49
<INTEREST-EXPENSE> 448
<INCOME-PRETAX> 35,601
<INCOME-TAX> 4,920
<INCOME-CONTINUING> 30,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,681
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>
