JAMES E. LYONS (State Bar No. 112582)
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
4 Embarcadero Center, Suite 3800
San Francisco, California 94111
(415) 984-6400
ROBERT E. ZIMET
SUSAN L. SALTZSTEIN
MATTHEW J. SAVA
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 Third Avenue
New York, New York 10022
(212) 735-3000
Attorneys for Derivative Plaintiff
CAP ADVISERS LIMITED, As Trustee for
THE CAP TRUST
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF SANTA CLARA
CAP ADVISERS LIMITED, AS ) Case No. CV744052
TRUSTEE OF THE CAP TRUST, )
Derivatively on behalf of )
VISX, INC., ) AGREEMENT AND STIPULATION
) OF SETTLEMENT
Plaintiff, )
)
v. )
)
ALCON LABORATORIES, INC., ET )
AL., )
)
Defendants. )
- -----------------------------------)
)
ALCON LABORATORIES, INCORPO- )
RATED, ET AL., )
)
Cross-Complainants, )
)
v. )
)
ANTHONY M. PILARO, ET AL., )
)
Cross-Defendants. )
- -----------------------------------)
This Agreement and Stipulation of Settlement ("Stipula-
tion") is entered into among (i) CAP Advisers Limited, trustee
for the CAP Trust, on behalf of itself and derivatively on
behalf of VISX, Inc. ("Derivative Plaintiff" or "CAP Advisers"
as hereinafter defined in Section 2.7); (ii) Charles R.
Munnerlyn, Alan R. McMillen, William L. Bennett, Daniel J.
Kunst, Karen Brenner, Robert B. Samuels, Robert R. Montgomery,
Timothy R.G. Sear, and Edgar H. Schollmaier (collectively the
"Individual Defendants"); (iii) VISX, Inc. ("VISX" or the "Com-
pany" as hereinafter defined in Section 2.8); (iv) Alcon Labo-
ratories, Incorporated and Alcon Pharmaceuticals, Ltd. (collec-
tively "Alcon" as hereinafter defined in Section 2.9); and (v)
Anthony M. Pilaro, Richard S. Braddock, CAP Advisers, and
Osterfak, Ltd. ("Osterfak" is hereinafter defined in Section
2.10). It is conditioned on its approval by the Superior Court
of California for the County of Santa Clara (hereinafter the
"Court").
1 RECITALS.
1.1 On September 26, 1994, Derivative Plaintiff and
Osterfak filed a lawsuit captioned CAP ADVISERS LIMITED, ET AL.
V. ALCON LABORATORIES, INC. ET AL., Santa Clara County Superior
Court No. CV744052, which names as defendants Alcon and the
Individual Defendants ("Derivative Action"). VISX is named as
a nominal defendant on whose behalf the Derivative Action pur-
ports to be brought.
1.2 The Derivative Action alleges, among other things,
that various directors and officers of VISX (the Individual
2
Defendants) breached their fiduciary duties to the Company by
mismanaging and failing to disclose the true state of the
Company's operations and by failing to enforce certain mar-
keting agreements between the Company and Alcon (the "Marketing
Agreements"). The Derivative Action also asserts claims
against Alcon for breach of contract, breach of the implied
covenant of good faith and fair dealing, intentional interfer-
ence with prospective economic advantage, and breach of fidu-
ciary duties in connection with the Marketing Agreements.
1.3 On November 22, 1994, VISX demurred to the complaint
in the Derivative Action on the grounds that the Derivative
Plaintiff and Osterfak failed to make a demand on the VISX
Board of Directors and such demand was not excused. Alcon and
the Individual Defendants joined in this demurrer which, on
February 9, 1995, was overruled by the Superior Court for the
County of Santa Clara. Subsequently, VISX filed a petition for
writ of mandate with the Court of Appeals, which petition was
denied.
1.4 On March 13, 1995, Alcon and Individual Defendants
Montgomery, Sear, and Schollmaier filed a cross-complaint
against CAP Advisers and Cross-Defendants alleging, INTER ALIA,
claims for breach of fiduciary duty, intentional interference
with economic relationship and equitable indemnity.
1.5 On March 13, 1995, Individual Defendants Munnerlyn,
McMillen, Bennett, Kunst, Brenner, and Samuels filed a cross-
complaint against Richard S. Braddock and J. Michael
Mavrogordato, two former members of the VISX Board of Direc-
tors, asserting claims for equitable indemnity.
3
1.6 On May 8, 1995, Osterfak's request for dismissal as a
plaintiff in the Derivative Action was granted by the Court.
1.7 Each of the Defendants separately has denied and
continues to deny each and every one of the claims and conten-
tions alleged in the law suit captioned CAP ADVISERS LIMITED,
ET AL. V. ALCON LABORATORIES, INC. ET AL., Santa Clara County
Superior Court No. CV744052, including the cross-claims filed
in the Cross-Complaints ("The Action"). Each of the parties to
this Stipulation expressly have denied and continues to deny
all charges of wrongdoing or liability against him, her or it
arising out of any of the conduct, statements, acts or omis-
sions alleged, or that could have been alleged, in The Action.
Nonetheless, the parties have concluded that the fur-
ther conduct of The Action would be protracted and expensive
and that it is desirable that The Action be fully and finally
settled in the manner and upon the terms and conditions set
forth in this Stipulation in order to limit further expense,
inconvenience and distraction and to secure the benefits
achieved by settlement on the terms provided herein. There-
fore, the parties have now reached an agreement that, subject
to the approval of this Court, will settle the claims alleged
in The Action.
2 DEFINITIONS.
2.1 "Cross-Complaints" means the cross-complaint filed on
March 13, 1995 by Individual Defendants Munnerlyn, McMillen,
Bennett, Kunst, Brenner and Samuels against Richard S. Braddock
and J. Michael Mavrogordato and the cross-complaint filed on
March 13, 1995 by Alcon and Individual Defendants Montgomery,
4
Sear and Schollmaier against CAP Advisers and Cross-Defendants
Anthony M. Pilaro, Richard S. Braddock, J. Michael Mavrogordato
and Osterfak.
2.2 "Cross-Defendants" means (i) CAP Advisers (as herein-
after defined in paragraph 2.7), (ii) Osterfak (as hereinafter
defined in paragraph 2.10), and (iii) Anthony M. Pilaro, Rich-
ard S. Braddock, J. Michael Mavrogordato, and their respective
employees, partners, principals, agents, any entity in which a
controlling interest is held, attorneys, advisors, personal or
legal representatives, assigns, spouses, and heirs.
2.3 "Derivative Plaintiff" means CAP Advisers (as herein-
after defined in paragraph 2.7), on behalf of itself and derivatively
on behalf of VISX.
2.4 "Effective Date" means the first date on which both
the following shall have occurred: (a) The Superior Court
shall have entered its order and judgment substantially in the
form attached hereto as Exhibit B approving this Stipulation
and dismissing with prejudice The Action and (b) such order and
judgment shall have become final, which shall be deemed to be
the last to occur of the following: (i) if an appeal or review
is not sought from the order and judgment, the first day after
the first to occur of the acts described in Rule 2 of the
California Rules of Court, or (ii) if an appeal or review is
sought from the judgment, the day after the judgment is af-
firmed or the appeal is dismissed or denied, and the judgment
is no longer subject to further judicial review.
2.5 "Individual Defendants" means Munnerlyn, McMillen,
Bennett, Kunst, Brenner, Samuels, Montgomery, Sear, and
5
Schollmaier, and their respective employees, partners, princi-
pals, agents, any entity in which a controlling interest is
held, attorneys, advisors, personal or legal representatives,
assigns, spouses, and heirs.
2.6 "Marketing Agreements" means collectively the market-
ing agreements with (i) Alcon and APL dated October 10, 1986,
(the "Original Marketing Agreement"); (ii) an Amended and Re-
stated Marketing Agreement dated April 21, 1987 (the "Amended
Marketing Agreement"); and (iii) the Second Amended and Restat-
ed Marketing Agreement with Alcon and Alcon Surgical, Inc.,
dated December 22, 1989 (the "Domestic Marketing Agreement"),
and any amendments or modifications thereto.
2.7 "CAP Advisers" means CAP Advisers Limited, a United
Kingdom company, as trustee for the CAP Trust, a Channel Is-
lands trust, and all past or present directors, officers,
employees, partners, principals, agents, controlling sharehold-
ers, any entity in which a controlling interest is held, attor-
neys, advisors, personal or legal representatives, parents,
subsidiaries, affiliates, predecessors, successors, divisions,
joint ventures, and assigns.
2.8 "VISX" means VISX, Inc., a Delaware corporation, and
all past or present directors, officers, employees, partners,
principals, agents, controlling shareholders, any entity in
which a controlling interest is held, attorneys, advisors,
personal or legal representatives, parents, subsidiaries,
affiliates, predecessors, successors, divisions, joint ven-
tures, and assigns.
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2.9 "Alcon" means Alcon Laboratories, Inc., a Delaware
corporation, Alcon Pharmaceuticals, Ltd., a Swiss corporation,
and all past or present directors, officers, employees, part-
ners, principals, agents, controlling shareholders, any entity
in which a controlling interest is held, attorneys, advisors,
personal or legal representatives, parents, subsidiaries,
affiliates, predecessors, successors, divisions, joint ven-
tures, and assigns.
2.10 "Osterfak" means Osterfak Ltd., a Cayman Islands
company, and all past or present directors, officers, employ-
ees, partners, principals, agents, controlling shareholders,
any entity in which a controlling interest is held, attorneys,
advisors, personal or legal representatives, parents, subsid-
iaries, affiliates, predecessors, successors, divisions, joint
ventures, and assigns.
2.11 "Other Released Individuals" means all present and
former officers and directors and employees, agents and attor-
neys (including law firms), of (i) VISX; (ii) Alcon; (iii)
Cross-Defendants; and (iv) the Individual Defendants.
2.12 "Pillar Point Partners" means Pillar Point Partners,
the partnership jointly owned and controlled by subsidiaries of
VISX and Summit Technology, Inc.
2.13 "Settled Claims" means all claims, actions, causes of
action, suits, debts, sums of money, accounts, reckonings,
bonds, bills, covenants, contracts, conversions, controversies,
agreements, promises, variances, trespasses, damages, judg-
ments, extents, executions, demands, rights and liabilities of
every nature and description whatsoever, known or unknown,
7
whether or not concealed or hidden, including all pleadings
filed therein by any party, (i) asserted or that might have
been asserted in The Action, (ii) based on or arising from any
contractual relationship, written or oral, express or implied,
between Alcon and VISX, (iii) based on or arising from the ser-
vice of any of the Individual Defendants or Cross-Defendants as
officers, directors, agents or advisors of VISX, (iv) based on
or arising from allegations of wrongful conduct or inaction
against the Cross-Defendants, including but not limited to,
claims of negligent, reckless, intentional or wilful miscon-
duct, (v) based on or arising from allegations of wrongful con-
duct or inaction of Alcon or VISX in relation to each other,
(vi) relating in any way to the class action captioned IN RE
VISX SECURITIES LITIGATION, C-94-20649-RPA (EAI), or to the
settlement thereof, or to a claim for the contribution to that
settlement, (vii) based on or arising from any duties, fiducia-
ry or otherwise, owed by Cross-Defendants to VISX or Alcon,
(viii) based on or arising from Cross-Defendants' relationship
with VISX, (ix) based on or arising from Cross-Defendants'
relationship with Alcon, or (x) based on or arising from Cross-
Defendants' action or inaction with respect to the Marketing
Agreements or the relationship between Alcon and VISX. Such
claims shall include claims which the Settling Parties do not
know or suspect to exist in their favor at the time of the
release, including but not limited to such claims which, if
known by them, might have affected their decision to settle.
Such claims shall also include, without limitation, claims for
negligence, gross negligence, breach of duty of care, breach of
8
duty of loyalty, breach of duty of candor, fraud, breach of
fiduciary duty, tortious interference, breach of contract,
aiding and abetting, indemnification, contribution, equitable
indemnity, violations of any state or federal statutes, rules,
or regulations, violations of any common law rights, and all
other acts or omissions alleged in The Action. Notwithstanding
the foregoing, "Settled Claims" shall not include prospective
breaches of the 1995 Agreement between and by VISX and Alcon
and shall not include claims against VISX for indemnification
for legal fees incurred by the Individual Defendants and Cross-
Defendants Richard S. Braddock and J. Michael Mavrogordato.
2.14 "Settling Parties" means VISX, Alcon, Derivative
Plaintiff, the Individual Defendants and Cross-Defendants.
3 AGREEMENT.
3.1 CONSIDERATION.
In consideration of the parties' agreement to settle The
Action and certain other current and future disputes as out-
lined herein as may arise between them, the parties hereby
agree as follows:
3.1.1 MARKETING AGREEMENTS. VISX and Alcon (a) have
entered into an agreement, a copy of which is attached hereto
as Exhibit D (the "1995 Agreement"), pursuant to which, subject
to the termination provision set forth in paragraph 5.01 there-
of, upon the Effective Date, as defined in paragraph 2.4 above,
all existing agreements between VISX and Alcon, including the
Marketing Agreements, and all obligations and liabilities
arising out of or relating to such Marketing Agreements, will
terminate, except for the contractual obligations defined in
9
the 1995 Agreement; and (b) have agreed that on the Effective
Date they will exchange written releases attached hereto as
Exhibits E and F, unless the 1995 Agreement is terminated in
accordance with its terms. Due to the confidential nature of
the information contained in other exhibits to the 1995 Agree-
ment, such exhibits will not be filed with this Stipulation;
however, the parties are willing to submit these exhibits to
the Court for confidential IN CAMERA review.
3.1.2 RESIGNATION OF CERTAIN VISX DIRECTORS. As of
the Effective Date, Karen Brenner and Robert B. Samuels shall
have resigned from VISX' Board of Directors and any committee
thereof.
3.1.3 REGULATORY AFFAIRS OVERSIGHT COMMITTEE. VISX
agrees to establish a regulatory affairs oversight committee
(the "Committee"), consisting of three members, one such member
appointed by the Company at the request of Cap Advisers or any
of its successors. Cap Advisers' initial designee to the
Committee will be Nancy Buc. Visx shall be without power to
remove Cap Advisers' appointee to the Committee without the
prior consent of Cap Advisers. The Committee's charter shall
include, but is not limited to, reviewing the Company's regula-
tory affairs program, providing recommendations, if any, as to
improving the program, and submitting a report on the foregoing
to the Board of Directors. The Committee will meet at least
quarterly and the term of the Committee shall extend until one
year following the approval by the Food and Drug Administration
of the use of VISX' Excimer Laser for the treatment of astigma-
tism.
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3.1.4 STANDSTILL. Alcon Laboratories, Inc. and
Alcon Pharmaceuticals, Ltd. agree not to purchase VISX shares
for a period of fifteen years commencing on the Effective Date.
Alcon further agrees not to dispose of any or all of its
224,000 VISX shares before January 24, 1996.
3.1.5 NON-DISPARAGEMENT. Each Settling Party hereby
agrees that he, she or it will make no public statements con-
cerning the subject matter of the Action or the circumstances
leading to the Settlement disparaging of any other Settling
Party. This provision shall not apply to documents filed in
Court.
3.1.6 PILLAR POINT PARTNERS. VISX agrees to appoint
or cause to be appointed to the Board of Directors of Pillar
Point Partners one person designated by CAP Advisers (the "Cap
Advisers Designee"). CAP Advisers' right to designate such
member to Pillar Point Partners Board of Directors shall exist
for at least three years from the effective date of this stipu-
lation and Agreement. VISX and its appointed Managing Director
of Pillar Point Partners shall be without power to remove CAP
Advisers' designee without the prior consent of CAP Advisers,
except if such designee shall be found by VISX' Board of Direc-
tors acting as a whole and after providing such designee with
an opportunity to be heard to have engaged in fraud, embezzle-
ment, theft, or the commission of a felony, in the course of
performing such designee's duties on the Pillar Point Partners
Board of Directors. In case any such person is so removed, Cap
Advisers shall have the right to designate a successor.
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3.1.7 OTHER PAYMENTS. Other than what is expressed
herein and in the exhibits attached hereto, no other payments
will be exchanged between the parties to The Action.
3.1.8 ATTORNEYS' FEES AND OTHER EXPENSES. Pursuant
to VISX' indemnification obligations, VISX agrees to reimburse,
against receipt of invoices, the reasonable legal expenses of
the Individual Defendants and Cross-Defendant Richard S.
Braddock. In recognition by VISX of the substantial benefits
conferred on it by the initiation of The Action, and in light
of the benefits accruing to VISX by the Settlement, and in
recognition by VISX of Mr. Pilaro's efforts to date, VISX has
agreed to reimburse, against receipt of invoices, CAP Advisers
and Mr. Pilaro for their respective attorneys' fees, consultant
fees and other related fees and expenses.
3.2 DISMISSAL OF THE ACTION. The parties shall submit
this Stipulation to the Court and request approval thereof and
for a judgment and order in the form attached hereto as Exhibit
B approving the settlement and dismissing The Action with
prejudice. Notwithstanding the foregoing, the action shall be
dismissed without prejudice against Cross-Defendant J. Michael
Mavrogordato, such dismissal to become with prejudice when
Mavrogordato executes a general release in the form attached
hereto as Exhibit C.
3.2.1 TIME OF THE ESSENCE. This Stipulation
shall be finalized and filed with the Superior Court on or
before November 17, 1995 unless extended by agreement among CAP
Advisers, Alcon and VISX.
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3.3 MUTUAL RELEASES. Upon the Effective Date, each Set-
tling Party shall be deemed to have, and by operation of the
judgment shall have fully, finally and forever released, relin-
quished and discharged each and every one of the Settling
Parties from the Settled Claims. Each Settling Party shall,
upon the Effective Date, evidence such release by executing a
general release in a form of Exhibit C hereto. Any Settling
Party who refuses to execute and deliver such a release within
ten days after the occurrence of the Effective Date shall be
deemed to have done so. Notwithstanding the foregoing, J.
Michael Mavrogordato shall not be deemed to have been released
from any of the Settled Claims until such time as he executes a
release in the form of Exhibit C hereto, in which event he
shall then be deemed to have been released from any and all
Settled Claims.
4 CONDITIONS OF SETTLEMENT.
Except as noted in Section 5 hereof, this Stipulation
shall become effective only upon the satisfaction of the fol-
lowing conditions: (i) The Court shall enter an order and judg-
ment substantially in the form attached hereto as Exhibit B,
and (ii) the Effective Date shall have occurred.
5 SETTLEMENT HEARING.
To implement this settlement, the parties shall promptly
submit this Stipulation to the Court for a hearing as soon as
the Court deems practical, for final approval of this settle-
ment and an order and judgment substantially in the form of
Exhibit B hereto.
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6 MISCELLANEOUS.
6.1 All of the exhibits attached hereto are incorporated
by reference as though fully set forth herein.
6.2 This Stipulation may be amended or modified only by
a written instrument signed by all parties who enter into this
Stipulation or their successors-in-interest.
6.3 The waiver by one Settling Party of any breach of
this Stipulation by another Settling Party shall not be deemed
(i) a waiver of that breach by any other Settling Party or (ii)
a waiver of any other breach by the Settling Party or any other
Settling Party.
6.4 This Stipulation and its exhibits constitute the
entire agreement among these Settling Parties, and no represen-
tations, warranties or inducements have been made to any Set-
tling Party concerning this Stipulation or its exhibits other
than the representations, warranties and covenants expressly
set forth in such documents.
6.5 Counsel for the Settling Parties are expressly
authorized by the Settling Parties whom they represent to enter
into this Stipulation, to take all appropriate action required
or permitted to be taken by such Settling Parties pursuant to
this Stipulation to effectuate its terms, and are also express-
ly authorized to enter into any modifications or amendments to
this Stipulation and to execute any other documents required to
effectuate the terms of this Stipulation.
6.6 Each of Alcon, VISX, the Individual Defendants,
Derivative Plaintiff and the Cross-Defendants represent and
warrant that he, she or it is expressly authorized to enter
14
into this Stipulation, to take all appropriate action required
or permitted to be taken pursuant to this Stipulation to effec-
tuate its terms, and is also expressly authorized to enter into
any modifications or amendments to this Stipulation and to
execute any other documents required to effectuate the terms of
this Stipulation.
6.7 This Stipulation shall be binding upon, and inure to
the benefit of, the successors and assigns of the Settling
Parties hereto.
6.8 All terms of this Stipulation and the exhibits
hereto shall be governed by and interpreted according to the
laws of the State of California. The Court shall retain juris-
diction with respect to implementation and enforcement of the
terms of the Stipulation, and all parties hereto submit to the
jurisdiction of the Court for purposes of implementing and
enforcing it. Any action brought to enforce the Stipulation
shall be filed in the Superior Court for the County of Santa
Clara.
6.9 This Stipulation may be executed in two or more
counterparts. All executed counterparts and each of them shall
be deemed to be one and the same instrument provided that
counsel for the Settling Parties to this Stipulation shall
exchange among themselves original signed counterparts.
6.10 The Settling Parties shall cooperate in presenting
such papers to the Superior Court and other documents as may be
necessary to effectuate the purposes and intent of this Stipu-
lation.
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6.11 If the Effective Date does not occur for whatever
reason by March 22, 1996 (or such other date as to which the
parties hereto may agree), then this Stipulation shall be of no
force or effect and the Settling Parties shall be restored to
their respective positions existing prior to the execution of
this Stipulation, unless otherwise agreed to by all parties who
enter into this Stipulation. Neither this Stipulation, nor the
fact of its execution, nor any of its provisions, shall be
offered or received in evidence in any action or proceeding of
any nature or otherwise referred to or used in any manner in
any court or other tribunal except as evidence of the fact of
the making of this Stipulation or to enforce the terms of the
Settlement described herein.
16
Dated: November __, 1995 SKADDEN, ARPS, SLATE, MEAGHER
& FLOM
By ____________________________
Attorneys for Plaintiff and
Cross-Defendant CAP ADVISERS LIM-
ITED as trustee of the CAP TRUST
and for specially-appearing
Cross-Defendant OSTERFAK LTD.
17
Dated: November __, 1995 VISX, INC.
By ____________________________
Katrina J. Church
18
Dated: November __, 1995 WILSON, SONSINI, GOODRICH
& ROSATI
By ____________________________
Boris Feldman
Attorneys for Defendants and
Cross-Complainants CHARLES R.
MUNNERLYN, ALAN R. MCMILLEN, WIL-
LIAM L. BENNETT, DANIEL J. KUNST,
KAREN BRENNER and ROBERT SAMUELS
19
Dated: November __, 1995 HELLER, EHRMAN, WHITE
& MCAULIFFE
By ____________________________
Attorneys for Defendants and
Cross-Complainants ALCON LABORA-
TORIES, INC., ALCON
PHARMACEUTICALS, LTD., TIMOTHY
R.G. SEAR, ROBERT R. MONTGOMERY
and EDGAR H. SCHOLLMAIER
20
Dated: November __, 1995 ROBINSON BROG LEINWAND REICH
GENOVESE & GLUCK, P.C.
By ____________________________
Anthony S. Genovese
Attorney for Cross-Defendant
ANTHONY M. PILARO
21
Dated: November __, 1995 SHEPPARD, MULLIN, RICHTER
& HAMPTON
By ____________________________
Darryl M. Woo
Attorneys for Cross-Defendant
RICHARD S. BRADDOCK
22