-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RLmgvW5TvgJ/xkWXmrJct8ge3lvAN8uXlH1uqZlm89ScMTLb8X6TnL6n16dtzrny R2QaZz4kXtMZB5er9phzuA== 0000898430-96-001034.txt : 19960329 0000898430-96-001034.hdr.sgml : 19960329 ACCESSION NUMBER: 0000898430-96-001034 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951229 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAAR SURGICAL COMPANY CENTRAL INDEX KEY: 0000718937 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 953797439 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11634 FILM NUMBER: 96540228 BUSINESS ADDRESS: STREET 1: 1911 WALKER AVE CITY: MONROVIA STATE: CA ZIP: 91016 BUSINESS PHONE: 8183037902 MAIL ADDRESS: STREET 1: 1911 WALKER AVE CITY: MONROVIA STATE: CA ZIP: 91016 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 29, 1995 ----------------- [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from __________________ to _______________________ Commission file number 0-11634 ------- STAAR SURGICAL COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 95-3797439 - ---------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1911 Walker Avenue Monrovia, California 91016 - ---------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code): (818) 303-7902 ------------------------- Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value --------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this Chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_____] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 25, 1996 was approximately $138,177,000 based upon the closing price per share of the Common Stock of $13 on that date. The number of shares outstanding of the issuer's classes of Common Stock as of March 25, 1996: Common Stock, $.01 Par Value -- 12,843,048 shares - ------------------------------------------------- DOCUMENT INCORPORATED BY REFERENCE Information required by Part III (Items 10, 11, 12 and 13) is incorporated by reference to the Company's definitive proxy statement for its 1996 Annual Meeting of Stockholders. PART I ITEM 1. BUSINESS (A) GENERAL ------- OVERVIEW STAAR Surgical Company ("STAAR" or the "Company") is a publicly traded (NASDAQ symbol "STAA") developer, manufacturer and worldwide distributor of products used in micro or less invasive ophthalmic surgery. The Company's primary products are its "foldable" intraocular lenses ("IOLs") used in cataract replacement surgery. The Company is in the process of introducing for sale within certain selected international countries two unique ophthalmic products which have been under active development for the past several years. These ophthalmic products are a "wick" style glaucoma implant (the "Glaucoma Wick") intended to offer a more effective and longer-term solution for patients suffering from glaucoma, a leading cause of blindness worldwide, and an implantable refractive contact lens ("ICL") for persons suffering from normal vision problems including myopia (near-sightedness), hyperopia (far-sightedness) and astigmatism. The Company believes this latter product will provide a superior solution for patients who seek to correct their vision problems through available surgical techniques, such as radial keratotomy or laser surgery. The Company is also in the process of introducing for commercial sale in selected foreign countries a new hyaluronic acid-based viscoelastic solution called STAARVISC/tm/, to be used during implantation of foldable IOLs and ICLs using microsurgical procedures. DEVELOPMENT OF BUSINESS OVER PAST FIVE YEARS AND RELEVANT PRIOR EVENTS The Company was incorporated in California in 1982 as a successor to a partnership for the purpose of developing, producing, and marketing IOLs and other products for ophthalmic surgery. The Company was reincorporated in Delaware in April 1986. In 1982 and 1983 the Company's operations consisted mainly of research and development and preliminary marketing and capital raising activities. In 1982 the Company commenced the development of foldable IOLs in association with Dr. Thomas R. Mazzocco, M.D., who patented the concept of folding or otherwise deforming an IOL for insertion into the eye through microsurgical procedures (the "Mazzocco Patent"). The Company acquired the Mazzocco Patent, and began production and sale of foldable IOLs in 1986 for implantation in connection with clinical studies for such products. The United States Food and Drug Administration (the "FDA") granted pre-market approval to fully market the Company's two primary IOL products, its foldable ELASTIC/tm/ and ELASTIMIDE/tm/ IOLs, in September 1991, and pre-market approval to fully market ultra-violet versions of these products in April 1995. Commencing in 1987, the Company began to suffer serious financial difficulties, culminating in an $8 million capital deficiency in 1989, due to a variety of factors, including (1) losses attributable to the Company's investment in fields unrelated to micro or minimally invasive ophthalmic surgery, such as its acquisition of Frigitronics of Conn., Inc., a manufacturer of cryosurgical equipment and diagnostic and surgical instruments; (2) delays in obtaining FDA approvals to fully market the Company's foldable IOLs within the United States; (3) cost containment policies of Medicare and other government medical reimbursement plans which affected the Company's ability to compete in the United States market for hard (non-foldable) IOLs (the Company discontinued its hard IOL product line following FDA approval of its foldable IOLs); and (4) continuing costs of litigation relating to a battle for control of the Company and challenges to the Company's core Mazzocco Patent by competitors. The current directors and new senior management took control of the Company in late 1989, and refocused the direction of the Company to its original objective of concentrating on ophthalmic products used with micro or less invasive ophthalmic surgical techniques. The new management team effected a turn-around by: (1) obtaining FDA approval in September 1991 to fully market its foldable IOLs within the United States; (2) raising capital to eliminate the Company's capital deficiency and providing cash flow to continue operations from the licensing of technology, disposition of unrelated businesses or assets, and 2 private placements of securities; (3) resolving and settling litigation relating to the Company's core Mazzocco Patent and other matters; (4) developing a state- of-the-art manufacturing facility; (5) establishing a domestic and international sales and marketing organization; and (6) establishing a research and development organization which has allowed the Company to identify and develop new and innovative products, such as the Glaucoma Wick and ICL. In March 1993 the Company acquired worldwide distribution rights, and in 1995 the Company acquired worldwide license rights, from Intersectoral Research and Technology Complex Eye Microsurgery ("IRTC"), a Russian Federation entity located in Moscow, Russia, to certain of IRTC's proprietary products. Among these products are IRTC's biocompatible glaucoma devices and its biocompatible materials for IOLs. The Company has since adopted IRTC's biocompatible material and glaucoma device design for the Company's Glaucoma Wick, and has incorporated IRTC's biocompatible materials for use with the Company's proprietary ICL design. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS --------------------------------------------- Through 1995 the Company operated primarily within the cataract product segment of the overall ophthalmic market. Information relating to the Company's financial condition for the fiscal years ended December 29, 1995, December 30, 1994 and December 31, 1993 is set forth below in "Item 8 - Financial Statements and Supplementary Data." The Company commenced commercial sales of a nominal quantity of its Glaucoma Wick in the fourth quarter of 1995. (C) NARRATIVE DESCRIPTION OF BUSINESS --------------------------------- MARKETS The following constitutes a general description of each market segment of the overall ophthalmic market in which the Company competes or will compete: CATARACT MARKET The market for cataract products generally relates to medical devices for use in restoring the eyesight of patients who suffer from cataracts, an irreversible ophthalmic condition wherein the eye's natural lens loses its usual transparency and becomes opaque. The principal products sold in this market are intraocular lenses, or IOLs, which are implanted into the eye (after the cataractous lens of the eye is removed) to restore eyesight. The Company's principal products are its foldable IOLs for use with advanced cataract surgical procedures which enable foldable IOLs to be inserted through a smaller incision in the eye than the prior-generation "hard" IOLs. Cataracts occur in approximately one-half of Americans between the ages of 65 and 75, and approximately 70% of those over age 75. Industry sources estimate that approximately 1.7 million IOLs were implanted in the United States in 1995, generating approximately $221 million in sales. The Company believes that sales of foldable IOLs in the United States during this period totalled approximately 37% of total sales, up from approximately 15% in 1992). The Company believes that the share of the domestic market held by foldable IOLs will increase to approximately 70% to 80% within the next three to five years. The Company believes approximately 2.2 to 2.5 million IOLs were implanted outside of the United States during 1995 (not including China and Russia) generating approximately $400 million of sales. The Company believes that approximately 15% of the international market is presently using foldable IOLs. The Company believes that the international market will track the domestic market and that approximately 70% to 80% of the international market will use foldable IOLs within the next three to seven years. GLAUCOMA MARKET The glaucoma segment of the ophthalmic market generally relates to drug treatments and/or traditional or laser surgical procedures for use in mitigating the effects of glaucoma, a leading cause of 3 blindness worldwide. Glaucoma is a medical condition which causes irreversible damage to the optic nerve from excessive intraocular eye pressure. None of the current treatments or medical procedures for glaucoma offers a permanent cure, and blindness eventually results in most cases. The Company believes that glaucoma afflicts approximately two million persons in the United States annually. Most patients undergo prescribed drug therapy. The Company believes the number of people afflicted with glaucoma internationally far exceeds that within the United States. The Company's newly introduced Glaucoma Wick is a unique product which the Company believes provides a more effective and longer-term (and potentially permanent) solution for patients suffering from glaucoma than drugs or existing surgical procedures. The Company believes this product could capture a significant portion of the worldwide market for glaucoma products. REFRACTIVE SURGERY MARKET The refractive surgery segment of the ophthalmic market generally relates to traditional or laser surgical procedures for use in correcting vision problems. Vision impairment is a common worldwide healthcare problem. The Company estimates that over one-half of the world's population suffers from common vision problems such as myopia (near-sightedness), hyperopia (far- sightedness) and astigmatism. In the United States, approximately 140 million people currently use some form of eyewear to correct for the refractive conditions that cause common vision problems. Studies indicate that many eyewear users are seeking alternative solutions to their vision problems that will eliminate or reduce the inconvenience of eyewear. The two most prevalent surgical techniques that have emerged in response to this need are radial keratotomy ("RK"), a conventional surgical technique, and photo refractive keratectomy ("PRK"), a surgical technique performed with the use of a laser. It is estimated that a total of more than one million RK procedures have been performed in the United States, most of which have occurred since 1989. Surgeons have used PRK, a more recently developed refractive surgery technique, in an estimated 600,000 procedures to date worldwide, with a very limited number occurring in the United States where the procedure has, until recently, been in the investigational stage. The worldwide market for corrective eye-glasses, external contact lenses, and conventional and laser surgical corrective procedures cannot be calculated at this time, although the Company believes that it ranges from $1 billion to $11 billion. The portion of this market which ICLs could capture cannot be calculated at this time. The Company's ICLs, which will be introduced in certain foreign countries in early 1996, are a unique ophthalmic product which the Company believes will provide a superior solution for patients who seek to resolve their vision problems through available surgical techniques, such as radial keratotomy or laser surgery. The Company believes this product could capture a significant portion of the worldwide market for refractive surgical procedures. VISCOELASTIC SOLUTION MARKET The viscoelastic solution segment of the ophthalmic market generally refers to chemical solutions used during IOL surgery to maintain the shape of and to otherwise protect the eye. This product will also be used for implantation of ICLs. The Company is in the process of introducing for commercial sale in selected foreign countries a new hyaluronic acid-based viscoelastic solution called STAARVISC/tm/. Industry studies indicate that approximately 2.3 million units of viscoelastic solution were sold within the United States in 1995, generating approximately $126 million in sales. The international market for viscoelastic solution cannot be determined, however, management believes it is at least the size of the domestic market for this product. 4 PRODUCTS The following is a general description, broken down by ophthalmic markets, of the Company's products. CATARACT PRODUCTS (INTRAOCULAR LENSES) Cataracts are an irreversible ophthalmic condition wherein the eye's natural lenses lose their usual transparency and become opaque. An opaque lens cannot properly collect incoming light from a distant object and deliver it in sharp focus to the retina. The conventional treatment for cataracts has been to surgically remove the cataractous lens and replace it with an IOL. The Company's principal products are its foldable IOLs for use in minimally invasive or micro surgical cataract procedures. Because the Company's IOLs may be folded, compressed or otherwise deformed, they can be implanted into the eye using an incision significantly smaller (approximately 2.8 mm) than the incision needed to insert the previous-generation hard IOLs (approximately 5mm to 10mm). The surgery can ordinarily be performed without sutures (or in some cases with only one or two sutures), which reduces the incidence of surgically induced astigmatism. The absence of or smaller number of sutures decreases eye trauma and the potential for infection, therefore, the patient experiences faster visual rehabilitation, earlier refractive stability and better post- surgical visual acuity than when hard IOLs are implanted through a larger incision. Finally, since foldable IOLs are typically implanted under topical anesthesia, anaesthesia-related complications are lesser than with hard IOLs which require the administration of local anesthesia through an injection into the eye in order to deaden the eye's nerves. These advantages reduce postoperative patient discomfort and pain, immobilization, hospitalization and recovery time, all of which translate into cost savings to patients, insurers, doctors, surgical centers, purchasing groups and hospitals. The Company's foldable IOLs come in two differently configured styles, the single-piece ELASTIC/tm/ model and the three-piece ELASTIMIDE/tm/ model. The selection of one model over another is primarily based upon the preference of the ophthalmologist. Sales of these products accounted for approximately 97% of the Company's total revenues for its 1993, 1994 and 1995 fiscal years, respectively. Patients with a pre-existing astigmatism comprise approximately 20% to 25% of the population who need cataract surgery. Therefore, the Company has developed for these patients and currently markets in certain foreign countries a toric version of its ELASTIC/tm/ IOL. A limited number of these toric IOLs are also implanted in patients within the United States for clinical study purposes pursuant to an Investigational Device Exemption granted by the FDA. The Company anticipates that its clinical studies for this product will be completed, and that it will apply for FDA pre-market approval to market this product in the United States without restriction, in 1996. No assurance can be given that this time schedule can be met, or that FDA pre-market approval for this product will be obtained. As part of its approach to providing a complete line of complementary products for use in micro cataract surgery, the Company also manufactures and markets several styles of injectors and sterile cartridges, a phacoemulsification machine, and several styles of disposable and reusable surgical packs and ultrasonic cutting tips. The injectors, sterile cartridges, surgical packs and ultrasonic cutting tips can be sold to ophthalmic surgeons either separately or together with foldable IOLs as part of a "package." Lens injectors and sterile cartridges are used to insert foldable IOLs into the capsular bag of the eye. The Company's phacoemulsification machine, called the PHACO XL/tm/, is a completely automated computer-driven technologically advanced machine used by the ophthalmic surgeon in micro ophthalmic surgery to pulverize and remove the cataractous lens with ultrasonic cutting tips inserted through a small incision. The Company's ultrasonic cutting tips and disposable and reusable surgical packs are designed to be used with the Company's phacoemulsification machine. 5 GLAUCOMA PRODUCTS (GLAUCOMA WICK) Glaucoma is a leading cause of blindness worldwide. Glaucoma is caused by a buildup of pressure in the eye resulting from poor drainage of the aqueous humor or eye fluid. The increase in pressure slowly damages a critical part of the vision pathway, the optic disc, resulting in a gradual loss of vision. Vision loss from glaucoma first occurs in the periphery of a patient's field of view, progresses to a patient's central vision, and finally results in total blindness. Presently there is no cure for glaucoma. The conventional approach to glaucoma is to medicate the patient on an interim basis with drugs administered through eye drops applied three or four times per day, and then to resort to invasive surgery using either traditional surgical procedures or laser treatments. Glaucoma drugs inhibit the build-up of intraocular fluids, thereby reducing intraocular pressure and eye damage. Conventional surgical procedures remove a portion of the eye's malfunctioning drainage tissue (called the trabecular meshwork) to create a channel for fluid to drain from the eye. In late 1995 the Company introduced its Glaucoma Wick for commercial sale in selected foreign countries, including France, Switzerland, South Africa, Italy and Austria, and intends to expand its introduction of this product into additional countries. The Glaucoma Wick is a unique and innovative device which promotes continuous drainage of excess eye fluid. The Glaucoma Wick is specifically designed for patients suffering from open-angled glaucoma, which is the most prevalent type of glaucoma, occurring in a large majority of the glaucoma patient population. The Glaucoma Wick is inserted into the eye using minimally-invasive surgical procedures which, unlike either traditional or laser glaucoma surgeries, does not require penetration of the anterior chamber of the eye. The Glaucoma Wick can be implanted under either local or topical anesthesia and can be performed on an outpatient basis. Management believes the Glaucoma Wick will afford the following advantages over existing medical treatments for glaucoma: (i) the Glaucoma Wick will be a more effective treatment than conventional drugs and surgical procedures, providing better results and longer-term (and potentially permanent) benefits, (ii) the Glaucoma Wick avoids the side effects associated with existing drug treatments, (iii) the minimally invasive character of the surgery used to implant the Glaucoma Wick reduces the likelihood of occurrence of many of the severe complications associated with conventional and laser surgical procedures, and (iv) the Glaucoma Wick is more cost effective than existing glaucoma drug treatments. The Company expects adoption of the Glaucoma Wick by the market to occur at a slow to moderate pace since the Glaucoma Wick is a completely new product entailing a new type of surgical procedure. The Company intends to apply to the FDA during the first half of 1996 for 510(k) clearance to commercially market this product within the United States. No assurance can be given as to when or if FDA 510(k) clearance for this product will be given. Since 1987 the Company has also marketed its "molteno/tm/" style Glaucoma Shunt, an implant generally used at the latest stages of glaucoma, when conventional treatments have been performed and failed and vision is effectively lost, in order to relieve pain and save the eye from being removed. The Company will continue to supply this product for patients in the last stages of glaucoma. REFRACTIVE SURGERY PRODUCTS (IMPLANTABLE CONTACT LENSES) Early in 1996 the Company will begin the process of introducing its implantable contact lenses, or ICLs, for commercial sale in a limited number of selected foreign countries. ICLs can be implanted in the eye through a simple surgical procedure to permanently correct normal vision problems including myopia (near-sightedness), hyperopia (far-sightedness) and astigmatism. The Company has developed versions of its ICLs for near-sightedness and far- sightedness, and is currently working on the development of a toric version for astigmatism. The conventional treatment for vision problems such as myopia, hyperopia and astigmatism has been corrective eye-glasses or external contact lenses. In recent years a number of surgical alternatives have 6 been developed which address low to moderate cases of myopia by reshaping the cornea, including laser surgery and conventional surgery using a diamond knife. In the case of conventional surgery, ophthalmic surgeons have employed a number of different surgical techniques to reshape the cornea. These surgical techniques include radial keratotomy or "RK," keratomelieusis, epikeratoplasty, keratectomy, keratophakia and penetrating keratoplasty. In the case of laser surgery the ophthalmic surgeon sculpts or reshapes the cornea by using a laser beam to reduce the steepness of the corneal tissue. These laser procedures include laser photo-refractive keratotomy ("PRK"), laser thermal keratoplasty ("LTK") and laser in-situs keratomileusis ("LASIK"). The FDA has recently granted pre-market approval of an excimer laser for laser photo-refractive keratotomy or PRK for low or moderate levels of myopia. The FDA has not, to date, approved the holmium laser for laser thermal keratoplasty or LTK or use of an excimer laser for astigmatism or LASIK procedures, although these surgical procedures are being used in certain foreign countries. The Company's ICL is folded and implanted into the eye behind the iris and in front of the normal lens using a micro surgical technique that is similar to implanting an IOL during cataract surgery, except that the human lens is not removed. Since the ICL is a refractive lens, similar to an external contact lens, vision is corrected by selecting an ICL with an appropriate shape and curvature determined through the application of the same proven refractive principles used to correct vision with external contact lenses and IOLs. Since the ICL has the ability to be folded or otherwise deformed, it can be implanted into the eye through the smallest or least invasive incision which will heal without sutures. The surgical procedure to implant the ICL is performed with topical anesthesia on an outpatient basis. Management believes its ICLs afford a number of advantages over existing refractive surgical procedures, including the following: (i) ability to correct all cases of myopia and hyperopia, and potentially astigmatism, (ii) superior predictability in results, (iii) reversibility, (iv) faster recovery of vision and rehabilitation, (v) potentially superior refractive results, and (vi) cost effectiveness relative to laser surgical procedures. The Company has implanted ICLs in feasibility studies conducted in Europe and South America over the past two years with little or no complications. The Company intends to apply to the FDA in the first part of 1996 for an Investigational Device Exemption which will allow the Company to commence clinical studies within the United States in order to ultimately obtain FDA pre- market approval to market this product domestically. No assurance can be given as to when the Company will submit its application for an Investigational Device Exemption to the FDA or when or if the FDA will approve such application. VISCOELASTIC PRODUCTS In early 1996 the Company will begin the process of introducing a hyaluronic acid-based viscoelastic solution, marketed under the name STAARVISC/tm/, for commercial sale in selected foreign countries. Viscoelastic solution is a gel-like substance which is used during both IOL and ICL surgery to assist the ophthalmic surgeon in establishing and maintaining the space and shape of the anterior and posterior chambers of the eye, and to act as a resilient buffer to protect against inadvertent damage to the vital endothelial cells in the eye. Viscoelastic solution is also effective as a lubricant for injection of foldable IOLs and ICLs using microsurgical procedures. Management believes that it can effectively market STAARVISC/tm/ in conjunction with its foldable IOL and ICL products. STAARVISC/tm/ can be sold to ophthalmic surgeons either separately or together with foldable IOLs or ICLs as part of a "package." The Company is using the data from clinical studies performed in the United States to apply for approval for use in all major foreign countries. The Company intends to apply to the FDA in the first part of 1996 for pre-market approval to commercially market STAARVISC/tm/ within the United States. Since an Investigational Device Exemption for this product was previously granted by the FDA, and since this product has previously satisfied all applicable clinical studies required by the FDA and received FDA Panel approval, the Company does not anticipate difficulties in obtaining FDA pre-market approval. Notwithstanding the foregoing, no assurance can be given as to when or if pre- market approval for STAARVISC/tm/ will be given. 7 COMPETITION The Company faces significant competition for all of its products. The Company believes its primary competition for foldable IOLs includes Allergan Medical Optics (a subsidiary of Allergan, Inc.), Chiron Vision Corporation (a subsidiary of Chiron Corporation), and Alcon Surgical, Inc. (a subsidiary of Alcon Laboratories, Inc.), all of whom are licensees of the Company. Significant competitors in the hard IOL market are believed to include Chiron Vision Corporation, Allergan Medical Optics, Pharmacia, A.B., Alcon Surgical, Inc., Storz Ophthalmics, Inc. (a subsidiary of American Cyanamid) and Mentor Corporation. The Company's primary competition for glaucoma products is from pharmaceutical companies. The Company believes Merck & Company, Inc., Alcon Laboratories, Inc., Allergan, Inc. and Storz Ophthalmics, Inc. are the largest providers of glaucoma drugs within the United States, and CIBA Vision Corporation (a subsidiary of CIBA-GEIGY Corporation), Pharmacia, A.B. and Lederle Laboratories (a subsidiary of American Cyanamid) are the largest internationally. The portion of this market held by glaucoma devices is insignificant at present. The Company's ICLs will face significant competition generally from manufacturers and distributors of corrective eye-glasses and external contact lenses, and particularly from providers of conventional and laser surgical procedures. The Company believes its primary competitors for laser surgical procedures are Summit Technologies, Inc., Visx, Intelligent Surgical Laser, Sunrise Medical, Chiron Vision Corporation and Nidek Co., Ltd. Summit Technologies' excimer laser for photo refractive keratotomy is the only product which has received pre-market approval from the FDA for sale within the United States. Pharmacia, A.B., which distributes and manufactures a hyaluronic-based viscoelastic solution known as Healon/tm/, is the primary competitor for this product. Other companies such as Allergan Medical Optics, Chiron Vision Corporation, Alcon Surgical, Inc. and Storz Ophthalmics, Inc. also sell viscoelastic type products. MARKETING The Company has traditionally promoted sales of its foldable IOLs and related cataract products by educating ophthalmic surgeons as to the benefits of small incision cataract surgery using phacoemulsification surgical procedures and foldable IOLs through educational literature, surgical procedure courses, seminars, technical presentations and advertising in medical and trade journals. The Company found this strategy to be successful and will promote the sale of its ICLs and Glaucoma Wicks using similar approaches and methods. The Company will promote the sale of its STAARVISC/tm/ viscoelastic solution in conjunction with the sale of its foldable IOLs and ICLs. DISTRIBUTION The Company's products are sold domestically through a network of independent regional manufacturer representatives and their territorial representatives. International sales are primarily conducted through the Company's subsidiaries or through independent sales representatives engaged on a similar basis to those within the United States. In countries where the Company's subsidiaries do not have a direct presence, sales are conducted through country or area medical distributors. IOLs are consigned to doctors and hospitals and billed following the implant. Consigned lenses are treated as inventory until implanted. The Company does not have a significant backlog of orders. The Company entered in October 1995 into an agreement with China Eye Joint Venture ("CEJV") for the construction and equipment of a medical facility in the People's Republic of China and the supply of the Company's products to the joint venture. As part of such agreement, CEJV agreed to exclusively purchase the Company's products for a minimum of five years, and the Company agreed to provide CEJV, on a secured basis, with certain equipment with a value not to exceed $1.1 million, with CEJV to purchase the equipment from product sales pursuant to an agreed schedule. 8 RESEARCH AND DEVELOPMENT The Company maintains an active internal research and development program which principally focused over the past year on (i) developing the Company's ICLs and Glaucoma Wick, (ii) developing the Company's toric style IOL, (iii) improving insertion and delivery systems for the Company's foldable IOLs, and (iv) generally improving the manufacturing systems and procedures for all products to reduce manufacturing costs. Research and development expenses amounted to approximately $3,254,000, $2,718,000 and $2,260,000 for the Company's 1995, 1994 and 1993 fiscal years, respectively. INTELLECTUAL PROPERTY RIGHTS The Company and/or its licensors have applied for and been granted various United States patents relating specifically to the Company's products or various aspects thereof. The Company's core Mazzocco Patent was granted by the United States Patent Office to Dr. Thomas Mazzocco, M.D., a practicing ophthalmologist and a co-founder of the Company, in March 1986. This patent is very important to the Company in that the Company believes that anyone making, using or selling an IOL in the United States and certain foreign countries which is folded or otherwise deformed in order to be inserted into the eye through micro surgical procedures must be licensed under the Mazzocco Patent by the Company. Since this patent is very broad, the Company further believes that anyone making, using or selling an ICL in the United States which is folded or otherwise deformed in order to be inserted into the eye through microsurgical procedures must also be licensed under the Mazzocco Patent. The Company has since obtained patent protection for the Mazzocco Patent or made application for such protection in certain foreign countries. The Company and/or its licensors also have been granted a number of patents or made application therefore in the United States and foreign countries for the Company's products or various aspects thereof. The Company aggressively protects and maintains its patent rights. The Company has instituted litigation to protect its patents in the past and has been successful in that litigation, however, there can be no assurance that the Company will continue to be successful in its efforts to protect its patents in the future due to the uncertainties and complexity associated with any patent litigation. Costs of litigation related to patents are capitalized and amortized over the estimated useful life of the relevant patent. The Company has obtained a registered trademark on the STAAR/(R)/ name. The Company also has common law trademark rights to a number of other marks and has also applied for registration for a number of these marks. LICENSES AND DISTRIBUTION RIGHTS The Company has granted licenses to certain of its patents, products and technology to other companies in the IOL industry. The terms of these licenses extend for the life of the patent. At the time these licenses were granted, the Company received substantial pre-payments of royalties on all but one of the licenses. For many of these licenses, periods for which pre-payments were made have since elapsed or will elapse in the near future. These licensees include Optical Radiation Corporation, Chiron Vision Corporation, Allergan Medical Optics, Alcon Surgical, Inc. and Canon STAAR. Included in some of the licenses granted are licenses to certain of the Company's foldable patents which were granted on an exclusive basis to Canon STAAR (for Japan only), on a non- exclusive basis to Allergan Medical Optics, Optical Radiation Corporation, Chiron Vision Corporation and Canon STAAR (with respect to the world other than Japan), and on a co-exclusive basis to Chiron Vision Corporation and Allergan Medical Optics. In March 1993, the Company acquired exclusive rights under a Supply and Distribution Agreement with IRTC to distribute certain of IRTC's proprietary products under the Company's trademarks in the United States, Canada, Germany, France, Italy, Holland, Israel, Australia, Switzerland, Belgium, Denmark, England, Austria, Spain, Mexico, Japan and South Korea, and non-exclusive rights with respect to the rest of the world. Among these products are IRTC's glaucoma devices and its biocompatible materials for IOLs. The Company has since adopted IRTC's biocompatible material and glaucoma device design for the Company's Glaucoma Wick, and has incorporated IRTC's biocompatible materials for use with the Company's proprietary ICL design. In May 1995, IRTC granted an exclusive royalty bearing license to 9 STAAR Surgical AG to manufacture, use and sell the glaucoma devices in the United States, Europe, Latin America, Africa, Asia and Japan, and non-exclusive rights with respect to the countries in the Commonwealth of Independent States (formerly, the Union of Soviet Socialists Republics) and China. SUBSIDIARIES The Company has seven directly or indirectly wholly owned subsidiaries which are or soon will be actively engaged in business: STAAR Surgical AG; STAAR Surgical France - SARL; STAAR Surgical Australasia Pty., Ltd.; STAAR Surgical - Canada, Ltd.; STAAR Surgical - South Africa Pty., Ltd.; STAAR Surgical Austria, GmbH; and STAAR Surgical Germany, GmbH. These subsidiaries are principally engaged in distributing and marketing the Company's products in foreign countries, although STAAR Surgical AG also has certain manufacturing and research and development responsibilities. The Company also owns a 50% interest in Canon STAAR, a joint venture between the Company and Canon, Inc. and Canon Sales Co., Inc. for the manufacture, marketing and distribution of IOLs in Japan. The Company also owns an interest in a number of subsidiaries which are not presently conducting business, including STAAR International, Inc.; Lynell Medical Technologies, Inc.; STAAR of Connecticut, Inc.; and STAAR Surgical - Singapore Pty. Ltd.. The Company also owns a 50% interest in each of Newlensco and Softlensco, inactive corporations formed in connection with certain licensing transactions for the sole purpose of holding title to certain filings with the FDA and pre-market approvals of the licensed products and technologies. FACILITIES The Company's executive offices and its principal manufacturing and warehouse facilities, consisting of approximately 76,000 square feet, are located in Monrovia, California. The Company also maintains complete laboratory facilities at this location. STAAR Surgical AG has approximately 11,000 square feet of manufacturing, distribution and research and development facilities located in Switzerland. STAAR Surgical France - SARL, STAAR Australasia, Pty., Ltd., STAAR Surgical - South Africa, Pty., Ltd., and STAAR Surgical Austria, GmbH, each also have distribution facilities. Canon STAAR Co., Inc. has an approved manufacturing facility in Japan. The Company believes that all such facilities are adequate for its needs for the foreseeable future, and expects no difficulties in renewing leases, or replacing or making additions to such facilities, as may be required in the future. MANUFACTURING AND SUPPLIERS The Company manufactures its products at its facilities located in California and Switzerland. Many components of the Company's products are purchased to its specifications from suppliers or subcontractors. These suppliers or subcontractors are subject to the same FDA Good Manufacturing Practices regulations as are imposed on the Company. Most of these components are standard parts available from multiple sources at competitive prices. For certain components, the Company has a single source of supply, but does not have purchase commitments or obligations with any of these companies to supply components or raw materials. The Company presently has one supplier of silicone, the principal raw material for its lenses, although it can purchase this raw material from several distributors. Similarly, certain items used by the Company in its disposable surgical packs are provided by a single supplier. The Company's PHACO XL/tm/ phacoemulsification machine is being manufactured exclusively for the Company by unaffiliated third parties. If any of these supply sources becomes unavailable, the Company believes that it would be able to secure alternate supply sources within a short period of time and with minimal or no disruption. 10 EMPLOYEES The Company and its subsidiaries had a total of 226 employees as of December 29, 1995, including 30 in administration, 33 in marketing and sales, 21 in research and development and technical services and 142 in manufacturing, quality control and shipping. The Company and its subsidiaries are non- unionized. Employee benefits presently offered to the Company's employees consist of a contributory health insurance plan, a 1990 Stock Option Plan, a 1991 Stock Option Plan, a 401(k) Plan, and certain incentive plans. Employees of the Company's subsidiaries also are entitled to receive ordinary employment benefits. REGULATORY REQUIREMENTS The Company's products are subject to regulatory approval or clearance in both the United States and in foreign countries. The following discussion outlines the various kinds of reviews to which the Company's products or facilities may be subject. CLINICAL REGULATORY REQUIREMENTS WITHIN THE UNITED STATES Most of the Company's products are subject to regulation as medical devices by the FDA, requiring FDA approval or clearance before they can be sold within the United States, and mandating continuous compliance of the Company's manufacturing facilities and distribution procedures to FDA regulations, including "Good Manufacturing Practices." Initial approval or clearance of medical devices for sale is subject to differing levels or types of FDA review and evaluation depending on the classification of the device under the Food, Drug and Cosmetic Act ("FD&C Act"), and whether the use of the medical device can be demonstrated to be substantially equivalent to a directly related medical device in commerce prior to May 1976 (the month and year of enactment of the FD&C Act). Pursuant to the FD&C Act, medical devices are classified as either Class I, Class II or Class III devices. If classified as a Class I device, the medical device will be subject only to general controls which are applicable to all devices. Such controls include regulations regarding FDA inspections of facilities, "Good Manufacturing Practices," labeling, maintenance of records and filings with the FDA. If classified as a Class II device, the medical device must also meet general performance standards established by the FDA. If classified as a Class III device, the applicant must present sufficient data derived through clinical studies demonstrating the product's safety, reliability and effectiveness. FDA approval for a Class III device such as an IOL or ICL implant begins with the submission of an application for an Investigational Device Exemption ("IDE") which, if granted, will permit the implantation of a limited number of IOLs or ICLs (typically less than 100) on a clinical study basis. Based upon the results from the initial core population, the FDA will then allow an additional core study to be performed, typically 500 to 700 implants. The complete clinical results will then be reviewed by an FDA advisory panel of outside experts. If the advisory panel approves the product based upon the results, the FDA will then generally grant pre-market approval assuming satisfaction of its other requirements. The grant of an IDE, the performance of clinical studies, and advisory panel approval, may take three to six years. Once these matters are satisfactorily obtained, the FDA ordinarily requires at least 180 days for a pre-market approval submission, and longer if additional information or clarification is needed. As a practical matter, the review process and FDA determination often take a significantly longer period of time than 180 days depending, in part, upon the complexity of the medical device. A medical device that is substantially equivalent to a directly related medical device previously in commerce may take advantage of the abbreviated FDA pre-market notification "510(k) review" process. The review period and FDA determination as to substantial equivalence should be made within 90 days of submission of a 510(k) application, unless additional material, information or clarification is requested or required by the FDA. As a practical matter, the review process and FDA determination often take significantly longer than 90 days depending, in part, upon the complexity of the medical device. FDA 11 510(k) clearance is a "grandfather" process. As such, FDA clearance does not imply that the safety, reliability and effectiveness of the medical device has been approved or validated by the FDA, but merely means that the medical device is substantially equivalent to a previously cleared commercially-related medical device. The Company's IOLs, ICLs, lens injectors, Glaucoma Wick, Glaucoma Shunt, and STAARVISC/tm/ viscoelastic solution are Class III devices, and its phacoemulsification equipment, ultrasonic cutting tips and surgical packs are Class II devices. The Company has received FDA pre-market approval for its IOLs (other than its toric version), and FDA 510(k) clearance for its Glaucoma Shunt, phacoemulsification equipment, lens injectors, ultrasonic cutting tips and surgical packs. The Company is presently conducting clinical studies under an IDE for its Toric IOL. The Company intends to apply to the FDA in the first part of 1996 for 510(k) clearance for its Glaucoma Wick, for pre-market approval of its STAARVISC/tm/ viscoelastic solution, and also for an IDE to commence clinical studies for its ICLs. No assurance can be given as to when or if FDA 510(k) clearance for the Glaucoma Wick will be given, or as to when or if FDA pre-market approval for its STAARVISC/tm/ viscoelastic solution will be given, or as to when or if the FDA will approve the IDE for the Company's ICLs. The Company is also subject to mandatory Medical Device Reporting ("MDR") regulations which obligate the Company to provide information to the FDA on injuries alleged to have been associated with the use of a product or in connection with certain product failures which could cause injury. If as a result of FDA inspections, MDR reports or other information, the FDA believes that the Company is not in compliance with the law, the FDA can institute proceedings to detain or seize products, enjoin future violations, and/or assess civil or criminal penalties against the Company and its officers or employees. Although the Company and its products have not been the subject of any such FDA enforcement action, any such action by the FDA could result in a disruption of the Company's operations for an undetermined time. CLINICAL REGULATORY REQUIREMENTS IN FOREIGN COUNTRIES There is a wide variation in the approval or clearance requirements necessary to market products in foreign countries. The requirements range from virtually no requirements to a level comparable to or even greater than those of the FDA. For example, many countries in South America have minimal regulatory requirements, while many developed countries, such as Japan and Germany, have conditions as least as stringent as those of the FDA. FDA acceptance is not a substitute for foreign governmental approval or clearance. As in the United States, there is no guarantee that the applicable governmental approval or clearance for any of the Company's products will be quickly obtained or that it will be obtained at all. The member countries of the European Economic Union ("EEU") currently permit, and in 1998 will require, all medical products sold within their borders to carry a "CE" marking. The CE marking denotes that the applicable medical device has been found to be in compliance with guidelines concerning manufacturing and quality control, technical specifications and biological/chemical and clinical safety. The CE marking supersedes all current medical device regulatory requirements for EEU countries. The Company has an ongoing program in place to ensure compliance with the applicable requirements and anticipates obtaining the CE marking for currently marketed products during 1996. CE markings for new products such as the Glaucoma Wick, ICLs and STAARVISC/tm/ viscoelastic solution are anticipated to be obtained as these products are introduced into the EEU following appropriate clinical studies and/or regulatory filings. The Company does not anticipate that it will need to conduct additional clinical studies for its CE marking applications. However, there can be no assurance that the CE markings will be obtained in 1996 or that they will be obtained at all for any of the Company's products. OTHER REGULATORY REQUIREMENTS Sales of the Company's products may be affected by health care reimbursement practices. The Company is also subject to various federal, state and local laws applicable to its operations including, among other things, working conditions, laboratory and manufacturing practices, and the use and disposal of hazardous or potentially hazardous substances used in connection with research work. The extent of 12 government regulation which might result from future legislation or administrative action, and their potential adverse impact on the Company, cannot be accurately predicted. (D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT ---------------------------------------------------------------------- SALES ----- Approximately $26,561,000, $23,091,000 and $17,001,000 in the Company's overall revenues were generated in the United States for its 1995, 1994 and 1993 fiscal years, respectively, constituting approximately 77%, 84% and 88% of its overall revenues for such fiscal years, respectively. Sales to Europe, which is the Company's principal foreign market, generated approximately $4,841,000, $3,361,000 and $1,784,000 in revenues for the Company's 1995, 1994 and 1993 fiscal years, respectively, constituting approximately 14%, 12% and 9% of the Company's overall revenues for such respective fiscal years. The balance of the Company's foreign sales were distributed amongst the Asian/Pacific, Middle Eastern, South African and South American geographic areas. Substantially all products sold in 1995 were manufactured in the United States. ITEM 2. PROPERTIES The Company's executive offices and its principal manufacturing and warehouse facilities are located at 1911 and 1941 Walker Avenue and 1900 Myrtle Avenue, Monrovia, California, in leased industrial buildings of approximately 38,000, 30,000 and 8,000 square feet, respectively. The leases expire in 2002, 2002 and 1998 and require payments of $15,358, $12,650 and $3,000 per month, respectively. The Company also maintains complete laboratory facilities in these buildings. Certain of the Company's subsidiaries lease facilities dedicated to distribution and research and development activities. Canon STAAR Co., Inc. has an approved manufacturing facility in Japan. See "Narrative Description of Business -Facilities," above. ITEM 3. PENDING LEGAL PROCEEDINGS ALLERGAN MEDICAL OPTICS, ET AL. VS. STAAR SURGICAL COMPANY; CIVIL ACTION NO. 92-6976 DT (JGX), U.S. DISTRICT COURT, CENTRAL DISTRICT OF CALIFORNIA On November 22, 1992, Allergan Medical Optics ("AMO") brought suit under U.S. Patent No. 4,681,102 (the "'102 Patent") relating to an apparatus for insertion of an intraocular lens. In its complaint, AMO seeks damages, including reasonable royalties, past and present, against the Company for the alleged infringement of the '102 Patent. On or about December 22, 1992, AMO filed its Motion for Preliminary Injunction seeking to enjoin the Company from making, using or selling devices within the scope of Claims 5 and 11 of the '102 Patent. Specifically, AMO sought to enjoin making, using or selling the Company's SOFTRANS/tm/ and MICROSTAAR/tm/ inserters and certain components used in connection with such inserters. On March 29, 1993, the District Court bifurcated the issues of ownership of the '102 Patent ("Phase One") from the issues of patent validity, infringement and damages ("Phase Two"). On June 16, 1995, a jury verdict was reached in Phase One of the trial, determining that Microtech, Inc. (from whom AMO had licensed the '102 Patent) was the owner of the '102 Patent. The lawsuit is currently in discovery related to Phase Two issues, including the Company's allegations that the '102 Patent was obtained by fraud and is therefore unenforceable against the Company. In addition, the Company alleges that its inserters do not violate the '102 Patent and fall within the parameters of the Company's patent for instruments. Phase Two will also address AMO's damage contentions. While the Company believes that it will prevail in this lawsuit, the outcome of this litigation is uncertain, and the affect of an unfavorable outcome is unknown at this time. ALCON LABORATORIES, INC. VS. STAAR SURGICAL COMPANY; CIVIL ACTION NO. 95- 233 LON; U.S. DISTRICT COURT FOR THE DISTRICT OF DELAWARE (TRANSFERRED TO THE CENTRAL DISTRICT OF CALIFORNIA) On April 11, 1995, Alcon Laboratories, Inc. ("Alcon Labs") brought an action against the Company requesting declaratory judgment that the Company's core Mazzocco Patent ("U.S. Patent No. 4,573,998" or the "998 Patent") is invalid and not infringed and that the Company has breached its license agreement with Alcon Labs relating to the Mazzocco Patent. In addition to the declaratory judgment, Alcon 13 Labs seeks a determination that it is not required to pay royalties to the Company with respect to sales of certain IOLs by Alcon Labs, and is therefore not required to apply such royalties against $3 million in prepaid royalties under the license agreement. An amended complaint was filed October 2, 1995. The suit alleges that the Mazzocco Patent is not infringed by Alcon Labs and is therefore invalid and unenforceable or, alternatively, that Alcon Labs has an ownership interest in the Mazzocco Patent because Alcon Labs or its predecessor, Cilco, had an agreement with one of the Company's founders, who Alcon Labs alleges is an unlisted inventor of the Mazzocco Patent. The Company denies Alcon Labs' allegations and maintains that the Mazzocco Patent is valid and enforceable in the United States and elsewhere. The Company moved to dismiss Alcon Lab's action for lack of subject matter jurisdiction. Additionally, the Company moved for transfer of the action from the Delaware District Court to the U.S. District Court for the Central District of California under 28 USC (S)1404. On October 26, 1995, the District Court of Delaware issued an Order including Magistrate's Report and Recommendation for transfer of the action to the Central District of California. In granting the Company's motion for transfer, the District Court stated, in part, that the Company's patent in question was issued to Dr. Thomas Mazzocco, a California ophthalmic surgeon, and formally assigned to the Company in June of 1983. During the subsequent years, the Company commercialized many of the embodiments of Dr. Mazzocco's inventions in California, having first obtained approval from the FDA for marketing the inventive deformable lens ("IOL") and related small incision surgical products. The Company also negotiated a number of licenses involving the Mazzocco Patent with other corporations, including CooperVision, Chiron Corporation, Allergan Medical Optics, Optical Radiation Corporation, and entered into a similar agreement with Canon Staar. All of the aforementioned organizations were headquartered in California at the respective times of contract, and remained so, with the exception of CooperVision, which now principally operates in Forth Worth, Texas, under the corporate umbrella of Alcon Labs. Accordingly, the Court was persuaded by the evidenced discussed above, among other factors, that the overall interest of justice was best served by transfer of the action to the Central District of California. By letter of November 1, 1995, Alcon Labs consented to the Court's report and recommendation that the action be transferred to the Central District of California. The lawsuit is currently in the initial stage of discovery. While the Company strongly believes that it will prevail in this suit, the outcome of the litigation is uncertain, and the affect of an unfavorable outcome is unknown at this time. STAAR Surgical Company vs. Alcon Laboratories, Inc., et al.; Los Angeles Superior Court Case No. GC01128 In a related suit, on April 12, 1995, the Company filed a complaint for damages against Alcon Labs and Alcon Surgical, Inc. (collectively, "Alcon"). The suit alleges, among other things, that Alcon breached (i) its license agreement with the Company for failure to render true and accurate accountings for royalty payments and failure to comply with the license provisions as to the purported development of "prior art" relating to the Mazzocco Patent and (ii) the covenant of good faith and fair dealing for, among other things, filing the aforementioned lawsuit challenging the validity of the Mazzocco Patent. On or about February 1, 1994, the Alcon defendants advised the Company by and through its counsel "... Alcon Laboratories, Inc. has a valid license under U.S. Patent No. 4,573,998..." Further, the Alcon defendants, by and through counsel, declared that Alcon "has been and will continue to provide the Company with royalty reports as required by the terms of the license agreement." The Alcon defendants provided and continue to provide the Company with royalty reports under the license agreement. The subject action is currently in the initial stages of discovery. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended December 29, 1995. 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's Common Stock is quoted on the National Association of Securities Dealers Automatic Quotation ("NASDAQ") National Market System under the symbol "STAA." The high and low prices shown below are the high and low sales prices as reported on the NASDAQ National Market System for the periods during which the Common Stock was so listed.
High Low ---- --- 1995: 1st quarter 13.125 7.875 2nd quarter 11.375 7.500 3rd quarter 12.750 8.250 4th quarter 12.675 9.875 1994: 1st quarter 5.250 3.325 2nd quarter 7.000 3.625 3rd quarter 6.125 4.125 4th quarter 7.250 4.500
The last reported sale price for the Company's Common Stock on the NASDAQ National Market System on March 25, 1996 was $13 per share. As of March 25, 1996, there were approximately 1,800 record holders of the Common Stock. The Company has not paid any cash dividends on its Common Stock since its inception. The Company currently anticipates that all income will be retained to develop further the Company's business and that no cash dividends on the Common Stock will be declared in the foreseeable future. 15 ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected consolidated financial data of the Company. Such data for, and as of the end of, the three fiscal years ended December 29, 1995, December 30, 1994 and December 31, 1993, are derived from the Consolidated Financial Statements of the Company which have been audited by BDO Seidman, LLP, independent certified public accountants, as indicated in its report which is included elsewhere in this Report. Such data for, and as of the end of, the fiscal years ended January 1, 1993 and December 31, 1991, are derived from audited consolidated financial statements not included elsewhere in this Report. The data presented below is qualified in its entirety by and should be read in conjunction with the Company's Consolidated Financial Statements and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" below. STATEMENTS OF OPERATIONS DATA FOR FISCAL YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994, DECEMBER 31, 1993, JANUARY 1, 1993 AND DECEMBER 31, 1991 --------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993 1992 1991 -------- ------- ------- -------- --------- Revenues: Sales $34,180 $26,333 $19,603 $10,198 $ 4,255 Royalty income 514 1,020 473 -- -- ------- ------- ------- ------- -------- Total revenues 34,694 27,353 20,076 10,198 4,255 Cost of goods sold 8,441 6,059 3,980 3,257 2,638 ------- ------- ------ ------- ------- Gross profit 26,253 21,294 16,096 6,941 1,617 Costs and expenses: General and administrative 5,000 4,365 4,907 5,099 5,106 Nonrecurring compensation -- -- -- 67 4,761 Marketing and selling 10,911 8,694 6,998 4,949 1,800 Research and development 3,254 2,718 2,260 1,532 1,104 ------- ------- -------- ------- -------- Total costs and expenses 19,165 15,777 14,165 11,647 12,771 Operating income (loss) 7,088 5,517 1,931 (4,706) (11,154) Other income (expense) 303 625 685 (351) (98) Income tax benefit (provision)/1/ 91 2,184 (81) (19) (19) ------- ------- -------- ------- -------- Net income (loss) $ 7,482 $ 8,326 $ 2,535 $(5,076) $(11,271) ======= ======= ======== ======= ======== Net income (loss) per share: Primary $ 0.55 $ 0.63 $ 0.20 $ (0.50) $ (1.61) Fully diluted $ 0.55 0.62 0.20 (0.50) (1.61) Weighted average number of shares (000): Primary 13,679 13,170 12,823 10,191 7,002 Fully diluted 13,715 13,500 12,859 10,191 7,002 Dividends declared per share of common stock $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
- --------------------------------- (1) Includes recognition of deferred tax asset of $2.4 million for 1994 and $900,000 for 1995. See Note 7 to the Company's Consolidated Financial Statements. BALANCE SHEET DATA AT END OF FISCAL YEAR ---------------------------------------- (IN THOUSANDS)
1995 1994 1993 1992 1991 ------- ------- ------- ------- ------ Working capital....... $16,335 $14,166 $ 7,354 $ 4,239 $2,607 Total assets.......... 38,803 28,888 18,776 12,826 9,362 Long-term debt........ 1,212 572 0 0 6 Stockholders' equity.. 28,678 22,029 11,986 7,317 4,278
16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's business objective is to identify and develop innovative "next-generation" products and technologies for the ophthalmic market which will ultimately enable it to capture significant international and domestic market share through the efficacy of these products, their attractiveness to ophthalmic surgeons, and their cost advantages over available alternatives. The Company believes it has successfully implemented this strategy in the cataract market with the introduction of the Company's foldable IOLs, which are experiencing increased demand, and the Company believes it will be equally successful with respect to the glaucoma and refractive surgery segments of the ophthalmic market with its Glaucoma Wick and ICLs, respectively. Management's current objectives are to continue global expansion of the Company's IOLs, especially in international markets, and to develop and broaden the selected foreign markets for the Company's recently introduced Glaucoma Wick and ICLs. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, percentages which certain items reflected in the financial data bear to total revenues and the percentage increase of such items as compared to the prior year.
PERCENTAGE REVENUE PERCENTAGE CHANGE ---------------------------- ------------------ FISCAL YEAR 1995 1994 vs vs 1995 1994 1993 1994 1993 ----- ----- ----- ----- ---- Total revenue...................... 100.0% 100.0% 100.0% 26.8% 36.3% Costs of goods sold................ 24.3 22.1 19.8 39.3 52.2 Gross profit....................... 75.7 77.9 80.2 23.3 32.3 Costs and expenses: General and administrative........ 14.4 16.0 24.4 14.6 (11.1) Marketing and selling............. 31.5 31.8 34.9 25.5 24.2 Research and development.......... 9.4 9.9 11.3 19.7 20.3 ----- ---- ---- ------ ----- Total costs and expenses........... 55.3 57.7 70.6 21.5 11.4 Operating income................... 20.4 20.2 9.6 28.5 185.8 Other income (expenses)............ 0.9 2.3 3.4 (51.5) (8.8) Income tax benefit (provision)..... 0.3 8.0 (0.4) (95.8) -- ----- ---- ----- ------- ------ Net income......................... 21.6 30.5 12.6 10.1 228.5 ===== ==== ===== ====== ======
COMPARISON OF 1995 FISCAL YEAR TO 1994 FISCAL YEAR Revenues. Revenues for the year ended December 29, 1995 were $34.7 million, which is 26.8% greater than the $27.4 million in revenues for the prior year ended December 30, 1994. This increase in sales revenues was attributable to a combination of interrelated factors, including: (i) increased domestic demand for the Company's ELASTIC/TM/ and, in particular ELASTIMIDE/TM/, IOLs due to the introduction of Ultra Violet (UV) versions of these products in the second quarter of 1995; (ii) increased international demand for the Company's IOLs as a result of the Company's continued investment in its foreign distribution channels (international revenue increased to 24% of total Company revenue for 1995, as compared to 16% in 1994); and (iii) the continuing conversion of both the domestic and international markets from hard IOLs to foldable IOLs (according to industry statistics, 37% of the overall domestic IOL market at the end of 1995 was held by foldable IOLs, and, according to management estimates, 15% of the overall international IOL market at the end of 1995 was held by foldable IOLs). Gains in volume were partially offset by certain domestic price decreases resulting from pressures from managed care providers. Decreases in domestic prices appeared to have stabilized at the end of 1995. Revenues from royalties was $500,000 in 1995 compared to $1.0 million in 1994. 17 Cost of Sales. Cost of sales increased to 24.3% of revenues for the year ended December 29, 1995 compared to 22.1% of revenues for the year ended December 30, 1994. The principle reasons for this increase were: (i) lower pricing from certain managed care contract sales; (ii) inefficiencies associated with the restart of manufacturing UV versions of the Company's ELASTIC/TM/ and ELASTIMIDE/TM/ IOLs following FDA pre-market approval in the second quarter of 1995; (iii) increased sales of the ELASTIMIDE/TM/ IOL which is more costly to manufacture because of its design; and (iv) increased costs associated with the startup of manufacturing of new products in Switzerland. General and Administrative. General and administrative expense decreased to 14.4% of revenues ($5.0 million) for the year ended December 29, 1995 from 16.0% of revenues ($4.4 million) for the year ended December 30, 1994. This decrease resulted from management's continued efforts to control general and administrative expenses, combined with the increase in revenues. The increase in actual general and administrative expense was attributable to the startup of the Company's operations in Switzerland. Marketing and Selling. Marketing and selling expense decreased to 31.5% of revenues ($10.9 million) for the year ended December 29, 1995 from 31.8% of revenues ($8.7 million) for the year ended December 30, 1994. The increase in actual marketing and selling expense was attributable to: (i) higher marketing and selling expenses associated with the build-up of direct distribution channels in Australia, South Africa, France and Switzerland (which efforts translated into a significant portion of increased international revenues for 1995); and (ii) increased costs associated with the market introduction of the new Glaucoma Wick and preparation for the market introduction of the ICL in selected foreign countries. This increase in expenses was partially offset by reduced domestic commission expenses attributable to lower pricing. Research and Development. Research and development expenses decreased to 9.4% of revenues ($3.3 million) for the year ended December 29, 1995 from 9.9% of revenues ($2.7 million) for the year ended December 30, 1994. The primary reason for the increase in actual expense was the continued investment in developing new products, manufacturing systems and distribution systems, and cost reduction projects for manufacturing. The Company expects to spend approximately 10% of its annual revenues on research and development in 1996. Other Income (Expense). Other income decreased to 0.9% of revenues ($300,000) for the year ended December 29, 1995 from 2.3% of revenue ($600,000) for the year ended December 30, 1994. The primary reason for this decrease was reduced earnings reported from the Company's joint venture with Canon STAAR and increased interest expense attributable to money borrowed through STAAR Surgical AG to set-up the Company's Swiss manufacturing facility and increased borrowings by the Company under its line of credit. Subsequent to the 1995 year-end the Company refinanced and increased its domestic line of credit facility with a different lender. The Company obtained a lower interest rate under the refinancing, which should result in lower interest expense for comparable future borrowings. Income Tax Benefit (Provision). As a result of increased operating profits, the Company increased its deferred tax asset to $3.3 million as of December 29, 1995, up from $2.4 million as of December 30, 1994. This resulted in an income tax benefit of $100,000 ($800,000 income tax provision, exclusive of net operating loss benefit, offset by $900,000 recognition of deferred tax asset) in 1995 compared to $2.2 million ($200,000 income tax provision, exclusive of net operating loss benefit, offset by $2.4 million recognition of deferred tax asset in 1994). As a result of the Company's positive operating results for each of the three years ended December 29, 1995, the Company determined that deferred tax assets of approximately $900,000 and $2.4 million should be recognized as of December 29, 1995 and December 30, 1994, respectively. These amounts were based on a consideration of current and future anticipated earnings. Income levels in 1996 and 1997 similar to those of 1995 should result in full recognition of the deferred tax assets. The amount recorded as of December 29, 1995 includes the capitalization of the remaining balance of the Company's net operating loss carryforwards. Management believes it is more likely than not that the deferred tax assets will be realized in full. The Company will begin reporting an income tax provision in 1996 that will utilize the deferred tax assets and will result in decreased after-tax earnings and earnings per share. However, the Company will not pay any significant Federal income taxes until it fully utilizes the remaining $7.6 million of net operating loss carryforwards. The Company fully utilized its net operating loss carryforwards for state taxes in 1995. See note 7 to the Consolidated Financial Statements. COMPARISON OF 1994 FISCAL YEAR TO 1993 FISCAL YEAR Revenues. Revenues for the year ended December 30, 1994 were $27.4 million which is 36.3% greater than the $20.1 million in revenues for the prior year ended December 31, 1993. This overall increase in revenues was achieved even though the Company decreased the domestic sales price of its principal products, foldable IOLs, in response to a 25% reduction in the standard reimbursement rate from Medicare. The overall increase in revenues was primarily attributable to: (i) the growing acceptance of less invasive cataract surgery and the Company's foldable IOL, and (ii) the expansion of the international market for the Company's products through distributors and the establishment of a direct sales force in France, South Africa and Australia. 18 Cost of Sales. Cost of sales were 22.1% of revenues for the year ended December 30, 1994 compared to 19.8% of revenues for the year ended December 31, 1993. The primary reason for this increase was the above mentioned decrease in the sales price of the Company's principal products attributable to the aforesaid reductions in the Medicare reimbursement rate. General and Administrative. General and administrative expense was 16.0% of revenues for the year ended December 30, 1994 compared to 24.4% of revenues for the year ended December 31, 1993. Actual costs decreased from $4.9 million in 1993 to $4.4 million in 1994. This reduction was primarily attributable to lower legal fees and a reduction of some executive staff. Marketing and Selling. Marketing and selling expense was 31.8% of revenues for the year ended December 30, 1994 compared to 34.9% of revenues for the year ended December 31, 1993. The Company sells its products through independent sales representatives on a graduated commission basis which, as a percentage of revenues, decreased as unit prices decreased from the reduction in the Medicare reimbursement rate noted above. Costs other than commissions increased due to the cost of setting up direct distribution in Australia, France and South Africa. Research and Development. Research and Development expense was 9.9% of revenues for the year ended December 30, 1994 compared to 11.3% of revenues for the year ended December 31, 1993. The primary reason for this decrease was increased volume. However the Company spent $2.7 million in 1994 compared to $2.3 million in 1993, a 20.3% increase. The primary reason for this increase was the continued development of the Company's new products including its Glaucoma Wick, ICL and STAARVISC/TM/ viscoelastic solution. Other Income (Expense). Other income was $600,000 and $700,000 for the years ended December 30, 1994 and December 31, 1993, respectively. However, the equity earnings of joint venture which is a part of other income (expense) increased from $600,000 to $900,000 or 38.4%. This $300,000 gain was offset by $200,000 of interest expense in 1994 compared to a minimum amount of interest expense in 1993. Income Tax Benefit (Provision). As a result of the Company's positive operating results for its 1993 and 1994 years, management determined that a deferred tax asset of $2.4 million should be recognized as of December 30, 1994. This deferred tax asset is shown as an income tax benefit in the Company's statement of operations and as a deferred asset on the Company's balance sheet. This income tax benefit was partially offset by a $200,000 provision for income taxes which is basically the alternative minimum tax the Company expects to pay. The Company expected to realize the $2.4 million net deferred tax asset through utilization of net operating loss carryforwards and use of tax credits in 1995. At December 30, 1994, the Company had net operating loss carryforwards of approximately $17.4 million for federal income tax purposes and $3.5 million for State income tax purposes expiring at various dates between 1999 and 2006. Investment tax and research development tax credit carryforwards at December 30, 1994 were approximately $700,000 for tax financial statement purposes. These tax credits expire at various dates through 2004. The Company estimated, based on 1995 projections, that the $2.4 million income tax benefit would approximate 1995 estimated income taxes without the need for tax planning strategies on the Company's part. The Company expected income levels in 1995 to be similar to those of 1994, which would result in full recognition of the deferred income tax asset. LIQUIDITY AND CAPITAL RESOURCES The Company funded its activities over 1995 principally from cash flow generated from operations and credit facilities with its institutional lenders. In December 1993, the Company entered into a $3 million revolving line of credit, limited to 75% of eligible accounts receivables, at the prime interest rate plus 2.75%. The loan agreement requires the Company to satisfy certain financial tests and limits the amount of indebtedness the Company may have to others and the payment of dividends. Borrowings are collateralized by substantially all of the assets of the Company. Borrowings as of December 29, 1995 were approximately $2,486,000. In May 1994, the Company's subsidiary, STAAR Surgical AG, entered into a credit facility with a Swiss bank providing for a separate revolving line of credit and a fixed loan. The revolving credit facility provides for borrowings up to $969,000 at the exchange rate effective as of December 29, 1995 ($1.1 million Swiss Francs) at the interest rate of 6.5%. A commission rate of 0.25% is payable each quarter. The line of credit does not have a termination date and is secured by a general assignment of claims. Borrowings outstanding as of December 29, 1995 under the line of credit were approximately $1,037,000. Under the second credit facility, STAAR Surgical AG obtained a $969,000 ($1.1 million Swiss Franc) loan guaranteed partially by the Swiss government and partially by the Company as STAAR Surgical AG's parent. Interest on this loan is 6.25%, which the Company shares on an equal basis with the bank and the Swiss government. The principal on this loan is required to be repaid over a four year period, beginning in 1996. Borrowings by STAAR Surgical AG under this loan as of December 29, 1995 were approximately $992,000. The Company had deposits of $340,000 in cash in the financial institution as of December 29, 1995 to offset overdrafts under both credit facilities. 19 As of December 29, 1995, the Company had net working capital of approximately $16,335,000, as compared to $14,166,000 and $7,354,000 as of December 30, 1994 and December 31, 1993, respectively. The Company's current ratio as of December 29, 1995 was 2.9:1, as compared to 3.4:1 and 2.2:1 as of December 30, 1994 and December 31, 1993, respectively. The improvement in the Company's net working capital was primarily attributable to increases in accounts receivable (approximately $2.2 million) and inventory (approximately $1 million) resulting from increased operating activities, and a $900,000 increase in the recognition of deferred tax assets. The Company's cash position improved as a result of increases in net income, cash received from the exercise of stock options and warrants, and borrowings under the Company's credit facilities. The major application of cash proceeds was for working capital needs, for the acquisition of equipment for STAAR Surgical AG's facility in Switzerland, and for investments in patents and licenses. Cash flows from operating activities for 1995 improved by approximately $1 million from 1994 due to significantly improved results from operations offset partially by a build-up of inventory. Cash used in financing activities increased by approximately $2 million due to larger expenditures for property and equipment (approximately $3.5 million), patents and licenses (approximately $2 million), and other assets (approximately $600,000). Cash flows from financing activities in 1995 decreased by approximately $200,000 from 1994 due to payments made by the Company in connection with the repurchase of its common stock offset partially by an increase in borrowings under the Company's credit facilities. At December 29, 1995, the Company had $625,000 in capital leases in connection with an open-ended lease agreement wherein the Company reserved the right to lease up to $1.2 million in surgical equipment. The Company's obligations under this lease agreement is secured by a $600,000 letter of credit. The Company's capital expenditures for its years ended December 29, 1995 and December 30, 1994 were approximately $3.5 million and $2.2 million, respectively. All expenditures were used to upgrade existing production equipment, to set up new production facilities for new products ,and to maintain the Company's facilities in the ordinary course of business. The Company's planned capital expenditures for the current year are approximately $4 million, primarily to improve and expand the Company's foldable IOL, ICL and Glaucoma Wick manufacturing capacity. Capitalized additions for patents and licenses for the years ended December 29, 1995 and December 30, 1994 were approximately $2 million and $900,000, respectively. The Company capitalizes the costs of acquiring patents and licenses as well as the legal costs of successfully defending its rights to these patents. The Company expects to spend approximately $2.5 million in 1996 for patents and licenses. Management believes inflation has not had a significant impact on the Company's costs and prices during the past three years. Management believes the Company's currently projected cash and working capital requirements based upon its current levels of operations will be satisfied by either cash generated by operations or the Company's credit facilities. Should additional funding be needed, the Company believes, so long as the financial position of the Company remains constant, that these funds could be obtained. In January 1995 the Company announced a stock buyback program up to one million shares of the Company's common stock should management believe it beneficial to do so. The Company repurchased 175,000 shares of its common stock in 1995 for an aggregate of $1.6 million under this program. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS No. 121) issued by the Financial Accounting Standards Board (FASB), is effective for financial statements for fiscal years beginning after 20 December 15, 1995. The new standard establishes guidelines regarding when impairment losses on long-term assets, which include plant and equipment and certain identifiable intangible assets, should be recognized and how impairment losses should be measured. The Company does not expect adoption to have a material effect on its financial position or results of operations. Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" (SFAS No. 123) issued by the Financial Accounting Standards Board (FASB) is effective for specific transactions entered into after December 15, 1995, while the disclosure requirements of SFAS No. 123 are effective for financial statements for fiscal years beginning no later than December 15, 1995. The new standard establishes a fair value method of accounting for stock-based compensation plans and for transactions in which an entity acquires goods or services from non-employees in exchange for equity instruments. The Company does not expect adoption to have a material effect on its financial position or results of operations. At the present time, the Company has not determined if it will change its accounting policy for stock-based compensation or only provide the required financial statement disclosures. As such, the impact on the Company's financial position and results of operations is currently unknown. UNCERTAINTIES AND RISK FACTORS The Company may be subject to a number of significant uncertainties and risks including, without limitation and without purporting to be a complete or exhaustive list, and in addition to those described elsewhere in this Report, those described below, which may ultimately affect the Company in a manner and to a degree which cannot be foreseen at this time. MARKET ACCEPTANCE OF NEW PRODUCTS While the rate of the Company's revenue and earnings growth has, to date, been primarily dependent upon market acceptance of the Company's established IOL products, such growth will, in the future, be affected in part by the Company's success is introducing its new Glaucoma Wick, ICL and STAARVISC/tm/ products. While the Company believes its new products will provide important advantages over competing products and/or available alternatives, and will be competitively priced for the features provided, the extent and pace of such market acceptance will be a function of many variables, including the ability of the Company to educate potential ophthalmologists and consumers as to the distinctive characteristics and benefits of these products, price, product performance and attributes, product reliability, the effectiveness of marketing and sales efforts, and the ability to meet delivery schedules and requirements, as well as general economic conditions affecting customers' purchasing patterns. Further, since the Glaucoma Wick and ICLs are completely new medical devices, there is a material risk that the marketplace may not accept or be receptive to the potential benefits of these new products. HIGHLY COMPETITIVE INDUSTRY; TECHNOLOGICAL CHANGE Competition in the medical device field is intense, and is characterized by extensive research and development and rapid and significant technological change. Although the Company believes it is an industry leader with respect to the development of its products, there are a number of companies and/or academic institutions that have the financial, technical, marketing and support resources and trade name recognition which make them capable of successfully developing and/or marketing products based on similar technologies or approaches as those used in the Company's established or new products, or developing products based on other technologies or approaches, which are, or may be, competitive with those used in the Company's established or new products, and which could make the Company's products obsolete or less competitive. See "Business - Narrative Description of Business - Competition," herein. GOVERNMENT REGULATION AND UNCERTAINTY OF PRODUCT APPROVAL The manufacture and sale of the Company's products is subject to extensive international and domestic regulation. In order to sell the products within the United States, the products require clearance or approval from the FDA, which is an expensive and time consuming process. Foreign regulatory requirements differ from jurisdiction to jurisdiction. No assurance can be given that the Company will obtain regulatory 21 approvals or clearances, from the FDA or any domestic or international regulatory agency, on a timely basis or at all, or without delays adversely affecting the marketing and sale of the Company's products. In addition, approvals or clearances that have been or may be granted are subject to continual review, and later discovery of previously unknown problems may result in product labeling restrictions or withdrawal of products from the market. See "Business - Narrative Description of Business - Regulatory Requirements," herein. PATENTS AND PROPRIETARY RIGHTS The Company's ability to effectively compete is materially dependent upon the proprietary nature of the designs, processes, technologies and materials owned or used by or licensed to the Company. Although the Company attempts to protect its proprietary property, technologies and processes through a combination of patent law, trade secrets, non-disclosure agreements and technical measures, there is no assurance that any or all of these measures will prove to be effective. For example, in the case of patents, there can be no assurance that existing patents granted to the Company or its licensors will not be invalidated, that patents currently or prospectively applied for by the Company or its licensors will be granted, or that patents will provide significant commercial benefits. Moreover, it is possible that competing companies may engineer around the patents the Company or its licensors have received or made application. The invalidation or circumvention of key patents (principally the Company's core Mazzocco Patent) or proprietary rights owned by or licensed to the Company within the United States would have, and/or within selected foreign countries could have (depending generally on the economic importance of the country or countries), an adverse effect on the Company and on its business prospects. See "Business - Narrative Description of Business - Intellectual Property Rights" and "Pending Legal Proceedings," herein. RISKS OF INTERNATIONAL TRANSACTIONS The Company sells its products internationally. International transactions subject the Company to several potential risks, including fluctuating exchange rates (to the extent the Company's transactions are not in U.S. dollars), regulation of fund transfers by foreign governments, United States and foreign export and import duties and tariffs and political instability. There can be no assurance that any of the foregoing will not have a material adverse effect upon the business of the Company. PRODUCT LIABILITY CLAIMS As a supplier of products used in medical treatment, the Company faces an inherent business risk of exposure to product liability claims in the event the end use of its products result in unanticipated adverse effects, including serious personal injury or death. Certain of the Company's products, such as its Glaucoma Wick and its ICLs, are new products based upon unique designs and approaches. Such risk is more probable of occurring with respect to these products since they have a limited history of testing, use and performance, and unknown defects associated with such products may only be identified through the passage of time. No assurance can be given that the Company will not experience product liability claims in the future with respect to its established or new products. Any such product liability claim could have a material adverse effect on the Company, both as a result of a judgment against the Company, as well as an adverse affect with respect to sales and potential recalls of the purportedly defective product and sales of the Company's other products arising from potential negative publicity. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements and the Report of Independent Certified Public Accountants are filed with this Annual Report on Form 10-K in a separate section following Part IV, as shown on the index under Item 14(a) of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 22 PART III ITEMS 10., 11., 12. AND 13. Information required by Part III (Items 10., 11., 12. and 13.) is incorporated by reference to the Company's definitive proxy statement for its 1996 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
Page (a)(1) Financial statements required by Item B of this form are filed as a separate part of this report following Part IV: Report of Independent Certified Public Accountants (BDO Seidman, LLP)............. .............................. F-2 Consolidated Balance Sheets at December 29, 1995 and December 30, 1994............................................. F-3 Consolidated Statements of Income for the years ended December 29, 1995, December 30, 1994 and December 31, 1993.... F-4 Consolidated Statements of Stockholders' Equity for the years ended December 29, 1995, December 30, 1994 and December 31, 1993.......................................................... F-5 Consolidated Statements of Cash Flows for the years ended December 29, 1995, December 30, 1994 and December 31, 1993.... F-6 Notes to Consolidated Financial Statements..................... F-7 - F-24 (2) Schedules required by Regulation S-X are filed as an exhibit to this report: Independent Certified Public Accountants' Report on Schedule and Consent (BDO Seidman, LLP)................................. F-25 II. Valuation and Qualifying Accounts and Reserves.......... F-26 Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements notes thereto.
(3) Exhibits 3.1 Certificate of Incorporation, as amended./(1)/ 3.4 By-laws as amended/(11)/ 4.1 1983 Incentive Stock Option Plan./(5)/ 4.2 1990 Stock Option Plan./(2)/ 4.3 1991 Stock Option Plan./(4)/ 4.4 1995 STAAR Surgical Company Consultant Stock Plan./(8)/ 23 4.5 Stockholders' Rights Plan dated effective April 20, 1995./(9)/ 10.1 Non-Exclusive License Agreement dated March 13, 1986 between the Company and CooperVision, Inc./(7)/ 10.2 Technology License Agreement And Option To Purchase Equity Interest dated March 13, 1986 between the Company and CooperVision, Inc./(7)/ 10.3 License Agreement dated December 16, 1986 between the Company and Optical Radiation Corporation./(5)/ 10.4 Joint Venture Agreement dated May 23, 1988 between the Company, Canon Sales Co., Inc. and Canon, Inc./(6)/ 10.5 License Agreement dated March 9, 1990 between Chiron Ophthalmics, Inc. and the Company./(7)/ 10.6 License Agreement dated March 9, 1990 between Chiron Ophthalmics, Inc. and the Company./(7)/ 10.7 Form of Formula Stock Option Agreements granted to certain executive officers and directors of Company commencing in August 1990 in connection with 1990 Stock Option Plan./(5)/ 10.8 Promissory Note dated February 28, 1991 from John R. Wolf to the Company./(3)/ 10.9 Stock Pledge/Security Agreement dated February 28, 1991 between John R. Wolf, the Company and Pollet & Associates./(3)/ 10.10 Promissory Note dated February 28, 1991 from William C. Huddleston to the Company./(3)/ 10.11 Stock Pledge/Security Agreement dated February 28, 1991 between William C. Huddleston, the Company and Pollet & Associates./(3)/ 10.12 Amended and Restated Soft IOL License Agreement restated as of January 31, 1992 between the Company, Softlensco, Inc., and Iolab Corporation./(3)/ 10.13 Employment Contract For Director Of European Affairs dated March 23, 1992 between the Company and Donald Ferguson./(7)/ 10.14 Promissory Note dated May 26, 1992 from Andrew F. Pollet./(5)/ 10.15 Deed of Trust, dated September 21, 1992 by the Andrew F. Pollet and Sally M. Pollet Revocable Trust dated March 6, 1990./(5)/ 10.16 Promissory Note dated July 3, 1992 from William C. Huddleston to the Company./(5)/ 10.17 Stock Pledge/Security Agreement, dated July 3, 1992 between William C. Huddleston the Company and Pollet & Associates./(5)/ 10.18 Lease, dated November 9, 1992 by and between Linda Lee Brown and Phyllis Ann Bailey and the Company regarding real property located at 1911 Walker Avenue, Monrovia, California./(5)/ 10.19 Lease Addition, dated November 9, 1992 by and between Turner Trust, Dale E. Turner & Francis R. Turner, as Trustees and the Company to that certain lease dated October 20, 1983 regarding real property located at 1911 Walker Avenue, Monrovia, California./(5)/ 24 10.20 Supply and Distribution Agreement, dated December 21, 1992 between Intersectoral Research and Technology Complex Eye Microsurgery and the Company./(5)/ 10.21 Patent License Agreement dated May 24, 1995 with Eye Microsurgery Intersectoral Research and Technology Complex./(11)/ 10.22 Promissory Note dated March 18, 1993 from William C. Huddleston to the Company./(7)/ 10.23 Indenture of Lease dated September 1, 1993 with FKT Associates regarding real property located at 1900 South Myrtle Avenue, Monrovia, California./(7)/ 10.24 Loan and Security Agreement of STAAR Surgical Company dated December 13, 1993, with Greyhound Financial Capital Corporation./(7)/ 10.25 Patent Security Agreement and Conditional Assignment dated December 13, 1993 with Greyhound Financial Capital Corporation./(7)/ 10.26 Employment Agreement dated March 1, 1994 between the Company and Vladimir Feingold./(7)/ 10.27 Employment Agreement dated March 1, 1994 between the Company and William C. Huddleston./(7)/ 10.28 Employment Agreement dated March 1, 1994 between the Company and Carl M. Manisco./(7)/ 10.29 Employment Agreement dated March 1, 1994 between the Company and Michael J. Lloyd./(7)/ 10.30 Employment Agreement dated March 1, 1994 between the Company and Stephen L. Ziemba./(7)/ 10.31 Amended IOL Supply Agreement dated June 10, 1994 between the Company and Chiron Vision Corporation./(7)/ 10.32 Manufacturing Site Agreement dated June 10, 1994 between the Company and Chiron Vision Corporation./(7)/ 10.33 Form of Non-Qualified Stock Option Agreements granted to Directors of Company in June and August 1994./(7)/ 10.34 Agreement For Purchase And Sale Of Assets dated October 1, 1994 between STAAR Surgical Australasia Pty. Ltd. and Bionica Pty. Ltd./(7)/ 10.35 Agreement dated October 10, 1995, with China Eye Joint Venture./(11)/ 10.36 Agreement dated November 1994 between the Company and Norbrook Laboratories Limited./(7)/ 10.37 Modification To Employment Agreement dated December 20, 1994 between the Company and John R. Wolf./(7)/ 10.38 First Amendment To Sales Representative Agreement dated December 20, 1994 between the Company and John R. Wolf./(7)/ 21 List of Subsidiaries./(10)/ 24 Powers of Attorney 27 Financial Data Schedules 25 - ------------------------------- (Footnotes to Exhibits): (1) Incorporated by reference from the Company's Registration Statement on Form S-18 (File No. 2-83434). (2) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-37248, filed on October 11, 1990. (3) Incorporated by reference from the Company's Annual Report on Form 10-K for the year end December 31, 1991. (4) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-76404, filed on March 11, 1994. (5) Incorporated by reference from the Company's Annual Report on Form 10-K for the year end January 1, 1993. (6) Incorporated by reference from the Company's Annual Report on Form 10-K for the year end December 31, 1993. (7) Incorporated by reference from the Company's Annual Report on Form 10-K for the year end December 30, 1994. (8) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-60241, filed on June 15, 1995. (9) Incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Stockholders held on June 6, 1995, filed on May 12, 1995. (10) Filed herewith. (11) Refiled herewith pursuant to Reg. (S)201.24. (12) No significant subsidiaries. 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 27, 1996. STAAR SURGICAL COMPANY By: /s/ John R. Wolf --------------------------------------------------- John R. Wolf, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant on March 27, 1996 and in the capacities indicated. /s/ John R. Wolf President, Chief Executive Officer and - --------------------------------- Chairman John R. Wolf /s/ William C. Huddleston Vice President and Chief Financial - --------------------------------- Officer (principal accounting and William C. Huddleston financial officer) /s/ Peter J. Utrata, M.D.* Director - --------------------------------- Peter J. Utrata, M.D. /s/ Joseph C. Gathe, M.D.* Director - --------------------------------- Joseph C. Gathe /s/ Andrew F. Pollet* Director - --------------------------------- Andrew F. Pollet /s/ Michael R. Deitz, M.D.* Director - --------------------------------- Michael R. Deitz, M.D. * /s/ William C. Huddleston - --------------------------------- William C. Huddleston (Attorney in Fact) 27 STAAR SURGICAL COMPANY ANNUAL REPORT ON FORM 10-K FISCAL YEAR ENDED DECEMBER 29, 1995 SEC FILE NO.: 0-11634 VOLUME II STAAR SURGICAL COMPANY ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 29, 1995 FILED EXHIBITS INDEX EXHIBIT NUMBER 3.4 By-laws as amended 10.21 Patent License Agreement dated May 24, 1995 with Eye Microsurgery Intersectoral Research and Technology Complex 10.36 Agreement dated October 10, 1995, with China Eye Joint Venture 24 Powers of Attorney 27 Financial Data Schedules STAAR SURGICAL COMPANY AND SUBSIDIARIES --------------------------------------- CONSOLIDATED FINANCIAL STATEMENTS --------------------------------- YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994 AND DECEMBER 31, 1993 --------------------------------------- F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders STAAR Surgical Company We have audited the accompanying consolidated balance sheets of STAAR Surgical Company and subsidiaries as of December 29, 1995 and December 30, 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 29, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of STAAR Surgical Company and subsidiaries as of December 29, 1995 and December 30, 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 1995, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Los Angeles, California March 21, 1996 F-2 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 29, 1995 AND DECEMBER 30, 1994
============================================================================================== ASSETS (Note 5) 1995 1994 - --------------------------------------------------------------- ------------ ------------- Current assets: Cash and cash equivalents $ 3,767,011 $ 3,203,887 Accounts receivable, less allowance for doubtful accounts of $119,490 and $307,435 (Note 1) 7,492,439 5,307,708 Inventories (Note 2) 9,591,898 8,578,646 Prepaid, deposits and other current assets (Note 14) 917,895 609,623 Deferred income tax (Note 7) 3,323,724 2,400,000 ----------- ------------ Total current assets 25,092,967 20,099,864 ----------- ------------ Investment in joint venture (Note 4) 2,121,492 1,791,485 Property, plant and equipment, net (Note 3) 6,362,696 4,035,562 Patents and licenses, net of accumulated amortization of $826,715 and $527,544 (Notes 8, 9 and 10) 3,538,769 1,857,729 Other assets 1,687,066 1,103,561 ----------- ------------ $38,802,990 $ 28,888,201 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Notes payable (Note 5) $ 3,548,686 $ 1,465,850 Accounts payable 1,448,135 1,109,364 Current portion of long-term debt (Note 6) 480,151 326,375 Other current liabilities (Notes 12 and 13) 3,281,321 3,032,777 ----------- ------------ Total current liabilities 8,758,293 5,934,366 ----------- ------------ Long-term debt (Note 6) 1,212,178 571,755 Deferred gain on sale of license (Note 4) 143,750 331,250 Other long-term liabilities 10,743 21,871 ----------- ------------ Total liabilities 10,124,964 6,859,242 ----------- ------------ Commitments and contingencies (Notes 12 and 14) Stockholders' equity (Notes 11, 12 and 14): Common stock, $.01 par value, 40,000,000 shares authorized; issued and outstanding 12,784,148 and 12,704,461 127,841 127,045 Capital in excess of par value 40,325,287 41,158,736 Accumulated deficit (9,449,087) (16,930,807) ----------- ------------ 31,004,041 24,354,974 Notes and other receivables (Note 11) (2,326,015) (2,326,015) ----------- ------------ Total stockholders' equity 28,678,026 22,028,959 ----------- ------------ $38,802,990 $ 28,888,201 =========== ============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-3 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994 AND DECEMBER 31, 1993 ================================================================================
1995 1994 1993 ------------ ------------ ------------ Sales (Note 5) $34,180,420 $26,333,328 $19,602,501 Royalty income (Note 19) 514,000 1,020,046 473,227 ----------- ----------- ----------- Total revenues 34,694,420 27,353,374 20,075,728 Cost of sales 8,441,099 6,058,717 3,979,986 ----------- ----------- ----------- Gross profit 26,253,321 21,294,657 16,095,742 ----------- ----------- ----------- Selling, general and administrative expenses: General and administrative (Note 14) 5,000,484 4,364,722 4,907,372 Marketing and selling 10,911,240 8,694,134 6,997,725 Research and development 3,253,536 2,718,451 2,260,191 ----------- ----------- ----------- Total selling, general and administrative expenses 19,165,260 15,777,307 14,165,288 ----------- ----------- ----------- Operating income 7,088,061 5,517,350 1,930,454 ----------- ----------- ----------- Other income (expense): Equity in earnings of joint venture (Note 4) 517,507 867,389 626,722 Interest income (expense) - net (265,645) (168,413) (35,187) Other income (expense) 51,145 (74,012) 93,770 ----------- ----------- ----------- Total other income (expense) 303,007 624,964 685,305 ----------- ----------- ----------- Income before income taxes 7,391,068 6,142,314 2,615,759 Income tax benefit (provision) (Note 7) 90,652 2,184,000 (81,000) ----------- ----------- ----------- Net income $ 7,481,720 $ 8,326,314 $ 2,534,759 =========== =========== =========== Net income per share (Note 11): Primary $0.55 $0.63 $0.20 =========== =========== =========== Fully diluted $0.55 $0.62 $0.20 =========== =========== ===========
See accompanying summary of accounting policies and notes to consolidated financial statements. F-4 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994 AND DECEMBER 31, 1993 ================================================================================
Capital in Notes Common Excess of Accumulated Treasury and Other Prepaid Stock Par Value Deficit Stock Receivables Services Total --------- ------------ ------------- ------------ ------------ --------- ------------ Balance, at January 1, 1993 $121,078 $40,641,633 $(27,791,880) $(1,189,126) $(4,396,240) $(68,359) $ 7,317,106 Common stock issued in private placement (Note 11) 2,215 649,064 - - - - 651,279 Common stock issued upon exercise of options (Note 11) 2,669 1,098,999 - - (1,062,375) - 39,293 Common stock issued upon exercise of warrants (Note 11) 1,097 184,152 - - - - 185,249 Common stock issued as payment for services (Note 11) 561 244,917 - - - - 245,478 Common stock repurchased (Note 11) - - - (337,000) 337,000 - - Treasury stock retired (Note 11) (1,988) (1,524,138) - 1,526,126 - - - Payments on notes receivable (Note 11) - - - - 944,250 - 944,250 Service fees earned through December 31, 1993 - - - - - 68,359 68,359 Net income - - 2,534,759 - - - 2,534,759 -------- ----------- ------------ ----------- ----------- -------- ----------- Balance, at December 31, 1993 125,632 41,294,627 (25,257,121) - (4,177,365) - 11,985,773 Common stock issued in private placement (Note 11) 31 9,963 - - - - 9,994 Common stock issued upon exercise of options (Note 11) 1,865 692,574 - - (192,000) - 502,439 Common stock issued upon exercise of warrants (Note 11) 1,657 329,219 - - - - 330,876 Common stock issued as payment for services (Note 11) 759 369,741 - - - - 370,500 Common stock returned in exchange for notes receivable (Notes 11 and 14) (3,599) (1,936,688) - - 1,940,287 - - Common stock issued to purchase assets (Notes 11 and 14) 700 349,300 - - - - 350,000 Stock options issued as payment for services (Notes 11 and 12) - 50,000 - - - - 50,000 Payments on notes receivable (Note 11) - - - - 103,063 - 103,063 Net income - - 8,326,314 - - - 8,326,314 -------- ----------- ------------ ----------- ----------- -------- ----------- Balance, at December 30, 1994 127,045 41,158,736 (16,930,807) - (2,326,015) - 22,028,959 Common stock issued upon exercise of options (Note 11) 872 399,902 - - - - 400,774 Common stock issued upon exercise of warrants (Note 11) 277 32,987 - - - - 33,264 Common stock issued as payment for services (Note 11) 511 432,302 - - - - 432,813 Common stock repurchased and cancelled (1,750) (1,626,980) - - - - (1,628,730) Cash paid on common stock issued for cashless exercise of 138,026 options and warrants 886 (71,660) - - - - (70,774) Net income - - 7,481,720 - - - 7,481,720 -------- ----------- ------------ ----------- ----------- -------- ----------- Balance, at December 29, 1995 $127,841 $40,325,287 $ (9,449,087) $ - $(2,326,015) $ - $28,678,026 ======== =========== ============ =========== =========== ======== ===========
See accompanying summary of accounting policies and notes to consolidated financial statements. F-5 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994 AND DECEMBER 31, 1993 ================================================================================ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1995 1994 1993 ------------ ------------ ------------ Cash flows from operating activities: Net income $ 7,481,720 $ 8,326,314 $ 2,534,759 Adjustments to reconcile net income to net cash provided by (used) in operating activities: Depreciation and amortization of property and equipment 1,159,610 996,068 835,259 Amortization of patents and licenses 299,171 257,075 113,663 Provision for allowance for doubtful accounts 111,512 121,435 176,975 Increase (decrease) in inventory reserve for obsolescence (73,543) 9,665 9,012 Equity in earnings of joint venture (517,507) (867,389) (626,722) Recognition of deferred tax asset (923,724) (2,400,000) - Common stock issued for services 432,813 370,500 245,478 Options issued for services - 50,000 - Services performed in satisfaction of notes receivable - - 93,750 Prepaid services and other - - 68,359 Change in operating working capital (Note 15) (2,956,909) (2,898,393) (4,432,552) ----------- ----------- ----------- Net cash provided by (used in) operating activities 5,013,143 3,965,275 (982,019) ----------- ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (3,486,744) (2,152,646) (1,122,916) Issuance of notes receivable - (192,000) - Increase in patents and licenses (1,980,211) (872,983) (459,332) Increase in other assets (583,505) (835,169) (294,137) ----------- ----------- ----------- Net cash used in investing activities (6,050,460) (4,052,798) (1,876,385) ----------- ----------- ----------- Cash flows from financing activities: Increase in borrowings under notes payable and long-term debt 794,199 920,001 - Payments on other notes payable and long-term debt (11,128) - (638,456) Net borrowings (payments) under line-of-credit 2,082,836 (168,373) 1,634,223 Proceeds from the issuance of common stock 434,107 1,035,309 875,821 Cash paid in lieu of exercise of stock options and warrants (70,774) - - Proceeds from collections on notes receivable - 103,063 850,500 Payments for repurchase of common stock (1,628,799) - - ----------- ----------- ----------- Net cash provided by financing activities 1,600,441 1,890,000 2,722,088 ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents 563,124 1,802,477 (136,316) Cash and cash equivalents at beginning of year 3,203,887 1,401,410 1,537,726 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 3,767,011 $ 3,203,887 $ 1,401,410 =========== =========== ===========
See accompanying summary of accounting policies and notes to consolidated financial statements. F-6 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994 AND DECEMBER 31, 1993 ================================================================================ ORGANIZATION AND DESCRIPTION OF BUSINESS STAAR Surgical Company (the "Company") is incorporated in Delaware. The Company was initially formed to develop, produce and market soft foldable intraocular lenses ("IOLs") and other products for small incision cataract surgery. Upon receipt of FDA approval in the form of an Investigational Device Exemption ("IDE") for clinical studies in 1984, the Company began production and sale of its ELASTIC and conventional lens implants and began selling surgical packs used in cataract surgery. In September 1991, the Company obtained premarket approval from the FDA for its two primary products: the ELASTIC and ELASTIMIDE lenses. In April 1995, the Company obtained premarket approval from the FDA for its ultraviolet-absorbing IOLs. The Company develops, produces and markets a variety of ophthalmic products for use in micro or less invasive ophthalmic surgery. The Company currently produces and sells foldable IOL's, injection systems for the IOL's, Phacoemulsifcation systems to remove cataract lenses, surgical packs and glaucoma devices to treat glaucoma. The Company's future products, for which domestic distribution is dependent upon approval from the FDA, include Implantable Contact Lenses (ICL's) for the treatment of myopia, hyperopia and astigmatism, advanced devices for less invasive treatment of glaucoma and hyaluronic acid, a liquid used in cataract surgery. In 1993, the Company formed a wholly-owned subsidiary named STAAR Surgical A.G. which was registered in the Canton of Berne, Switzerland. STAAR Surgical Australasia Pty. Ltd., and STAAR Surgical Canada, Ltd. were both formed as sales subsidiaries in 1994. Additionally, STAAR Surgical A.G. formed a wholly-owned subsidiary named STAAR Surgical France, SARL in 1993 and STAAR Surgical South Africa Pty. Ltd. in 1994, STAAR Surgical Austria GmbH and STAAR Surgical Germany in 1995. These subsidiaries were formed to support the Company's expansion into Europe, Asia, and other international markets and, in the case of STAAR Surgical A.G., to manufacture and distribute the Company's current and future products for worldwide distribution. BASIS OF PRESENTATION The accompanying financial statements consolidate the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Assets and liabilities of foreign subsidiaries are translated at rates of exchange in effect at the close of the period. Revenues and expenses are translated at the weighted average of exchange rates in effect during the year. During 1995, 1994 and 1993, foreign currency translation and transaction gains and losses were not material. Investments in affiliates and joint ventures are accounted for using the equity method of accounting. The Company's fiscal year ends on the Friday nearest December 31. F-7 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES (CONTINUED) ================================================================================ REVENUE RECOGNITION The Company records revenues from product sales to hospitals and physicians principally upon implant of IOL's from cataract surgery. Revenues from product sales to distributors (primarily export sales) are recorded upon shipment. The Company experiences a minimum amount of returns. Revenue from license and technology agreements is recorded as income when the Company has satisfied the terms of such agreements and has knowledge of the amounts. EXPORT SALES During the years ended December 29, 1995, December 30, 1994 and December 31, 1993 the Company had export sales, primarily to Europe, South Africa, Australia, and Southeast Asia, of approximately $8,133,000, $4,284,000 and $2,360,000. Of these sales, approximately $4,841,000, $3,361,000 and $1,784,000 were to Europe, which is the Company's principal foreign market, for the years ended December 29, 1995, December 30, 1994 and December 31, 1993. The Company sells its products internationally. International transactions subject the Company to several potential risks, including fluctuating exchange rates (to the extent the Company's transactions are not in U.S. dollars), regulation of fund transfers by foreign governments, United States and foreign export and import duties and tariffs and possible political instability. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out) or market (net realizable value). PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives, which are generally not greater than five years. Leasehold improvements are amortized over the life of the lease or estimated useful life, if shorter. PATENTS AND LICENSES The Company capitalizes the costs of acquiring patents and licenses as well as the legal costs of successfully defending its rights to these patents. Amortization is computed on the straight-line basis over the estimated useful lives, which range from 8 to 17 years. The patent and costs are periodically reviewed each year based on management's estimates of sales of the related products. Patent and license costs are expensed when determined worthless. F-8 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES (CONCLUDED) ================================================================================ PATENTS AND LICENSES (Continued) The Company has been and continues to be involved in litigation to protect the position of the Company concerning its patents and its proprietary technology, and intends in the future to continue to vigorously prosecute and/or defend the position of the Company and its licensees as to its or their patents and other proprietary technology. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, contingent liabilities, revenues, and expenses at the date and for the periods that the financial statements are prepared. Actual results could differ from those estimates. NET INCOME PER SHARE Primary net income per share has been computed by dividing net income by the weighted average number of common shares and common stock equivalents (outstanding warrants and options) outstanding during the period. For the three years ended December 29, 1995, the weighted average number of shares is computed using a treasury stock method, under which the number of common stock equivalent shares outstanding reflects and assumed use of the proceeds from the issuance of such shares and from the assumed exercise of such common stock options and warrants to repurchase shares of the Company's common stock at the current fair values. For purposes of calculating fully diluted net income per share for the three years ended December 29, 1995, common stock equivalents arising from the exercise of warrants and options were converted using the year-end market price of the Company's common stock. The number of common and common equivalent shares used for computing primary and fully diluted net income per share were as follows:
1995 1994 1993 ---------- ---------- ---------- Primary 13,678,882 13,170,027 12,822,683 Fully diluted 13,715,097 13,500,363 12,858,796
RECLASSIFICATIONS Certain reclassifications have been made to the 1994 and 1993 consolidated financial statements to conform with the 1995 presentation. F-9 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994 AND DECEMBER 31, 1993 ================================================================================ NOTE 1 - ACCOUNTS RECEIVABLE Accounts receivable are summarized as follows:
1995 1994 ----------- ---------- Domestic $ 4,486,125 $4,106,147 Export 2,611,804 1,382,230 Royalties 514,000 126,766 ----------- ---------- 7,611,929 5,615,143 Less allowance for doubtful accounts 119,490 307,435 ----------- ---------- $ 7,492,439 $5,307,708 =========== ========== NOTE 2 - INVENTORIES Inventories are summarized as follows: 1995 1994 ----------- ---------- Raw materials and purchased parts $ 1,104,203 $ 602,058 Work in process 1,143,119 1,263,943 Finished goods 7,344,576 6,712,645 ----------- ---------- $ 9,591,898 $8,578,646 =========== ========== NOTE 3 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized as follows: 1995 1994 ----------- ---------- Machinery and equipment $ 7,693,617 $4,996,957 Furniture and fixtures 3,073,911 2,623,951 Leasehold improvements 2,150,158 1,810,034 ----------- ---------- 12,917,686 9,430,942 Less accumulated depreciation and amortization 6,554,990 5,395,380 ----------- ---------- $ 6,362,696 $4,035,562 =========== ==========
F-10 NOTE 4 - INVESTMENT IN JOINT VENTURE The Company participates with a 50% interest in a joint venture, the CANON-STAAR Company, Inc. ("CSC"), with Canon Inc. ("Canon") and Canon Sales Co. ("Canon Sales") owning the remaining 50%. The purpose of the joint venture is to manufacture and sell the Company's IOL products to Canon Sales any other distributors in Japan. The Company sold CSC, an exclusive license to manufacture and market its products in Japan. The Company recorded $1,500,000 of deferred revenue on the sale of the license which is being recognized over eight years through 1996 on a straight-line basis. The Company uses the equity method of accounting for this investment. The financial statements of CSC include assets of approximately $5,454,000 and $5,078,000 and liabilities of approximately $654,000 and $643,000 as of December 29, 1995 and December 30, 1994. The Company's equity in earnings of the joint venture is calculated as follows:
1995 1994 1993 ---------- ----------- --------- Joint venture net income $660,014 $1,359,778 $878,444 Equity interest 50% 50% 50% -------- ---------- -------- Equity in net income 330,007 679,889 439,222 Recognition of deferred gain on sale of license 187,500 187,500 187,500 -------- ---------- -------- Equity in earnings of joint venture $517,507 $ 867,389 $626,722 ======== ========== ========
The Company recorded sales of certain IOL products to CSC of approximately $171,000, $262,000 and $248,000 in 1995, 1994 and 1993. NOTE 5 - NOTE PAYABLE In December 1993, the Company entered into a three year revolving credit facility which provides for borrowings up to $3,000,000, limited to 75% of eligible accounts receivable, at the prime interest rate (8.5% and 8.5% at December 29, 1995 and December 30, 1994) plus 2.75% at December 29, 1995 and 3.5% at December 30, 1994. The weighted average interest rate was 11.63% and 10.32% for fiscal 1995 and 1994. The loan is secured by substantially all of the assets of the Company and contains certain restrictive covenants including the maintenance of various financial ratios and a limitation of indebtedness to others and payment of dividends. The maximum borrowings outstanding under this facility during 1995 was approximately $2,800,000. Borrowings outstanding at December 29, 1995 and December 30, 1994 were $2,511,741 and $1,465,850, respectively. The Company was in compliance with the restrictive covenants as of December 29, 1995. In May 1994, the Company entered into a separate revolving credit facility with a Swiss bank which provides for borrowings up to 1,125,000 Swiss Francs ($968,992 at the exchange rate at December 29, 1995) at the interest rate of 5.5%. A commission rate of 0.25% is payable each quarter. The loan does not have a termination date and is secured by a general assignment of claims. Borrowings outstanding under this facility as of December 29, 1995 and December 30, 1994 was 1,203,893 Swiss Francs ($1,036,945) and -0-. F-11 NOTE 6 - LONG-TERM DEBT Long-term debt consists of the following:
1995 1994 ---------- -------- Note payable to bank, interest at 6.25%, payable in four annual installments plus interest beginning in 1996, guaranteed by the Swiss federal government $ 991,703 $764,801 Note payable to equipment vendor, interest at 13%, payable in monthly installments plus interest through December 1999, secured by equipment 124,379 133,329 Obligations under capitalized leases (see Note 12) 576,247 - ---------- -------- 1,692,329 898,130 Less current portion 480,151 326,375 ---------- -------- Long-term debt due after one year $1,212,178 $571,755 ========== ========
Based on the borrowing rates currently available to the Company for similar bank and equipment loans and capitalized leases, the amounts stated above approximate the fair value of the respective financial instruments. NOTE 7 - INCOME TAXES Effective January 2, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (the "Statement") which requires, among other things, a change from the deferred method to the asset and liability method of accounting for income taxes. The impact on net income and financial position of this change in accounting was not material to 1993. As a result of the adoption of the Statement, the tax benefits of net operating loss carryforwards utilized in 1995, 1994 and 1993 are presented in the Consolidated Statement of Operations as reductions of the provisions for income tax. The provision (benefit) for income taxes consist of the following:
1995 1994 1993 ---------- ------------ ------- Domestic currently payable: Federal (net of $2,513,000, $1,608,000 and $762,000 tax benefit from operating loss carryforwards) $ 149,000 $ 138,000 $50,000 State (net of $-0-, $441,000 and $190,000 tax benefit from operating loss carryforwards) 684,000 78,000 31,000 --------- ----------- ------- 833,000 216,000 81,000 Deferred tax assets, net (924,000) (2,400,000) - --------- ----------- ------- $ (91,000) $(2,184,000) $81,000 ========= =========== =======
F-12 NOTE 7 - INCOME TAXES (Continued) Deferred taxes arise from timing differences in recognizing expenses for tax purposes and financial statement purposes. These timing differences consist primarily of book depreciation in excess of tax depreciation, deduction of state income taxes for federal tax purposes that differ from book purposes, capitalization of certain inventory costs for tax purposes, amortization of intangibles and other deferred assets for tax purposes in excess of book amortization and accruals for expenses and losses that are not deductible for tax purposes until paid or realized. At December 29, 1995, the Company had net operating loss carryforwards of approximately $7,584,000 for federal income tax purposes expiring at various dates between 1999 and 2006. The Company has utilized all of its remaining tax loss carryforwards for California income tax purposes during 1995. Alternative minimum tax and research and experimentation tax credit carryforwards at December 29, 1995 were approximately $300,000 and $481,000 for tax purposes. The tax credits expire at various dates through 2004. The provision (benefit) based on income from continuing operations differs from the amount obtained by applying the statutory federal income tax rate to income before taxes as follows:
Liability Method -------------------------- 1995 1994 1993 ------- ------- ------ Computed provision (benefit) for taxes based on income at statutory rate 34.0% 34.0% 34.0% Permanent differences .2 (2.2) .2 State taxes, net of federal income tax benefit 7.7 5.7 6.3 Tax benefit of net operating loss carryforward (28.2) (37.5) (40.5) Alternative minimum tax 1.7 2.2 2.5 Reduction of valuation allowance (18.5) (39.1) - Other 2.1 1.3 .6 ----- ----- ----- (1.0%) (35.6%) 3.1% ===== ===== ====
The reduction of the valuation allowance is lower than would be expected due to utilization of net operating loss carryforwards caused by a difference in the Company's tax year end and the financial accounting year end. F-13 NOTE 7 - INCOME TAXES (Continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 29, 1995 and December 30, 1994 are as follows:
1995 1994 ----------- ------------ Deferred tax assets: Allowance for doubtful accounts $ 44,000 $ 119,374 Inventory reserves and uniform capitalization 262,000 279,890 Accrued vacation 117,600 91,761 Amortization of deferred gain 57,600 132,500 Accrued expenses - 310,530 Depreciation and amortization (670,000) 41,667 State taxes 153,000 181,762 Net operating loss carryforwards 2,578,524 6,147,588 Tax credits 781,000 714,000 ---------- ----------- Total deferred tax assets 3,323,724 8,019,072 Valuation allowance for deferred tax assets - (5,619,072) ---------- ----------- Recognition of deferred tax assets $3,323,724 $ 2,400,000 ========== ===========
As a result of the Company's positive operating results for each of the three years ended December 29, 1995, the Company determined that a deferred tax asset of $923,724 and $2,400,000 should be recognized as of December 29, 1995 and December 30, 1994. This amount was based on a consideration of current and future anticipated earnings. Income levels in 1996 and 1997 similar to those of 1995 should result in full recognition of the deferred tax asset. The amount recorded as of December 29, 1995 includes the capitalization of the remaining balance of the Company's net operating loss carryforwards. Management believes it is more likely than not that the deferred tax assets will be realized in full. NOTE 8 - PATENTS During 1995 the Company acquired from the Intersectoral Research and Technology Complex Eye Microsurgery ("IRTC"), a Russian Federation located in Moscow, Russia, exclusive patent rights to use and sell glaucoma devices in the United States and certain foreign countries. Also, subsequent to year end the Company acquired from IRTC exclusive rights to several domestic and foreign patents associated with the Company's implantable contact lenses (ICLs). The transactions involve a specified amount for the patent rights and payments of royalties over the life of the patents. F-14 NOTE 9 - ALLERGAN MEDICAL OPTICS LICENSING AGREEMENT In June 1990, the Company granted Allergan Medical Optics ("AMO") a co-exclusive (except as to STAAR and existing license) license as to certain of its then existing foldable IOL patents, and also agreed to spend up to $1 million in enforcing and defending these patents. In turn, AMO agreed, among other consideration, to pay the Company $2.5 million in non-refundable prepaid royalties. During 1994 and 1993, not withstanding the litigation noted below, the Company received or accrued royalties in excess of the prepayments resulting in the recognition of royalty income of $1,020,046 and $473,227, respectfully. The Company is unsure as to how much royalties, if any, will be paid in future years. The Company is involved in certain patent infringement litigation with Allergan relating to a patent for an apparatus for insertion of an intraocular lense. The Company is claiming the patent on which it is being sued was obtained by fraud and that it does not violate the patent for the apparatus. Furthermore, the Company alleges that its inserters fall within the Company's patent for instruments. While the Company believes it will prevail in this litigation, the outcome is uncertain and the effects of an adverse outcome, if any, is unknown at this time. NOTE 10 - LICENSING AGREEMENTS The Company has also issued Alcon Surgical, Inc. (Alcon), Chiron Vision Corporation (Chiron), IOLAB Corporation (now owned by Chiron) and Optical Radiation Corporation with licenses to utilize certain of its patents involving foldable IOL's in the United States and selected foreign countries. Each license has a certain amount of prepaid royalties (which were received by the Company when the license was issued) which will be utilized by that licensee as sales of the licensed products are made. The Company recorded $514,000 of royalty income in 1995 related to these licenses. The Company is involved with certain litigation with Alcon concerning the ownership and validity of the underlying patent and license agreement. The Company believes it will prevail in the litigation, however, the outcome is uncertain and the effects of an adverse outcome, if any, is unknown. NOTE 11 - STOCKHOLDERS' EQUITY PRIVATE PLACEMENTS OF RESTRICTED COMMON STOCK In February 1991, the Company concluded a private placement of common stock and warrants to purchase common stock, in which 813,245 warrants were issued to purchase one common share, at an exercise price of $6.00. In June 1992, the warrants were called at $13.00 per share and all holders were given one month to exercise. As an inducement to each participant, the Company offered financing of up to 80% of the exercise price. Six participants elected to exercise, including the following: a director of the Company for 122,223 shares in exchange for a promissory note of $733,335; an officer of the Company for 16,667 shares in exchange for cash of $20,000 and a promissory note of $80,000; and other individuals for 6,256 shares in exchange for cash of $15,676 and promissory notes totaling $19,469. The director's and officer's promissory note bears interest at 8% with principal and interest due on May 31, 1997. The other promissory notes have been paid. The notes are all secured by a Stock Pledge Security Agreement. F-15 NOTE 11 - STOCKHOLDERS' EQUITY (Continued) Notes receivable for $994,250 remaining outstanding at January 1, 1993 in connection with two 1992 private placements was paid in full during 1993. In October 1993, the Company completed a private placement to individuals in which 221,464 shares of common stock were issued at $3.25 per share in exchange for cash of $719,758. The Company incurred $6,479 in legal fees in connection with this private placement which were accounted for as a reduction of total proceeds received. COMMON STOCK In September 1990, the Company issued two officers 312,500 shares of common stock in connection with employment contracts in exchange for promissory notes totaling $375,000. These shares vested in 16 quarterly installments beginning in January 1991. The unamortized balance of the notes was paid in full during 1994. Compensation expense of $58,590 and $93,750 is included in general and administrative expenses for the years ended December 30, 1994 and December 31, 1993. Included in common stock outstanding at December 30, 1994 and December 31, 1993, respectively, are 55,000 and 29,523 shares purchased or earned in 1993 and 1992, but not issued until 1994 and 1993. Consideration for these shares was in the form of cash, notes and services totaling $85,000 and $114,556. In 1994, the Company issued 75,914 shares to consultants for services rendered to the Company. In September 1994, the Company issued 70,000 restricted shares of its common stock to its subsidiary, STAAR Surgical Australasia Pty. Ltd. to purchase the assets of Bionica Inc., the Company's distributor in Australia. Also, in April 1994, 359,906 shares of the Company's common stock was returned to the Company by a former officer in exchange for his promissory notes to the Company totaling $1,940,287 which the officer in prior years had issued to the Company to purchase common stock. The shares were canceled by the Company. In 1995, the Company issued 51,111 shares to consultants for services rendered to the Company. Also, during 1995 the Company repurchased and cancelled 175,000 shares and paid cash in lieu of exercise for 49,363 options and warrants which were then cancelled. Total consideration paid for the repurchased shares, options and warrants was $1,699,573. TREASURY STOCK During 1993, the Company purchased a total of 101,843 shares in exchange for the retirement of a note receivable for $337,000. These shares were retired during 1993. F-16 NOTE 11 - STOCKHOLDERS' EQUITY (Continued) NOTES RECEIVABLE As of December 29, 1995 and December 30, 1994, notes receivable from four officers and a director totalling $2,326,015 was outstanding. The notes were issued in connection with purchases of the Company's common stock. The notes bear interest at rates ranging between 6% and 8%, or at the lowest federal applicable rate allowed by the Internal Revenue Service. The notes are secured by stock pledge agreements and mature on various dates through May 1998. OPTIONS The table below summarizes the transactions in the Company's several stock option plans:
Number Exercise Aggregate of Shares Price Value ---------- -------------- ------------ Balance at January 2, 1993 1,279,870 2.00 to 9.25 $ 5,802,851 Options granted 75,000 $4.00 300,000 Options exercised (266,916) 2.25 to 4.75 (1,101,668) Options forfeited (117,317) 2.00 to 5.62 (403,061) --------- ----------- Balance at December 31, 1993 970,637 2.00 to 9.25 4,598,122 Options granted 636,500 4.00 to 7.00 3,013,000 Options exercised (186,550) 2.50 to 5.87 (698,198) Options forfeited (101,833) 2.50 to 5.87 (532,921) --------- ----------- Balance at December 30, 1994 1,318,754 2.00 to 9.25 6,380,003 Options granted 35,000 4.00 to 4.75 163,750 Options exercised (116,192) 2.50 to 6.00 (473,526) Options forfeited (9,808) 2.00 to 9.25 (90,431) --------- -------------- ----------- Balance at December 29, 1995 1,227,754 2.00 to 9.25 $ 5,929,796 ========= ============== =========== OPTIONS EXERCISABLE (VESTED) AT DECEMBER 29, 1995 1,222,420 2.00 TO 9.25 $ 5,958,460 ========= ============== ===========
Included in the table above are options for 37,354 shares outstanding at December 29, 1995 with an exercise price of $2.50 per share, pursuant to the Company's 1990 Stock Option Plan. Generally options under these plans are granted at fair market value at the date of the grant, become exercisable over a 3-year period, or as determined by the Board of Directors, and expire over periods not exceeding 10 years. F-17 NOTE 11 - STOCKHOLDERS' EQUITY (Continued) In May 1992, the stockholders of the Company approved the 1991 Stock Option Plan effective August 1, 1991, authorizing the issuance of the Company's common stock or issuance upon the exercise of options under the plan. Under provisions of the 1991 Stock Option Plan, 2,000,000 shares were reserved for issuance. Generally, options under the plan are granted at fair market value at the date of the grant, become exercisable over a 3-year period, or as determined by the Board of Directors, and expire over periods not exceeding 10 years. Pursuant to this plan, options for 822,900 shares were outstanding at December 29, 1995 with exercise prices ranging between $2.50 to $5.87 per share. During 1993, 266,916 options were exercised by officers, employees and others at an exercise price of $2.25 to $4.75 resulting in cash proceeds of $39,293 and receipt of promissory notes of $1,062,375 which are included as a reduction of to stockholders equity as of December 31, 1993. The notes bear interest at 8%, and are secured by a Stock Pledge Security Agreement whereby the purchased shares are held as collateral by a Trustee until the note is repaid. Principal and interest on the notes are all due and payable by April 1, 1997. Also during 1993, 75,000 options were granted at an exercise price of $4.00 per share to directors of the Company. These options were fully vested on the grant date. In 1994 the Company granted options to Officers, Directors and consultants to purchase 636,500 shares of the Company's common stock at prices ranging from $4.00 to $5.00. Out of the above, 238,000 options were issued under the 1991 stock option plan and 398,500 options were issued as non-qualified stock options. Out of the above, 100,000 of the non-qualified stock options were vested in 1995. In 1994, officers, employees, and others exercised 131,000 options from the 1990, 1991, and non qualified stock option plans at prices from $2.50 to $5.875 in exchange for cash of $505,064 and a promissory note of $192,000. The promissory note is included as a reduction to stockholders' equity as of December 30, 1994. The note bears interest at 8% payable in monthly installments and is secured by a Stock Pledge Security Agreement. Principal and any unpaid interest are due on April 1, 1997. In 1995, officers, employees, and others exercised 116,192 options from the 1990 and 1991 stock options plans at prices from $2.50 to $6.00 in exchange for cash of $473,526. F-18 NOTE 11 - STOCKHOLDERS' EQUITY (Continued) WARRANTS The table below summarizes the transactions related to the Company's warrants to purchase common stock:
Number Exercise Aggregate of Shares Price Value ---------- --------------- ------------- Balance at January 2, 1993 1,702,968 $.60 to $12.00 $ 8,135,607 Warrants granted 110,000 $2.00 to $ 4.62 298,750 Warrants exercised (109,733) $.60 to $ 5.50 (185,249) Warrants expired (487,710) $.60 to $12.00 (2,337,682) --------- ----------- Balance at December 31, 1993 1,215,525 $.60 to $12.00 5,911,426 Warrants exercised (165,667) $1.20 to $4.625 (330,876) Warrants expired (578,884) $2.72 to $ 8.00 (4,616,444) --------- ----------- Balance at December 30, 1994 470,974 $ .60 to $5.50 964,106 Warrants exercised (136,747) $ .60 to $4.24 (296,852) Warrants expired (49,833) $2.72 to $4.24 (131,002) --------- --------------- ----------- Balance at December 29, 1995 284,394 $ .60 to $5.50 $ 536,252 ========= =============== ===========
All warrants are exercisable as of December 29, 1995. During the year ended December 31, 1993, the Company granted warrants to purchase 80,000 shares of restricted common stock to its former president in connection with a litigation settlement (see Note 14) and warrants to purchase 30,000 shares of common stock to an outside consultant. Also in 1993, sales representatives, employees, outside consultants and a director exercised 109,733 warrants for the Company's common stock at prices from $0.60 to $5.50 per share, resulting in proceeds of $184,850. In 1994, 165,667 warrants were exercised at prices ranging from $1.20 to $4.62 per share resulting in proceeds of $330,876. Also, in 1994, 578,884 warrants expired unexercised. The majority of these warrants were issued in conjunction with past private placements. In 1995, 136,747 warrants were exercised at prices ranging from $0.60 to $4.24 per share for cash and/or stock (at market price effective on the date of exercise) in the amount of $296,852. The stock used to exercise the options was cancelled and shown as a reduction in common stock and additional paid in capital on the balance sheet. F-19 NOTE 12 - COMMITMENTS AND CONTINGENCIES LEASE OBLIGATIONS The Company leases certain property, plant and equipment under capital and operating lease agreements. In the later part of 1995, the Company entered into a capital lease agreement to finance surgical equipment that will be sent to China in exchange for a five year exclusive supply agreement with a hospital in Hangzhou, China. The Company committed a $600,000 letter of credit as further collateral for the lease. Annual future minimum lease payments under noncancellable capital and operating lease commitments as of December 29, 1995 are as follows:
Capital Operating Fiscal Year Leases Leases - ------------------------------------------------------------------ --------- ---------- 1995 $229,740 $ 682,069 1996 229,740 617,455 1997 176,011 500,702 1998 - 469,789 1999 - 469,789 Thereafter - 625,636 -------- ---------- Total minimum lease payments 635,491 $3,365,440 ========== Imputed interest 59,244 -------- Present value of net minimum lease payments $576,247 ========
Rent expense included in continuing operations was approximately $606,000, $406,000 and $409,000 for the years ended December 29, 1995, December 30, 1994 and December 31, 1993. F-20 NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued) LITIGATION AND CLAIMS In addition to litigation discussed in Note 9, the Company is involved in the following proceedings: In February 1990, the Company and an outside party were charged with a $10,000,000 product liability claim arising from injuries purportedly suffered by a patient as a result of a lens manufactured by Lynell, a subsidiary of the Company. The Company believes that any liability was discharged as part of Lynell's reorganization under the Federal Bankruptcy Code prior to the Company's acquisition of Lynell. In addition, Lynell is being defended by its liability carrier. These proceedings are presently administratively off the calendar as of August 1994. If the lawsuit is reactivated, the Company believes that any liability that may result will not be material to the consolidated financial position or results of operations. The Company was involved in several legal actions surrounding its former President ("Waggoner"). The disputes related primarily to the removal of Waggoner from control of the Company, limitations placed on Waggoner's current holdings of the Company's stock, and certain actions taken by Waggoner while he served as the Company's President. Various claims and counterclaims had been filed by both the Company and Waggoner as a result of these disputes. In February 1993, the Company entered into an agreement with Waggoner to settle litigation between the parties. In connection with the settlement, the Company paid Waggoner $150,000 and issued 400,000 shares of the Company's common stock (200,000 shares to Waggoner at closing and 200,000 shares held in escrow, with 100,000 shares released January 31, 1994 and 100,000 shares released January 31, 1995). In addition, the Company issued Waggoner an option to purchase 25,000 shares of the Company's restricted common stock at 50% of market value, expiring on February 28, 1995, and agreed to release 114,333 shares of common stock that Waggoner currently owned. Waggoner exercised these options during 1995 at $4.75 per share. The Company also extended the terms of existing options to February 28, 1994, which allowed Waggoner to purchase 80,000 shares of restricted common stock at $2.00 per share. As a result of the agreement, the Company recognized litigation settlement expense of $3,126,214 for the year ended January 1, 1993, of which $1,326,214 was nonrecurring legal expense associated with the settlement. The Company is involved in other legal actions and claims arising in the ordinary course of business. It is the opinion of management (based on advice of legal counsel) that such litigation will be resolved without material effect on the Company's financial position. F-21 NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued) OTHER COMMITMENTS During 1993, the Company entered into consulting agreements with certain individuals to assist the Company in the development of new products and the promotion of its current products. Such agreements provide for payments of cash, shares of the Company's common stock and options to purchase the Company's common stock, at $7 to $11 per share over a six year period. The aggregate commitment under these agreements at December 29, 1995 is approximately $1,511,000 in cash, $975,000 worth of common stock, 24,000 shares and 102,500 options. Included in other current liabilities at December 29, 1995 and December 30, 1994 is approximately $505,000 and $487,000 due to these consultants payable in cash and shares of the Company's common stock. In February 1993, the Company entered into a supply and distribution agreement with Eye Microsurgery Intersectoral Research and Technology of Moscow, Russian Federation ("MNTK"). As provided in the agreement, MNTK will supply the Company with specified ophthalmic products and devices over a five year period and grant the Company exclusive distribution rights to market the products in specified foreign countries and the U.S. The Company has agreed to purchase minimum quantities of certain products totaling $41,300 on an annual basis. Also, in 1995, the Company acquired a patent owned by MNTK for a Glaucoma device. The Company is required to pay royalties on the sale of these devices. NOTE 13 - OTHER LIABILITIES Included in other current liabilities are approximately $1,567,000 and $1,558,000 of commissions due to outside sales representatives at December 29, 1995 and December 30, 1994, respectively. During 1993, the Company established a discretionary profit sharing plan for various employees based upon 5% of pre-tax profits and subject to the achievement of certain goals. These goals were achieved during 1993 resulting in the accrual of $129,000 in bonuses which are included in other current liabilities and general and administrative expenses. This plan was discontinued for 1994. NOTE 14 - RELATED PARTY TRANSACTIONS The Company has had significant related party transactions as discussed in Notes 4, 8, 9, 10, 11, and 12. During 1993, the Company entered into a one year, $250,000 contract with a company partially owned by one of the Company's officers to perform consulting services. $150,000 of the contracted services were performed during 1993 and the remainder was performed in 1994. F-22 NOTE 14 - RELATED PARTY TRANSACTIONS (Continued) Included in other current assets are approximately $11,000 and $50,000 of receivables from related parties at December 30, 1994 and December 31, 1993, respectively, representing advances to outside sales representatives and other employees. Also included in other current assets at December 30, 1994 is a $120,000 note receivable from one of the Company's officers. The note bears annual interest at 8% payable in monthly installments, with the principal and any unpaid interest due on April 1, 1997. During 1995, 1994 and 1993, a director of the Company received approximately $256,000, $525,000 and $824,000 for fees in connection with legal and other services performed on behalf of the Company. At December 30, 1994 approximately $25,000 was due to this director. Pursuant to an employment agreement with one of its officers, the Company has appointed that officer as "Sales Representative" through a corporation controlled by that officer. The agreement provides for payment of commissions based upon a percentage of the Company's sales. Commissions paid or accrued under this arrangement totaled approximately $322,000, $263,000 and $214,500 during 1995, 1994 and 1993, respectively. In October 1994, the Company's subsidiary, STAAR Surgical Australasia Pty., Ltd. purchased the assets of the Company's Australian distributor for approximately $500,000. An officer of the Company was a director of the distributor and owned over 50% of its common stock. In 1994, the Company entered into a four year non-compete agreement with a former Officer and Director of the Company. The Company paid the Officer $358,092 and agreed to take 359,906 shares of the Company's common stock as payment for $1,940,287 in promissory notes the individual owed the Company. The shares were returned and the promissory notes were canceled. The non-compete agreement is included in other assets on the balance sheet and is being written off over a four year time period. A total of $110,330 and $91,941 was amortized during 1995 and 1994, respectively. Included in other assets at December 29, 1995 and December 30, 1994 was $239,048 and $349,378, respectively, related to a non compete agreement with a former officer and director of the Company. The cost of this agreement is being amortized on a straight line basis over its four year life. NOTE 15 - STATEMENTS OF CASH FLOWS Net cash provided by operating activities includes interest paid of approximately $419,000, $206,000 and $25,000 for the years ended December 29, 1995, December 30, 1994, and December 31, 1993. Income taxes paid amounted to approximately $947,000, $14,800 and $2,400 for the years ended December 29, 1995, December 30, 1994 and December 31, 1993. During 1994, the Company received 359,906 shares of its common stock in exchange for settlement of notes receivable totaling $1,940,287 from a former officer of the Company. During 1994, the Company issued $500,000 of common stock to purchase assets. F-23 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) ================================================================================ NOTE 15 - STATEMENTS OF CASH FLOWS (Continued) Changes in operating working capital as shown in the consolidated statements of cash flows for the years ended December 29, 1995, December 30, 1994 and December 31, 1993 are comprised of:
1995 1994 1993 ------------ ------------ ------------ Decrease (increase) in: Accounts receivable $(2,296,243) $(1,536,712) $(1,557,251) Inventories (939,709) (605,979) (3,153,263) Prepaids, deposits and other current assets (308,272) (196,531) (60,700) Increase (decrease) in: Accounts payable 338,771 (329,304) (128,297) Other current liabilities 248,544 (165,867) 600,959 ----------- ----------- ----------- Change in operating working capital $(2,956,909) $(2,834,393) $(4,298,552) =========== =========== ===========
NOTE 16 - FOURTH QUARTER ADJUSTMENTS During the fourth quarter of 1995, the Company recorded an adjustment in the amount of approximately $924,000 relating to the recognition of deferred tax assets. This adjustment increased net income by $924,000 or $.07 per share for that quarter. During the fourth quarter of 1994, the Company recorded aggregate adjustments in the amount of approximately $2,230,000 relating to the recognition of deferred tax assets of $2,400,000 and to the Company's equity in income taxes incurred by Canon-STAAR of $170,000. The adjustments increased net income by $2,230,000, or $.17 per share for that quarter. F-24 INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT ON SCHEDULE AND CONSENT To the Board of Directors and Stockholders STAAR Surgical Company and Subsidiaries The audits referred to in our report dated March 21, 1996, included the related financial statement schedule as of December 29, 1995, and for each of the three years in the period ended December 29, 1995, included in the annual report on Form 10-K of STAAR Surgical Company and subsidiaries. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit. In our opinion, such financial statement schedule presents fairly, in all material respects, the information set forth therein. We consent to incorporation by reference in the Registration Statements (No. 33-37248, No. 2-83434 and No. 33-76404) on Form S-8 of STAAR Surgical Company of our report dated March 21, 1996, relating to the consolidated balance sheets of STAAR Surgical Company and subsidiaries as of December 29, 1995 and December 30, 1994 and the related consolidated statements of income, stockholders' equity, and cash flows and related schedule for each of the three years in the period ended December 29, 1995, which report appears in the December 29, 1995 annual report on Form 10-K of STAAR Surgical Company and subsidiaries. BDO SEIDMAN, LLP Los Angeles, California March 28, 1996 F-25 STAAR SURGICAL COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ================================================================================
Column A Column B Column C Column D Column E - --------------------------- ---------- --------- ------------- ------------- Balance at Balance at beginning end of Description of year Additions Deductions year - --------------------------- ---------- --------- ------------- ------------- 1995 Allowance for doubtful accounts deducted from accounts and notes receivable in balance sheet $307,000 $112,000 $ 300,000 $ 119,000 Reserve for obsolescence deducted from inven- tories in balance sheet 105,000 - 74,000 31,000 -------- --------- ------------- ------------- $412,000 $112,000 $ 374,000 $ 150,000 ======== ========= ============= ============= 1994 Allowance for doubtful accounts deducted from accounts and notes receivable in balance sheet $250,000 $121,000 $ 64,000/(2)/ $ 307,000 Reserve for obsolescence deducted from inven- tories in balance sheet 114,000 - 9,000/(3)/ 105,000 -------- --------- ------------- ------------- $364,000 $121,000 $ 73,000 $ 412,000 ======== ========= ============= ============= 1993 Allowance for doubtful accounts deducted from accounts and notes receivable in balance sheet $207,000 $177,000 $134,000/(2)/ $250,000/(1)/ Reserve for obsolescence deducted from inven- tories in balance sheet 105,000 9,000 - 114,000 -------- --------- ------------- ------------- $312,000 $186,000 $ 134,000 $ 364,000 ======== ========= ============= ============= - ------------
(1) Represents allowance for uncollectible receivables. (2) Writeoffs. (3) Obsolete inventory written down to zero value. F-26 EX-3.4 2 BY-LAWS AS AMENDED EXHIBIT 3.4 ----------- BY-LAWS AS AMENDED AMENDED JUNE 6, 1995 - -------------------- BYLAWS STAAR SURGICAL COMPANY (A DELAWARE CORPORATION) ARTICLE I Offices ------- SECTION 1. Registered Office. The registered office of the Corporation ----------------- within the State of Delaware shall be in the City of Dover, County of Kent. SECTION 2. Other Offices. The Corporation may also have an office or ------------- offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require. ARTICLE II Meetings of Stockholders ------------------------ SECTION 1. Place of Meetings. All meeting of the stockholders for the ----------------- election of directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. SECTION 2. Annual Meeting. The annual meeting of the stockholders, -------------- commencing with the year 1986, shall be held at 10:00 A.M. on the fifteenth of June if not a legal holiday, and if a legal holiday, then on the next succeeding day not a legal holiday, at 10:00 A.M., or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. At such annual meeting, the stockholders shall elect, by a plurality vote, a Board of Directors and transact such other business as may properly be brought before the meeting. SECTION 3. Special Meetings. Special Meetings of the stockholders, unless ---------------- otherwise prescribed by statute, may be called at any time by the Board of Directors or the Chairman of the Board, if one shall have been elected, or the President. 5 SECTION 4. Notice of Meetings. Except as otherwise expressly required by ------------------ statute, written notice of each annual and special meeting of the stockholders stating the date, place, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote thereat not less than ten (10) or more than sixty (60) days before the date of the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Notice shall be given personally or by mail, and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his address as it appears on the records of the Corporation. Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy. Neither the business to be transacted at, nor the purpose of, an annual or special meeting oF stockholders need be specified in any written waiver of notice. SECTION 5. List of Stockholders. The officer who has charge of the stock -------------------- ledger of the Corporation shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 6. Quorum, Adjournments. The holders of a majority of the voting -------------------- power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meeting of stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at 6 which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 7. Organization. At each meeting of the stockholders, the ------------ Chairman of the Board, if one shall have been elected, or in his absence or if one shall not have been elected, the President shall act as chairman of the meeting. The Secretary, or in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof. SECTION 8. Order of Business. The order of business at all meetings of ----------------- the stockholders shall be as determined by the chairman of the meeting. SECTION 9. Voting. Except as otherwise provided by statute or the ------ Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of the stockholders to one vote for each share of capital stock of the Corporation standing in his name on the record of stockholders of the Corporation: (a) on the date fixed pursuant to the provisions of Section 6 of Article V of these Bylaws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or (b) if no such record date shall have been so fixed, then at the close of business on the date next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the date on which the meeting is held. Each stockholder entitled to vote at any meeting of the stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these ByLaws, a different vote is required, in which case such express provision shall govern and control the 7 decision of such question. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. SECTION 10. Inspectors. The Board of Directors may, in advance of any ---------- meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders. SECTION 11. No Action by Consent. No action permitted or required to be -------------------- taken by stockholders pursuant to the Delaware General Corporation Law may be taken by consent or consents in writing. ARTICLE III Board of Directors ------------------ SECTION 1. General Powers. The business and affairs of the Corporation -------------- shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. SECTION 2. Number, Qualifications, Election and Term of Office. --------------------------------------------------- (a) The number of directors that shall constitute the 8 entire Board of Directors of this Corporation shall consist of a number within the limits set forth in Article TWELFTH of the Corporation's Certificate of Incorporation (not less than three (3) nor more than seven (7) persons). The exact number of directors shall be fixed, within the forgoing limitations, by the vote of a majority of the entire Board of Directors. The exact number of directors constituting the entire Board of Directors is presently fixed at five (5). Directors need not be stockholders. Except as otherwise provided by statute or this Corporation's Certificate of Incorporation or these Bylaws, the directors shall be elected at the annual meeting of stockholders. Each director shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these Bylaws. (b) The directors of the Corporation shall be divided into three (3) classes as nearly equal in size as practicable, which classes are hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of stockholders to be held after the annual meeting of stockholders for 1995 (scheduled to be held on June 6, 1995), or any adjournments thereof; the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders to be held after the annual meeting of stockholders for 1995, or any adjournments thereof; and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders to be held after the annual meeting of stockholders for 1995, or any adjournments thereof. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors so designated and elected at the annual meeting of stockholders for 1995, or any adjournments thereof. The designation of said directors to Class I, Class II and Class III shall be by a majority vote of the Board or, if agreement cannot be reached, by length of prior service on the Board. At each annual meeting after the annual meeting of stockholders for 1995 or any adjournments thereof, directors to replace those of the Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes so as to make all classes as nearly equal in number as practicable. (c) Any decrease in the number of directors constituting the Board of Directors shall be effective at the time of the next succeeding annual meeting of the stockholders unless there shall be vacancies in the board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies. No decrease in the number of directors constituting the Board of 9 Directors shall shorten the term of any incumbent director. SECTION 3. Place of Meeting. Meetings of the Board of Directors shall be ---------------- held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 4. Election of Directors. At each meeting of the stockholders for --------------------- the election of directors, the persons receiving the greatest number of votes shall be the directors. SECTION 5. Nominations. ----------- 5.1. Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. 5.2. Such nominations, if not made by the Board of Directors, shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 20 days notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Each such notice shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment or each such nominee, and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. 5.3. Notice of nominations which are proposed by the Board of Directors shall be given on behalf of the Board by the chairman of the meeting. 5.4. The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 6. Annual Meeting. The Board of Directors shall meet for the -------------- purpose of organization, the election of officers and the transaction of other business as soon as practicable after each annual meeting of the stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held 10 at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 9 of this Article III. SECTION 7. Regular Meetings. Regular meetings of the Board of Directors ---------------- shall be held at such time and place as the Board of Directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these Bylaws. SECTION 8. Special Meetings. Special meetings of the Board of Directors ---------------- may be called by the Chairman of the Board, if one shall have been elected, or by two or more directors of the Corporation or by the President. SECTION 9. Notice of Meetings. Notice of each special meeting of the ------------------ Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 9, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these Bylaws, such notice need not state the purpose of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him at his residence or usual place of business, by first-class mail, at least two days before the day on which such meeting is to be held, or shall be sent addressed to him at such place by telegraph, cable, telex, telecopier or other similar means, at least twenty-four hours before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 10. Quorum and Manner of Acting. A majority of the entire Board --------------------------- of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these Bylaws, the act of a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual 11 directors shall have no power as such. SECTION 11. Organization. At each meeting of the Board of Directors, the ------------ Chairman of the Board, if one shall have been elected, or, in the absence of the Chairman of the Board or if one shall not have been elected, the President (or, in his absence, another director chosen by a majority of the directors present) shall act as chairman of the meeting and preside thereat. The Secretary, or, in his absence, any person appointed by the Chairman shall act as secretary of the meeting and keep the minutes thereof. SECTION 12. Resignations. Any director of the Corporation may resign at ------------ any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 13. Vacancies. Newly created directorships resulting from any --------- increase in the number of directors, and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled exclusively by the affirmative vote of a majority of the remaining members of the Board of Directors (and not by stockholders), although less than a quorum, or by a sole remaining director. Each director so elected shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed, as provided in this Corporation's Certificate of Incorporation or as herein provided in these Bylaws. SECTION 14. Removal of Directors. Except as otherwise provided by -------------------- statute, any director may be removed only for cause. SECTION 15. Compensation. The Board of Directors shall serve without ------------ compensation. Said Directors will be reimbursed for expenses incurred for services rendered to the Corporation. SECTION 16. Committees. The Board of Directors may, by resolution passed ---------- by a majority of the entire Board of Directors, designate one or more committees, including any executive committee, each committee to consist of three or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Except to the extent restricted by statute or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the 12 Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors. SECTION 17. Action by Consent. Unless restricted by the Certificate of ----------------- Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board of Directors or such committee shall be filed with the minutes of the proceedings of the Board of Directors or such committee. SECTION 18. Telephonic Meeting. Unless restricted by the Certificate of ------------------ Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. ARTICLE IV Officers -------- SECTION 1. Number and Qualifications. The officers of the Corporation ------------------------- shall be elected by the Board of Directors and shall include the President, one or more Vice-Presidents, the Secretary, the Treasurer, the Chairman of the Board of Directors, and the Vice-Chairman of the Board of Directors. If the Board of Directors wishes it may also elect other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries), as may be necessary or desirable for the business of the Corporation. Any two or more offices may be held by the same person, except the offices of President and Secretary; provided, however, that such two offices may be held by the same person if all - ----------------- of the outstanding shares of the Corporation are owned by such person. Each officer shall hold office until the first meeting of the Board of Directors following the next annual meeting of the stockholders, and until his successors shall have been elected and shall have qualified, or until his death, or until he shall have resigned or have been removed, as hereinafter provided in these Bylaws. SECTION 2. Resignations. Any officer of the Corporation may resign at any ------------ time by giving written notice of his resignation to the Board of Directors or the Chairman of the Board or the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its 13 receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective. SECTION 3. Removal. Any officer of the Corporation may be removed, either ------- with or without cause, at any time, by the Board of Directors at any meeting thereof. SECTION 4. Chairman of the Board. The Chairman of the Board, if one shall --------------------- have been elected, shall be a member of the Board, an officer of the Corporation and, if present, shall preside at each meeting of the Board of Directors or the stockholders. He shall advise and counsel with the President and shall perform such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 5. The President. The President shall be the Chief Executive ------------- Officer of the Corporation. He shall, in the absence of the Chairman of the Board or if a Chairman of the Board shall not have been elected, preside at each meeting of the Board of Directors or the stockholders. He shall perform all duties incident to the office of President and Chief Executive Officer and such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 6. Vice-Presidents. Each Vice President shall perform all such --------------- duties as from time to time may be assigned to him by the Board of Directors or the President. At the request of the President or in his absence or in the event of his inability or refusal to act, the Vice-President, or if there shall be more than one, the Vice-Presidents in the order determined by the Board of Directors (or if there be no such determination, then the Vice Presidents in the order of their election), shall perform the duties of the President, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the President in respect of the performance of such duties. SECTION 7. Treasurer. The Treasurer shall: --------- (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) deposit all moneys and other valuables to the credit of the Corporation in such depositories as may be designated by the Board of Directors or pursuant to its direction; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source 14 whatsoever; (e) disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefor; (f) render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and (g) in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 8. Secretary. The Secretary shall: --------- (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there ----------------------- shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time 15 may be assigned by the Board of Directors. SECTION 10. The Assistant Secretary. The Assistant Secretary, or if there ----------------------- shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 11. Officers' Bonds or Other Security. If required by the Board --------------------------------- of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety or sureties as the Board of Directors may require. SECTION 12. Compensation. The compensation of the officers of the ------------ Corporation for their services as such officers shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation. ARTICLE V Shares, etc. ----------- SECTION. 1. Share Certificates. Each owner of shares of the Corporation ------------------ shall be entitled to have a certificate, in such form as shall be approved by the Board of Directors, certifying the number of shares of the Corporation owned by him. The certificates representing shares shall be signed in the name of the Corporation by the Chairman of the Board or the President or a Vice-President and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation (which seal may be a facsimile, engraved or printed); provided, however, that where any such certificate is countersigned by a transfer agent, or is registered by a registrar (other than the Corporation or one of its employees), the signatures of the Chairman of the Board, President, Vice-President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer upon such certificates may be facsimiles, engraved or printed. In case any officer who shall have signed any such certificate shall have ceased to be such officer before such certificate shall be issued, it may nevertheless be issued by the Corporation with the same effect as if such officer were still in office at the date of their issue. When the Corporation is authorized to issue shares of more than one class there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the Corporation will furnish to any shareholder, upon request and without charge, a full statement of the powers, designations, 16 preferences, and relative, participating, optional or other special rights of each class of stock or series thereof, and the qualifications, limitations or restrictions of such preferences and/or rights and/or limitations of each such series so far as the same have been fixed and the authority of the Board of Directors to designate and fix the relative rights, preferences and limitations of other series. SECTION 2. Books of Account and Record of Stockholders. There shall be ------------------------------------------- kept correct and complete books and records of account of all the business and transactions of the Corporation. There shall also be kept, at the office of the Corporation, in the State of New York, or such other State as determined by the Corporation, or at the office of its transfer agent in said State, a record containing the names and addresses of all stockholders of the Corporation, the number of shares held by each, and the dates when they became the holders of record thereof. SECTION 3. Transfers of Shares. Transfers of shares of the Corporation ------------------- shall be made on the records of the Corporation only upon authorization by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. The person in whose name shares shall stand on the record of stockholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security and not absolutely and written notice thereof shall be given to the Secretary or to a transfer agent, such fact shall be noted on the records of the Corporation. SECTION 4. Transfer Agents and Registrars. The Board of Directors may ------------------------------ appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars and may require all certificates for shares of stock to bear the signature of any of them. SECTION 5. Regulations. The Board of Directors may make such additional ----------- rules and regulations, not inconsistent with these Bylaws, as it may deem expedient concerning the issue, transfer and registration or certificates for shares of the Corporation. SECTION 6. Fixing of Record Date. The Board of Directors may fix, in --------------------- advance, a date not more than fifty (50) nor less than ten (10) days before the date then fixed for the holding of any meeting of the stockholders or before the last day on which the consent or dissent of the stockholders may be effectively expressed for any purpose without a meeting, as the time as of which the stockholders entitled to notice of and to vote at such meeting or whose consent or dissent is required or may be expressed for any purpose, as the 17 case may be, shall be determined, and all persons who were stockholders of record of voting shares at such time, and no others, shall be entitled to notice of and to vote at such meeting or to express their consent or dissent, as the case may be. The Board of Directors may fix, in advance, a date not more than fifty (50) not less than ten (10) days preceding the date fixed for the payment of any dividend or the making of any distribution or the allotment of rights to subscribe for securities of the Corporation, or for the delivery of evidence of rights or evidence of interest arising out of any change, conversion or exchange of shares or other securities, as the record date for the determination of the stockholders entitled to receive any such dividend, distribution, allotment, rights or interests, and in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, allotment, rights or interests. SECTION 7. Lost, Destroyed or Mutilated Certificates. The holder of any ----------------------------------------- certificate representing shares of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated. The Board of Directors may, in its discretion, require such owner or his legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties as the Board of Directors in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of destruction of any such certificate, or the issuance of such new certificate. ARTICLE VI Indemnification --------------- On the terms, to the extent, and subject to the condition prescribed by statute and by such rules and regulations, not inconsistent with statute, as the Board of Directors may in its discretion impose in general or particular cases or classes of cases, (a) the Corporation shall indemnify any person made, or threatened to be made, a party to an action or proceeding, civil or criminal, including an action by or in the rights of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise which any director or officer of the Corporation served in any capacity at the request of the Corporation, by reason of the fact that he, his testator or intestate, was a director or officer of the Corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and 18 necessarily incurred as a result of such action or proceeding, or any appeal therein, and (b) the Corporation may pay, in advance of final disposition of any such action or proceeding, expenses incurred by such person in defining such action or proceeding. On the terms, to the extent, and subject to the conditions prescribed by statute and by such rules and regulations, not inconsistent with statute, as the Board of Directors may in its discretion impose in general or particular cases or classes of cases, (a) the Corporation shall indemnify any person made a party to an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that he, his testator or intestate, is or was a director or officer of the Corporation, against the reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with the defense of such action, or in connection with an appeal therein, and (b) the Corporation may pay, in advance of final disposition of any such action, expenses incurred by such person in defending such action or proceeding. ARTICLE VII General Provisions ------------------ SECTION 1. Dividends. Subject to statute and the Certificate of --------- Incorporation, dividends upon the shares of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation. SECTION 2. Reserves. Before payment of any dividend, there may be set -------- aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserves in the manner in which it was created. SECTION 3. Seal. The seal of the Corporation shall be in such form as ---- shall be approved by the Board of Directors. SECTION 4. Fiscal Year. The first fiscal year of the Corporation shall be ----------- December 31, but may thereafter be changed by resolution of the Board of Directors. SECTION 5. Checks, Notes, Drafts, Etc.. All checks, notes, drafts or other --------------------------- orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the 19 Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors may ----------------------------------- authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 7. Voting of Stock in Other Corporations. Unless otherwise ------------------------------------- provided by resolution of the Board of Directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Board of Directors may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation, or to consent in writing to any action by any such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the premises. ARTICLE VIII Amendments ---------- These Bylaws may be amended or repealed or new Bylaws may be adopted at any annual or special meeting of stockholders at which time a quorum is present or represented, by the vote of the holders of shares entitled to vote in the election of directors provided that notice of the proposed amendment or repeal or adoption of new Bylaws is contained in the notice of such meeting. These Bylaws may also be amended or repealed or new Bylaws may be adopted by the Board at any regular or special meeting of the Board of Directors. If any Bylaw regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of the stockholders for the election of directors the Bylaw so adopted, amended or repealed, together with a concise statement of the changes made. Bylaws adopted by the Board of Directors may be amended or repealed by the stockholders. Notwithstanding anything contained in these Bylaws to the 20 contrary, Section 11 of Article II, Section 2 of Article III, Section 13 of Article III and Section 14 of Article III of these Bylaws shall not be altered, amended or repealed, and no provisions inconsistent therewith shall be adopted, except in accordance with Article Fourteenth of the Certificate of Incorporation of this Corporation. 21 EX-10.21 3 PATENT LICENSE AGREEMENT W/EYE MICROSURGERY EXHIBIT 10.21 ------------- PATENT LICENSE AGREEMENT WITH EYE MICROSURGERY INTERSECTORAL RESEARCH AND TECHNOLOGY COMPLEX PATENT LICENSE AGREEMENT The Eye Microsurgery Intersectoral Research and Technology Complex, Moscow, Russia, represented by General Director Mr. Fedorov S.N. from here on referred to as the "Licensor" and STAAR Surgical AG, a Swiss corporation, Hidau, Switzerland represented by Mr. Vladimir Feingold and Director Mr. John R. Wolf, from here on referred to as the "Licensee", taking into account that the Licensor possesses the "Technology for Producing Collagen-Based Cross-Linked Drain" and the Licensee wants to acquire the license on this technology, The Licensor and Licensee agree as follows: ARTICLE I DEFINITIONS: 1.0. For the purposed of this Agreement the following expressions have the meanings indicated below: 1.1. "Product" is the product described in Appendix I. 1.2. "Patent" is the patent whose detailed description is given in Appendix 2. 1.3. "Trade mark" is the trade mark registered by the Licensor and having parameters specified in Appendix 3. 1.4. "Technical knowledge" stands for technical information, know-how, manufacturing technology, technical data, material specifications, and other information used by the Licensor during the manufacture of the Product (or which is necessary and sufficient for the Licensee to make the Product according to the standard and quality of the product made by the Licensor)(including any improvements obtained during the validity period of this Agreement). 1.5. "Territory" covers all countries listed in Appendix 4. 1.6 "Exclusive territory" covers the countries listed in part I of Appendix 4. 1.7. "Non-exclusive territory" covers the countries listed in part 2 of Appendix 4. 1.8. "Year" means any period of time of 12 months starting from the date of executing the Agreement. 1 ARTICLE 2 The Licensor is an owner of U.S. Patent No. 4,978,352 granted on December 18, 1990 and has the,right of disposal of the said patent. No prior transfers occurred. No share or total property covered by the Patent have been transferred to any person except for the Licensee according to this Agreement. The Licensor's rights are free from the right of detention, pledge, backing interest or other proprietary burden. The Licensor disclosed no confidential information, production secrets or know-how relating to the technical aspects of the patent to any third legal or physical person. Furthermore, the Licensor has production secrets and experience (know- how) concerning the subject matter of this license. For valuable consideration, the receipt and sufficient of which are confirmed by the Licensee, the Licensor assigns to the Licensee its entire and exclusive right, title, interest, and material right relating to the "Patent" described in Appendix 2 to this Agreement. The Licensee shall acquire the entire and exclusive right belonging to the Licensor to the Licensee's benefit for the whole term of validity of the Patent. ARTICLE 3 I. TECHNICAL FIELD OF APPLICATION The license for the "Technology for Producing Collagen-Based Cross- Linked Drains" relates to the entire sphere of application of the inventions mentioned in the patents and listed in the preamble as well as everything that definitively stems from these inventions. The Parties shall inform each other openly and without any reservations on the possible fields of application of the inventions, that were unknown to the Parties at the day of conclusion of the Agreement, and, as proved later, can be carried by the Parties into effect and/or can be wanted for realization. II. LICENSE TYPE The Patent deals with an exclusive license (a) In so doing, however, the Licensor keeps the right of manufacturing the products covered by the license, to use them or sell on a nonexclusive territory specified in part 2 of Appendix 4. Furthermore, the Licensor reserves a right of realizing the product covered by the license in its branches and joint ventures, 2 existing or to be created on the exclusive territory specified in part 1 of Appendix 4. This license is intended for manufacture, use and sale. ARTICLE 4 TERRITORY COVERED BY THE AGREEMENT The license was granted for use on the exclusive territory (see Appendix 4). The Licensee has the right of production in other countries including those where the Licensee has no protective rights. The Licensee has the right to export the product to all countries except for those located on the non-exclusive territory. The Licensee shall prevent export to the countries where such an export is prohibited. If, in spite of this, the export shall be effected, the Licensor shall have the right of cancelling the Agreement by means of a simple written message. The Licensee shall pay conventional penalty equal to 20-fold price of the export delivery, which is inadmissible by virtue of the above statements. In an equivalent manner the Licensee shall put on its customers an obligation to avoid export of the subject matter of this license, because it is inadmissible according to the above statement, and to pay to it a conventional penalty in an amount of 20-fold price of the exported goods in every case of infringement. This sum the Licensee shall transfer to the Licensor. ARTICLE 5 LICENCE REGISTRATION Each Party shall have the right of registering the license in the Patent Office provided that such registration is allowed by the legislation of the country or countries, with respect to which the license is given. The Licensor shall transfer to the Licensee the authority and approval. The registration fee shall be covered by the Licensee. ARTICLE 6 DRAWINGS AND DESCRIPTIVE DOCUMENTS The Licensor shall give to the Licensee all existing drawings, plans, quality inspection system, and other technical documents required for the manufacture under license. These documents may be duplicated. The Licensee shall treat these drawings and 3 documents as secret materials during the entire term of action of this Agreement and after it will be expired. ARTICLE 7 MASTERING The Licensor is released from responsibility for the risks associated with the industrial-scale mastering of the manufacture under license, for which the Licensee is responsible. Responsibility for commercial realization The Licensor is responsible for the commercial realization of the invention. The realization risk is taken solely by the Licensee. ARTICLE 8 I. QUALITY OF PRODUCTS MANUFACTURED UNDER LICENSE. The Licensee shall manufacture the products under license whose quality is the same as those manufactured by Licensor. The Licensor provides all necessary consultations and information accumulated from its own experience. II. CONSEQUENCES OF POOR QUALITY OF PRODUCTS MANUFACTURED UNDER LICENSE The Licensor has the right of quality monitoring so as to check if the products manufactured under license correspond to the quality established by the Agreement. III. SUBLICENSES 1. The Licensee has the right to offer Sublicenses. 2. In case of selling a sublicense the earning is distributed between the Licensor and Licensee of this Agreement in equal parts. ARTICLE 9 CONFIDENTIALITY The Parties concluding this Agreement agree that they consider as secret all technical and technological information relating to the production under licence and made available to the Licensee. The information obtained from the Licensor is kept in secret during the entire validity period of the Agreement. 4 The Licensee has the right to use free of charge the entire technical information after the validity, period of this Agreement is expired. The right of free use of the technical and technological information ie given to the Licensee also during the effective period of this Agreement if such information and know-how have become public. ARTICLE 10 IMPROVEMENTS AND AMENDMENTS OF THE SUBJECT OF LICENSE. The Licensor is obliged to inform the Licensee about all modifications and improvements that shall be made during the validity period of this Agreement and concerning the subject matter of the license. If the improvements are protected by a patent, the Licensee shall get the protective rights for it. If the amendments and improvements shall lead to a patentable invention, it might be transferred to the Licensee free of charge with simultaneous prolongation of the period validity under definite conditions. ARTICLE 11 TECHNICAL ASSISTANCE The Licensor submits to the Licensee scrupulously and unconditionally all technical assistance and necessary advisement. The Licensor, at the expense of the Licensee, shall sent specialist under the following conditions: - the skill of the sent Personnel must be sufficient for solving the technical problems that may arise with respect to the Agreement; - the period of working in the Licensee's country shall be agreed later: - the Licensee shall cover the expenses associated with the accommodation transportation and insurance of the expatriate personnel. The Licensee shall pay the personnel wages in US dollars in an amount twice the sum they have in their own country. 5 ARTICLE 12 AMENDMENTS AND IMPROVEMENTS TO BE MADE BY LICENSEE The amendments and improvements that shall be made by the Licensee with respect to the subject of the license may be made without special permission of the Licensor. The Licensee has the right to perform the amendments and improvements without Licensor's permission provided that the Licensee alone shall be responsible for these amendments and improvements. ARTICLE 13 PAYMENTS The Licensee undertaken to pay within 10 days following the effective date of this Agreement and prior to the submission of the drawings and documents the sum of one hundred thousand US dollars (100.000 USD) as a single payment. The money is remitted to Russian "Vneshtorgbank" corresponding account No. 606- 205-524 in the External Trade in the National Republican Bank of New-York, USA, with an order to credit for the above sum account No. 67087105/001 of the Eye Microsurgery Intersectoral Research and Technology Complex in the "Vneshtorgbank," (External Trade Bank of the Russian Federation) Moscow. The documentation shall be submitted to the Licensee only after the said sum has been received by the said bank. The Licensee shall have no right to ask this sum back even if the Agreement is cancelled for any reason. ARTICLE 14 After receiving the registration documents to patent No. 4,978,352 from the US Patent Office, the Licensee shall pay to the Licensor seventy five thousand US dollars (75,000 USD) within 10 days. Under the payment according to Article 14 the Licensee shall give the Licensor a bank guarantee on fulfillment of its obligations on the payment for a sum of seventy five thousand US dollars (75,000 USD) for a period of 3 months and within 10 days from the day of signing the contract. ARTICLE 16 MINIMUM PAYMENTS Regardless of the scope of annual sales actually effected by the Licensee, the total volume of the annual license payments must not be lower than: in 1996 - fifty thousand US dollars (50,000 USD) 6 in 1997 - fifty thousand US dollars (50,000 USD) in 1998 - fifty thousand US dollars (50,000 USD) in 1999 - fifty thousand US dollars (50,000 USD) in 2000 - fifty thousand US dollars (50,000 USD) in 2001 - fifty thousand US dollars (50,000 USD) in 2002 - fifty thousand US dollars (50,000 USD) in 2003 - seventy five thousand US dollars (75,000 USD) Term of payment: 1st quarter of each year. ARTICLE 17 ROYALTY If the total Licensee's earnings from the sales exceeds 1,000,000 USD. by its wish and on an agreement with the Licensor, the Licensee, in addition to the guaranteed minimum payments, may partially reimburse the license price from the sums paid by its buyers for the products made under license and delivered under conditions of free plant without packing, as well as the sums obtained from learning the technology used in ophthalmosurgery with deduction of trade taxes; Percentage calculated on the basis of 12-month sales: six per cent (6.0%) from sales of up to 1.000,000 USD: five and a half per cent (5.5%) from sales from 1.000.000 to 5,000,000 USD; five per cent (5%) of sales from 5,000,000 to 10,000,000 USD; four and a half per cent (4.5%) from sales above 10,000,000 USD. These royalty sums are paid every quarter. ARTICLE 18 In the case of payment of royalty according to Article 17 with due account of the guaranteed Payments according to Article 16, the payments to the Licensor are made until a total sum of six hundred thousand US dollars ($600,000) is reached. Upon attaining this sum. all payments to the Licensor are stopped. 7 ARTICLE 19 Appearance of the right for license payment The right for license payment arises as soon as the Licensee gets payment from the buyer. ARTICLE 20 TAXES AND DUTIES If direct sales taxes is taken in the Licensee's counter they are paid by the Licensee. ARTICLE 20 ACCOUNTING AND REPORTS The Licensee is obliged to keep accounts in special books, in which it shall put the accurate number of the products manufactured under license according to this Agreement, ordinal numbers applied onto the machines and all other, data needed for calculation of the license price. The Licensor has the right to audit these books and their correspondence with the general accounting of the Licensee through an auditor approved by the Licensee. The Licensee shall bear the expenses associated with such an audit. ARTICLE 21 CALCULATION ON LICENSE PAYMENTS The calculations on the license payments are performed at the end of each calendar year. The Licensee shall send the complete data on these calculations within a month following the day of their performance and to remit the calculated sum within the same period. The Licensee pays to the Licensor the money in the same currency, in which the Licensee's customer agrees to pay. If the Licensee exceeds a time limit for payment the Licensor, may take annual interest of 6% within 60 days after each quarter. ARTICLE 22 OBLIGATION ON USING THE LICENSE IN PRODUCTION OF COMPETITIVE ARTICLES The Licensee is obligation use the license. 8 ARTICLE 23 PATENT SUPPORT The Licensee shall support the Patent that is put as a base of this License Agreement. ARTICLE 24 PATENT RIGHTS PROTECTION If the Patent is infringed by a third party and the Licensor becomes aware of such infringement, the Licensor shall promptly notify the Licensee ii) writing of such infringement or unfair competition. The Licensee, in its sole discretion, shall determine if it shall defend the Patent against any such infringement or unfair competition. If the Licensee determines that it shall defend the Patent infringement or unfair competition, it shall so notify the Licensor. The Licensor agrees to cooperate and assist in Prosecution of any action .n the nature of unfair competition or patent infringement prosecuted by the Licensee. The Licensor shall support the Licensee, first of all, if such a support is provided by the property right of the respective country. The Licensor shall give the Licensee all necessary authority and documents that shall enable the Licensee to bring a suit and to present witnesses or coauthors. The party making a decision to suit the third party bears possible expenses in preparation and conduction of legal proceedings. ARTICLE 25 LICENSEE'S OBLIGATION TO DEFENCE THE PATENT RIGHTS The Licensee commit itself that neither it personally nor its authorized person shall dispute the patent rights put in the base of this Agreement except the cases, when these rights shall be no longer valid through the Licensor's faults. ARTICLE 26 CANCELLATION OF PATENT: ITS EFFECT ON THE AGREEMENT If the protective rights setting up the base of this Agreement are cancelled by the claim of a third party, the paid license payments in no case shall be reimbursed, however, if the term of their payment does not yet come they shall not be taken. 9 ARTICLE 27 AGREEMENT VALIDITY The Agreement validity period is equal to that of the patent validity. The Agreement shall come into force from the moment of its signing. ARTICLE 28 FORCE MAJEURE Either party is relieved from liability for partial or complete non- performance of their obligations under present Agreement In some circumstances that aroused independent of their will. The circumstances caused by events that were independent of the will of the parties of this Agreement so that the fair party could not avoid or eliminate are considered as cases releasing this party from its obligation, if they take place after signing the Agreement and prevent its fulfillment completely of partially. The cases of unsurmountable force are reduced to the following events: war, military actions, revolts, mobilization road accidents and natural disasters, legal acts of authorities affecting the fulfillment of the obligations and all other events, circumstances of unsurmountable force by a competent arbitration court. ARTICLE 29 APPLICABLE LEGISLATION This Agreement is applicable to the Swiss Law. ARTICLE 30 LEGAL PROTECTION AND ARBITRATION If any dispute or difference shall arise between the parties to this Agreement as to any matter or thing arising in connection with the Agreement then the aggrieved party shall give to the other party a notice in writing setting out in full detailed particulars of the dispute or difference. Upon receipt of the notice the parties shall agree to appoint the International Chamber of Commerce (Paris) as a mediator. International Chamber of Commerce shall appoint a date, time and venue (unless the parties agree to a date, time and venue) for mediation proceedings to be held to discuss in detail the dispute or difference. The parties shall not be legally represented at the mediation Proceedings but shall present, in their own manner, with the assistance or witnesses and 10 documentary evidence, the details of their respective cases. If, at the conclusion of the mediation proceedings the parties fail to resolve the dispute or difference. Either party may give to the other party, within 14 days, a notice stating that at the expiration of 30 days it will proceed to have the dispute of difference referred to a court of competent jurisdiction in Switzerland (or another country as the parties agree) and at the expiration of such 30 days may so proceed. ARTICLE 31 MISCELLANEOUS The headings of the articles of the Agreement are intended solely for the convenience of reference and are not intended to explain, modify, or place any construction on any of the provisions of this Agreement. This Agreement covers all agreed provisions and aspects of the License Agreement. It has no any additional promises or terms as a condition of execution of the License Agreement, along with other terms except those stated above. All preliminary agreements, promises, negotiations or presentations, which are not included into this License Agreement shall not be valid from the moment of its signing. Any subsequent agreement, which shall lead to a change or cancellation of this License Agreement, shall be valid solely if it is made in writing and signed by the authorized representative of both parties, SUCCESSORS AND ASSIGNS This Agreement and all of its provisions be binding and inure to the benefit of the successors and of the parties. If not stated specially in this Agreement, all requested notices, requirements, questions, agreed statements, approvals, or other communications between the partners shall be made in writing and delivered; (A) by a messenger (such a message is delivered personally), (B) by telegraph or air express mail (in so doing the messages are sent by R-mail, (C) electronic mail, fax or telephone provided that the recipient has a compatible device or confirms the receipt of the message (in this case it is assumed that the transmission or reception of the message will be confirmed), or (D) by mailing a registered or valuable letter (in this case it is assumed that the letter small be delivered at the 14th day after dispatching). The messages are to be sent to the following addresses: 11 Licensee: STAAR Surgical AG Hauptstrasse 104 CH 2560 Hidau Switzerland Attn: President A copy to: STAAR Surgical Company 1911 Walker Ave. Monrovia, California 91016 Attn: President - Chief Executive Officer Licensor: Eye Microsurgery Intersectoral Research and Technology Complex, Moscow, Russia The above addresses may be changed by notifying the other party about this action as mentioned above. THE RIGHT OF SIGNING THE DOCUMENT Each Party states that it has all necessary authority to sign this Licence Agreement. All individual signings of this Agreement for the party that is a corporation, company or another legal counsel, or a signature of a proxy or another authorized person, is accompanied by confirmation of that fact that this person has the right of putting his signature under the given document on behalf of a respective organization or its manager. This Licensee Agreement is concluded in two authentic copies two of which are in English and two in Russian. The parties are agreed that the texts are identical and are an integral Part of the Agreement. Each party of the Agreement shall be given two copies of this Agreement; one copy in English and one copy in Russian. 12 IN WITNESS WHEREOF, the parties thereto have executed this Assignment Agreement on the day and year set forth opposite their respective signatures below: "Licensor" Eye Microsurgery Intersectoral Research and Technology Complex By: /s/ S.N. Fedorov ------------------------------------------- S.N. Fedorov, General Director, academician "Licensee" STAAR Surgical AG By: /s/ Vladimir Feingold -------------------------------------------- Vladimir Feingold, President By: /s/ John R. Wolf -------------------------------------------- John R. Wolf, Director 13 Appendix 1 Product manufactured under license 1. Name: Collagen-based cross-linked drain 2. Purpose and field of application: A significant progress has presently been made in curing glaucoma with the help of the above drains. Well known in the art are non-penetrating operations, particularly with open-angle glaucoma. This intervention is based on the idea of reducing the opthalmotonous pressure by guaranteed improvement of the conditions of draining the bulbi camera aqueous humor. This principle is met by the collagen-based cross-linked drain. The principal advantage of this article is high filtering capacity so that it can be used successfully for treatment of children and adults. The use of the collagen-based cross-linked drain for treating 10,000 patients in the Eye Microsurgery Intersectoral Research and Technology Complex have shown that the opthalmotonous pressure has been reduced in 96% at the I stage of illness, in 92% at the I stage of illness and 66% at the III stage of illness. The remote result of the treatment obtained during 9 years have confirmed the stable effect and high filtering capacity of the drain. 3. Technical characteristics: Article size: length 3.0 x 3.5 mn diameter 1.0 x 95 mn Breaking strength: 25 105 Density in swollen equilibrium state: 1.001 d/cm/3/ Content of heavy metal salts: less than 0.001% Article sterilization: radiation 2.5 mrad 14 Appendix 2 Patent granted to "Eye Microsurgery Intersectoral Research and Technology Complex" 1. U.S. Patent No. 4.978.352 Priority of May 23, 1989 Patent owner: "Eye Microsurgery Intersectoral Research and Technology Complex" Inventors: S.N.Fedorov. S.N. Bagrov. V.T. Trofimov, T.S. Amstislavskaya, A.V. Osipov Title: PROCESS FOR PRODUCING COLLAGEN-BASED CROSS-LINKED BIOPOLYMER. AN IMPLANT FROM SAID BIOPOLYMER, METHOD FOR PRODUCING SAID IMPLANT, AND METHOD FOR HERMETIZATION OF CORNEAL OR SCLERAL WOUNDS INVOLVED IN EYE INJURIES, USING SAID IMPLANT Future inventions 2. Patent application in Russia No. 95.104.576 Priority of April 6. 1995. Patent owner: "Eye Microsurgery Intersectoral Research and Technology Complex" Inventors: S.N.Fedorov. S.N. Bagrov. E.V. Larionov, Title: Method of Producing Bio-material to be used in Ophthalmology 15 Appendix 3 Trade mark of "Eye Microsurgery Intersectoral Research and Technology Complex 1. Graphic trade mark in the USA. Certificate No. 1.485.586. class 41. 2. Graphic trade mark in the USA. Certificate No. 1,298,658, class 10. 16 Appendix 4 Territory of validity of the Agreement 1. Exclusive territory. USA, European countries, Latin America, Africa, Asia, Japan. 2. Non-exclusive territory. Russia, CIS countries, Baltic Republics, China. 17 EX-10.36 4 AGREEMENT W/CHINA EYE JOINT VENTURE EXHIBIT 10.36 ------------- AGREEMENT WITH CHINA EYE JOINT VENTURE AGREEMENT This Agreement (the "Agreement") is made and entered into on this 10th day of October, 1995 by and between STAAR Surgical Company, a Delaware corporation ("STAAR") and China Eye Joint Venture, a joint venture created under the laws of North Carolina ("CEJV") based on the following facts: RECITALS A. CEJV was formed by IBC of North Carolina, Inc., Robert G. Martin, M.D., James F. Marshall, Robert L. Groat, M.D. and Charles G. Sims to design, construct and equip a medical facility in China for the treatment of eye diseases and disorders (the "Facility"). B. CEJV has asked STAAR, and STAAR has agreed, pursuant to the terms and conditions set forth in this Agreement, to provide certain equipment and supplies needed by CEJV for the operation of the Facility. NOW, THEREFORE, in consideration of the promises included in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, STAAR and CEJV agree as follows: AGREEMENT 1. INCORPORATION OF RECITALS. The Recitals set forth above are ------------------------- incorporated into this Agreement by reference and made a material part of it. STAAR and CEJV agree that this Agreement has been entered into for and in consideration of the inducements contained in the Recitals, as well as the provisions included in the balance of this Agreement. 2. TERM OF AGREEMENT. The term of this Agreement will begin on the ----------------- date of its execution and will continue for a period of five (5) years (the "Initial Term"). The parties may agree to extend the term of this Agreement for an additional period of two (2) years upon the expiration of the Initial Term and any succeeding two year term. As used in this Agreement, the word "Term" shall include the Initial Term and any subsequent two year term. 3. EQUIPMENT PROVIDED TO FACILITY. STAAR will provide to CEJV ------------------------------ agreed-upon equipment and supplies which CEJV will use to equip the Facility. Within thirty (30) days from the date of execution of this Agreement, a list of the equipment and supplies to be provided by STAAR to CEJV will be attached to this Agreement as Exhibit "A" and made a part of it. STAAR and CEJV agree that 1 the value of the equipment and supplies shall not exceed One Million One Hundred Thousand United States Dollars ($1,100,000) (the "Equipment Value"). Pursuant to paragraph 5 below, CEJV will purchase the equipment and supplies set forth on Exhibit "A" by paying the Equipment Value plus 20% for a total purchase price not to exceed One Million Three Hundred Twenty Thousand United States Dollars ($1,320,000) (the "Purchase Price"). Until such payment is made in full, STAAR will have a continuing security interest in the equipment and supplies for the full amount of the Purchase Price. This security interest may be transferred or assigned by STAAR to any third party without the consent of CEJV. 4. PURCHASE OF PRODUCTS OR DEVICES. During the Term of this ------------------------------- Agreement, CEJV agrees that it will purchase exclusively from STAAR, and STAAR agrees that it will sell to CEJV, all of the ophthalmologic products or devices included on Exhibit "B" to this Agreement. Future products or devices obtained or developed by STAAR shall be offered to CEJV and, if purchased by CEJV, shall be subject to the terms and conditions of this Agreement. CEJV shall place its first order for ophthalmologic products or devices within six (6) months of the date of execution of this Agreement. All invoices shall be paid by CEJV in United States dollars within sixty (60) days from the date of the invoice. Failure to pay an invoice within sixty (60) days shall be deemed a material breach of this Agreement and shall relieve STAAR of its obligation to ship any further ophthalmologic products or devices until any and all outstanding invoices are paid as required by this Agreement. 5. PURCHASE PRICE OF PRODUCTS OR DEVICES. The ophthalmologic ------------------------------------- products or devices shall be purchased by CEJV at the prices listed in Column I of Exhibit "B" to this Agreement. Column II of Exhibit "B" sets forth the amount of each such price which shall be applied by STAAR to the Purchase Price. The Purchase Price may be prepaid, in full or in part, at any time by CEJV without penalty. If the Purchase Price is not paid in full upon the expiration of the Initial Term of this Agreement, CEJV shall have the option to extend this Agreement for a period of two (2) years or to pay the balance of the Purchase Price, in United States dollars, in full. Column III of Exhibit "B" sets forth the prices of the ophthalmologic products or devices upon payment in full of the Purchase Price. 6. MINIMUM PURCHASE. Beginning not later than six (6) months from ---------------- the execution date of this Agreement, CEJV will purchase, on a quarterly basis during the Term of this Agreement, no less than the number of ophthalmologic products and devices set forth in Column IV of Exhibit "B" to this Agreement. For any quarter in which CEJV fails to purchase the minimum number of ophthalmologic products and devices set forth in Column IV of Exhibit "B" to this Agreement, CEJV will pay the difference between the minimum number of ophthalmologic products and devices required to be purchased and the amount actually purchased. 2 7. SHIPPING, INSURANCE AND HANDLING COSTS. All costs associated -------------------------------------- with the shipping, insuring and/or handling of the equipment and supplies provided to CEJV pursuant to paragraph 3 above or the ophthalmologic products or devices purchased pursuant to paragraph 4 above will be paid by CEJV. 8. NOTICES. Unless otherwise specifically provided in this ------- Agreement, all notices, demands, requests, consents, approvals or other communications (collectively and severally called "Notices") required or permitted to be given hereunder, or which are given with respect to this Agreement, shall be in writing, and shall be given by: (A) personal delivery (which form of Notice shall be deemed to have been given upon delivery), (B) by telegraph or by private airborne/overnight delivery service (which forms of Notice shall be deemed to have been given upon confirmed delivery by the delivery agency), (C) by electronic or facsimile or telephonic transmission, provided the receiving party has a compatible device or confirms receipt thereof (which forms of Notice shall be deemed delivered upon confirmed transmission or confirmation of receipt), or (D) by mailing in the United States mail by registered or certified mail, return receipt requested, postage prepaid (which forms of Notice shall be deemed to have been given upon the fifth {5th} business day following the date mailed). Notices shall be addressed as follows: STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016 ATTN: Chief Executive Officer with a copy to: Pollet & Woodbury 10900 Wilshire Boulevard, Suite 500 Los Angeles, California 90024 ATTN: Andrew F. Pollet, Esq. China Eye Joint Venture 1905 Ashwood Court Greensboro, North Carolina 27455 ATTN: James F. Marshall and IBC of North Carolina, Inc. with a copy to: Brooks Pierce McLendon P. O. Box 26000 Greensboro, North Carolina 27420-6000 ATTN: Robert 9. MISCELLANEOUS. ------------- 3 (A) PREPARATION OF AGREEMENT. It is acknowledged by each party that ------------------------ such party either had separate and independent advice of counsel or the opportunity to avail itself of same. In light of these facts it is acknowledged that no party shall be construed to be solely responsible for the drafting hereof, and therefore any ambiguity shall not be construed against any party as the alleged draftsman of this Agreement. (B) COOPERATION. Each party agrees, without further consideration, ----------- to cooperate and diligently perform any further acts, deeds and things and to execute and deliver any documents that may from time to time be reasonably necessary or otherwise reasonably required to consummate, evidence, confirm and/or carry out the intent and provisions of this Agreement, all without undue delay or expense. (C) INTERPRETATION. -------------- (i) Entire Agreement/No Collateral Representations. Each party ---------------------------------------------- expressly acknowledges and agrees that this Agreement, including all exhibits attached hereto: (1) is the final, complete and exclusive statement of the agreement of the parties with respect to the subject matter hereof; (2) supersedes any prior or contemporaneous agreements, promises, assurances, guarantees, representations, understandings, conduct, proposals, conditions, commitments, acts, course of dealing, warranties, interpretations or terms of any kind, oral or written (collectively and severally, the "Prior Agreements"), and that any such prior agreements are of no force or effect except as expressly set forth herein; and (3) may not be varied, supplemented or contradicted by evidence of Prior Agreements, or by evidence of subsequent oral agreements. Any agreement hereafter made shall be ineffective to modify, supplement or discharge the terms of this Agreement, in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement of the modification or supplement is sought. (ii) Waiver. No breach of any agreement or provision herein ------ contained, or of any obligation under this Agreement, may be waived, nor shall any extension of time for performance of any obligations or acts be deemed an extension of time for performance of any other obligations or acts contained herein, except by written instrument signed by the party to be charged or as otherwise expressly authorized herein. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or a waiver or relinquishment of any other agreement or provision or right or power herein contained. (iii) Remedies Cumulative. The remedies of each party under this ------------------- Agreement are cumulative and shall not exclude any other remedies to which such party may be lawfully entitled. 4 (iv) Severability. If any term or provision of this Agreement or the ------------ application thereof to any person or circumstance shall, to any extent, be determined to be invalid, illegal or unenforceable under present or future laws effective during the term of this Agreement, then and, in that event: (A) the performance of the offending term or provision (but only to the extent its application is invalid, illegal or unenforceable) shall be excused as if it had never been incorporated into this Agreement, and, in lieu of such excused provision, there shall be added a provision as similar in terms and amount to such excused provision as may be possible and be legal, valid and enforceable, and (B) the remaining part of this Agreement (including the application of the offending term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable) shall not be affected thereby and shall continue in full force and effect to the fullest extent provided by law. (v) Time is of the Essence. It is expressly understood and agreed ---------------------- that time of performance is strictly of the essence with respect to each and every term, condition, obligation and provision hereof and that the failure to timely perform any of the terms, conditions, obligations or provisions hereof by any party shall constitute a material breach and a noncurable (but waivable) default under this Agreement by the party so failing to perform. (vi) No Third Party Beneficiary. Notwithstanding anything else -------------------------- herein to the contrary, the parties specifically disavow any desire or intention to create any third party beneficiary obligations, and specifically declare that no person or entity, other than as set forth in this Agreement, shall have any rights hereunder or any right of enforcement hereof. (vii) No Reliance Upon Prior Representation. The parties acknowledge ------------------------------------- that no other party has made any oral representation or promise which would induce them prior to executing this Agreement to change their position to their detriment, partially perform, or part with value in reliance upon such representation or promise; the parties acknowledge that they have taken such action at their own risk; and the parties represent that they have not so changed their position, performed or parted with value prior to the time of their execution of this Agreement. (viii) Headings; References; Incorporation; Gender. The headings ------------------------------------------- used in this Agreement are for convenience and reference purposes only, and shall not be used in construing or interpreting the scope or intent of this Agreement or any provision hereof. References to this Agreement shall include all amendments or renewals thereof. All cross-references in this Agreement, unless specifically directed to another agreement or document, 5 shall be construed only to refer to provisions within this Agreement, and shall not be construed to be referenced to the overall transaction or to any other agreement or document. Any exhibit referenced in this Agreement shall be construed to be incorporated in this Agreement. As used in this Agreement, each gender shall be deemed to include the other gender, including neutral genders or genders appropriate for entities, if applicable, and the singular shall be deemed to include the plural, and vice versa, as the context requires. (D) ENFORCEMENT. ----------- (i) Applicable Law. This Agreement and the rights and remedies of -------------- each party arising out of or relating to this Agreement (including, without limitation, equitable remedies) shall be solely governed by, interpreted under, and construed and enforced in accordance with the laws (without regard to the conflicts of law principles thereof) of the State of California, as if this agreement were made, and as if its obligations are to be performed, wholly within the State of California. (ii) Consent to Jurisdiction; Service of Process. Any action or ------------------------------------------- proceeding arising out of or relating to this Agreement shall be filed in and heard and litigated solely before the state courts of California located within the County of Los Angeles. Each party generally and unconditionally accepts the exclusive jurisdiction of such courts and to venue therein, consents to the service of process in any such action or proceeding by certified or registered mailing of the summons and complaint in accordance with the notice provisions of this Agreement, and waives any defense or right to object to venue in said courts based upon the doctrine of "Forum Non Conveniens". Each party irrevocably agrees to be bound by any judgement rendered thereby in connection with this Agreement. (iii) Attorneys' Fees and Costs. If any party institutes or should ------------------------- the parties otherwise become a party to any Action Or Proceeding (as defined below) based upon or arising out of this Agreement including, without limitation, to enforce or interpret this Agreement or any provision hereof, or for damages by reason of any alleged breach of this Agreement or any provision hereof, or for a declaration of rights in connection herewith, or for any other relief, including equitable relief, in connection herewith, the Prevailing Party in any such Action Or Proceeding, whether or not such Action Or Proceeding proceeds to final judgement or determination, shall be entitled to receive from the non-Prevailing Party as a cost of suit, and not as damages, all Costs And Expenses (as defined below) of prosecuting or defending the Action Or Proceeding, as the case may be, including, without limitation, reasonable Attorneys' And Other Fees. (iv) Definitions. The term "Action Or Proceeding" ----------- 6 is defined as any and all claims, suits, actions, notices, inquiries, proceedings, hearings, arbitrations or other similar proceedings, including appeals and petitions therefrom, whether formal or informal, governmental or non-governmental, or civil or criminal. The term "Prevailing Party" is defined as the party who is determined to prevail by the Court after its consideration of all damages and equities in the Action Or Proceeding, whether or not the Action Or Proceeding proceeds to final judgment. The Court shall retain the discretion to determine that no party is the Prevailing Party in which case no party shall be entitled to recover its Costs And Expenses under this subparagraph 12(d). The term "Attorneys' And Other Fees" is defined as attorneys' fees, accountants' fees, fees of other professionals, witness fees (including experts engaged by the parties, but excluding shareholders, officers, employees or partners of the parties), and any and all other similar fees incurred in the prosecution or defense of the Action Or Proceeding. The term "Costs And Expenses" is defined as the cost to take depositions, the cost to arbitrate this dispute, if applicable, and the costs and expenses of travel and lodging incurred with respect to the Action Or Proceeding, provided, however, the party incurring said travel and lodging expense must ordinarily travel over one hundred (100) miles, one way, from his or her residence in incurring such expense. (E) NO ASSIGNMENT OF RIGHTS OR DELEGATION OF DUTIES. Neither party ----------------------------------------------- may assign its rights or delegate its duties under this Agreement without the written consent of the other party, which written consent may not be unreasonably withheld. (F) COUNTERPARTS. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, and all of which together shall constitute one and the same instrument, binding on all parties hereto. (G) EXECUTION BY ALL PARTIES REQUIRED TO BE BINDING; ELECTRONICALLY --------------------------------------------------------------- TRANSMITTED DOCUMENTS. This Agreement shall have no force and effect until it - --------------------- is fully executed by all parties hereto. If a copy or counterpart of this Agreement is originally executed and such copy or counterpart is thereafter transmitted electronically by facsimile or similar device, such facsimile document shall for all purposes be treated as if manually signed by the party whose facsimile signature appears. 7 10. JOINT NEWS RELEASE. STAAR shall determine if and when any news ------------------ release shall be made relating to this Agreement. If STAAR decides to issue a news release, STAAR and CEJV shall jointly agree to its content. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. STAAR SURGICAL COMPANY By: /s/ William C. Huddleston -------------------------------------- By: /s/ John R. Wolf -------------------------------------- CHINA EYE JOINT VENTURE IBC of North Carolina, Inc., as Administrative Venturer of CEJV By: /s/ James F. Marshall -------------------------------------- James F. Marshall, President By: /s/ Robert G. Martin -------------------------------------- Robert G. Martin, M.D. 8 EXHIBIT "A" EQUIPMENT AND SUPPLIES (TO BE COMPLETED WITHIN 30 DAYS FROM THE DATE OF EXECUTION OF THIS AGREEMENT) 9 EXHIBIT "B" OPHTHALMOLOGIC PRODUCTS OR DEVICES TO BE PURCHASED 10 EX-24 5 POWERS OF ATTORNEY EXHIBIT 24 ---------- POWERS OF ATTORNEY 11 POWER OF ATTORNEY OF OFFICERS AND/OR DIRECTORS OF STAAR SURGICAL COMPANY The undersigned officer and/or director of Staar Surgical Company, a Delaware corporation (the "Corporation"), which anticipates filing, with respect to its fiscal year ending December 29, 1995, an Integrated Annual Report on Form 10-K ("Report") with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints John R. Wolf and William Huddleston and each of them, severally, with full power of substitution and resubstitution, as attorneys or attorney to sign for the undersigned in any and all capacities such Report, and any and all applications or other documents to be filed pertaining to such Report with the Securities and Exchange Commission and with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. EXECUTED this 24th day of March, 1996. /s/ Joseph C. Gathe, M.D. ------------------------------------ Joseph C. Gathe, M.D. POWER OF ATTORNEY OFFICERS AND/OR DIRECTORS OF STAAR SURGICAL COMPANY The undersigned officer and/or director of Staar Surgical Company, a Delaware corporation (the "Corporation"), which anticipates filing, with respect to its fiscal year ending December 29, 1995, an Integrated Annual Report on Form 10-K ("Report") with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints John R. Wolf and William Huddleston and each of them, severally, with full power of substitution and resubstitution, as attorneys or attorney to sign for the undersigned in any and all capacities such Report, and any and all applications or other documents to be filed pertaining to such Report with the Securities and Exchange Commission and with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. EXECUTED this 27th day of March, 1996. /s/ John R. Wolf ------------------------------------ John R. Wolf POWER OF ATTORNEY OFFICERS AND/OR DIRECTORS OF STAAR SURGICAL COMPANY The undersigned officer and/or director of Staar Surgical Company, a Delaware corporation (the "Corporation"), which anticipates filing, with respect to its fiscal year ending December 29, 1995, an Integrated Annual Report on Form 10-K ("Report") with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints John R. Wolf and William Huddleston and each of them, severally, with full power of substitution and resubstitution, as attorneys or attorney to sign for the undersigned in any and all capacities such Report, and any and all applications or other documents to be filed pertaining to such Report with the Securities and Exchange Commission and with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. EXECUTED this 22nd day of March, 1996. /s/ Michael R. Deitz, M.D. ------------------------------------ Michael R. Deitz, M.D. POWER OF ATTORNEY OFFICERS AND/OR DIRECTORS OF STAAR SURGICAL COMPANY The undersigned officer and/or director of Staar Surgical Company, a Delaware corporation (the "Corporation"), which anticipates filing, with respect to its fiscal year ending December 29, 1995, an Integrated Annual Report on Form 10-K ("Report") with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints John R. Wolf and William Huddleston and each of them, severally, with full power of substitution and resubstitution, as attorneys or attorney to sign for the undersigned in any and all capacities such Report, and any and all applications or other documents to be filed pertaining to such Report with the Securities and Exchange Commission and with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. EXECUTED this 24th day of March, 1996. /s/ Andrew F. Pollet ------------------------------------ Andrew F. Pollet POWER OF ATTORNEY OFFICERS AND/OR DIRECTORS OF STAAR SURGICAL COMPANY The undersigned officer and/or director of Staar Surgical Company, a Delaware corporation (the "Corporation"), which anticipates filing, with respect to its fiscal year ending December 29, 1995, an Integrated Annual Report on Form 10-K ("Report") with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints John R. Wolf and William Huddleston and each of them, severally, with full power of substitution and resubstitution, as attorneys or attorney to sign for the undersigned in any and all capacities such Report, and any and all applications or other documents to be filed pertaining to such Report with the Securities and Exchange Commission and with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. EXECUTED this 22nd day of March, 1996. /s/ Peter J. Utrata ------------------------------------ Peter J. Utrata, M.D. POWER OF ATTORNEY OFFICERS AND/OR DIRECTORS OF STAAR SURGICAL COMPANY The undersigned officer and/or director of Staar Surgical Company, a Delaware corporation (the "Corporation"), which anticipates filing, with respect to its fiscal year ending December 29, 1995, an Integrated Annual Report on Form 10-K ("Report") with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints John R. Wolf and William Huddleston and each of them, severally, with full power of substitution and resubstitution, as attorneys or attorney to sign for the undersigned in any and all capacities such Report, and any and all applications or other documents to be filed pertaining to such Report with the Securities and Exchange Commission and with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. EXECUTED this 27th day of March, 1996. /s/ William C. Huddleston ------------------------------------ William C. Huddleston EX-27 6 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-29-1995 DEC-29-1995 3,767,011 0 7,611,929 119,490 9,591,898 25,092,967 12,917,686 6,554,990 38,802,990 8,758,293 0 0 0 127,841 28,550,185 38,802,990 34,180,420 34,694,420 8,441,099 8,441,099 20,062,563 111,512 419,000 7,391,068 90,652 7,481,720 0 0 0 7,481,720 .55 .55
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