-----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, EcadPYrZN3zgkTTPT/nqagyITv8d5rLVznqdky83b68nLdRIiAEzZ4TligTfWauP AVS3CSSzMxK9NBnNECJHTw== 0000898430-98-001283.txt : 19980402 0000898430-98-001283.hdr.sgml : 19980402 ACCESSION NUMBER: 0000898430-98-001283 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19980102 FILED AS OF DATE: 19980401 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: SEC FILE NUMBER: 000-11634 FILM NUMBER: 98585304 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 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K (MARK ONE) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 2, 1998 [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO --------- --------- COMMISSION FILE NUMBER: 0-11634 ---------------- 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) (626) 303-7902 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.01 PAR VALUE (TITLE OF CLASS) ---------------- 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 24, 1998 was approximately $174,200,000 based upon the closing price per share of the Common Stock of $15.75 on that date. The number of shares outstanding of the issuer's classes of Common Stock as of March 24, 1998: Common Stock, $.01 Par Value--13,278,342 shares DOCUMENTS 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 1998 Annual Meeting of Stockholders. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I................................................................... 1 ITEM 1. BUSINESS........................................................ 1 General......................................................... 1 Overview........................................................ 1 Development of Business Over Past Five Years and Relevant Prior Events......................................................... 1 Financial Information About Industry Segments................... 2 Narrative Description of Business............................... 2 Background...................................................... 2 Markets......................................................... 2 Strategy........................................................ 4 Products........................................................ 4 Research and Development........................................ 6 Marketing, Selling and Distribution............................. 6 Competition..................................................... 7 Manufacturing and Suppliers..................................... 7 Licenses and Distribution Rights................................ 8 Subsidiaries.................................................... 8 Facilities...................................................... 8 Employees and Labor Relations................................... 8 Intellectual Property Rights.................................... 9 Regulatory Requirements......................................... 9 Financial Information About Foreign and Domestic Operations and Export Sales................................................... 11 ITEM 2. PROPERTIES...................................................... 11 ITEM 3. PENDING LEGAL PROCEEDINGS....................................... 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 11 PART II.................................................................. 12 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS................................................. 12 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA............................ 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................... 14 Overview........................................................ 14 Results of Operations........................................... 15 1997 Fiscal Year Compared to 1996 Fiscal Year................... 15 1996 Fiscal Year Compared to 1995 Fiscal Year................... 16 Liquidity and Capital Resources................................. 17 Other Matters................................................... 19 Foreign Exchange................................................ 19 Inflation....................................................... 19 Year 2000 Compliance............................................ 19 Uncertainties and Risk Factors.................................. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................... 23
TABLE OF CONTENTS--(CONTINUED)
PAGE ---- PART III.................................................................. 23 ITEMS 10., 11., 12. AND 13................................................ 23 PART IV................................................................... 24 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K..................................................... 24
ADVISEMENT Certain Statements contained in this Annual Report on Form 10-K constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") which reflect the Company's current expectations regarding the future results of operations, performance and achievements of the Company, or industry results. The Company has tried, wherever possible, to identify these forward looking statements by, among other things, using words such as "anticipate," "believe," "estimate," "expect" and similar expressions. These statements reflect the current beliefs of the Company and are based on information currently available to it. Accordingly, these statements are subject to known and unknown risks, uncertainties and other factors which could cause the actual results, performance or achievements of the Company or the industry to differ materially from those expressed in, or implied by these statements. The Company is not obligated to update or revise these "forward looking" statements to reflect new events or circumstances. PART I ITEM 1. BUSINESS GENERAL Overview STAAR Surgical Company ("STAAR" or the "Company") is a publicly traded (Nasdaq National Market symbol "STAA") developer, manufacturer and global distributor of medical devices used in minimally invasive ophthalmic surgery. The Company's products are designed to improve the quality of patient outcomes, minimize patient risk and discomfort, and simplify ophthalmic surgical procedures for the benefit of surgeons and patients. The Company's primary products are its foldable intraocular lenses ("IOLs"), its Glaucoma Wick(TM), a "wick" style glaucoma implant, its Implantable Contact Len(TM) ("ICL(TM)"), a deformable intraocular refractive corrective lens, and its STAARVISC(TM) viscoelastic solution. The Company's foldable IOLs are used as replacements for the natural lens after its removal in cataract surgery. The ophthalmic surgeon can implant the foldable IOL through an incision as small as two millimeters. This provides numerous patient benefits including reduced risk of infection, decreased post- operative pain and discomfort, and shorter hospitalization and recovery time. The Glaucoma Wick(TM) is an innovative ocular device developed to provide a more effective and longer-term solution for glaucoma, a leading cause of blindness worldwide. The ICL(TM) is a deformable intraocular implant designed to correct refractive disorders, such as myopia (near-sightedness), hyperopia (far-sightedness) and potentially astigmatism. STAARVISC(TM) is a viscoelastic solution used during IOL and ICL(TM) implant procedures. The Company markets its IOLs, which accounted for 90% of its domestic revenues and 74% of its international revenues in 1997, respectively. The Company markets the Glaucoma Wick(TM), which the Company introduced in late 1995, and its ICLs(TM) and STAARVISC(TM) viscoelastic solution, which the Company introduced in late 1996, in selected foreign countries. 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 minimally invasive 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 or ICL(TM) for use in minimally invasive surgery. The Company acquired Dr. Mazzocco's patent, and began production and sale of foldable IOLs in 1986 for implantation in connection with clinical studies for such 1 products. In September 1991, the Company received United States Food and Drug Administration ("FDA") pre-market approval for its foldable IOLs, which has been the Company's principal product line to date. See "Intellectual Property Rights" and "Products" in Item 1. In May 1995 and January 1996, the Company acquired certain exclusive royalty bearing licenses from Intersectoral Research and Technology Complex Eye Microsurgery ("IRTC") related to its glaucoma device and implantable contact lens. See "Licenses and Distribution Rights" and "Products" in Item 1. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Through 1997 the Company operated primarily within the cataract medical device segment of the overall ophthalmic market. Information relating to the Company's financial condition for the fiscal years ended January 2, 1998, January 3, 1997 and December 29, 1995 is set forth in "Item 8--Financial Statements and Supplementary Data." In late 1995 the Company introduced the Glaucoma Wick(TM), and in late 1996 the Company introduced the ICL(TM) and STAARVISC(TM) viscoelastic solution, for sale in selected foreign countries. NARRATIVE DESCRIPTION OF BUSINESS Background The human eye is a specialized sensory organ capable of light reception and able to receive visual images that are transmitted to the visual center in the brain. The main parts of the eye are the cornea, the iris, the lens, the retina, and the trabecular meshwork. The cornea is typically a spherically shaped window in the front of the eye through which light passes. The iris is a muscular curtain located behind the cornea which opens and closes to regulate the amount of light entering the eye through the pupil, an opening at the center of the iris. The lens is a clear structure located behind the iris which changes shape to better focus the light to the retina, located in the back of the eye. The retina is a layer of nerve tissue consisting of millions of light receptors called rods and cones, which receive the light image and transmit it to the brain via the optic nerve. The anterior chamber of the eye, located in front of the iris, is filled with a watery fluid called the aqueous humour, while the portion of the eye behind the iris is filled with a jelly- like material called the vitreous humour. The trabecular meshwork, a drainage channel located between the cornea and the surrounding white portion of the eye, maintains a low pressure in the anterior chamber of the eye by draining excess aqueous humour. The eye is affected by a number of ocular diseases, such as cataracts and glaucoma, and by common visual refractive disorders, such as myopia, hyperopia and astigmatism. Cataracts are an irreversible and progressive ophthalmic condition wherein the eye's natural lens loses its usual transparency and becomes opaque. Glaucoma results from the build-up of excessive intraocular pressure, primarily due to poor drainage of the aqueous humor. The increase in pressure slowly and progressively damages the optic disc, resulting in a gradual loss of vision. Myopia and hyperopia are caused by an anatomical imbalance between the shape of the eye and the resulting distance between the cornea and the retina. Astigmatism is caused by irregularities in the smoothness and curvature of the cornea, causing improper focusing of the incoming light on the retina and consequential blurring of vision. Markets The market for ophthalmic products is a large and dynamic segment of the healthcare industry. The major factors influencing this market are the aging worldwide population, significant technological medical advancements which have created cost effective treatments and therapies, the evolution toward managed care and the growing importance of international markets. The Company's products serve the following segments of the ophthalmic market: Cataract Lenses. Cataracts occur in varying degrees in approximately one- half of Americans between the ages of 65 and 75, and approximately 70% of those over the age of 75. Approximately 20% to 25% of cataract patients have pre-existing astigmatism. Industry sources estimate that approximately 2.3 million IOLs were 2 implanted in the United States in 1997, generating approximately $242 million in sales. The Company believes approximately 2.5 million IOLs were implanted outside the United States during 1997 (not including China and Russia, for which no reliable data exists), generating an additional $350 million of sales. The Company believes that approximately 65% of the domestic market for IOLs in 1997 was held by foldable IOLs, compared to approximately 15% in 1992, and that approximately 35% to 45% of the international market share is presently held by foldable IOLs. The Company believes the share of the worldwide market held by foldable IOLs will continue to increase by virtue of the benefits of foldable IOLs over hard IOLs. Glaucoma Treatments. This market encompasses drug therapies as well as traditional and laser surgical procedures for use in mitigating the effects of glaucoma. There is no known cure for glaucoma; the most commonly prescribed glaucoma drugs either inhibit the build-up of intraocular fluid or promote increased drainage, in either case reducing intraocular pressure and eye damage. Traditional surgical procedures for glaucoma (trabeculectomies) and laser surgical procedures for glaucoma (trabeculoplasties) remove a portion of the trabecular meshwork to create a channel for fluid to drain from the eye. The selection of drug treatment over a trabeculectomy or trabeculoplasty is, in part, dependent upon the stage of the disease and the prevailing glaucoma treatment used in the country in which the treatment is given. The Company believes that glaucoma currently afflicts approximately three million persons in the United States, and that the number of international cases exceeds that of the United States. The worldwide market for glaucoma drugs is approximately $850 million, including approximately $450 million from the sale of a single glaucoma drug. It is estimated that 100,000 trabeculectomies and 300,000 laser trabeculoplasties were performed in the United States alone in 1994, representing total expenditures of approximately $400 million. The Company believes glaucoma surgery is more prevalent than glaucoma drug therapy in certain foreign countries due to cost and other considerations. Refractive Vision Correction. The refractive vision correction market includes corrective eyewear such as eyeglasses and external contact lenses and traditional and laser surgical procedures. Approximately 50% of the world's population is afflicted with common refractive vision disorders such as myopia, hyperopia and astigmatism, and approximately 150 million people within the United States currently use some form of eyewear to correct for these disorders. In 1996, the vision correction market in the United States was approximately $15 billion. This market includes corrective eyeglasses, external contact lenses and various surgical procedures such as radial keratotomy ("RK"), a conventional surgical technique, and photorefractive keratectomy ("PRK") and laser in-situs keratomileusis ("LASIK"), surgical techniques performed with the use of a laser. It is estimated that over one million RK procedures have been performed in the United States, most of which have occurred since 1989. In 1995, 350,000 RK procedures were performed, at an average cost of $1,000 to $3,000 per procedure. Management believes that surgeons have used PRK and LASIK, more recently developed refractive surgery techniques, in an estimated one million procedures to date worldwide. The procedure was approved in the United States in 1996. Laser procedures are expected to gain market share from RK. Industry sources estimate that the number of laser procedures in the United States could reach 300,000 in 1998, representing a potential market of $450 million. Approximately seven million people in the United States are afflicted with severe cases of myopia and hyperopia of greater than seven diopters which are not currently addressed by existing conventional or laser surgical procedures and frequently can be only partially corrected with eyeglasses and external contact lenses. Viscoelastic Solution Products. The viscoelastic solution market relates to gel-like substances used during ophthalmic surgeries to maintain the space and shape of the eye, to act as a buffer against cell damage and to otherwise act as a lubricant for minimally invasive eye surgery. Industry studies indicate that approximately 2.8 million units of viscoelastic solution were sold within the United States in 1997, generating approximately $148 million in sales. Management believes the international market for viscoelastic solution is at least the size of the domestic market for this product. 3 Strategy The Company's strategy is to increase its share of the worldwide market for ophthalmic products through the development and marketing of innovative "next generation" products and technologies which utilize minimally invasive surgical procedures. The key elements of this strategy are to: (i) develop products that deliver distinct clinical and economic benefits to patients and surgeons; (ii) maintain a leading technological role in the industry; and (iii) expand markets worldwide. Products The Company develops, manufactures and globally distributes medical devices used in minimally invasive ophthalmic surgery. The Company's products are designed to: (i) improve patient outcomes; (ii) minimize patient risk and discomfort; and (iii) simplify ophthalmic procedures for the benefit of surgeons and patients. The Company's principal customers are ophthalmologists, surgical centers, hospitals, managed care providers, health maintenance organizations and group purchasing organizations. Intraocular Lenses (IOLs) and Related Cataract Products. The Company's principal products are its foldable IOLs for use in minimally invasive cataract surgical procedures. The Company's IOLs can be folded or otherwise deformed, and therefore can be implanted into the eye through an incision as small as 2 mm. Once inserted, the Company's IOL unfolds naturally into the capsular bag which previously held the cataractous lens. The primary advantages of using minimally invasive surgical procedures are: . Fewer Surgical Complications. A smaller incision minimizes eye trauma and the potential for infection. In addition, the Company's foldable IOL can typically be implanted under topical anesthesia, thereby avoiding complications associated with the administration of local anesthesia. . Reduced Level of Surgically Induced Astigmatism. The ability to eliminate sutures as a result of the smaller incision leads to a reduction in the incidence of surgically induced astigmatism caused by uneven healing of the surgical wound. . Faster Recovery of Vision. Patients can typically recover their best vision the same day the procedure is performed, as opposed to thirty- to forty-five days following surgery in the case of hard IOLs. . Enhanced Benefits to Surgeons. The use of foldable IOLs enables ophthalmologists to more quickly perform surgical procedures at lower cost, and with greater ease and consistently higher quality outcomes. The Company's foldable IOLs come in two differently configured styles, the advanced single-piece ELASTIC(TM) model, and the ELASTIMIDE(TM) model based upon the traditional three-piece design. The selection of one model over the other is primarily based upon the preference of the ophthalmologist, although the Company believes more experienced ophthalmologists prefer the single-piece ELASTIC(TM) model. Sales of foldable IOLs accounted for approximately 85% of total revenues for its 1997 fiscal year, 91% of total revenues for its 1996 fiscal year, and 97% of the Company's total revenues for its 1995 fiscal year. The Company has developed, and currently markets in selected foreign countries, its TORIC(TM) IOL, a toric version of its ELASTIC(TM) IOL, which is specifically designed for patients with pre-existing astigmatism. The Company is the only IOL manufacturer to offer a product for astigmatism. In July 1997, the Company received a CE Mark allowing it to sell its toric IOL in each of the countries comprising the European Union. The Company has completed clinical studies for the TORIC(TM) IOL, and filed a pre-market application to market this product in the United States with the FDA. The pre-market application has been approved by the FDA pending review and approval by the FDA ophthalmic panel. The Company anticipates that the ophthalmic panel will review the application in mid-1998 and, if the panel approves the application, the FDA will grant final pre-market approval to market the TORIC(TM) IOL in the United States shortly thereafter. No assurance can be given as to when or if ophthalmic panel and/or FDA pre-market approval for this product will be obtained. 4 As part of its approach to providing a complete line of complementary products for use in minimally invasive cataract surgery, the Company also markets several styles of lens injectors and sterile cartridges used to insert its IOLs, a phacoemulsification machine used to remove the cataractous lens, and several styles of disposable and reusable surgical packs and ultrasonic cutting tips used with the Company's phacoemulsification machine. Glaucoma Wick(TM). The Glaucoma Wick(TM) is a medical device surgically implanted into the eye to reduce intraocular pressure ("IOP"). It is made of biocompatible material which, through its porosity and hydrophilic properties, promotes drainage of excess eye fluid. The Glaucoma Wick(TM) is specifically designed for patients suffering from open-angled glaucoma, which is the most prevalent type of glaucoma. In contrast to trabeculectomies and trabeculoplasties, implantation of the Glaucoma Wick(TM) does not require penetration of the anterior chamber of the eye. Instead, a small flap of the outer eye tissue is folded back, the Glaucoma Wick(TM) is placed above the trabecular meshwork and the outer flap is refolded into place. The Glaucoma Wick(TM) swells to approximately five to ten times its original size, and is absorbed within one to six months after implantation, creating a new drainage pathway. The fifteen- to thirty-minute surgical procedure to implant the Glaucoma Wick(TM) is performed under local or topical anesthesia, typically on an outpatient basis. Management believes the hydrophilic properties of the Glaucoma Wick(TM) and the minimally invasive nature of the surgery offer several advantages over existing surgical procedures, including: (i) greater efficacy, (ii) a longer- term solution, (iii) reduced risk of surgical complications, and (iv) cost effectiveness. The Company believes the Glaucoma Wick(TM) is an attractive product for: (i) managed care and health maintenance organizations and group purchasing organizations who desire to control their costs and at the same time provide their customers with a higher standard of health care; (ii) less developed countries which lack the resources and infrastructure to provide continuous treatments; and (iii) ophthalmic surgeons who have traditionally referred their patients to glaucoma specialists. Adoption by ophthalmic surgeons, however, will be dependent upon the rate at which they learn the advanced surgical skills necessary to perform the implant or at which time instrumentation is developed to simplify the procedure. The Company will promote this product by educating surgeons through its highly trained technical sales force. See "Uncertainties and Risk Factors--Risks Relating to Commercialization of New Products" in Item 7. The Company introduced the Glaucoma Wick(TM) in late 1995 for commercial sale on a limited basis in South Africa and selected countries in Europe and South America. In August 1997, the Company received a CE Mark allowing it to sell the Glaucoma Wick(TM) in each of the countries comprising the European Union. In November 1997, the FDA granted the Company an IDE permitting the Company to conduct a single-phase clinical study allowing the Company to implant the Glaucoma Wick(TM) in 175 patients. The Company would, after concluding this study, submit a pre-market application to the FDA for approval of the Glaucoma Wick(TM). No assurance can be given that the clinical study will be successful and, if so, as to when or if FDA 510(k) clearance for this product will be obtained. See "Uncertainties and Risk Factors--Government Regulation and Uncertainty of Product Approval" in Item 7. Implantable Contact Lenses(TM) (ICLs(TM)). ICLs(TM) are medical devices implanted in the eye to permanently correct common refractive vision disorders including myopia, hyperopia and potentially astigmatism. The ICL(TM) is initially targeted to persons afflicted with severe hyperopia and myopia (defined as more than seven diopters) which are not currently being addressed through current traditional or laser surgical procedures, and frequently can be only partially corrected with eyeglasses or external contact lenses. The Company believes that these individuals, who suffer significant vision impairment, are the most likely to seek surgical alternatives. The Company also believes the ICL(TM) will be an attractive alternative for individuals afflicted with moderate cases of myopia and hyperopia. The Company's ICL(TM) is folded and implanted into the eye behind the iris and in front of the normal lens using minimally invasive surgical techniques similar to implanting an IOL during cataract surgery, except that the human lens is not removed. The five- to twenty-minute surgical procedure to implant the ICL(TM) is typically performed with topical anesthesia on an outpatient basis. 5 Management believes the use of an ICL(TM) affords a number of advantages over existing refractive surgical procedures, such as RK, PRK and LASIK, including the following: (i) potentially corrects all levels of myopia and hyperopia; (ii) may provide superior predictability of results; (iii) enables faster recovery of vision and rehabilitation; and (iv) produces potentially superior refractive results. The Company commenced commercial sales of ICLs(TM) in late 1996 on a limited basis in South Africa, China, and selected countries in Europe and South America. In August 1997, the Company received a CE Mark allowing it to sell the ICL(TM) in each of the countries comprising the European Union. In February 1997, the FDA granted the Company an IDE to commence clinical studies consisting of three distinct phases within the United States. The Company has completed the first phase of the IDE, pursuant to which the Company has implanted ten ICLs(TM) each for myopia and hyperopia, and is presently engaged in the second phase of the IDE, pursuant to which the Company will implant 62 ICLs(TM) each for myopia and hyperopia. No assurance can be given as to the ultimate results of the second phase of the clinical study, whether the FDA will grant approval to expand the study to the third phase, or as to when or if the FDA will grant pre-market approval for the ICL(TM). See "Uncertainties and Risk Factors--Government Regulation and Uncertainty of Product Approval" in Item 7. Viscoelastic Solution Products. Viscoelastic solution is a gel-like substance which can be used during IOL and ICL(TM) surgery to assist the ophthalmic surgeon in establishing and maintaining the space and shape of the anterior and posterior chambers of the eye. It also acts 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(TM) using minimally invasive surgical procedures. The Company believes it can effectively market its STAARVISC(TM) hyaluronic acid- based viscoelastic solution in conjunction with its foldable IOL and ICL(TM) products. The Company introduced its STAARVISC(TM) viscoelastic solution in late 1996 for commercial sale on a limited basis in Canada and selected countries in Europe and South America. In August 1997, the Company received a CE Mark allowing it to sell its STAARVISC(TM) viscoelastic solution in each of the countries comprising the European Union. The only significant pending action necessary to obtain FDA pre-market approval to commercially market STAARVISC(TM) within the United States is satisfaction of FDA regulations pertaining to Good Manufacturing Practices. The Company believes it has addressed all matters raised by the FDA concerning Good Manufacturing Practices and expects to receive FDA pre-market approval in the near future. See "Uncertainties and Risk Factors--Government Regulation and Uncertainty of Product Approval" in Item 7. Research and Development The Company is focused on furthering technological advancements in the ophthalmic products industry through continuous development and innovation of ophthalmic products and materials, and related surgical techniques to promote these products. See "Business--Strategy" above. The Company maintains an active internal research and development program comprised of over 25 employees. Over the past year, the Company has principally focused its research and development efforts on: (i) developing the Company's ICLs, Glaucoma Wick(TM) and TORIC(TM) IOL; (ii) improving insertion and delivery systems for the Company's foldable IOLs; and (iii) generally improving the manufacturing systems and procedures for all products to reduce manufacturing costs. Research and development expenses amounted to approximately $3,936,000, $4,085,000 and $3,254,000 for the Company's 1997, 1996 and 1995 fiscal years, respectively. Marketing, Selling and Distribution The Company maintains a highly trained sales force that works closely with its customers (primarily surgeons and other health care providers) to educate them on the benefits of its products, and the skills and techniques needed to perform minimally invasive surgical procedures. The Company supplements its direct sales efforts through advertising in medical and trade journals and by sponsoring surgical procedure courses, seminars and technical presentations chaired by leading ophthalmologists. 6 The Company's products are sold domestically through a network of independent regional manufacturers representatives and their territorial representatives. International sales are primarily conducted through the Company's subsidiaries that sell through independent sales representatives engaged on a basis similar to that of sales representatives 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. Competition Competition in the medical device field is intense and characterized by extensive research and development and rapid technological change. Development by competitors of new or improved products, processes or technologies may make the Company's products obsolete or less competitive. The Company will be required to devote continued efforts and significant financial resources to enhance its existing products and/or develop new products for the ophthalmic industry. See "Uncertainties and Risk Factors--Highly Competitive Industry; Rapid Technological Change" in Item 7. The Company believes its primary competition for foldable IOLs includes Bausch & Lomb Surgical ("Bausch & Lomb"), a subsidiary of Bausch & Lomb, Incorporated; Allergan Medical Optics ("AMO"), a subsidiary of Allergan, Inc. ("Allergan"); Alcon Surgical, Inc. ("Alcon"), a subsidiary of Alcon Laboratories, Inc.; Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn") and Mentor Corporation ("Mentor"). Each of these competitors is a licensee of the Company's foldable patents. Significant competitors in the hard IOL market are believed to include Bausch & Lomb, AMO, Pharmacia & Upjohn, Alcon and Mentor. The Company's primary competition for glaucoma products is from pharmaceutical companies. The Company believes Merck & Company, Inc., Alcon, Allergan and Bausch & Lomb are the largest providers of glaucoma drugs within the United States, and CIBA Vision Corporation, a subsidiary of CIBA-GEIGY Corporation, Pharmacia & Upjohn and Lederle Laboratories, a subsidiary of American Home Products, are the largest internationally. The portion of this market held by glaucoma devices is insignificant at present. The Company will face significant competition for its ICLs(TM) generally from manufacturers and distributors of corrective eyeglasses 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 Technology, Inc. ("Summit"), VISX, Incorporated ("VISX"), Sunrise Medical, Bausch & Lomb and Nidek Co., Ltd. Summit's and VISX's excimer lasers for PRK are the only products which have received pre- market approval from the FDA for sale within the United States. KeraVision, Inc. is developing the corneal ring. Pharmacia & Upjohn, which distributes and manufactures a hyaluronic acid- based viscoelastic solution known as Healon(TM), is the primary competitor for this product. Other companies, such as AMO, Bausch & Lomb and Alcon, also sell viscoelastic type products. Manufacturing and Suppliers The Company principally manufactures its IOLs at its facilities located in California, and its Glaucoma Wick(TM) and ICLs(TM) at its facilities located in Switzerland. Many components of the Company's products are purchased to its specifications from suppliers or subcontractors. Most of these components are standard parts available from multiple sources at competitive prices. 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 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. 7 Licenses and Distribution Rights The Company has granted licenses to certain of its patents, trade secrets and technology, including its foldable technology, to other companies for use in connection with their cataract products. The licenses under the patents extend for the life of the patents. The licensees include AMO, Alcon, Bausch & Lomb, Mentor and Canon STAAR, a joint venture owned equally by the Company and Canon, Inc. and Canon Sales Co., Inc. 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 Alcon, Bausch & Lomb, Mentor and Canon STAAR (with respect to the world other than Japan), and on a co-exclusive basis to AMO. At the time these licenses were granted, the Company received substantial pre-payments of royalties on all but one of the licenses. The pre-payment period on many of these licenses have since lapsed or will lapse in the near future. The Company's business strategy is not dependent upon realizing royalties from these licenses in the future. In May 1995, IRTC granted an exclusive royalty bearing license to STAAR Surgical AG to manufacture, use and sell IRTC's 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 (or former Union of Soviet Socialists Republic) and China. In January 1996, IRTC granted an exclusive royalty bearing license to STAAR Surgical AG to manufacture, use and sell ICLs(TM) using IRTC's biocompatible materials in the United States, Europe, Latin America, Africa, Asia and Japan, and non- exclusive rights with respect to the Commonwealth of Independent States. The terms of these licenses extend for the life of the patents. In connection with these licenses, IRTC also assigned its patent for its biocompatible material for IOLs and ICLs(TM) to the Company. The Company has since adopted IRTC's biocompatible material and glaucoma device design for the Company's Glaucoma Wick(TM), and has incorporated IRTC's biocompatible materials for use with the Company's proprietary ICL(TM) design. Significant Subsidiaries The Company's only significant subsidiary is STAAR Surgical AG, a wholly owned subsidiary formed in Switzerland to develop, manufacture and distribute worldwide certain of the Company's products, including its Glaucoma Wick(TM) and ICLs(TM). The Company and STAAR Surgical AG have also formed or acquired a number of directly or indirectly owned subsidiaries to distribute and market the Company's products in selected foreign countries. Facilities The Company's executive and its principal manufacturing and warehouse facilities are located in Monrovia, California. STAAR Surgical AG maintains executive offices and manufacturing and warehouse facilities in Berne, Switzerland The Company also maintains complete laboratory facilities in each of its Monrovia and Berne facilities. Certain of the Company's distribution subsidiaries also lease storage facilities to facilitate their distribution activities. See "Item 2--Properties." The Company believes that its existing facilities have been adequate for its needs, and will continue to be adequate for existing levels of operations. The Company expects no difficulties in renewing leases, or replacing or making additions to its existing facilities or in establishing new facilities. Employees and Labor Relations The Company and its subsidiaries had a total of 269 employees as of January 2, 1998, including 54 in administration, 55 in marketing and sales, 26 in research and development and technical services and 134 in manufacturing, quality control and shipping. The Company and its subsidiaries are non- unionized. The Company believes that its relations with its employees are good. 8 Intellectual Property Rights The Company and/or its licensors have pending patent applications and issued patents in various countries relating specifically to the Company's products or various aspects thereof, including the Company's core patent (the "Mazzocco Patent") relating to methods of folding or deforming a foldable IOL or ICL(TM) for use in minimally invasive surgery. The Mazzocco Patent was granted by the United States Patent Office in March 1986 to Dr. Thomas Mazzocco, M.D., a practicing ophthalmologist and a co-founder of the Company. The Company has since obtained patent protection for the Mazzocco Patent or made application for such protection in certain foreign countries. The Company has also received an assignment from IRTC of its patents for glaucoma devices and biocompatible material for IOLs. The Company has obtained a registered trademark on the mark STAAR and associated logo. 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. An adverse decision from a Court of competent jurisdiction affecting the validity or enforceability of the Company's patents (principally the Company's core Mazzocco Patent) or proprietary rights owned by or licensed to the Company could have, depending generally on the economic importance of the country or countries to which such patents or proprietary rights relate, an adverse effect on the Company and on its business prospects. Legal costs relating to prosecuting or defending patent infringement litigation may be substantial. Costs of litigation related to successful prosecution of patent litigation are capitalized and amortized over the estimated useful life of the relevant patent. There can be no assurance that the Company will be able to successfully defend its patents and proprietary rights in the future. See "Uncertainties and Risk Factors--Patents and Proprietary Rights" in Item 7. 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 with 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 begins with the submission of an application for an Investigational Device Exemption or IDE which, if granted, will permit the implantation of a limited number of products (typically less than 100) on a clinical study basis. Based upon the results from the initial core population, the FDA will then allow one or more additional core studies to be performed, typically 500 to 700 implants. The 9 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, the submission of an application for pre-market approval, and advisory panel approval, may take three to ten years depending, in part, upon the complexity and known attributes or history of the medical device. A medical device that is substantially equivalent to a directly related medical device previously in commerce may be eligible for 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 information or clarification or clinical studies are requested or required by the FDA. As a practical matter, the review process and FDA determination often take significantly longer than 90 days. FDA 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(TM), Glaucoma Wick(TM) and STAARVISC(TM) viscoelastic solution are Class III devices, and its phacoemulsification equipment, lens injectors, 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(TM) IOL), and FDA 510(k) clearance for its phacoemulsification equipment, lens injectors, ultrasonic cutting tips and surgical packs. The Company is presently conducting clinical studies under an IDE for its ICL(TM) (second of three phases) and its Glaucoma Wick(TM) (single phase). The Company believes it has addressed all matters raised by the FDA concerning its STAARVISC(TM) viscoelastic solution and expects to receive FDA pre-market approval in the near future. The Company anticipates that the FDA's ophthalmic panel will review the Company's pre-market application for the TORIC(TM) IOL in mid-1998 and, if the panel approves the application, the FDA will grant final pre-market approval to market the TORIC(TM) IOL in the United States shortly thereafter. 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. 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 at least as stringent as those of the FDA. FDA acceptance is not always a substitute for foreign government approval or clearance. The member countries of the European Economic Union (the "Union") currently permit, and by June 14, 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 Union countries. The Company has obtained the CE mark for all of its principal products, including its IOLs (including the TORIC(TM) IOL), ICLs(TM), Glaucoma Wick(TM) and STAARVISC(TM) viscoelastic solution. Other Regulatory Requirements. Sales of the Company's products may be affected by health care reimbursement practices. For example, in January 1994, the Health Care Financing Administration ("HCFA") adopted rules that limit medicare reimbursement for IOLs implanted in ambulatory surgical centers to a flat fee of $150. HCFA's medicare reimbursement rate for IOLs implanted in hospitals was set at $150 plus 50% of cost. 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 10 hazardous or potentially hazardous substances used in connection with research work. The extent of government regulation which might result from future legislation or administrative action and their potential adverse impact on the Company cannot be accurately predicted. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Approximately $30,397,000, $29,069,000 and $26,561,000 in the Company's overall revenues were generated in the United States for its 1997, 1996 and 1995 fiscal years, respectively, constituting approximately 67%, 69% and 77% of its overall revenues for such fiscal years, respectively. Europe, which is the Company's principal foreign market, generated approximately $8,924,000, $8,173,000 and $4,841,000 in revenues for the Company's 1997, 1996 and 1995 fiscal years, respectively, constituting approximately 20%, 19% and 14% 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 1997 were manufactured in the United States. See Note 16 to the Consolidated Financial Statements. ITEM 2. PROPERTIES The Company's Monrovia, California, facilities consist of leased industrial buildings of approximately 92,000 square feet. The leases expire between 1998 and 2002, and currently require aggregate payments of approximately $37,000 per month. STAAR Surgical AG's facilities in Berne, Switzerland, consist of a leased industrial building of approximately 11,000 square feet. The lease expires in 2000, and currently require payments of approximately $10,000 per month. See "Narrative Description of Business--Facilities," in Item 1 above. ITEM 3. PENDING LEGAL PROCEEDINGS Not applicable. 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 January 2, 1998. 11 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 under the symbol "STAA." The following table sets forth the reported high and low sale prices and volume of trading of the Common Stock as reported by Nasdaq for the calendar periods indicated:
PERIOD HIGH LOW ------ ------- ------- 1997: Fourth Quarter............................................. $18.625 $14.375 Third Quarter.............................................. 18.125 10.500 Second Quarter............................................. 14.125 9.625 First Quarter.............................................. 14.125 9.875 1996: Fourth Quarter............................................. $14.375 $10.375 Third Quarter.............................................. 16.500 11.875 Second Quarter............................................. 17.875 12.375 First Quarter.............................................. 14.750 9.875 1995: Fourth Quarter $12.675 $ 9.875 Third Quarter.............................................. 12.750 8.250 Second Quarter............................................. 11.375 7.500 First Quarter.............................................. 13.125 7.875
The last reported sale price for the Company's Common Stock on the Nasdaq National Market on March 24, 1998, was $15.75 per share. As of March 24, 1998, there were approximately 1,206 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. 12 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data of the Company with respect to the Company's five most recent fiscal years ended January 2, 1998, January 3, 1997, December 29, 1995, December 30, 1994 and December 31, 1993. The selected consolidated statement of operations data set forth below for each of the three fiscal years in the period ended January 2, 1998, and the selected consolidated balance sheet data set forth below at January 2, 1998 and January 3, 1997, 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 their report which is included elsewhere in this Annual Report. The selected consolidated statement of operations data set forth below for each of the two fiscal years in the period ended December 30, 1994, and the consolidated balance sheet data set forth below at December 29, 1995, December 30, 1994 and December 31, 1993, are derived from the Company's audited consolidated financial statements not included elsewhere in this Annual Report. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company, the Notes thereto, included elsewhere in this Annual Report, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7.
FISCAL YEAR ENDED ------------------------------------------------------------ JANUARY 2, JANUARY 3, DECEMBER 29, DECEMBER 30, DECEMBER 31, 1998 1997 1995 1994 1993 ---------- ---------- ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Sales................... $42,480 $41,213 $34,180 $26,333 $19,603 Royalty income.......... 3,040 1,000 514 1,020 473 ------- ------- ------- ------- ------- Total revenues...... 45,520 42,213 34,694 27,353 20,076 Cost of sales........... 10,262 10,196 8,441 6,059 3,980 ------- ------- ------- ------- ------- Gross profit........ 35,258 32,017 26,253 21,294 16,096 Costs and expenses: General and administrative....... 6,334 5,628 5,000 4,365 4,907 Marketing and selling. 12,719 12,227 10,911 8,694 6,998 Research and development.......... 3,936 4,085 3,254 2,718 2,260 ------- ------- ------- ------- ------- Total costs and expenses........... 22,989 21,940 19,165 15,777 14,165 Operating income........ 12,269 10,077 7,088 5,517 1,931 Other income (expense).. (579) 153 303 625 685 ------- ------- ------- ------- ------- Income before income taxes.................. 11,690 10,230 7,391 6,142 2,616 Income tax provision (benefit)(1)........... 4,271 3,339 (91) (2,184) 81 ------- ------- ------- ------- ------- Net income.............. $ 7,419 $ 6,891 $ 7,482 $ 8,326 $ 2,535 ======= ======= ======= ======= ======= Basic net income per share.................. $ 0.57 $ 0.53 $ 0.59 $ 0.67 $ 0.21 ======= ======= ======= ======= ======= Diluted net income per share.................. $ 0.53 $ 0.50 $ 0.55 $ 0.63 $ 0.20 ======= ======= ======= ======= ======= Weighted average number of basic shares........ 13,124 12,910 12,756 12,514 12,335 ======= ======= ======= ======= ======= Weighted average number of diluted shares...... 14,113 13,867 13,679 13,170 12,823 ======= ======= ======= ======= ======= BALANCE SHEET DATA: Working capital......... $24,936 $15,000 $16,335 $14,166 $ 7,354 Total assets............ 62,391 52,056 38,803 28,888 18,776 Notes payable and cur- rent portion of long- term debt.............. 1,608 8,193 4,029 1,792 1,634 Long-term debt.......... 5,750 844 1,212 572 0 Stockholders' equity.... 44,783 36,604 28,678 22,029 11,986
- -------- (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. 13 The following table sets forth unaudited operating data for each of the specified quarters of fiscal years 1996 and 1997. This quarterly information has been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, contains all adjustments necessary to state fairly the information set forth herein. The sum of the four quarters earnings per share may not agree to the fiscal year earnings per share due to rounding. The unaudited quarterly financial data presented below has not been subject to a review by BDO Seidman, LLP, the Company's independent certified public accountants.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) For the Fiscal Year Ended January 2, 1998 Revenues................................. $10,555 $11,584 $11,825 $11,556 Gross profit............................. $ 8,095 $ 8,889 $ 9,065 $ 9,209 Net income............................... $ 1,749 $ 1,953 $ 2,064 $ 1,653 Basic income per share................... $ 0.13 $ 0.15 $ 0.16 $ 0.13 Diluted income per share................. $ 0.13 $ 0.14 $ 0.14 $ 0.12 For the Fiscal Year Ended January 3, 1997 Revenues................................. $ 9,529 $10,327 $10,799 $11,557 Gross profit............................. $ 7,255 $ 7,885 $ 8,164 $ 8,713 Net income............................... $ 1,498 $ 1,745 $ 1,775 $ 1,873 Basic income per share................... $ 0.12 $ 0.13 $ 0.14 $ 0.14 Diluted income per share................. $ 0.11 $ 0.12 $ 0.13 $ 0.14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company develops, manufactures and globally distributes medical devices used in minimally invasive ophthalmic surgery. The Company's primary products are its foldable IOLs, its Glaucoma Wick(TM), its ICLs(TM) and its STAARVISC(TM) viscoelastic solution. The Company markets its principal products, its IOLs, both domestically and in numerous foreign countries. IOL sales accounted for 90% of the Company's domestic revenues and 74% of the Company's international revenues in 1997, respectively. The Company markets the Glaucoma Wick(TM), which the Company introduced in late 1995, and its ICLs(TM) and STAARVISC(TM) viscoelastic solution, which the Company introduced in late 1996, in selected foreign countries. The Company has marketed its foldable IOLs internationally since 1986 and, in September 1991, following a lengthy period of clinical studies, received FDA pre-market approval to fully market the Company's ELASTIMIDE(TM) and ELASTIC(TM) foldable IOL models within the United States. Since that time, the Company's total revenues increased from $10.2 million in its 1992 fiscal year to $45.5 million in its 1997 fiscal year, representing a compound annual growth rate of 35%. The Company also receives royalty income with respect to certain of its licensed technologies, although it does not consider the royalty income to be material to its prospective financial condition. International revenues represented 33.2% of total revenues for the 1997 fiscal year, up from 10.7% for the 1992 fiscal year. The mix of the Company's revenues and profits, on both a product and geographic basis, will be affected by the continued introduction and acceptance of the Company's Glaucoma Wick(TM), ICLs(TM) and STAARVISC(TM) viscoelastic solution in various markets worldwide, including the United States. Sales of the Company's Glaucoma Wick(TM) and ICLs(TM) will be limited to international markets until such products receive United States FDA pre-market approval. The Company's objective is to increase international revenues to account for one-half of total revenue. The Company's principal customers are ophthalmologists, ambulatory surgical centers, hospitals, managed care providers, health maintenance organizations and group purchasing organizations. The Company generally 14 supplies a quantity of foldable IOLs with different specifications to customers on a consignment basis and recognizes sales when an ophthalmic surgeon implants the consigned foldable IOL. Sales to distributors are generally recognized upon shipment. The Company typically does not have any backlog of orders for its products. The Company's customers for foldable IOLs are generally eligible to receive reimbursements from government or private third-party payors, such as Medicare, subject to certain limitations and pricing pressures. The Company does not expect that ICLs(TM) will be eligible for, and there can be no assurance that the Glaucoma Wick(TM) will be eligible for, reimbursement by government or private third-party payors. RESULTS OF OPERATIONS The following table sets forth the percentage of total revenues represented by certain items reflected in the Company's income statement for the period indicated and the percentage increase or decrease in such items over the prior period.
PERCENTAGE PERCENTAGE OF TOTAL REVENUES CHANGE ---------------------------------- ----------- FISCAL FISCAL YEAR ENDED YEAR ENDED ---------------------------------- ----------- 1996 1995 JANUARY 2, JANUARY 3, DECEMBER 29, VS. VS. 1998 1997 1995 1997 1996 ---------- ---------- ------------ ---- ----- Total revenues............. 100.0% 100.0% 100.0% 7.8% 21.7 % Cost of sales.............. 22.5 24.2 24.3 0.7 20.8 ----- ----- ----- Gross profit............... 77.5 75.8 75.7 10.1 22.0 Costs and expenses: General and administrative.......... 13.9 13.3 14.4 12.5 12.6 Marketing and selling.... 27.9 29.0 31.5 4.0 12.1 Research and development. 8.6 9.7 9.4 (3.6) 25.5 ----- ----- ----- Total costs and expenses.............. 50.5 52.0 55.3 4.8 14.5 Operating income........... 27.0 23.9 20.4 21.7 42.2 Other income (expense), net....................... (1.3) 0.4 0.9 -- (49.6) ----- ----- ----- Income before income taxes. 25.7 24.2 21.3 14.3 38.4 Income tax provision (bene- fit)...................... 9.4 7.9 (0.3) 27.9 -- ----- ----- ----- Net income................. 16.3% 16.3% 21.6% 7.7% (7.9)% ===== ===== =====
1997 Fiscal Year Compared to 1996 Fiscal Year Revenues. Revenues for the year ended January 2, 1998 were $45.5 million, representing a 7.8% increase over $42.2 million in revenues for the prior year ended January 3, 1997. The increase in revenues was principally attributable to: (i) an increase in royalty payments, primarily due to a payment by a licensee of past royalties; and (ii) increased sales of the Company's new products and increased international sales of the Company's IOLs, partially offset by domestic and international price decreases. Royalty revenues increased from $1.0 million to $3.0 million. Revenues from the sale of the Company's new products, principally its ICLs(TM), Glaucoma Wick(TM) and new IOL products including the TORIC(TM) IOL, increased to $2.2 million in fiscal 1997 from $660,000 in fiscal 1996. International sales of IOLs in fiscal 1997 increased by 38% in unit volume, and by $1.6 million in dollar terms, over the prior fiscal year. Total international sales increased to 35% of total sales for the 1997 fiscal year, as compared to 30% of total sales for the prior fiscal year, reflecting the Company's ongoing efforts to develop international markets as well as the conversion of these markets to foldable IOLs. Increases in sales of IOLs in unit volume were partially offset by an average price decrease for IOLs of nearly 10%, as a result of competitive pressures, both domestically and internationally. 15 Management anticipates that international sales revenues will continue to increase at a rate significantly greater than domestic sales, reflecting: (i) the Company's increased efforts to broaden its international distribution channels and to promote its products internationally; (ii) increased IOL unit volumes due to the continued conversion of international IOL markets to foldable IOLs; and (iii) greater international awareness and acceptance of the Company's ICLs(TM) and Glaucoma Wick(TM), particularly as ophthalmologists continue to receive the surgical training required to implant these ocular products, and the Company continues to proceed with its United States clinical studies. Management also believes that it will continue to benefit from volume increases attributable to the continuing conversion of the domestic cataract market to foldable IOLs, albeit at a slower rate of increase due to the higher rate of conversion to date of the domestic market to foldable IOLs. Management believes that the prices of IOLs will continue to be affected by competition. Cost of Sales. Due primarily to additional royalty income and also continued manufacturing efficiencies, cost of sales as a percentage of revenues for the year ended January 2, 1998 declined to 22.5% of revenues as compared to 24.2% for the prior fiscal year. This reduction was effectuated notwithstanding price decreases resulting from competitive pressures and a product mix change due to an increased demand for the ELASTIMIDE(TM) IOL (which is relatively more expensive to manufacture than the ELASTIC(TM) model). General and Administrative. General and administrative expense for the year ended January 2, 1998 was $6.3 million, or 13.9% of revenues, as compared to $5.6 million, or 13.3% or revenues, for the prior fiscal year. The increase in general and administrative expense, both in dollar terms and as a percentage of revenues, was attributable to additional administrative infrastructure expenditures required to support the increase in revenues and costs related to investors relations. Marketing and Selling. Marketing and selling expense for the year ended January 2, 1998 was $12.7 million, or 27.9% of revenues, as compared to $12.2 million, or 29.0% of revenues, for the prior fiscal year. The decline in marketing and selling expense as a percentage of revenues was attributable to the significant growth in overall revenues permitting greater absorption of fixed marketing and selling (i.e. non-commission) costs. The increase in marketing and selling expense in dollar terms was principally attributable to additional selling and marketing expenses arising from the operations of the Company's new European distribution subsidiaries. Research and Development. Research and development expense for the year ended January 2, 1998 was $3.9 million, or 8.6% of revenues, as compared to $4.1 million, or 9.7% of revenues, for the prior fiscal year. These expenditures were attributable to the Company's continued investment in developing new products, manufacturing and distribution systems, cost reduction projects for manufacturing and increased costs incurred conducting clinical studies in the United States. Other Expense or Income, Net. Other expense for the year ended January 2, 1998 was $579,000, or 1.3% of revenues, as compared other income of $153,000, or 0.4% of revenues, for the prior fiscal year. The primary reasons for the overall increase in other expenses over income were increased interest expenses, and losses in translating foreign currency. Income Tax Provision. Income taxes increased to a provision of $4.3 million for the year ended January 2, 1998, as compared to a provision of $3.3 million for the prior fiscal year. The Company's tax rate increased from a rate of 32.6% in fiscal 1996 to a rate of 36.5% for fiscal 1997, primarily due to a greater percentage of income before taxes being subject to taxation at the higher United States 40% combined federal and state marginal tax rate. During fiscal 1997 the Company utilized all of its remaining tax operating loss carryforwards for federal income tax purposes. See Note 7 to the Consolidated Financial Statements. As a result of the Company's positive operating results for each of the three years ended January 2, 1998 the Company determined that deferred tax assets of $1.2 million and $2.3 million should be recognized as of January 2, 1998 and January 3, 1997. These amounts were based on a consideration of current and future anticipated earnings. Future income levels should result and in full recognition of the deferred tax assets. The 16 amount recorded as of January 3, 1997 includes the capitalization of the remaining balance of the Company net operating loss carryforwards. Management believes it is more likely than not that the deferred tax assets will be realized in full. 1996 Fiscal Year Compared to 1995 Fiscal Year Revenues. Revenues for the year ended January 3, 1997 were $42.2 million, representing a 21.7% increase over $34.7 million in revenues for the prior year ended December 29, 1995. The increase in revenues was principally attributable to the continued growth in unit sales of the Company's primary products, its foldable IOLs, in both the domestic and international markets, partially offset by certain domestic price decreases due to competitive pressures. Increases in unit volume are attributable, in significant part, to the continuing conversion of the cataract market to foldable IOLs. Revenues from international sales increased to 30% of total revenues for the year ended January 3, 1997, as compared to 24% for the prior fiscal year, reflecting the Company's increased efforts to develop international markets, as well as the conversion of these markets to foldable IOLs. Also included in revenues for the year ended January 3, 1997 are international sales of $625,000 resulting from the commercial introduction in selected foreign markets of the Company's Glaucoma Wick(TM) at the end of 1995 and its ICLs(TM) and STAARVISC(TM) viscoelastic solution at the end of fiscal 1996. Revenues from royalties also increased from $500,000 for 1995 to $1 million for fiscal 1996. Cost of Sales. Cost of sales as a percentage of revenues for the year ended January 3, 1997 declined slightly to 24.2% of revenues as compared 24.3% for the prior fiscal year. The principal reasons for this slight decline were increased operating efficiencies and economies of scale from increased sales volume. These savings were offset by price decreases resulting from competitive pressures and a product mix change due to an increased demand for the ELASTIMIDE(TM) IOL, which is relatively more expensive to manufacture. General and Administrative. General and administrative expense for the year ended January 3, 1997 was $5.6 million, or 13.3% of revenues, as compared to $5 million, or 14.4% or revenues, for the prior fiscal year. The decline in general and administrative expense as a percentage of revenues was attributable to the significant growth in overall revenues permitting greater absorption of general and administrative costs. The increase in general and administrative expense in dollar terms was attributable to additional administrative infrastructure expenditures required to support the increase in revenues. Marketing and Selling. Marketing and selling expense for the year ended January 3, 1997 was $12.2 million, or 29.0% of revenues, as compared to $10.9 million, or 31.5% of revenues, for the prior fiscal year. The decline in marketing and selling expense as a percentage of revenues was attributable to the significant growth in overall revenues permitting greater absorption of fixed marketing and selling (i.e., non-commission) costs. The increase in marketing and selling expense in dollar terms was principally attributable to greater commissions paid arising from increased sales revenues. Research and Development. Research and development expense for the year ended January 3, 1997 was $4.1 million, or 9.7% of revenues, as compared to $3.3 million, or 9.4% of revenues, for the prior fiscal year. This increase was attributable to the Company's continued investment in developing new products, manufacturing systems and distribution systems, cost reduction projects for manufacturing, and increased costs incurred conducting clinical studies in the United States. Other Income, Net. Other income for the year ended January 3, 1997 was $153,000, or 0.4% of revenues, as compared to $303,000, or 0.9% of revenues, for the prior fiscal year. The primary reasons for this decrease were increased interest expenses, losses in translating foreign currency, and a decline in deferred revenue arising from the sale of a license to the Canon STAAR joint venture. The deferred revenue reported in fiscal 1996 is the last portion of total deferred revenue realized with respect to the Canon STAAR license. Income Tax Provision. Income taxes increased to a provision of $3.3 million for the year ended January 3, 1997 from a benefit of $100,000 for the prior fiscal year. Fiscal 1996 is the first year the Company has reported 17 an income tax provision without having offsets related to net operating loss carryforwards. However, the Company will not pay any significant Federal income taxes until it fully utilizes the remaining $2.5 million of net operating loss carryforwards for tax purposes. The Company fully utilized its net operating loss carryforwards for state taxes in 1995. The Company has recorded a deferred tax asset of $1.3 million as of January 3, 1997. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its activities over the past several years principally from cash flow generated from operations, credit facilities provided by institutional domestic and foreign lenders, and the exercise of stock options and warrants. The Company's principal domestic credit facility is a line of credit originally entered into on a secured basis in June 1996, and refinanced on an unsecured basis in June 1997, which currently allows the Company to borrow up to $10.0 million on a revolving basis, at a rate of interest not to exceed the prime interest rate, less 0.25% (or, at the election of the Company, if more than $500,000 is outstanding, at a rate of interest equal to LIBOR, plus 1.75%). This line of credit expires in June 1999. The underlying loan agreement requires the Company to satisfy certain financial tests, and limits the amount of indebtedness the Company may incur to others. The refinance of the line of credit in June 1997 resulted in a reclassification of debt from short-term to long-term. Borrowings outstanding under this line of credit as of January 2, 1998 were approximately $5.5 million. In November 1997, the Company's domestic lender supplemented the Company's domestic credit facility by committing through March 31, 1998 to make additional advances to the Company of up to $5 million for business acquisitions. Any principal amounts borrowed pursuant to this commitment would be repaid in monthly installments of principal of $83,334 until such amounts were repaid. Interest on any such principal amounts borrowed will be payable monthly at a rate of interest not to exceed the prime interest rate, less 0.25% (or, at the election of the Company, if more than $100,000 is outstanding, at a rate of interest equal to LIBOR, plus 1.75%). The underlying loan agreement requires the Company to satisfy certain financial tests, and limits the amount of indebtedness the Company may incur to others. No borrowings under this commitment have been made as of January 2, 1998. The Company's foreign credit facility consists of a separate revolving line of credit and a term loan extended in May 1994 by a Swiss bank to the Company's subsidiary, STAAR Surgical AG. The revolving line of credit facility provides for borrowings up to $766,000 (1.1 million Swiss Francs) at a 5.5% rate of interest as of January 2, 1998. 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 January 2, 1998 under the line of credit were approximately $926,000, which balance exceeded the maximum allowable borrowings. The excess borrowings were permitted by the lender due to adequate compensating cash balances. Under the term loan, STAAR Surgical AG obtained a $766,000 (1.1 million Swiss Francs) loan guaranteed partially by the Swiss government and partially by the Company. Interest on this loan is 6.25%, which the Company shares on an equal basis with the bank and the Swiss government. The principal amount of this loan is required to be repaid in four equal annual installments, beginning in December 1996. Borrowings by STAAR Surgical AG under this loan outstanding as of January 2, 1998 were approximately $397,000. As of January 2, 1998, the Company had net working capital of approximately $24.9 million, as compared to $15.0 million and $16.3 million as of January 3, 1997 and December 29, 1995, respectively. The increase in net working capital for the fiscal year ended January 2, 1998 was primarily attributable to a $1.2 million increase in accounts receivable, a $2.3 million increase in inventory, a $3.25 million note receivable recorded in a settlement with a licensee, a $6.5 million decrease in notes payable as a result of the full payment of a $2.0 million note and the reclassification of debt from short-term to long- term offset by a $3.3 million change in deferred income taxes. The decrease in net working capital for the fiscal year ended January 3, 1997 was primarily attributable to a $4.2 million increase in notes payable, $5.9 million investment in patents and licenses, and $4.3 million expended to acquire additional property and equipment, offset by a $2.8 million increase in inventories and a $2.7 million increase in cash. 18 As of January 2, 1998, the Company had cash and cash equivalents of approximately $6.3 million, as compared to $6.5 million and $3.8 million as of January 3, 1997 and December 29, 1995, respectively. The slight decline in the Company's cash position for the year ended January 2, 1998 was primarily attributable to the increase in the effect of exchange rate changes in cash and cash equivalents. The improvement in the Company's cash position for the year ended January 3, 1997 was primarily attributable to net cash provided by operating activities (approximately $9.3 million) and cash provided by financing activities (approximately $4.5 million), partially offset by cash used for the acquisition of property, plant and equipment to establish production facilities for new products and to improve operations for current products and reduce current manufacturing costs (approximately $4.3 million) and to acquire patents and licenses and to fund patent litigation (approximately $5.9 million). Cash flows from operating activities for the year ended January 2, 1998 were approximately $7.6 million, a decrease of approximately $1.7 million from the prior fiscal year. The decrease in cash flow from operating activities was principally attributable to a $3.9 million change in operating working capital offset by a $550,000 increase in amortization of patents, licenses and other intangibles, and a $1.3 million increase in deferred income taxes. Cash flows from operating activities for the year ended January 3, 1997 were approximately $9.3 million, an improvement of approximately $4.3 million from the prior fiscal year. The increase in cash flow from operating activities was principally attributable to the utilization of deferred tax asset of $2.9 million and an increase in depreciation and amortization of $1.5 million. Cash used in investing activities for the year ended January 2, 1998, was $7.4 million, representing a decrease of approximately $3.6 million relative to the year ended January 3, 1997. This decrease was due primarily to a $1.4 million decrease in the acquisition of property, plant and equipment and a $2.7 million decrease in the acquisition of patents and licenses, partially offset by a $590,000 increase in other assets. Cash used in investing activities for the year ended January 3, 1997 was $11.0 million, representing an increase of approximately $4.9 million relative to the year ended December 29, 1995. This increase was due primarily to an increase of $792,000 in expenditures for property and equipment and $4.0 million for patents and licenses. Cash flows from financing activities for the year ended January 2, 1998 were $122,751, representing a decrease of approximately $4.4 million relative to the year ended January 3, 1997. This decrease was principally attributable to a $2.4 million decrease in borrowings and a $2.1 million increase in payments on notes payable and long-term debt. Cash flows from financing activities for the year ended January 3, 1997 were $4.5 million, representing an increase of approximately $2.9 million relative to the year ended December 29, 1995. This increase was principally attributable to increased net borrowings of approximately $1.4 million, increased exercises of stock options of $617,000, and decreased expenditures to repurchase Common Stock (approximately $315,000, as compared to $1.6 million for the prior fiscal year). As of January 2, 1998, the Company had $396,000 due with respect to an open- ended capital lease agreement wherein the Company leased $1.2 million in surgical equipment. The Company's obligations under this lease agreement are secured by a $300,000 letter of credit. The Company's capital expenditures for the fiscal years ended January 2, 1998 and January 3, 1997 were approximately $2.8 million and $4.3 million, respectively. These expenditures were used to upgrade existing production equipment, set up new production facilities for new products, and reduce current manufacturing costs. The Company's planned capital expenditures for 1998 are approximately $4.0 million, primarily to improve and expand the Company's foldable IOL, ICL(TM) and Glaucoma Wick(TM) manufacturing capacity and to reduce manufacturing costs. Capitalized additions for patents and licenses for the fiscal years ended January 2, 1998 and January 3, 1997 were approximately $3.2 million and $5.9 million, respectively. The Company capitalizes the costs of acquiring patents and licenses as well as the legal costs of defending its rights to these patents. The Company expects to spend approximately $2.0 million in 1998 for patents and licenses. 19 Management believes that cash flow from operations and available credit facilities, together with its current cash balances, will provide adequate financial resources to finance an increase in the level of the Company's operations, including some capital expenditures, and research and development activities. Should additional funding be needed, such as for significantly increased levels of operations, major capital expenditures or acquisitions, the Company believes, so long as the financial position of the Company remains constant, that these funds could be obtained through borrowings or a secondary public offering. OTHER MATTERS New Accounting Standards See "Recent Accounting Pronouncements" in the Consolidated Financial Statements. Foreign Exchange Management does not believe that the fluctuation in the value of the dollar in relation to the currencies of its suppliers or customers in the last three fiscal years has adversely affected the Company's ability to purchase or sell products at agreed upon prices. No assurance can be given, however, that adverse currency exchange rate fluctuations will not occur in the future, which would affect the Company's operating results. See "Uncertainties and Risk Factors--Risks Associated with International Transactions" below. Inflation Management believes inflation has not had a significant impact on the Company's operations during the past three years. Year 2000 Compliance Management has reviewed the Company's internal computer systems and software products for Year 2000 problems and believes that such systems and products are, or will soon be, Year 2000 compliant, and management therefore does not expect Year 2000 considerations will materially impact the Company's internal operations. Year 2000 considerations may have an affect on some of the Company's customers and suppliers, and thus indirectly affect the Company. It is not possible to quantify the aggregate cost to the Company with respect to customers and suppliers with Year 2000 problems, although the Company does not anticipate it will have a material adverse impact on its business. 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, those described below and those described elsewhere in this Annual Report, which may ultimately affect the Company in a manner and to a degree which cannot be foreseen at this time. Risks Relating to Commercialization of New Products. The extent and pace of market acceptance of the Company's new products, including its Glaucoma Wick(TM), ICL(TM) and STAARVISC(TM) viscoelastic solution, will be a function of many variables, in the following: the efficacy, performance and attributes of such new products; the ability of the Company to obtain necessary regulatory approvals to commercially market such new products; the effectiveness of the Company's marketing and sales efforts, including educating ophthalmologists and other potential customers as to the distinctive characteristics and benefits of these new products; the rate at which 20 ophthalmologists attain the necessary surgical skills to implant these new products; the ability of the Company to meet manufacturing and delivery schedules; and product pricing. The extent and pace of market acceptance will also depend upon general economic conditions affecting customers' purchasing patterns. As the Glaucoma Wick(TM) and ICL(TM) are 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. Unless and until these new products are accepted by the market and generating meaningful revenues and profits, the Company's financial condition and prospects will continue to be solely dependent upon its line of cataract products. See "Uncertainties and Risk Factors--Government Regulation and Uncertainty of Product Approval" and "Business--Products." Highly Competitive Industry; Rapid Technological Change. Competition in the ophthalmic industry is intense and characterized by extensive research and development and rapid technological change. The Company has licensed certain of its patents and technologies relating to its cataract products to competitors. Many of the Company's current and prospective competitors have greater financial, technical and marketing resources and trade name recognition than the Company, which may enable them to successfully develop and/or market products based on technologies or approaches similar to those of the Company, or develop products based on other technologies or approaches, which are, or may be, competitive with the Company's products. Development by competitors of new or improved products, processes or technologies may make the Company's products less competitive or obsolete. The Company will be required to devote significant financial and other resources to enhance its existing products and develop new products for the ophthalmic industry. Competitive pressures could lead to a decline in sales volumes of existing products, the inability to attain sufficient market penetration for new products, or price reductions, any or all of which could adversely affect the Company's operating and financial results. There can be no assurance that the Company will be able to compete successfully in the industry, particularly in view of rapid technological change. See "Business--Competition" and "Business--Licenses and Distribution Rights" in Item 1. Government Regulation and Uncertainty of Product Approval. The manufacture and sale of the Company's products are subject to extensive international and domestic regulation. In order to sell these products within the United States, clearance or approval from the FDA is required. The FDA clearance or approval process is expensive and time consuming, and no assurance can be given that any of the Company's products which have not received FDA clearance or approval to date will obtain such FDA clearance or approval on a timely basis or at all, or without delays adversely affecting the marketing and sale of the Company's products. Foreign regulatory requirements differ from jurisdiction to jurisdiction and may, in some cases, be more stringent or difficult to obtain than FDA clearance or approval. In order to sell products in the countries comprising the European Economic Union (the "Union"), the Company must satisfy, by no later than 1998, certain Union-wide regulatory requirements, notwithstanding the Company's previous receipt of approvals from member countries. No assurance can be given that the Company will obtain such regulatory approvals on a timely basis or at all, or without delays adversely affecting the marketing and sale of the Company's products. In addition, clearances or approvals that have been or may be granted are subject to continual review, which could result in product labeling restrictions, withdrawal of products from the market or other adverse consequences. To date, the Company has conducted clinical studies in certain foreign countries, and is in the process of conducting clinical studies in the United States, on the feasibility of (i) using the Glaucoma Wick(TM) for the treatment of glaucoma, and (ii) using the ICL(TM) for the treatment of myopia and hyperopia. There can be no assurance that the clinical trial results to date from these studies are necessarily indicative of future clinical trial results with respect to these new products. There can also be no assurance that long- term safety and efficacy data, when collected, will be consistent with the clinical results to date, and will demonstrate that (i) the Glaucoma Wick(TM) can be used safely and successfully to treat glaucoma in a broad segment of the patient population or on a long-term basis, or (ii) that the ICL(TM) can be used safely and successfully to treat myopia or hyperopia on a long-term basis. Furthermore, no assurance can be given that there will be no serious complications or side effects, or that any such complications or side effects will not impair or delay the Company's obtaining regulatory approval for these new products in the United States and other key markets. 21 In addition to the review and approval process for its products, the Company is also subject to government regulation of its manufacturing facilities and procedures including "good manufacturing practice" regulations promulgated by the FDA. The Company believes it is in compliance with all applicable regulations. However, the FDA and comparable regulatory agencies in other countries have substantial discretion in the interpretation and enforcement of applicable regulations. There can be no assurance that future interpretations made by any regulatory bodies, including the FDA, with possible retroactive effect, will not adversely affect the Company. Moreover, the Company could suffer a material adverse effect from a change in these regulations. The Company cannot predict the extent or impact of future federal, state, local or foreign legislation or regulation. See "Business--Regulatory Requirements" in Item 1. 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. Patents and Proprietary Rights. The Company's ability to compete effectively is materially dependent upon the proprietary nature of the designs, processes, technologies and materials owned, 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 and non-disclosure agreements, 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 circumvent patents the Company or its licensors have received or applied for by developing products which closely emulate but do not infringe the Company's or its licensor's patents, and thereby market products that compete with the Company's products without obtaining a license from the Company. In addition to patented or potentially patentable designs, technologies, processes and materials, the Company also relies on proprietary designs, technologies, processes and know-how not eligible for patent protection, and there is no assurance that competitors may not independently develop the same or superior designs, technologies, processes and know-how. The Company believes that the international market for its products is as important as the domestic market, and therefore seeks patent protection for its products or those of its licensors in selected foreign countries. Because of the differences in foreign patent and other laws concerning proprietary rights, the Company's products may not receive the same degree of protection in certain foreign countries as they would in the United States. There can be no assurance that the Company will be able to successfully defend its patents and proprietary rights. The invalidation or circumvention of key patents (principally the Company's core patents for insertion of foldable or deformable IOLs or ICLs through minimally invasive surgical techniques) or proprietary rights owned by or licensed to the Company could have an adverse effect on the Company and on its business prospects. There can be no assurance that the Company will not be required to defend against litigation involving the patents or proprietary rights of others, or that licenses under such rights will be available. Legal and accounting costs relating to prosecuting or defending patent infringement litigation may be substantial. See "Business-- Intellectual Property Rights" in Item 1. Third-Party Reimbursement. The Company's ability to sell its products is, in part, dependent upon policies of government or private third-party payors regarding reimbursement to ophthalmic surgeons with respect to their use of the Company's products. There can be no assurance that such third-party payors will continue to authorize or otherwise budget reimbursement for use of the Company's existing products (principally its IOLs) at current levels. For example, reimbursement rates for IOLs, such as that of Medicare, have declined in recent years. Changes in policies regarding reimbursement for ophthalmic products or services could adversely affect the prospects for future sales of the Company's products. The Company does not expect that ICLs(TM) will be eligible 22 for reimbursement, and there can be no assurance that any of the Company's other new products will be eligible for reimbursement by government or private third-party payors. Risks Associated with International Transactions. The Company sells its products internationally which subjects it to several potential risks, including risks associated with fluctuating exchange rates, the 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. The Company has not previously engaged in activities to mitigate the effects of foreign currency fluctuations, as the Company is generally paid in U.S. dollars with respect to its international operations. If earnings from international operations increase, the Company's exposure to fluctuations in foreign currencies may increase, and the Company may utilize forward exchange rate contracts or engage in other efforts to mitigate foreign currency risks. If entered into, there can be no assurance as to the effectiveness of such efforts in limiting any adverse effects of foreign currency fluctuations on the Company's international operations and on the Company's overall results of operations. See "Business" in Item 1 and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Foreign Exchange" above. Product Liability Claims; Insufficiency of Product Liability Insurance Coverage; Product Recall Risks. As a supplier of products used in medical treatments, the Company faces an inherent business risk of exposure to product liability claims in the event the end use of its products results in unanticipated adverse effects on patients, including serious personal injury or death. Certain of the Company's new products, such as its Glaucoma Wick(TM) and its ICL(TM), are based upon unique designs and materials. Product liability risk is higher with respect to these products, as 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. Potential negative publicity concerning the defective product could also affect the Company's other products. 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 product liability claim could have a material adverse effect on the Company. Any product liability claims will be subject to the uncertainties attendant to litigation. The Company currently maintains product liability insurance coverage. No assurance can be given that such insurance coverage is in an amount sufficient to cover all possible liabilities, or one or more large claims, or that the insurer will be solvent at the time of any covered loss. Also, no assurance can be given that adequate product liability insurance will continue to be available in the future or maintained at a reasonable cost to the Company. In the event of a successful product liability suit against the Company, lack or insufficiency of insurance coverage could have a material adverse effect on the Company. The Company may, in the event there are material deficiencies or defects in the design or manufacture of any of its products, be required to recall such defective products. In the event of a product recall, the cost to, and the potential liability of, the Company could be significant and could have a material adverse effect on the Company's business and operations, especially if such liability relates to the recall of a product generating significant revenues and earnings for the Company, such as its foldable IOLs. Potential negative publicity from a recall could also adversely affect sales and/or regulatory approvals of the Company's other products. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 23 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 1998 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial statements required by Item B of this form are filed as a separate part of this report following Part IV
PAGE ---- Report of Independent Certified Public Accountants........................ F-2 Consolidated Balance Sheets at January 2, 1998 and January 3, 1997........ F-3 Consolidated Statements of Income for the years ended January 2, 1998, January 3, 1997 and December 29, 1995.................................... F-4 Consolidated Statements of Stockholders' Equity for the years ended January 3, 1997, December 29, 1995 and December 30, 1994................. F-5 Consolidated Statements of Cash Flows for the years ended January 3, 1997, December 29, 1995 and December 30, 1994.................................. F-6 Notes to Consolidated Financial Statements................................ F-11 (2) Schedules required by Regulation S-X are filed as an exhibit to this report: Independent Certified Public Accountants' Report on Schedules and Consent. F-23 II. Valuation and Qualifying Accounts and Reserves........................ F-24 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 24
NUMBER DESCRIPTION ------ ----------- 3.1 Certificate of Incorporation, as amended(1) 3.4 By-laws, as amended(8) 4.1 1990 Stock Option Plan(2) 4.2 1991 Stock Option Plan(3) 4.3 1995 STAAR Surgical Company Consultant Stock Plan(4) 4.4 1996 STAAR Surgical Company Non-Qualified Stock Plan(9) 4.5 1996 STAAR Surgical Company Non-Qualified Stock Plan(9) 4.6 Stockholders' Rights Plan, dated effective April 20, 1995(7) 10.1 Non-Exclusive License Agreement, dated March 13, 1986, between the Company and CooperVision, Inc.(6) 10.2 Technology License Agreement And Option To Purchase Equity Interest, dated March 13, 1986, between the Company and CooperVision, Inc.(6) 10.3 License Agreement, dated December 17, 1986, between the Company and Optical Radiation Corporation(11) 10.4 Joint Venture Agreement, dated May 23, 1988, between the Company, Canon Sales Co, Inc. and Canon, Inc.(5) 10.5 License Agreement, dated March 9, 1990, between Chiron Ophthalmics, Inc. and the Company(6) 10.6 License Agreement, dated March 9, 1990, between Chiron Ophthalmics, Inc. and the Company(6) 10.7 Promissory Note, dated February 28, 1991, from John R. Wolf to the Company(9) 10.8 Stock Pledge/Security Agreement, dated February 28, 1991, between John R. Wolf, the Company and Pollet & Associates(9) 10.9 Promissory Note, dated February 28, 1991, from William C. Huddleston to the Company(9) 10.10 Stock Pledge/Security Agreement, dated February 28, 1991, between William C. Huddleston, the Company and Pollet & Associates(9) 10.11 Amended and Restated Soft IOL License Agreement, restated as of January 31, 1992, between the Company, Softlensco, Inc., and Iolab Corporation(9) 10.12 Promissory Note, dated May 26, 1992, from the Andrew F. Pollet and Sally M. Pollet Revocable Trust dated March 6, 1990 (11) 10.13 Deed of Trust, dated August 1, 1997, by the Andrew F. Pollet and Sally M. Pollet Revocable Trust dated March 6, 1990(10) 10.14 Promissory Note, dated July 3, 1992, from William C. Huddleston to the Company(11) 10.15 Stock Pledge/Security Agreement, dated July 3, 1992, between William C. Huddleston the Company and Pollet & Associates(11) 10.16 Lease, dated November 9, 1992, by and between Linda Lee Brown and Phyllis Ann Bailey and the Company regarding real property located at 1941 Walker Avenue, Monrovia, California(11) 10.17 Indenture of Lease, dated October 20, 1983, by and between Dale E. Turner and Frances R. Turner and the Company regarding real property located at 1911 Walker Avenue, Monrovia, California, and all Lease Additions thereto(11) 10.18 Patent License Agreement, dated May 24, 1995, with Eye Microsurgery Intersectoral Research and Technology Complex(8) 10.19 Patent License Agreement, dated January 1, 1996, with Eye Microsurgery Intersectoral Research and Technology Complex(9)
25
NUMBER DESCRIPTION ------ ----------- 10.20 Promissory Note, dated March 18, 1993, from William C. Huddleston to the Company(6) 10.21 Revolving Line of Credit Note, dated June 1, 1997, between STAAR Surgical Company and Wells Fargo Bank(10) 10.22 Modification To Employment Agreement, dated December 20, 1994, between the Company and John R. Wolf(6) 10.23 First Amendment To Sales Representative Agreement, dated December 20, 1994, between the Company and John R. Wolf(6) 10.24 Employment Agreement, dated March 1, 1994, between the Company and Vladimir Feingold(6) 10.25 Modification To Employment Agreement, dated May 6, 1996, between the Company and Vladimir Feingold(9) 10.26 Employment Agreement, dated March 1, 1994, between the Company and William C. Huddleston(6) 10.27 Modification To Employment Agreement, dated May 6, 1996, between the Company and William C. Huddleston(9) 10.28 Employment Agreement, dated March 1, 1994, between the Company and Carl M. Manisco(6) 10.29 Modification To Employment Agreement, dated May 6, 1996, between the Company and Carl M. Manisco(9) 10.30 Employment Agreement, dated March 1, 1994, between the Company and Michael J. Lloyd(6) 10.31 Modification To Employment Agreement, dated May 6, 1996, between the Company and Michael J. Lloyd(9) 10.32 Employment Agreement, dated March 1, 1994, between the Company and Stephen L. Ziemba(6) 10.33 Modification To Employment Agreement, dated May 6, 1996, between the Company and Stephen L. Ziemba(9) 10.34 Employment Contract, dated May 26, 1996, between the Company and Donald Ferguson(9) 10.35 Amended IOL Supply Agreement, dated June 10, 1994, between the Company and Chiron Vision Corporation(6) 10.36 Manufacturing Site Agreement, dated June 10, 1994, between the Company and Chiron Vision Corporation(6) 10.37 Form of Non-Qualified Stock Option Agreements granted to Directors of Company in June and August 1994(6) 10.38 Agreement For Purchase And Sale Of Assets, dated October 1, 1994, between STAAR Surgical Australasia Pty. Ltd. and Bionica Pty. Ltd.(6) 10.39 Agreement, dated October 10, 1995, with China Eye Joint Venture(8) 21 List of Significant Subsidiaries(10) 24 Powers of Attorney(10) 27.1 Financial Data Schedule at and for the year ended January 2, 1998(11) 27.2 Restated Financial Data Schedule at and for the years ended January 3, 1997 and December 29, 1995(10) 27.3 Restated Financial Data Schedule at and for the periods ended September 27, 1996, June 28, 1996, and March 29, 1996(10) 27.4 Restated Financial Data Schedule at and for the periods ended October 3, 1997, July 4, 1997, and April 4, 1997(10)
26 - -------- (Footnotes to Exhibits): (1) Incorporated by reference from the Company's Registration Statement on Form S-18, File No. 2-83434, as filed on April 29, 1983 (2) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-37248, as filed on October 11, 1990 (3) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-76404, as filed on March 11, 1994 (4) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-60241, as filed on June 15, 1995 (5) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1993, as filed on March 31, 1994 (6) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 30, 1994, as filed on March 30, 1995 (7) Incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Stockholders held on June 6, 1995, as filed on May 12, 1995 (8) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 29, 1995, as filed on March 28, 1996 (9) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended January 3, 1997, as filed on April 2, 1997 (10) Filed herewith (11) Refiled herewith pursuant to Reg. (S)201.24 (b) Reports on Form 8-K. During the three months ended January 2, 1998 the Company did not file any reports on Form 8-K. 27 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 31, 1998. STAAR SURGICAL COMPANY /s/ John R. Wolf By: _________________________________ 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 31, 1998 and in the capacities indicated.
SIGNATURE TITLE --------- ----- /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/ Donald R. Sanders* Director _____________________________________ Donald R. Sanders /s/ Andrew F. Pollet* Director _____________________________________ Andrew F. Pollet /s/ Michael R. Deitz, M.D.* Director _____________________________________ Michael R. Deitz, M.D. /s/ William C. Huddleston *By: ________________________________ William C. Huddleston (Attorney in Fact)
28 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995 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 January 2, 1998, and January 3, 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended January 2, 1998. 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 January 2, 1998 and January 3, 1997, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 1998, in conformity with generally accepted accounting principles. BDO Seidman, LLP Los Angeles, California March 6, 1998 F-2 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 2, 1998 AND JANUARY 3, 1997
1997 1996 ----------- ----------- ASSETS ------ Current assets: Cash and cash equivalents.......................... $ 6,279,136 $ 6,469,515 Accounts receivable, less allowance for doubtful accounts of $128,070 and $111,525 (Note 1)................. 7,983,399 6,827,250 Other receivable (Note 9).......................... 3,250,000 -- Inventories (Note 2)............................... 14,712,398 12,365,867 Prepaid, deposits and other current assets......... 2,006,075 1,676,611 Deferred income tax (Note 7)....................... 1,182,136 2,268,075 ----------- ----------- Total current assets............................. 35,413,144 29,607,318 ----------- ----------- Investment in joint venture (Note 4)............... 2,740,163 2,464,140 Property, plant and equipment, net (Note 3)........ 10,024,181 8,920,989 Patents and licenses, net of accumulated amortization of $2,397,920 and $1,401,392 (Notes 8 and 9)............................................ 11,121,436 8,900,236 Other assets....................................... 3,091,957 2,163,336 ----------- ----------- $62,390,881 $52,056,019 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Notes payable (Note 5)............................. $ 983,276 $ 7,489,549 Accounts payable................................... 1,528,436 1,605,026 Current portion of long-term debt (Note 6)......... 624,698 703,260 Deferred income tax (Note 7)....................... 3,174,000 937,000 Other current liabilities (Notes 11 and 12)........ 4,166,963 3,872,750 ----------- ----------- Total current liabilities........................ 10,477,373 14,607,585 ----------- ----------- Long-term debt (Note 6).............................. 5,750,478 844,050 Other long-term liabilities (Note 6)................. 1,380,246 207 ----------- ----------- Total liabilities................................ 17,608,097 15,451,842 ----------- ----------- Commitments and contingencies (Notes 11 and 13) Stockholders' equity (Notes 10, 11 and 13): Common stock, $.01 par value, 30,000,000 shares authorized; issued and outstanding 13,246,161 and 13,070,705.. 132,462 130,707 Capital in excess of par value..................... 42,810,700 41,518,049 Accumulated translation adjustment................. (695,502) (160,573) Retained earnings (deficit)........................ 4,861,139 (2,557,991) ----------- ----------- 47,108,799 38,930,192 Notes receivable (Note 10)....................... (2,326,015) (2,326,015) ----------- ----------- Total stockholders' equity....................... 44,782,784 36,604,177 ----------- ----------- $62,390,881 $52,056,019 =========== ===========
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 JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995
1997 1996 1995 ----------- ----------- ----------- Sales................................... $42,480,014 $41,212,511 $34,180,420 Royalty income (Note 9)................. 3,039,571 1,000,000 514,000 ----------- ----------- ----------- Total revenues...................... 45,519,585 42,212,511 34,694,420 Cost of sales........................... 10,261,748 10,195,396 8,441,099 ----------- ----------- ----------- Gross profit........................ 35,257,837 32,017,115 26,253,321 ----------- ----------- ----------- Selling, general and administrative expenses: General and administrative (Note 13).. 6,333,781 5,627,576 5,000,484 Marketing and selling................. 12,719,166 12,227,593 10,911,240 Research and development.............. 3,936,293 4,084,991 3,253,536 ----------- ----------- ----------- Total selling, general and administrative expenses............ 22,989,240 21,940,160 19,165,260 ----------- ----------- ----------- Operating income.................... 12,268,597 10,076,955 7,088,061 ----------- ----------- ----------- Other income (expense): Equity in earnings of joint venture (Note 4)............................. 336,437 486,398 517,507 Interest expense--net................. (595,810) (450,276) (265,645) Other income (expense)................ (319,808) 116,563 51,145 ----------- ----------- ----------- Total other income (expense)........ (579,181) 152,685 303,007 ----------- ----------- ----------- Income before income taxes.............. 11,689,416 10,229,640 7,391,068 Income tax provision (benefit) (Note 7). 4,270,286 3,338,544 (90,652) ----------- ----------- ----------- Net income.............................. $ 7,419,130 $ 6,891,096 $ 7,481,720 =========== =========== =========== Net income per share (Note 10): Basic................................. $ 0.57 $ 0.53 $ 0.59 =========== =========== =========== Diluted............................... $ 0.53 $ 0.50 $ 0.55 =========== =========== ===========
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 JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995
CAPITAL IN RETAINED ACCUMULATED COMMON EXCESS OF EARNINGS TRANSLATION NOTES STOCK PAR VALUE (DEFICIT) ADJUSTMENT RECEIVABLE TOTAL -------- ----------- ------------ ----------- ----------- ----------- 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 10).............. 872 399,902 -- -- -- 400,774 Common stock issued upon exercise of warrants (Note 10).............. 277 32,987 -- -- -- 33,264 Common stock issued as payment for services (Note 10).............. 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 Common stock issued upon exercise of options (Note 10).............. 2,266 983,926 -- -- -- 986,192 Common stock issued upon exercise of warrants (Note 10).............. 375 64,625 -- -- -- 65,000 Common stock issued as payment for services (Note 10).............. 444 458,492 -- -- -- 458,936 Common stock repurchased and cancelled.......... (219) (314,281) -- -- -- (314,500) Foreign currency translation adjustment. -- -- -- (160,573) -- (160,573) Net income.............. -- -- 6,891,096 -- -- 6,891,096 -------- ----------- ------------ --------- ----------- ----------- Balance, at January 3, 1997................... 130,707 41,518,049 (2,557,991) (160,573) (2,326,015) 36,604,177 Common stock issued upon exercise of options (Note 10).............. 1,607 1,020,886 -- -- -- 1,022,493 Common stock issued as payment for services (Note 10).............. 241 324,759 -- -- -- 325,000 Common stock repurchased and cancelled.......... (93) (136,994) -- -- -- (137,087) Stock-based compensation (Note 10).............. -- 84,000 -- -- -- 84,000 Foreign currency translation adjustment. -- -- -- (534,929) -- (534,929) Net income.............. -- -- 7,419,130 -- -- 7,419,130 -------- ----------- ------------ --------- ----------- ----------- Balance, at January 2, 1998................... $132,462 $42,810,700 $ 4,861,139 $(695,502) $(2,326,015) $44,782,784 ======== =========== ============ ========= =========== ===========
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 JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1997 1996 1995 ----------- ------------ ----------- Cash flows from operating activities: Net income........................... $ 7,419,130 $ 6,891,096 $ 7,481,720 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation of property and equipment......................... 1,742,737 1,720,379 1,159,610 Amortization of patents, licenses and other intangibles............. 1,782,192 1,230,005 299,171 Provision for allowance for doubtful accounts................. 16,545 111,525 111,512 Change in deferred revenue......... 210,432 485,998 -- Equity in earnings of joint venture........................... (336,437) (486,398) (517,507) Deferred income taxes.............. 3,322,939 1,992,649 (923,724) Stock-based compensation expense... 84,000 -- -- Common stock issued for services... 325,000 458,936 432,813 Change in operating working capital (Note 14)......................... (6,971,047) (3,068,022) (3,030,452) ----------- ------------ ----------- Net cash provided by operating activities...................... 7,595,491 9,336,168 5,013,143 ----------- ------------ ----------- Cash flows from investing activities: Acquisition of property and equipment........................... (2,845,929) (4,278,671) (3,486,744) Increase in patents and licenses..... (3,217,728) (5,936,144) (1,980,211) Increase in other assets............. (1,370,449) (780,275) (583,505) Dividends received................... 60,414 -- -- ----------- ------------ ----------- Net cash used in investing activities...................... (7,373,692) (10,995,090) (6,050,460) ----------- ------------ ----------- Cash flows from financing activities: Increase in borrowings under notes payable and long-term debt.......... 1,109,480 2,133,077 794,199 Payments on other notes payable and long-term debt...................... (2,679,075) (536,028) (11,128) Net borrowings under line-of-credit.. 806,940 2,188,259 2,082,836 Proceeds from the exercise of stock options............................. 1,022,493 1,051,191 434,107 Cash paid in lieu of exercise of stock options and warrants.......... -- -- (70,774) Payments for repurchase of common stock............................... (137,087) (314,500) (1,628,799) ----------- ------------ ----------- Net cash provided by financing activities...................... 122,751 4,521,999 1,600,441 ----------- ------------ ----------- Effect of exchange rate changes on cash and cash equivalents.................. (534,929) (160,573) -- (Decrease) increase in cash and cash equivalents........................... (190,379) 2,702,504 563,124 Cash and cash equivalents at beginning of year............................... 6,469,515 3,767,011 3,203,887 ----------- ------------ ----------- Cash and cash equivalents at end of year.................................. $ 6,279,136 $ 6,469,515 $ 3,767,011 =========== ============ ===========
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 JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995 ORGANIZATION AND DESCRIPTION OF BUSINESS STAAR Surgical Company (the "Company") is a developer, manufacturer and global distributor of medical devices used in minimally invasive ophthalmic surgery. The Company was incorporated in California in 1982 as a successor to a partnership for the purpose of developing, producing, and marketing intraocular lenses ("IOLs") and other products for minimally invasive 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, which are used as replacements for the natural lens after its removal in cataract surgery, and began production and sale of foldable IOLs in 1986 for implantation in connection with clinical studies for such products. In September 1991, the Company received United States Food and Drug Administration ("FDA") pre-market approval for the Company's ELASTIMIDE(TM) and ELASTIC(TM) foldable IOL models, which the Company now markets worldwide. The Company's other primary products, developed more recently, are its "wick" style glaucoma implant (the "Glaucoma Wick"), an ocular device developed to provide a more effective and longer-term solution for glaucoma; the ICL(TM), a deformable intraocular refractive corrective lens, designed to correct refractive disorders such as myopia (near-sightedness), hyperopia (far-sightedness) and potentially astigmatism; and its STARRVISC(TM) viscoelastic solution, used during IOL and ICL(TM) surgery. The Company markets the Glaucoma Wick, which the Company introduced in late 1995, its ICL(TM) and STAARVISC(TM) viscoelastic solution, which the Company introduced in late 1996, on a limited basis in selected foreign countries. The Company's only significant subsidiary is STAAR Surgical AG, a wholly owned subsidiary formed in Switzerland to develop, manufacture and distribute worldwide certain of the Company's products, including its Glaucoma Wick(TM) and ICL(TM)s. The Company and STAAR Surgical AG have also formed or acquired a number of directly or indirectly owned subsidiaries to distribute and market the Company's products in Canada, Australia, France, Austria, South Africa, Germany, Sweden and Norway. 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. The resulting gains and losses are deferred and are shown as a separate component of stockholders' equity. During 1997 and 1996, the net foreign translation loss was $534,929 and $160,573 and net foreign currency transaction loss was $228,547 and $261,181, respectively. During 1995, 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. The year ended January 3, 1997 included 53 weeks. REVENUE RECOGNITION The Company generally supplies a quantity of foldable IOLs with different specifications to customers, generally ophthalmologists, surgical centers, hospitals and other health providers, on a consignment basis, and recognizes sales when an ophthalmic surgeon implants the consigned foldable IOL. Sales to foreign distributors F-7 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES--(CONTINUED) are recognized upon shipment. Revenue from license and technology agreements is recorded as income over the term of the respective agreement when the Company has satisfied the terms of such agreements and is notified of the amounts. 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 ten years. Leasehold improvements are amortized over the life of the lease or estimated useful life, if shorter. Property, plant and equipment are reviewed each year to determine whether any events or circumstances indicate that the carrying amount of the assets may not be recoverable. Such review includes estimating future cash flows. Property, plant and equipment costs are expensed when determined not realizable. 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. Capitalized patent costs are reviewed each year based on management's estimates of sales of the related products. Patent and license costs are expensed when determined not realizable. The Company's ability to compete effectively is materially dependent upon the proprietary nature of the designs, processes, technologies and materials owned, used by or licensed to the Company. The Company has been and will continue to be involved in litigation to protect its copyrights, patents and proprietary properties and technology. START-UP COSTS Included in Other Assets at January 2, 1998 and January 3, 1997 are start-up costs of $1,642,429 and $1,010,903. These expenditures are directly related to the start-up phase of the production of two new products: the ICL(TM), a deformable intraocular refractive corrective lens, and hyaluronic acid. The costs primarily consists of direct labor and overhead associated with the start-up. The start-up costs are being amortized on a straight-line basis over a period not to exceed three years. Recoverability of these costs are assessed on an on-going basis. Amortization of start-up costs at January 2, 1998, January 3, 1997 and December 30, 1995 were $315,307, $193,675 and $100,175, respectively. 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. F-8 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES--(CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of cash, cash equivalents, accounts receivable, accounts payable, and current notes payable approximate their fair values because of the short maturity of these instruments. With respect to long-term debt, based on the borrowing rates currently available to the Company for similar bank and equipment loans and capitalized leases, the amounts reported approximate the fair value of the respective financial instruments. NET INCOME PER SHARE As of January 2, 1998, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). This pronouncement provides a different method of calculating earnings per share than was used in accordance with APB 15, Earnings per Share. SFAS 128 provides for the calculation of Basic and Diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could occur if securities or other contracts (such as stock options or warrants) to issue common stock were exercised or converted into common stock. All prior period weighted average and per share information has been restated in accordance with SFAS 128. None of the restated amounts were material. STOCK BASED COMPENSATION As of January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which established a fair value method of accounting for stock-based compensation plans. In accordance with SFAS 123, the Company has chosen to continue to account for stock-based compensation utilizing the intrinsic value method prescribed in APB 25. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Also, in accordance with SFAS 123, the Company has provided footnote disclosure with respect to stock-based employee compensation. The cost of stock-based employee compensation is measured at the grant date based on the value of the award and recognizes this cost over the service period. The value of the stock-based award is determined using a pricing model whereby compensation cost is the excess of the fair market value of the stock as determined by the model at grant date or other measurement date over the amount an employee must pay to acquire the stock. RECLASSIFICATIONS Certain reclassifications have been made to the 1996 and 1995 consolidated financial statements to conform with the 1997 presentation. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standard No. 129, "Disclosure of Information about Capital Structure," ("SFAS 129") issued by the FASB is effective for financial statements ended after December 15, 1997. The new standard reinstates various securities disclosure requirements previously in effect under Accounting Principles Board Opinion No. 15, which has been superseded by SFAS No. 128. The adoption of SFAS No. 129 did not have an impact on the Company's financial position or results of operations. Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income," ("SFAS 130") issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company does not expect adoption of SFAS 130 to have an F-9 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES--(CONTINUED) impact on its financial position or results of operations and any effect will be limited to the form and content of its disclosures. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," ("SFAS 131") issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. SFAS 131 requires that public companies report certain information about operating segments, products, services and geographical areas in which they operate and their major customers. The Company does not expect adoption of SFAS 131 to have an impact on its financial position or results of operations. The Company believes it may have expanded disclosures with respect to certain of these items. F-10 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995 NOTE 1--ACCOUNTS RECEIVABLE Accounts receivable are summarized as follows:
1997 1996 ---------- ---------- Domestic.............................................. $4,640,393 $4,718,142 Export................................................ 3,471,076 2,220,633 ---------- ---------- 8,111,469 6,938,775 Less allowance for doubtful accounts.................. 128,070 111,525 ---------- ---------- $7,983,399 $6,827,250 ========== ==========
NOTE 2--INVENTORIES Inventories are summarized as follows:
1997 1996 ----------- ----------- Raw materials and purchased parts................... $ 1,976,467 $ 1,518,819 Work in process..................................... 1,736,339 1,644,234 Finished goods...................................... 10,999,592 9,202,814 ----------- ----------- $14,712,398 $12,365,867 =========== ===========
NOTE 3--PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized as follows:
1997 1996 ----------- ----------- Machinery and equipment.............................. $11,890,362 $10,186,227 Furniture and fixtures............................... 4,896,349 4,460,082 Leasehold improvements............................... 3,240,727 2,550,049 ----------- ----------- 20,027,438 17,196,358 Less accumulated depreciation and amortization....... 10,003,257 8,275,369 ----------- ----------- $10,024,181 $ 8,920,989 =========== ===========
F-11 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--INVESTMENT IN JOINT VENTURE The Company owns a 50% equity interest in a joint venture, the CANON-STAAR Company, Inc. ("CSC"), with Canon Inc. ("Canon") and Canon Sales Co, Inc. ("Canon Sales"). The joint venture was formed to manufacture and sell the Company's IOL products to Canon Sales or 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 was recognized over eight years through October 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 $6,213,000 and $6,640,000, and liabilities of approximately $1,364,000 and $1,381,000, as of January 2, 1998 and January 3, 1997, respectively. The Company's equity in earnings of the joint venture is calculated as follows:
1997 1996 1995 -------- -------- -------- Joint venture net income...................... $672,873 $685,296 $660,014 Equity interest............................... 50% 50% 50% -------- -------- -------- Equity in net income.......................... 336,437 342,648 330,007 Recognition of deferred gain on sale of license...................................... -- 143,750 187,500 -------- -------- -------- Equity in earnings of joint venture........... $336,437 $486,398 $517,507 ======== ======== ========
The Company recorded sales of certain IOL products to CSC of approximately $469,000, $845,000, and $171,000 in 1997, 1996 and 1995, respectively. NOTE 5--NOTES PAYABLE In February 1996, the Company refinanced and increased its domestic line of credit, which allowed the Company to borrow up to $5 million on a revolving basis, at a rate of interest not to exceed the prime interest rate. The loan agreement required the Company to satisfy certain financial tests and limited the amount of indebtedness the Company may have to others and the payment of dividends. Borrowings were collateralized by substantially all of the assets of the Company. The line of credit expired in June 1997 and was replaced with long-term debt as described in Note 6. Borrowings outstanding as of January 3, 1997 were approximately $4,700,000. In May 1994, the Company entered into a separate revolving credit facility with a Swiss bank which provides for borrowings up to $766,401 (1,125,000 Swiss Francs at the exchange rate at January 2, 1998) 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 January 2, 1998 and January 3, 1997 were $926,112 (1,359,440 Swiss Francs) and $789,549 (1,072,997 Swiss Francs), respectively. As of January 2, 1998, the balance exceeded the maximum allowable borrowings. The excess borrowings were permitted due to adequate compensating cash balances. In 1996, the Company issued a note in the amount of $2,000,000 as partial consideration for the acquisition of a license. The note was paid in equal quarterly installments during 1997. F-12 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--LONG-TERM DEBT Long-term debt consists of the following:
1997 1996 ---------- ---------- Note payable to bank, interest at a rate not to exceed prime less .25% payable monthly, due June 1, 1999(1)............................................. $5,506,940 $ -- Note payable to bank, interest at 6.25%, payable in four equal annual installments plus interest beginning in December 1996, guaranteed by the Swiss federal government and Canton of Bern............... 397,186 618,584 Note payable to equipment vendor, interest at 13%, payable in monthly installments plus interest through December 1999, secured by equipment......... 74,778 101,118 Obligations under capitalized leases (see Note 11)... 396,272 827,608 ---------- ---------- 6,375,176 1,547,310 Less current portion................................. 624,698 703,260 ---------- ---------- Long-term debt due after one year.................... $5,750,478 $ 844,050 ========== ==========
- -------- (1) In June 1997, the Company renegotiated its line-of-credit with its current domestic lender. Under the new agreement, the Company may borrow up to $10,000,000 on a revolving basis, at a rate of interest not to exceed the prime interest rate (8.5% at January 2, 1998) less .25% (or, at the election of the Company, if more than $500,000 is outstanding, at a rate of interest equal to LIBOR, plus 1.75%). The loan agreement requires the Company to satisfy certain financial tests and limits the amount of other indebtedness the Company may incur. The line of credit expires June 1999. Borrowings are not collateralized. The refinance of the line of credit resulted in a reclassification of debt from short-term to long-term. The Company was in compliance with restrictive covenants as of January 2, 1998. In November 1997, the Company's domestic lender supplemented the Company's domestic credit facility by committing through March 31, 1998 to make additional advances to the Company of up to $5 million for business acquisitions. No borrowings under this commitment have been made as of January 2, 1998. Included in other long-term liabilities at January 2, 1998 is a note payable of approximately $916,000 to the sellers of a corporation purchased by the Company during 1997. The note carries an interest rate of 6% and is payable in equal annual installments over a five year period. Also included in other long term liabilities at January 2, 1998 is deferred revenue of approximately $464,000. Other long-term liabilities at January 3, 1997 were not material. F-13 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7--INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109) which requires the asset and liability method of accounting for income taxes. In accordance with SFAS 109, the tax benefits of net operating loss carryforwards utilized in 1995 are presented in the Consolidated Statement of Income as reductions of the provisions for income tax. The provision (benefit) for income taxes consist of the following:
1997 1996 1995 ---------- ---------- --------- Current tax provision U.S. federal (net of $1,258,000, $2,006,000, and 2,513,000 tax benefit from operating loss carryforwards)......................... $ 245,000 $ 492,000 $ 149,000 State and local............................ 581,000 725,000 684,000 Non-U.S.................................... 121,357 128,544 -- ---------- ---------- --------- Total current provision...................... 947,357 1,345,544 833,000 ---------- ---------- --------- Deferred tax provision (benefit) U.S. federal and state..................... 3,374,000 1,993,000 (924,000) Non-U.S.................................... (51,071) -- -- Total deferred provision..................... 3,322,929 1,993,000 (924,000) ---------- ---------- --------- Provision for income taxes................... $4,270,286 $3,338,544 $ (91,000) ========== ========== =========
The Company utilized all of its remaining tax net operating loss carryforwards for federal income tax purposes during 1997. The Company utilized all of its remaining tax loss carryforwards for California income tax purposes during 1995. Alternative minimum tax (AMT) credit carryforward at January 2, 1998 was approximately $390,000. The AMT credit does not have an expiration date. The provision (benefit) based on income before taxes differs from the amount obtained by applying the statutory federal income tax rate to income before taxes as follows:
1997 1996 1995 ---- ----- ----- Computed provision for taxes based on income at statutory rate......................................... 35 % 34.0 % 34.0 % Permanent differences................................... (0.1) 1.5 0.2 State taxes, net of federal income tax benefit.......... 4.7 6.1 7.7 Tax benefit of net operating loss carryforward.......... -- (28.2) Tax effect attributed to foreign operations............. (4.0) (10.1) Reduction of valuation allowance........................ -- (18.5) Other................................................... 0.9 1.1 3.8 ---- ----- ----- Effective tax provision (benefit) rate.................. 36.5 % 32.6 % (1.0)% ==== ===== =====
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $3.1 million at January 2, 1998. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for United States federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both United States income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred United States income tax liability is not practicable because of the complexities associated with its hypothetical calculation. F-14 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 (liabilities) as of January 2, 1998 and January 3, 1997 are as follows:
1997 1996 ----------- ---------- Deferred tax assets: Allowance for doubtful accounts................... $ 65,000 $ 57,000 Inventory reserves and uniform capitalization..... 341,000 307,000 Accrued vacation.................................. 130,000 114,000 State taxes....................................... 204,000 153,000 Net operating loss carryforwards.................. -- 732,000 Tax credit carryforwards.......................... 391,000 905,000 Deferred taxes on foreign operations.............. 51,000 -- ----------- ---------- Total deferred tax assets........................... 1,182,000 2,268,000 ----------- ---------- Deferred tax liabilities: Amortization of deferred gain..................... (1,041,000) -- Depreciation and amortization..................... (2,133,000) (937,000) ----------- ---------- Total deferred tax liabilities...................... (3,174,000) (937,000) ----------- ---------- Net deferred tax (liability) assets................. $(1,992,000) $1,331,000 =========== ==========
As a result of the Company's positive operating results for each of the three years ended January 2, 1998, the Company determined that deferred tax assets of $1.2 million and $2.3 million should be recognized as of January 2, 1998 and January 3, 1997. These amounts were based on a consideration of current and future anticipated earnings. Future income levels should result and in full recognition of the deferred tax assets. The amount recorded as of January 3, 1997 includes the capitalization of the remaining balance of the Company 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. During 1996, 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. In 1996, the Company acquired a license, as part of the settlement of litigation with Allergan Medical Optics, under U.S. Patent No. 4,681,102, relating to an apparatus for insertion of an intraocular lens. The amount paid has been included in patents in the accompanying balance sheet. F-15 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 9--LICENSING AGREEMENTS The Company has issued Allergan Medical Optics ("AMO"), Alcon Surgical, Inc. (Alcon), Pharmacia & Upjohn, Bausch and Lomb Surgical and Mentor Corporation with licenses to utilize certain of its patents involving foldable IOLs 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 $3,040,000, $1,000,000 and $514,000 of royalty income in 1997, 1996 and 1995, respectively, from these licenses. See Note 17 with respect to royalty income recorded in 1997. The Company was involved with certain litigation with Bausch and Lomb (formerly Chiron) concerning the terms of the agreements entered into between the companies in 1990. During the first quarter of 1998, the Company reached a settlement with Bausch and Lomb. NOTE 10--STOCKHOLDERS' EQUITY COMMON STOCK 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. In 1996, the Company issued 44,384 shares to consultants for services rendered to the Company. Also during 1996, the Company repurchased and cancelled 21,879 shares. Total consideration paid for the repurchased shares was $314,500. In 1997, the Company issued 24,074 shares to consultants for services rendered to the Company. Also, during 1997, the Company repurchased and cancelled 9,336 shares. NOTES RECEIVABLE As of January 2, 1998 and January 3, 1997, notes receivable from officers and directors totalling $2,326,015, were 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. F-16 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) OPTIONS The table below summarizes the transactions in the Company's several stock option plans:
WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE --------- -------- Balance at December 31, 1994............................. 1,318,754 $ 4.84 Options granted.......................................... 35,000 $ 4.67 Options exercised........................................ (116,192) $ 4.08 Options forfeited........................................ (9,808) $ 9.22 --------- ------ Balance at December 29, 1995............................. 1,227,754 $ 4.87 Options granted.......................................... 574,000 $12.50 Options exercised........................................ (226,552) $ 4.26 --------- ------ Balance at January 3, 1997............................... 1,575,202 $ 7.72 Options granted.......................................... 413,400 $10.94 Options exercised........................................ (160,719) $ 6.36 Options forfeited........................................ (5,108) $ 9.65 --------- ------ Balance at January 2, 1998............................... 1,822,775 $ 8.56 ========= ====== Options exercisable (vested) at January 2, 1998.......... 1,273,441 $ 6.94 ========= ======
NOTES RECEIVABLE Included in the table above are options to purchase 12,695 shares of common stock outstanding at January 2, 1998, with an exercise price of $2.50 per share, which options were granted pursuant to the Company's 1990 Stock Option Plan. Generally, options under this 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 from date of grant. Under provisions of the Company's 1991 Stock Option Plan, 2,000,000 shares were reserved for issuance. Generally, options under this 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 from date of grant. Pursuant to this plan, options for 591,579 shares were outstanding at January 2, 1998, with exercise prices ranging between $2.50 to $9.25 per share. In 1995, officers, employees and others exercised options to purchase 91,192 shares of common stock granted under the 1990 and 1991 stock option plans, at prices from $2.50 to $6.00, in exchange for cash of $354,776. Also in 1995, the Company's former President exercised options to purchase 25,000 shares of common stock, at a price of $4.75, resulting in cash proceeds of $118,750. In 1996, the Board of Directors of the Company approved the 1996 Non- Qualified Stock Plan, authorizing the granting of options to purchase or awards of the Company's common stock. Under provisions of the Non-Qualified Stock Plan, 600,000 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 from date of grant. Pursuant to this plan, options for 566,000 and 570,000 shares were outstanding at January 2, 1998 and January 3, 1997, respectively, with an exercise price of $12.50 per share. F-17 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In 1996, the Company granted options to officers, directors and consultants to purchase 574,000 shares of the Company's common stock at a price of $12.50, the quoted market value at date of grant. Out of the above, 4,000 options were issued under the 1991 stock option plan and 570,000 options were issued as non-qualified stock options. In 1996, officers, employees, and others exercised 226,550 options from the 1990, 1991 and non-qualified stock option plans at prices from $2.50 to $5.875 resulting in cash and stock proceeds totaling $966,191. In 1997, the Company granted options to directors to purchase 240,000 shares at $12.00 per share and 173,400 shares to consultants at varying amounts which was then the fair market value. In 1997, officers, employees and others exercised 160,719 options from the 1990, 1991 and non-qualified stock option plans at prices from $2.50 to $12.50 resulting in cash and stock proceeds totalling $1,022,493. FASB 123, Accounting for Stock-Based Compensation, requires the Company to provide pro forma information regarding net income and earnings per share as if compensation cost for the Company's stock option plans had been determined in accordance with the fair value based method prescribed in FASB 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted- average assumptions used for grants in 1997: dividend yield of 0 percent; expected volatility of 11 percent; risk free rate of 6.78 percent; and expected lives of 5 years; and in 1996: dividend yield of 0 percent; expected volatility of 11 percent; risk-free interest rate of 6.73 percent; and expected lives of 7 years. Compensation cost computed pursuant to FASB 123 for options granted in 1995 was not material. The weighted average fair value of options granted during the year ended January 2, 1998 and January 3, 1997 were $1.57 and $3.60, respectively. Under the accounting provisions of FASB 123, the Company's net income and earnings per share for 1997 and 1996 would have been reduced to the pro forma amounts indicated below:
1997 1996 ---------- ---------- Net income As reported......................................... $7,419,000 $6,891,000 Pro forma........................................... $6,771,200 $6,705,000 Basic earnings per share As reported......................................... $.57 $.53 Pro forma........................................... $.52 $.52 Diluted earnings per share As reported......................................... $.53 $.50 Pro forma........................................... $.48 $.48
Due to the fact that the Company's stock option programs vest over many years and additional awards are made each year, the above proforma numbers are not indicative of the financial impact had the disclosure provisions of FASB 123 been applicable to all years of previous option grants. The above numbers do not include the effect of options granted prior to 1995 that vested in 1995 through 1997. F-18 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes information about stock options outstanding at January 2, 1998.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE WEIGHTED- -------------------------- NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED- RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICES AT 1/2/98 CONTRACTUAL LIFE EXERCISE PRICE AT 1/2/98 EXERCISE PRICE --------------- ----------- ---------------- -------------- ----------- -------------- $2.50 to $ 4.00 185,195 3.9 years $ 2.88 185,195 $ 2.88 $4.75 to $ 5.88 651,579 5.9 years $ 5.11 651,579 $ 5.11 $9.00 to $12.50 986,000 7.7 years $11.91 436,667 $11.39 ------ --------- --------- ------ --------- ------ $2.50 to $12.50 1,822,774 6.7 years $ 8.56 1,273,441 $ 6.94 ====== ========= ========= ====== ========= ======
WARRANTS The table below summarizes the transactions related to the Company's warrants to purchase common stock:
WEIGHTED- AVERAGE NUMBER EXERCISE OF SHARES PRICE --------- --------- Balance at December 31, 1994............................ 470,974 $2.05 Warrants exercised...................................... (136,747) $2.17 Warrants expired........................................ (49,833) $2.63 -------- ----- Balance at December 29, 1995............................ 284,394 $1.89 Warrants exercised...................................... (37,500) $1.73 -------- ----- Balance at January 3, 1997 and January 2, 1998.......... 246,894 $1.91 ======== =====
All warrants are exercisable as of January 2, 1998. In 1995, warrants to purchase 136,747 shares of common stock were exercised at prices ranging from $0.60 to $4.24 per share resulting in cash and/or stock (at market price effective on the date of exercise) proceeds in the amount of $296,852. The stock paid to exercise the options was cancelled and shown as a reduction in common stock and additional paid in capital on the balance sheet. In 1996, warrants to purchase 37,500 shares of common stock were exercised at prices ranging from $1.20 to $2.00 per share, resulting in proceeds of $65,000. NOTE 11--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 was sent to China in consideration of a five year exclusive supply agreement with a hospital in Hangzhou, China. The Company committed a $300,000 letter of credit as further collateral for the lease. F-19 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Annual future minimum lease payments under noncancellable capital and operating lease commitments as of January 2, 1998 are as follows:
CAPITAL OPERATING FISCAL YEAR LEASES LEASES ----------- -------- ---------- 1998................................................. $431,535 $ 674,410 1999................................................. -- 596,695 2000................................................. -- 490,026 2001................................................. -- 387,603 Thereafter........................................... -- 354,130 -------- ---------- Total minimum lease payments......................... 431,535 $2,502,864 ========== Imputed interest..................................... 35,263 -------- Present value of net minimum lease payments.......... $396,272 ========
Rent expense was approximately $686,000, $700,000 and $606,000 for the years ended January 2, 1998, January 3, 1997 and December 29, 1995, respectively. LITIGATION AND CLAIMS In February 1990, a plaintiff filed a $10,000,000 product liability claim against a doctor and the Company arising from injuries purportedly suffered by the plaintiff as a result of the implant of a purportedly defective 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 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 or results of operations. 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 and the issuance of 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. All common stock was issued at fair market value. The aggregate commitment under these agreements at January 2, 1998 is approximately $15,000 in cash, $325,000 worth of common stock, 5,000 shares of common stock, and options to purchase 132,500 shares of common stock. Included in other current liabilities at January 2, 1998 and January 3, 1997, is approximately $402,000 and $411,000, respectively, due to these consultants payable in cash and shares of the Company's common stock. NOTE 12--OTHER LIABILITIES Included in other current liabilities at January 2, 1998 and January 3, 1997 are approximately $1,261,000 and $1,573,000 of commissions due to outside sales representatives; income tax payable of $638,000 and $163,000; and deferred revenue of $232,000 and $485,998, respectively. F-20 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 13--RELATED PARTY TRANSACTIONS The Company has had significant related party transactions as discussed in Notes 4 and 10. On February 29, 1996, the Company forgave a $120,000 note receivable from one of the Company's officers in exchange for the officer's efforts in obtaining certain patents. During 1997, 1996 and 1995, a law firm, of which a partner is director and stockholder of the Company, received approximately $280,000, $322,000 and $256,000 for fees in connection with legal services performed on behalf of the Company. As of January 2, 1998, included in prepaid, deposits, and other current assets are $270,000 of prepaid legal fees. The Company pays an override sales commission, based upon a percentage of the Company's sales, to a corporation owned by an officer of the Company in its capacity as a sales representative for the Company. This agreement relates back to 1983, when the officer initially became associated with the Company in a sales and marketing capacity. Commissions paid or accrued under this arrangement totaled approximately $420,000, $412,000 and $322,000 during 1997, 1996 and 1995, respectively. NOTE 14--STATEMENTS OF CASH FLOWS Net cash provided by operating activities includes interest paid of approximately $723,000, $557,000 and $419,000 for the years ended January 2, 1998, January 3, 1997 and December 29, 1995, respectively. Income taxes paid amounted to approximately $315,000, $1,160,000 and $947,000 for the years ended January 2, 1998, January 3, 1997 and December 29, 1995, respectively. Changes in operating working capital as shown in the consolidated statements of cash flows for the years ended January 2, 1998, January 3, 1997 and December 29, 1995 are comprised of:
1997 1996 1995 ----------- ----------- ----------- Decrease (increase) in: Accounts receivable................... $(1,172,694) $ 584,675 $(2,222,700) Other receivables..................... (3,250,000) -- -- Inventories........................... (2,346,531) (2,804,980) (1,086,795) Prepaids, deposits and other current assets............................... (673,300) (1,110,039) (308,272) Increase (decrease) in: Accounts payable...................... (76,590) 283,929 338,771 Other current liabilities............. 548,068 (21,607) 248,544 ----------- ----------- ----------- Change in operating working capital..... $(6,971,047) $(3,068,022) $(3,030,452) =========== =========== ===========
NOTE 15--NET INCOME PER SHARE The following is a reconciliation of the weighted average number of shares used to compute basic and diluted earnings per share:
1997 1996 1995 ---------- ---------- ---------- Basic weighted average shares outstanding...... 13,123,950 12,909,506 12,756,183 Diluted effect of stock options and warrants... 989,133 957,602 922,699 ---------- ---------- ---------- Diluted weighted average shares outstanding.... 14,113,083 13,867,108 13,678,882 ========== ========== ==========
F-21 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 16--GEOGRAPHIC DATA AND EXPORT SALES The Company's operations are conducted in the United States and international markets, principally in Europe, South Africa, Australia and Southeast Asia. Information about the Company's domestic and international operations for each fiscal year is as follows:
UNITED GEOGRAPHIC REGION STATES FOREIGN ELIMINATION CONSOLIDATED - ----------------- ----------- ----------- ----------- ------------ 1997 Sales to unaffiliated customers.................... $27,843,000 $14,637,000 $ -- $42,480,000 Operating income.............. 11,304,000 1,409,000 (444,000) 12,269,000 Identifiable assets........... 48,260,000 14,131,000 -- 62,391,000 Capital expenditures.......... 1,978,000 868,000 -- 2,846,000 Depreciation and amortization. 2,915,000 610,000 -- 3,525,000 1996 Sales to unaffiliated customers.................... $29,069,000 $12,143,000 $ -- $41,212,000 Operating income.............. 8,452,000 1,858,000 (233,000) 10,077,000 Identifiable assets........... 42,010,000 10,046,000 -- 52,056,000 Capital expenditures.......... 3,923,000 356,000 -- 4,279,000 Depreciation and amortization. 2,509,000 441,000 -- 2,950,000
The Company's foreign operations for the year ended December 29, 1995 were not material. The Company's operations are structured to achieve consolidated objectives. As a result, significant interdependencies and overlaps exist among the Company's operating units. Accordingly, the sales, operating income and identifiable assets shown for each geographic area may not be indicative of the amounts which would have been reported if the operating units were independent of one another. Operating is net sales less related costs and operating expenses, excluding interest. During the fiscal years ended January 2, 1998, January 3, 1997 and December 29, 1995, the Company had export sales, primarily to Europe, South Africa, Australia, and Southeast Asia, of approximately $14,637,000, $11,620,000 and $8,133,000, respectively. Of these sales, approximately $8,438,000, $7,576,000 and $4,841,000 were to Europe, which has been the Company's principal foreign market for the last three fiscal years. The Company sells its products internationally, which 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. NOTE 17--FOURTH QUARTER SIGNIFICANT ITEMS During the fourth quarter of 1997, the Company recorded royalty income of $2,554,000 which resulted from a settlement agreement totaling $3,250,000 relating to the use of certain of the Company's patents from 1986 through 1997. As of January 2, 1998, the Company has deferred revenue of $696,000 related to this transaction which will be recognized over the next three years. NOTE 18--SUBSEQUENT EVENT On January 5, 1998 the Company acquired a 60% interest in a foreign distributor of ophthalmic products. The distributor had 1997 sales of approximately $15 million. The results of operations of the distributor are not material as compared to the Company's results of operations. F-22 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 6, 1998, included the related financial statement schedule as of January 2, 1998, and for each of the three years in the period ended January 2, 1998, 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. 33-76404) and (No. 33-60241) on Form S-8 of STAAR Surgical Company of our report dated March 6, 1998, relating to the consolidated balance sheets of STAAR Surgical Company and subsidiaries as of January 2, 1998 and January 3, 1997 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 January 2, 1998, which report appears in the January 2, 1998 annual report on Form 10-K of STAAR Surgical Company and subsidiaries. BDO Seidman, LLP Los Angeles, California March 30, 1998 F-23 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 BEGINNING AT END DESCRIPTION OF YEAR ADDITIONS DEDUCTIONS OF YEAR ----------- --------- --------- ---------- -------- 1997 Allowance for doubtful accounts deducted from accounts receivable in balance sheet........................ $112,000 $ 16,000 $ -- $128,000 Reserve for obsolescence deducted from inventories in balance sheet......... -- 131,000 -- 131,000 -------- -------- -------- -------- $112,000 $147,000 $ -- $259,000 ======== ======== ======== ======== 1996 Allowance for doubtful accounts deducted from accounts receivable in balance sheet........................ $119,000 $ $ 7,000 $112,000 Reserve for obsolescence deducted from inventories in balance sheet......... 31,000 31,000 -------- -------- -------- -------- $150,000 $ $ 38,000 $112,000 ======== ======== ======== ======== 1995 Allowance for doubtful accounts deducted from accounts receivable in balance sheet........................ $307,000 $112,000 $300,000 $119,000 Reserve for obsolescence deducted from inventories in balance sheet......... 105,000 74,000 31,000 -------- -------- -------- -------- $412,000 $112,000 $374,000 $150,000 ======== ======== ======== ========
- -------- (1) Represents allowance for uncollectible receivables. (2) Writeoffs. (3) Obsolete inventory written down to zero value. F-24 EX-10.3 2 LICENSE AGREEMENT DATED 12/17/86 EXHIBIT 10.3 LICENSE AGREEMENT ----------------- This Agreement made effective the 17th day of December, 1986, by and between STAAR SURGICAL CO., INC., a California corporation (hereinafter referred to as "LICENSOR") and OPTICAL RADIATION CORPORATION, a corporation and its affiliates (hereinafter referred to as "LICENSEE"): WITNESSETH: WHEREAS, LICENSOR represents that it is the sole owner of the entire right, title and interest in and to the invention claimed in United States Patent No. 4,573,998, issued March 4, 1986, and entitled METHODS FOR IMPLANTATION OF DEFORMABLE INTRAOCULAR LENSES ("LICENSED PATENT" as hereinafter defined) and certain know-how and trade secret information ("LICENSED TECHNOLOGY" as hereinafter defined). WHEREAS, LICENSOR represents that it has the sole right to grant licenses under the Licensed Technology and Licensed Patent. WHEREAS, LICENSEE is desirous of acquiring a non-exclusive right and license under said Licensed Technology and Licensed Patent upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual covenants recited below, the parties agree as follows: 1 1. DEFINITIONS ----------- For the purpose of this License Agreement, and solely for the purpose, the terms set forth hereinafter shall be defined as follows: (a) "Licensed Patent" shall mean United States Patent No. 4,573,998 and any corresponding foreign patent applications or patents issued March 4, 1986, and entitled METHODS FOR IMPLANTATION OF DEFORMABLE INTRAOCULAR LENSES and any reissue thereof. (b) "Licensed Technology" shall mean LICENSOR's know-how and trade secret information the transfer of which is particularly described in Appendix A hereto. (c) "Valid Patent Claim" shall mean a bona fide, unexpired claim in the Licensed Patent which has not been held invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid by the owner through reissue or disclaimer. If there should be two or more such decisions conflicting with respect to the validity of the same claim the decision of the higher or highest tribunal shall thereafter control; however, should the tribunals be of equal dignity, the decision or decisions holding the claim invalid shall prevail. (d) "Licensed Product" shall mean any product, including intraocular lenses, especially made, used, or sold by LICENSEE to its customers, for use in a manner covered by a Valid 2 Patent Claim of the Licensed Patent or resulting from LICENSEE's use of the Licensed Technology. (e) "Affiliate" as used in this Agreement in connection with LICENSEE shall mean any corporation, other juridical entity, partnership or other business enterprise which qualifies under any one of the following: (1) Fifty-one percent (51%) or more of the voting rights with respect to the election of directors or other governing body or members is owned or controlled, directly or indirectly, by LICENSEE. (2) Fifty-one percent (5l%) or more of the voting rights with respect to the election of directors or other governing body or members is owned or controlled, directly or indirectly, by any corporation, other juridical entity, partnership or other business qualifying under item (1) above. (3) An exclusive distributor retained under contract. (f) "Net Sales" or "Net Selling Price" shall mean the actual selling price of Licensed Products sold by LICENSEE to others as per the invoices covering LICENSEE's sales, less bona fide trade and cash discounts, allowance for returns, give aways, 3 royalties other than those due hereunder, and sales and other taxes and governmental charges applicable to sales and packages; provided that the -------- Licensed Products sold between LICENSEE and its Affiliates, or between LICENSEE's Affiliates, shall not be regarded as sold for computation of Net Sales receipts until sold by LICENSEE or its Affiliates to a third party other than an Affiliate. (g) "Person" shall mean an individual, corporation, partnership or other entity. (h) "Quarterly Period" shall mean that period of ORC's fiscal year ending on January 31, April 30, July 31 and October 31 respectively. (i) "Royalty Year" shall mean the twelve (12) month period commencing on the effective date hereof and each subsequent twelve (12) month period thereafter. (j) "Royalty Bearing Country" shall mean the U. S. or any country in which sales are made of Licensed Products which utilize Licensed Technology. (k) "ORC" or "LICENSEE" shall mean OPTICAL RADIATION CORPORATION and/or its Affiliates. (1) "Joint Venture" shall mean STAAR's association with any entity whereby STAAR has a right to receive profits derived from the business activities of such entity or from the business activities of the joint venture. This definition does not apply to STAAR's License Agreement with CooperVision. 4 2. LICENSE ------- (a) LICENSOR hereby grants to LICENSEE and its Affiliates, upon the terms and conditions herein specified, a worldwide non-exclusive license under the Licensed Technology and the Licensed Patent. There is no right to sublicense included in this grant. (b) This license shall be irrevocable so long as LICENSEE continues to fulfill its commitments hereunder. 3. ROYALTIES --------- (a) Upon execution of this Agreement, LICENSEE shall grant to LICENSOR a license as specified in Exhibit 2.1. (b) As further consideration for the Rights granted hereunder, during the term of this Agreement, LICENSEE shall pay to LICENSOR a percentage ("Royalty Rate") of Net Sales of Licensed Product in Royalty Bearing Countries as follows:
Royalty Rate Type of Licensed Product ------------ ------------------------ 6% Covered by a valid patent claim of Licensed Patent ("Type A"); or 4% Resulting from Licensee's use of Licensed Technology Rights ("Type B"); or 10% Those including both Type A and Type B.
5 (c) Notwithstanding the provisions of paragraph 3(b) above, in the case of Licensed Products which are intraocular lenses, the royalty to be paid by the LICENSEE for sales in the United States shall be an average minimum royalty of twenty-five dollars ($25.00) for each licensed lens until such time as accrued royalties under subparagraph 3(b) exceed three (3) million dollars. (d) In the event that a Licensed Product is sold as a part of a composite unit upon which LICENSEE is not otherwise obligated to pay royalties to LICENSOR and if, as such part, the Licensed Product does not have a separate invoiced selling price, then for the purposes of computing royalties, the following guidelines shall apply: (1) Net Selling Price of such Licensed Product shall be equal to the product of (i) a fraction, the numerator of which is the established current net selling price of such composite unit and the denominator of which is the sum of the established current net selling prices of each of the components of the composite unit sold as a separate unit, times (ii) the established current net selling price of the Licensed Product; (2) If the computation set forth in (a) cannot be made for any reason, then the Net Selling Price of the Licensed Product shall be the established current net Selling Price for such Licensed Product when sold and invoiced as a separate unit. 6 4. ACCOUNTING AND RECORDS ----------------------- 4.1 Within forty-five (45) days after each Quarterly Period in respect of which payments are due under Section 3, LICENSEE shall prepare and send to LICENSOR a report setting forth Net Sales within the Territory by LICENSEE and its Affiliates during such Quarterly Period, which report shall contain a computation of the payments due hereunder. LICENSEE shall be entitled to make all payments by corporate check. 4.2 LICENSEE shall keep accurate records in respect of all sales of the Licensed products by LICENSEE and its Affiliates and shall maintain such records for a period of not less than three years from the date of its report to LICENSOR under Section 4.1 hereof. LICENSOR shall have the right, at its sole cost and expense, not more than once each Royalty Year, to review LICENSEE's records in respect of sales of the Licensed Products at times which are reasonably convenient to LICENSEE, using for that purpose a retained independent certified public accounting firm acceptable to LICENSEE. Any reports rendered by LICENSEE to LICENSOR prior to the date of such review as to which LICENSOR raises no reasonable written objection within one hundred twenty (120) days after the commencement of such review shall be deemed conclusive and binding, provided the LICENSEE has not unreasonably impeded such review. If LICENSOR shall dispute the accuracy of any report, the dispute shall be resolved by a panel of three 7 independent certified public accountants, one selected by LICENSEE at its sole cost and expense, one selected by LICENSOR at its sole cost and expense, one selected by LICENSOR at its sole cost and expense, and the third selected by the previously selected accountants, the cost and expense of the third to be borne equally by LICENSEE and LICENSOR. The determination of said panel by majority vote shall be conclusive and binding on the Parties hereto. 4.3 At the termination of this Agreement, LICENSEE shall render a final report to LICENSOR within sixty (60) days after the end of the Quarterly Period in the Royalty Year in which such termination occurs and payments shall be made to LICENSOR for the portion of the Royalty Year ending at the date of termination. 5. TERM ---- This Agreement shall become effective on the date of signing by both Parties and unless terminated as provided in Section 6, below, shall remain in effect as follows: (a) regarding Licensed Products covered by the Licensed Patent, this Agreement shall terminate upon the expiration of the Licensed Patent or at the earliest date on which there is not at least one Valid Patent Claim pertinent to the operations of LICENSEE still in existence or effect; 8 (b) regarding Licensed Products covered by Licensed Technology for thirty (30) years from the effective date hereof. 6. TERMINATION AND EFFECT OF TERMINATION ------------------------------------- 6.1 This Agreement may be terminated as follows: (a) By one party giving written notice to the other party of its intent to terminate, while stating with specificity the grounds therefor, in the event that the other party fails to perform or otherwise breaches any material obligations hereunder. The party so notified shall have sixty (60) days after receipt of the notice to cure the breach or seek legal redress. In no event shall such notice of intention to terminate be deemed to waive any right to damages or any other remedy which the party giving the notice may have as a consequence of such failure or such breach. 6.2 In the event that this Agreement is finally terminated (i.e., by operation of the present terms or legal decree): (a) LICENSEE shall have the right to dispose of all the licensed Products coming under the terms of this Agreement, to utilize all inventory then on hand to produce such Licensed Products, and to complete all orders for Licensed Products then on hand. Royalties shall be paid with respect to 9 said Licensed Products as though this Agreement had not been terminated. (b) Both parties hereto shall be released from all obligations and duties imposed or assumed hereunder except as expressly provided to the contrary in this Agreement. 7. WARRANTY AND INDEMNIFICATION ---------------------------- (a) LICENSOR assumes no responsibility for the manufacture or product specification or end use of Licensed Products manufactured by LICENSEE or for LICENSEE by anyone other than LICENSOR and sold by LICENSEE. All representations or warranties made in connection with the sale of Licensed Products by LICENSEE and its Affiliates as manufacturer and/or seller shall in no way directly or impliedly refer to or obligate LICENSOR, LICENSEE shall indemnify, save and hold harmless LICENSOR, its successors and assigns from any and all costs, expenses, damages and awards (including reasonable attorneys' fees) of any kind relating to actual or threatened claim made against or any judgment, award or verdict of any kind against LICENSOR resulting from or arising from a representation or warranty, whether express or implied, of LICENSEE or any of its Affiliates. (b) LICENSOR agrees to defend the Licensed Patent against any appropriation, practice, or infringement and shall have primary responsibility for such defense. 10 8. ADJUSTMENT TO LICENSE AGREEMENT ------------------------------- If, LICENSOR grants or has granted to any third~party in competition with LICENSEE, other than an Affiliate or joint venture partner of LICENSOR or a government agency, a different license under the Licensed Patent and/or Licensed Technology than the present license, which provides for more favorable terms or royalty rates to the third party than those provided in this License Agreement, then LICENSEE shall, at its option, be entitled to the more favorable terms or royalty rates of said third-party license. LICENSOR agrees to notify LICENSEE of such third party agreement within thirty (30) days of its execution or of the signing hereof. 9. MISCELLANEOUS ------------- 9.1 Entire Agreement: Assignment ----------------------------- This Agreement constitutes the entire Agreement and supersedes all prior agreements and understandings, both written or oral, between the parties hereto with respect to the subject matter hereof. This Agreement shall be binding upon the parties hereto and their respective successors and assigns. The rights and obligations of each party under this Agreement shall not be assignable or otherwise transferable without the prior written consent of the other, except that (a) LICENSEE may assign any or all of its rights or obligations under this Agreement to any of 11 its Affiliates, which assignment shall not release LICENSEE from any of its obligations under this Agreement, and (b) LICENSEE may assign all of its rights and obligations under this Agreement to any person in connection with the transfer or sale of all or a portion of its business or the merger or consolidation of LICENSEE with or into any other company, so long as such transferee, purchaser or surviving company shall assume such obligations of LICENSEE. 9.2 Notice ------ Any Notice required or permitted to be given by this Agreement shall be given by postpaid first class certified mail addressed to: IN THE CASE OF LICENSOR: Thomas R. Waggoner President STAAR SURGICAL CO., INC. 1911 Walker Avenue Monrovia, California 91016 and Frank Frisenda, Jr. FRISENDA, MORRIS & NICHOLSON 700 South Flower Street, Suite 2200 Los Angeles, California 90017 and IN THE CASE OF LICENSEE: Richard Wood President OPTICAL RADIATION CORPORATION 1300 Optical Drive Azusa, California 91702 12 and Martin Levy OPTICAL RADIATION CORPORATION 1300 Optical Drive Azusa, California 91702 Such addresses may be altered by written notice. If no time limit is specified for a notice required or permitted to be given under this Agreement, the time limit therefore shall be two (2) full business days, not including the day of mailing. 9.3 Waiver,Governing Law. etc. ------------------------- Any terms of this Agreement may be amended, modified or waived only with the prior written consent of the party against whom enforcement of such amendment, modification or waiver is sought. No waiver of any default, condition or provision of this Agreement, or of any breach thereof, shall be deemed to imply or constitute a waiver of any like default, condition or provision of this Agreement or subsequent breach thereof. This Agreement shall be governed by and construed in accordance with the laws of the State of California. All matters regarding this Agreement shall be interpreted in accordance with such laws, and any controversy that cannot be settled directly shall be settled by arbitration in Los Angeles, California, by and in accordance with the rules of the American Arbitration Association, and Section 1283.05 of the California Code of Civil Procedure, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. During the pendancy of such arbitration or 13 other legal process, this Agreement may not be terminated based upon the dispute giving rise to such arbitration or other legal process. It is understood, however, that this is a general form of Agreement; and if any of its provisions in any way violate or contravene the laws of the State of California or of the United States of America, such provisions shall be deemed not a part of this Agreement, and the remainder of this Agreement shall remain in full force and effect. The headings herein are for convenience only and shall not be deemed to limit or otherwise affect the construction hereof. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year indicated. STAAR SURGICAL COMPANY, INC. "LICENSOR" Dated: 12/17/86 By: /s/ Thomas R. Waggoner ---------------- --------------------------- THOMAS R. WAGGONER President OPTICAL RADIATION CORPORATION "LICENSEE" Dated: 12/17/86 By: /s/ Richard Wood ---------------- -------------------------- RICHARD WOOD President 14 APPENDIX A TRANSFER OF STAAR'S TRADE SECRETS AND KNOW-HOW ---------------------------------------------- Should ORC determine that it is necessary to obtain from STAAR certain further trade secret and know-how information ("Licensed technology") to enable ORC to design, evaluate and sell Licensed Products manufactured by STAAR for ORC on an OEM basis or manufactured by ORC for its own use, then STAAR will make available to ORC such Licensed Technology as provided below. The transfer of said trade secrets and know-how shall be accomplished by STAAR supplying ORC with documents as well as oral information upon ORC's request, which are specifically identified by STAAR as being confidential and proprietary to STAAR, with the receipt of each document by ORC to be acknowledged in writing. STAAR and ORC representatives shall meet promptly following execution of the Agreement and conduct good faith discussions concerning the nature and extent of such transferred information required to meet the goals of the Agreement. In order to effect the orderly transfer and use of said trade secrets and know-how and to cooperate with, to educate and to train personnel of ORC in promoting use, evaluation and sale of licensed products hereunder, STAAR shall render reasonable services as may be requested by ORC, so as to familiarize ORC with said trade secrets and know-how and to enable ORC to use the 15 same. Such services shall be rendered by STAAR by two fulltime STAAR designated representatives acceptable to ORC for a period of two (2) weeks presence at ORC's plant in Azusa, California. If services are to be rendered at any other location, ORC will pay to STAAR reasonable travel and lodging expenses of STAAR's designated representatives. In addition, STAAR shall exercise its best efforts to assure that ORC will obtain an IDE for its licensed intraocular lens product by July 31, 1987. Such action shall include, providing ORC with reference access to STAAR's FDA master file and supplying silicone lenses to ORC on an OEM basis at $125.00 per lens (including the royalty payment provided for in the attached agreement) subject to FDA cooperation and approval. Such access to STAAR's FDA master file shall not constitute disclosure of Licensed technology. As consideration for the reference access to STAAR's FDA master file and STAAR's assistance in obtaining an IDE for the small incision silicone lenses to be manufactured for ORC by STAAR, ORC will pay STAAR a "research fee" of One Hundred Thousand Dollars ($100,000), plus reimbursement of all out-of-pocket expenses incurred by STAAR on ORC's behalf and approved by ORC in advance. Such payment will be made by ORC at the signing hereof. 16 CONFIDENTIALITY --------------- The confidential information comprising the Licensed technology to be furnished by STAAR to ORC under the proposed Agreement shall be protected and maintained in confidence by ORC and shall not be used for purposes outside the scope of the Agreement, nor disclosed to others, except as may be reasonably necessary in the conduct of the business of ORC or its affiliates under the Agreement or unless one of the exceptions listed below applies. ORC shall take all customary precautions to prevent said Confidential Information from being disseminated to any third Parties, including the reasonable restriction of access to said Confidential Information to those employees of ORC as need to know it, the signing of confidentiality agreements by such employees, or others to whom said Information is to be disclosed. The provisions of this Section shall not apply and Licensed Technology royalties shall no longer be due under this Agreement in that event that: (a) such Information shall become known to third parties or shall become publicly known through no fault of ORC; or (b) such Information was already in ORC's possession prior to the disclosure of said Information by STAAR to ORC; or (c) such Information shall be subsequently disclosed to ORC by a third party who is not under any obligation of confidentiality to STAAR; or 17 (d) such Information is approved for disclosure by prior written consent of STAAR; or (e) such Information is required to be disclosed by court rule or governmental law or regulation, provided that ORC give STAAR prompt notice of any such requirement and cooperates with STAAR in attempting to limit such disclosure; or (f) such Information is developed by ORC independently of the transfer of such Information from STAAR to ORC. 18 EX-10.12 3 PROMISSORY NOTE DATED 5/26/92 EXHIBIT 10.12 PROMISSORY NOTE (SECURED BY DEED OF TRUST) $733,335.00 May 26, 1992 Ojai, California FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby acknowledged, Andrew F. Pollet and Sally M. Pollet, Co-Trustees of the Andrew F. and Sally M. Pollet Revocable Trust dated March 6, 1990 (hereinafter "Maker"), hereby promises to pay to Staar Surgical Company, a Delaware corporation, or order (hereinafter "Holder"), at the address hereinbelow designated on the signature page of this Note, or such other place as Holder may designate by written notice to Maker, the principal sum hereinbelow described (hereinafter the "Principal Amount"), together with interest thereon, in the manner and at the times provided in this Note and subject to the terms and conditions hereinbelow described. 1. Principal Amount. ---------------- The Principal Amount means the sum of Seven Hundred Thirty-three Thousand Three Hundred Thirty-five and No/100 Dollars ($733,335.00). 2. Interest. -------- Interest on the Principal Amount from time-to-time remaining unpaid shall accrue from the date of this Note at the lesser of eight percent (8%) or that fixed rate of interest (as of the date of this Note) which equals the minimum applicable rate of simple interest (as of the date of this Note) which will avoid the imputation of income to Maker. Interest shall be computed on the basis of a three hundred sixty (360) day year and a thirty (30) day month. 3. Payment of Principal and Interest. --------------------------------- Subject to Paragraph 7, the Principal Amount and accrued and unpaid interest on the Principal Amount and all other indebtedness under this Note shall be paid on May 31, 1995. Until such date, all interest on this Note shall accrue. 4. Prepayments. ----------- Maker shall have the right to prepay any portion of the Principal Amount without prepayment penalty or premium or discount. 5. Manner of Payments/Crediting of Payments. ---------------------------------------- Payments of any amount required hereunder shall be made 1 solely in lawful money of the United States, without deduction or offset, and shall be credited first against accrued but unpaid interest, if any, and thereafter against the unpaid balance of the Principal Amount. 6. Security. -------- The payment of this Note is secured by a Deed of Trust executed by Maker in favor of Holder of even date herewith. 7. Acceleration Upon Default. ------------------------- At the option of Holder, all or any part of the indebtedness of Maker hereunder shall immediately become due and payable, irrespective of any agreed maturity, upon the happening of any of the following events of default ("Event of Default"): (a) Upon the occurrence of any event of default described under the Deed of Trust; (c) If any of the following events constituting default occurs, provided, however, that if any such event of default is reasonably susceptible of being cured, Maker shall be entitled to a grace period of thirty (30) days following written notice of such event of default to cure it, and further provided, that if such event of default is of such character as to reasonably require more than thirty (30) days to cure, Maker has promptly commenced to cure said events of default within the thirty (30) day period and used reasonable diligence thereafter in curing such events of default, the thirty (30) day period shall be reasonably extended (but not to exceed one hundred twenty days (120)): (i) If Maker shall breach any non-monetary condition or obligation imposed on Maker pursuant to the terms of this Note; (ii) If Maker shall make an assignment for the benefit of creditors; (iii) If a custodian, trustee, receiver, or agent is appointed or takes possession of substantially all of the property of Maker; (iv) If Maker becomes insolvent as that terms is defined in Section 101(26) of Title 11 of the United States Code; (v) If Maker shall (A) file a petition with the Bankruptcy Court under the Bankruptcy Code, or (B) otherwise file any petition or apply to any tribunal for appointment of a custodian, trustee, receiver, or agent of Maker, or commence any proceeding related to Maker under any bankruptcy or reorganization statute, or 2 under any arrangement, insolvency, readjustment of debt, dissolution, or liquidation law of any jurisdiction, whether now or hereafter in effect; (vi) If any petition is filed against Maker under the Bankruptcy Code and either (A) the Bankruptcy Court orders relief against Maker under the chapter of the Bankruptcy Code under which the petition was filed, or (B) such petition is not dismissed by the Bankruptcy Court within thirty (30) days of the date of filing; (vii) If any petition or application of the type described in Subparagraph (vi)(A) above is filed against Maker, or any proceeding of the type described in Subparagraphs (v)(A) or (v)(B) above is commenced, and either (1) Maker, by any act, indicates his approval thereof, consent thereto, or acquiescence therein, or (2) an order is entered appointing any such custodian, trustee, receiver, or agent, adjudicating Maker bankrupt or insolvent, or approving such petition or application in any such proceeding, and any such order remains in effect for more than thirty (30) days; (viii) If any attachment, execution, or other writ is levied on substantially all of the assets of Maker and remains in effect for more than fifteen (15) days. 8. Collection Costs and Attorneys' Fees. ------------------------------------ (a) Maker agrees to pay Holder all costs and expenses, including actual attorneys' fees, paid or incurred by Holder in connection with the collection or enforcement of the Note or any instrument securing payment of this Note, including defending the priority of such instrument or as a result of foreclosure against, or conducting a trustee sale thereunder. (b) In the event any party institutes or should the parties otherwise become a party to any action or proceeding in connection with the enforcement or interpretation or collection of this Note or any instrument securing payment of this Note, or for damages by reason of any alleged breach of this Note or any provision hereof or any alleged breach of any instrument securing payment of this Note or any provision thereof, or for a declaration of rights in connection with this Note or any instrument securing payment of this Note, or for any other relief, including equitable relief, in connection with this Note or any instrument securing payment of this Note, the prevailing party in any such action or proceeding shall be entitled to receive from the non-prevailing party all costs and expenses including, without limitation, actual attorneys' and other fees incurred by the prevailing party in connection with such action or proceeding. 3 9. Notice. ------- Any notice to Maker provided for in this Note shall be given by personal delivery or by express mail, Federal Express, DHL or similar airborne/overnight delivery service, or by mailing such notice by certified mail, return receipt requested, addressed to Maker at the address set forth below where this Note is executed, or to such other address as Maker may designate by written notice to Holder. Any notice to Holder shall be given by personal delivery or by express mail, Federal Express, DHL or similar airborne/overnight delivery service, or by mailing such notice by certified mail, return receipt requested, to Holder at the address set forth below where this Note is executed, or at such other address as may have been designated by written notice to Maker. Mailed notices shall be deemed delivered and received three (3) days after deposit in accordance with this provision in the United States mail. 10. Usury Compliance. ----------------- All agreements between Maker and Holder are expressly limited, so that in no event or contingency whatsoever, whether by reason of the consideration given with respect to this Note, the acceleration of maturity of the unpaid Principal Amount and interest thereon, or otherwise, shall the amount paid or agreed to be paid to Holder for the use, forbearance, or detention of the indebtedness which is the subject of this Note exceed the highest lawful rate permissible under the applicable usury laws. If, under any circumstances whatsoever, fulfillment of any provision of this Note or any agreement securing payment of this Note or executed in connection with this Note after timely performance of such provision is due, shall involve transcending the limit of validity prescribed by law which a court of competent jurisdiction deems applicable, then the obligations to be fulfilled shall be reduced to the limit of such validity, and if, under any circumstances whatsoever, Holder shall ever receive as interest an amount that exceeds the highest lawful rate, the amount that would be excessive interest shall be applied to the reduction of the unpaid Principal Amount and/or late charges under this Note and not to the payment of interest, or, if such excessive interest exceeds the unpaid balance of the Principal Amount and/or late charges under this Note, such excess shall be refunded to Maker. 11. General. -------- (a) No delay or omission on the part of Holder in exercising any rights under this Note or under any instrument given to secure this Note, on default by Maker, including, without limitation, Holder's right to accelerate, nor reinstatement of this Note by Holder after such exercise, shall operate as a waiver of Maker's right to exercise such right or of any other right under this Note or the instruments given to secure this Note, for the same default or any other default. 4 (b) Except for the provision of written notice hereinabove set forth, Maker hereby waives presentment for payment, demand, protest, notice of protest and notice of dishonor, and all other notices to which Maker might otherwise be entitled, and further waives the right to require Holder to proceed against any security for this Note before proceeding against Maker, and further waives all defenses based on release of security or extension of time or other indulgence given in respect to payment of this Note. (c) Holder shall have the right to sell, assign, or otherwise transfer, either in part or in its entirety, this Note, and any instrument evidencing or securing the indebtedness of this Note (provided such instrument is transferred as security for the portion of the Note which is conveyed), without the consent of Maker. The assignment of this Note by Holder shall be ineffective until actual notice of same is received by Maker. Maker shall have no right to delegate its duties under this Note or any instrument securing this Note without the written consent of Holder, which consent Holder shall not unreasonably withhold, provided, however, no delegation of such duties or obligations shall release Maker from any duty or obligation under this Note or instrument securing payment of this Note. (d) Subject to the foregoing Subparagraph (c), this Note and all of the covenants, promises, and agreements contained in it shall be binding on and inure to the benefit of the respective legal and personal representatives, devises, heirs, successors, and assigns of Maker and Holder. (e) This writing is intended by the parties to be an integrated and final expression of this Note and also is intended to be a complete and exclusive statement of the terms of that agreement. No course of prior dealing between the parties, no usage of trade, and no parol or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms hereof. There are no conditions to the full effectiveness of this Note except as specifically provided herein. (f) If any provision of this Note, or the application of it to any party or circumstance, is held to be invalid, the remainder of this Note, and the application of such provision to other parties or circumstances, shall not be affected thereby, the provisions of this Note being severable in any such instance. (g) This Note shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of California applicable to contracts entered into in the State of California, by residents of the State of California, and intended to be performed entirely within the State of California. Any action to enforce payment of this Note shall be filed and heard solely in the Municipal or Superior Court of Los Angeles County, California. 5 (h) Time is of the essence for each and every obligation under this Note. MAKER: /s/ Andrew F. Pollet ----------------------------------- Andrew F. Pollet, Co-Trustee of the Andrew F. and Sally M. Pollet Revocable Trust dated March 6, 1990 /s/ Sally M. Pollet ----------------------------------- Sally M. Pollet, Co-Trustee of the Andrew F. and Sally M. Pollet Revocable Trust dated March 6, 1990 MAKER'S ADDRESS: Andrew F. and Sally M. Pollet, Co-Trustees 10934 Alto Court Oak View, CA 93022 HOLDER'S ADDRESS: Staar Surgical Company 1911 Walker Avenue Monrovia, CA 91016 DO NOT DESTROY THIS NOTE; WHEN PAID, THIS NOTE MUST BE SURRENDERED TO MAKER FOR CANCELLATION 6 EX-10.13 4 DEED OF TRUST DATED 8/1/97 EXHIBIT 10.13 RECORDING REQUESTED BY: 98-014857 Rec Fee 40.00 AFTER RECORDED RETURN TO: Check 40.00 Recorded MARY ANN SAPONE, ESQ. Official Records POLLET & WOODBURY County of 10900 WILSHIRE BOULEVARD, SUITE 500 Ventura LOS ANGELES, CALIFORNIA 90024 Richard D. Dean Recorder ___________________________________ 9:48am 3-Feb-98 FF 12 DEED OF TRUST ------------- THIS Deed of Trust is made this 1 day of August, 1997, by and among --- Andrew F. Pollet and Sally M. Pollet, as Trustees and Beneficiaries of the Andrew F. and Sally M. Pollet Revocable Trust dated March 6, 1990, whose addresses are10934 Alto Court, Oak View, California 93022 (hereinafter collectively referred to as the "Trustors"), and Staar Surgical Company, a Delaware corporation, whose address is 1911 Walker Avenue, Monrovia, California 91016 (hereinafter the "Trustee" and\or the "Beneficiary"). 1. GRANT OF SECURITY INTEREST IN REAL PROPERTY. ------------------------------------------- The Trustors, in consideration of the obligations and/or indebtedness referred to in Paragraph 2 below, irrevocably grant, convey, and assign to the Trustee, in trust, with power of sale, all of the Trustors' interests in that certain real property commonly known as 10934 Alto Court, Oak View, California 93022, and more particularly described as follows (hereinafter the "Real Property"): Lot 50 of Tract 3044-3 in the County of Ventura, State of California as shown on the map of said tract recorded in book 92, pages 93 through 96 of Miscellaneous Records (Maps) in the Office of the County Recorder of said County. 2. OBLIGATIONS SECURED. ------------------- The hereinabove described security interest is being granted by the Trustors for the purpose of securing indebtedness in the original principal amount of seven hundred thirty-three thousand three hundred thirty five dollars ($733,335.00) (hereinafter the "Debt"), as the Debt may be amended from time to time as well as: (a) PAYMENT OF ADDITIONAL SUMS. Payment of such additional sums, -------------------------- with interest thereon: (i) As may be incurred, paid, or advanced by the Beneficiary, or as may otherwise be due to the Trustee or the Beneficiary, under any provision of this Deed of Trust and any modification, extension, or renewal of this Deed of Trust; and (ii) As may otherwise be paid or advanced by the Beneficiary to protect the security or priority of this Deed of Trust; 1 (b) PERFORMANCE OF OBLIGATIONS. Performance of each obligation, -------------------------- covenant, and agreement of the Trustors included in the Debt, this Deed of Trust, or any other document executed by the Trustors in connection with the obligation(s) secured by this Deed of Trust, whether set forth in this Deed of Trust or incorporated in this Deed of Trust by reference; (c) COMPLIANCE. Compliance with the performance by the Trustors ---------- of each and every monetary provision of all covenants, conditions, and restrictions, if any, pertaining to the Real Property; (d) PERFORMANCE OF AGREEMENTS. Performance of all agreements of ------------------------- the Trustors to pay fees and charges to the Beneficiary whether or not in this Deed of Trust set forth; and (e) CHARGES. Payment of charges, as allowed by law, when such ------- charges are made for any statement regarding the obligation(s) secured by this Deed of Trust. 3. COVENANTS WITH RESPECT TO DEED OF TRUST. --------------------------------------- To maintain and protect the security of this Deed of Trust, to secure full and timely performance by the Trustors of each and every obligation, covenant, and agreement of the Trustors under the Debt and this Deed of Trust, and as additional consideration for the obligation(s) evidenced by the Debt, the Trustors covenant as follows: (a) PAYMENT OF PRINCIPAL AND INTEREST. The Trustors will promptly --------------------------------- pay, when due, such installments of principal and interest and such prepayment, late payment, and other charges as are provided for in relation to the Debt, and such other amounts as are provided under this Deed of Trust. (b) APPLICATION OF PAYMENTS. Except as otherwise expressly ----------------------- provided by applicable law or any other provision of this Deed of Trust, all payments received by the Beneficiary from the Trustors under the Debt or this Deed of Trust shall be applied by the Beneficiary in the following order: (i) costs, fees, charges, and advances paid or incurred by the Beneficiary or payable to the Beneficiary, and interest thereon pursuant to any provision of the Debt, this Deed of Trust, and any other obligation documents securing the Debt, in such order as the Beneficiary, in the Beneficiary's sole discretion, elects; (ii) interest payable under the Debt; and (iii) principal payable under the Debt. 4. COVENANTS CONCERNING THE REAL PROPERTY. -------------------------------------- (a) REPAIR AND MAINTENANCE OF THE REAL PROPERTY. The Trustors ------------------------------------------- will: (i) keep the Real Property in good condition and repair; (ii) not substantially alter, remove, or demolish the Real Property or any building on the Real Property, except when incident to the replacement of fixtures, equipment, machinery, or appliances with items of like kind; (iii) restore and repair promptly and in good and workmanlike manner to no less than the equivalent of its original condition, all or any part of the Real Property that may be damaged or destroyed, including, but not limited to, damage from termites and dry rot, whether or not insurance proceeds are available to cover any part of the cost of such restoration and repair (iv) pay when due all claims for labor performed and materials furnished in connection with the Real Property and not permit any mechanic's or materialman's lien to arise 2 against the Real Property; (v) comply with all laws affecting the Real Property or requiring that any alterations or improvements be made to the Real Property; (vi) not commit or permit waste on or to the Real Property, or commit, suffer, or permit any act or violation of law to occur upon the Real Property; (vii) not abandon the Real Property; and (viii) cultivate, irrigate, fertilize, fumigate, and prune as reasonably necessary. (b) INSPECTION OF THE REAL PROPERTY. The Beneficiary may make, or ------------------------------- authorize other persons to make, entries upon or inspections of the Real Property at reasonable times and for reasonable durations, and the Trustors will permit all such entries and inspections to be made. 5. DEFAULT IN FORECLOSURE ---------------------- Upon default by the Trustors in the payment of any indebtedness secured by this Deed of Trust or in the performance of any obligation under this Deed of Trust, the Beneficiary may declare all sums secured by this Deed of Trust immediately due and payable by delivering to the Trustee a written declaration of default and demand for sale and a written notice of default and election to sell the Real Property. After the required time period has lapsed following the recordation of the notice of default, and after notice of sale has been given as required by law, the Trustee, without demand on the Trustors, shall sell the Real Property at the time and place specified in the notice of sale, either as a whole or in separate parcels, and in any order determined by the Trustee at public auction to the highest bidder for cash in lawful money of the United States, payable at the time of sale. The Trustee may postpone sale of all or any portion of the Real Property by public announcement at the time and place of sale, and from time to time thereafter may postpone the sale by public announcement at the time fixed by the preceding postponement. The Trustee shall deliver to the purchaser at the auction its deed conveying the Real Property sold, but without any covenant or warranty, express or implied. Any person, including the Trustors, the Trustee or the Beneficiary, may purchase at the sale. After deducting all costs, fees and expenses of the Trustee and the Beneficiary under this paragraph, including costs of procuring evidence of title incurred in connection with sale, the Trustee shall apply the proceeds of sale to payment of all sums expended under the terms of this Deed of Trust, not then repaid, with accrued interest at the amount allowed by law in effect at the date of this Deed of Trust, all other sums then secured by this Deed of Trust, and the remainder, if any, to the person or persons legally entitled to the remaining proceeds. 6. OBLIGATION TO PAY TAXES. ----------------------- The Trustors will promptly pay, satisfy, and discharge; (a) at least ten (10) days prior to delinquency, all general and special taxes, and assessments, water and sewer district charges, rents and premiums affecting the Real Property, including but not limited to all property taxes on the Real Property; and (b) all encumbrances, charges, and liens on the Real Property, with interest on them, which are prior or superior to the lien of this Deed of Trust. 3 7. INSURANCE AND CONDEMNATION. -------------------------- (a) FIRE AND CASUALTY INSURANCE. The Trustors will provide and --------------------------- maintain in force, at all times, fire and such other type of insurance on the Real Property in such reasonable amount and deductibles as determined by the Trustors, but in an amount not less than the lesser of (i) the replacement cost of the Real Property or (ii) the outstanding balance of the Debt and any other liens prior or superior to this Deed of Trust. (b) APPLICATION OF HAZARD INSURANCE PROCEEDS. All insurance ---------------------------------------- proceeds shall be applied for the restoration and repair of the Real Property to the equivalent of its original condition provided, however, if the Trustors elect not to so restore and repair the Real Property, the insurance proceeds shall to applied to satisfy the indebtedness secured by this Deed of Trust, with the balance of said proceeds, if any, to be retained by the Trustors. If the insurance proceeds are applied to the payment of the sums secured by this Deed of Trust, any such application of proceeds to principal shall not extend or postpone the due date of any payments referred to in this Deed of Trust or change the amount of such payments. The receipt of the hazard insurance proceeds shall not cure or constitute a waiver of any default or pending notice of default under this Deed of Trust, nor invalidate any act done pursuant to such notice. No hazard insurance proceeds applied on the cost of repair, restoration, or alteration of the improvements shall constitute a payment on the indebtedness secured by this Deed of Trust. Notwithstanding the foregoing, the Beneficiary may demand that all proceeds be paid into an escrow account with an escrow agent mutually acceptable to the parties in order to ensure that disbursements made for the restoration or repair of the Real Property are so properly made. (c) CONDEMNATION. All proceeds of any reward or claim for ------------ damages, direct or consequential, in connection with any condemnation for public use of, or injury to, the Real Property, or any part of the Real Property, or any improvements on the Real Property, and any payment of consideration or damages for a conveyance in lieu of condemnation, shall be applied upon any indebtedness secured by this Deed of Trust, whether or not then due, with the excess, if any, paid to the Trustors. Unless the Beneficiary and the Trustors otherwise agree in writing, any such application of proceeds to principal shall not extend or postpone the due date of any payments due under this Deed of Trust or change the amount of such payments. 8. ACCELERATION PROVISIONS. ----------------------- (a) ACCELERATION ON TRANSFER OR ENCUMBRANCE OF THE REAL PROPERTY. ------------------------------------------------------------ Subject to Sections 2924.6 and 2949 of the California Civil Code, as amended, if --------------------- the Trustors sell, contract to sell, give an option to purchase, convey, or alienate the Real Property, or any interest in the Real Property, or suffer their title, or any interest in the Real Property, to be divested, whether voluntarily or involuntarily; or if title to such Real Property be subject to any lien or charge, voluntarily or involuntarily, contractual or statutory, without the written consent of the Beneficiary being first had and obtained, the Beneficiary may, at the Beneficiary's option, without prior notice, declare all sums secured by this Deed of Trust, irrespective of their stated due date(s), immediately due and payable, 4 and may exercise all rights and remedies provided in this Deed of Trust. (b) ACCELERATION ON INSOLVENCY OF TRUSTORS. In the event that (i) -------------------------------------- the Trustors fail to pay their debts generally as they come due or file any petition or action for relief under any bankruptcy, reorganization, insolvency, or moratorium law, or any other law or laws for the relief of, or relating to, debtors; (ii) an involuntary petition is filed against the Trustors, or either of them, under any bankruptcy or similar statute and such petition is not set aside or withdrawn or is still in effect within sixty (60) days from the date of such filing; or (iii) a custodian, receiver, or trustee (or other similar official) is appointed to take possession, custody, or control of any of the properties of the Trustors; or (iv) the Real Property becomes subject to the jurisdiction of a Federal Bankruptcy Court of successor to that court, or any similar state court; or (v) the Trustors, or either of them, make an assignment for the benefit of his/her/their creditors; or (vi) any portion of the Trustors' assets are attached, executed upon, or judicially seized in any manner, and such seizure is not discharged within ten (10) days, the Beneficiary, at the Beneficiary's option, and to the extent permitted by applicable law, may, without prior notice, declare all sums secured by this Deed of Trust, irrespective of their stated due date(s), immediately due and payable and may exercise all rights and remedies provided in this Deed of Trust, irrespective of their stated due date(s), immediately due and payable, and may exercise all rights and remedies provided in this Deed of Trust. (c) OBLIGATION TO INFORM BENEFICIARY OF BANKRUPTCY, INSOLVENCY, ---------------------------------------------------------- TRANSFER OR ENCUMBRANCE. The Trustors will notify the Beneficiary in writing, - ----------------------- at or prior to the time of the occurrence of any event described in the preceding two Subparagraphs of this Paragraph 9 of such event, and will promptly furnish the Beneficiary with any and all information concerning such event as the Beneficiary may request. 9. MATTERS PERTAINING TO TRUSTEE. ----------------------------- (a) TRUSTEE. The Trustee shall be deemed to have accepted the ------- terms of this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. The Trustee shall not be obligated to notify any party hereto of any pending sale under any other deed of trust or of any action or proceeding in which the Trustors, the Beneficiary, or the Trustee is a party, unless such sale relates to or reasonably might affect the Real Property, this Deed of Trust, the Beneficiary's security for the performance of the Trustors' obligations under the Debt, or the rights or powers of the Beneficiary or the Trustee under the Debt or this Deed of Trust, or unless such action or proceeding has been instituted by the Trustee against the Real Property, the Trustors, or the Beneficiary. (b) POWER OF TRUSTEE TO RECONVEY OR CONSENT. At any time, without --------------------------------------- liability therefor and without notice to the Trustors, upon written request by the Beneficiary and presentation of the Debt and this Deed of Trust to the Trustee for endorsement, and without altering or affecting the personal liability of the Trustors or any other person for the payment of the indebtedness secured by this Deed of Trust, or the lien of this Deed of Trust upon the remainder of the Real Property as security for the repayment of the full amount of the indebtedness then or thereafter secured by this Deed of Trust or any right or power of the Beneficiary or the Trustee with respect to the remainder of the Real Property, the Trustee may: (i) reconvey or release any part of the Real Property from the lien of this Deed of Trust; or (ii) enter into any extension or subordination agreement affecting the lien of this Deed of Trust. 5 (c) RECONVEYANCE. Upon written request of the Beneficiary ------------ reciting that all sums secured by this Deed of Trust have been paid, surrender of the Debt and this Deed of Trust to the Trustee for cancellation, and payment by the Trustors of any reconveyance fees customarily charged by the Trustee, the Trustee shall reconvey, without warranty, the Real Property then held by the Trustee under this Deed of Trust. The recitals in such reconveyance of any matters of fact shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto." (d) SUBSTITUTION OF TRUSTEE. The Beneficiary, at the ----------------------- Beneficiary's option, may from time-to-time, by written instrument, substitute a successor to any Trustee named in this Deed of Trust or acting under this Deed of Trust, which instrument, when executed and acknowledged by the Beneficiary and recorded in the office of the Recorder of the county or counties in which the Real Property is located, shall constitute conclusive proof of the proper situation of such successor Trustee, who shall, without conveyance from the predecessor Trustee, succeed to all right, title, estate, powers and duties of such predecessor Trustee, including, without limitation, the power to reconvey the Real Property. To be effective, such instrument must contain the name of the original Trustors, the Trustee, and the Beneficiary under this Deed of Trust, the instrument number in which, or the book and page at which, and the county or counties in which, this Deed of Trust is recorded, and the name and address of the substitute Trustee. If any notice of default has been recorded under this Deed of Trust, this power of substitution cannot be exercised until all costs, fees and expenses of the then-acting Trustee have been paid. Upon such payment, the then-acting Trustee shall endorse receipt thereof upon the instrument of substitution. The procedure in this Deed of Trust for substitution of Trustees shall not be exclusive of other provisions for substitution provided by applicable law. (e) ACCELERATION AND SALE ON DEFAULT. In the event of a default -------------------------------- by the Trustors in the performance of any obligation or the payment of any indebtedness secured by this Deed of Trust or in the performance of any obligation under this Deed of Trust, the Beneficiary, at the Beneficiary's option, may declare all sums secured by this Deed of Trust immediately due and payable by delivering to the Trustee a written affidavit or declaration of default and demand for sale, executed by the Beneficiary and reciting facts demonstrating such default by the Trustors together with a written notice of default and election to sell the Real Property. The Beneficiary shall also deposit with the Trustee evidence of the Debt, this Deed of Trust, and documents evidencing any additional advances or expenditures secured by this Deed of Trust. Upon receipt by the Trustee of such affidavit or declaration of default and such notice of default and election to sell, the Trustee shall accept as true and conclusive all facts and statements contained in such affidavit or declaration of default and shall cause such notice of default and election to sell to be recorded as required by applicable law. Upon the expiration of such period as may then be required by applicable law following recordation of such notice of default, and after notice of sale has been given in the manner and for the period required by applicable law, the Trustee, without demand on the Trustors, shall sell the Real Property at the time and place filed in such notice of sale, either as whole or in separate parcels, and in such order as the Trustee may determine or the Beneficiary may direct (subject to whatever rights the Trustors may have under applicable law to direct the order of sale), at public auction to the highest bidder for cash in lawful money of the United States, payable at the time of sale; provided, however, that the Beneficiary may offset its bid at such sale to the extent of the full amount owing to it under the Debt and this Deed 6 of Trust, including, without limitation, the Trustee's fees and expenses of sale, and costs, expenses, and attorneys' fees incurred by or on behalf of the Beneficiary in connection with collecting, litigating, or otherwise enforcing any right under the Debt or this Deed of Trust. The Trustee may postpone the sale of all or any portion of the Real Property by public announcement made at the initial time and place of sale, and from time to time thereafter by public announcement made at the time and place of sale fixed by the preceding postponement. The Trustee shall deliver to the purchaser at such public auction its deed conveying the Real Property sold, but without any covenant or warranty, express or implied. The recital in such deed of any matter of fact shall be conclusive proof of the truthfulness thereof. Any person, including the Trustors, the Trustee, or the Beneficiary, may purchase at such sale. After deducting all costs, fees and expenses of the Trustee and the Beneficiary under this paragraph, including costs of procuring evidence of title and the Trustee's and attorney's fees incurred in connection with such sale, the Trustee shall apply the proceeds of a sale as follows: (i) first to the payment of all sums secured by this Deed of Trust, in such order as the Beneficiary, in the Beneficiary's sole discretion, may elect; and (ii) if any proceeds thereafter remain, to the person or persons legally entitled thereto. 10. MISCELLANEOUS. ------------- (a) NO WAIVER BY BENEFICIARY. No waiver by the Beneficiary of any ------------------------ right or remedy provided by the Debt, this Deed of Trust, or applicable law, shall be effective unless such waiver is in writing and subscribed by the Beneficiary. Waiver by the Beneficiary of any right or remedy granted to the Beneficiary under the Debt or any provision of the Debt, this Deed of Trust, or applicable law, as to any transaction or occurrence, shall not be deemed a waiver of any future transaction or occurrence. The acceptance of payment of any sum so secured after its due date; or the payment by the Beneficiary of any indebtedness or the performance by the Beneficiary of any obligation of the Trustors under the Debt or this Deed of Trust, upon the failure of the Trustors to do so; or the addition of any payment so made by the Beneficiary to the indebtedness so secured; or the assertion by the Beneficiary of any other right or remedy provided by the Debt or this Deed of Trust, shall not constitute a waiver of the Beneficiary's right to require prompt performance of all other obligations, covenants, and agreements of the Trustors under the Debt and this Deed of Trust, or to exercise any other right or remedy provided by the Debt or this Deed of Trust for any failure by the Trustors timely and fully to perform its/his/her obligations, covenants, and agreements under the Debt and this Deed of Trust. The Beneficiary expressly retains the right, from time-to-time, and without notice or to consent from the Trustors, or any holder or claimant of a lien or other interest in the Real Property that is junior to the lien of this Deed of Trust, and without incurring liability to the Trustors or any other person by so doing, to waive any right or remedy provided by the Debt, this Deed of Trust, or applicable law. (b) CONSENTS AND MODIFICATIONS. Notwithstanding the Trustors' -------------------------- default in the performance of any obligations or payment of any indebtedness secured by this Deed of Trust or in the performance of any obligation under this Deed of Trust or the Trustors' breach of any obligation, covenant, or agreement contained in the Debt or in this Deed of Trust, the Beneficiary, at the Beneficiary's option, without notice to or consent from the Trustors, or any holder or claimant of a lien or interest in the Real Property that is junior to the lien of this Deed of Trust, and without incurring liability to the Trustors or any other person by so doing, may from time to time (i) extend the time for performance of any obligation or payment of all or any portion of the Trustors' indebtedness under this Deed of Trust; (ii) agree with the Trustors to modify the terms and conditions 7 of performance and/or payment under this Deed of Trust; (iii) reduce the amount of the payments that may be due under Paragraph 3 of this Deed of Trust; (iv) reconvey or release other or additional security for the performance of the Trustors' obligations or repayment of the Trustors' indebtedness under the Debt and this Deed of Trust; or (v) enter into any extension or subordination agreement affecting the lien of this Deed of Trust. No action taken by the Beneficiary under this Subparagraph (b) shall be effective unless in writing, subscribed by the Beneficiary, and, except as expressly provided in such writing, no such action shall impair or affect: the obligation of the Trustors to pay all sums secured by this Deed of Trust and to observe all obligations, covenants, and agreements of the Trustors contained in the Debt and in this Deed of Trust; or the lien or priority of the lien of this Deed of Trust. (c) CONSENTS AND APPROVALS TO BE IN WRITING. Whenever the consent --------------------------------------- or approval of the Beneficiary is specified as a condition of any provision of this Deed of Trust, such consent or approval by the Beneficiary shall not be effective unless such consent or approval is in writing, subscribed by the Beneficiary. (d) OBLIGATIONS OF TRUSTORS JOINT AND SEVERAL. If more than one ----------------------------------------- person is named as Trustor, each obligation of the Trustors under this Deed of Trust shall be the joint and several obligation of each such person. Any Trustor who is a married person expressly agrees that the indebtedness secured by this Deed of Trust may be satisfied by recourse to the separate property of such Trustor. (e) REMEDIES CUMULATIVE. Each remedy provided by this Deed of ------------------- Trust is separate and distinct and is cumulative to all other rights and remedies provided in this Deed of Trust or by applicable law, and each may be exercised concurrently, independently, or successively, in any order whatsoever. (f) NOTICES. Except for any notice required by applicable law to ------- be given in another manner: (i) all notices provided in the Debt or in this Deed of Trust shall be in writing; (ii) each such notice to the Trustors shall be given by mailing such notice by first class mail to the Trustors' address(es) specified in this Deed of Trust, or to such other address as the Trustors may designate by notice given to the Beneficiary in the manner provided in this Deed of Trust; and (iii) each such notice to the Beneficiary shall be given by mailing such notice by certified mail, return receipt requested, to the Beneficiary's address specified in this Deed of Trust, or to such other address as the Beneficiary may designate by notice given to other address as the Beneficiary may designate by notice given to the Trustors in the manner provided in this Deed of Trust. All notices provided for in the Debt and this Deed of Trust shall be deemed to have been given to the Trustors or the Beneficiary when given in the manner specified in this Deed of Trust. (g) SEVERABILITY. If any paragraph, clause, or provision of the ------------ Debt or this Deed of Trust is construed or interpreted by a court of competent jurisdiction to be void, invalid or unenforceable, such decision shall affect only those paragraphs, clauses, or provisions so construed or interpreted and shall not affect the remaining paragraphs, clauses, and provisions of the Debt or this Deed of Trust. 8 (h) NO ASSIGNMENT. The Beneficiary shall not have the right to ------------- sell, assign, or otherwise transfer, in whole or in part, this Deed of Trust without the consent of the Trustors, which consent shall not be unreasonably withheld. (i) SUCCESSORS AND HEIRS. Subject to Subparagraph (i), this Deed -------------------- of Trust applies to, inures to the benefit of, and binds, the respective heirs, legatees, devises, administrators, executors, successors, and assigns of each of the parties hereto. (j) RULES OF CONSTRUCTION. --------------------- (i) As used in this Deed of Trust, the term "Beneficiary" shall mean and include the owner and holder (including a pledgee) of any Debts or obligations secured by this Deed of Trust, whether or not named as Beneficiary in this Deed of Trust, and the heirs, legatees, devises, administrators, executors, successors, and assigns of any such person. (ii) As used in this Deed of Trust, the term "Trustors" shall mean and include the obligor under the Debt, whether or not named as the Trustors in this Deed of Trust, and the heirs, legatees, devises, administrators, executors, successors in interest to the Real Property, and assigns of any such person. (iii) As used in this Deed of Trust, the word "person" shall mean and include natural persons, corporations, partnerships, unincorporated associations, joint ventures, and any other form of legal entity. (iv) As used in this Deed of Trust, the word "Debt" shall mean and include the Debt, and any obligation evidenced thereby. (v) As used in this Deed of Trust, the word "Real Property" shall mean and include the Real Property and any part thereof. (vi) As used in this Deed of Trust and unless the context otherwise provides, the words "in this Deed of Trust," "under this Deed of Trust" and "of this Deed of Trust" shall mean and include this Deed of Trust as a whole, rather than any particular provision of this Deed of Trust. (vii) In exercising any right or remedy, or taking any action provided in this Deed of Trust, the Beneficiary may act through its employees, agents, or independent contractors, as authorized by the Beneficiary. (viii) Whenever the context so requires in this Deed of Trust, the masculine gender includes, the feminine and neuter, the singular number includes the plural, and vice versa. (ix) Captions and paragraph headings used in this Deed of Trust are for convenience only, are not a part of this Deed of Trust and shall not be used in construing it. (k) LITIGATION. The Trustors will give the Beneficiary immediate ---------- written notice of any action or proceeding (including, without limitation, any judicial or nonjudicial proceeding to 9 foreclose the lien of a junior or senior mortgage or Deed of Trust) affecting or purporting to affect the Real Property, this Deed of Trust, the Beneficiary's security for the performance of the Trustors' obligations under the Debt, or the right or powers of the Beneficiary or the Trustee under the Debt or this Deed of Trust. (l) GOVERNING LAW. This Deed of Trust shall be governed by the ------------- laws of the State of California. In the event any provisions of this Deed of Trust or the Debt conflict with applicable law, such conflict shall not affect other provisions of this Deed of Trust or Debt that can be given effect without the conflicting provisions, and to this end the provisions of this Deed of Trust and the Debt are declared to be severable. (m) USURY. If any applicable law limiting the amount of interest ----- or other charges permitted to be collected from the Trustors is interpreted so that any charge provided for in this Deed of Trust or in the Debt, whether considered separately or together with other charges levied in connection with this Deed of Trust and the Debt, violates such law, and the Trustors are entitled to the benefit of such law, such charge is reduced to the extent necessary to eliminate such violation. The amounts, if any, previously paid to the Beneficiary in excess of the amounts payable to the Beneficiary pursuant to such charges as reduced shall be paid by the Beneficiary to reduce the principal indebtedness evidenced by the Debt. For the purpose of determining whether any applicable law limiting the amount of interest or other charges permitted to be collected from the Trustors have been violated, all indebtedness secured by this Deed of Trust or evidenced by the Debt and which constitutes interest, as well as all other charges levied in connection with such indebtedness which constitute interest, shall be deemed to be allocated and spread over the term stated in the Debt. Unless otherwise required by applicable law, such allocation and spreading shall be effected in such a manner that the rate of interest computed thereby is uniform throughout the term stated in the Debt. (n) REQUEST FOR NOTICE OF DEFAULT. The undersigned Trustors ----------------------------- request that in accordance with California Civil Code section 2924b, a copy of any Notice of Default and any Notice of Sale under this Deed of Trust be mailed to he/she/them at his/her/their address specified in this Deed of Trust. 10 (o) SUMS ADVANCED TO BEAR INTEREST AND TO BE ADDED TO DEED OF --------------------------------------------------------- TRUST. At the Beneficiary's request, the Trustors will immediately pay any sum - ----- advanced or paid by the Beneficiary or the Trustee under any provision of this Deed of Trust. Until so repaid, all such sums shall be added, to and become a part of, the indebtedness secured by this Deed of Trust and bear interest from the date of advancement of payment by the Beneficiary or the Trustee at the same rate as such indebtedness, unless payment of interest at such rate would be contrary to applicable law, in which event such sums shall bear interest at the highest rate then allowed by applicable law. All sums advanced by the Beneficiary under the terms of this Deed of Trust shall conclusively be deemed to be mandatory advances required for the preservation and protection of this Deed of Trust and the Beneficiary's security for the performance of the Trustors' obligations under the Debt, and shall be secured by this Deed of Trust to the same extent and with the same priority as the principal and interest payable under the Debt. TRUSTORS: /S/ Andrew F. Pollet --------------------------------- ANDREW F. POLLET, CO-TRUSTEE OF THE ANDREW F. AND SALLY M. POLLET REVOCABLE TRUST DATED MARCH 6, 1990 /S/ Sally M. Pollet -------------------------------- SALLY M. POLLET, CO-TRUSTEE OF THE ANDREW F. AND SALLY M. POLLET REVOCABLE TRUST DATED MARCH 6, 1990 11 CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT State of California ----------------------------- County of Los Angeles ---------------------------- On August 1, 1997 before me, Mary Ann Parlapiano, Notary Public , -------------------- --------------------------------------------- Date Name and Title of Officer (e.g., "Jane Doe, Notary Public") personally appeared Andrew F. Pollet and Sally M. Pollet ------------------------------------------------------------ Name(s) of Signer(s) [_] personally known to me - OR - [X] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by [SEAL APPEARS HERE] his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. /s/ Mary Ann Parlapiano ----------------------------------------- Signature of Notary Public - -------------------------------OPTIONAL---------------------------------------- Though the information below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent removal and reattachment of this form to another document. DESCRIPTION OF ATTACHED DOCUMENT Title or Type of Document: Deed of Trust ----------------------------------------------------- Document Date: August 1, 1997 Number of Pages: 11 ------------------------------------------ ------- Signer(s) Other Than Named Above: N/A ---------------------------------------------- Capacity(ies) Claimed by Signer(s) Signer's Name: Andrew F. Pollet Signer's Name: Sally M. Pollet ---------------------------------- ------------------------- [_] Individual [_] Individual [_] Corporate Officer [_] Corporate Officer [_] Title(s): [_] Title(s): -------------------------- -------------------------- [_] Partner -- [_] Limited [_] General [_] Partner -- [_] Limited [_] General [_] Attorney-in-Fact [_] Attorney-in-Fact [X] Trustee [X] Trustee [_] Guardian or Conservator RIGHT THUMBPRINT [_] Guardian or Conservator RIGHT THUMBPRINT [_] Other: OF SIGNER [_] Other: OF SIGNER ------------------- Top of thumb here ------------------- Top of thumb here - ------------------------------ ----------------------------- Signer is Representing: Signer is Representing: - ------------------------------ ------------------------------ - ------------------------------ ------------------------------
EX-10.14 5 PROMISSORY NOTE DATED 7/3/92 EXHIBIT 10.14 PROMISSORY NOTE --------------- SECURED BY STOCK PLEDGE/SECURITY AGREEMENT ------------------------------------------ $80,001.60 July 3, 1992 Monrovia, California FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged, William C. Huddleston ("Maker"), hereby promises to pay to Staar Surgical Company, a Delaware corporation, or order ("Holder"), at the address designated on the signature page of this Note, or at such other place as Holder may designate by written notice to Maker, the principal sum hereinbelow described ("Principal Amount"), together with interest thereon, in the manner and at the times provided and subject to the terms and conditions described herein. 1. Principal Amount. The Principal Amount means the sum of Eighty Thousand One Dollars and Sixty Cents ($80,001.60). 2. Interest. Interest on the Principal Amount from time-to-time remaining unpaid shall accrue from the date of this Note at the rate of nine percent (9%) per annum, compounded annually. Interest shall be computed on the basis of a three hundred sixty (360) day year and a thirty (30) day month. 3. Payment of Principal and Interest. Subject to Paragraph 10, the Principal Amount and accrued and unpaid interest on the Principal Amount and all other indebtedness under this Note shall be all due and payable on March 29, 1993. MAKER ACKNOWLEDGES AND AGREES THAT THE ENTIRE PRINCIPAL AMOUNT SHALL BE DUE AND PAYABLE ON THE LAST PAYMENT DATE OF THIS NOTE, UNLESS MAKER PREPAYS ANY PORTION OF THE PRINCIPAL AMOUNT PURSUANT TO PARAGRAPH 4 BELOW. 4. Prepayments. Maker shall have the right to prepay any portion of the Principal Amount without prepayment penalty or premium or discount. 5. Manner of Payments/Crediting of Payments. Payments of any amount required hereunder shall be made solely in lawful money of the United States, without deduction or offset, and shall be credited first against accrued but unpaid late charges, if any, thereafter against accrued but unpaid interest, if any, and thereafter against the unpaid balance of the Principal Amount. 6. Maker Waivers. Maker waives notice of acceptance hereof, presentment and demand for payment, protest and notice of dishonor or default, trial by jury, and the right to interpose any set-off or counterclaim of any return or description. No delay or omission on the part of Holder in exercising any rights under this Note or under any instrument given to secure this Note, on default by Maker, including, without limitation, Holder's right to accelerate, nor reinstatement of this Note by Holder after such exercise, shall operate as a waiver of Maker's right to exercise such right or of any other right under this Note or the instruments given to secure this Note, for the same default or any other default. Maker consents to all extensions without notice for any period or periods of time and to the acceptance of partial payments before or after maturity, and to the acceptance, release, and substitution of security, all without prejudice to Holder. The pleading of any statute of limitations as a defense to the obligations evidenced by this Note is waived by Maker to the fullest extent permissible by law. 7. Late Charge. If any payment of the Principal Amount and/or interest thereon shall not be received by Holder within ten (10) days after the date due, unless excused by written notice from Holder, a late charge equal to five percent (5%) of the overdue amount may be charged by Holder for the purpose of defraying expenses incurred by Holder incident to handling such delinquent payments, provided, however, Maker shall have given five (5) days prior written notice of such delinquency. Considering all of the circumstances existing on the date of this Note, such late charge represents, in the opinion of both Maker and Holder, a fair and reasonable estimate of the costs that will be sustained by Holder due to the failure of Maker to make timely payments. The parties further agree that the amount of actual damages would be costly, inconvenient and extremely difficult and impractical to prove. Holder's acceptance of any late payment and/or late charge shall not constitute a waiver of the rights of Holder to (1) collect any other amounts due under this Note, (2) declare a default under this Note or any agreement securing payment of this Note, or (3) exercise any of the other rights and remedies available to Holder. 8. Interest on Delinquent Payments. Any payment under this Note not paid when due shall bear interest at the same rate and method as interest is charged on the Principal Amount from the due date until paid. 9. Security. The payment of this Note is secured by a Stock Pledge/Security Agreement (the "Security Agreement") executed by Maker in favor of Holder of even date herewith with respect to certain common stock of Staar Surgical Company, a Delaware corporation, owned by Maker. The Security Agreement contains provisions for acceleration of the maturity of this Note on the occurrence of certain described events. 10. Acceleration Upon Default. At the option of Holder, all or any part of the indebtedness of Maker hereunder shall immediately become due, and payable, irrespective of any agreed maturity date, upon the happening of any of the following events of default ("Event of Default"): (a) If any part of the Principal Amount and/or interest thereon and/or late charges under this Note are not paid when due, provided, however, Maker shall be entitled to a grace period of thirty (30) days following written notice of such event of default to cure said event of default; (b) Upon the occurrence of any event of default described under the Security Agreement; (c) If any of the following events constituting default occurs, provided, however, that if any such event of default is reasonably susceptible of being cured, Maker shall be entitled to a grace period of thirty (30) days following written notice of such event of default to cure such event of default, and further provided, that if such event of default is of such character as to reasonably require more than thirty (30) days to cure, Maker has promptly commenced to cure said event of default within the thirty (30) day period and uses reasonable diligence thereafter in curing such event of default, the thirty (30) day period shall be reasonably extended: (i) If Maker shall breach any non-monetary condition or obligation imposed on Maker pursuant to the terms of this Note; (ii) If Maker shall make an assignment for the benefit of creditors; (iii) If a custodian, trustee, receiver, or agent is appointed or takes possession of substantially all of the property of Maker; (iv) If Maker shall be adjudicated bankrupt or insolvent or admit in writing Maker's inability to pay Maker's debts as they become due; (v) If Maker shall apply for or consent to the appointment of a custodian, trustee, receiver, intervenor, liquidator or agent of Maker, or commence any proceeding related to Maker under any bankruptcy or reorganization statute, or under any arrangement, insolvency, readjustment of debt, dissolution, or liquidation law of any jurisdiction, whether now or hereafter in effect; (vi) If any petition is filed against Maker under the Bankruptcy Code and either (A) the Bankruptcy Court orders relief against Maker, or (B) such petition is not dismissed by the Bankruptcy Court within thirty (30) days of the date of filing; or (vii) If any attachment, execution, or other writ is levied on substantially all of the assets of Maker and remains in effect for more than fifteen (15) days; 11. Collection Costs and Attorneys' Fees. Maker agrees to pay Holder all costs and expenses, including actual attorneys' fees, paid or incurred by Holder in connection with the collection or enforcement of the Note or any instrument securing payment of the Note, including without limitation, defending the priority of such instrument or conducting a trustee sale thereunder. In the event any litigation is initiated concerning the enforcement, interpretation or collection of this Note, (or any instrument securing payment of this Note), the prevailing party in any proceeding shall be entitled to receive from the non-prevailing party all costs and expenses including, without limitation, reasonable attorneys' and other fees incurred by the prevailing party in connection with such action or proceeding. 12. Notice. Any notice to either party under this Note shall be given by personal delivery or by express mail, Federal Express, DHL or similar airborne/overnight delivery service, or by mailing such notice by first class or certified mail, return receipt requested, addressed to such party at the address set forth below, or to such other address as either party from time to time may designate by written notice to Holder. Notices delivered by overnight delivery service shall be deemed delivered the next business day following consignment for such delivery service. Mailed notices shall be deemed delivered and received in accordance with this provision three (3) days after deposit in the United States mail. 13. Usury Compliance. All agreements between Maker and Holder are expressly limited, so that in no event or contingency whatsoever, whether by reason of the consideration given with respect to this Note, the acceleration of maturity of the unpaid Principal Amount and interest thereon, or otherwise, shall the amount paid or agreed to be paid to Holder for the use, forbearance, or detention of the indebtedness which is the subject of this Note exceed the highest lawful rate permissible under the applicable usury laws. If, under any circumstances whatsoever, Holder shall ever receive as interest an amount that exceeds the highest lawful rate, the amount that would be excessive interest shall be applied to the reduction of the unpaid Principal Amount and/or late charges under this Note and not to the payment of interest, or, if such excessive interest exceeds the unpaid balance of the Principal Amount and/or late charges under this Note, such excess shall be refunded to Maker. This provision shall control every other provision of all agreements between Maker and Holder. 14. Jurisdiction and Venue. This Note shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of California. Any action to enforce payment of this Note shall be filed and heard solely in the Municipal or Superior Court of Los Angeles County, California. MAKER: /s/ William C. Huddleston ------------------------- WILLIAM C. HUDDLESTON MAKER'S ADDRESS: 6497 Camino Grande Anaheim, California 92807 HOLDER'S ADDRESS: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn: Mr. John Wolf DO NOT DESTROY THIS NOTE; WHEN PAID, THIS NOTE MUST BE SURRENDERED TO MAKER FOR CANCELLATION EX-10.15 6 STOCK PLEDGE/SECURITY AGREEMENT DATED 7/3/92 EXHIBIT 10.15 STOCK PLEDGE/SECURITY AGREEMENT ------------------------------- This STOCK PLEDGE/SECURITY AGREEMENT (hereinafter "Agreement") is made and entered into this 3rd day of July, 1992, by and between William C. Huddleston, an individual ("Pledgor"), Pollet & Associates, a California corporation, ("Pledgeholder") and Staar Surgical Company, a Delaware corporation ("Pledgee") with reference to the following facts: RECITALS -------- WHEREAS, Pledgor has borrowed the sum of Eighty Thousand One Dollars and Sixty Cents ($80,001.60) from Pledgee pursuant to the terms of a Promissory Note attached hereto as Exhibit "1" and incorporated herein by this reference ("Note"), and WHEREAS, Pledgor desires to pledge to Pledgee the interest of Pledgor in certain common stock, pursuant to the terms of this Agreement, for the purpose of securing payment of the Note. THEREFORE, in consideration of mutual covenants and promises contained herein, and for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement (hereinafter collectively "parties" and individually "party") agree as follows: AGREEMENT --------- 1. Pledge of Stock and Proceeds. ----------------------------- (a) Pledge. As collateral security for the payment and/or performance of ------ all of Pledgor's presently existing or hereinafter arising obligations and liabilities to Pledgee under the Note, Pledgor hereby pledges, grants and assigns to Pledgeholder a continuing security interest in the following: (i) the shares of common stock which are set forth on Exhibit "2" to this Agreement ("Stock"); and (ii) the proceeds of the Stock including, without limitation, any and all dividends, cash, instruments and other property from time-to-time received, receivable, or otherwise distributed in respect of or in exchange for any of the Stock ("Proceeds"). (The Stock and the Proceeds shall hereinafter be collectively referred to as the "Collateral"). (b) Delivery of Stock to Pledgeholder. Pledgor shall deliver to --------------------------------- Pledgeholder, concurrently with the execution of this Agreement, the certificate(s) representing the Stock and an Assignment of Corporate Shares in the form of Exhibit "3" attached 1 hereto and incorporated herein by this reference ("Stock Assignment"), signed by Pledgor, in blank, such Stock Assignment to be used by Pledgeholder in accordance with the terms of this Agreement. (c) Notification of Payments Under Note. Pledgee agrees to notify ----------------------------------- Pledgeholder of all amounts collected in accordance with the terms and conditions of the Note, including final satisfaction of the Note, at which time Pledgee shall direct Pledgeholder to return the Collateral to Pledgor. (d) Pledgeholder's Acceptance of Collateral and Appointment as Pledgor's -------------------------------------------------------------------- Attorney-In-Fact. Pledgeholder hereby agrees to accept the Collateral and - ---------------- agrees to hold and dispose of the Collateral in accordance with and subject only to the terms of this Agreement. Pledgor hereby irrevocably appoints Pledgeholder as Pledgor's attorney-in-fact to arrange for the transfer of the Collateral and to do and perform all actions that are necessary or appropriate in order to effect the terms of this Agreement. (e) Release of Collateral. Pledgeholder shall release the Collateral from --------------------- this Agreement and return the Collateral to Pledgor upon satisfaction in full of Pledgor's obligations under the Note. 2. Matters Pertaining to the Collateral. ------------------------------------ (a) Voting and Consensual Rights. Pledgor shall retain the right to ---------------------------- vote the Stock and to exercise any other consensual rights pertaining to the Stock, provided, however, so long as Pledgor is in "Default" as defined in Paragraph 3 of this Agreement, Pledgeholder shall vote the Stock and exercise any consensual rights pertaining to the Stock as directed by Pledgee. (b) Rights to Dividends and Distributions. So long as Pledgor is not in ------------------------------------- default and except as expressly limited below, Pledgor shall be entitled to receive and retain any proceeds. Notwithstanding the foregoing, Pledgeholder, rather than Pledgor, shall be entitled to collect and receive all of the following types of proceeds, which shall be added to and shall become a part of the Collateral: (i) all proceeds paid or payable other than in cash, and all instruments and other property distributed in respect of, or in exchange for, the Stock; (ii) all proceeds paid or payable with respect to the Stock in connection with a partial or total liquidation or dissolution of the issuing corporation or in connection with a reduction of capital, capital surplus or paid-in surplus of the issuing corporation; and 2 (iii) all proceeds distributed in redemption of, or in exchange for, the Stock. To the extent the foregoing proceeds exceed the amount of Pledgor's obligations and liabilities under the Note and/or this Agreement, Pledgor shall be entitled to receive these excess proceeds. In the event and for so long as Pledgor is in Default, Pledgeholder shall be paid any proceeds with respect to the Stock; provided, however, Pledgeholder shall apply such payments against the outstanding balance of the Note. (c) Stock Adjustments. In the event that, during the term of this ----------------- Agreement, any stock dividend, reclassification, readjustment, or other change is declared or made in the capital structure of the issuing corporation, all new substituted and additional shares or other securities issued with respect to the Stock by reason of any such change shall be delivered to and held by Pledgeholder under the terms of this Agreement in the same manner as the Stock. 3. Default. ------- At the option of Pledgee, and without necessity of presentment for payment, demand, protest, notice of protest or notice of dishonor or any other notice except as specifically provided herein, Pledgeholder, at the direction of Pledgee, may exercise any remedy under this Agreement upon the happening of any of the following events of default ("Default"): (a) Default Under The Note. If any act or event of "default" on the ---------------------- part of Pledgor occurs under the Note and is not cured as specifically provided therein; or (b) Default Under This Agreement. If Pledgor defaults in the due ---------------------------- performance or observance of any representation or obligation under this Agreement; provided, however, that if such obligation is monetary, Pledgor shall be entitled to a grace period of thirty (30) days following notice of such default to cure said default, and further provided that if such obligation is nonmonetary and is reasonably susceptible of being cured, Pledgor shall be entitled to a grace period of thirty (30) days following written notice of default to cure said default, and further provided that if such nonmonetary default is of such character as to reasonably require more than thirty (30) days to cure, Pledgor shall not be in default if Pledgor has diligently commenced to cure the default within the thirty (30) day period and uses reasonable diligence thereafter in curing the default. 3 4. Remedies. -------- Subject to Paragraph 3 of this Agreement, in the event Pledgor is in Default, Pledgee shall have the following rights and remedies: (a) Retention of Collateral by Pledgee. Choose to accept the Collateral ---------------------------------- (but only to the extent of unpaid obligations and liabilities under the Note and/or this Agreement) after giving notice of such proposal to Pledgor and to any other person with a security interest in the Collateral, as provided in Section 9505 of the California Commercial Code, and such acceptance shall fully -------------------------- discharge the obligation of Pledgor provided neither Pledgor, nor any other person with a security interest in the Collateral, objects in writing to such proposal within twenty-one (21) days from receipt of such notice. (b) Sale of Collateral. Choose to sell the Collateral at a public or ------------------ private sale, in one or more sales or lots, at such price and on such terms as Pledgee, acting in good faith and in a commercially reasonable manner, may deem best, and the purchaser of any or all of the Collateral so sold shall thereafter hold the same absolutely free from any claim, encumbrance or right of any kind whatsoever. Provided, however, Pledgee shall first give any notice to Pledgor required by Section 9504 of the California Commercial Code by mailing such -------------------------- notice, postage prepaid, to Pledgor's address set forth below. Any other requirement of notice, demand or advertisement for sale is, to the extent permitted by law, waived by Pledgor. Any sale hereunder may be conducted by any officer or agent of Pledgee. Any sale of the Collateral conducted in conformity with reasonable commercial practices of banks, insurance companies or other financial institutions disposing of property similar to the Collateral shall be deemed to be commercially reasonable. The proceeds of any such sale shall be applied in the following order: (i) Reasonable expenses of retaking, holding, preparing for sale, selling, and the like and, to the extent provided for in this Agreement and not prohibited by law, the reasonable attorneys' fees and legal expenses incurred by Pledgee. (ii) Satisfaction of the balance of unpaid principal and accrued but unpaid interest and other amounts due under the Note. (iii) Satisfaction of any indebtedness secured by any subordinate security interest in the Collateral if written notice and demand therefore is received prior to distribution of the proceeds provided, however, reasonable proof of such interest or interests is 4 reasonably furnished to Pledgee. (c) Pledgee's Right to Purchase Collateral. Pledgee may buy the Collateral -------------------------------------- at a public sale or private sale described above in Subparagraph (b) pursuant to the conditions specified in Section 9504(3) of the California Commercial Code. -------------------------- (d) Pledgeholder's Right to Execute Documents. Pledgeholder shall have ----------------------------------------- the right to execute any document or form, in its name or in the name of Pledgor, which may be necessary or desirable in connection with the retention or sale of the Collateral. (e) Private Placement. In view of the fact that federal and state ----------------- securities laws may impose certain restrictions on the method by which a sale of the Collateral may be effected after a Default, and also upon the persons or entities who may qualify or be eligible to purchase the Collateral, Pledgor hereby agrees that upon the occurrence of a Default, Pledgee may, from time to time, if the Collateral is not publicly traded on a nationally recognized stock exchange and/or is considered a "restricted" security, attempt to sell all or any part of the Collateral by a private placement, upon commercially reasonable terms restricting the bidders and prospective purchasers to a limited number who will represent and agree that they are purchasing for investment for their own accounts only and not for distribution, and who will otherwise meet state or federal securities law requirements, including those pertaining to sales made pursuant to exemptions from registration under the Securities Act of 1933 and/or registration or qualification under other state or federal securities laws. 5. Pledgor's Representations, Warranties and Covenants. --------------------------------------------------- Pledgor represents, warrants and covenants to Pledgee as follows: (a) Upon delivery to Pledgeholder as contemplated hereby, the Collateral will be free of any security interests, liens, pledges or encumbrances created by Pledgor (except for the security interest created hereby), or any claims of third parties of any nature whatsoever, charges, escrows, options, rights of first refusal, or other agreements, restrictions, arrangements, commitments or obligations, written or oral, created by Pledgor, affecting the legal or beneficial ownership of the Collateral. (b) From and after the date hereof, Pledgor shall not make any agreements restricting in any manner the transferability of the Collateral or otherwise affecting the Collateral; (c) Pledgor shall, at Pledgor's expense, take any steps 5 necessary to preserve Pledgee's rights in the Collateral against any claims of third parties; and (d) Pledgor has made his own arrangements for keeping informed of changes or potential changes affecting the Collateral (including, without limitation, rights to convert, rights to subscribe, payment of dividends, reorganization or other exchanges, tender offers and voting rights), and neither Pledgee nor Pledgeholder shall have any responsibility or liability for informing Pledgor of any such changes or potential changes or for taking any action or omitting to take any action with respect thereto. 6. Matters Pertaining to Pledgeholder. ---------------------------------- (a) Pledgeholder shall not be personally liable for any act it may do or omit to do under the Agreement while acting in good faith and in the exercise of its best judgment, and any act done or omitted by Pledgeholder pursuant to the advice of Pledgeholder's attorney shall be conclusive evidence of such good faith. Except as expressly provided herein, Pledgeholder is expressly authorized and directed to disregard any and all notices or warnings given by any of the parties, or by any other person or corporation, excepting only orders or process of court, and is hereby expressly authorized to comply with and obey any and all orders, judgments or decrees of any court. If Pledgeholder obeys or complies with any such order, judgment or decree of any court, it shall not be liable to any of the parties or any other person, firm or corporation by reason of such compliance, notwithstanding that any such order, judgment or decree be subsequently reversed, modified, annulled, set aside or vacated, or found to have been entered without jurisdiction. (b) The parties expressly agree Pledgeholder has the absolute right at Pledgeholder's election, if Pledgeholder considers it appropriate, to file an action in interpleader requiring the parties to answer and litigate their claims and rights among themselves, and Pledgeholder is authorized to deposit with the clerk of the court all documents and funds held by it pursuant to this Agreement. In the event such action is filed, the parties jointly and severally agree to pay all costs, expenses and reasonable attorneys' fees which Pledgeholder incurs in such interpleader action. Upon filing of such action Pledgeholder shall thereupon be fully released and discharged from all obligations to further perform any duties or obligations otherwise imposed by the terms of this Agreement. (c) Pledgeholder shall not be bound in any way by any other agreement between the parties as to which Pledgeholder is not a party, whether or not Pledgeholder has knowledge thereof, nor by any notice of a claim or demand with respect to this Agreement or 6 the Collateral. Pledgeholder shall have no duties or responsibilities except as expressly set forth in this Agreement. Pledgeholder may rely conclusively on any certificate, statement, request, waiver, receipt, agreement or other instrument which Pledgeholder believes to be genuine and to have been signed and presented by an appropriate person or persons. (d) The retention and distribution of the Collateral in accordance with the terms and provisions of this Agreement shall fully and completely release Pledgeholder from any obligation or liability assumed by Pledgeholder hereunder as to the Collateral. (e) Pledgeholder, while in possession of the Collateral prior to or following the occurrence of an event of Default, as hereinabove provided, and while acting in accordance with the terms of this Agreement or applicable law, is not responsible for any fluctuations in value or delays in disposing of the Collateral. (f) Pledgeholder shall not be liable in any respect for verifying the identity, authority or rights of the parties executing or delivering or purporting to execute and/or deliver this Agreement or any documents or papers deposited hereunder. Pledgeholder shall not be liable for the loss of any rights under any statute of limitations with respect to this Agreement or any documents deposited with Pledgeholder. (g) Notwithstanding anything herein to the contrary, Pledgeholder shall have no duty with respect to the Collateral other than the duty to use reasonable care in the custody and preservation of the Collateral if it is in Pledgeholder's possession. Pledgeholder shall be under no obligation to take any steps necessary to preserve rights in the Collateral against any other parties, to sell the Collateral if it threatens to decline in value, or to exercise any rights represented thereby, including voting or consensual rights; provided, however, Pledgeholder may, at Pledgeholder's option, do so, and any and all expenses incurred in connection therewith shall be for the sole account of Pledgor. (h) Pledgor and Pledgee agree to and each does hereby indemnify, defend (with counsel acceptable to Pledgeholder) and hold Pledgeholder harmless against any and all losses, damages, claims and expenses, including reasonable attorneys' fees, that may be incurred by Pledgeholder by reason of its compliance with the terms of this Agreement. If, as a result of any disagreement between the parties and/or adverse demands and claims being made by any or all of them upon Pledgeholder, Pledgeholder shall become involved in litigation, including any interpleader brought by Pledgeholder as provided in this Agreement, Pledgor and Pledgee each agree that they shall be jointly and severally liable to Pledgeholder on demand for all costs, expenses and attorneys' fees that Pledgeholder shall incur and/or be compelled to pay by reason 7 of such litigation. 7. Replacement of Pledgeholder. --------------------------- In the event Pledgeholder is or becomes unwilling or unable to act in such capacity for any reason, Pledgee shall appoint a successor. Pledgee (but not Pledgor) shall have the right, after delivery of written notice signed by Pledgee to Pledgeholder, to terminate Pledgeholder, and to name Pledgeholder's successor. 8. Miscellaneous. ------------- (a) It is acknowledged by each party that such party either had separate and independent advice of counsel or the opportunity to avail himself or itself of same. This Agreement was prepared by each party in conjunction with counseling from such party's respective attorney or the opportunity to obtain such counseling. In light of these facts it is acknowledged that no party shall be construed to be solely responsible for the drafting of this Agreement, and therefore any ambiguity shall not be construed against any party as the alleged draftsman of it. Each party shall pay all costs and expenses incurred or to be incurred by such party in negotiating and preparing this Agreement and in performing and complying with all representations, warranties, covenants, agreements and conditions contained in this Agreement to be performed or complied with by such party, including legal fees. (b) 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 be reasonably necessary to consummate, evidence, confirm and/or carry out the intent and provisions of this Agreement, all without undue delay or expense. Pledgor shall reimburse Pledgeholder or Pledgee for any costs and expenses incurred by Pledgeholder or Pledgee in connection with any breach or default of Pledgor under this Agreement, including collection efforts, whether or not suit is commenced or judgement is entered. Such costs shall include legal fees and costs incurred for collection efforts, negotiation of a settlement, enforcement of rights, or other use. Furthermore, should any party institute or should the parties otherwise become a party to any action or proceeding to enforce or interpret this Agreement, the prevailing party in any such action or proceeding shall be entitled to receive from the nonprevailing party all costs and expenses of prosecuting or defending the action or proceeding. This Agreement and the rights of each party under this Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of California. Furthermore, in the event that litigation between the parties is necessary, such litigation shall be filed in and heard solely 8 before the state courts of California with venue exclusively in Los Angeles County. (c) The parties expressly acknowledge and agree that this Agreement : (i) is the final, complete and exclusive statement of the parties' agreement with respect to the subject matter hereof, (ii) supersedes any prior or contemporaneous promises, assurances, guarantees, representations, understandings, conduct, proposals, conditions, commitments, acts, course of dealing, warranties, interpretations or terms of any kind, oral or written (collectively "Prior Agreements"), and that any such Prior Agreements are of no force or effect except as expressly set forth herein, and (iii) may not be varied, supplemented or contradicted by evidence of such 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, supplement or discharge is sought. By execution hereof, the parties specifically disavow any desire or intention to create a "third party" beneficiary contract, and specifically declare that no person or entity, save and except for the parties and their permitted successors, and assigns, shall have any rights hereunder nor any right of enforcement hereof. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof. 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. 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, then the remaining part of this Agreement shall nevertheless not be affected thereby and shall continue in full force and effect to the fullest extent provided by law. Time is strictly of the essence with respect to each and every term, condition, obligation and provision hereof. (d) Pledgor may not delegate his duties under this Agreement, in whole or in part, without the prior written consent of Pledgee, which consent may be withheld in Pledgee's sole and arbitrary discretion. Notwithstanding the preceding sentence, no such delegation shall release Pledgor from any liability or obligation under this Agreement without the written consent of Pledgee, which consent may be withheld in Pledgee's sole and arbitrary discretion. Subject to the foregoing, all of the representations, warranties, covenants, conditions and provisions of this Agreement shall be binding upon and shall inure to the benefit of each party and such party's respective heirs, executors, administrators, legal representatives, successors and/or assigns. (e) The headings used in this Agreement are for 9 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. As used in this Agreement, each gender shall be deemed to include each 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. (f) All notices, demands, requests, consents, approvals or other communications ("Notices") given hereunder shall be in writing, and shall be given by personal delivery or by express mail, Federal Express, DHL or other similar form of nationally recognized airborne/overnight delivery service (which forms of Notice shall be deemed to have been given upon delivery), or by telex or facsimile transmission (which forms of Notice shall be deemed delivered upon confirmed transmission), or 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 third (3rd) business day following the date mailed). Notices shall be addressed to the appropriate party(s) as set forth on the signature page of this Agreement, or to such other address as the receiving party shall have specified most recently by like Notice, with a copy to the other parties hereto. Any Notice given to the estate of a party shall be sufficient if addressed to the party as provided in this Subparagraph. WHEREFORE, the parties hereto have executed this Agreement as of the date first set forth above. PLEDGOR: /s/ William C. Huddleston ------------------------------------ William C. Huddleston Address: 6497 Camino Real Anaheim, California 92807 PLEDGEE: STAAR SURGICAL COMPANY, a Delaware Corporation By: /s/ John R. Wolf ------------------------------- Title: President Address: 1911 Walker Avenue Monrovia, California 91016 SIGNATURES CONTINUED ON NEXT PAGE 10 PLEDGEHOLDER: POLLET & ASSOCIATES, By: /s/ Andrew F. Pollet ------------------------------- Andrew F. Pollet, Esq. 10850 Wilshire Boulevard Suite 300 Los Angeles, California 90024 11 EXHIBIT "1" PROMISSORY NOTE SECURED BY STOCK PLEDGE/SECURITY AGREEMENT ------------------------------------------ $80,001.60 July 3, 1992 Monrovia, California FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged, William C. Huddleston ("Maker"), hereby promises to pay to Staar Surgical Company, a Delaware corporation, or order ("Holder"), at the address designated on the signature page of this Note, or at such other place as Holder may designate by written notice to Maker, the principal sum hereinbelow described ("Principal Amount"), together with interest thereon, in the manner and at the times provided and subject to the terms and conditions described herein. 1. Principal Amount. ---------------- The Principal Amount means the sum of Eighty Thousand One Dollars and Sixty Cents ($80,001.60). 2. Interest. -------- Interest on the Principal Amount from time-to-time remaining unpaid shall accrue from the date of this Note at the rate of nine percent (9%) per annum, compounded annually. Interest shall be computed on the basis of a three hundred sixty (360) day year and a thirty (30) day month. 3. Payment of Principal and Interest. --------------------------------- Subject to Paragraph 10, the Principal Amount and accrued and unpaid interest on the Principal Amount and all other indebtedness under this Note shall be all due and payable on March 29, 1993. MAKER ACKNOWLEDGES AND AGREES THAT THE ENTIRE PRINCIPAL AMOUNT SHALL BE DUE AND PAYABLE ON THE LAST PAYMENT DATE OF THIS NOTE, UNLESS MAKER PREPAYS ANY PORTION OF THE PRINCIPAL AMOUNT PURSUANT TO PARAGRAPH 4 BELOW. 4. Prepayments. ----------- Maker shall have the right to prepay any portion of the Principal Amount without prepayment penalty or premium or discount. 12 5. Manner of Payments/Crediting of Payments. ---------------------------------------- Payments of any amount required hereunder shall be made solely in lawful money of the United States, without deduction or offset, and shall be credited first against accrued but unpaid late charges, if any, thereafter against accrued but unpaid interest, if any, and thereafter against the unpaid balance of the Principal Amount. 6. Maker Waivers. ------------- Maker waives notice of acceptance hereof, presentment and demand for payment, protest and notice of dishonor or default, trial by jury, and the right to interpose any set-off or counterclaim of any return or description. No delay or omission on the part of Holder in exercising any rights under this Note or under any instrument given to secure this Note, on default by Maker, including, without limitation, Holder's right to accelerate, nor reinstatement of this Note by Holder after such exercise, shall operate as a waiver of Maker's right to exercise such right or of any other right under this Note or the instruments given to secure this Note, for the same default or any other default. Maker consents to all extensions without notice for any period or periods of time and to the acceptance of partial payments before or after maturity, and to the acceptance, release, and substitution of security, all without prejudice to Holder. The pleading of any statute of limitations as a defense to the obligations evidenced by this Note is waived by Maker to the fullest extent permissible by law. 7. Late Charge. ----------- If any payment of the Principal Amount and/or interest thereon shall not be received by Holder within ten (10) days after the date due, unless excused by written notice from Holder, a late charge equal to five percent (5%) of the overdue amount may be charged by Holder for the purpose of defraying expenses incurred by Holder incident to handling such delinquent payments, provided, however, Maker shall have given five (5) days prior written notice of such delinquency. Considering all of the circumstances existing on the date of this Note, such late charge represents, in the opinion of both Maker and Holder, a fair and reasonable estimate of the costs that will be sustained by Holder due to the failure of Maker to make timely payments. The parties further agree that the amount of actual damages would be costly, inconvenient and extremely difficult and impractical to prove. Holder's acceptance of any late payment and/or late charge shall not constitute a waiver of the rights of Holder to (1) collect any other amounts due under this Note, (2) declare a default under this Note or any agreement securing payment of this Note, or (3) exercise any of the 13 other rights and remedies available to Holder. 8. Interest on Delinquent Payments. ------------------------------- Any payment under this Note not paid when due shall bear interest at the same rate and method as interest is charged on the Principal Amount from the due date until paid. 9. Security. -------- The payment of this Note is secured by a Stock Pledge/Security Agreement (the "Security Agreement") executed by Maker in favor of Holder of even date herewith with respect to certain common stock of Staar Surgical Company, a Delaware corporation, owned by Maker. The Security Agreement contains provisions for acceleration of the maturity of this Note on the occurrence of certain described events. 10. Acceleration Upon Default. ------------------------- At the option of Holder, all or any part of the indebtedness of Maker hereunder shall immediately become due, and payable, irrespective of any agreed maturity date, upon the happening of any of the following events of default ("Event of Default"): (a) If any part of the Principal Amount and/or interest thereon and/or late charges under this Note are not paid when due, provided, however, Maker shall be entitled to a grace period of thirty (30) days following written notice of such event of default to cure said event of default; (b) Upon the occurrence of any event of default described under the Security Agreement; (c) If any of the following events constituting default occurs, provided, however, that if any such event of default is reasonably susceptible of being cured, Maker shall be entitled to a grace period of thirty (30) days following written notice of such event of default to cure such event of default, and further provided, that if such event of default is of such character as to reasonably require more than thirty (30) days to cure, Maker has promptly commenced to cure said event of default within the thirty (30) day period and uses reasonable diligence thereafter in curing such event of default, the thirty (30) day period shall be reasonably extended: (i) If Maker shall breach any non-monetary condition or obligation imposed on Maker pursuant to the terms of this Note; 14 (ii) If Maker shall make an assignment for the benefit of creditors; (iii) If a custodian, trustee, receiver, or agent is appointed or takes possession of substantially all of the property of Maker; (iv) If Maker shall be adjudicated bankrupt or insolvent or admit in writing Maker's inability to pay Maker's debts as they become due; (v) If Maker shall apply for or consent to the appointment of a custodian, trustee, receiver, intervenor, liquidator or agent of Maker, or commence any proceeding related to Maker under any bankruptcy or reorganization statute, or under any arrangement, insolvency, readjustment of debt, dissolution, or liquidation law of any jurisdiction, whether now or hereafter in effect; (vi) If any petition is filed against Maker under the Bankruptcy Code and either (A) the Bankruptcy Court orders relief against Maker, or (B) such petition is not dismissed by the Bankruptcy Court within thirty (30) days of the date of filing; or (vii) If any attachment, execution, or other writ is levied on substantially all of the assets of Maker and remains in effect for more than fifteen (15) days; 11. Collection Costs and Attorneys' Fees. ------------------------------------ Maker agrees to pay Holder all costs and expenses, including actual attorneys' fees, paid or incurred by Holder in connection with the collection or enforcement of the Note or any instrument securing payment of the Note, including without limitation, defending the priority of such instrument or conducting a trustee sale thereunder. In the event any litigation is initiated concerning the enforcement, interpretation or collection of this Note, (or any instrument securing payment of this Note), the prevailing party in any proceeding shall be entitled to receive from the non-prevailing party all costs and expenses including, without limitation, reasonable attorneys' and other fees incurred by the prevailing party in connection with such action or proceeding. 12. Notice. ------ Any notice to either party under this Note shall be given by personal delivery or by express mail, Federal Express, DHL 15 or similar airborne/overnight delivery service, or by mailing such notice by first class or certified mail, return receipt requested, addressed to such party the address set forth below, or to such other address as either party from time to time may designate by written notice to Holder. Notices delivered by overnight delivery service shall be deemed delivered the next business day following consignment for such delivery service. Mailed notices shall be deemed delivered and received in accordance with this provision three (3) days after deposit in the United States mail. 13. Usury Compliance. ---------------- All agreements between Maker and Holder are expressly limited, so that in no event or contingency whatsoever, whether by reason of the consideration given with respect to this Note, the acceleration of maturity of the unpaid Principal Amount and interest thereon, or otherwise, shall the amount paid or agreed to be paid to Holder for the use, forbearance, or detention of the indebtedness which is the subject of this Note exceed the highest lawful rate permissible under the applicable usury laws. If, under any circumstances whatsoever, Holder shall ever receive as interest an amount that exceeds the highest lawful rate, the amount that would be excessive interest shall be applied to the reduction of the unpaid Principal Amount and/or late charges under this Note and not to the payment of interest, or, if such excessive interest exceeds the unpaid balance of the Principal Amount and/or late charges under this Note, such excess shall be refunded to Maker. This provision shall control every other provision of all agreements between Maker and Holder. 14. Jurisdiction and Venue. ---------------------- This Note shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of California. Any action to enforce payment of this Note shall be filed and heard solely in the Municipal or Superior Court of Los Angeles County, California. MAKER: EXHIBIT ONLY--DO NOT SIGN ------------------------------------- WILLIAM C. HUDDLESTON MAKER'S ADDRESS: 6497 Camino Grande Anaheim, California 92807 16 HOLDER'S ADDRESS: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn: Mr. John Wolf DO NOT DESTROY THIS NOTE; WHEN PAID, THIS NOTE MUST BE SURRENDERED TO MAKER FOR CANCELLATION 17 EXHIBIT "2" PLEDGED STOCK Sixteen Thousand Six Hundred Sixty-Seven (16,667) post-split shares of the common stock of Staar Surgical Company represented by certificate number _____________________ issued to William Huddleston. 18 EXHIBIT "3" ASSIGNMENT OF CORPORATE SHARES (Without Certificate) FOR VALUE RECEIVED, the undersigned hereby assigns to Pollet & Associates, as Pledgeholder under that certain Stock Pledge/Security Agreement, sixteen thousand six hundred sixty-seven (16,667) shares of the common stock of Staar Surgical Company, a Delaware corporation, represented by certificate number ____________ standing in the undersigned's name on the books of said corporation, and do hereby instruct and appoint the custodian of that corporation's stock books to so transfer the said stock on the books of said corporation. Dated: __________________ EXHIBIT ONLY - DO NOT SIGN -------------------------- William C. Huddleston SIGNATURE GUARANTEE: _______________________________ 19 EX-10.16 7 LEASE DATED 11/09/92 EXHIBIT 10.16 [LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION APPEARS HERE] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET (Do not use this form for Multi-Tenant Property) 1. Basic Provisions ("Basic Provisions") 1.1 Parties: This Lease ("Lease"), dated for reference purposes only, November 9, 1992, is made by and between LINDA LEE BROWN & PHYLLIS AND BAILEY ("Lessor") and STAAR SURGICAL COMPANY, A CALIFORNIA CORPORATION ("Lessee"), (collectively the "Parties," or individually a "Party"). 1.2 Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known by the street address of 1941 WALKER AVENUE, MONROVIA, CALIFORNIA located in the County of LOS ANGELES, State of CALIFORNIA and generally described as (describe briefly the nature of the property) 30,185 square foot concrete tiltup building with a four (4) car attached (20 x 40) garage on approximately 48,806 square feet of land. Lot 3 Tract 28379 except for north 65(degrees) thereof. Twelve (12) parking space excluded for use of Lawrence Laboratory (Exhibit "B") ("Premises"). (See Paragraph 2 for further provisions.) 1.3 Term: Ten (10) years and no months ("Original Term") commencing January 1, 1993 ("Commencement Date") and ending December 31, 2002 ("Expiration Date"). (See Paragraph 3 for further provisions.) 1.4 Early Possession: November 10, 1992, ("Early Possession Date"). (See Paragraph 3.2 and 3.3 for further provisions.) (Also see Addendum P1.4.1) 1.5 Base Rent: $12,650.00 per month ("Base Rent"), payable on the first day of each month commencing January 1, 1993 (See Addendum P's 4.1.1 thru 4.1.6) (See Paragraph 4 for further provisions.) [_] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. (See Addendum P's 4.1.1 thru 4.1.6) 1.6 Base Rent Paid Upon Execution: $12,650.00 as Base Rent for the period January 1, 1993 through January 31, 1993. 1.7 Security Deposit: $25,000.00 ("Security Deposit"). (See Paragraph 5 for further provisions.) 1.8 Permitted Use: Manufacture & distribution of Medical Devices. (See Paragraph 6 for further provisions.) 1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated herein. (See Paragraph 8 for further provisions.) 1.10 Real Estate Brokers: The following real estate brokers (collectively, the "Brokers") and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes): NO BROKER INVOLVED represents [_] Lessor exclusively ("Lessor's Broker"); [_] both Lessor and Lessee, and _____________________________________________________________________ represents [_] Lessee exclusively ("Lessee's Broker"); [_] both Lessee and Lessor. (See Paragraph 15 for further provisions.) 1.11 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by __________________________________________________________________ ("Guarantor"). (See Paragraph 37 for further provisions.) 1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of Paragraphs 1.4.1 through 11.2 and Exhibits A & B (ADDENDUM P's 1.4.1, 2.3.1, 2.6.1, 2.6.2, 3.1.1, 4.1.1, 4.1.2, 4.1.3, 4.1.4, 4.1.5, 4.1.6, 7.1.B1, 11.1 & 11.2 on Lease & Addendum Pages 1 thru 1 all of which constitute a part of this Lease. 2. Premises. 2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, fire sprinkler system, lighting, air conditioning, heating, and loading doors. If any, in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a non- compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within thirty (30) days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.3 Compliance with Covenants, Restrictions and Building Code. Lessor warrants to Lessee that the Improvements on the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth will specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. (See Addendum P 2.3.1) 2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been advised by the Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical and fire sprinkler systems, security, environment aspects, compliance with Applicable Law, as defined in Paragraph 6.3) and the present and future suitability of the Premises for Lessee's intended use, (b) that Lessee has made such investigation as if deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to the said matters other than as set forth in this Lease. 2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such event, Lessee shall, at Lessee's sole cost and expense, correct any non-compliance of the Premises with said warranties. 2.6 Legal Description. Lot 3 Tract 28379 except the North 65(degrees) thereof. Approx 233' x 209'. (See Addendum P's 2.6.1 & 2.6.2) 3. Term. 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. & Addendum P 3.1.1. 3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. Page 1 3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession of the Premises to Lessee as agreed herein by the Early Possession if one is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case Lessor shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder; provided, however, that if such written notice by Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease shall terminate and be of no further force or effect. Except as may be otherwise provided, and regardless of when the term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts, change or omissions of Lessee. 4. RENT. 4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time, to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. (See Addendum paragaraphs 4.1, 4.1.2, 4.1.3, 4.1.4, 4.15 & 4.1.6) 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor sufficient to maintain the same ratio between the Security Deposit and the Base Rent as those amounts are specified in the Basic Provisions. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease. 6. USE. 6.1 USE. Lessee shall use and occupy the Premises only for the purposes set forth in Paragraph 1.8, or any other use which is comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to, neighboring premises or properties. 6.2 HAZARDOUS SUBSTANCES. (a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in, on or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority. Reportable Use shall also include Lessee's being responsible for the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Law requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but in compliance with all Applicable Law, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of Lessee's business permitted on the Premises, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to the use or presence of any Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefrom or therefor, including, but not limited to, the installation (and removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. (b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance, or a condition involving or resulting from same, has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action or proceeding given to, or received from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release, discharge of, or exposure to, any Hazardous Substance or contamination in, on, or about the Premises, including but not limited to all such documents as may be involved in any Reportable Uses involving the Premises. (c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, costs, claims, liens, expenses, penalties, permits and attorney's and consultant's fees arising out of or involving any Hazardous Substance or storage tank brought onto the Premises by or for Lessee or under Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation (including consultant's and attorney's fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances or storage tanks, unless specifically so agreed by Lessor in writing at the time of such agreement. 6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "APPLICABLE LAW," which term is used in this Lease to include all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance or storage tank), now in effect or which may hereafter come into effect, and whether or not reflecting a change in policy from any previously existing policy. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including, but not limited to, permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Law specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Law. 6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to employ experts and/or consultants in connection therewith and/or to advise Lessor with respect to Lessee's activities, including but not limited to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance or storage tank on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease, violation of Applicable Law, or a contamination, caused or materially contributed to by Lessee is found to exist or be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS. 7.1 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of Paragraph 2.2 (Lessor's warranty as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc), 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair, structural and non-structural (whether or not such portion of the Premises requiring repair, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs Initials ------ ------ NET Page 2 as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including without limiting the generality of the foregoing, all equipment or facilities serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or other automatic fire extinguishing system, including fire alarm and/or smoke detection systems and equipment, fire hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs,sidewalks and parkways located in, on, about, or adjacent to the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of, the Premises, the elements surrounding same, or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance and/or storage tank brought onto the Premises by or for Lessee or under its control. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may require Lessee to repaint the exterior of the buildings on the Premises as reasonably required, but not more frequently than once every seven (7) years. (b) Leasee shall, at Lessee's sole cost and expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in, the inspection, maintenance and service of the following equipment and improvements, if any, located on the Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and hose or other automatic fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt and parking lot maintenance. (See Addendum Paragraph 7.1.b.1) 7.2 Lessor's Obligations. Except for the warranties and agreements of Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3 (relating to compliance with covenants, restrictions and building code), 9 (relating to destruction of the Premises) and 14 (relating to condemnation of the Premises), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, the improvements located thereon, or the equipment therein, whether structural or non-structural, all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or thereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of, any needed repairs. 7.3 Utility Installations; Trade Fixtures; Alterations. (a) Definitions; Consent Required. The term "Utility Installations" is used in this Lease to refer to all carpeting, window coverings, signs, air lines, power panels, electrical distribution, security, fire protection systems, communication systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises from that which are provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof), as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during the term of this Lease as extended does not exceed $25,000. (b) Consent. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and in compliance with all Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. Lessor may (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $10,000 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor under Paragraph 36 hereof. (c) Indemnification, Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 Ownership; Removal; Surrender; and Restoration. (a) Ownership. Subject to Lessor's right to require their removal or become the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations and Utility Additions made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon and be surrendered by Lessee with the Premises. (b) Removal. Unless otherwise agreed in writing, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding their installation may have been consented to by Lessor. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent of Lessor. (c) Surrender/Restoration. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Law and/or good practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. 8. Insurance; Indemnity. 8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is the Insuring Party, Lessee shall pay for all insurance required under this Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease Term Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice for any amount due. (See Addendum 9.4.1.4) 8.2 Liability Insurance. (a) Carried by Lessee. Lesses shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of Insurance protecting Lessee and Lessor (as an additional insured) against claims for bodily injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured- Managers or Lessors of Premises" Endorsement and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by the Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried By Lessor. In the event Lessor is the insuring Party, Lessor shall also maintain liability insurance described in Paragraph 8.2(a), above, in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 Property Insurance--Building, Improvements and Rental Value. (a) Building and Improvements. The Insuring Party shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lenders(s)"), insuring loss Initials 11/25/92 ------------ LB PB NET Page 3 ------------ or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by Lenders, but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for any additional costs resulting from debris removal and reasonable amount of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss, as defined in Paragraph 9.1(c). (b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for one (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall provide that in the event the Lease is terminated by reason of an uninsured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, if any, otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss. (c) ADJACENT PREMISES. If the Premises are part of a larger building, or if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. If Lessee is the Insuring Party, the policy carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations and Utility Installations. 8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Lessee Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property or the restoration of Lessee Owned Alterations and Utility Installations. Lessee shall be the Insuring Party with respect to the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancellable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and maintain the insurance required to be carried by the Insuring Party under this Paragraph 8, the other Party may, but shall not be required to, procure and maintain the same, but at Lessee's expense. 8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss of or damage to the Waiving Party's property arising our of or incident to the perils required to be insured against Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. 8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, permits, attorney's and consultant's fees, expenses and/or liabilities arising out of, involving, or in dealing with, the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS. (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than 50% of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts of coverage limits involved. (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. (e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make the insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, the shortage in proceeds was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If in such case Lessor does not so elect, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. PAGE 4 Initials__________ LB PB ---------- 9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect and Lessor shall proceed to make such repairs as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 8.6. 9.5 Damage Near End of Term. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, within twenty (20) days following the occurrence of the damage, or before the expiration of the time provided in such option for its exercise, whichever is earlier ("Exercise Period"), (i) exercising such option and (ii) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs. If Lessee duly exercises such option during said Exercise Period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during said Exercise Period, then Lessor may at Lessor's option terminate this Lease as of the expiration of said sixty (60) day period following the occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of the Exercise Period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 Abatement of Rent; Lessee's Remedies. (a) In the event of damage described in Paragraph 9.2 (Partial Damage--Insured), whether or not Lessor or Lessee repairs or restores the Premises, the Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, payable by Lessee hereunder for the period during which such damage, its repair or the restoration continues (not to exceed the period for which rental value insurance is required under Paragraph 8.3(b)), shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after receipt of such notice, this Lease shall continue in full force and effect. "Commence" as used in this Paragraph shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by Applicable Law and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent of $100,000, whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the investigation and remediation of such Hazardous Substance Condition totally at Lessee's expense and without reimbursement from Lessor except to the extent of an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. If a Hazardous Substance Condition occurs for which Lessee is not legally responsible, there shall be abatement of Lessee's obligations under this Lease to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed twelve months. 9.8 Termination--Advance Payments. Upon termination of this Lease pursuant to this Paragraph 8, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. Real Property Taxes. 10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Premises during the term of this Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least ten (10) days prior to the delinquency date of the applicable installment. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover any period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration. If Lessee shall fail to pay any Real Property Taxes required by this Lease to be paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand. (See Addendum (P) 4.1.4) (b) Advance Payment. In order to insure payment when due and before delinquency of any or all Real Property Taxes, Lessor reserves the right, at Lessor's option, to estimate the current Real Property Taxes applicable to the Premises, and to require such current year's Real Property Taxes to be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be that equal monthly amount which, over the number of months remaining before the month in which the applicable tax installment would become delinquent (and without interest thereon), would provide a fund large enough to fully discharge before delinquency the estimated installment of taxes to be paid. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payment shall be adjusted as required to provide the fund needed to pay the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee under the provisions of this Paragraph are insufficient to discharge the obligations of Lessee to pay such Real Property Taxes as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of the obligations of Lessee under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security Deposit under Paragraph 5. 10.2 Definition of "Real Property Taxes". As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement distinct thereof, levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in applicable law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Premises or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the parties. 10.3 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. NET Page 5 Initials 11/25/92 ----------------- /s/ LB /s/ PB ----------------- 10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause its Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten (10)days after receipt of a written statement setting forth the taxes applicable to Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b). 11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered with other premises. (See Addendum Paragraphs 11.1 & 11.2) 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer, or encumber (collectively, "ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) A change in the control of Lessee shall constitute an assignment requiring Lessor's consent. The transfer, on a cumulative basis, of fifty percent or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal to or greater than fifty percent (50%) of such Net Worth of Lessee as it was represented to Lessor at the time of the execution by Lessor of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall be considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles consistently applied. (d) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unconsented to assignment or subletting as a noncurable Breach, Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice ("Lessor's Notice), increase the monthly Base Rent to fair market rental value or one hundred ten percent (110%) of the Base Rent then in effect, whichever is greater. Pending determination of the new fair market rental value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and market value adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to the then fair market value (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition), or one hundred ten percent (110%) of the price previously in effect, whichever is greater, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment, and (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new market rental bears to the Base Rent in effect immediately prior to the market value adjustment. 12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING. (a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) after the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or sublease. (d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the current monthly Base Rent, whichever is greater, as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing. (g) The occurrence of a transaction described in Paragraph 12.1(c) shall give Lessor the right (but not the obligation) to require that the Security Deposit be increased to an amount equal to six (6) times the then monthly Base Rent, and Lessor may make the actual receipt by Lessor of the amount required to establish such Security Deposit a condition to Lessor's consent to such transaction. (h)Lessor, as a condition to giving its consent to any assignment or subletting, may require that the amount and adjustment structure of the rent payable under this Lease be adjusted to what is then the market value and/or adjustment structure for property similar to the Premises as then constituted. 12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior Defaults or Breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. DEFAULT; BREACH; REMEDIES. 13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined), $350,000 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, and that Lessor may include the cost of such services and costs in said notice as rent due and payable to cure said Default. A "DEFAULT" is defined as a failure by the Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH" is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13:3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. Initials PAGE 6 (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party, as and when due, the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with applicable law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, that are to be observed, complied with or performed by Lessee, other than those described in subparagraphs (a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery by Lessor that any financial statement given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Lessee's failure, within sixty (60) days following written notice by or on behalf of Lessor to Lessee of any such event, to provide Lessor with written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the guarantors that existed at the time of execution of this Lease. 13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of the leasing commission paid by Lessor applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. See Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph shall not be deemed a waiver by Lessor of the provisions of this Paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the land area not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall Initials 11/25/92 -------- LB PB NET PAGE 7 -------- have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages: provided, however, that Lessee shall be entitled to any compensation, separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage to the Premises caused by such condemnation, except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 15. BROKER'S FEE. (NOT APPLICABLE --- NO BROKER INVOLVED) 15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this Lease. 15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said Brokers jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate written agreement between Lessor and said Brokers (or in the event there is no separate written agreement between lessor and said Brokers, the sum of $_________) for brokerage services rendered by said Brokers to Lessor in this transaction. 15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph 39.1) or any Option subsequently granted which is substantially similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to the Premises or other premises described in this Lease which are substantially similar to what Lessee would have acquired had an Option herein granted to Lessee been exercised, or (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of the term of this Lease after having failed to exercise an Option, or (d) if said Brokers are the procuring cause of any other lease or sale entered into between the Parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, or (e) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then as to any of said transactions, Lessor shall pay said Brokers a fee in accordance with the schedule of said Brokers in effect at the time of the execution of this Lease. 15.4 Any buyer or transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a third party beneficiary of the provisions of this Paragraph 15 to the extent of its interest in any commission arising from this Lease and may enforce that right directly against Lessor and its successors. 15.5 Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any named in Paragraph 1.10) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and that no broker or other person, firm or entity other than said named Brokers is entitled to any commission or finder's fee in connection with said transaction. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto. 15.6 Lessor and Lessee hereby consent to and approve all agency relationships, including any dual agencies, indicated in Paragraph 1.10. 16. TENANCY STATEMENT. 16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after written notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "TENANCY STATEMENT" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 If Lessor desires to finance, refinance, or sell the Premises, any part thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty- first (31st) day after it was due at the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in addition to the late charge provided for in Paragraph 13.4. 20. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. 23. NOTICES. 23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Any notice sent be registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after deliver of the same to the United States Postal Service or courier, if any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Sunday or legal holiday, it shall be deemed received on the next business day. 24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant of condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any preceding Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. 26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. Initials PAGE 8 28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. SUBORDINATION; ATTORNMENT: NON-DISTURBANCE. 30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default and allow such Lender thirty (30) days following receipt of such notice for the cure of said default before invoking any remedies Lessee may have by reason thereof. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (1) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one month's rent. 30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) or Broker in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to attorney's fees, costs and expenses incurred in the Preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or leasees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee may, with Lessor's prior written consent, install (but not on the road) such signs as are reasonably required to advertise Lessee's own business. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof and the right to install, and all revenues from the installation of, such advertising signs on the Premises, including the roof, as do not unreasonably interfere with the conduct of Lessee's business. 35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the terminatio of such interest. 36. CONSENTS. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects; attorneys; engineers' or other consultants' fees) incurred in the consideration of, or response to, a request by Leasee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Except as otherwise provided, any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. This failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. GUARANTOR. 37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each said Guarantor shall have the same obligations as Lessee under this Lease. Including but not limited to the obligation to provide the Tenancy Statement and information called for by Paragraph 16. 37.2 It shall constitute a Default of the Lessee under this Lease if any such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf) to obligate such Guarantor on said guaranty, and including in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signatures of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. OPTIONS. 39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor: (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor: (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original Lessee is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise. 39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. PAGE 9 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary: (i) during the period commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Defaulis cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee), or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option, (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee, for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three or more notices of Default under Paragraph 13.1 during any twelve month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of such other buildings and their invitees, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not intended to be binding until executed by all Parties hereto. 47. AMENDMENTS. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional, insurance company, or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. 49. ABANDONMENT. Lessee shall not vacate or abandon the demised premises at any time during the term of this Lease, and shall not permit the demised premises to remain unoccupied except as may be necessary during and for the purposes of making such repairs or restoration necessary under Lease provisions. If Lessee abandons, vacates, or surrenders said Premises or becomes dispossessed by process of law or otherwise, any personal property belonging to Lessee and left on the premises shall, at the option of Lessor, be deemed abandoned by Lessee and shall forthwith become the property of Lessor. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED. THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES: THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures. Executed at Dana Point, California Executed at Houston Texas on November 9, 1992 on November 9, 1992 by LESSOR: by LESSEE: LINDA LEE BROWN & PHYLLIS ANN BAILEY STAAR SURGICAL COMPANY By /s/ Linda Lee Brown By /s/ John R. Wolf --------------------------------- -------------------------------- Name Printed: LINDA LEE BROWN Name Printed: JOHN R. WOLF Title: 50% OWNER 805-272-8903 Title: PRESIDENT By /s/ Phyllis Ann Bailey By /s/ LaMar E. Laster --------------------------------- -------------------------------- Name Printed: PHYLLIS ANN BAILEY Name Printed: LaMAR E. LASTER Title: 50% OWNER Title: CHAIRMAN & SECRETARY Address: 55 A EAST SIERRA MADRE BLVD. Address: 1911 WALKER AVENUE SIERRA MADRE, CALIFORNIA 91024 MONROVIA, CALIFORNIA 91016 Tel. No. (818) 798-6781 (Office) ( ) Tel. No. (818) 303-7902 Fax No.( ) (818) 355-9284 (Home) NET PAGE 10 NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-6777. Fax No. (213) 687- 8616. ADDENDUM TO LEASE BY AND BETWEEN LINDA LEE BROWN AND PHYLLIS ANN BAILEY, LESSORS AND STAAR SURGICAL COMPANY, A CALIFORNIA CORPORATION, LESSEE OF PROPERTY LOCATED AT 1941 WALKER AVENUE, MONROVIA, CALIFORNIA. 1.4.1 EARLY POSSESSION. ---------------- Lessee shall be given possession of premises on November 10, 1992 and shall have full use thereof, provided such Lessee occupancy does not interfere with any premise preparation improvements being made by Lessor. Lessee shall have electric and water services started as of November 10, 1992. 2.3.1 CLARIFICATION. ------------- Improvements were built in full compliance with applicable building codes, in effect at time of construction, that may have been changed or modified into the now current Building Code applicable to new construction. 2.6.1 EXISTING FACILITY DATA. ---------------------- a. Air conditioning & Heating: two (2) each Carrier Model #50DA028 units having twenty-five ton cooling capacity in plant area. Note: Each unit has a replacement compressor condensor -- one in 1989 and one in 1990. Four (4) each Reznor roof suspended heaters 125,000 BTU each --- plant area. One (1) each Climatrol 5 ton unit --- office area. One (1) each Rhem 5 ton unit --- office area. Two (2) each 9 KW 31,000 BTU electric duct heaters to each 5 ton A/C unit --- office area . One (1) each Payne 48/100 YACX207 3 phase four ton cooling capacity unit with 110,000 BTU Heating --- mezzanine area. WARRANTY. The above air conditioning equipment will be inspected and -------- serviced and/or repaired as needed before commencement date of this lease. Lessor will then warranty that the equipment will be in good and operable condition and will provide an equipment warranty same as would be provided by equipment manufacturer for new equipment. 2.6.2 IMPROVEMENTS TO BE MADE BY LESSOR. --------------------------------- a. Roof. A new 4 ply Glass System roof will be installed prior to commencement date of this lease. b. Dock Leveler. A new 7.0' x 9.0' long, 23,000 pound capacity will be installed. c. Fencing. Parking lot area will be wrought iron fenced and gated with non-mechanical gates. d. Access. Opening or openings, as designated by Lessee, shall be made to provide access to adjacent building addressed as 1911 Walker Avenue. e. Overhead Doors. Present overhead doors will be removed and replaced by rollup type doors. f. Employee Entry Doors. Doors will replaced and/or adjusted as needed. g. Condition. The structure and all equipment will be in good, clean and operable condition. 2.6.1 EXISTING FACILITY DATA CONTINUED. -------------------------------- b. Power Service. 800 Amp. 480/277 volt 4 wire service. One (1) each 75 KVA 3 phase 4 wire 480 volt 208/120 (Crettenden) transformer located at office wall. PAGE 11 upgrade the electrical to meet future production requirements. One (1) 75 KVA 3 phase 240 volt Sierra on North wall. One (1) each 50 KVA Single Phase 480 240/120 Sierra located over plant rest rooms. c. LIGHTING. 225 each INSL 296 HO 277 volt fixtures in plant. Initially --------- fixtures were rated at 125 footcandle lighting at work bench level. d. SPECIAL. 1. Building has ordinary hazard fire sprinkler protection. 2. -------- 80 gallon hot water heater with circulating pump to supply fourteen (14) plant area locations. 3. Fourteen (14) waste water drains in plant area. e. PARKING SPACES. 53 Each open area spaces plus four (4) spaces in the --------------- garage. 3.1.1 LEASE TERM EXTENSION OPTION. ---------------------------- Provided that the lease is still in full force and effect and the Lessee is not in default in the payment of rent or of any other terms and conditions of the lease, Lessor grants to Lessee the right and option to extend the term of the lease for two (2) additional five (5) year periods commencing the day following the expiration of the original or any extension of the lease term. Lessee shall have exercised this option by giving Lessor written notice of election to extend the term of each lease option at least four (4) months prior to the expiration of the original term and four months prior to the expiration of first optioned extension period. 4.1.1 RENTAL ADJUSTMENTS. ------------------- The base monthly rent shall be adjusted every two (2) years (1/1/95 & 1/1/97 etc.) during the lease term as well as any optioned lease term extension by the increase, if any, in the Consumer Price Index [all Urban Consumers Los Angeles--Anaheim-Riverside, Metropolitan Area all items, herein referred to as 'CPI', 1967 equalling 100, from U.S. Department of Labor, Bureau of Labor Statistics, Washington, D.C.] over August 1992 base index figure of 434.1. Each adjustment shall be effective on January 1 and based on the percentage increase in the CPI figure for the month of August immediately preceding such adjustment date over the Base Index Figure. 4.1.2 SUBSTITUTE INDEX. ----------------- In the event the CPI stipulated herein is discontinued by the Government then the available Index most nearly the same as the CPI shall be used to make calculations set forth in 4.1.1 above. If Lessor and Lessee are unable to agree on the substitute Index prior to the then rental adjustment date substitute Index shall, on application of either party, be selected by the chief officer of the San Francisco office of the Bureau of Labor Statistics or its successor. 4.1.3 FACILITY ALTERATIONS OR ADDITIONS. ---------------------------------- In the event Base Rental Rate is increased by subsequent Addendum covering alterations or additions to the demised premises by Lessor the monthly rental established in such Addendum will be used as the Base Rental Rate for all subsequent adjustments. 4.1.4 INSURANCE AND PROPERTY TAXES. ----------------------------- It has been agreed that Lessor shall pay and Lessee shall reimburse Lessor in full for payments of premise insurance premiums and property taxes as an addition to Base Rent. Failure of Lessee to pay Lessor's invoices for such within ten (10) days of the due date shall carry the same consequence as Lessee's failure to pay rent. PAGE 12 4.1.5 PAYMENTS. -------- All payments under this Lease shall be made in full and without offset or deduction of any kind. In case of a dispute under this Lease Lessee shall have no right to offset any damages or claims against any payments due Lessor unless and until Lessee has obtained a judgement therefore by any court of competent jurisdiction. 4.1.6 TIMELY PAYMENT ASSURANCE. ------------------------ Lessee shall place an amount equal to three (3) months rental in Certificate of Deposit made in favor of Linda Lee Brown and Phyllis Ann Bailey with written instructions to disburse monthly rental payments as due on the first day of each month. The Certificate of Deposit shall be purchased prior to February 1, 1993 and shall have a retained value amount of no less than the amount needed for one (1) monthly rental payment. 7.1.b.1 MAINTENANCE & REPAIR. -------------------- Building security and fire sprinkler system shall be on a continuous monitoring hookup with a reputable company to maintain safety monitoring of premises. 2. A qualified gardener shall provide weekly service to maintain landscaping in a neat, clean and visually attractive condition. 3. Lessee shall have the Fire sprinkler System inspected, tested and Certified by a licensed contractor specializing in such systems every three (3) years (January 1995 & 1998 etc.) with copy of certificates to be furnished to Lessor. 11.1 PREMISE VACATION OR ABANDONMENT. ------------------------------- If Lessee vacates or abandons premises, temporarily or otherwise, prior to Lease Term expiration date, or prior to termination date, Lessee shall maintain and pay for continued public utility services and supply during such period, except any that may be excluded by Lessor to Lessee in writing. 11.2 SECURITY AND FIRE PROTECTIONS SYSTEMS. ------------------------------------- Lessee shall also maintain and pay for, all security and fire protection monitoring systems and services in full force and effect during any such vacation periods (11.1) and shall provide in writing, with copy to Lessor, such service providers with Lessor's telephone number and address for use in case of an alarm. 2.6.2.h ELECTRICAL. Lessor will pay electrician up to $10,000.00 for ---------- electrical distribution and hookups desired by Lessee. 6.2.d UNKNOWN EXISTING CONTAMINATION. Lessor shall hold Lessee harmless for ------------------------------ any past contamination, of any kind, on the premises, including any existing groundwater contamination on commencement date of this Lease. PAGE 13 1941 WALKER AVENUE LEASE EXHIBIT "A" ================================================================================ [MAP OF TRACT NO 28379 APPEARS HERE] TRACT N/o/ 28379 M.B. 717 Pgs. 7-8 EXHIBIT "A" [TI STAMP] This is not a survey of the land but is compiled for information by the Title Insurance and Trust Company from data shown by the official records. [PLOT PLAN APPEARS HERE] WALKER AVE. ----------- TAYLOR STREET PLOT PLAN ------------- ========= 1"=20'-0" EXHIBIT "B" EX-10.17 8 INDENTURE OF LEASE, DATED 10/20/83 EXHIBIT 10.17 INDENTURE OF LEASE THIS INDENTURE OF LEASE is made at Monrovia , California, ------------------------- this twentieth day of October, 1983, by and between --------- ------- -- ----------------------------- Dale E. Turner and Frances R. Turner , as Lessor, - ------------------------------------------------------------------ and Staar Surgical Company, a California Corporation , as Lessee. -------------------------------------------------------------- WITNESSETH THAT: IT IS MUTUALLY UNDERSTOOD AND AGREED by and between the parties hereto that this lease is made for the term and upon the conditions and agreements hereinafter expressed, each and all of which parties hereto acknowledge to have read, and with each and everyone of which the parties hereto agree to comply, to-wit: 1. PROPERTY OWNERSHIP: Lessors do hereby warrant and covenant that they hold title to the real property described in Schedule ("A") attached hereto and that they have full capacity and ability to lease said property to the Lessee, including the building and improvements now in place or scheduled to erected or installed on said premises in conformance with the plans and specifications and plot plan therefor that has been mutually agreed upon by the parties hereto. 2. DEFINITIONS: A. Whenever the words "demised premises", "demised property", "leased property", "premises", or words of similar import, are used in this Lease they are intended and shall be construed to mean and include both the real property and all improvements thereon or provided to be constructed or installed thereon as described, set forth or provided for in Schedule "A", and as designated in the plans and specifications for said improvements, unless a different meaning is clearly required by the context. B. LEASEHOLD IMPROVEMENTS: Leasehold improvements designation as used herein shall be construed to mean and include those special improvements constructed or installed, at Lessor's expense, on demised premises as a part thereof, at request of Lessee, that are described, set forth or provided for in Schedule "A" and/or the Lessee and Lessor approved plans and specifications or modifications thereto agreed to in writing by Lessee and Lessor. C. LESSEE IMPROVEMENTS: The words "Lessee Improvements" as used herein shall be construed to mean those improvements installed by either the Lessor or Lessee, at Lessee request and expense, that remain the property of Lessee and do not become a part of the demised premises. D. SCHEDULES, EXHIBITS AND LEASE ADDITIONS: All schedules, exhibits and lease additions attached hereto or referred to herein hereby are incorporated herein and made a part hereof. E. HEAD NOTES: The paragraph head notes are inserted merely for convenience and are not to be construed as part of this Lease or in any way affecting it. F. GENDER: As used herein the neuter gender includes both the masculine and feminine, and the singular number includes the plural and vice versa. 3. LEASE CONSIDERATION: The Lessors, for and in consideration of the payment of the rents and payments in the nature of rent herein reserved and agreed to be made by the Lessee, and of the performance and observance by the Lessee of all and singular, the terms, covenants, conditions, provisions and agreements which are herein contained, and which are to be kept, performed, observed and fulfilled by the Lessee, and subject to the matters hereinafter set forth, has demised and leased, and by these presents does demise and lease unto the Lessee, and the Lessee has hired, and by these presents does hire and take from the Lessor, for the term hereinafter provided, certain real property located at 1911 Walker Avenue --------------------------------------------------------------------- in the City of Monrovia , County of Los Angeles , State of California, ----------------- -------------- and all improvements now located thereon or provided to be constructed thereon, as particularly described, set forth or provided in Schedule "A" attached hereto, and in conformance with the plans and specifications and plot plan therefor, Exhibit "A", that has been mutually agreed to and approved by endorsement thereon by both parties hereto. *1. 4. LEASE TERM: The term of this lease shall be sixty-two months, ---------------- commencing on November 1, 1983 and terminating at midnight December 31, 1988, ---------------- ----------------- provided construction or installation of improvements as specified or provided for herein to be provided by Lessor are substantially completed and ready for occupancy on commencement date herein stated. *2. If, however, the demised premises shall not be ready for occupancy by _________, by reason of any delay or delays caused by a common carrier, or by order, decree, or judgement of any court or judge thereof, or by any contractor, or by fire or other casualty, or by reason of strikes, lockouts, acts of God, or by any other cause or causes beyond the control of Lessor, whether similar or dissimilar to any of the foregoing, then, and in such event, Lessor shall not be liable to Lessee for any loss or damage whatsoever occasioned thereby, directly or indirectly, nor shall this Lease be void or voidable on account of any such delay, or delays, but in that event there shall be no rental payments until commencement date has been established as herein provided. The term of this Lease shall be extended for a period equal to such delay or delays, as might be occasioned, provided, such resultant commencement date shall not be later than the date Lessor has substantially finished the constructions and installation of improvements herein provided for and delivers or offers delivery of possession of same to Lessee. *3. 5. RENTAL: The Lessee covenants and agrees to pay the Lessor, as rent for said premises as described in Schedule "A", the sum of six hundred ----------- eighty-four thousand and no/100 dollars ($684,000.00), payable in equal monthly - ------------------------------- installments of eleven thousand four hundred and no/100 ($11,400.00) --------------------------------------- 1 TDE FORM 41960 Revised 7/1/76 * 1. Provisions of Paragraph 4 are extended by Paragraph 1 of First Lease Addition. * 2. Provisions of Paragraph 4 are further extended by Paragraph 2 of First Lease Addition. * 3. Provisions of Paragraph 5 are extended by Paragraph 3 of First Lease Addition. during each and every month of the term of this Lease commencing on date as provided in Paragraph Four (4) hereof. Each installment of rent shall be paid to the Lessors by the Lessee in advance, on or before the first day of each and every calendar month during the term ------- hereof. Should the commencement date of this Lease be on a day other than the first of a calendar month, then the rental for the first month of the term - ------- hereof shall be prorated so as to make all other payments due on the first of ------- each month as herein provided. In addition to the rental payments provided for above, Lessee covenants and agrees to pay to Lessor, equal monthly payments of no dollars ($ no) during each -- ---- and every month of the term of this Lease commencing on commencement date and ending on termination date of the Lease Term as established in Paragraph 4 hereof, for the Leasehold Improvements installed in accordance with provisions of Schedule A. Lessee and Lessor approved plan and specifications, or at written request of Lessee. 6. TAXES AND ASSESSMENTS: As additional rent the Lessee agrees to pay to proper authority or to reimburse Lessor for any such payments made by Lessor, as the Lessor may designate, promptly as the same become due and payable, all taxes and general and special assessments levied upon or assessed against the leased property or any part thereof which are assessed and are, or become, a lien during the term of this Lease. Unless and until the Lessor gives the Lessee written notice that it elects to have such payments made by the Lessee direct the Lessor shall itself first pay all such taxes and assessments and the Lessee shall, on written notice of the amount of any such payment, reimburse the Lessor therefor in full within ten (10) days after such notice. If and in the event the Lessor gives the Lessee written notice that it elects to have such payments made by the Lessee direct the Lessee shall make all such payments directly to the proper tax collecting authority prior to delinquency and forthwith thereafter shall deliver to the Lessor original or duplicate receipts evidencing such payments. If the Lessee fails to make any such payment within such time, the Lessor may, at its option, make the same and in such event the Lessee shall, on demand, repay to the Lessor within ten days the amount so paid by Lessor. The Lessee shall be entitled to protest or challenge any such tax or assessment or the validity thereof in the name of the Lessor or otherwise, but any such action shall be at its own cost and expense and without cost or expense to the Lessor or the demised premises, and no such action shall be taken or maintained without first delivering an indemnity agreement from a solvent licensed surety company in an appropriate sum guaranteeing to hold the Lessor and the demised premises free and harmless from loss, cost, expense or liability in connection with or arising out of any such action. If any special assessment made against the property covered by this Lease may, at option of the owner of the property, be paid in installments or covered by bond which is payable in installments, then the Lessee shall be entitled to require that the assessment be paid in installments or that the bond be issued, and in such case the Lessee shall be liable only for the payment of such installments, or the prorate thereof, as become payable during the term of this Lease. The first at such taxes and assessments to be paid by the Lessee, either directly or by reimbursement to Lesser shall be those payable for the fiscal tax year in which the term of this Lease begins and the last of such tax and assessments shall be those for the fiscal year in which the term of this Lease ends; provided however the amount of such payments for the first and last fiscal years shall be pro-rated to coincide with the beginning and the end of the term hereof. The Lessee shall pay and discharge before delinquency any and all taxes and assessments against property of any kind or nature belonging to Lessee or placed or kept upon or about the demised premises and agrees to save and hold the Lessor and the demised premises free and harmless from any liability therefor or in lien thereof. 7. SECURITY DEPOSIT. As security for the faithful performance of the terms, conditions and covenants of this Lease, as well as to indemnify the Lessor for damages, costs, expenses and attorney's fees to which Lessor may be put by reason of any default by Lessee, Lessee hereby agrees to deposit with the Lessor the sum of eleven thousand five hundred Dollars, ( $11,500.00 ), at least ------------------------------ ------------ one-half of said sum shall be paid at time of signing this Lease and any balance of said sum be paid prior to taking of possession of the premises hereby demised. In the event that Lessee shall be in default at any time prior to termination hereof, then Lessor may apply the security deposit in payment of its costs, expenses and attorney's fees in enforcing the terms hereof, and/or in payment of any damages or loss suffered by Lessor, provided that nothing herein contained shall be construed to mean that the recovery of damages by Lessor against Lessee shall be limited to the sum of the Security Deposit. In the event any portion or all of the Security Deposit is applied as aforesaid, then Lessee shall within thirty (30) days after notification of such expenditures from said Security Deposit deposit with Lessor additional sums so that the Security Deposit in the hands of Lessor shall at all times during the term of the Lease total eleven thousand five hundred & no/100 Dollars ($11,500.00). Subject to ---------------------------------------- ------------- application of the Security Deposit to the payment of sums due in accordance with the foregoing provisions, any moneys remaining in the hands of the lessor as Security Deposit, upon termination of the Lease, shall be refunded to the Lessee: 8. CONSTRUCTION. Lessor, at his own cost and expense, shall forthwith, after the delivery of this Lease executed by the parties hereto, begin and with all reasonable expedition thereafter proceed to erect and install upon the herein, described premises any required improvements as may be set forth in Schedule "A" attached hereto and any such improvements shall be erected or installed in accordance with plans and specifications agreed to and approved by endorsement thereon by both parties. Said improvements shall conform to the applicable building codes, laws, ordinances, rules and regulations as attested to by the local authorized building inspector's initial or signature on building permit card designating satisfactory completion. 9. RESTRICTIONS AND RESERVATIONS. This Lease is made and accepted and the demised premises leased subject to conditions, covenants, restrictions, reservations, easements and rights of way of record, and other is excepted and reserved unto the Lessor and to its successors and assigns all water, oil, gas and other hydrocarbons and other minerals in and under said demised property. 2 10. ACCEPTANCE OF POSSESSION: Lessee covenants and agrees that, prior to taking possession of the demised premises, it will inspect and examine the condition of the said demised premises and every part thereof and that such inspection and examination shall be made within five (5) days from date Lessor notifies Lessee that the demised premises are ready for occupancy and the Lessee will take and accept possession and occupancy of demised premises on date of said inspection, provided facilities are found to be in substantial conformance with specifications set forth in Schedule "A". Acceptance of possession of the herein demised premises by Lessee shall constitute an agreement by Lessee with Lessor that the demised premises are in good and tenantable condition and that Lessor has complied with each and every obligation on its part to be performed relating thereto, except Lessor shall and hereby agrees that any incomplete work or items not in conformance with specifications set forth in Schedule "A", at time of inspection, will without delay, and with reasonable expedition thereafter be repaired, completed or otherwise made to conform to said specifications, and thereafter, unless otherwise expressly provided for herein, Lessee shall have no claims or demands and shall not assert any claims or demands of any character based upon or arising out of the condition of the demised premises, or any alleged failure of the Lessor to provide demised property in the manner and within the time provided for in this Lease. If Lessee does not take possession as herein provided, this Lease shall be, at Lessor's option, terminated by reason of default on the part of the Lessee and the Security Deposit, herein provided for, will be paid to and forfeited to the Lessor and in addition Lessee will reimburse Lessor for all expenditures made by Lessor in providing the Leasehold improvements for Lessee as specified in Schedule "A" and/or Lessee and Lessor approved plans and specifications or by written request of Lessee and Lessee shall also repay Lessor for any expenditures by Lessor for removal of any of said Leasehold Improvements not deemed to be an asset to the demised premises by the Lessor. 11. RECORDATION: This Lease shall not be recorded but the Lessor and the Lessee shall, at option of either party, when the construction herein provided for is completed, and the commencement date hereof has been determined execute a written memorandum in recordable form, fixing the commencing and termination dates of this Lease, and include therein Lessee's acceptance of the demised property and acknowledgement of compliance by Lessor with the provisions of Paragraph 8 hereof. 12. PERSONAL INJURIES AND PROPERTY DAMAGES: Lessee expressly agrees that Lessor shall not be liable to Lessee or any other person in privity with Lessee for any injury or damage to property that may occur on demised premises during term of this Lease. The Lessee shall and agrees to indemnify and forever save the Lessor and the demised premises free and harmless from and against (a) any and all liability, penalties, losses, damages, costs and expenses, causes of action, claims or judgements arising from or growing out of any injury or injuries suffered or claimed by any person or persons or any damage or damages to any property as a result of any accident or other occurrence during the term of this Lease occasioned by any act or acts or omissions of the Lessee, its officers, employees, agents, servants, subtenants, concessionaires, licencees, contractors, invitees or permittees, or arising from or growing out of the maintenance, occupation, operation, or the use or misuse of the demised premises by any person or persons, during the term of this Lease, and (b) from and against all legal costs and charges, including reasonable attorneys' fees, incurred in and about any of such matters and the defense of any action arising out of the same or in discharging the demised premises or any part thereof from any and all liens, charges or judgements which may accrue or be placed thereon by reason of any claim or claims hereunder. *4. 13. PUBLIC LIABILITY INSURANCE: The Lessee shall and agrees, at its own cost and expense, to procure and maintain in force and effect at all times during the term hereof a policy or policies of public liability insurance issued by an insurance company or companies approved by Lessor, in which the Lessor shall be named as the insured or one of the insured covering all of the demised premises which are the subject of this Lease irrespective of the use and occupancy thereof, and insuring the Lessor against loss, damage or liability in minimum amounts of $50,000.00 - Property damage in any one occurrence; $250,000.00 for death or injury to any one person in any one occurrence $500,000.00 for death or injury to two or more persons in any one occurrence. The limits of said policy or policies shall not limit liability of Lessee hereunder. The Lessee shall and agrees to furnish to the Lessor from time to time, at its (the Lessee's) option, either a certificate or certificates or the actual insurance policy or policies of the insurance carrier or carriers, indicating insurance in compliance with the terms and provisions of this paragraph to be in full force and effect. In the event the Lessee shall at any time during the term hereof fail, neglect or refuse to procure, maintain or renew any such insurance the Lessor may procure or renew such insurance, but shall be under no obligation so to do, and any premium or premiums incurred or paid by the Lessor therefor shall be charged against the Lessee, as an item in the nature of rent, and shall be added to and deemed a part of and paid with the next installment of rental payable by the Lessee to the Lessor hereunder. 14. FIRE AND COMPREHENSIVE INSURANCE: Lessor or Lessee, at option of Lessor, shall obtain and keep in effect insurance on the demised premises covering fire and any peril included in the California standard form of extended coverage, in the amount of the stipulated replacement value of the demised premises, as established and agreed with the insurance carrier to be 100% of the cost of replacement, and also insurance against vandalism, malicious mischief and war damage, when available. In addition to the other coverage herein stipulated said insurance shall, in case of damage to or destruction of demised premises, provide for payment to Lessor of up to twelve (12) monthly rental installment payments payable by Lessee to Lessor during the time of repair or replacement of damage to or destruction of demised premises. Any premium or premiums incurred or paid by the Lessor therefor shall be charged against the Lessee, as an item in the nature of rent, and shall be added to and deemed a part of and paid with the next installment of rental payable by the Lessee to the Lessor hereunder. Should a loss occur the Lessee agrees to promptly endorse to the Lessor any checks that may be made payable to the Lessee by the insurance company in payment of such loss. It is understood and agreed between Lessee and Lessor that it is the responsibility of Lessee to insure Lessee improvements and that they shall not be covered by the Fire and Comprehensive insurance Policy covering the demised premises. Lessee agrees and shall not use or permit said premises or any part thereof to be used, nor acts to be done, which will increase existing rate of insurance upon adjacent property or cause a cancellation of any insurance policy covering said demised premises or adjacent property or any part thereof, nor shall Lessee sell or permit to be kept, used or sold in or about said premises any article which may be prohibited by the standard form of fire *4. Provisions of Paragraph 13 are modified by Paragraph 4 of First Lease Addition. 3 insurance policy. Lessee shall at his sole cost and expense comply with any and all requirements pertaining to said premises necessary for the maintenance of fire and extended coverage and public liability insurance, as herein provided. 15. SUBROGATION: Lessor and Lessee each shall procure forthwith after the execution of this Lease from each of the insurers under appropriate policies of insurance issued to or carried by Lessor and Lessee, respectively, pertaining to the demised premises and to Lessee's business to be conducted thereon, a waiver in writing of subrogation which said insurer might have or thereafter acquire against Lessor and Lessee, respectively, and shall thereafter forthwith upon becoming insured or reinsured under any such policy or policies of insurance procure applicable waivers of subrogation as provided for herein. 16. USAGE: Lessee may use said demised premises for the purpose of conducting the business of general offices, sales, manufacturing and ----------------------------------------- distribution of medical devices and any other allied or related line of business - ------------------------------- permitted in Zone M-1 locations as provided in the ordinances of Monrovia. -------- Lessee shall and agrees that it will not use demised premises for any illegal or immoral purposes and that Lessee will keep, maintain and operate the demised premises in a clean, orderly and business-like condition and manner and in compliance with the best standards and practices, and in conformity with all mandates, laws, ordinances and regulations of all judicial, administrative and governmental bodies having jurisdiction. Lessee shall at all times indemnify and forever save the Lessor harmless from and against all fines, penalties, loss, damage, costs, expense, attorney's fees and other charges imposed for or resulting from any violation by any person or persons, at, in or about the demised premises, of any mandates, ordinances, regulation and laws of all judicial, administrative and governmental bodies having jurisdiction thereover. Lessee shall not use the Leased Premises or any part thereof so as to constitute a nuisance to or otherwise substantially interfere with owners or occupants of adjoining or neighboring property or so as to cause cancellation of or prevent the use of standard form fire insurance policy or insurance covering any peril included in the California standard form of extended coverage. Lessee may install or maintain any machinery or apparatus reasonable and necessary for the purpose of its business, but will use due precaution and available safeguards to prevent injury to the demised premises. All damage or injury to the demised premises caused by the use or misuse during the term of this Lease, or in removal therefrom, shall be repaired and demised premises restored to original condition by the Lessee at his sole expense, provided Lessee shall not be required to restore items attributable to fair wear and tear. The parking area allocated to this building and included as a part of the demised premises shall not be used for production work, storage or other non-parking uses without the prior written consent of the Lessor. 17. PUBLIC UTILITY CHARGES: The Lessee shall pay and discharge all electric, gas, water, telephone, fuel and other public utility charges arising out of or in any manner connected with the furnishing of services to the premises herein demised or any part or position thereof and shall hold said premises and all thereof and the Lessor harmless of and from any and all claims, demands or liabilities arising out of or in any manner connected with the failure of the Lessee to pay and discharge any such charge. *5. 18. REPAIRS AND MAINTENANCE: During the entire term of this Lease the Lessee shall and agrees to, at its own cost and expense, make any and all proper or necessary repairs, alterations and replacements to the demised premises and keep and maintain all of the demised premises and every part thereof clean and in good order, condition and repair as they shall be upon commencement of the term hereof, reasonable wear and tear excepted, and in compliance with all applicable laws and regulations and orders of public authority, whether now in effect or hereafter adopted or issued; and the Lessor shall not be liable for or be called upon to make or do any repairs alterations, replacements, painting or maintenance in or upon the demised premises or any part or portion thereof under any condition whatsoever except in accordance with the terms and provisions of Paragraph 20 hereof. Provided, however, that Lessor shall be required to repair any defects in or to the leased premises which appear, notification of which is given in writing by Lessee to Lessor, during the first year of the term of said Lease, and which are due to improper or faulty construction or installation. The obligation of the Lessee with respect to repairs, alterations, replacements and maintenance as set forth in this paragraph is intended and understood to and shall cover and include but not be limited to the following: all plumbing, heating, cooling, ventilating, lighting, fire-protection and utility installations, fixtures and apparatus; all roofs, walls and foundations; all painting, windows and glass; all stairways, doors, shades and shutters; all locks and hardware; all fences or enclosures; all ground surfacing, walks, aprons and curbs; and all planting and ornamentation. In the event the Lessee shall at any time during the term hereof fail, neglect or refuse to make or do any and all repairs, replacements or maintenance required to be made or done by it under the terms and provisions of this paragraph the Lessor, upon ten (10) days written notice and the failure of the Lessee to make or do required repairs, alterations, replacements or maintenance within such time, may make or do such repairs, alterations, replacements or maintenance for the account of the Lessee, but shall be under no obligation so to do, and any costs and expenses incurred or paid by the Lessor therefor shall be charged against the Lessee and shall be added to and deemed a part of and paid with the next installment of rental payable by the Lessee to the Lessor hereunder. The Lessee hereby waives the provisions of Section 1942 of the Civil Code of the State of California and any and all other statutes or laws, whether now in force or hereafter adopted, permitting a tenant to make repairs at the expense or for the account of the owner or to terminate a lease by reason of the condition of the premises. Lessee shall not be responsible for repair or replacement of any structural defects in the demised premises, that may appear, that are due to improper or faulty construction or installation. Lessee shall be responsible for the repair or replacement of Lessee improvements, if and when needed. 19. CHANGES, ALTERATIONS AND RESTORATION: Lessee shall have the right to make, at its own expense, such improvements to the leased premises as it deems necessary for its own use provided that none will be made affecting the structural components of the building leased hereby without Lessor's prior written approval. Title to improvements made at Lessee's expense shall remain in Lessee until the conclusion or sooner termination of this Lease. Lessee shall not remove any improvements made by it, except those improvements covered by prior written removal permission granted by Lessor, and upon the conclusion or sooner termination of this Lease title to said improvements shall forthwith vest in Lessor, and Lessee agrees to execute such documents as Lessor may request to effectuate such vesting. The improvements referred to are all improvements other than trade fixtures, machinery and equipment installed and used by Lessee in its business, and shall include, without limiting the generality of the foregoing, lighting fixtures, lighting, gas, water, power and other conduits, pipes, power installations, plumbing installations, air condition- TDE FORM 41960 Revised 7/1/76 5. Provisions of Paragraph 18 are extended by Paragraph 5 of First Lease Addition. ing; heating, sprinkler systems, fencing and partitions, except that such improvements shall not include portable partitions or other portable installations. Signs, trade fixtures, machinery and equipment placed or installed upon or within the Leased Premises by Lessee shall remain the property of Lessee and may be removed by Lessee at any time prior to the last day of the term of this Lease, and all such property shall remain Lessee's personal property, however, any damage caused to the demised premises by reason of the installation, usage or removal thereof shall be repaired and paid for by Lessee. Provided, that should any such trade fixtures, machinery and equipment be left upon the demised premises by Lessee at the end of the term or prior termination of this Lease, such property shall be and become Lessor's property, at Lessor's option, if Lessee has not removed same within five (5) days after notice has been given to Lessee that such property remains upon the demised premises. Upon the termination of this Lease Lessee shall restore the Leased premises to Lessor in the same condition as when Lessee received same, excepting reasonable wear and tear, damage or destruction for which Lessee is not liable under provisions of this Lease, and improvements made by Lessee which under the provision of this Paragraph become the property of Lessor. Provided, however, that Lessor, in its discretion, may require Lessee to remove any improvements made by Lessee even though under the terms of this Paragraph such improvements would otherwise become the property of Lessor. Such restoration shall be completed by Lessee not later than the last day of the term or sooner termination of this Lease. *6. 20. DAMAGE OR DESTRUCTION OF LEASED PREMISES: Should the demised building or buildings become destroyed or damaged by fire or other insured loss or by calamity such as earthquake, flood, or similar or dissimilar violent actions of the elements, or by act of God, war, threats of war, bombing, insurrection, invasion, falling objects from without the premises, explosions occurring off the premises without the fault of Lessee or Sublessee and not resulting from the activities of Lessee or Sublessee, or other calamities of such nature, then: (a) If the damage be so slight as not to interfere substantially with the use of said building or buildings by Lessee, Lessor shall repair the same to substantially the same condition as it was in immediately preceding the damage with due diligence, and there shall be no abatement of rent. If Lessor does not commence said repairs within thirty (30) days from the date of notification of such damage or after such commencement fails to proceed with due diligence to complete said repairs Lessee may obtain an appropriate reduction in rental for damaged space in accordance with Paragraph 41 hereof, from said date of such damage until such repairs have been completed. (b) If damage is substantial but renders the premises untenantable only in part and Lessee may nevertheless continue its operation therein, Lessor shall repair the same to substantially the same condition it was immediately preceding the damage if such work can be completed within ninety (90) days from the date of notification of such fire, loss or calamity, and there shall be an abatement of rent for damaged space, as provided in Paragraph 41 hereof, from said date of such damage until such repairs have been completed. If Lessor does not commence said repairs within thirty (30) days from the date of notification of such damage or after such commencement fails to proceed with due diligence to complete said repairs Lessee may cancel this Lease on ten (10) days written notice of intention to do so if said repairs are not commenced or proceeding as herein provided within said ten (10) days. (c) If the building or buildings are totally destroyed, Lessor may rebuild the building or buildings to substantially the condition in which it or they were immediately preceding the destruction if the work can be commenced within thirty (30) calendar days of notification of damage and completed within one- hundred-twenty (120) days after commencement. Within thirty (30) days after such notification of destruction, Lessor may by written notice to Lessee cancel this Lease. Lessee may cancel this Lease on ten (10) day written notice if, (1) within thirty (30) days after such notification of damage to Lessor if Lessor fails to notify Lessee in writing within said thirty (30) days that Lessor intends to rebuild and that work can be commenced within thirty (30) calendar days and completed within one-hundred twenty (120) days from commencement, if not delayed by causes beyond control of Lessor, or (2) if the rebuilding is not in fact completed within such period due to the lack of diligence of Lessor. Any cancellation shall be effective as of the date of destruction. In the event of rebuilding, rent shall be abated, in accordance with provisions of Paragraph 41 hereof, from the date of destruction to completion of rebuilding, but said period shall be included as part of the term of this Lease unless it be mutually agreed by and between Lessee and Lessor that this Lease should be extended by said period. (d) In event of loss or damage of Leasehold Improvements through calamity such as earthquake, flood, Act of God, war, act of war or any other cause not covered by insurance Lessee hereby agrees to replace or repair all Leasehold Improvements, at his sole cost and expense, to as good or better condition as they were just prior to such loss or damage, unless the demised building is damaged at same time to the extent that the Lease is cancelled as provided for in this Lease Paragraph 20, in which event the total of all the unpaid monthly Leasehold Improvement payments, provided for in Paragraph 5 of this Lease, due Lessor from Lessee for said Leasehold Improvements for each and every unexpired month of the full term of this Lease, as set forth in Paragraph 4 of this Lease shall be paid by Lessee to Lessor within thirty (30) days after such loss. (e) In the event Lease is not cancelled because of damage or destruction, as provided for in this Lease Paragraph 20, and Lessee desires Lessor to replace or repair such loss or damage to said Leasehold Improvements, Lessor agrees to make such repair or replacement at Lessee's expense. (f) In the event of loss or damage of Leasehold Improvements that are covered by insurance Lessor hereby agrees to either replace or repair said Leasehold Improvements with insurance funds without cost to Lessee provided this Lease is not cancelled as provided for in this Paragraph 20 and Lessee continues making the monthly Leasehold Improvement payments for in Paragraph 5 of this Lease. If Lease is cancelled per terms of this Paragraph 20 the insurance funds received by Lessor for such insured loss will be accepted by Lessor as full payment of and will relieve Lessee from making any further monthly Leasehold Improvement payments provided for in Paragraph 5 of this Lease. (g) In the event of loss or damage of Lessee Improvements, whether insured or not, Lessee shall have the option of determining whether to replace or repair or not to replace or repair such Lessee Improvements. Any replacement or repair of Lessee Improvements shall be at the expense of Lessee. Any sums payable to Lessor by Lessee for repair, replacement or rebuilding, as provided for in this Paragraph 20, shall be due and payable in progressive payments as work is completed for major job and in any event all sums shall be due and payable ten (10) days after completion of such repair, replacement or rebuilding. Lessee shall not be entitled to collect from Lessor any compensation or damages on account of any inconveni- 5 6. Paragraph 20 provisions are extended by Paragraph 6 of First Lease Addition. ence or annoyance of any work of repair or rebuilding or because of any injury, damage, or destruction of demised premises except that it shall be entitled to a pro rata reduction in rent payable during such period of repair as herein provided. Lessor shall not be entitled to collect from Lessee any compensation or damages on account of any damages or destruction to demised premises caused by calamity such as earthquake, flood, or similar violent action of the elements, war or act of war, or act of God, or covered by fire or extended overage insurance, however, in the event the damages or destruction were caused directly or indirectly by the Lessee through the use or misuse of the demised premises Lessee shall not be entitled to Lease cancellation privileges or rent abatement as herein provided and shall pay Lessor for all repairs and rebuilding not covered and paid for by any insurance and in addition Lessee will pay Lessor reasonable compensation for supervising said repairs or rebuilding. Provided further that in the event Lessor does repairs or rebuilding as provided for in subparagraphs (a), (b) and (c) Lessor shall not thereby be deemed to have waived its right or be estopped to contend that it was not obligated to do so. In the event Lessor makes such repairs or rebuilding and it be thereafter determined that said repairs or rebuilding were the obligation of the Lessee then Lessor shall have the right to reasonable compensation and to reimbursement from Lessee of expenditures made in such repairs or rebuilding and for any reduction or abatement of rental taken by Lessee. 21. BANKRUPTCY OR INSOLVENCY OF LESSEE: This Lease and the interest of Lessee hereunder shall not be subject to garnishment or sale under execution in any proceeding which may be brought against or by Lessee without the written consent of Lessor, and this Lease and all rights of Lessee hereunder shall, at the option of Lessor, cease and terminate upon Lessee, or any person or persons acting for or against Lessee, filing a petition in bankruptcy which petition remains undismissed for a period of thirty (30) days, making an assignment for the benefit of creditors, entering into a composition with creditors, entering into any reorganization proceeding under the terms of the Bankruptcy Act or being by any court adjudged bankrupt or insolvent. Not withstanding anything to the contrary herein provided. Lessor may, at its option, in either or any of such events, without notice to Lessee or any other person or persons, immediately re-enter and take possession of the demised premises and terminate this Lease with or without process of law, such process and or notice being expressly waived by the Lessee. The option hereby given to Lessor to terminate may be exercised at any time or stage of any of the contingencies herein noted, and no delay in exercising the right to terminate shall constitute a waiver or release of such right. Under such termination all installments of rental earned to the date of termination and unpaid together with any other sums accrued to Lessor as herein provided shall at once become due and payable and, in addition thereto, Lessor shall have all rights provided by the bankruptcy laws relating to the proof of claims of an anticipatory breach of an executory contract. In no event shall this Lease or any interest of Lessee therein be considered as an asset of Lessee in any bankruptcy receivership or other judicial proceeding. 22. LOSS THROUGH CONDEMNATION OR EMINENT DOMAIN: In the event all the demised premises or more than ten (10) per cent of the floor area of the building or buildings on the leased premises or more than twenty five (25) per cent of the demised ground area not occupied by buildings shall be appropriated, condemned or taken by eminent domain this Lease may, at option of either Lessee or Lessor, be terminated. In the event this Lease is not terminated in total as provided in this paragraph and in the event less than ten (10) per cent of the demised floor area and twenty-five (25) per cent of the demised ground area be appropriated, condemned or taken by eminent domain this Lease shall terminate only as to the part appropriated, condemned or taken and the Lessor shall, without delay, do any remodeling or repairs necessary to put remaining portion of demised premises in good and operative condition and repair. Any and all award or compensation arising from such appropriation, condemnation or taking shall be paid and belong to Lessor except any award for damage or loss of use of fixtures, Lessee Improvements machinery and equipment of Lessee, which later award shall belong to Lessee, and there shall be an abatement in rent payable after the actual taking and during the balance of the term hereof in accordance with Paragraph 41 hereof. 23. CONVEYANCE OR ENCUMBRANCE OF PREMISES: In the event of a conveyance or transfer of the fee title to the demised premises or of the Lessor's interest in this Lease, and of the assumption in writing by the grantee or transferee of the provisions, covenants and conditions herein contained on the part of the Lessor to be kept and performed, then and in that event and upon there being delivered to the Lessee an executed copy of such assumption agreement, the Lessor shall be relieved and discharged of and from any and all further obligations or liability thereafter accruing hereunder. This Lease shall be at all times subject and subordinate to the lien or liens of mortgage or trust deeds now on or that Lessor may put on demised premises, and to all advances made or hereafter to be made upon the security thereof as well as any renewals or extensions of the same. The Lessee agrees at any time during term hereof, and from time to time upon written request of the Lessor to execute, acknowledge and deliver to the Lessor a statement in writing certifying that this Lease is in full force and effect, and if there have been modifications, stating the modifications, and the dates to which the rent and other charges in the nature of rent have been paid in advance, if any, and current financial condition of Lessee, it being intended that any such statements may be relied upon by any prospective purchaser of, or by the holder or prospective holder of any obligation secured by any lien upon the fee title to the demised premises. The Lessor agrees that the Lessee shall have the right at any time to redeem for the Lessor by payment, any mortgages, or other liens upon the demised property made or suffered by the Lessor and not agreed herein to be paid by the Lessee, in the event of default of payment by the Lessor, and to be subrogated in the event of such payment to the rights of the holder thereof. Lessor hereby warrants that demised premises are now free and clear of any lien or mortgage that might negate the terms of this Lease, as long as Lessee is not in default per terms of this Lease at any time during term of this Lease. Should Lessor, during the term of this Lease, place a lien or mortgage on said demised premises proper subrogation provisions shall be included in such lien or mortgage to protect Lessee's right to lease said demised premises for the term set forth in Paragraph 4 of this Lease, provided Lessee is not then in default and continues to fulfill all the obligations of Lessee per terms of this Lease. 24. DEFAULT OF LESSEE: Should default be made and continue for ten (10) days after written notice from the Lessor specifying such default, either of vacating or abandonment of premises by Lessee or in the payment of any portion of the rent, or items in the nature of rent, or other charges, whether similar or dissimilar thereto, herein provided to be paid by the Lessee as and when the same come due, or should default be made and continue for thirty (30) days after written notice from the Lessor specifying such default, in the performance of any of the other covenants herein contained on the part of the Lessee to be kept or performed, provided, that if the default complained of 6 is of such a nature that the same cannot be rectified in such thirty (30) day period as aforesaid, then such default shall be deemed to be rectified if Lessee shall have within the said thirty (30) day period commenced and shall diligently continue to remedy any such default until the same shall have been fully rectified or performed, the Lessor or its agent or attorney shall have and at its option may exercise any one or more of the following rights and remedies each of which shall be cumulative and in addition to all other rights and remedies authorized by law: (a) It may, without terminating this Lease, bring and maintain an action for any amount due and unpaid. (b) It may re-enter and take possession of the premises, remove all persons and property therefrom and, at its option, declare this Lease and the leasehold estate hereby created to be, and thereupon shall be and become, terminated and ended. In this event such default shall be deemed to be a breach of this Lease in its entirety and the Lessor, at its option, shall thereupon be entitled to recover from the Lessee pursuant to the provisions of section 3308 of the Civil Code of the State of California the worth at the time of such termination of the excess, if any, of the amount of the rent and charges or items equivalent to or in the nature of rent reserved in this Lease for the balance of the term hereof over the rental that can then be obtained for the premises for the same period. (c) It may re-enter and take possession of the premises and remove all persons therefrom and, at its option, without declaring this Lease or the leasehold estate created hereby terminated or ended, may re-let the premises herein demised or any portion thereof, for the account of the Lessee for such rent and upon such terms as it may deem proper, or it may operate said property itself. In this event if a sufficient sum shall not be thus realized, after- paying the expenses of re-entry, reletting, collecting, or of operating said property, and all other damages or expenses sustained by Lessor, to satisfy the rent hereby reserved or items equivalent to or in the nature of rent payable by the Lessee plus payments that may be herein reserved for leasehold improvements the Lessee agrees forthwith to satisfy and pay any such deficiency as and when the same arises and as and when demanded by the Lessor. In the event of any such reletting, as herein provided, the Lessee agrees that any and all of its furniture, furnishings, machinery, equipment, trade fixtures and all Lessee Improvements that are in, on or about the demised premises may be used by the Lessor or its tenant until the expiration of the natural term or any earlier termination of this Lease, without payment of or any liability for rent, compensation or other charge: but if, on the expiration of the natural term or any earlier termination of this Lease the total net amount so collected or received by the Lessor from and through any such reletting has exceeded the total amount accrued and due and unpaid from the Lessee then such excess shall be paid to the Lessee. In the event Lessor takes and operates property itself Lessor shall waive all payment of rent and items in the nature of rent during period of such operation and shall, each month, credit Lessee with an amount equivalent to their rental for use of any of its furniture, furnishings, machinery, equipment and trade fixtures. In the event of any such reletting by the Lessor, as herein provided, the Lessor may execute any such lease either in the name of Lessor or in the name of Lessee, as Lessor may see fit, and the tenant therein named shall be under no obligation whatsoever to see to the application by the Lessor of any rent collected by Lessor from such tenant, nor shall Lessee have any right or authority whatever to collect any rent whatever from such tenant. Such reletting to another tenant may be for the unexpired term of this Lease, or any lesser part thereof or for a longer period of time, in which latter event the period of time in excess of the term of this Lease shall be for the sole account of Lessor. At Lessor's option this Lease may nevertheless be terminated by written notice to Lessee prior or subsequent to such reletting. Nothing herein contained shall be construed as obligating Lessor to re-let or lease the whole or any part of the leased premises in case of default by Lessee. Any re-entry or repossession of sid premises by the Lessor, or any notice served in connection therewith shall not operate to release the Lessee from any obligation under this Lease, except with the written consent of the Lessor. In the event of any such re-entry by the Lessor, the Lessor may, at its option, require the Lessee to remove from the premises any of the Lessee's property located thereon. If the Lessee fails to do so, within ten (10) days after written notice to do so, the Lessor shall not be responsible for the care or safekeeping thereof and may remove any of the same from the demised premises and place the same in storage in a public warehouse at the cost, expense and risk of the Lessee with authority to the warehouseman to sell the same in the event that the Lessee shall fail to pay the costs of transportation and storage all in accordance with the rules and regulations applicable to the operation of a public warehouseman's business. Any refusal by a public warehouseman to accept personal property upon such conditions shall be conclusive evidence that same is of no substantial value, and shall be an unconditional warrant to the Lessor for disposing of the same in any manner it sees fit and without accountability for any alleged value thereof. In any and all such cases of re-entry the Lessor may make any repairs in, to or upon the demised premises which may be necessary and the Lessee hereby waives any and all claims on account of any and all damage which may be caused or occasioned by such re-entry or any of the aforesaid acts of the Lessor or by reason of any loss or destruction or damage to any property in or about the demised premises or any part thereof. In addition to the foregoing rights and remedies the Lessor shall have and at its option may exercise all other rights and remedies, whether similar or dissimilar to the foregoing and whether now or hereafter authorized by law or equity, it being understood that each and all of the rights and remedies available to the Lessor shall be cumulative and none of them exclusive. Whenever a right of re-entry is given to the Lessor by the terms of this Lease, the Lessor may exercise the same by agent or attorney, and with or without legal process, such process and any demand for possession of said premises being expressly waived by the Lessee, and the Lessor may use all force necessary to make such entry and to hold the demised premises after such entry, and to remove the Lessee and any other person and property from the demised premises; and the Lessor shall be entitled, on application to a court of competent jurisdiction, to have a receiver appointed in aid of the enforcement of any remedy herein provided for. 25. ASSIGNMENT AND SUBLETTING. It is agreed that the Lessee's leasehold interest in the demised premises shall not, nor shall any part or portion thereof or any interest therein, be sold, assigned, sublet, transferred or encumbered, voluntarily, by operation of law or otherwise, without the written consent of the Lessor first had and obtained; and the Lessee agrees that it will not attempt to assign, sell, transfer, encumber or hypothecate this Lease or any part or portion thereof or interest therein without such written consent; provided however, such restriction shall not apply to the transfer to the personal representative or distributee of a deceased individual Lessee; and provided further, the Lessee may, if it is not in default and without release from liability hereunder, assign this Lease and leasehold estate or any interest therein or right thereto, to a subsidiary, affiliated, related or successor corporation, or any corporation with which Lessee may become merged and consolidated, for any use permitted in this Lease; provided, however, that as such assignment shall be effective until delivery to the Lessor of a written instrument or instruments executed by Lessee and such assignee, evidencing such assignment and such assignee's acceptance thereof and assumption of 7 all further obligations of the Lessee hereunder. Any attempt to assign, transfer, encumber or hypothecate the Lessee's interest or any portion thereof, and any attempt to sublet the demised premises or any portion thereof, contrary to the terms of this Lease, shall be void and of no force or effect; provided however, the Lessor shall not and agrees that it will not arbitrarily withhold its consent to the subletting of the premises or any part thereof to any subtenant of good character for the purpose of operating a business that will not be harmful to the premises or out of keeping with the general character of business conducted in and about the immediate neighborhood. Any consent given by the Lessor to the Lessee of any assignment of this Lease or any interest herein, or to any subletting hereunder, shall not be construed as a consent to any further or subsequent assignment or subletting or as a waiver of the right of the Lessor to object to any further or subsequent assignment or subletting, to which its consent has not been first had and obtained. The Lessee, together with all assignees, if the Lessor elects to treat such assignees as tenants, shall be held and hereby agree to be held jointly and severally responsible for the payment of rent and the faithful fulfillment of all the covenants, terms and conditions of this Lease. 26. ENTRY AND RIGHT OF INSPECTION. The right is reserved to Lessor to enter upon said premises at all reasonable times, and at any time in an emergency, for the purpose of examination and inspection, and making repairs, alterations or improvements to the extent permitted herein or exercising any of the rights under this Lease or for posting notices required by law. Lessor, however, shall make any repairs, alterations or improvements at such times so as to inconvenience as little as possible Lessee in the operation of its business. During the last thirty (30) days of the term of this Lease, Lessor shall have the right to post or display on said premises such "For Rent" or "For Sale" signs as Lessor shall deem advisable and also to show said premises to prospective Lessees or purchasers. Lessee shall have the right to require Lessor to be escorted by an employee of Lessee during any entry by Lessor provided for herein. 27. DELIVERY & PREMISE CONDITION ON TERMINATION. Upon the expiration of the term hereof or upon the cancellation or earlier termination of this Lease by the Lessor or by operation of law for any cause whatsoever the Lessee shall deliver and yield up the premises herein demised to the Lessor in as good condition and repair as the same may be upon commencement of the term hereof, obsolescence, damage by earthquake or other casualty or act of God and reasonable wear and tear excepted. 28. WAIVER OF BREACH. No waiver of any rights and/or remedies by the Lessor of any breach or breaches of any provision, covenant, or condition of this Lease or provided by law shall be construed to be a waiver of any preceding or succeeding breach of such provision, covenant or condition or of any other provision, covenant or condition, and time is of the essence of each and every provision, covenant and condition herein contained and on the part of either the Lessor or on the part of the Lessee to be done and performed. Any forebearance in seeking a remedy for any breach shall not be deemed a waiver of any rights or remedies with respect to such breach. 29. SIGNS. Lessee agrees not to paint or install, or to allow to be installed, any sign on the exterior of the said demised buildings, except on the windows thereof, without the written consent of the Lessor first had and obtained; except the Lessee is hereby granted permission to erect the usual trade signs on the exterior of the demised building, on condition that the signs and designs of the said signs are first submitted for the written approval of the Lessor, and that the Lessee comply strictly with all applicable ordinances now in effect or which may hereafter become effective in connection with the size, style, maintenance and erection thereof provided. Lessee agrees to remove said signs, repair damage caused by sign installation and removal, and repaint building exterior as necessary to remove all trace of sign installation upon termination of this Lease. 30. PROVISIONS OF ENFORCEMENT: This Lease contains all of the conditions, covenants, stipulations, agreements and provisions agreed upon between the parties hereto in relation to the demised premises; and this Lease supercedes and cancels each and every other agreement, promise and/or negotiation between the parties with reference to the demised premises; and neither party shall be bound by any inducement, statement, representation promise or agreement not in conformity herewith. In the event any suit is brought by either party against the other to protect its rights hereunder or to enforce any of the terms and provisions of this Lease, or to collect any sum alleged to be due hereunder, then it is agreed that the successful party in such suit shall be entitled to attorney's fees and expenses in a reasonable amount to be fixed by the Court and included in any judgement rendered in such action if such action is prosecuted to judgement of a Court; if action is settled without being prosecuted to judgement the successful party shall be entitled to reasonable attorney's fees and expenses included in said settlement. If Lessor is made a party defendant to any litigation with Lessee concerning the operation of this Lease or the leased premises or the occupancy thereof by Lessee, then Lessee shall hold harmless lessor from all liability by reason of said litigation, including reasonable attorney's fees and expenses incurred by Lessor in any such litigation, whether or not any such litigation is prosecuted to judgement. The various rights, options, elections and remedies of the Lessor provided by law or contained in this Lease shall be construed as cumulative, and no one of them as exclusive of any of the others or of any right or priority allowed by law. It is agreed that this Lease shall be construed pursuant to the laws of the State of California and that the execution hereof be deemed to have taken place on the part of all signatories hereto within the County of Los Angeles, State of California. 31. EXECUTION OF RECORD MAPS. In the event the Lessor subdivides all or any part of the real property forming a part of the demised premises into a tract or tracts containing the same, and with or without adjacent property, the Lessee shall and agrees to, upon the request of the Lessor, join in the execution of such sub-division or record map or maps as may be prepared in connection therewith on the condition that no part of the demised premises shall be dedicated on said sub-division or record map or maps for any public purpose that will interfere with the use thereof by the Lessee in connection with its right or occupancy under the terms and provisions hereof. 32. SUCCESSORS AND ASSIGNS. Each of the provisions, covenants and conditions of this Lease shall, subject to the provisions as to assignment, extend to and bind and inure to the benefit of, as the case may be, not only the parties hereto but each and every of the personal representatives, successors and assigns of the respective parties, and whenever in this Lease a reference to either of the parties is made such reference shall be deemed to include, whenever applicable, also a reference to the personal representatives, successors and assigns of such party the same as if every case so expressed; and all of the conditions and covenants contained in this Lease shall be construed as covenants running with the land. No modification of this Lease agreed upon with any successor shall release the Lessee from liability under this Lease. 33. HOLDING OVER. In the event the Lessee holds over or remains in the possession or occupancy of the demised premises after the expiration of the term of this Lease by lapse of time without any written Lease of said promises being made or entered into between the Lessor and the Lessee, such holding over or continued possession or occupancy shall not be deemed or be held to operate as any renewal or extension of the term of this Lease and shall, as rent is paid by Lessee and accepted and acknowledged by Lessor for or during any period of time the Lessee so holds over or remains in possession or occupancy, only create a tenancy from month to month at the rental, including items or charges in the nature of rent, hereinbefore provided for and subject to all applicable terms and conditions herein provided, and such month to month tenancy may at any time be terminated by either the Lessor or the Lessee giving to the other thirty (30) days' written notice of intention to terminate the same. 34. LIENS. Lessee will not permit any mechanics', laborers' or materialmen's lien to stand against premises for any labor or material furnished to Lessee or claimed to have been furnished to Lessee or to Lessee's agents' contractors or sub-lessees, in connection with work of any character performed or claimed to have been performed on said premises by or at the direction or sufferance of Lessee, provided, however, that the Lessee shall have the right to contest the validity or amount of any such lien or claimed lien provided Lessee shall give to the Lessor reasonable security as may be demanded by the Lessor to insure payment thereof and prevent any sale, foreclosure or forfeiture of the premises by reason of such non-payment provided such security need not exceed one and one-half times the amount of such lien or claimed lien. On final determination of the lien or claim for lien the Lessee will immediately pay any judgement rendered plus all costs and charges and shall have the lien released or judgement satisfied at Lessee's own expense. 35. RIGHT OF TERMINATION. This Lease shall not be terminable for any reason by either party hereto, except as expressly provided for in this instrument. Without limiting the generality of the foregoing, damage to or destruction of any portion or all of the building or buildings and fixtures upon the Leased Premises by fire, the elements or any other cause whatsoever, whether or not without fault on the part of the Lessee, shall not terminate this Lease or entitle the Lessee to surrender the Leased Premises, or entitle the Lessee to any abatement of or reduction in rent payable by the Lessee hereunder, except as specifically provided in this Lease, or otherwise affect the respective obligations of the parties hereto, any present or future law to the contrary notwithstanding. 36. ARBITRATION. In the event of any dispute between the Lessor and Lessee concerning any provision of this Lease, such dispute shall be settled by three (3) disinterested arbitrators, one of whom shall be chosen by each of the parties hereto and the third by the two so chosen, or any such dispute may be submitted for arbitration to the American Arbitration Association upon application of either party hereto. Such arbitration shall be conducted by said Association under its rules and regulations then prevailing and the determination of such arbitration shall be final and binding upon both parties hereto. Only one of the above methods of arbitration shall be used in resolving any one dispute unless, in the case of submission to the three man arbitration group, they can not agree on a decision, in which case, if parties hereto are still in disagreement, the dispute will be submitted to the above mentioned Association for arbitration. The cost of any such arbitration shall be borne equally between the parties. 37. QUIET ENJOYMENT. The Lessor covenants that the Lessee, on paying the rent and all other sums herein reserved, and performing all the other provisions hereof on the Lessee's part to be performed, shall and may at all times peaceably and quietly have, hold and enjoy the demised premises for the demised term, subject to the provisions of this Lease. 38. EXPENDITURES BY LESSOR ON BEHALF OF LESSEE. If the Lessor shall make any expenditure or incur any liability which the Lessee is required to make or pay under this Lease, the amount thereof may, at the option of the Lessor, be added to and be deemed a part of any installment of rent thereafter falling due. 39. PLACE 7 METHOD OF NOTICE AND PAYMENT DELIVERY. Lessor may from time to time designate some one person, firm or corporation, which may or may not be the Lessor, to receive notices, rental payments, tenders, documents, etc., which Lessee is required or permitted to deliver to or serve upon it respectively and will furnish Lessee the address of such designated receiver at least ten (10) days prior to effective date thereof. Any notice herein required or permitted to be given by Lessee to Lessor shall be deemed given if and when properly addressed and mailed by registered mail, postage prepaid, to Lessor or to receiver designated by Lessor. Any notice herein required or permitted to be given by Lessor to Lessee shall be deemed given if and when delivered or served personally or mailed in a sealed wrapper, by United States registered mail, postage prepaid, properly addressed to Lessee at the herein demised premises, whether or not Lessee has departed from, abandoned or vacated the premises, and any further or additional notice is hereby waived by Lessee. Until changed as herein provided, notices, communications and rental payments from Lessee to the Lessor shall be addressed as follows: D. E. Turner, ------------- 32771 Seven Seas Drive, Laguna Niguel, California 92677. - ------------------------------------------------------- 40. LEASE IN DUPLICATE. For the convenience of the parties hereto, this Lease has been executed in duplicate, which in all respects are identical. Each of them shall be deemed complete in itself. 41. RENT ABATEMENT. Should the Lessee be deprived of usage of all or any part of the demised premises herein provided by reason of demised premises being appropriated, condemned or taken by eminent domain, destroyed or damaged by fire or other insured loss or by calamity such as earthquake, flood, tornado, or similar or dissimilar violent action of the elements, or by the act of God, war, bombing, insurrection, invasion, or other calamities of such nature, without the fault of the Lessee and not resulting from the activities of Lessee, Lessee shall be entitled to abatement or reductions of rental, from date of such destruction, damage, appropriation, condemnation or taking of demised premises and for such period of time as such part or portion of demised premises immediately prior to said loss or usage of building and/or ground area, except that rental payable for any land herein reserved for future expansion of building or parking area shall not be included in rental so pro-rated unless such expansion area is a part of area lost by eminent domain. Under no circumstances will payments due Lessor from Lessee for any Leasehold improvements, as may be herein 9 reserved, be subject to abatement or reduction, nor shall payments of taxes, assessments and insurance on demised premises, or other charges, whether similar or dissimilar thereto, herein provided to be paid by the Lessee, be subject to abatement, reduction or proration, except such as may be allowed or permitted by the Insurance Company providing Fire and Comprehensive Insurance coverage for demised property, taxing and/or assessing authority or by provisions of Paragraph 20 of this Lease. 42. ABANDONMENT OF LEASED PREMISES. Lessee shall not vacate or abandon the demised premises at any time during the term of this Lease, and shall not permit the demised premises to remain unoccupied except during and for the purpose of making such repairs or restoration as may become necessary under the provisions hereof. If Lessee shall abandon, vacate, or surrender said premises or be dispossessed by process of law or otherwise, any personal property belonging to Lessee and left on the premises shall, at the option of the Lessor, be deemed abandoned by Lessee and shall forthwith become the property of Lessor. 43. LEASE SURRENDER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall at the option of Lessor, terminate all or any existing subleases or subtenancies or may, at the option of Lessor, operate as an assignment to him of any or all of such subleases or subtenancies. 44. INTEREST. Any sums payable to Lessor by Lessee, as herein provided, that are not paid when due shall, at option of Lessor bear interest at the rate of ten (10) per cent per annum from due date of such payment to date such payment and accumulated interest is paid to Lessor. IN WITNESS WHEREOF, the Lessor and the Lessee have executed this instrument the day and year first above written. Dale E. Turner & Frances R. Turner Staar Surgical Company __________________________________ ___________________________________ LESSOR LESSEE By /s/ Dale E. Turner By /s/ Thomas R. Waggoner -------------------------------- ---------------------------------- Dale E. Turner Thomas R. Waggoner, President By /s/ Frances R. Turner By /s/ C. Frederick Reish -------------------------------- ---------------------------------- Frances R. Turner C. Frederick Reish, Secretary STATE OF CALIFORNIA } } SS COUNTY OF LOS ANGELES } On Oct. 31 , 1983, before me, the undersigned, a Notary Public in and for -------------- said County and State, personally appeared Thomas R. Waggoner known to me to be ------------------ the X President and C. Frederick Reish, personally known to me to be the X --- ------------------ --- Secretary of Staar Surgical Company, A California Corporation, the Corporation ------------------------------------------------ that executed the within Lease between said Corporation, as Lessee, and Dale E. ------- Turner & Frances R. Turner, as Lessor, consisting of 13 pages including - -------------------------- -- Schedule "A", and the First Lease Addition, numbered consecutively from 1 to 15, -- and known to me to be the persons who executed the within Lease on behalf of the said Corporation, and acknowledged to me that said Corporation executed the same. WITNESS MY HAND AND OFFICIAL SEAL /s/ Bonnie M. Davis --------------------------------------- Notary Public in and for said County (NOTARIAL SEAL) and State STATE OF CALIFORNIA } } SS COUNTY OF LOS ANGELES } On October 31, 1983, before me, the undersigned, a Notary Public ---------------- in and for said County and State, personally appeared Dale E. Turner -------------- and Frances R. Turner, personally known to me to be the person (persons) who - --------------------- executed the within Lease between Staar Surgical Company, a Calif. Corp., ---------------------- -------------- Lessee, and Dale E. Turner and Frances R. Turner, Lessor, consisting of 13 ------------------------------------ -- pages including Schedule "A", and the First Lease Addition, numbered consecutively from 1 to 13, and acknowledged to me that he (they) executed the -- same. WITNESS MY HAND AND OFFICIAL SEAL /s/ M. Kathleen Lansing --------------------------------------- Notary Public in and for said County (NOTARIAL SEAL) and State 10 SCHEDULE "A" Attached to and made a part of Lease made the twentieth day of October, ---------------------------- 1983, between Dale E. Turner and Frances R. Turner, Lessor, and Staar Surgical - ---- ------------------------------------ -------------- Company, a California Corporation, Lessee. - --------------------------------- The promises, covenants, agreements, statements, understandings and declarations made and set forth in this Schedule "A" are intended to and shall have the same force and effect as if set forth at length in the body of said Lease. The real property herein described, together with the improvements thereon or herein provided to be constructed or installed thereon shall constitute the total property leased by this Lease. 1. LEGAL DESCRIPTION. All of Lot 2 and the North sixty-five (65') feet of Lot 3 Tract 28379 of Los Angeles County. Address of demised premises is 1911 Walker Avenue, Monrovia, California 91016. 2. IMPROVEMENTS: The above described real property is improved with a structure of approximately 36,750 square feet. Building is completely air conditioned, lighted and fire sprinklered. 3. FACILITY PREPARATION: Lease is accepting demised property in `as is' condition. Lessor shall, however, provide premise preparations as set forth in Paragraph 2 of First Lease Addition. 11 THIS FIRST LEASE ADDITION made in the City of Monrovia, State of California, as of the twentieth day of October, 1983, to Lease by and between Dale E. Turner and Frances R. Turner, Lessor, and Staar Surgical Company, A - ------------------------------------ ---------------------- California Corporation, Lessee, dated the twentieth day of October, 1983, - ---------------------- --------- ------- becomes a part thereof as though it were incorporated in and included as a part of the original. WITNESSETH THAT, In consideration of the mutual promises, agreements, and covenants hereinafter contained, the parties hereto further agree as follows: 1. LEASE TERM EXTENSION: The five year two month Lease Term as established in Paragraph 4 of this Lease may be extended, at option of Lessee, for two additional five (5) year terms, provided Lessee exercises such option at least four (4) months prior to then current expiration date established per terms of provisions of Paragraph 4 and this Paragraph 1 of the First Lease Addition, and further provided Lessee is then occupying said demised premises and is not then in default in the performance of any of the provisions of this Lease. 2. FACILITY PREPARATION: Lessee is to accept building and premises in 'as is' condition and shall make all necessary leasehold improvements at expense of Lessee. Plans for Lessee proposed leasehold improvements affecting the present building improvements will be submitted to Lessor for approval prior to installation. Permission is hereby given by Lessor to Lessee to remove the room designated as a drying room located near the Northwest corner of the building. Lessor does not know the condition of and therefore does not warranty the drying room equipment. Lessor will have the following improvements made at the expense of Lessor: 1. Install new steel rollup overhead door at North ground level truck entry. 2. All air conditioning equipment shall be inspected and repaired as required. Lessor shall warranty said air conditioning equipment for a period of one hundred and twenty days and will pay in full for any major equipment replacements that may be required during the first six months of the Lease Term and one-half of such cost of replacements during the next six months.* The evaporative water coolers are excluded from any Lessor warranty or responsibility. 3. Paint exterior of building with color to be selected by Lessee. 4. Paint all mustard colored interior factory walls. 5. Reroof main (original) building and check and repair, if needed, the balance of the roof system. Lessor to have all the above work completed without delay. 3. RENTAL PAYMENTS: Rental installments as established in Paragraph 5 of Lease shall start January 1, 1984. Lessee shall pay Lessor rental for the first thirty (30) months of any Lease Term Extension, as provided for in Paragraph 1 of this Lease Addition, as determined by the following method: The monthly rental rate starting January 1, 1989 shall be the monthly rental rate established in Paragraph 5 of this Lease adjusted to equal the increase, if any, in the Consumer Price Index, (United States City average, all items, 1967 equaling 100, from the U.S. Department of Labor, Bureau of Labor Statistics, Washington, D.C.) for the month of August 1988 over that of 300.3 for August 1983. At the end of each thirty (30) month period during Lease Term Extension (on June 1, 1991, January 1, 1994 and June 1, 1996 based on C.P.I. Index figures of March 1991, October 1993 and March 1996 respectively) the monthly rental payable as established by this Paragraph 3 for the first thirty (30) months of optioned Lease Term Extension, shall be adjusted, from the date of last rental adjustment, in accordance with provisions of this Paragraph, if any increase occurs, in the Consumer Price Index during each period as stipulated herein. In the event the monthly rental rate established in Paragraph 5 of this Lease is increased during the term of this Lease by a subsequent Lease Addition covering alteration or additions to demised premises the monthly rental established in such subsequent Lease Addition will be used as the base rental for determining the rental for any Lease Term Extension. If said Index is discontinued by the Government, then the most nearly comparable Index shall be substituted. * Provided, however, if Lessee engages the services of Mr. Pat McClory in fulfillment of its obligation under Paragraph 5 of this First Lease Addition, Lessor shall warrant said air conditioning equipment for a period of one year and will pay in full for any major equipment replacements that may be required during the first year of the Lease term. -12- 4. PUBLIC LIABILITY INSURANCE: Insurance limits as set forth in Paragraph 13 of Lease shall be increased to $31,000,000.00 for Bodily Injury and Personal Injury combined for each occurance. 5. REPAIRS AND MAINTENANCE: Lessee agrees to secure and keep in force an air conditioning equipment service and maintenance contract from a qualified air conditioning servicing contractor approved by Lessor to perform monthly service as required or needed on all the air conditioning equipment and shall have all the air conditioning equipment included as a part of the demised premises in good and operable condition at expiration or termination of this Lease. In addition, if air conditioning equipment servicing contractor is not a qualified water chemist, Lessee shall also secure and keep in for a contract with a qualified water chemist to service the evaporative water condensor NOTE: Airmac Heating & Air Conditioning (Mr. Pat McClory), 714-737-2034, is the most knowledgeable contractor of the air conditioning equipment in this building having maintained and serviced same for approximately eight years. Quoted service rate of 3225.00 per month. 6. RESTORATION OR REBUILDING AFTER DAMAGE OR DESTRUCTION: The provisions of Paragraph 20 of basic Lease are hereby amended by way of addition as follows: The provision that the starting time or time limitations to effect repairs, restoration or rebuilding be based on date of notification of such damage, fire, or other loss or calamity as the starting point is hereby amended to date Lessee and Lessor and their respective insurance carriers, as their interests may be affected, have mutually agreed to extent of damage and their respective liabilities. 7. LAND USE: None of the demised land area not covered with a building, built or approved by Lessor, shall be used for production work, storage or other non-vehicle parking uses without the prior written consent of the Lessor. 8. SUBTENANT: Graphic Installation Services are now occupying approximately 3000 square feet of the two story section of the demised premises. Lessor hereby assigns and Lessee hereby accepts assignment of Graphic Installation Services as a subtenant on a month to month basis under terms and conditions as set forth in attached letter rental agreement between Lessors and Graphic Installation Services as Lessee. Graphic Installation Services shall pay monthly rental of $1200.00 to Lessor for months of November and December. Starting January 1, 1984 said rental shall be payable to Staar Surgical Company. IN WITNESS WHEREOF, the Lessor and Lessee have executed this instrument on the day and year first above written. Dale E. Turner & Frances R. Turner Staar Surgical Company - ----------------------------------------- -------------------------------- LESSOR LESSEE By: /s/ Dale E. Turner By: /s/ Tom Waggoner -------------------------------------- -------------------------------- Dale E. Turner Thomas R. Waggoner, President By: /s/ Frances R. Turner By: /s/ Frederick Reish -------------------------------------- -------------------------------- Frances R. Turner C. Frederick Reish, Secretary 9. Right of First Refusal: If Lessor determines to sell all or any part of the premises, Lessor shall notify Lessee of the terms on which Lessor will be willing to sell. If Lessee, within 15 days after receipt of Lessor's notice, indicates in writing its agreement to purchase the premises or a part of the premises on the terms stated in Lessor's notice, Lessor shall sell and convey the premises or a part of the premises to Lessee on the terms stated in the notice. If Lessee does not indicate its agreement within 15 days, Lessor thereafter shall have the right to sell and convey the premises or a part of the premises to a third party on the same terms stated in the notice. If Lessor does not sell and convey the premises or a part of the premises within 90 days, any further transaction shall be deemed a new determination by Lessor to sell and convey the premises or a part of the premises and the provisions of this paragraph shall be applicable. -13- LEASE ADDITION THIS THIRD LEASE ADDITION made in the City of Monrovia, State of California, as of the second day of January, 1987, to Lease by and between Turner Trust, Dale E. Turner & Frances R. Turner, Trustees, Lessor, and Staar Surgical Company, A California Corporation, Lessee, dated the twentieth day of October, 1983, becomes a part thereof as though it were incorporated in and included as a part of the original. WITNESSETH THAT, In consideration of the mutual promises, agreements, and covenants hereinafter contained, the parties hereto further agree as follows: 1. CHANGES, ALTERATIONS AND RESTORATION: Lessor hereby grants permission to Lessee to cut up to a 6' wide by 8' high opening in rear wall of 1911 Walker Avenue building to provide access to 1900 South Myrtle Avenue building through opening of same size cut in rear (East) wall of 1900 South Myrtle Avenue building, provided: A. Opening is provided with necessary reinforcing to maintain the structural integrity of wall cut to provide said opening. Such opening reinforcing shall consist of a complete side and top frame made of T.S. (Tubular Steel) 5" x 2" x 0.1875 steel tube across the top, secured in place by two (2) each 5/8" x 6" redheads, and supported on each end by tubes of same size and secured in place by a minimum of three (3) each 5/8" x 6" redheads in each support. B. Opening and space between buildings shall be provided with a water proof surround of heavy gauge metal or other Lessor approved material. C. Opening shall be provided with a self closing Fire Underwriters approved fire door, either sliding or swinging, meeting current applicable code requirements for exterior wall on property line installation. D. Lessee shall, at expense of Lessee, close said opening and shall leave floors and said affected wall in as near pre-opening condition as possible on or before termination or expiration date of this Lease or usage by Lessee of premises located at 1900 South Myrtle Avenue, Monrovia. 2. LEASE PROVISIONS: All the terms and provisions set forth in the basic Lease as extended, amended or clarified by the First and Second Lease Additions shall remain in full force and effect except such terms and provisions that have been specifically amended, extended or clarified by this Third Lease Addition. IN WITNESS WHEREOF, the Lessor and Lessee have executed this instrument on the day and year first above written. TURNER TRUST STAAR SURGICAL COMPANY - ------------------------------------ ---------------------------------- LESSOR LESSEE By: /s/ Dale E. Turner, Trustee By: /s/ Thomas R. Waggoner -------------------------------- ----------------------------- Dale E. Turner, Trustee Thomas R. Waggoner, President By: /s/ Frances R. Turner, Trustee By: /s/ Donald Hardy -------------------------------- ------------------------------ Frances R. Turner, Trustee Donald Hardy, Vice President -15- LEASE ADDITION THIS FOURTH LEASE ADDITION made in the City of Monrovia, State of California, as of the first day of October, 1988, to Lease by and between Turner Trust, Dale E. Turner & Frances R. Turner, Trustees, Lessor, and Staar Surgical Company, A California Corporation, Lessee, dated the twentieth day of October, 1988, becomes a part thereof as though it were incorporated in and included as a part of the original. WITNESSETH THAT, IN CONSIDERATION OF THE MUTUAL PROMISES, AGREEMENTS, AND COVENANTS HEREINAFTER CONTAINED, THE PARTIES HERETO FURTHER AGREE AS FOLLOWS: 1. LEASE TERM: The provisions of Paragraph 4 of Lease as extended by Paragraph 1 of First Lease Addition are further amended as follows: The Lease Term is hereby extended five (5) years to new termination date of December 31, 1993. 2. RENTAL: The provisions of Paragraph 5 of Lease as extended by Paragraph 3 of First Lease Addition as hereby amended by way of addition as follows: The monthly rental rate starting January 1, 1989 shall be thirteen thousand five hundred thirty-five and no/100 dollars ($13,535.00) increasing the total rental payable under terms of this Lease by eight hundred twelve thousand one hundred and no/100 dollars ($812,100.00), from six hundred eighty-four thousand and no/100 dollars ($684,000.00) to one million four hundred ninety-six thousand one hundred and no/100 dollars ($1,496,100.00) subject to further adjustment June 1, 1991 and thereafter as provided for in Paragraph 3 of First Lease addition. 3. RENTAL ADJUSTMENT IN CASE OF LEASE ASSIGNMENT OR SUBLETTING: Provisions of Paragraph 25 of basic Lease are extended as follows: Lessor shall, in the event Lessee in conformance with provisions of Paragraph 25 of Lease, makes an assignment or subleases demised premises have the additional option of further adjusting the rental rate being paid by Lessee at time of such assignment or subletting to increase monthly rental to the then current fair market rental rate. Fair market rate to be determined by mutual agreement between Lessee and Lessor based on local leasing rates for comparable property located in the local and adjacent areas supplied by reputable industrial leasing brokers active in the local and adjacent areas. In the event agreement can not be reached between Lessee and Lessor arbitration shall be had in accordance with applicable rules of the American Arbitration Association which are in effect at the time the demand for arbitration is filed. 4. BANKRUPTCY OR INSOLVENCY OF LESSEE: The provisions of Paragraph 21 of Lease are modified as follows: In the event any petition in bankruptcy remains undismissed for a period of thirty (30) days through no fault of Lessee such period can be extended up to sixty (60) days provided due diligence has been and continues to be exercised to effect such dismissal. 5. SECURITY DEPOSIT APPLICATION: Provisions of Paragraph 7 of basic Lease are further extended as follows: The Security deposit is to be applied as set forth in Paragraph 7 of Lease and shall not be used by Lessee toward payment of the last, or any other, months rental due Lessor. Lessor shall refund to Lessee, in accordance with terms of said Paragraph 7 of Lease, the then balance of the Security Deposit upon termination of this Lease. 6. CONTAMINATION AND HAZARDOUS WASTE: Provisions of Paragraph 16 of basic Lease are extended as follows: Lessee shall not use any hazardous substances or substances that can generate contamination or hazardous waste without first obtaining a permit from the proper authority controlling use of such substance under California Health and Safety Codes. Lessee, in any event, shall conform to and comply with applicable California Health and Safety Codes in the cleanup and disposal of any contamination and/or hazardous waste that Lessee might generate on or near demised property during the lease term provided for herein, or any extension thereof. -16- 7. LEASE PROVISIONS: All terms and provisions set forth in the basic Lease as extended, amended or clarified by the First, Second, and Third Lease Additions shall remain in full force and effect except such terms and provisions that have been specifically amended, extended or clarified by this Fourth Lease Addition. IN WITNESS WHEREOF, the Lessor and the Lessee have executed this instrument effective the day and year first above written. TURNER TRUST STARR SURGICAL COMPANY - ------------------------------- ------------------------------ LESSOR LESSEE By: /S/ Dale E. Turner By: /S/ Tom Waggoner ---------------------------- ------------------------------ Dale E. Turner, Trustee Thomas R. Waggoner, President By: /S/ Frances R. Turner By: /S/ LaMar Laster ---------------------------- ------------------------------ Frances R. Turner, Trustee LaMar F. Laster, Secretary LEASE ADDITION THIS FIFTH LEASE ADDITION made in the City of Monrovia, State of ------- ---------------- California, as of the ninth day of November, 1992, to Lease by and between ------- --------- ---- Turner Trust, Dale E. Turner & Frances R. Turner, Trustees, Lessor, and - ---------------------------------------------------------- Staar Surgical Company, A California Corporation, Lessee, dated the twentieth - ------------------------------------------------ ---------- day of October, 1983 , becomes a part thereof as though it were incorporated -------- ---- and included as a part of the original. WITNESSETH THAT, In consideration of the mutual promises, agreements, and covenants hereinafter contained, the parties hereto further agree as follows: 1. LEASE TERM: The provisions of Paragraph 4 of Lease as amended and extended by Paragraphs 1 of the First and Fourth Lease Addition are further amended and extended as follows: The Lease Term is hereby extended for ten (10) years to a new termination date of December 31, 2003. 2. FACILITY IMPROVEMENTS: Lessor shall pay up to thirty-five thousand dollars ($35,000.00) for facility improvements desired by Lessee. 3. ACCESS TO 1941 WALKER AVENUE BUILDING: Lessor shall provide a 6' x 8' access opening in South wall of 1911 Walker building and in the North wall of 1941 Walker building to provide access to 1941 Walker for personnel and equipment. Plus an additional 3' x 6'8" personnel access doorway, if desired by Lessee and is structurally practical in location desired. 4. LEASE PROVISIONS: All the terms and provisions set forth in the basic Lease as extended, amended and clarified by the First, Second, Third and Fourth Lease Additions shall remain in full force and effect except such terms and provisions that have been specifically amended, extended or clarified by this Fifth Lease Addition. IN WITNESS WHEREOF, the Lessor and Lessee have executed this instrument on the day and year first above written. TURNER TRUST STAAR SURGICAL COMPANY - ----------------------------- ---------------------------------------- LESSOR LESSEE By: /s/ Dale E. Turner By: /s/ John R. Wolf -------------------------- --------------------------------------- Dale E. Turner, Trustee John R. Wolf, President By: /s/ Frances R. Turner By: /s/ LaMar Laster -------------------------- --------------------------------------- Frances R. Turner, Trustee LaMar Laster, Chairman and Secretary EX-10.21 9 REVOLVING LINE OF CREDIT NOTE DATED 6/1/97 EXHIBIT 10.21 WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE - -------------------------------------------------------------------------------- $10,000,000.00 El Monte, California June 1, 1997 FOR VALUE RECEIVED, the undersigned STAAR SURGICAL COMPANY ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at Flair Industrial Park RCBO, 9000 Flair Drive Suite 100, El Monte, CA 91731, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of $10,000,000.00, or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined: (a) "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in California are authorized or required by law to close. (b) "Fixed Rate Term" means a period commencing on a Business Day and continuing for 1, 2, 3, or 6 months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than $500,000.00; and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. (c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage equal to 100% less any LIBOR Reserve Percentage. (i) "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market. (ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. (d) "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of Interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear -------- interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum .25000% below the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be 1.75000% above LIBOR in effect on the first day of the applicable Fixed Rate Term. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR selection option selected hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. (b) Selection of Interest Rate Options. At any time any portion of this Note ---------------------------------- bears Interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the Interest rate option selected by Borrower, (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone so long as, with respect to each LIBOR selection, (A) Bank receives written confirmation from Borrower not later than 3 Business Days after such telephone notice is given, and (B) such option requested hereunder. Bank will quote the applicable fixed rate to Borrower at approximately 10:00 a.m., California time, on the first day of the Fixed Rate Term. If Borrower does not immediately accept the rate quoted by Bank, any subsequent acceptance by Borrower shall be subject to a redetermination by Bank of the applicable fixed rate: provided however, that if Borrower fails to accept any such rate by 11:00 a.m., California time, on the Business Day such quotation is given, then the quoted rated shall expire and Bank shall have no obligation to permit a LIBOR option to be selected on such day. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to such Fixed Rate Term applied. (c) Additional LIBOR Provisions. --------------------------- (i) If Bank at any time shall determine that for any reason adequate and reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly give notice thereof to Borrower. If such notice is given and until such notice has been withdrawn by Bank, then (A) no new LIBOR option may be selected by Borrower, and (B) any portion of the outstanding principal balance hereof which bears interest determined in relation to LIBOR, subsequent to the end of the Fixed Rate Term applicable thereto, shall bear interest determined in relation to the Prime Rate. (ii) If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for Bank (A) to make LIBOR options available hereunder, or (B) to maintain interest rates based on LIBOR, then in the former event, any obligation of Bank to make available such unlawful LIBOR options shall immediately be cancelled, and in the latter event, any such unlawful LIBOR-based interest rates then outstanding shall be converted, at Bank's option, so that interest on the portion of the outstanding principal balance subject thereto is determined in relation to the Prime Rate; provided however, that if any such Change in Law shall permit any LIBOR-based interest rates to remain in effect until the expiration of the Fixed Rate Term applicable thereto, then such permitted LIBOR-based interest rates shall continue in effect until the expiration of such Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any fines, fees, charges, penalties or other costs incurred or payable by Bank as a result thereof and which are attributable to any LIBOR options made available to Borrower hereunder, and any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (iii) If any Change in Law or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject Bank to any tax, duty or other charge with respect to any LIBOR options, or change the basis of taxation of payments to Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of Bank; or (C) impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any LIBOR options hereunder and/or to reduce any amount receivable by Bank in connection therewith, then in any such case, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any additional costs incurred by Bank and/or reductions in amounts received by Bank which are attributable to such LIBOR options. In determining which costs incurred by Bank and/or reductions in amounts received by Bank are attributable to any LIBOR options made available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (d) Payment of Interest. Interest accrued on this Note shall be payable on ------------------- the 1st day of each month, commencing July 1, 1997. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the term ----------------------- of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on June 1, 1999. (b) Advances. Advances hereunder, to the total amount of the principal sum -------- available hereunder, may be made by the holder at the oral or written request of (i) WILLIAM C. HUDDLESTON or JOHN R. WOLF or JOHN SANTOS or DEBORAH ANDREWS, anyone acting alone, who are authorized to request advances and direct the Page 2 disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (c) Application of Payments. Each payment made on this Note shall be ----------------------- credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first. PREPAYMENT: (a) Prime Rate. Borrower may prepay principal on any portion of this Note ---------- which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty. (b) LIBOR. Borrower may prepay principal on any portion of this Note which ----- bears interest determined in relation to LIBOR at any time and in the minimum amount of $500,000.00; provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: (i) Determine the amount of interest which would have accrued each month on --------- the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii) Subtract from the amount determined in (i) above the amount of interest -------- which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. Each Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum 2.000% above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank. EVENTS OF DEFAULT: The occurrence of any of the following shall constitute an "Event of Default" under this Note: (a) The failure to pay any principal, interest, fees or other charges when due hereunder or under any contract, instrument or document executed in connection with this Note. (b) The filing of a petition by or against any Borrower, any guarantor of this Note or any general partner or joint venturer in any Borrower which is a partnership or a joint venture (with each such guarantor, general partner and/or joint venturer referred to herein as a "Third Party Obligor") under any provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time, or under any similar or other law relating to bankruptcy, insolvency, reorganization or other relief for debtors; the appointment of a receiver, trustee, custodian or liquidator of or for any part of the assets or property of any Borrower or Third Party Obligor; any Borrower or Third Party Obligor becomes insolvent, makes a general assignment for the benefit of creditors or is generally not paying its debts as they become due; or any attachment or like levy on any property of any Borrower or Third Party Obligor. (c) The death or incapacity of any individual Borrower or Third Party Obligor, or the dissolution or liquidation of any Borrower or Third Party Obligor which is a corporation, partnership, joint venture or other type of entity. (d) Any default in the payment or performance of any obligation, or any defined event of default, under any provisions of any contract, instrument or document pursuant to which any Borrower or Third Party Obligor has incurred any obligation for borrowed money, any purchase obligation, or any other liability of any kind to any person or entity, including the holder. (f) Any sale or transfer of all or a substantial or material part of the assets of any Borrower or Third Party Obligor other than in the ordinary course of its business. (g) Any violation or breach of any provision of, or any defined event of default under, any addendum to this Note or any loan agreement, guaranty, security agreement, deed of trust, mortgage or other document executed in connection with or securing this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder of -------- this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or apellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) Obligations Joint and Several. Should more than one person or entity ----------------------------- sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws of the state of California. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. STAAR SURGICAL COMPANY By: /S/ William C. Huddleston --------------------------- William C. Huddleston Chief Financial Officer Revolving Line of Credit Note (08/96), Page 4 EX-21 10 LIST OF SUBSIDIARIES EXHIBIT 21 LIST OF SIGNIFICANT SUBSIDIARIES
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION OF EACH SUCH SIGNIFICANT SUBSIDIARY, AND NAMES (IF ANY) UNDER WHICH NAME OF SIGNIFICANT SUBSIDIARY EACH SUCH SIGNIFICANT SUBSIDIARY DOES BUSINESS - ------------------------------ ---------------------------------------------- STAAR Surgical AG............... Switzerland
EX-24 11 POWERS OF ATTORNEY 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 January 2, 1998, 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, 1998. /s/ Donald R. Sanders, M.D. ------------------------------- Donald R. Sanders, 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 January 2, 1998, 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, 1998. /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 January 2, 1998, 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, 1998. /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 January 2, 1998, 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, 1998. /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 January 2, 1998, 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 27th day of March, 1998. /s/ Peter J. Utrata, M.D. --------------------------- 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 January 2, 1998, 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, 1998. /s/ William C. Huddleston ---------------------------- William C. Huddleston EX-27.1 12 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JAN-02-1998 JAN-02-1998 6,279,136 0 8,111,469 128,070 14,712,398 35,413,144 20,027,438 10,003,257 62,390,881 10,477,373 0 0 0 132,462 44,650,322 62,390,881 42,480,014 45,519,585 10,261,748 22,989,240 319,808 (162,967) 595,810 11,689,416 4,270,286 7,419,130 0 0 0 7,419,130 .57 .53
EX-27.2 13 RESTATED FINANCIAL DATA SCHEDULE
5 1,000 12-MOS 12-MOS JAN-03-1997 DEC-29-1995 JAN-03-1997 DEC-29-1995 6,469,515 3,767,011 0 0 6,938,775 7,611,929 111,525 119,490 12,365,867 9,591,898 29,607,243 25,092,967 17,196,358 12,917,686 8,275,369 6,554,990 52,056,019 38,802,990 14,607,585 8,758,293 0 0 0 0 0 0 130,707 127,841 36,473,470 28,550,185 52,056,019 38,802,990 41,212,511 34,180,420 42,212,511 34,694,420 10,195,396 8,441,099 21,940,160 19,165,260 0 0 36,309 111,512 450,276 265,645 10,229,640 7,391,068 3,338,544 90,652 6,891,096 7,481,720 0 0 0 0 0 0 6,891,096 7,481,720 0.53 0.59 0.50 0.55
EX-27.3 14 RESTATED FINANCIAL DATA SCHEDULE
5 1,000 9-MOS 6-MOS 3-MOS JAN-03-1997 JAN-03-1997 JAN-03-1997 SEP-27-1996 JUN-28-1996 MAR-29-1996 6,586,524 3,872,336 4,018,619 0 0 0 7,063,042 7,864,964 7,807,683 134,827 123,494 127,727 12,517,972 11,939,659 10,814,377 29,801,407 27,777,945 26,650,461 16,805,063 14,981,390 14,060,633 8,890,768 7,495,400 6,947,076 50,180,272 44,390,600 42,067,693 14,440,036 10,882,352 10,159,151 0 0 0 0 0 0 0 0 0 130,455 128,760 128,580 34,636,636 32,187,204 30,364,123 50,180,272 44,390,600 42,067,693 29,905,147 19,356,122 9,279,078 30,655,147 19,856,122 9,529,078 7,350,838 4,715,908 2,273,870 15,968,213 10,613,773 5,072,747 0 0 0 67,959 33,131 21,079 393,904 221,098 70,389 7,442,054 4,722,086 2,303,819 2,423,934 1,479,005 805,940 5,018,120 3,243,081 1,497,879 0 0 0 0 0 0 0 0 0 5,018,120 3,243,081 1,497,879 0.39 0.25 0.12 0.36 0.23 0.11
EX-27.4 15 RESTATED FINANCIAL DATA SCHEDULE
5 1,000 9-MOS 6-MOS 3-MOS JAN-02-1998 JAN-02-1998 JAN-02-1998 OCT-03-1997 JUL-04-1997 APR-04-1997 3,669,387 4,012,683 3,998,896 0 0 0 8,976,145 8,235,090 7,087,871 185,372 143,472 169,457 13,770,360 13,423,110 12,916,318 28,958,294 23,347,780 26,985,518 18,848,021 18,346,760 17,657,100 9,564,923 9,110,685 8,685,167 53,711,773 52,967,444 49,891,506 7,745,693 7,537,262 10,755,555 0 0 0 0 0 0 0 0 0 131,844 131,019 130,756 42,822,536 40,676,518 38,249,705 53,711,773 52,967,444 49,891,506 33,227,477 21,652,779 10,304,743 33,963,477 22,138,779 10,554,743 7,914,549 5,154,864 2,459,366 17,089,274 11,370,498 5,376,836 202,884 49,356 85,820 3,184 22,267 22,310 419,258 219,210 115,418 8,509,286 5,464,198 2,586,250 2,742,672 1,761,564 836,843 5,766,614 3,702,634 1,749,407 0 0 0 0 0 0 0 0 0 5,766,614 3,702,634 1,749,407 0.44 0.28 0.13 0.41 0.27 0.13
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