-----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, RGt4AwwlaRqcZS2SiqsUnUrsK9RqchgvmISnqxkQCQZ3dvy2iyCdG/cujx5tWyMJ m5pOshjRxonB9BoLGgZhUA== 0000898430-00-001075.txt : 20000331 0000898430-00-001075.hdr.sgml : 20000331 ACCESSION NUMBER: 0000898430-00-001075 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: 0101 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-11634 FILM NUMBER: 588575 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-K405 1 FORM 10-K (PERIOD ENDED 12/31/1999) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual For the fiscal year ended December 31, 1999 ----------------- [ ] 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) (Registrant's telephone number, including area code): (626) 303-7902 -------------- 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. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 27, 2000 was approximately $148,100,000 based upon the closing price per share of the Common Stock of $12.25 on that date. The number of shares outstanding of the issuer's classes of Common Stock as of March 27, 2000: Common Stock, $.01 Par Value -- [[14,728,316]] 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 2000 Annual Meeting of Stockholders. 1 ADVISEMENT THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE NOT HISTORICAL FACTS, BUT RATHER ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS ABOUT THE INDUSTRY, BELIEFS AND ASSUMPTIONS. WORDS SUCH AS "MAY," "COULD," "WOULD," "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "PROJECTS," "BELIEVES," "SEEKS," "ESTIMATES" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND OTHER FACTORS, SOME OF WHICH ARE BEYOND THE CONTROL OF MANAGEMENT, ARE DIFFICULT TO PREDICT AND COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN THE FORWARD-LOOKING STATEMENTS. DO NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT'S VIEW ONLY AS OF THE DATE OF THIS ANNUAL REPORT ON FORM 10-K. PART I ------ ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS STAAR Surgical Company ("STAAR" or the "COMPANY") (Nasdaq National Market symbol "STAA") was incorporated in California in 1982 as a successor to a partnership which was created 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. The Company has evolved to become a developer, manufacturer and global distributor of products used by ophthalmologists and other eye care professionals to improve or correct vision in patients suffering from refractive conditions, cataracts and glaucoma. Products manufactured by the Company for use in correcting refractive conditions such as myopia (near- sightedness), hyperopia (far-sightedness) and astigmatism include its Implantable Contact Lenses (ICL(TM)) and Toric(TM) Intraocular Lens. Products manufactured by the Company for use in restoring vision adversely affected by cataracts include its line of IOLs and the Wave(TM) Phacoemuslification Machine. The Company's AQUA-FLOW(TM) device is used in preventing the deterioration of vision in patients afflicted with glaucoma. The Company also sells other instruments, devices and equipment which are manufactured either by the Company or by others in the ophthalmic products industry. Unless the context indicates otherwise, the terms "STAAR" or the "Company" as used herein refer to STAAR Surgical Company and its consolidated subsidiaries. Highlights of the general development of the Company's business during 1999 are discussed below. During the year ending December 31, 1999, the Company continued to focus on expanding its product markets to include refractive and glaucoma products as well as cataract products, and also continued to expand global sales of its products, thereby increasing its international revenues. Revenues for 1999 were $59.2 million, an increase of $4.1 million, or more than 7.4%, from 1998. Net earnings for 1999 amounted to $2.2 million, or $0.15 per diluted share, compared to $2.5 million, or $0.17 per diluted share, reported in 1998. Significant operational matters which affected net earnings for 1999 included sizeable research expenses relating to the clinical trials of the ICLs(TM) and the AQUA-FLOW(TM) glaucoma device in the United States and the clinical trials of the ICL(TM) lenses in Canada, and increased marketing expenses, which will continue into 2000, to prepare for the launch of the Company's collamer IOL. Finally, the Company made a significant investment in laser technology by leasing five excimer lasers through its subsidiary, Laser Implant and Technology Centers, a Delaware corporation ("LITC"). LITC provides the use of the excimer lasers to ophthalmologists in exchange for a per patient service fee. The clinical trials of the Company's newer products, the ICL(TM) and AQUA-FLOW(TM) glaucoma device, continued to progress during 1999. The Company completed the enrollment for the clinical trial, 2 of its ICL(TM) for the correction of myopia, completed Phase II clinical trials and began Phase III clinical trials of its ICL(TM) for the correction of hyperopia, and completed enrollment for the clinical trials for the AQUA- FLOW(TM) glaucoma device. In recognition of the continued need for better products to correct cataractous conditions in a population that, world-wide, is aging, the Company developed the Collamer IOL(TM), made from a highly biocompatible proprietary Collamer material. The Company filed an application for pre-market approval of this product with the United States Food and Drug Administration ("FDA") and, in anticipation of receiving pre-market approval, the Company began tooling for its manufacture and preparing for its launch into the market place in the year 2000. In 1999 the Company also began feasibility studies relating to the development of a Toric ICL(TM) to correct or improve astigmatism in both myopic (near-sighted) and hyperopic (far-sighted) individuals. Finally, 1999 also saw the acquisition by the Company of a majority of the outstanding shares of common stock of Circuit Tree Medical, Inc., the manufacturer of the WAVE(TM) phacoemulsification machine, which the Company believes is superior to other phacoemulsification machines in the marketplace. In November 1998 the Company received FDA marketing clearance to begin selling the Toric(TM) IOL in the United States. The Toric IOL(TM) is the only intraocular lens designed to reduce pre-existing astigmatism in cataract patients. The Company believes that approximately one in every five cataract patients has a pre-existing astigmatism, and that the Toric(TM) IOL will, therefore, be an attractive product to ophthalmologists and eye-care professionals. Besides having FDA approval to market the Toric(TM) lens in the United States, the Company has obtained the CE Mark for this lens, which permits the Company to market the lens in countries belonging to the European Union. During 1999 the Company filed an application with the Health Care Financing Administration to have the Toric(TM) IOL designated as a "new technology". The "new technology" designation allows surgeons to receive an additional $50 per lens above the standard Medicare reimbursement rate for the next five years. The Company believes that the higher reimbursement rate will be an incentive to physicians to implant the Toric(TM) IOL when appropriate, thereby smoothing the way to marketplace acceptance of the product and increasing the Company's revenues. In 1999 the Company completed beta site testing of the Wave(TM) Phacoemulsification Machine, which removes the cataractous debris resulting from the destruction of the patient's natural lens during cataract surgery. The Company will re-introduce the Wave(TM) Phacoemulsification Machine to the United States market during 2000. 1999 also saw the Company's investment in laser technology. Through its subsidiary, LITC, the Company leased five excimer lasers which are used by ophthalmologists in exchange for a per patient usage fee. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS In 1998 the Company began expanding its marketing focus beyond the cataract market to include the refractive and glaucoma markets as well. However, during 1999 the cataract market remained the primary source of the Company's revenues. See NOTE 16 TO THE CONSOLIDATED FINANCIAL STATEMENTS, for geographic segments. The Company operates as one business segment. 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 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 3 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 common visual refractive disorders such as myopia, hyperopia and astigmatism and a number of ocular diseases, such as cataracts and glaucoma. 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. 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. INDUSTRY SEGMENTS The market for ophthalmic products is a large and dynamic segment of the healthcare industry. The major factors influencing this market are: (i) the introduction of new methods of correcting vision problems and significant medical technology advancements which have created cost effective treatments and therapies, (ii) an aging worldwide population, (iii) the evolution toward managed care, and (iv) the growing importance of international markets. The Company's products serve the following segments of the ophthalmic market: REFRACTIVE VISION CORRECTION Data obtained from the U.S. Census Bureau and American Academy of Ophthalmology as well as reports by industry analysts indicate that, in the United States, approximately 136 million people are in need of some type of vision correction. Of this group, approximately 71 million (52%) had some degree of myopia (near-sightedness), approximately 65 million (48%) had some degree of hyperopia (far-sightedness), and approximately 45 million (33%) had some degree of astigmatism. Most individuals over age 45 also had presbyopia (far-sightedness resulting from a loss of elasticity in the lens of the eye, usually as a result of aging). Approximately 25 million (35%) of those individuals with myopia had moderate to high myopia, which is defined as greater than 2.5 diopters and 23 million (35%) of those individuals with hyperopia had moderate to high hyperopia, which is defined as greater than 2.0 diopters. The Company believes that its ICL(TM) will address the vision correction needs of patients with moderate to high myopia, moderate to high hyperopia and astigmatism. The market outside of the United States is larger than the United States market. Approximately 50% of the world's population needs some form of vision correction and more than $25 billion is spent annually, worldwide, on correcting vision problems. In the United States, people are seeking to correct their vision by means other than glasses and contact lenses. In 1999, approximately 970,000 laser procedures were performed to correct vision problems. Analysts have projected that this market will grow to over 3 million procedures per year by 2002. Some analysts have even predicted that in the year 2000, over 1.6 million laser procedures will be performed. (Each eye is counted as a separate procedure.) The Company believes that the laser market is creating awareness about alternatives to glasses and contact lenses. The Company anticipates that this growing awareness will make it easier for the Company to enter the refractive products market in the United States if its ICLs(TM) are approved. CATARACT TREATMENT Cataracts occur in varying degrees in approximately one-half of Americans age 65 or older. Industry sources estimate that approximately 2.4 million IOLs were implanted in the United States in 1999, generating approximately $251 million in sales. The Company believes that approximately 2.5 million IOLs were implanted outside the United States during 1999 (not including China and Russia, for which no reliable data exists), generating an additional $250 million of sales. The Company believes that approximately 88% of the domestic market for IOLs in 1999 was held by foldable IOLs, compared to 4 approximately 15% in 1992, and that approximately 60% 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 due to the benefits of foldable IOLs over hard IOLs. GLAUCOMA TREATMENT The treatment for glaucoma encompasses drug therapies as well as traditional and laser surgical procedures. 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 of intraocular fluid, 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 prescribed. The Company believes that glaucoma currently afflicts approximately 4 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 $1.4 billion. It is estimated that 125,000 trabeculectomies and 200,000 laser trabeculoplasties were performed in the United States alone in 1999, representing total expenditures of approximately $325 million. The Company believes glaucoma surgery is more prevalent than glaucoma drug therapy in certain foreign countries due to cost and other considerations. PRODUCTS The Company's products are designed to: (i) improve treatment results; (ii) minimize patient risk and discomfort; and (iii) where possible, simplify ophthalmic procedures for the surgeon and the patient. The Company sells its products worldwide, principally to ophthalmologists, surgical centers, hospitals, managed care providers, health maintenance organizations and group purchasing organizations. REFRACTIVE CORRECTION - IMPLANTABLE CONTACT LENSES(TM) (ICLS(TM)) ICLs(TM) are lenses implanted in the eye to permanently correct common refractive vision disorders including myopia, hyperopia and astigmatism. The ICL(TM) is targeted to persons afflicted with moderate to severe hyperopia and myopia (defined as more than two diopters) and for patients with astigmatism and other visual disorders. The ICL(TM) is folded and implanted into the eye behind the iris and in front of the natural lens using minimally invasive surgical techniques similar to implanting an IOL during cataract surgery, except that the human lens is not removed. The five minute to twenty minute surgical procedure to implant the ICL(TM) is typically performed with topical anesthesia on an outpatient basis. Management believes the use of an ICL(TM) affords a number of advantages over existing refractive surgical procedures, such as radial keratotomy, photo-refractive keratectomy and laser in-situs keratomileusis, including being able to: (i) potentially correct all levels of myopia and hyperopia and astigmatism; (ii) provide superior predictability of results; (iii) enable faster recovery of vision and rehabilitation; (iv) produce potentially superior refractive results; and (v) potentially correct or improve other vision problems, such as amblyopia (lazy eye) and keratoconus (a condition causing marked astigmatism). 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 investigational device exemption (IDE) to commence clinical studies consisting of three distinct phases within the United States. The Company has completed enrollment of Phase III of the IDE clinical trials for the correction of myopia and Phase II of the clinical trials for the correction of hyperopia, pursuant to which 350 ICLs(TM) for the correction of myopia and 72 ICLs(TM) for the correction of hyperopia have been implanted, and is presently engaged in Phase III of the IDE for the correction of 5 hyperopia, pursuant to which 278 additional ICLs(TM) will be implanted. During the year 2000, the Company expects to submit an application to begin clinical trials for a Toric ICL(TM). No assurance can be given 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. INTRAOCULAR LENSES (IOLS) AND RELATED CATARACT TREATMENT PRODUCTS The Company produces and markets a line of 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 2.2 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 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 70% of total revenues for its 1999 fiscal year, approximately 71% of total revenues for its 1998 fiscal year and approximately 85% of total revenues for its 1997 fiscal year. The Company has developed and currently markets worldwide the 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 manufacturer to offer an IOL for astigmatism. The Toric(TM) IOL is the only IOL that can include in its labeling that it improves uncorrected visual acuity. The Toric(TM) IOL serves as a crossover product for the Company between both the cataract and refractive markets and as such is the first refractive product offered by the Company in the United States. In July 1997 the Company received a CE Mark allowing it to sell the Toric(TM) IOL in each of the countries comprising the European Union, and in November 1998 received pre-market approval from the FDA to market this lens in the United States. During 1999 the Company began taking steps to launch its Collamer IOL, which the Company anticipates will receive FDA pre-market approval early in 2000. The Company believes that the Collamer IOL is superior to other IOLs in the marketplace due to the biocompatibility of the material from which it is made, which is better tolerated by the eye, thereby resulting in less irritation. Phacoemulsification (phaco) machines are used during cataract surgery to remove the patient's 6 cataractous lens, usually through a small incision. The most desired equipment is efficient, reliable, easily maintained, and cost effective. There are approximately 1000 to 1500 phaco machines sold annually at prices ranging from $20,000 to $85,000. The market for this equipment ranges from $50 million to $100 million annually and the market for accessories such as hand pieces, surgical packs, and phaco tips ranges from $50 million to $75 million annually. During 1998, the Company introduced the Wave(TM) Phacoemulsification Machine, which the Company believes has more attractive features than the phaco machines it provided to the cataract products market in the past. The Wave(TM) Phacoemulsification Machine has 510(k) approval. The Company has applied for CE Mark approval for the Wave(TM) Phacoemulsification Machine and products ancillary to it. 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 and several styles of disposable and reusable surgical packs and ultrasonic cutting tips to be used with the Wave(TM) Phacoemulsification Machine. AQUA-FLOW(TM) GLAUCOMA DEVICE The AQUA-FLOW(TM) is a medical device surgically implanted into the eye to reduce intraocular pressure. It is made of a porous material that is compatible with human tissue and promotes drainage of excess eye fluid. The AQUA-FLOW(TM) device 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 AQUA-FLOW(TM) device does not require penetration of the anterior chamber of the eye. Instead, a small flap of the outer eye tissue is folded back, the AQUA-FLOW(TM) device is placed above the trabecular meshwork and the outer flap is refolded into place. The AQUA-FLOW(TM) device swells to approximately five to ten times its original size, and is absorbed within six months to nine months after implantation, creating a new drainage pathway. The fifteen to forty-five minute surgical procedure to implant the AQUA-FLOW(TM) device is performed under local or topical anesthesia, typically on an outpatient basis. Management believes that the compatibility of the human eye with the material from which the AQUA-FLOW(TM) device is made and the minimally invasive nature of the surgery offer several advantages over continued use of drugs and existing surgical procedures, including: (i) greater effectiveness in treatment of the disease, (ii) a longer-term solution, (iii) reduced risk of surgical complications, and (iv) cost effectiveness. The Company believes the AQUA-FLOW(TM) device is an attractive product for: (i) managed care and health maintenance organizations and group purchasing organizations which 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 the continuous treatments mandated by drug therapy; 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 to perform the surgical procedure or at which instrumentation is developed to simplify the procedure. The Company will promote this product by using both training courses and its highly-trained technical sales force to educate surgeons. See "UNCERTAINTIES AND RISK FACTORS - RISKS RELATING TO COMMERCIALIZATION OF NEW PRODUCTS" in Item 7." The Company introduced the AQUA-FLOW(TM) device 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 for the AQUA-FLOW(TM) device, allowing it to be sold 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 and to implant the AQUA-FLOW(TM) device in 195 patients. The enrollment has been concluded and a pre-market application to the FDA for approval of the AQUA-FLOW(TM) device for marketing in the United States should be completed in the latter part of 2000. No assurance can be given that the clinical study will be successful and, if it is successful, as to when or if FDA approval to sell this product will be obtained. See "UNCERTAINTIES AND RISK FACTORS - GOVERNMENT REGULATION AND UNCERTAINTY OF 7 PRODUCT APPROVAL" in Item 7. DISTRIBUTION AND CUSTOMERS 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. The Company's products are sold domestically through a network of independent regional manufacturers representatives and their territorial representatives as well as through the Company's sales force. International sales are primarily conducted through the Company's subsidiaries, which sell through direct and independent sales representatives. In countries where the Company's subsidiaries do not have a direct presence, sales are conducted through country or independent area medical distributors. The Company markets its products to ophthalmologists, surgical centers, hospitals, managed care providers, health maintenance organizations and group purchasing organizations. No material part of the Company's business, taken as a whole, is dependent upon a single or a few customers. SOURCES AND AVAILABILITY OF MANUFACTURING MATERIALS The Company principally manufactures its IOLs at its facilities located in California and Switzerland, and its AQUA-FLOW(TM) glaucoma device 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 silicone IOLs, 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 also purchases products manufactured by others in the eye care industry. 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. The Company's Wave(TM) Phacoemulsification Machine is manufactured for the Company by its subsidiary, Circuit Tree Medical, Inc. The components used in the manufacture of the Wave(TM) Phacoemulsification Machine are available from multiple sources at competitive prices. INTELLECTUAL PROPERTY AND LICENSES 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 an 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 acquired or applied for several patents for insertion devices, glaucoma devices and other products for ophthalmic use. The Mazzocco Patent will expire in the year 2003. The Mazzocco Patent is of material importance to the cataract products segment of the market, however, the Company's patent portfolio has expanded so that the Company is not solely dependent upon the Mazzocco Patent for protection of its technology in the minimally invasive eye surgery market. 8 In May 1995, Intersectional Research and Technology Complex Eye Microsurgery (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, and Asia, and non-exclusive rights with respect to the countries in the Commonwealth of Independent States (the 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 implantable contact lenses using IRTC's biocompatible materials in the United States, Europe, Latin America, Africa, and Asia, 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 to the Company its patent for its biocompatible material, which the Company uses in manufacturing its ICLs(TM) and some of its IOLs. The Company has since adopted IRTC's biocompatible material and glaucoma device design for the Company's AQUA-FLOW(TM) glaucoma device, and has incorporated IRTC's biocompatible materials for use with the Company's proprietary ICL(TM) design. These patents and the technology rights are of material importance to the Company's refractive products market segment. Each of these patents will expire in the year 2009. The Company is continuing to expand its patent portfolios of refractive and glaucoma products so that it does not become dependent on the patent of any single product. During 1999, in connection with its acquisition of a majority of the outstanding shares of Circuit Tree Medical, Inc. the Company acquired patents related to the Wave (TM) phacoemulsification machine and other related technologies. The Company has registered the mark "STAAR" and its associated logo with the United States Patent and Trademark Office. The Company also has common law trademark rights to other marks and has applied for registration for some of these marks. Although the Company believes that it has all rights necessary to market its products and services without infringing upon any patents, copyrights or trademarks held by others, there can be no assurance that conflicting patent, copyright or trademark rights do not exist. If such claims were to exist, the Company may be unable to take advantage of the brand name recognition it is attempting to build or to continue manufacturing and marketing its products. In addition, such claims could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, financial condition and results of operations. The Company relies on trade secret protection and confidentiality and/or license agreements with its consultants, customers, partners and others to protect its proprietary rights. Effective intellectual property protection may not be guaranteed or even available in every country in which the Company's products are distributed or made available. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets or disclose such technology, or that the Company can meaningfully protect its trade secrets. Litigation to enforce and/or defend intellectual property rights is costly. 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. 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 Allergan Medical Optics ("AMO"), Alcon Surgical, Inc. ("Alcon"), Bausch & Lomb Surgical ("Bausch & Lomb"), Mentor Corporation ("Mentor"), Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn") 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 patented foldable technology 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 periods 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. 9 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. The Company believes that, generally, it competes favorably in its product markets. See "UNCERTAINTIES AND RISK FACTORS - HIGHLY COMPETITIVE INDUSTRY; RAPID TECHNOLOGICAL CHANGE" in Item 7. The Company's ICL(TM) will face significant competition in the marketplace from products which improve or correct refractive conditions, such as corrective eyeglasses and external contact lenses, and particularly from providers of conventional and laser surgical procedures. This competition results primarily from the fact that these are products long established in the marketplace and familiar to patients in need of refractive correction. Furthermore, corrective eyeglasses and external contact lenses are more easily obtained, in that a prescription is usually written following a routine eye examination in a doctor's office, without admitting the patient to a hospital or surgery center. The Company believes the following providers of laser surgical procedures comprise its primary competition in the marketplace for patients requiring refractive corrections: Summit Technology, Inc. ("Summit"), VISX, Incorporated ("VISX"), Sunrise Medical, Bausch & Lomb and Nidek Co., Ltd. Excimer lasers for photo-refractive keratectomy which are manufactured and marketed by Summit, VISX and Nidek Co., Ltd. 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, which corrects vision by changing the shape of the cornea through surgically implanted rings of different shapes and strengths. The Company believes its primary competition in the development and sale of products used to surgically correct cataracts, namely foldable IOLs and phacoemulsification machines, includes Bausch & Lomb, AMO, Alcon, Pharmacia & Upjohn, and Mentor. Each of these competitors is a licensee of the Company's foldable technology. Significant competitors in the hard IOL market include Bausch & Lomb, AMO, Pharmacia & Upjohn, Alcon and Mentor. These competitors have been established for longer periods of time than the Company and have significantly greater resources than the Company, factors that give them the advantages of greater name recognition and larger sales operations. The Company's primary competition in the development and sale of products used to treat glaucoma is from pharmaceutical companies, primarily because drug therapy is, and for years has been, the accepted treatment for glaucoma. The portion of this market held by medical devices used to treat glaucoma is insignificant at present. The Company believes Merck & Company, Inc., Alcon, Allergan and Bausch & Lomb are the largest providers of drugs used to treat glaucoma 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. 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 Under the "Medical Device Amendments of 1976" (the "Medical Device Act"), a section of the Federal Food, Drug & Cosmetic Act, the FDA has the authority to adopt regulations that: (i) set standards for medical devices; (ii) require proof of safety and effectiveness prior to marketing devices which the FDA believes require pre-market clearance; (iii) require test data approval prior to clinical evaluation of human use; (iv) permit detailed inspections of device manufacturing facilities; (v) establish "good manufacturing practices" that must be followed in device manufacture; (vi) require reporting of product defects to the FDA; and (vii) prohibit device exports that do not 10 comply with the Medical Device Act unless they comply with established foreign regulations, do not conflict with foreign laws, and the FDA and the health agency of the importing country determine export is not contrary to public health. Most of the Company's products are "medical devices intended for human use" within the meaning of the Medical Device Act and are, therefore, subject to FDA regulation. The Medical Device Act establishes complex procedures for compliance based upon FDA regulations that designate devices as Class I (general controls, such as compliance with labeling and record-keeping requirements), Class II (performance standards in addition to general controls) or Class III (pre-market approval application ("PMAA") before commercial marketing). Class III devices are the most extensively regulated because the FDA has determined they are life-supporting, are of substantial importance in preventing impairment of health, or present a potential unreasonable risk of illness or injury. The effect of assigning a device to Class III is to require each manufacturer to submit to the FDA a PMAA that includes information on the safety and effectiveness of the device. A medical device that is substantially equivalent to a directly related medical device previously in commerce may be eligible for the FDA's abbreviated pre-market notification "510(k) review" process. 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 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. The Company's IOLs, ICLs(TM), lens injectors and AQUA-FLOW(TM) glaucoma device are Class III devices, and its Phaco equipment, ultrasonic cutting tips and surgical packs are Class II devices. With the exception of the collamer IOL, the Company has received FDA pre-market approval for its IOLs (including the Toric(TM) IOL), and FDA 510(k) clearance for its phacoemulsification equipment, lens injectors, ultrasonic cutting tips and surgical packs. During 1999, the Company completed the enrollment for Phase III of the clinical study of the ICL(TM) that corrects myopic conditions and began Phase III of the clinical study of the ICL(TM) that corrects hyperopic conditions. At this time the Company plans to submit applications to the FDA for pre-market approval of its ICL(TM) products in late 2002 or early 2003. The Company has also completed enrollment for the clinical trials of its AQUA- FLOW(TM) glaucoma device and plans to submit an application for pre-market approval as soon as the FDA permits it to do so. To comply with the Medical Device Act, the Company has incurred, and will continue to incur, substantial costs relating to laboratory and clinical testing of new products and the preparation and filing of documents in the formats required by the FDA. The process of obtaining marketing clearance from the FDA for new products and existing products can be time-consuming and expensive, and there is no assurance that such clearances will be granted. The Company also may encounter delays in bringing new products to market as a result of being required by the FDA to conduct and document additional investigations of product safety and effectiveness. As a manufacturer of medical devices, the Company's manufacturing processes and facilities are subject to continuing review by the FDA and various state agencies to insure compliance with good manufacturing practices. These agencies inspect the Company and its facilities from time to time to determine whether the Company is in compliance with various regulations relating to manufacturing practices, validation, testing, quality control and product labeling. These regulations depend heavily on administrative interpretation by the various agencies, and can be influenced by adverse publicity and political pressure. There can be no assurance that future interpretations made by the FDA or other regulatory bodies will not adversely affect the Company. A determination that the Company is in violation of such regulations could lead to imposition of 11 various penalties, including the issuance of warning letters, injunctive relief, consent decrees, product recalls or product seizures. In California, the Company is also subject to regulation by the local Air Pollution Control District and the United States Environmental Protection Agency as a result of some of the chemicals used in its manufacturing process. Medical device laws and regulations similar to those described above are also in effect in some of the countries to which the Company exports its products. These range from comprehensive device approval requirements for some or all of the Company's medical device products to requests for product data or certifications. 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, have requirements at least as stringent as those of the FDA. FDA acceptance is not always a substitute for foreign government approval or clearance. As of June 14, 1998 the member countries of the European Union (the "Union") require that all medical products sold within their borders carry a Conformite' Europeenne Mark (CE Mark). The CE Mark 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 Mark supersedes all current medical device regulatory requirements for Union countries. The Company has obtained the CE Mark for all of its principal products (with the exception of the Wave(TM) Phacoemulsification Machine), including its ICLs(TM), IOLs (including the Toric(TM) IOL), and AQUA-FLOW(TM) glaucoma device. 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 adopted rules that limit Medicare reimbursement for IOLs implanted in ambulatory surgical centers to a flat fee of $150 and for IOL's implanted in hospitals to $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 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 the potential adverse impact on the Company cannot be accurately predicted. 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. The Company maintains an active internal research and development program comprised of 17 employees. Over the past year, the Company has principally focused its research and development efforts on: (i) developing the Company's Toric ICL(TM), an enhanced AQUA-FLOW(TM) glaucoma device and IOLs and ICLs(TM) for the correction of presbyopia, (ii) improving insertion and delivery systems for the Company's foldable products; (iii) generally improving the manufacturing systems and procedures for all products to reduce manufacturing costs; (iv) improving the Company's phacoemulsification equipment; and (v) developing products for the refractive market. Research and development expenses amounted to approximately $4,339,000, $3,570,000 and $3,936,000 for the Company's 12 1999, 1998 and 1997 fiscal years, respectively. ENVIRONMENTAL MATTERS The Company is subject to federal, state, local and foreign environmental laws and regulations. The Company believes that its operations comply in all material respects with applicable environmental laws and regulations in each country where the Company has a business presence. Although the Company makes capital expenditures for environmental protection when required, it does not anticipate any significant expenditures in order to comply with such laws and regulations which would have a material impact on the Company's capital expenditures, earnings or competitive position. The Company is not aware of any pending litigation or significant financial obligations arising from current or past environmental practices that are likely to have a material adverse effect on the Company's financial position. There can be no assurance, however, that environmental problems relating to properties operated by the Company will not develop in the future, and the Company cannot predict whether any such problems, if they were to develop, could require significant expenditures on the part of the Company. In addition, the Company is unable to predict what legislation or regulations may be adopted or enacted in the future with respect to environmental protection and waste disposal. 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 the ICLs(TM) and its AQUA-FLOW(TM) glaucoma device. The Company and STAAR Surgical AG have also formed or acquired a number of direct or indirect owned subsidiaries to distribute and market the Company's products in selected foreign countries. STAAR Surgical AG also controls 80% of a major European sales subsidiary that distributes both the Company's products and products from various competitors. EMPLOYEES The Company and its subsidiaries had a total of 281 employees as of December 31, 1999, including 56 in administration, 75 in marketing and sales, 17 in research and development and technical services and 133 in manufacturing, quality control and shipping. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Approximately $28,658,000, $25,345,000 and $30,397,000 of the Company's overall revenues were generated in the United States for its 1999, 1998 and 1997 fiscal years, respectively, constituting approximately 48%, 46% and 67% of its overall revenues for such fiscal years, respectively. The Company believes that international markets represent a significant opportunity for continued growth. Europe, which is the Company's principal foreign market, generated approximately $23,995,000, $26,453,000 and $8,924,000 in revenues for the Company's 1999, 1998 and 1997 fiscal years, respectively, constituting approximately 41%, 48% and 20% of the Company's overall revenues for such respective fiscal years. The balance of the Company's foreign sales were distributed among the Asian/Pacific, Middle Eastern, South African and South American geographic areas. Most all products sold in 1999 were manufactured in the United States and Switzerland. SEE NOTE 16 TO THE CONSOLIDATED FINANCIAL STATEMENTS. ITEM 2. DESCRIPTION OF PROPERTY The Company's executive offices and its principal manufacturing and warehouse facilities are located at 1911 Walker Avenue, Monrovia, California. STAAR Surgical AG maintains executive offices and 13 manufacturing and warehouse facilities at Hauptstrasse 104, Nidau, Switzerland. The Company also maintains complete laboratory facilities in each of its Monrovia and Nidau facilities. Certain of the Company's sales subsidiaries also lease office facilities to facilitate their distribution activities. The Company owns no real property. The Company's Monrovia, California facilities consist of leased industrial buildings of approximately 103,000 square feet. The leases expire between 2001 and 2003, and currently require aggregate payments of approximately $42,000 per month. STAAR Surgical AG's facilities in Nidau, Switzerland consist of a leased industrial building of approximately 11,000 square feet. The lease expires in 2000, and currently requires payments of approximately $10,000 per month. The Company believes its properties to be suitable and adequate for its purposes. ITEM 3. PENDING LEGAL PROCEEDINGS The Company is party to various claims and legal proceedings arising out of the normal course of its business. These claims and legal proceedings relate to contractual rights and obligations, employment matters, and claims of product liability. While there can be no assurance that an adverse determination of any such matters could not have a material adverse impact in any future period, management does not believe, based upon information known to it, that the final resolution of any of these matters will have a material adverse effect upon the Company's consolidated financial position and annual results of operations and cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended December 31, 1999. 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 of the Common Stock as reported by Nasdaq for the calendar periods indicated: PERIOD HIGH LOW ------ ---- --- 1999: Fourth Quarter 12.375 9.375 Third Quarter 16.250 10.500 Second Quarter 13.875 7.375 First Quarter 10.938 7.125 1998: Fourth Quarter $10.000 $ 6.875 Third Quarter 14.500 6.250 Second Quarter 16.063 10.250 First Quarter 17.625 14.438 14 The last reported sale price for the Company's Common Stock on the Nasdaq National Market on March 27, 2000 was $12.25 per share. As of March 27, 2000, there were approximately 879 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 further develop the Company's business and that no cash dividends on the Common Stock will be declared in the foreseeable future. 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 December 31, 1999, January 1, 1999, January 2, 1998, January 3, 1997, and December 29, 1995. The selected consolidated statement of income data set forth below for each of the Company's three most recent fiscal years, and the selected consolidated balance sheet data set forth below at December 31, 1999 and January 1, 1999, 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 income data set forth below for each of the two fiscal years in the periods ended January 3,1997, and December 29, 1995, and the consolidated balance sheet data set forth below at January 2, 1998, January 3, 1997, and December 29, 1995, are derived from the Company's audited consolidated financial statements not included in this Annual Report. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements of the Company, and 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 ------------------------------------------------------- December January January January December 31, 1, 2, 3, 29, 1999 1999 1998 1997 1995 -------- -------- -------- -------- -------- (In thousands, except per share data) Statement of Operations Data: Sales ........................................ $ 58,955 $ 54,244 $ 42,480 $ 41,213 $ 34,180 Royalty and other income ..................... 253 899 3,040 1,000 514 -------- -------- -------- -------- -------- Total revenues ............................ 59,208 55,143 45,520 42,213 34,694 Cost of sales ................................ 22,935 18,533 10,262 10,196 8,441 -------- -------- -------- -------- -------- Gross profit .............................. 36,273 36,610 35,258 32,017 26,253 Selling general and administrative General and administrative ................ 7,939 6,770 6,334 5,628 5,000 Marketing and selling ..................... 19,879 18,709 12,719 12,227 10,911 Research and development .................. 4,339 3,570 3,936 4,085 3,254 -------- -------- -------- -------- -------- Total selling general and administrative........................ 32,157 29,049 22,989 21,940 19,165 -------- -------- -------- -------- -------- Operating income ............................. 4,116 7,561 12,269 10,077 7,088 -------- -------- -------- -------- -------- Total other income (expense) ........... (681) (763) (579) 153 303 -------- -------- -------- -------- -------- Income before income taxes, minority interest and cumulative effect of change in accounting method ................ 3,435 6,798 11,690 10,230 7,391 Income tax provision (benefit)(1) ............ 862 1,999 4,271 3,339 (91) Minority Interest ............................ 419 662 -- -- -- -------- -------- -------- -------- -------- Net income before accounting change .......... 2,154 4,137 7,419 6,891 7,482 Cumulative effect of accounting change ....... -- (1,680) Net income ................................... $ 2,154 $ 2,457 $ 7,419 $ 6,891 $ 7,482 ======== ======== ======== ======== ========
15 Diluted income per share before effect of change in accounting method ................ $ 0.15 $ 0.29 $ 0.53 $ 0.50 $ 0.55 ======== ======== ======== ======== ======== Basic net income per share ................... $ 0.15 $ 0.18 $ 0.57 $ 0.53 $ 0.59 ======== ======== ======== ======== ======== Diluted net income per share ................. $ 0.15 $ 0.17 $ 0.53 $ 0.50 $ 0.55 ======== ======== ======== ======== ======== Weighted average number of basic shares ...... 14,157 13,542 13,124 12,910 12,756 Weighted average number of diluted shares .... 14,756 14,268 14,113 13,867 13,679 BALANCE SHEET DATA: Working capital .............................. 25,590 $ 26,925 $ 24,936 $ 15,000 $ 16,335 Total assets ................................. 85,273 73,290 62,391 52,056 38,803 Notes payable and current portion of long-term debt ............................... 2,691 2,312 1,608 8,193 4,029 Long-term debt ............................... 13,673 10,021 5,750 844 1,212 Stockholders' equity ......................... 52,684 47,706 44,783 36,604 28,678
(1) Includes recognition of deferred tax asset of $900,000 for 1995. The following table sets forth unaudited operating data for each of the specified quarters of the fiscal years ended December 31, 1999 and January 1, 1999. 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 of BDO Seidman, LLP, the Company's independent certified public accountants.
For the Fiscal Year Ended First Quarter Second Quarter Third Quarter Fourth Quarter December 31, 1999 (in thousands except per share data) Revenues 14,783 14,774 13,824 $ 15,827 Gross Profit 9,038 9,285 8,846 9,104 Income Before Accounting Change 673 677 527 277 Basic Income Per Share .05 .05 .04 .02 Diluted Income Per Share .05 .05 .04 .02 For the Fiscal Year Ended January 1, 1999 Revenues $ 14,101 $ 13,983 $ 12,901 $ 14,158 Gross Profit 9,817 10,155 8,323 8,315 Net Income 1,675 1,523 398(1) 591 Basic Income Per Share 0.13 0.11 0.03(1) 0.04 Diluted Income Per Share 0.12 0.11 0.03(1) 0.04
(1) Income before cumulative effect of change in accounting method for start-up expenses. 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained in this Annual Report, the matters discussed in Management's Discussion And Analysis Of Financial Condition And Results Of Operations are forward-looking statements, the accuracy of which is necessarily subject to risks and uncertainties. Actual results may differ significantly from the discussion of such matters in the forward-looking statements. 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 of Total Revenues Percentage Change ------------------------------- --------------------- Fiscal Year Ended Fiscal Year Ended December January January 1998 1997 31, 1, 2, vs. vs. 1999 1999 1998 1999 1998 --------- -------- ------- -------- ------- Total revenues......................................... 100.0% 100.0% 100.0% 7.4% 21.1% Cost of sales ........................................ 38.7 33.6 22.5 23.7 80.6 ----- ----- ----- Gross profit ......................................... 61.3 66.4 77.5 (.9) 3.8 ----- ----- ----- Costs and expenses: General and administrative ........................ 13.4 12.3 13.9 17.3 6.9 Marketing and selling ............................. 33.6 33.9 27.9 6.3 47.1 Research and development .......................... 7.3 6.5 8.6 21.5 (9.3) ----- ----- ----- Total costs and expenses ....................... 54.3 52.7 50.5 10.7 26.4 ----- ----- ----- Operating income ..................................... 7.0 13.7 27.0 (45.6) (38.4) Other expense, net .................................... (1.2) (1.4) (1.3) (10.6) 31.7 ----- ----- ----- Income before income taxes ........................... 5.8 12.3 25.7 (49.5) (41.8) Income tax provision ................................. 1.5 3.6 9.4 (56.9) (20.3) Accounting Change-Elimination of Minority Interest..... .7 4.2 --- (82.1) 100.0 ----- ----- ----- Net income ........................................... 3.6% 4.5% 16.3% (12.3)% (66.9)% ===== ===== =====
17 1999 Fiscal Year Compared to 1998 Fiscal Year Revenues. Revenues for the year ended December 31, 1999 were $59.2 million, representing a 7.4% increase over the $55.1 million in revenues for the year ended January 1, 1999. The primary reasons for the increase in revenues were increased IOL market share in the United States which had been lost in 1998 due to a new product introduction by a competitor, increased revenue from the sales of the Toric(TM) IOL, increased revenue from sales of the Company's ICLs(TM) and revenue from new activities in the United States. Incremental revenues from the increase in United States IOL market share, exclusive of increases related to sales of the Company's Toric(TM) IOL, amounted to approximately $1.1 million, incremental revenue from the Company's Toric(TM) IOL and the Company's ICLs(TM) was approximately $1.5 million and $1.1 million respectively. During 1999 the Company formed a wholly owned subsidiary that operates refractive laser centers and began selling custom surgical packs to its U.S. customers. Revenue from these new activities accounted for approximately $1.0 million. These increases were offset partially due to a decline in other revenue. The Company is expanding its market focus beyond the cataract market to also include the refractive and glaucoma markets. The Company anticipates its growth in the refractive and glaucoma product markets will increase significantly as the Company's refractive lenses (ICL(TM) and Toric(TM) IOL) and its glaucoma (AQUA-FLOW(TM)) product lines continue to gain market acceptance. The Company believes its sales of products used for the treatment of cataracts will grow with its increased international presence, its U.S. approval of new products such as its Collamer(TM) IOL and the reintroduction of the WAVE(TM) Phacoemulsification Machine. Cost of Sales. Cost of sales increased to 38.7% of revenue for the year ended December 31, 1999 from 33.6% of revenue for the year ended January 1, 1999. The primary reasons for this 5.1% increase relates to lower average selling prices for IOLs, higher cost to manufacture during the second half of 1998 and early 1999 and in a shift in product mix to the three-piece Elastimide lens which, by its design, is more costly to manufacture. The decline in average selling price was due in part to the addition of a very large customer and the bulk sale of IOLs during the fourth quarter at lower than average pricing. The reduced sales in 1998 resulted in lowered production activity in the second half of 1998 and early 1999 therefore, the units produced in those time periods reflected a higher per unit cost from absorption of fixed expenses. Additionally new activities of 1999, laser centers and custom surgical packs, have a higher cost of sales as a percentage of sales when compared to the other products the Company offers. Anticipated increased sales of IOLs, the addition of the Collamer(TM) IOL manufacturing at the Company's California facility and the expected higher than current average selling prices for the Collamer(TM) IOL and Toric(TM) IOL, are expected to result in lower cost of sales as a percentage of sales for the 2000 fiscal year. The Company will not be able to reduce the costs of sales to levels attained in 1997 and prior years until sales of its refractive lenses and its AQUA-FLOW(TM) glaucoma device make up a larger percent of the Company's overall revenues. General and Administrative. General and administrative expense for the year ended December 31, 1999 was $7.9 million, or 13.4% of revenues, as compared to $6.8 million, or 12.3% of revenues for the prior fiscal year. This increase in dollars is primarily attributable to the Company starting to build the administrative infrastructure required to support the expected growth as its new products enter the marketplace. Additionally, there were increases in professional service fees, the costs of administration of the new laser center subsidiary, and travel and other expenses resulting from managing the sales subsidiaries. The increase as a percent of revenues was due to the expenses increasing at a rate greater than the current growth rate of revenues. Marketing and Selling. Marketing and selling expense for the year ended December 31, 1999 was $19.9 million or 33.6% of revenues, as compared to $18.7 million or 33.9% of revenues for the prior fiscal year. The primary reasons for this increase are the marketing costs related to the product launch of the Company's Toric(TM) IOL in 1999 and preparation for the product launch of the Collamer IOL in early 2000. Additionally the Company has continued to increase the expenses for product management to prepare for broader entry into the refractive and glaucoma markets. 18 Research and Development. Research and development expense for the year ended December 31, 1999 was $4.3 million, or 7.3% of revenues as compared to $3.6 million or 6.5% of revenues for the year ended January 1, 1999. Research and development expense increased over the prior year due to increased spending related to monitoring of the clinical trials for the ICL(TM) for the correction of myopia, ICL(TM) for the correction of hyperopia and the AQUA-FLOW(TM) glaucoma device. Additionally expenses increased related to the completion of the patient enrollment and implants for the clinical trial for the ICL(TM) for the correction of myopia and increased expenditures for developing new injection technologies for IOLs and ICLs(TM). The Company expects continued expense of clinical monitoring as these studies continue and expects research and development expense to be in the range of $4.3 million to $4.6 million range. Other Expense or Income, Net. Other expense for the year ended December 31, 1999 was a net of approximately $.7 million or 1.2% of revenues as compared to approximately $.8 million or 1.4% of revenues for the prior year. The primary cause for the decrease in other expense was due to increased earnings from the Company's joint venture with Canon Staar. Income Tax Provision. Income tax provision decreased to $.9 million or 1.4% of revenues for the year ended December 31, 1999 compared to $2.0 million or 3.6% of revenues for the prior fiscal year. The reasons for the reduction stem from the Company's lower pretax earnings and the receipt of more than 50% of its revenues from international sources, where tax rates are more favorable. 1998 FISCAL YEAR COMPARED TO 1997 FISCAL YEAR REVENUES Revenues for the year ended January 1, 1999 were $55.1 million, representing a 21.1% increase over the $45.5 million in revenues for the year ended January 2, 1998. The primary reason for the increase in revenues were the acquisitions, in 1997 and early 1998, of European sales subsidiaries of ophthalmic products. Incremental revenues from these subsidiaries represented approximately $18.2 million. This increase in revenues was offset by a reduction of approximately $3.2 million dollars in sales in the United States as a result of the introduction by a competitor of a multi-focal IOL, a reduction in sales to Asia of approximately $.8 million as a result of the Asian monetary crisis, a reduction in European sales totaling approximately $1.1 million which occurred because a large distributor of the Company's products purchased his 1998 requirements in 1997, and a reduction of approximately $2.2 million in royalties and other revenues earned by the Company. With the acquisitions of sales subsidiaries in 1997 and early 1998, the mix of products sold by the Company changed. Prior to acquisition of the subsidiaries, sales of products manufactured by the Company made up more than 92% of all products sold by the Company in 1997. In 1998, after acquisition of the subsidiaries, the Company's products made up approximately 67% of total revenues, while lenses manufactured by others made up approximately 17% of total revenues and instruments and equipment manufactured by others made up approximately 13% of total revenues. The lenses, instruments and equipment purchased from other manufacturers typically have lower margins. COST OF SALES Cost of sales increased to 33.6% of revenue for the year ended January 1, 1999 from 22.5% of revenue for the year ended January 2, 1998. The primary reason for this 11.1% increase relates to the increase in sales of IOLs, ophthalmic instruments and equipment manufactured by others, as set forth above in "REVENUES." GENERAL AND ADMINISTRATIVE General and administrative expense for the year ended January 1, 1999 was $6.8 million, or 12.3% of revenues, as compared to $6.3 million, or 13.9% of revenues for the prior fiscal year. This increase in dollars is primarily attributable to two factors, namely retaining the services of a product manager for the AQUA-FLOW(TM) glaucoma device and travel and other expenses relating to 19 managing the new sales subsidiaries. The decrease as a percent of revenues was due to the increase in revenues. MARKETING AND SELLING Marketing and selling expense for the year ended January 1, 1999 was $18.7 million or 33.9% of revenues, as compared to $12.7 million or 27.9% of revenues for the prior fiscal year. The primary reason for this increase in dollars and percentages was the addition, during 1997 and early 1998, of the sales subsidiaries, which added more than $18.2 million in revenues for the 1998 fiscal year, and costs related to the launch, in the United States, of the Toric(TM) IOL. RESEARCH AND DEVELOPMENT Research and development expense for the year ended January 1, 1999 was $3.6 million, or 6.5% of revenues as compared to $3.9 million or 8.6% of revenues for the year ended January 2, 1998. Research and development expense has remained fairly consistent over the past four years in the range of $3.5 million to $4.0 million range. The reason for the decrease in the 1998 fiscal year was the completion of research and development for several of the Company's new products, which was offset by increased spending related to monitoring the clinical trials for the Toric(TM) IOL, the Collamer(TM) IOL, the ICL(TM) and the AQUA-FLOW(TM) glaucoma device. OTHER EXPENSE OR INCOME, NET Other expense for the year ended January 1, 1999 was a net of approximately $ .8 million or 1.4% of revenues as compared to approximately $ .6 million or 1.3% of revenues for the prior year. The primary causes for the increase in other expense over the prior year were increased amortization expenses and royalty expense offset by decreased exchange losses and increased earnings from the Company's joint venture. INCOME TAX PROVISION Income tax provision decreased to $2.0 million or 3.6% of revenues for the year ended January 1, 1999 compared to $4.3 million or 9.4 % of revenues for the prior fiscal year. The reasons for the reduction stem from the Company's receipt of more than 50% of its revenues from international sources, where tax rates are more favorable, and the cumulative effect of accounting changes for costs associated with the launch of new products (referred to herein as "start-up costs") which were written off in the third quarter of 1998, thereby resulting in the Company's recognition of less income from United States sources. START-UP COSTS Effective September 30, 1998, the Company adopted Statement of Position 98-5 "Reporting on the Costs of Start-up Activities" (SOP 98-5) issued by the American Institute of Certified Public Accountants. SOP 98-5 requires that the costs of start-up activities, including organization costs, be expensed as incurred. Start-up activities are defined broadly as those one-time activities related to opening a new facility, introducing a new product or service, customer, initiating a new process in an existing facility, or commencing some new operation. Although SOP 98-5 is in effect for fiscal years beginning after December 15, 1998, earlier application is encouraged. Accordingly, the Company elected early application and wrote-off the $1.7 million (net of tax benefit) of start-up costs that had been previously capitalized. In accordance with SOP 98- 5, the write-off of such costs is being reported as a cumulative effect of change in accounting method. Also, in accordance with SOP 98-5, prior periods have not been restated. 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 and refinanced on an unsecured basis in June 1997, June 1998, and June 1999, 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 0.5% (or, at the election of the Company, if more than $500,000 is outstanding, at a rate of interest equal to LIBOR, plus a margin of 1.25% to 1.75%, depending on the Company's funded debt to earnings before interest, taxes, depreciation and amortization coverage ratio). This line of credit expires in June 2002. Borrowings outstanding as of December 31, 1999 were approximately $8.8 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. The Company borrowed $4.4 million from this facility in 1998 for the purchase of a European sales subsidiary. 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 20 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 note is due March 1, 2003. The principal amount outstanding as of December 31, 1999 was approximately $2.6 million. In July 1999, the Company's domestic lender supplemented the Company's domestic credit facility with a term note to the Company of $4 million. Borrowings are payable in monthly installments of $66,667 plus interest at a rate not to exceed the prime interest rate (8.50% at 12/31/99) 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 note is due August 1, 2004. The principal amount outstanding as of December 31, 1999 was approximately $3.8 million. The line-of-credit and the notes described above require the Company to satisfy certain financial tests and limits the amount of other indebtedness the Company may incur. The Company was in compliance with the financial restrictive covenants as of December 31, 1999. 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 $749,000 (1.1 million Swiss Francs) at a 5.0% rate of interest as of December 31, 1999. A commission rate of 0.25% is payable each quarter. The line of credit does not have a termination date and is secured by a general assignment of claims. Borrowings outstanding as of December 31, 1999 under the line of credit were approximately $880,000. Under the term loan, STAAR Surgical AG obtained a $749,000 (1.1 million Swiss Francs) loan guaranteed partially by the Swiss government and partially by the Company. Interest on this loan is 1/4 of 6.25%, which the Company shares on an equal basis with the bank and the Swiss government. The principal amount of this loan was required to be repaid in four equal annual installments, beginning in December 1996. The final payment was made in December 1999. As of December 31, 1999, the Company had net working capital of approximately $25.6 million, as compared to $26.9 million and $24.9 million as of January 1, 1999 and January 2, 1998, respectively. The decrease in working capital as of December 31, 1999 was primarily attributable to increases in inventories of $2.2 million and prepaid and deposits of $0.6 million, and other current assets of $1.2 million offset by a decrease in cash of $1.3 million and increases in accounts payable of $2.5 million and other current liabilities of $1.0 million. The increase in working capital as of January 1, 1999 was attributable to increases in inventories of $2.1 million, prepaid and other assets of $0.7 million, accounts receivable of $0.7 million, offset by a decrease in cash of $1.6 million and the net impact of the collection of a $3.3 million royalty receivable and the recording of a $1.4 million income tax refund receivable. The Company's net working capital was further impacted by decreases in other current liabilities of $1.7 million and accounts payable of $0.7 million. As of December 31, 1999, the Company had cash and cash equivalents of approximately $3.3 million as compared to $4.7 million as of January 1, 1999. The decrease in cash was due to increased investments in property and equipment as the Company prepares for the launch of the Collamer IOL. The decline in the Company's cash position for the year ended January 1, 1999 was attributable to a decrease in cash provided by operations. Cash flows from operating activities for the year ended December 31, 1999 were approximately $4.9 million, an increase of approximately $0.6 million from the prior fiscal year. The increase in cash from operations was primarily due to changes in operating working capital. The decrease in cash flows for the year ended January 1, 1999 was principally attributable to lower net income of approximately $5.0 million offset by increased depreciation and amortization expenses and the write-off of start up costs. Cash used in investing activities for the year ended December 31, 1999 was $10.7 million, representing an increase of approximately $0.6 million relative to the year ended January 1, 1999. This increase was primarily due to purchases of property and equipment and patent acquisitions made during the year. Cash used in investing activities for the year ended January 1, 1999 increased $2.7 million relative to January 2, 1998. This increase was due primarily to the acquisition of a 60% interest in a European sales subsidiary. 21 Cash flows from financing activities for the year ended December 31, 1999 were $5.2 million, representing an increase of approximately $1.1 million. This increase was principally attributable to an increase in proceeds from the issuance of common stock. Cash flows from financing activities for the year ended January 1, 1999 were $4.1 million, representing an increase of approximately $4.0 million from the prior fiscal year, which was principally attributable to the loan obtained by the Company to acquire a 60% interest in a European sales subsidiary. The Company's capital expenditures for the fiscal years ended December 31, 1999 and January 1, 1999 were approximately $4.5 million and $2.0 million, respectively. All expenditures were used to upgrade existing production equipment, to set up new production facilities for new products, and to reduce current manufacturing costs. The Company's planned capital expenditures for 2000 are approximately $2.0 million, to be used primarily to improve and expand the Company's manufacturing capacity for the Collamer IOL, ICL(TM) and other new products. Capitalized additions for patents and licenses for the fiscal years ended December 31, 1999 and January 1, 1999 were approximately $3.9 million and $2.1 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 $1.5 million in 2000 for patents and licenses. Management believes that cash flow from operations and available credit facilities, together with its current cash balances, will provide adequate economic resources to finance an increase in the level of the Company's operations, including capital expenditures, acquisitions and research and development activities, for the foreseeable future. Should additional funding be needed, such as for significantly increased levels of operations, 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. 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. 22 YEAR 2000 COMPLIANCE Prior to December 31, 1999, there was a great deal of concern regarding the ability of computers to adequately recognize 21st century dates from 20th century dates due to the two-digit date fields used by many systems. Most reports to date, however, are that computer systems are functioning normally and the compliance and remediation work accomplished during the years leading up to 2000 was effective to prevent any problems. To date, the Company has not experienced any such computer difficulty; however, computer experts have warned that there may still be residual consequences of the change in centuries. Any such difficulties, including but not limited to those listed below, may, depending upon their pervasiveness and severity, have a material adverse effect on our business, financial condition and results of operations: . a failure to fully identify all year 2000 dependencies in the Company's systems; . a failure to fully identify all year 2000 dependencies in the systems of third parties with whom the Company does business; . a failure of any third party with whom the Company does business to adequately address their year 2000 issues; . the failure of any contingency plans developed by the Company to protect its business and operations from year 2000-related interruptions; and . delays in the implementation of new systems resulting from year 2000 problems. UNCERTAINTIES AND RISK FACTORS The Company may be subject to a number of significant uncertainties and risks including those described below and those described elsewhere in this Annual Report, which may ultimately affect the operations of the Company in a manner and to a degree that 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 AQUA-FLOW(TM) glaucoma device, and ICL(TM), will be a function of many variables, including the following: the efficiency, performance and attributes of these new products; the ability of the Company to obtain necessary regulatory approvals to commercially market the 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 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 AQUA-FLOW(TM) glaucoma device 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 23 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". 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 Union, the Company must satisfy 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 these 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 AQUA-FLOW(TM) glaucoma device 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 AQUA-FLOW(TM) glaucoma device 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. 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 24 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 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(TM) 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 AND LICENSES" 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 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 and 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. As earnings from international operations increase, the 25 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 the Company were to do this, 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. Certain of the Company's new products, such as its AQUA-FLOW(TM) glaucoma device 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 the 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK All sales by the Company are denominated in US dollars or the currency of the country of origin and, accordingly, the Company does not enter into hedging transactions with regard to any foreign currencies. Currency fluctuations can, however, increase the price of the Company's products to its foreign customers which can adversely impact the level of the Company's export sales from time to time. The majority of the Company's cash equivalents are bank accounts, and the Company does not believe it has significant market risk exposure with regard to its investments. 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. PART III -------- ITEMS 10., 11., 12. AND 13. 26 The information required in this item is incorporated herein by reference to portions of the Proxy Statement for Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the close of the fiscal year ended December 31, 1999. ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K Page ---- (a)(1) Financial statements required by Item 14 of this form are filed as a separate part of this report following Part IV Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheets at December 31, 1999 and January 1, 1999 F-3 Consolidated Statements of Income for the years ended December 31, 1999, January 1, 1999 and January 2, 1998 F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, January 1, 1999, and January 2, 1998 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1999, January 1, 1999, and January 2, 1998 F-6 Notes to Consolidated Financial Statements F-12 (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-26 II. Valuation and Qualifying Accounts and Reserves F-27 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 and the notes thereto (3) Exhibits 3.1 Certificate of Incorporation, as amended/(12)/ 3.2 By-laws, as amended/(12)/ 4.1 1990 Stock Option Plan/(1)/ 4.2 1991 Stock Option Plan/(2)/ 4.3 1995 STAAR Surgical Company Consultant Stock Plan /(3)/ 4.4 1996 STAAR Surgical Company Non-Qualified Stock Plan/(7)/ 4.5 Stockholders' Rights Plan, dated effective April 20, 1995/(5)/ 4.6 1998 STAAR Surgical Company Stock Plan, adopted April 17, 1998/(8)/ 10.1 Joint Venture Agreement, dated May 23, 1988, between the Company, Canon Sales Co, Inc. and Canon, Inc./(10)/ 27 10.2 License Agreement, dated March 9, 1990, between Chiron Ophthalmics, Inc. and the Company/(4)/ 10.3 License Agreement, dated March 9, 1990, between Chiron Ophthalmics, Inc. and the Company/(4)/ 10.4 Promissory Note, dated February 28, 1991, from John R. Wolf to the Company/(7)/ 10.5 Stock Pledge/Security Agreement, dated February 28, 1991, between John R. Wolf, the Company and Pollet & Associates/(7)/ 10.6 Promissory Note, dated February 28, 1991, from William C. Huddleston to the Company/(7)/ 10.7 Stock Pledge/Security Agreement, dated February 28, 1991, between William C. Huddleston, the Company and Pollet & Associates/(7)/ 10.8 Promissory Note, dated May 26, 1992, from the Andrew F. Pollet and Sally M. Pollet Revocable Trust dated March 6, 1990/(9)/ 10.9 Deed of Trust, dated September 21, 1992, by the Andrew F. Pollet and Sally M. Pollet Revocable Trust dated March 6, 1990/(9)/ 10.10 Promissory Note, dated July 3, 1992, from William C. Huddleston to the Company/(9)/ 10.11 Stock Pledge/Security Agreement, dated July 3, 1992, between William C. Huddleston the Company and Pollet & Associates/(9)/ 10.12 Lease, dated November 9, 1992, by and between Linda Lee Brown and Phyllis Ann Bailey and the Company regarding real property located at 1911 Walker Avenue, Monrovia, California/(9)/ 10.13 Indenture of Lease, dated October 20, 1983, by and between Dale E. Turner & Francis R. Turner, and the Company regarding real property located at 1911 Walker Avenue, Monrovia, California, and all Lease Additions thereto/(9)/ 10.14 Patent License Agreement, dated May 24, 1995, with Eye Microsurgery Intersectoral Research and Technology Complex/(6)/ 10.15 Patent License Agreement, dated January 1, 1996, with Eye Microsurgery Intersectoral Research and Technology Complex/(7)/ 10.16 Promissory Note, dated March 18, 1993, from William C. Huddleston to the Company/(4)/ 10.17 Modification To Employment Agreement, dated December 20, 1994, between the Company and John R. Wolf/(4)/ 10.18 First Amendment To Sales Representative Agreement, dated December 20, 1994, between the Company and John R. Wolf/(4)/ 28 10.19 Employment Agreement, dated March 1, 1994, between the Company and William C. Huddleston/(4)/ 10.20 Modification To Employment Agreement, dated May 6, 1996, between the Company and William C. Huddleston/(7)/ 10.21 Employment Agreement, dated March 1, 1994, between the Company and Carl M. Manisco/(4)/ 10.22 Modification To Employment Agreement, dated May 6, 1996, between the Company and Carl M. Manisco/(7)/ 10.23 Employment Agreement, dated March 1, 1994, between the Company and Michael J. Lloyd/(4)/ 10.24 Modification To Employment Agreement, dated May 6, 1996, between the Company and Michael J. Lloyd/(7)/ 10.25 Employment Agreement, dated March 1, 1994, between the Company and Stephen L. Ziemba/(4)/ 10.26 Modification To Employment Agreement, dated May 6, 1996, between the Company and Stephen L. Ziemba/(7)/ 10.27 Form of Non-Qualified Stock Option Agreements granted to Directors of the Company in June and August 1994/(4)/ 10.28 Agreement, dated October 10, 1995, with China Eye Joint Venture/(6)/ 10.29 Stock Pledge Agreement, dated September 4, 1998, between the Company and John R. Wolf/(10)/ 10.30 Promissory Note, dated September 4, 1998, from John R. Wolf to the Company/(10)/ 10.31 Stock Pledge Agreement, dated September 4, 1998, between the Company and William C. Huddleston/(10)/ 10.32 Promissory Note, dated September 4, 1998, from William C. Huddleston to the Company/(10)/ 10.33 Stock Pledge Agreement, dated September 4, 1998, between the Company and Carl Manisco/(10)/ 10.34 Promissory Note, dated September 4, 1998, from Carl Manisco to the Company/(10)/ 10.35 Stock Pledge Agreement, dated September 4, 1998, between the Company and Andrew F. Pollet/(10)/ 10.36 Promissory Note, dated September 4, 1998, from Andrew F. Pollet to the Company/(10)/ 29 10.37 Supply Agreement, dated January 28, 1998, between the Company and Mentor Medical, Inc./(10)/ 10.38 Agreement, dated December 31, 1997, between the Company and Mentor Corporation./(10)/ 10.39 Agreement effective January 4, 1998 (STAAR Surgical AG)/(10)/ 10.40 Revolving Line of Credit Note, dated June 1, 1998, between the Company and Wells Fargo Bank./(10)/ 10.41 Stock Option Certificate, dated September 4, 1998, between the Company and Andrew F. Pollet/(10)/ 10.42 Stock Option Certificate, dated September 4, 1998, between the Company and John R. Wolf/(10)/ 10.43 Stock Option Certificate, dated September 4, 1998, between the Company and Donald R. Sanders/(10)/ 10.44 Stock Purchase Agreement dated December 5, 1999 by and among the Company, Circuit Tree Medical, Inc., Alex Urich and Michael Curtis/(11)/ 10.45 License and Supply Agreement, dated May 6, 1999, between LensTec Incorporated, Lenstec Barbados Inc., STAAR Surgical AG and the Company /(11)/ 10.46 Promissory Note, dated November 11, 1999, from Peter J. Utrata, M.D. to the Company /(11)/ 10.47 Promissory Note, dated November 12, 1999, from John R. Wolf to the Company /(11)/ 10.48 Promissory Note, dated November 17, 1999, from William C. Huddleston to the Company /(11)/ 10.49 Promissory Note, dated June 16, 1999, from Peter J. Utrata, M.D. to the Company /(11)/ 10.50 Agreement entered into on November 29, 1999 by and between STAAR Surgical AG and /(11)/ 10.51 Equipment Purchase and Sale Agreement, dated May 6, 1999, between Lenstec, Incorporated and the Company /(11)/ 10.52 Stock Pledge Agreement, dated June 16, 1999, by Peter J. Utrata, M.D. in favor of the Company /(11)/ 10.53 Revolving Line of Credit Note dated July 1, 1999, between STAAR Surgical Company and Wells Fargo Bank/(11)/ 10.54 Term Note dated July 1, 1999, between STAAR Surgical Company and Wells Fargo Bank/(11)/ 21 List of Significant Subsidiaries/(11)/ 24 Powers of Attorney/(11)/ 27.1 Financial Data Schedule at and for the year ended January 1, 1999/(11)/ (Footnotes to Exhibits): (1) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-37248, as filed on October 11, 1990 (2) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-76404, as filed on March 11, 1994 (3) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-60241, as filed on June 15, 1995 (4) 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 (5) 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 30 (6) 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 (7) 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 (8) Incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Stockholders held on May 29, 1998, as filed on May 4, 1999. (9) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended January 1, 1998, as filed on April 1, 1998 (10) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended January 1, 1999, as filed on April 1, 1999 (11) Filed herewith (12) Re-filed herewith pursuant to Reg.(S).229.10(d) 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 2000. STAAR SURGICAL COMPANY By: /s/ JOHN R. WOLF ------------------------------------------------------- John R. Wolf, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant on March 30, 2000 and in the capacities indicated. /s/ John R. Wolf President, Chief Executive Officer - ---------------------------------- and Chairman John R. Wolf /s/ William C. Huddleston Vice President and Chief Financial Officer - ---------------------------------- (principal accounting and financial officer) William C. Huddleston /s/ Peter J. Utrata, M.D.* Director - ---------------------------------- Peter J. Utrata, M.D. /s/ Andrew F. Pollet* Director - ---------------------------------- Andrew F. Pollet * /s/ William C. Huddleston - ---------------------------------- William C. Huddleston (Attorney in Fact) 33 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, JANUARY 1, 1999 AND JANUARY 2, 1998 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders STAAR Surgical Company We have audited the accompanying consolidated balance sheets of STAAR Surgical Company and subsidiaries as of December 31, 1999 and January 1, 1999, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 1999. 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 financial position of STAAR Surgical Company and subsidiaries as of December 31, 1999 and January 1, 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. As discussed in the Summary of Accounting Policies to the consolidated financial statements, in fiscal 1998, the Company adopted the provisions of Statement of Position 98-5 "Reporting on the Costs of Start-up Activities" issued by the American Institute of Certified Public Accountants. BDO Seidman, LLP Los Angeles, California March 27, 2000 F-2 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and January 1, 1999
1999 1998 ---------------- -------------- ASSETS ------ Current assets: Cash and cash equivalents $ 3,344,128 $ 4,689,574 Accounts receivable, less allowance for doubtful accounts of $376,078 and $232,841 (Note 1) 9,426,813 10,167,449 Other receivables (Note 7) 2,108,599 1,386,830 Inventories (Note 2) 22,318,131 20,139,979 Prepaids and deposits 2,874,221 2,270,836 Other current assets 2,567,569 1,353,554 Deferred income tax (Note 7) 927,918 1,108,761 ---------------- -------------- Total current assets 43,567,379 41,116,983 ---------------- -------------- Investment in joint venture (Note 4) 3,577,450 3,178,477 Property, plant and equipment, net (Note 3) 12,676,480 10,379,997 Patents and licenses, net of accumulated amortization of $5,076,132 and $3,751,769 (Notes 8 and 9) 14,599,361 12,038,023 Goodwill, net of accumulated amortization of $784,169 and $488,596 7,744,267 5,047,982 Other assets 3,108,337 1,528,150 ---------------- -------------- $ 85,273,274 $ 73,289,612 ================ ============== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Notes payable (Note 5) $ 880,173 $ 1,034,801 Accounts payable 7,448,714 4,975,222 Current portion of long-term debt (Note 6) 1,811,164 1,277,474 Deferred income tax (Note 7) 2,709,318 2,822,706 Other current liabilities (Note 12) 5,127,336 4,081,885 ---------------- -------------- Total current liabilities 17,976,705 14,192,088 ---------------- -------------- Long-term debt, net of current portion (Note 6) 13,673,254 10,021,287 Other long-term liabilities (Note 12) 403,631 513,699 ---------------- -------------- Total liabilities 32,053,590 24,727,074 ---------------- -------------- Minority interest 536,055 856,039 ---------------- -------------- Commitments and contingencies (Note 11) Stockholders' equity (Notes 10 and 15): Common stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding 14,752,339 and 13,994,593 147,523 139,946 Capital in excess of par value 51,205,459 46,039,428 Accumulated other comprehensive income (1,282,025) (536,491) Retained earnings 9,471,835 7,317,778 ---------------- -------------- 59,542,792 52,960,661 Notes receivable from officers and directors (Note 10) (6,859,163) (5,254,162) ---------------- -------------- Total stockholders' equity 52,683,629 47,706,499 ---------------- -------------- $ 85,273,274 $ 73,289,612 ================ ==============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-3 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1999, January 1, 1999 and January 2, 1998
1999 1998 1997 ------------- ------------- ------------- Sales $ 58,954,700 $ 54,244,315 $ 42,480,014 Royalty and other income (Note 9) 253,441 898,443 3,039,571 ------------- ------------- ------------- Total revenues 59,208,141 55,142,758 45,519,585 Cost of sales 22,934,939 18,533,319 10,261,748 ------------- ------------- ------------- Gross profit 36,273,202 36,609,439 35,257,837 ------------- ------------- ------------- Selling, general and administrative expenses: General and administrative (Note 13) 7,939,083 6,769,791 6,333,781 Marketing and selling 19,878,986 18,709,076 12,719,166 Research and development 4,338,828 3,569,876 3,936,293 ------------- ------------- ------------- Total selling, general and administrative expenses 32,156,897 29,048,743 22,989,240 ------------- ------------- ------------- Operating income 4,116,305 7,560,696 12,268,597 ------------- ------------- ------------- Other income (expense): Equity in earnings of joint venture (Note 4) 586,143 438,314 336,437 Interest expense--net (683,072) (560,345) (595,810) Other expense, net (584,886) (640,560) (319,808) ------------- ------------- ------------- Total other expense, net (681,815) (762,591) (579,181) ------------- ------------- ------------- Income before income taxes, minority interest and cumulative effect of change in accounting method 3,434,490 6,798,105 11,689,416 Income tax provision (Note 7) 861,766 1,999,030 4,270,286 Minority interest 418,667 661,623 - ------------- ------------- ------------- Income before cumulative effect of change in accounting method 2,154,057 4,137,452 7,419,130 Cumulative effect of change in accounting method, write-off of start-up costs, net of income taxes of $695,826 - 1,680,813 - ------------- ------------- ------------- Net income $ 2,154,057 $ 2,456,639 $ 7,419,130 ============= ============= ============= Basic earnings per share (Notes 10 and 15): Income before cumulative effect of change in accounting method $ .15 $ 0.30 $ 0.57 Cumulative effect of change in accounting method - (0.12) - ------------- ------------- ------------- Net income $ .15 $ 0.18 $ 0.57 ============= ============= ============== Dilutive earnings per share (Notes 10 and 15): Income before cumulative effect of change in accounting method $ .15 $ 0.29 $ 0.53 Cumulative effect of change in accounting method - (0.12) - ------------- ------------- ------------- Net income $ .15 $ 0.17 $ 0.53 ============= ============= =============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-4 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Years Ended December 31, 1999, January 1, 1999 and January 2, 1998
Accumulated Capital in Retained Other Common Excess of Earnings Comprehensive Notes Stock Par Value (Deficit) Income Receivable Total -------- ----------- --------- ------------- ------------ --------- 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 Common stock issued upon exercise of options (Note 10) 5,686 3,063,025 - - (2,928,147) 140,564 Common stock issued upon exercise of warrants (Note 10) 1,868 219,733 - - - 221,601 Common stock issued as payment for services (Note 10) 50 64,950 - - - 65,00 Common stock repurchased and cancelled (120) (203,980) - - - (204,100) Stock-based compensation (Note 10) - 85,000 - - - 85,000 Foreign currency translation adjustment - - - 159,011 - 159,011 Net income - - 2,456,639 - - 2,456,639 -------- ----------- ------------ ----------- ----------- ----------- Balance, at January 1, 1999 139,946 46,039,428 7,317,778 (536,491) (5,254,162) 47,706,499 Common stock issued upon exercise of options (Note 10) 5,384 3,290,855 - - (1,605,001) 1,691,238 Common stock issued as payment for acquisitions (Note 10) 2,708 2,497,286 - - - 2,499,994 Common stock repurchased and cancelled (515) (622,110) - - - (622,625) Foreign currency translation adjustment - - - (745,534) - (745,534) Net income - - 2,154,057 - - 2,154,057 -------- ----------- ------------ ----------- ----------- ----------- Balance, at December 31, 1999 $147,523 $51,205,459 $ 9,471,835 $(1,282,025) $(6,859,163) $52,683,629 ======== =========== ============ =========== =========== ===========
Comprehensive income and its components consist of the following:
1999 1998 1997 ----------- ------------ ------------ Net income $ 2,154,057 $ 2,456,639 $ 7,419,130 Foreign currency translation adjustment (745,534) 159,011 (534,929) ----------- ------------ ------------ Comprehensive income $ 1,408,523 $ 2,615,650 $ 6,884,201 =========== ============ ============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-5 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1999, January 1, 1999 and January 2, 1998 Increase (Decrease) in Cash and Cash Equivalents
1999 1998 1997 ------------- -------------- ------------- Cash flows from operating activities: Net income $ 2,154,057 $ 2,456,639 $ 7,419,130 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation of property and equipment 2,172,732 2,172,834 1,742,737 Amortization of intangibles 2,053,735 2,166,164 1,782,192 Write-off of start-up costs - 1,680,813 - Change in deferred revenue (232,143) (232,143) 210,432 Equity in earnings of joint venture (586,143) (438,314) (336,437) Deferred income taxes (17,222) (277,919) 3,322,939 Stock-based compensation expense - 85,000 84,000 Common stock issued for services - 65,000 325,000 Change in operating working capital, excluding effects of acquisition (Note 14) (373,066) (4,061,214) (6,954,502) Minority interest (319,984) 661,623 - ------------- -------------- ------------- Net cash provided by operating activities 4,851,966 4,278,483 7,595,491 ------------- -------------- ------------- Cash flows from investing activities: Acquisition of property and equipment (4,469,214) (2,019,533) (2,845,929) Increase in patents and licenses (3,911,916) (2,104,454) (3,217,728) Increase in other assets (1,938,951) (1,718,231) (1,370,449) Dividends received 187,170 - 60,414 Acquisitions (net of cash acquired) (540,683) (4,269,923) - ------------- -------------- ------------- Net cash used in investing activities (10,673,594) (10,112,141) (7,373,692) ------------- -------------- ------------- Cash flows from financing activities: Increase in borrowings under notes payable and long-term debt 3,733,333 4,433,648 1,109,480 Payments on other notes payable and long-term debt (1,474,663) (1,908,803) (2,679,075) Net borrowings under line-of-credit 1,894,434 1,402,175 806,940 Proceeds from the exercise of stock options and warrants 1,510,613 362,165 1,022,493 Payments for repurchase of common stock (442,000) (204,100) (137,087) ------------- -------------- ------------- Net cash provided by financing activities 5,221,717 4,085,085 122,751 ------------- -------------- ------------- Effect of exchange rate changes on cash and cash equivalents (745,534) 159,011 (534,929) (Decrease) increase in cash and cash equivalents (1,345,446) (1,589,562) (190,379) Cash and cash equivalents, at beginning of year 4,689,574 6,279,136 6,469,515 ------------- -------------- ------------- Cash and cash equivalents, at end of year $ 3,344,128 $ 4,689,574 $ 6,279,136 ============= ============== =============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-6 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES Years Ended December 31, 1999, January 1, 1999 and January 2, 1998 Organization and Description of Business STAAR Surgical Company (the "Company"), a Delaware corporation, was incorporated in 1982 for the purpose of developing, producing, and marketing IOLs and other products for minimally invasive ophthalmic surgery. The Company has evolved to become a developer, manufacturer and global distributor of products used by ophthalmologists and other eye care professionals to improve or correct vision in patients suffering from refractive conditions, cataracts and glaucoma. Products manufactured by the Company for use in correcting refractive conditions such as myopia (near-sightedness); hyperopia (far-sightedness) and astigmatism include its Implantable Contact Lenses (ICL(TM)) and Toric(TM) Intraocular Lens. Products manufactured by the Company for use in restoring vision adversely affected by cataracts include its line of Intraocular Lenses (IOLs), and the Wave(TM) Phacoemulsification Machine. The Company's AQUA- FLOW(TM) device is used in preventing the buildup of excessive aqueous which leads to deterioration of vision in patients afflicted with glaucoma. The Company also sells other instruments, devices and equipment that are manufactured either by the Company or by others in the ophthalmic products industry. 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 the ICLs(TM) and its AQUA-FLOW(TM) glaucoma device. The Company and STAAR Surgical AG have also formed or acquired a number of direct or indirect owned subsidiaries to distribute and market the Company's products in selected foreign countries. STAAR Surgical AG also controls 80% of a major European sales subsidiary that distributes both the Company's products and products from various other manufacturers. Basis of Presentation The accompanying financial statements consolidate the accounts of the Company and its wholly and majority 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 translation gains and losses are deferred and are shown as a separate component of stockholders' equity as accumulated other comprehensive income. During 1999, 1998 and 1997, the net foreign translation (gain) loss was $745,534, $(159,011) and $534,929 and net foreign currency transaction loss was $ 156,674, $120,737 and $228,547, respectively. Investments in affiliates and joint ventures are accounted for using the equity method of accounting. The Company's fiscal year ends on the Friday nearest December 31. F-7 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES Years Ended December 31, 1999, January 1, 1999 and January 2, 1998 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 of the AQUA-FLOWTM and the ICLTM and sales to foreign distributors 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. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in a Company's financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. F-8 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES-(Continued) 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 20 years. Capitalized patent costs are reviewed each year based on management's estimates of future cash flows 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. Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is being amortized on a straight-line basis over fifteen to twenty years. The Company periodically evaluates the recoverability of goodwill. The measurement of possible impairment is based primarily on the Company's ability to recover the unamortized balance of the goodwill from expected future operating cash flows on an undiscounted basis. Start-Up Costs Effective September 30, 1998, the Company adopted Statement of Position 98-5 "Reporting on the Costs of Start-up Activities" (SOP 98-5) issued by the American Institute of Certified Public Accountants. SOP 98-5 requires that the costs of start-up activities, including organization costs, be expensed as incurred. Start-up activities are defined broadly as those one-time activities related to opening a new facility, introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer, initiating a new process in an existing facility, or commencing some new operation. Although SOP 98-5 is effective for fiscal years beginning after December 15, 1998, earlier application was encouraged. Accordingly, as of September 30, 1998, the Company elected early application and wrote-off the $1.7 million (net of tax benefit) of start-up costs that had been previously capitalized and included in other assets. In accordance with SOP 98-5, the write-off of such costs is being reported as a cumulative effect of change in accounting method. Also, in accordance with SOP 98-5, prior periods have not been restated. F-9 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES-(Continued) 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. Fair Value of Financial Instruments The carrying values of cash equivalents, receivables, 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 (which interest rates primarily float with prime), the amounts reported approximate the fair value of the respective financial instruments. Net Income Per Share The Company has adopted Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128), which 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 and 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 The Company has 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 this cost is recognized 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. Comprehensive Income The Company adopted Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income," ("SFAS 130"). 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 has chosen to report comprehensive income in the Statement of Stockholders' Equity. Comprehensive income is comprised of net income and all changes to stockholders' equity except those due to investments by owners and distributions to owners. F-10 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES-(Continued) Segments of an Enterprise The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," ("SFAS 131"). 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. Adoption of SFAS 131 resulted in expanded disclosures for the year and all prior periods. See Note 16, Geographic and Product Data. Reclassifications Certain reclassifications have been made to the prior year consolidated financial statements to conform to the 1999 presentation. New Accounting Pronouncement Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Historically, the Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of the new standard to have any affect on its financial statements. F-11 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1999, January 1, 1999 and January 2, 1998 NOTE 1--ACCOUNTS RECEIVABLE Accounts receivable are summarized as follows:
1999 1998 ------------ ------------- Domestic $ 5,258,117 $ 3,785,253 Foreign 4,544,774 6,615,037 ------------ ------------- 9,802,891 10,400,290 Less allowance for doubtful accounts 376,078 232,841 ------------ ------------- $ 9,426,813 $ 10,167,449 ============ =============
NOTE 2--INVENTORIES Inventories are summarized as follows:
1999 1998 ------------- ------------- Raw materials and purchased parts $ 2,137,400 $ 2,189,154 Work in process 3,128,247 2,279,002 Finished goods 17,052,484 15,671,823 ------------- ------------- $ 22,318,131 $ 20,139,979 ============= =============
NOTE 3--PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized as follows:
1999 1998 ------------- ------------- Machinery and equipment $ 16,147,260 $ 14,423,622 Furniture and fixtures 6,956,595 5,692,531 Leasehold improvements 4,339,670 3,659,375 ------------- ------------- 27,443,525 23,775,528 Less accumulated depreciation and amortization 14,767,045 13,395,531 ------------- ------------- $ 12,676,480 $ 10,379,997 ============= =============
F-12 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 uses the equity method of accounting for this investment. The financial statements of CSC include assets of approximately $9,783,000 and $7,740,000, and liabilities of approximately $2,131,000 and $1,689,000, as of December 31, 1999 and January 1, 1999, respectively. The Company's equity in earnings of the joint venture is calculated as follows:
1999 1998 1997 ------------ ---------- ---------- Joint venture net income $ 1,172,286 $ 876,627 $ 672,873 Equity interest 50% 50% 50% ------------ ---------- ---------- Equity in earnings of joint venture $ 586,143 $ 438,314 $ 336,437 ============ ========== ==========
The Company recorded sales of certain IOL products to CSC of approximately $1,917,000, $16,000 and $469,000 in 1999, 1998 and 1997, respectively. NOTE 5--NOTES PAYABLE The Company has a revolving credit facility with a Swiss bank, which provides for borrowings up to $748,623 (1,125,000 Swiss Francs at the exchange rate at December 31, 1999) at the interest rate of 5.5%. On August 21, 1998 the interest rate was reduced to 5.0%. A commission rate of 0.25% is payable each quarter. The loan does not have a termination date and is secured by a general assignment of claims. Borrowings outstanding under this facility as of December 31, 1999 and January 1, 1999 were $880,173 (1,322,689 Swiss Francs) and $1,034,801 (1,437,339 Swiss Francs), respectively. As of December 31, 1999 and January 1, 1999, the balance exceeded the maximum allowable borrowings. The excess borrowings were permitted due to adequate compensating cash balances. NOTE 6--LONG-TERM DEBT Long-term debt consists of the following:
1999 1998 --------------- -------------- Note payable to bank, interest at a rate not to exceed prime less .5% payable monthly, due June 1, 2002(1) $ 8,752,024 $ 6,857,590 Notes payable to bank, payable in monthly installments plus interest at a rate not to exceed prime less .25% due March 1, 2003 (2) and August 1, 2004 (3) 6,358,481 3,625,148 Note payable to bank, interest at 1/4 of 6.25%, payable in four equal annual installments plus interest beginning in December 1996, guaranteed by the Swiss federal government and Canton of Bern - 214,127 Note payable to equipment vendor, interest at 13%, payable in monthly installments plus interest through December 1999, secured by equipment 11,156 44,954 Note payable to the sellers of a corporation purchased by the Company, interest at 6%, payable in equal annual installments over a five year period 362,757 468,907 Obligations under capitalized leases (see Note 11) - 88,035 --------------- -------------- 15,484,418 11,298,761 Less current portion 1,811,164 1,277,474 --------------- --------------
F-13 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Long-term debt due after one year $ 13,673,254 $ 10,021,287 ============== =============
(1) In July 1999, 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 (8.50% at December 31, 1999) less .5% (or, at the election of the Company, if more than $500,000 is outstanding, at a rate of interest equal to LIBOR, plus a margin of 1.25 to 1.75% depending on the Company's funded debt to EBITDA coverage ratio). The line of credit expires June 2002. Borrowings are not collateralized. (2) 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. On January 5, 1998, the Company borrowed $4,375,162 under the agreement. Borrowings are payable in monthly installments of $83,334 plus interest at a rate not to exceed the prime interest rate (8.50% at December 31, 1999) less .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 note is due March 1, 2003. (3) In July 1999, the Company's domestic lender supplemented the Company's domestic credit facility with a term note to the Company of $4 million. Borrowings are payable in monthly installments of $66,667 plus interest at a rate not to exceed the prime interest rate (8.50% at December 31, 1999) 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 note is due August 1, 2004. The line-of-credit and the notes described above require the Company to satisfy certain financial tests and limits the amount of other indebtedness the Company may incur. The Company was in compliance with the financial restrictive covenants as of December 31, 1999. Annual future minimum payments under long-term debt as of December 31, 1999 consist of:
Fiscal Year Long Term Debt - ----------- ---------------- 2000 $ 1,811,164 2001 1,811,164 2002 10,188,316 2003 1,673,774 ---------------- $ 15,484,418 ================
F-14 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 7--INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. The provision for income taxes consists of the following:
1999 1998 1997 ============== ============ ============= Current tax provision: U.S. federal (net of $312,000, $0 and $1,258,000 tax benefit from operating loss carryforwards) $ 480,939 $ 100,264 $ 245,000 State (649,758) 96,851 581,000 Foreign 963,130 1,384,008 121,357 --------------- ------------- ------------- Total current provision 794,311 1,581,123 947,357 --------------- ------------- ------------- Deferred tax provision (benefit): U.S. federal and state 67,455 (328,990) 3,374,000 Foreign - 51,071 (51,071) --------------- ------------- ------------- Total deferred provision 67,455 (277,919) 3,322,929 --------------- ------------- ------------- Provision for income taxes 861,766 1,303,204 4,270,286 Tax benefit from cumulative change in accounting method - 695,826 - --------------- ------------- ------------- Provision for income taxes, before cumulative effect of change in accounting method $ 861,766 $ 1,999,030 $ 4,270,286 =============== ============= =============
Included in the 1999 current federal net tax benefit is the usage of the 1999 net taxable loss of $916,000 through the carryback to 1997 to recover taxes previously paid. Federal net operating loss carryforwards from years prior to 1997 were utilized in 1997. The Company has state tax net operating loss carryforwards from 1999 of $1,183,000 expiring on various dates though 2019. The Company has income taxes recoverable at December 31, 1999 of $2,023,922, reported on the balance sheet as other receivables. The provision based on income before taxes differs from the amount obtained by applying the statutory federal income tax rate to income before taxes as follows:
1999 1998 1997 -------- ---------- -------- Computed provision for taxes based on income at statutory rate 34.0% 34.0% 35.0% Permanent differences 21.8 - (0.1) State taxes, net of federal income tax benefit (22.3) (0.8) 4.7 Tax effect attributed to foreign operations (8.4) 1.6 (4.0) Other - - 0.9 -------- ---------- -------- Effective tax provision rate 25.1% 34.8% 36.5% ======== ========== ========
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $4.0 million at December 31, 1999. 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-15 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 December 31, 1999 and January 1, 1999 are as follows:
1999 1998 =============== ============== Deferred tax assets: Allowance for doubtful accounts $ 112,000 $ 61,000 Inventory reserves and uniform capitalization 430,500 458,000 Accrued vacation 176,500 158,000 State taxes 118,500 82,000 AMT tax credit carryforwards - 349,000 Deferred revenue 90,500 - --------------- -------------- Total deferred tax assets $ 928,000 $ 1,108,000 =============== ============== Deferred tax liabilities: Depreciation and amortization (2,596,500) (2,645,000) Discount on trade receivables (113,000) (177,000) --------------- -------------- Total deferred tax liabilities $ (2,709,500) $ (2,822,000) =============== ==============
NOTE 8--BUSINESS ACQUISITIONS On January 5, 1998, the Company completed the acquisition or establishment of five international subsidiaries (including the control of 60% of a major European distributor) for the sales of ophthalmic products. Total consideration for the acquisitions was approximately $4.5 million in 1998 and $1.1 million in 1997 and resulted in recording of goodwill of approximately $4.2 million in 1998 and $1.0 million in 1997. Pro forma financial information for the Company and the foreign distributors for the year ended January 2, 1998, as if the acquisition of the foreign distributors occurred as of January 2, 1997 is as follows: Revenues $ 62,710 Net income $ 7,810 Net income per diluted share $ 0.55
On November 29, 1999, the Company acquired an additional 20% of the shares of a major European distributor for total consideration of approximately $1.5 million in cash, $1 million in shares and debt of $325,000, resulting in goodwill of approximately $2.8 million. Pro forma amounts for this acquisition are not included, as the effect on operations is not material to the Company's financial statements. On January 4, 1999 the Company acquired all of the issued and outstanding shares of a distributor of ophthalmic products in exchange for $130,000 cash, $150,000 in product allowances and assumption of $100,000 in liabilities. The acquisition has been accounted for by the purchase method of accounting and accordingly, the operating results have been included in the Company's consolidated results of operation from the date of acquisition. The purchase price has been allocated to the fair value of net identifiable assets acquired of $380,000. Pro forma amounts for this acquisition are not included, as the effect on operations is not material to the Company's financial statements. On December 5, 1999 the Company acquired 80% of the issued and outstanding shares of a Company in the medical device industry in exchange for approximately $500,000 in cash, $1.5 million in common stock and $500,000 in debt. The acquisition has been accounted for by the purchase method of accounting and accordingly, the company's operating results have been included in the Company's operations from the date of acquisition. The purchase price has been allocated to both the fair value of net tangible assets acquired of $87,000, and patents of $2,437,587, which are being amortized on a straight-line basis over the estimated useful life of 15 years. The pro forma amounts for this acquisition are not included, as the effect on operations is not material to the Company's financial statements. NOTE 9--PATENTS AND LICENSING AGREEMENTS During 1995, the Company acquired from the Intersectoral Research and Technology Complex Eye Microsurgery ("IRTC"), 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 (ICLsTM). 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, relating to an apparatus for insertion of an intraocular lens. The amount paid has been included in patents in the accompanying balance sheet. 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) that will be utilized by the licensee as sales of the licensed products are made. The Company recorded $232,000, $232,000 and $3,040,000 of royalty income in 1999, 1998 and 1997, respectively, from these licenses. During 1999 in connection with its acquisition of a majority of the outstanding shares of Circuit Tree Medical, Inc. the Company acquired patents related to the Wave(TM) phacoemulsification machine and other related technologies. NOTE 10--STOCKHOLDERS' EQUITY Common Stock 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. F-16 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 10--STOCKHOLDERS' EQUITY (Continued) Common Stock (Continued) In 1998, the Company issued 5,000 shares to consultants for services rendered to the Company. Also, during 1998, the Company repurchased and cancelled 12,007 shares. In 1999, the Company issued 270,772 shares as partial consideration for business acquisitions. Also, during 1999, the Company repurchased and cancelled 51,477 shares. Notes Receivable As of December 31, 1999 and January 1, 1999, notes receivable from officers and directors totalling $6,859,163 and $5,254,162, were outstanding. The notes were issued in connection with purchases of the Company's common stock. The notes bear interest at rates ranging between 3.69% 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 September 4, 2003. Options The table below summarizes the transactions in the Company's several stock option plans:
Weighted Average Number of Exercise Shares Price -------------- ------------- 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 granted / reissued 890,000 $ 6.25 Options exercised (568,690) $ 5.40 Options forfeited / cancelled (598,500) $12.50 -------------- ------------- Balance at January 1, 1999 1,545,585 $ 6.69 Options granted / reissued 453,000 $10.07 Options exercised (538,420) $ 6.13 -------------- ------------- Balance at December 31, 1999 1,460,165 $ 7.75 ============== ============= Options exercisable (vested) at December 31, 1999 918,166 $ 6.53 ============== =============
Included in the table above are options to purchase 3,500 shares of common stock outstanding at December 31, 1999, 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 122,500 shares were outstanding at December 31, 1999, with exercise prices ranging between $2.50 to $9.25 per share. F-17 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 10--STOCKHOLDERS' EQUITY (Continued) Options (Continued) 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 152,000, 160,000 and 566,000 shares were outstanding at December 31, 1999, January 1, 1999 and January 2, 1998, respectively. The options were originally issued with an exercise price of $12.50 per share. During 1998 the exercise price was reduced to $6.25 per share by action of the Board of Directors. In 1998, the Board of Directors of the Company approved the 1998 Stock Option Plan, authorizing the granting of incentive options and/or non-qualified options to purchase or awards of the Company's common stock. Under the provisions of the plan, 1,000,000 shares were reserved for issuance; however, the maximum number of shares authorized may be increased provided such action is in compliance with Article IV of the Plan. 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 the date of grant. Pursuant to the plan, options for 998,333 and 650,000 shares were outstanding at December 31, 1999 and January 1, 1999, respectively with exercise prices ranging between $6.25 and $10.63 per share. 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 that 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 totaling $1,022,493. In 1998, officers, employees and others exercised 568,690 options from the 1990, 1991 and non-qualified stock option plans at prices from $1.15 to $12.00 resulting in cash, notes and stock proceeds totaling $3,068,713. In 1999, officers, employees and others exercised 538,420 options from the 1990, 1991, and non-qualified stock option plans at prices from $1.60 to $12.00 resulting in cash, notes and stock proceeds totaling $3,296,240. 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 1999; dividend yield of 0 percent; expected volatility of 73 percent; risk free rate of 6.5 percent; and expected lives of 3 years; and in 1998; dividend yield of 0 percent; expected volatility of 35 percent; risk free rate of 4.5 percent; and expected lives of 3-7 years; and 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. The weighted average fair value of options granted during the year ended December 31, 1999, January 1, 1999 and January 2, 1998 were $5.62, $1.84 to $2.89 and $1.57, respectively. Under the accounting provisions of FASB 123, the Company's net income and earnings per share for 1999, 1998 and 1997 would have been reduced to the pro forma amounts indicated below: F-18 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 10--STOCKHOLDERS' EQUITY (Continued) Options (Continued)
1999 1998 1997 -------------- --------------- -------------- Net income As reported $ 2,154,000 $ 2,457,000 $ 7,419,000 Pro forma $ 1,584,000 $ 2,340,168 $ 6,771,200 Basic earnings per share As reported $ .15 $ .18 $.57 Pro forma $ .11 $ .17 $.52 Diluted earnings per share As reported $ .15 $ .17 $.53 Pro forma $ .11 $ .16 $.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 1997 through 1999. The following table summarizes information about stock options outstanding at December 31, 1999.
Options Outstanding Weighted- Number Average Weighted- Number Weighted- Range of Outstanding Remaining Average Exercisable Average Exercise Prices at 12/31/99 Contractual Life Exercise Price at 12/31/99 Exercise Price - ----------------- ----------------- --------------------- ------------------ --------------- ------------------ $2.50 to $4.75 161,000 3.6 years $ 4.18 161,000 $ 4.18 $5.875 to $6.25 750,666 7.4 years $ 6.24 645,666 $ 6.24 $9.00 to $12.00 548,500 8.6 years $10.87 111,500 $11.64 - ----------------- ----------------- --------------------- ------------------ --------------- ------------------ $2.50 to $12.00 1,460,166 7.4 years $7.75 918,166 $ 6.53 ================= ================== ===================== ================== ================ ==================
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 January 3, 1997 and January 2, 1998 246,894 $1.91 Warrants exercised (186,750) $1.19 ------------- -------------- Balance at January 1, 1999 60,144 $3.94 Warrants exercised - - ------------- -------------- Balance at December 31, 1999 60,144 $3.94 ============= ==============
All warrants are exercisable as of December 31, 1999. F-19 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. During 1998, the lease obligations were fulfilled and in 1999, the buyout provisions of the leases were exercised. In December 1999, the Company entered into an operating lease agreement to finance excimer lasers that were placed in the laser centers operated by Laser and Implant Technology Centers, LLC, a wholly-owned subsidiary of the Company. The lease commitment of $1,700,000 will be paid over three years. Annual future minimum lease payments under noncancellable operating leases as of December 31, 1999 are as follows:
Fiscal Year - ---------- 2000 $1,785,802 2001 1,469,480 2002 1,282,700 2003 374,771 2004 152,454 ---------- Thereafter 236,131 ---------- Total $5,301,338 ==========
Rent expense was approximately $1,125,000, $1,147,000 and $686,000 for the years ended December 31, 1999, January 1, 1999 and January 2, 1998, respectively. Supply Agreement During 1999, the Company entered into a license and supply agreement with another manufacturer for one of its products. This agreement commits the Company to purchases of $3,172,000 over the next 18 months and gives the Company the right to license and re-sell the product. Litigation and Claims The Company is party to various claims and legal proceedings arising out of the normal course of its business. These claims and legal proceedings relate to contractual rights and obligations, employment matters, and claims of product liability. While there can be no assurance that an adverse determination of any such matters could not have a material adverse impact in any future period, management does not believe, based upon information known to it, that the final resolution of any of these matters will have a material adverse effect upon the Company's consolidated financial position and annual results of operations and cash flows. F-20 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 12--OTHER LIABILITIES Other Current Liabilities Included in other current liabilities at December 31, 1999 and January 1, 1999 are approximately $1,283,000 and $1,274,000 of commissions due to outside sales representatives; income tax payable of $360,000 and $500,000; and deferred revenue of $232,000 and $232,000, respectively. Other Long-Term Liabilities Included in other long-term liabilities at December 31, 1999 and January 1, 1999 is deferred revenue of approximately $0 and $232,000 and a pension obligation related to an officer of a foreign subsidiary of approximately $246,000 and $260,000, respectively. NOTE 13--RELATED PARTY TRANSACTIONS The Company has had significant related party transactions as discussed in Notes 4 and 10. During 1999, 1998 and 1997, a law firm, of which a partner is director and stockholder of the Company, received approximately $247,000, $525,000 and $280,000 for fees in connection with legal services performed on behalf of the Company. As of December 31, 1999 and January 1, 1999, included in prepaid, deposits, and other current assets are $230,000 and $250,000 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 $337,000, $400,000 and $420,000 during 1999, 1998 and 1997, respectively. During the year the Company paid $1,250,000 in consideration for cancellation of the agreement. The amount is included in Other Assets and is being amortized on a straight-line basis over five years. NOTE 14--STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL DISCLOSURES Cash Flows Net cash provided by operating activities includes interest paid of approximately $1,046,000, $740,000 and $723,000 for the years ended December 31, 1999, January 1, 1999 and January 2, 1998, respectively. Income taxes paid amounted to approximately $1,312,000, $1,450,000 and $315,000 for the years ended December 31, 1999, January 1, 1999 and January 2, 1998, respectively. Changes in operating working capital as shown in the consolidated statements of cash flows for the years ended December 31, 1999, January 1, 1999 and January 2, 1998 are comprised of:
1999 1998 1997 --------------- --------------- -------------- Decrease (increase) in: Accounts receivable $ 740,636 $ (672,715) $ (1,156,149) Other receivables (721,769) 1,863,170 (3,250,000) Inventories (2,178,152) (2,086,968) (2,346,531) Prepaids and deposits (603,385) (714,454) (673,300) Other current assets (1,214,016) -- -- Increase (decrease) in: Accounts payable 2,473,492 (713,574) (76,590) Other current liabilities 1,045,451 (1,736,673) 548,068 --------------- --------------- -------------- Change in operating working capital $ (457,743) $ (4,061,214) $ (6,954,502) =============== ============== ==============
F-21 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Supplemental Disclosures of Cash Flow Information
1999 1998 1997 --------------- -------------- --------------- Non cash financing activities: Notes receivable (Note 10) $ 1,605,001 $ 2,928,147 $ - Acquisition of business: Assets acquired $ 4,403,000 $ 4,027,000 $ 93,000 Goodwill 3,137,000 4,247,000 1,038,000 Liabilities assumed (1,763,000) (3,736,000) (58,000) Common stock issued (2,500,000) - - Cash paid (2,197,000) (163,000) - --------------- -------------- --------------- Debt incurred $ (1,080,000) $ (4,375,000) $ (1,073,000) =============== ============== ===============
F-22 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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:
1999 1998 1997 --------------- --------------- -------------- Basic weighted average shares outstanding 14,156,708 13,541,644 13,123,950 Diluted effect of stock options and warrants 598,898 726,385 989,133 --------------- --------------- -------------- Diluted weighted average shares outstanding 14,755,606 14,268,029 14,113,083 =============== ================ ==============
NOTE 16--GEOGRAPHIC AND PRODUCT DATA The Company develops, manufactures and distributes medical devices used in minimally invasive ophthalmic surgery. Substantially all of the Company's revenues result from the sale of the Company's medical devices. There is not enough difference between the types of medical devices manufactured and distributed by the Company for the Company to account for these products separately or to justify segmented reporting by product type. The Company distributes its medical devices internationally and has reportable segments based on manufacturing and distribution criteria. The U.S. and Switzerland are involved in both the manufacture and distribution of medical devices and the other foreign entities are involved only in the distribution of medical devices. The other foreign segments include Canada, Australia, France, Austria, Brazil, South Africa, Germany, Sweden and Norway.
1999 1998 1997 --------------- --------------- -------------- Sales to unaffiliated customers, allocated on the basis of manufacturer or foreign distributor origination U.S. $ 30,868,000 $ 24,658,000 $ 27,843,000 Switzerland 3,787,000 3,970,000 5,397,000 Foreign distributors 24,300,000 25,616,000 9,240,000 --------------- --------------- -------------- Total sales to unaffiliated customers $ 58,955,000 $ 54,244,000 $ 42,480,000 =============== =============== ============== Sales to affiliated customers U.S. $ 4,147,000 $ 3,670,000 $ 2,936,000 Switzerland 7,335,000 3,232,000 2,766,000 Foreign distributors - - - --------------- --------------- -------------- Total sales to affiliated customers $ 11,482,000 $ 6,902,000 $ 5,702,000 =============== =============== ============== Depreciation and amortization U.S. $ 3,190,000 $ 3,201,000 $ 2,920,000 Switzerland 832,000 667,000 319,000 Foreign distributors 205,000 471,000 286,000 --------------- --------------- -------------- Total depreciation and amortization $ 4,227,000 $ 4,339,000 $ 3,525,000 =============== =============== ==============
F-23 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 16--GEOGRAPHIC AND PRODUCT DATA (Continued)
1999 1998 1997 --------------- --------------- -------------- Operating income U.S. $ (789,000) 1,714,000 $ 10,621,000 Switzerland 4,052,000 2,800,000 1,519,000 Foreign distributors 853,000 3,047,000 129,000 --------------- --------------- -------------- Total operating income $ 4,116,000 $ 7,561,000 $ 12,269,000 =============== =============== ============== Profit and loss Total operating income (as reported above) $ 4,116,000 $ 7,561,000 $ 12,269,000 Equity in earnings of joint venture 586,000 438,000 336,000 Interest expense--net (683,000) (560,000) (596,000) Other expense, net (585,000) (640,000) (320,000) Minority interest (419,000) (662,000) - Income taxes (861,000) (1,999,000) (4,270,000) Cumulative effect of change in accounting method, write-off of start-up costs, net of income taxes - (1,681,000) - --------------- --------------- ------------- Net income $ 2,154,000 $ 2,457,000 $ 7,419,000 =============== =============== ============== 1999 1998 1997 --------------- --------------- -------------- Identifiable assets U.S. $ 70,199,000 $ 60,829,000 $ 49,653,000 Switzerland 4,474,000 2,498,000 7,860,000 Foreign distributors 2,856,000 9,963,000 4,878,000 --------------- --------------- -------------- Total identifiable assets $ 77,529,000 $ 73,290,000 $ 62,391,000 =============== =============== ============== Capital expenditures U.S. $ 2,993,000 $ 1,604,000 $ 1,978,000 Switzerland 785,000 126,000 792,000 Foreign distributors 154,000 290,000 76,000 --------------- --------------- -------------- Total capital expenditures $ 3,932,000 $ 2,020,000 $ 2,846,000 =============== =============== ============== Non-cash items U.S. $ 2,500,000 $ 150,000 $ 409,000 Switzerland - - - Foreign distributors - - - --------------- --------------- -------------- Total non-cash items $ 2,500,000 $ 150,000 $ 409,000 =============== =============== ============== Investment in joint venture U.S. $ 3,577,000 $ 3,178,000 $ 2,740,000 =============== ================ ==============
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 income is net sales less related costs and operating expenses, excluding interest. F-24 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 16--GEOGRAPHIC AND PRODUCT DATA (Continued) During the fiscal years ended December 31, 1999, January 1, 1999 and January 2, 1998, the Company had foreign sales from U.S., primarily to South America and Southeast Asia, of approximately $2,508,000, $1,223,000 and $2,935,000, respectively. 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. F-25 INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT ON SCHEDULE AND CONSENT To the Board of Directors and Stockholders STAAR Surgical Company The audits referred to in our report dated March 27, 1999, included the related financial statement schedule as of December 31, 1999, and for each of the three years in the period ended December 31, 1999, 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 Statement (No. 33-37248) (No. 33-76404) and (No. 33-60241) on Form S-8 of STAAR Surgical Company of our report dated March 27, 1999, relating to the consolidated balance sheets of STAAR Surgical Company and subsidiaries as of December 31, 1999 and January 1, 1999 and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows and related schedule for each of the three years in the period ended December 31, 1999, which report appears in the December 31, 1999 annual report on Form 10-K of STAAR Surgical Company and subsidiaries. BDO Seidman, LLP Los Angeles, California March 27, 2000 F-26 STAAR SURGICAL COMPANY AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E -------- ------------- ------------ ------------- -------------- Balance at Balance at Beginning End of Description of Year Additions Deductions Year ----------- ------------- ------------ ------------- -------------- 1999 Allowance for doubtful accounts deducted from accounts receivable in balance sheet $ 233,000 $ 143,000 $ - $ 376,000 Reserve for obsolescence deducted from inventories in balance sheet 61,000 124,000 - 185,000 ------------- ------------ ------------- -------------- $ 294,000 $ 267,000 $ - $ 561,000 ============= ============ ============= ============== 1998 Allowance for doubtful accounts deducted from accounts receivable in balance sheet $ 128,000 $ 105,000 $ - $ 233,000 Reserve for obsolescence deducted from inventories in balance sheet 131,000 - 70,000(1) 61,000 ------------- ------------ ------------- -------------- $ 259,000 $ 105,000 $ 70,000 $ 294,000 ============= ============ ============= ============== 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 ============= ============ ============= ==============
___________ (1) Obsolete inventory written down to zero value. F-27 EX-3.1 2 CERTIFICATE OF INCORPORATION Exhibit 3.1 CERTIFICATE OF INCORPORATION OF STAAR SURGICAL COMPANY Pursuant to Section 102 of the General Corporation Law of the State of Delaware The undersigned, in order to form a corporation pursuant to Section 102 of the General Corporation Law of the State of Delaware, do hereby certify as follows: FIRST: The name of the Corporation is STAAR Surgical Company. SECOND: The address of the Corporation's registered office in the State of Delaware is 410 South State Street in the city of Dover, County of Kent, Delaware 19901. The name of its registered agent at such address is United Corporate Services, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: (a) The corporation shall be authorized to issue THIRTY MILLION (30,000,000) shares, consisting of TWENTY MILLION (20,000,000) shares of Common Stock, each of the par value of $0.1 ("Common Stock") and TEN MILLION (10,000,000) shares of Preferred Stock, each of the par value of $0.1 ("Preferred Stock"). (b) The designations and the powers, preferences and rights, and the qualifications or restrictions thereof are as follows: Except as otherwise required by statute or provided for by resolution or resolutions of the Board of Directors, as hereinafter set forth, the holders of the Common Stock of the Corporation shall possess the exclusive right to vote for the election of directors and for all other corporate purposes. The Preferred Stock shall each be issued from time to time in one or more series, with such distinctive serial designations as shall be stated and expressed in the resolution or resolutions providing for the issue of such shares from time to time adopted by the Board of Directors; and in such resolution or resolutions providing for the issue of shares of each particular series the Board of Directors is expressly authorized to fix the annual rate or rates of dividends for the particular series and the date from which dividends on all shares of such series issued prior to the record date for the first dividend payment dated shall be cumulative; and the redemption price or prices for the particular series; the rights, if any, of holders of the shares of the particular series to convert the same into shares of any other series or class or other securities of the Corporation or of any other corporation, with any provisions for the subsequent adjustment of such conversion rights; and to classify or reclassify any unissued Preferred Stock by fixing or altering from time to time any of the foregoing rights, privileges and qualifications. All the Preferred Stock of any one series shall be identical with each other in all respects, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative; and all Preferred Stock shall be of equal rank, regardless of series, and shall be identical in all respects except as to the particulars fixed by the Board as hereinabove provided or as fixed herein. FIFTH: The name and mailing address of the Incorporator is as follows: NAME MAILING ADDRESS ---- --------------- Elliot H. Lutzker Snow, Becker, Kroll, Klaris & Kraus, P.C. 99 Park Avenue 17th Floor New York, New York 10016 SIXTH: The Board of Directors is expressly authorized to adopt, amend or repeal the by-laws of the Corporation. SEVENTH: Elections of directors need not be by written ballot unless the by-laws of the Corporation shall otherwise provide. EIGHTH: The corporation shall to the full extent permitted by Section 145 of the Delaware General Corporation Law indemnify all persons whom it may indemnify pursuant thereto. NINTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this -2- Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement then the said reorganization shall, if sanctioned by the court to which said application has been made, be binding on all creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on this Corporation. TENTH: The corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by Statute, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of April, 1986, and I affirm that the foregoing certificate is my act and deed and that the facts stated therein are true. /s/ ELLIOT H. LUTZKER ------------------------------------------ Elliot H. Lutzker, Incorporator CERTIFICATE OF AMENDMENT OF THE CERTIFICATION OF INCORPORATION OF STAAR SURGICAL COMPANY Pursuant to Section 242 of the General Corporation Law of the State of Delaware, the undersigned corporation does hereby certify: FIRST: That the Board of Directors of STAAR Surgical Company (the "Corporation"), by unanimous written consent in lieu of a meeting, adopted resolutions setting forth the proposed amendment to the Certificate of Incorporation of said Corporation, declaring said amendment to be advisable. The resolutions setting forth the proposed amendments are as follows: RESOLVED, that the Article to the Certificate of Incorporation of the Corporation effected by this Certificate of Amendment is as follows: RESOLVED, that a new Article TENTH, to the Certificate of Incorporation effected by this Certificate of Amendment reads as follows: TENTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) for the payment of unlawful dividends or unlawful stock repurchases or redemptions under Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper/personal benefit. RESOLVED, that the existing article TENTH to the Certificate of Incorporation be amended to read Article ELEVENTH. SECOND: Such amendments were approved on September 29, 1986 by a majority of the Corporation's outstanding Common Stock entitled to vote thereon. THIRD: The aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, STAAR Surgical Company has caused its corporate seal to be hereunto affixed and this certificate to be signed by Thomas R. Waggoner its President, and attested by Robert Nelson its Secretary, this 29th day of September, 1986. /s/ TOM WAGGONER ----------------------------- Thomas R. Waggoner, President ATTEST: /s/ ROBERT NELSON - --------------------------------- Robert Nelson, Secretary (Corporate Seal) -2- CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF STAAR SURGICAL COMPANY Pursuant to Section 242 of the General Corporation Law of the State of Delaware, the undersigned corporation does hereby certify: FIRST: That the Board of Directors of STAAR Surgical Company (the "Corporation") duly adopted resolutions authorizing a two-for-one forward stock split effective July 2, 1984 (the "First Stock Split"); and SECOND: That the Board of Directors of the Corporation duly adopted resolutions authorizing a two-for-one forward stock split with respect its Common Stock, Par Value $0.01 per share, effective November 9, 1984 (the "Second Stock Split"); and THIRD: That the Board of Directors of the Corporation duly adopted resolutions authorized a one-for-two reverse stock split with respect its Common Stock, Par Value $0.01 per share, effective October 31, 1990 (the "Third Stock Split"); and FOURTH: That the Board of Directors of the Corporation duly adopted resolutions authorizing a one-for-two reverse stock split with respect its Common Stock, Par Value $0.01 per share, subject to and effective upon the consent of the shareholders of the Corporation (the "Fourth Stock Split"), and also duly adopted resolutions seeking ratification from the shareholders of the Corporation of the prior Stock Splits, and FIFTH: That on May 15, 1982, a majority of the shareholders of the Corporation by written consent pursuant to Section 242 of the General Corporation Law of the State of Delaware authorized the Fourth Stock Split and ratified the First Stock Split, the Second Stock Split, and the Third Stock Split. IN WITNESS WHEREOF, STAAR Surgical Company has caused its corporate seal to be hereunto affixed and this certificate to be signed by its President, John R. Wolf, and attested by its Secretary, LaMar F. Laster, this 15 day of May, 1992. /s/ JOHN R. WOLF ----------------------------------- John R. Wolf, President ATTEST: /s/ LAMAR F. LASTER - -------------------------------- LaMar F. Laster, Secretary CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF STAAR SURGICAL COMPANY Pursuant to Section 242 of the General Corporation Law of the State of Delaware, the undersigned Corporation does hereby certify: That the Board of Directors of STAAR Surgical Company (the "Corporation") duly adopted resolutions authorizing modifications to the Certificate of Incorporation in order to: (i) reorganize the Board of Directors of the Corporation into three classes of directors, with the directors in each class serving three year staggered terms, (ii) limit the minimum and maximum number of authorized directors serving on the Board to three and seven persons, respectively, (iii) require that any vacancies in the number of directors of the Corporation be filled solely by the vote of a majority of directors then in office, (iv) require that actions by stockholders be taken only at an annual or special meeting of the stockholders and not by written consent, and (v) require a two-thirds vote of the stockholders of the Corporation to amend or appeal any of the foregoing amendments to the Certificate of Incorporation and Bylaws (the "Modifications"); and That at the Annual Meeting of Stockholders held on June 6, 1995, pursuant to section 242 of the General Corporation Law of the State of Delaware, a majority of the Corporation's outstanding Common Stock entitled to vote authorized and approved the Modifications; and That the Certificate of Amendment of the Corporation is amended as follows: FIRST, Section (a) of Article FOURTH of the Corporation's Certificate of Incorporation shall be deleted in its entirety and the following shall be substituted in its place: (a) The Corporation shall be authorized to issue FORTY MILLION (40,000,000) shares, consisting of THIRTY MILLION (30,000,000) shares of Common Stock, each of the par value of $.01 ("Common Stock"), and TEN MILLION (10,000,000) shares of Preferred Stock, each of the par value of $.01 ("Preferred Stock"). SECOND, a new Article TWELFTH to the Certificate of Incorporation effected by this Certificate of Amendment reads a follows: 1 TWELFTH: (a) The number of directors that shall constitute the entire Board of Directors of this corporation shall be not less than three (3) nor more than seven (7), subject to the provisions of this Article TWELFTH. The exact number of directors shall be fixed, within the foregoing limitations, by the vote of a majority of the entire Board of Directors. The number of directors which constitutes the whole Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation. Directors need not be stockholders. Except as otherwise provided by statute or this Certificate of Incorporation or the corporation's Bylaws, the directors shall be elected at the annual meeting of stockholders. Each director shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed. (b) The directors of the Corporation shall be divided into three (3) classes as nearly equal in size as practicable, which classes are hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the first regularly scheduled annual meeting of stockholders to be held after the annual meeting of stockholders for 1995 (scheduled to be held on June 6, 1995), or any adjournments thereof; the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders to be held after the annual meeting of stockholders for 1995, or any adjournments thereof; and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders to be held after the annual meeting of stockholders for 1995, or any adjournments thereof. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors so designated and elected at the annual meeting of stockholders for 1995, or any adjournments thereof. The designation of said directors to Class I, Class II and Class III shall be by a majority vote of the Board or, if agreement cannot be reached, by length of prior service on the Board. At each annual meeting after the annual meeting of stockholders for 1995, or any adjournments thereof, directors to replace those of the Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes so as to make all classes as nearly equal in number as is practicable. 2 (c) Any decrease in the number of directors constituting the Board of Directors shall be effective at the time of the next succeeding annual meeting of the stockholders unless there shall be vacancies in the Board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (d) Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled exclusively by the affirmative vote of a majority of the remaining members of the Board of Directors (and not by stockholders), although less than a quorum, or by a sole remaining director. (e) Any director may be removed from office only for cause. THIRD, a new Article THIRTEENTH to the Certificate of Incorporation effected by this Certificate of Amendment reads as follows: THIRTEENTH: No action permitted or required to be taken by stockholders pursuant to the Delaware General Corporation Law may be taken by consent or consents in writing. FOURTH, a new Article FOURTEENTH to the Certificate of Incorporation effected by this Certificate of Amendment reads as follows: FOURTEENTH: Notwithstanding anything contained in this Certificate of Incorporation or the Corporation's Bylaws to the contrary, Articles Twelfth, Thirteenth and Fourteenth of this Certificate of Incorporation, and Section 11 of Article II, Section 2 of Article III, Section 13 of Article III, and Section 14 of Article III of the Bylaws, shall not be altered, amended or repealed, and no provisions inconsistent therewith shall be adopted, without the affirmative vote of two-thirds or more of the outstanding stock of the corporation entitled to vote thereon. 3 IN WITNESS WHEREOF, STAAR Surgical Company has caused its corporate seal to be hereunto affixed and this Certificate to be signed by John R. Wolf, its President, and attested by William Huddleston, its Secretary, this 19th day of June, 1995. /s/ JOHN R. WOLF 6/19/95 ----------------------------------- John R. Wolf, President ATTEST: /s/ WILLIAM HUDDLESTON - ------------------------------------ William Huddleston, Secretary (Corporate Seal) EX-3.2 3 BY-LAWS EXHIBIT 3.2 AMENDED JUNE 6, 1995 - -------------------- BYLAWS STAAR SURGICAL COMPANY (A Delaware Corporation) ARTICLE I Offices ------- SECTION 1. Registered Office. The registered office of the Corporation ----------------- within the State of Delaware shall be in the City of Dover, County of Kent. SECTION 2. Other Offices. The Corporation may also have an office or ------------- offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require. ARTICLE II Meetings of Stockholders ------------------------ SECTION 1. Place of Meetings. All meeting of the stockholders for the ----------------- election of directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. SECTION 2. Annual Meeting. The annual meeting of the stockholders, -------------- commencing with the year 1986, shall be held at 10:00 A.M. on the fifteenth of June if not a legal holiday, and if a legal holiday, then on the next succeeding day not a legal holiday, at 10:00 A.M., or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof. At such annual meeting, the stockholders shall elect, by a plurality vote, a Board of Directors and transact such other business as may properly be brought before the meeting. SECTION 3. Special Meetings. Special Meetings of the stockholders, unless ---------------- otherwise prescribed by statute, may be called at any time by the Board of Directors or the Chairman of the Board, if one shall have been elected, or the President. SECTION 4. Notice of Meetings. Except as otherwise expressly required by ------------------ statute, written notice of each annual and special meeting of the stockholders stating the date, place, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote thereat not less than ten (10) or more than sixty (60) days before the date of the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Notice shall be given personally or by mail, and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his address as it appears on the records of the Corporation. Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid. Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy. Neither the business to be transacted at, nor the purpose of, an annual or special meeting oF stockholders need be specified in any written waiver of notice. SECTION 5. List of Stockholders. The officer who has charge of the stock -------------------- ledger of the Corporation shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 6. Quorum, Adjournments. The holders of a majority of the voting -------------------- power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meeting of stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 7. Organization. At each meeting of the stockholders, the Chairman ------------ of the Board, if one shall have been elected, or in his absence or if one shall not have been elected, the President shall act as chairman of the meeting. The Secretary, or in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof. SECTION 8. Order of Business. The order of business at all meetings of the ----------------- stockholders shall be as determined by the chairman of the meeting. SECTION 9. Voting. Except as otherwise provided by statute or the ------ Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of the stockholders to one vote for each share of capital stock of the Corporation standing in his name on the record of stockholders of the Corporation: (a) on the date fixed pursuant to the provisions of Section 6 of Article V of these Bylaws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or (b) if no such record date shall have been so fixed, then at the close of business on the date next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the date on which the meeting is held. Each stockholder entitled to vote at any meeting of the stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. SECTION 10. Inspectors. The Board of Directors may, in advance of any ---------- meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders. SECTION 11. No Action by Consent. No action permitted or required to be -------------------- taken by stockholders pursuant to the Delaware General Corporation Law may be taken by consent or consents in writing. ARTICLE III Board of Directors ------------------ SECTION 1. General Powers. The business and affairs of the Corporation -------------- shall be managed by or under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. SECTION 2. Number, Qualifications, Election and Term of Office. --------------------------------------------------- (a) The number of directors that shall constitute the entire Board of Directors of this Corporation shall consist of a number within the limits set forth in Article TWELFTH of the Corporation's Certificate of Incorporation (not less than three (3) nor more than seven (7) persons). The exact number of directors shall be fixed, within the forgoing limitations, by the vote of a majority of the entire Board of Directors. The exact number of directors constituting the entire Board of Directors is presently fixed at five (5). Directors need not be stockholders. Except as otherwise provided by statute or this Corporation's Certificate of Incorporation or these Bylaws, the directors shall be elected at the annual meeting of stockholders. Each director shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these Bylaws. (b) The directors of the Corporation shall be divided into three (3) classes as nearly equal in size as practicable, which classes are hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of stockholders to be held after the annual meeting of stockholders for 1995 (scheduled to be held on June 6, 1995), or any adjournments thereof; the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders to be held after the annual meeting of stockholders for 1995, or any adjournments thereof; and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders to be held after the annual meeting of stockholders for 1995, or any adjournments thereof. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors so designated and elected at the annual meeting of stockholders for 1995, or any adjournments thereof. The designation of said directors to Class I, Class II and Class III shall be by a majority vote of the Board or, if agreement cannot be reached, by length of prior service on the Board. At each annual meeting after the annual meeting of stockholders for 1995 or any adjournments thereof, directors to replace those of the Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes so as to make all classes as nearly equal in number as practicable. (c) Any decrease in the number of directors constituting the Board of Directors shall be effective at the time of the next succeeding annual meeting of the stockholders unless there shall be vacancies in the board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. SECTION 3. Place of Meeting. Meetings of the Board of Directors shall be ---------------- held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 4. Election of Directors. At each meeting of the stockholders for --------------------- the election of directors, the persons receiving the greatest number of votes shall be the directors. SECTION 5. Nominations. ----------- 5.1. Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. 5.2. Such nominations, if not made by the Board of Directors, shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 20 days notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Each such notice shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment or each such nominee, and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee. 5.3. Notice of nominations which are proposed by the Board of Directors shall be given on behalf of the Board by the chairman of the meeting. 5.4. The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 6. Annual Meeting. The Board of Directors shall meet for the -------------- purpose of organization, the election of officers and the transaction of other business as soon as practicable after each annual meeting of the stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 9 of this Article III. SECTION 7. Regular Meetings. Regular meetings of the Board of Directors ---------------- shall be held at such time and place as the Board of Directors may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these Bylaws. SECTION 8. Special Meetings. Special meetings of the Board of Directors ---------------- may called by the Chairman of the Board, if one shall have been elected, or by two or more directors of the Corporation or by the President. SECTION 9. Notice of Meetings. Notice of each special meeting of the Board ------------------ of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 9, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these Bylaws, such notice need not state the purpose of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him at his residence or usual place of business, by first-class mail, at least two days before the day on which such meeting is to be held, or shall be sent addressed to him at such place by telegraph, cable, telex, telecopier or other similar means, at least twenty-four hours before the time at which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 10. Quorum and Manner of Acting. A majority of the entire Board of --------------------------- Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these Bylaws, the act of a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such. SECTION 11. Organization. At each meeting of the Board of Directors, the ------------ Chairman of the Board, if one shall have been elected, or, in the absence of the Chairman of the Board or if one shall not have been elected, the President (or, in his absence, another director chosen by a majority of the directors present) shall act as chairman of the meeting and preside thereat. The Secretary, or, in his absence, any person appointed by the Chairman shall act as secretary of the meeting and keep the minutes thereof. SECTION 12. Resignations. Any director of the Corporation may resign at ------------ any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 13. Vacancies. Newly created directorships resulting from any --------- increase in the number of directors, and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled exclusively by the affirmative vote of a majority of the remaining members of the Board of Directors (and not by stockholders), although less than a quorum, or by a sole remaining director. Each director so elected shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed, as provided in this Corporation's Certificate of Incorporation or as herein provided in these Bylaws. SECTION 14. Removal of Directors. Except as otherwise provided by statute, -------------------- any director may be removed only for cause. SECTION 15. Compensation. The Board of Directors shall serve without ------------ compensation. Said Directors will be reimbursed for expenses incurred for services rendered to the Corporation. SECTION 16. Committees. The Board of Directors may, by resolution passed ---------- by a majority of the entire Board of Directors, designate one or more committees, including any executive committee, each committee to consist of three or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Except to the extent restricted by statute or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors. SECTION 17. Action by Consent. Unless restricted by the Certificate of ----------------- Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board of Directors or such committee shall be filed with the minutes of the proceedings of the Board of Directors or such committee. SECTION 18. Telephonic Meeting. Unless restricted by the Certificate of ------------------ Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. ARTICLE IV Officers -------- SECTION 1. Number and Qualifications. The officers of the Corporation ------------------------- shall be elected by the Board of Directors and shall include the President, one or more Vice-Presidents, the Secretary, the Treasurer, the Chairman of the Board of Directors, and the Vice-Chairman of the Board of Directors. If the Board of Directors wishes it may also elect other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries), as may be necessary or desirable for the business of the Corporation. Any two or more offices may be held by the same person, except the offices of President and Secretary; provided, however, that such two offices may be held by the same person if all - ----------------- of the outstanding shares of the Corporation are owned by such person. Each officer shall hold office until the first meeting of the Board of Directors following the next annual meeting of the stockholders, and until his successors shall have been elected and shall have qualified, or until his death, or until he shall have resigned or have been removed, as hereinafter provided in these Bylaws. SECTION 2. Resignations. Any officer of the Corporation may resign at any ------------ time by giving written notice of his resignation to the Board of Directors or the Chairman of the Board or the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective. SECTION 3. Removal. Any officer of the Corporation may be removed, either ------- with or without cause, at any time, by the Board of Directors at any meeting thereof. SECTION 4. Chairman of the Board. The Chairman of the Board, if one shall --------------------- have been elected, shall be a member of the Board, an officer of the Corporation and, if present, shall preside at each meeting of the Board of Directors or the stockholders. He shall advise and counsel with the President and shall perform such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 5. The President. The President shall be the Chief Executive ------------- Officer of the Corporation. He shall, in the absence of the Chairman of the Board or if a Chairman of the Board shall not have been elected, preside at each meeting of the Board of Directors or the stockholders. He shall perform all duties incident to the office of President and Chief Executive Officer and such other duties as may from time to time be assigned to him by the Board of Directors. SECTION 6. Vice-Presidents. Each Vice President shall perform all such --------------- duties as from time to time may be assigned to him by the Board of Directors or the President. At the request of the President or in his absence or in the event of his inability or refusal to act, the Vice-President, or if there shall be more than one, the Vice-Presidents in the order determined by the Board of Directors (or if there be no such determination, then the Vice Presidents in the order of their election), shall perform the duties of the President, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the President in respect of the performance of such duties. SECTION 7. Treasurer. The Treasurer shall: --------- (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) deposit all moneys and other valuables to the credit of the Corporation in such depositories as may be designated by the Board of Directors or pursuant to its direction; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefor; (f) render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and (g) in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 8. Secretary. The Secretary shall: --------- (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if there ----------------------- shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 10. The Assistant Secretary. The Assistant Secretary, or if ----------------------- there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 11. Officers' Bonds or Other Security. If required by the Board --------------------------------- of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety or sureties as the Board of Directors may require. SECTION 12. Compensation. The compensation of the officers of the ------------ Corporation for their services as such officers shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation. ARTICLE V Shares, etc. ----------- SECTION. 1. Share Certificates. Each owner of shares of the Corporation ------------------ shall be entitled to have a certificate, in such form as shall be approved by the Board of Directors, certifying the number of shares of the Corporation owned by him. The certificates representing shares shall be signed in the name of the Corporation by the Chairman of the Board or the President or a Vice-President and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation (which seal may be a facsimile, engraved or printed); provided, however, that where any such certificate is countersigned by a transfer agent, or is registered by a registrar (other than the Corporation or one of its employees), the signatures of the Chairman of the Board, President, Vice-President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer upon such certificates may be facsimiles, engraved or printed. In case any officer who shall have signed any such certificate shall have ceased to be such officer before such certificate shall be issued, it may nevertheless be issued by the Corporation with the same effect as if such officer were still in office at the date of their issue. When the Corporation is authorized to issue shares of more than one class there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the Corporation will furnish to any shareholder, upon request and without charge, a full statement of the powers, designations, preferences, and relative, participating, optional or other special rights of each class of stock or series thereof, and the qualifications, limitations or restrictions of such preferences and/or rights and/or limitations of each such series so far as the same have been fixed and the authority of the Board of Directors to designate and fix the relative rights, preferences and limitations of other series. SECTION 2. Books of Account and Record of Stockholders. There shall be ------------------------------------------- kept correct and complete books and records of account of all the business and transactions of the Corporation. There shall also be kept, at the office of the Corporation, in the State of New York, or such other State as determined by the Corporation, or at the office of its transfer agent in said State, a record containing the names and addresses of all stockholders of the Corporation, the number of shares held by each, and the dates when they became the holders of record thereof. SECTION 3. Transfers of Shares. Transfers of shares of the Corporation ------------------- shall be made on the records of the Corporation only upon authorization by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. The person in whose name shares shall stand on the record of stockholders of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security and not absolutely and written notice thereof shall be given to the Secretary or to a transfer agent, such fact shall be noted on the records of the Corporation. SECTION 4. Transfer Agents and Registrars. The Board of Directors may ------------------------------ appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars and may require all certificates for shares of stock to bear the signature of any of them. SECTION 5. Regulations. The Board of Directors may make such additional ----------- rules and regulations, not inconsistent with these Bylaws, as it may deem expedient concerning the issue, transfer and registration or certificates for shares of the Corporation. SECTION 6. Fixing of Record Date. The Board of Directors may fix, in --------------------- advance, a date not more than fifty (50) nor less than ten (10) days before the date then fixed for the holding of any meeting of the stockholders or before the last day on which the consent or dissent of the stockholders may be effectively expressed for any purpose without a meeting, as the time as of which the stockholders entitled to notice of and to vote at such meeting or whose consent or dissent is required or may be expressed for any purpose, as the case may be, shall be determined, and all persons who were stockholders of record of voting shares at such time, and no others, shall be entitled to notice of and to vote at such meeting or to express their consent or dissent, as the case may be. The Board of Directors may fix, in advance, a date not more than fifty (50) not less than ten (10) days preceding the date fixed for the payment of any dividend or the making of any distribution or the allotment of rights to subscribe for securities of the Corporation, or for the delivery of evidence of rights or evidence of interest arising out of any change, conversion or exchange of shares or other securities, as the record date for the determination of the stockholders entitled to receive any such dividend, distribution, allotment, rights or interests, and in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, allotment, rights or interests. SECTION 7. Lost, Destroyed or Mutilated Certificates. The holder of any ----------------------------------------- certificate representing shares of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated. The Board of Directors may, in its discretion, require such owner or his legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties as the Board of Directors in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of destruction of any such certificate, or the issuance of such new certificate. ARTICLE VI Indemnification --------------- On the terms, to the extent, and subject to the condition prescribed by statute and by such rules and regulations, not inconsistent with statute, as the Board of Directors may in its discretion impose in general or particular cases or classes of cases, (a) the Corporation shall indemnify any person made, or threatened to be made, a party to an action or proceeding, civil or criminal, including an action by or in the rights of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise which any director or officer of the Corporation served in any capacity at the request of the Corporation, by reason of the fact that he, his testator or intestate, was a director or officer of the Corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, and (b) the Corporation may pay, in advance of final disposition of any such action or proceeding, expenses incurred by such person in defining such action or proceeding. On the terms, to the extent, and subject to the conditions prescribed by statute and by such rules and regulations, not inconsistent with statute, as the Board of Directors may in its discretion impose in general or particular cases or classes of cases, (a) the Corporation shall indemnify any person made a party to an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that he, his testator or intestate, is or was a director or officer of the Corporation, against the reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with the defense of such action, or in connection with an appeal therein, and (b) the Corporation may pay, in advance of final disposition of any such action, expenses incurred by such person in defending such action or proceeding. ARTICLE VII General Provisions ------------------ SECTION 1. Dividends. Subject to statute and the Certificate of --------- Incorporation, dividends upon the shares of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation. SECTION 2. Reserves. Before payment of any dividend, there may be set -------- aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserves in the manner in which it was created. SECTION 3. Seal. The seal of the Corporation shall be in such form as ---- shall be approved by the Board of Directors. SECTION 4. Fiscal Year. The first fiscal year of the Corporation shall be ----------- December 31, but may thereafter be changed by resolution of the Board of Directors. SECTION 5. Checks, Notes, Drafts, Etc.. All checks, notes, drafts or other --------------------------- orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. SECTION 6. Execution of Contracts, Deeds, Etc. The Board of Directors may ----------------------------------- authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 7. Voting of Stock in Other Corporations. Unless otherwise ------------------------------------- provided by resolution of the Board of Directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Board of Directors may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation, or to consent in writing to any action by any such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the premises. ARTICLE VIII Amendments ---------- These Bylaws may be amended or repealed or new Bylaws may be adopted at any annual or special meeting of stockholders at which time a quorum is present or represented, by the vote of the holders of shares entitled to vote in the election of directors provided that notice of the proposed amendment or repeal or adoption of new Bylaws is contained in the notice of such meeting. These Bylaws may also be amended or repealed or new Bylaws may be adopted by the Board at any regular or special meeting of the Board of Directors. If any Bylaw regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of the stockholders for the election of directors the By-law so adopted, amended or repealed, together with a concise statement of the changes made. Bylaws adopted by the Board of Directors may be amended or repealed by the stockholders. Notwithstanding anything contained in these Bylaws to the contrary, Section 11 of Article II, Section 2 of Article III, Section 13 of Article III and Section 14 of Article III of these Bylaws shall not be altered, amended or repealed, and no provisions inconsistent therewith shall be adopted, except in accordance with Article Fourteenth of the Certificate of Incorporation of this Corporation. EX-10.44 4 STOCK PURCHASE AGREEMENT EXHIBIT 10.44 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement dated as of December 5, 1999 (this "Agreement") is entered into by and among STAAR Surgical Company, a Delaware corporation (the "Purchaser"), Circuit Tree Medical, Inc., a California corporation (the "Company"), Alex Urich, an individual, and Michael Curtis, an individual (Urich and Curtis are sometimes herein referred to individually as the "Shareholder" and collectively as the "Shareholders"). WITNESSETH: WHEREAS, the Company has issued to each of the Shareholders five hundred (500) shares of its common stock; WHEREAS, the Purchaser wishes to purchase from each Shareholder, and each Shareholder wishes to sell to the Purchaser, four hundred (400) shares of the Company's common stock, in accordance with the terms and provisions of this Agreement; WHEREAS, the parties hereto believe it is desirable to enter into this Agreement in order to set forth the representations and warranties made by the Company and the Shareholders in connection with this transaction, and to set forth certain covenants and agreements of the parties and to set forth various other provisions relating to this transaction and the relative rights and obligations of the parties with respect thereto. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE I SALE OF STOCK 1.1 Sale And Purchase Of Stock. Upon execution of this Agreement, each -------------------------- Shareholder shall sell to the Purchaser, and the Purchaser shall purchase from each Shareholder, four hundred (400) shares of the Company's common stock. (The total eight hundred (800) shares of common stock which shall be purchased by the Purchaser pursuant to this Agreement shall be referred to herein, collectively, as the "Stock".) 1.2. Purchase Price And Payment Terms. -------------------------------- (a) The purchase price for the Stock shall be Two Million Five Hundred Thousand Dollars ($2,500,000). The purchase price shall be paid as follows: (i) At the Closing, the Purchaser shall deliver to each Shareholder good funds in the amount of Two Hundred Fifty Thousand Dollars ($250,000); and (ii) Within ten (10) days from the Closing, the Purchaser shall deliver to the Escrow Holder, for distribution to the Shareholders, certificates representing unregistered shares of the Purchaser's common stock (the "Purchaser's Shares"). The number of Purchaser's Shares to be issued shall be determined as of the Closing Date by dividing the balance of the purchase price, or One Million Five Hundred Thousand Dollars ($1,500,000), by the average of the closing bid and ask prices of the Purchaser's common stock for the five 1 trading days immediately preceding the Closing Date. Each Shareholder shall receive a certificate for the Purchaser's Shares having a value, on the Closing Date, of Seven Hundred Fifty Thousand Dollars ($750,000); and (iii) On or before January 5, 2000, the Purchaser shall deliver to the Escrow Holder, for distribution to each Shareholder, good funds in the amount of Two Hundred Fifty Thousand Dollars ($250,000). (b) The Shareholders and the Purchaser shall sign an escrow agreement (the "Escrow Agreement") in the form of Exhibit "1". Pursuant to the Escrow Agreement each Shareholder shall deposit with the Escrow Holder (as that term is defined in the Escrow Agreement) (i) a certificate representing two hundred forty (240) shares of the Company's common stock (collectively, four hundred eighty (480) shares of the Stock), along with a Stock Assignment Separate From Certificate duly endorsed for transfer and (ii) a certificate representing eighty (80) shares of the Company's common stock (collectively one hundred sixty (160) shares of the Stock), along with a Stock Assignment Separate From Certificate duly endorsed for transfer and the Purchaser shall deposit with the Escrow Holder (i) Two Hundred Fifty Thousand Dollars ($250,000) and (ii) the Purchaser's Shares. The Escrow Holder shall hold the certificates pursuant to the terms of the Escrow Agreement and, upon receipt of the Purchaser's Shares and the Two Hundred Fifty Thousand Dollars ($250,000), shall release the certificates, with the Assignment Separate From Certificate, to the Purchaser, all pursuant to the terms and conditions of the Escrow Agreement. (c) As part of the consideration for this purchase and sale, the Shareholders and the Purchaser shall sign a Shareholders Agreement in the form of Exhibit "2". 1.3. Closing Date. The closing date of this transaction shall take ------------ place on or before December 3, 1999 (the "Close" or the "Closing Date"). ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Company and the Shareholders as follows: 2.1. Organization and Capital Structure of the Purchaser. The Purchaser --------------------------------------------------- is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to carry on its business as now conducted. 2.2. Authorization. The Purchaser has full corporate power and authority ------------- to enter into this Agreement, the Escrow Agreement, the Shareholders Agreement, the Urich Employment Agreement and the Curtis Employment Agreement, (collectively, the "Transaction Documents"), to consummate the transactions contemplated hereby and thereby and to comply with the terms, conditions and provisions hereof and thereof. The execution, delivery and performance by the Purchaser of each of the Transaction Documents, and the actions to be taken by the Purchaser contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of the Purchaser and no other corporate proceedings on the part of the Purchaser are necessary with respect hereto or thereto. Each of the Transaction Documents constitutes the valid and binding obligations of the Purchaser, in each case enforceable in accordance with its terms, subject to (i) general principles of equity, regardless of whether enforcement is sought in a proceeding in equity or 2 at law, and (ii) bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or other similar laws relating to or affecting creditors' rights generally. 2.3. Non-Contravention. Except as set forth in Schedule 2.3 attached ----------------- hereto, neither the execution or delivery of the Transaction Documents by the Purchaser, nor the consummation of the transactions contemplated hereby or thereby by the Purchaser, will (i) conflict with or result in the breach of any term or provision of, or constitute a default under, the Certificate of Incorporation or By-laws of the Purchaser or any material agreement, instrument or indenture to which the Purchaser is a party or by which it is bound; (ii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Purchaser; or (iii) require, as of the date hereof, the approval, consent, waiver, authorization or act of, or the making by the Purchaser of any declaration, filing or registration with, any third party or any Governmental Body and such other consents, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made would not, individually or in the aggregate, have a Material Adverse Effect on the Purchaser, materially impair the ability of the Purchaser to perform its obligations hereunder or prevent the consummation of any of the transactions contemplated hereby. 2.4. Valid Shares. The issuance of the Purchaser's Shares in connection ------------ with the transaction has been duly authorized on behalf of the Purchaser and the Purchaser's Shares, when issued pursuant to this Agreement, will be duly and validly issued and outstanding, fully paid and nonassessable. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS The Company and the Shareholders, jointly and severally, represent and warrant to the Purchaser as follows: 3.1. Organization. The Company is a corporation duly organized and ------------ validly existing under the laws of the state of California. The Company is duly qualified to transact business as a foreign corporation and is in good standing in each of the jurisdictions in which the ownership or leasing of its properties or the conduct of its business requires such qualification, and no other jurisdiction has demanded, requested or otherwise indicated that the Company is required to so qualify. The Company has full corporate power and authority to own or lease and to operate and use its properties and assets and to carry on its business as now conducted. The Company has delivered or otherwise made available to the Purchaser true and complete copies of the Company's Articles of Incorporation, as in effect on the date hereof, By-laws, as in effect on the date hereof, minute books and stock transfer records. 3.2. Subsidiaries and Investments. The Company does not, directly or ---------------------------- indirectly, (a) own, of record or beneficially, or own or hold the right to acquire, any outstanding voting or equity securities or other voting or equity interests in any corporation, partnership, joint venture or other entity or (b) otherwise control any such corporation, partnership, joint venture or other entity. 3.3. Capital Stock of the Company. The authorized capital stock of the ---------------------------- Company consists of one thousand (1,000) shares of Common Stock, without par value ("Company Common Stock"), of which one thousand (1,000) shares are duly and validly issued and outstanding, fully paid and nonassessable, and none of which are held by the Company as treasury shares. None of the 3 issued and outstanding shares of Company Common Stock has been issued in violation of the preemptive rights of any person or in violation of applicable federal or state securities laws. Except for this Agreement, and except as set forth on Schedule 3.3 hereof, there are no agreements, arrangements, warrants, options, puts, calls, rights or other commitments, plans or understandings of any character relating to the issuance, sale, purchase, redemption, conversion, exchange, registration, voting, or transfer of any shares of Company Common Stock or any other securities of the Company. Schedule 3.3 sets forth a true and complete list of the names and addresses of each of the holders of record of the Company Common Stock and the respective number of outstanding shares held of record by each such holder. 3.4. Non-Contravention. Except as set forth on Schedule 3.4 attached ----------------- hereto, neither the execution or delivery of this Agreement by the Company nor the consummation of the transactions contemplated hereby or thereby by the Company will (i) conflict with or result in the breach of any term or provision of, or constitute a default under, the Articles of Incorporation or By-laws of the Company; (ii) result in a default, or give rise to any right of termination, cancellation or acceleration, under any provisions of any material agreement (including, without limitation, any loan agreements or promissory note), indenture or instrument to which the Company is a party or by which the Company or is bound; (iii) result in the creation or imposition of any Encumbrance on any of the property of the Company; (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company; or (v) require on the part of the Company or the Shareholders, as of the date hereof, the approval, consent, waiver, authorization or act of, or the making by the Company of any declaration, filing or registration with, any third party or any Governmental Body. 3.5. Financial Statement. Schedule 3.5 contains the balance sheet of the ------------------- Company as of December 31, 1998, (the "Company's Financial Statement"). Except as set forth on Schedule 3.5, the Company's Financial Statement is true and correct and presents fairly the financial condition and the results of operations and cash flows of the Company as of the date and for the period indicated. The Company's Financial Statement does not contain any material items of special or nonrecurring income except as expressly specified therein. 3.6. Operations Since Balance Sheet Date. ----------------------------------- (a) Except as set forth on Schedule 3.6, during the period from the Balance Sheet Date to the date hereof, inclusive, there has been: (i) no material adverse change in the Business or the results of operations, properties or condition (financial or otherwise) of the Company, and no fact or condition exists or is contemplated or threatened which might reasonably be expected to cause such a change in the future; and (ii) no damage, destruction, loss or claim made or filed against the Company (whether or not covered by insurance) or condemnation or other taking which materially adversely affects the Business or the results of operations, properties or condition (financial or otherwise) of the Company. (b) Except as set forth on Schedule 3.6, since the Balance Sheet Date, the Company has conducted the Business only in the ordinary course and in conformity with past practice. Without limiting the generality of the foregoing, since the Balance Sheet Date, except as set forth on Schedule 3.6, the Company has not: (i) issued, delivered or agreed (conditionally or unconditionally) to issue or deliver, or granted any option, warrant or other right to purchase, any of its capital stock or other equity interest or any security convertible into its capital stock or other equity interest; (ii) paid any obligation or liability (absolute or contingent) other than current liabilities reflected on the Balance Sheet and current liabilities incurred since the Balance Sheet Date 4 in the ordinary course of business consistent with past practice; (iii) undertaken or committed to undertake capital expenditures exceeding $50,000 for any single project or related series of projects; (iv) made charitable donations in excess of $10,000 in the aggregate; (v) sold, leased, transferred or otherwise disposed of (including any transfers from the Company to any of its Affiliates), or mortgaged or pledged, or imposed or suffered to be imposed any Encumbrance (other than Permitted Encumbrances) on, any of the assets reflected on the Balance Sheet or any assets acquired after the Balance Sheet Date, except for sales of inventory in the ordinary course of business consistent with past practice; (vi) canceled any debts owed to or claims held by the Company (including the settlement of any claims or litigation) or waived any rights of material value; (vii) created, incurred, guaranteed or assumed any indebtedness for borrowed money or entered into any capitalized leases; (viii) accelerated collection of any note or account receivable to a date prior to the date such collection would have occurred in the ordinary course of business consistent with past practice; (ix) delayed payment of any account payable or other liability of the Company beyond its due date or the date when such liability would have been paid in the ordinary course of business consistent with past practice (x) allowed the levels of raw materials, supplies, work-in-process, finished goods or other materials included in its inventory to vary in any material respect from levels customarily maintained; (xi) granted any bonus or other special compensation or increased the compensation or benefits payable or to become payable to any directors, officers or employees, or instituted any increase in or otherwise amended any profit sharing, bonus, incentive, deferred compensation, insurance, pension, retirement, medical, hospital, disability, welfare or other employee benefit plan except for increases required by law; (xii) sold, assigned or transferred any patents, trademarks, service marks, trade names, copyrights, Software (as defined in Section 3.17) (except in the ordinary course of business consistent with past practice), trade secrets or other similar intangible assets, or disclosed any proprietary or confidential information to any person or entity (other than to the Purchaser, its Affiliates and agents), (xiii) extended credit other than in the ordinary course of business or permitted any change in credit practices or in the method of maintaining books, accounts or business records; (xiv) declared, set aside or paid any dividend or made any other distribution (whether in cash, stock or other property) to the Shareholders in respect of any Company Common Stock or other securities of the Company; (xv) purchased, redeemed, called for purchase or redemption or otherwise acquired any shares of Company Common Stock or any other securities of the Company; (xvi) made any write-down of the value of any inventory or write-offs as uncollectible of any notes or accounts receivable except for write-downs and write-offs in the ordinary course of business and consistent with past practice, none of which would reasonably be expected to have a Material Adverse Effect on the Business or the results of operations, properties or condition (financial or otherwise) of the Company; (xvii) except as otherwise contemplated herein, entered into any transaction other than in the ordinary course of business or any transaction (not involving purchases and sales of inventory) including commitments for expenditures in excess of $50,000; (xviii) made any changes in the accounting methods or practices followed by the Company; (xix) agreed or committed to do or authorized any of the foregoing; or prepared or filed any Tax Return inconsistent with past practice or, on any such Tax Return taken any position, made any election, or adopted any method that is inconsistent with positions taken, elections made or methods used in preparing or filing similar Tax Returns in prior periods (including, without limitation, positions, elections or methods which would have the effect of deferring income to periods ending after the Closing Date or accelerating deductions to periods ending on or prior to the Closing Date). 3.7. No Undisclosed Liabilities, Working Capital. Except as set forth on ------------------------------------------- Schedule 3.7, the Company is not subject to any obligation or liability of a kind required to be included as a liability on the Company's Balance Sheet (including, without limitation, unasserted claims whether known or unknown), whether absolute, contingent, accrued or otherwise, which is not shown or 5 which is in excess of amounts shown or reserved for on the Balance Sheet, other than liabilities reasonably incurred in the ordinary course of business after the Balance Sheet Date, none of which, individually or in the aggregate, would have a Material Adverse Effect on the Company and none of which is a liability for breach of contract, breach of warranty, tort, infringement or other lawsuit. 3.8. Taxes. ----- (a) Except as set forth on Schedule 3.8, (i) all Tax Returns, required to be filed by or on behalf of the Company prior to the Closing Date have been or will be timely filed and such Tax Returns as so filed are or will be complete and accurate and disclose all Taxes required to be paid for the periods covered thereby and all Taxes shown to be due on such Tax Returns have been timely paid; (ii) no extension of time in which to file any such Tax Returns is in effect or has been requested; (iii) all Taxes for which the Company is liable relating to any period ending on or prior to the Closing Date (or the portion of any Tax period beginning before and ending after the Closing Date) shall have been paid or, if not yet due and payable, properly accrued for as of the Closing Date; (iv) all Taxes which the Company is required by law to withhold or to collect for payment have been duly withheld and collected, and have been paid or will be paid to the proper Governmental Body; (v) there are no Tax liens (except for liens relating to current Taxes not yet due) on any property of the Company and no basis exists for any such liens; (vi) the Tax Returns referred to in clause (i) have been examined by the appropriate taxing authority or the period for assessment of the Taxes in respect of which such Tax Returns were required to be filed has expired; (vii) no audit of any kind has been conducted with respect to any Tax Return by an appropriate Taxing authority; (viii) all deficiencies which have been asserted as a result of such examinations have been fully paid or finally settled, and no issue has been raised in any such examination which, by application of similar principles, reasonably would be expected to result in assertion of a deficiency for any other year not so examined; (ix) the Company has neither executed nor entered into a closing agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as amended (the "Code"), or any predecessor provision or any similar provision of state, local or foreign law; (x) there are no outstanding agreements or waivers extending the statutes of limitations with respect to the assessment of any Tax and no such agreements or waivers have been requested; (xi) the Company has not incurred any liability with respect to Taxes based upon income, operations, purchases, sales, payroll, licenses, compensation, business, capital stock or surplus, properties or assets except in the ordinary course of business, or any liabilities for interest or penalties with respect to the foregoing; (xii) there is no action, suit, investigation, audit, claim or assessment pending or proposed or threatened with respect to Taxes of the Company and no basis exists therefor; (xiii) the accruals for Taxes reflected on the Balance Sheet are adequate to cover any Tax liability of the Company; (xiv) since the Balance Sheet Date, none of the Shareholders or the Company has taken any action not in accordance with past practice that would have the effect of deferring any Tax liability for the Company from any taxable period ending on or before the Closing Date to any taxable period ending after the Closing Date; and (xv) no claim has ever been made by a Taxing Authority in a jurisdiction where the Company has never paid Taxes or filed Tax Returns asserting that the Company is or may be subject to Taxes assessed by such jurisdiction. (b) No transaction contemplated by this Agreement is subject to withholding under Section 1445 of the Code and no stock transfer Taxes, sales Taxes, use Taxes, real estate transfer or gains Taxes, or other similar Taxes will be imposed on the transactions contemplated by this Agreement. 6 (c) For any Taxable period as to which the relevant statute of limitations will not have expired as of the Closing Date, the Company has not been a member of an affiliated group (as defined in Section 1504(a) of the Code without regard to the limitations contained in Section 1504(b) of the Code) or has filed Tax Returns with a group of corporations filing a combined, consolidated or unitary income Tax Return. 3.9. Availability of Assets and Legality of Use. Except as set forth on ------------------------------------------ Schedule 3.9, the assets owned or leased by the Company, or which the Company is entitled to use under license or other agreements, constitute all the assets used by the Company in the conduct of the Business (including, but not limited to, all books, records, computers and computer programs and data processing systems), and the tangible assets owned or leased by the Company are in good condition (subject to normal wear and tear) and serviceable condition and are suitable for the uses for which they are intended. Except as set forth on Schedule 3.9, to the knowledge of the Company or any of the Shareholders, (i) all such assets and their uses conform to all applicable laws, regulations, rules, ordinances, codes, licenses, franchises and permits (including, without limitation, all electrical, building, zoning, environmental and occupational safety and health Requirements of Law), and (ii) no written notice of any existing violation of any of such matters relating to such assets or their use has been received by the Company. 3.10. Governmental Permits. The Company owns, holds or possesses all -------------------- governmental licenses, franchises, permits, privileges, variances, immunities, approvals and other authorizations which are necessary to entitle it to own, lease, operate and use its assets and properties and to carry on and conduct the Business substantially as currently conducted (herein collectively called "Governmental Permits"), except for such Governmental Permits as to which the failure to so own, hold or possess would not have a Material Adverse Effect on the Company. Schedule 3.10 sets forth a list and brief description of each such Governmental Permit. The Company has fulfilled and performed its respective obligations under each of such Governmental Permits, and no event has occurred or condition or state of facts exists which constitutes or, after notice or lapse of time or both, would constitute a breach or default under any such Governmental Permit, or permits or, after notice or lapse of time or both, would permit revocation or termination of any such Governmental Permit, or which might adversely affect the right of the Company under any such Governmental Permit. No notice of cancellation, of default or of any dispute concerning any Governmental Permit, or of any event, condition or state of facts described in the preceding sentence, has been received or is known by the Company or the Shareholders. Except as set forth on Schedule 3.10, each of the Governmental Permits is valid, subsisting and in full force and effect and will continue in full force and effect after the Closing, in each case without (i) the occurrence of any breach, default or forfeiture of rights thereunder or (ii) the consent, approval, or act of, or the making of any filing with, any Governmental Body or other party. 3.11. Real Property. Schedule 3.11 contains a brief description of each ------------- parcel of real property owned by the Company (the "Owned Real Property") and of each option held by the Company to acquire any real property. Complete and correct copies of any instruments evidencing Encumbrances, commitments for the issuance of title insurance, title opinions, surveys and appraisals in the possession of the Company or the Shareholders or any policies of title insurance currently in force and in the possession of the Company or the Shareholders with respect to each such parcel have heretofore been delivered to the Purchaser. 3.12. Real Property Leases. Schedule 3.12 sets forth a list and brief -------------------- description of each lease or similar agreement under which the Company is lessee of, or holds or operates, any real 7 property owned by any third party. Except as set forth on Schedule 3.12, (i) there are no subleases, tenancies or other rights of occupancy affecting all or any part of such leases, (ii) the Company has the right to quiet enjoyment of the premises described in any lease identified on such Schedule for the full term of each such lease or similar agreement (and any renewal option related thereto) relating thereto, and (iii) the leasehold or other interest of the Company therein is not subject or subordinate to any Encumbrance held by persons claiming by, through or under the Company, except for Permitted Encumbrances. 3.13. Condemnation. Neither the whole nor any part of any real property ------------ listed on Schedule 3.11 or Schedule 3.12 is subject to any pending suit for condemnation or other taking by any public authority and, to the knowledge of the Company or the Shareholders, no such condemnation or other taking is threatened. 3.14. Personal Property. Schedule 3.14 contains a detailed list as of the ----------------- date of this Agreement of all machinery, equipment, vehicles, furniture and other personal property owned by the Company having an original cost of $10,000 or more. 3.15. Personal Property Leases. Schedule 3.15 contains a brief ------------------------ description of each lease or other agreement or right, whether written or oral, under which the Company is lessee of, or holds or operates, any machinery, equipment, computer hardware and related peripheral equipment, vehicle or other tangible personal property owned by a third party. 3.16. Intellectual Property. --------------------- (a) Schedule 3.16 contains a list and detailed description of (i) all United States and foreign patents and patent applications and patent disclosures owned or controlled by the Company; (ii) all United States and foreign copyrights, registered or unregistered, copyrighted works and copyright registration applications owned or controlled by the Company; (iii) all computer software programs and software systems (including, without limitation, all data, databases, compilations, tool sets, related documentation and materials, whether in source code, object code or human readable form and regardless of media), developed by or for the Company or otherwise used in the Business ("Software"); (iv) all United States, state and foreign trademarks, service marks and trade names for which registrations have been issued or applied for by the Company, and all other United States, state and foreign trademarks, service marks and trade names owned or used by the Company or in which the Company holds any right, license, sublicense or interest; (v) all agreements, commitments, contracts, understandings, licenses, sublicenses, assignments and indemnities which relate or pertain to any asset, property or right of the character described in the preceding clause to which the Company is a party; (vi) all licenses, sublicenses or agreements which are material to the Business and which relate or pertain to mailing lists, know-how, trade secrets, disclosures or uses of ideas to which the Company is a party, showing in each case the parties and the material terms and (vii) all registered and unregistered assumed or fictitious names under which the Company is conducting the Business or has within the previous three years conducted the Business. (b) All patents listed on Schedule 3.16 as being owned, controlled or used by the Company are valid and in force and all patent applications of the Company listed therein are in good standing, all without challenge of any kind, and, except as otherwise set forth on Schedule 3.16, the Company owns the entire right, title and interest in and to such patents and patent applications, free and clear of all Encumbrances, except Permitted Encumbrances. All of the registrations for trademarks, service marks, trade names and copyrights listed on Schedule 3.16 as being owned, 8 controlled or used by the Company are valid and in force and all applications for such registrations are pending and in good standing, all without challenge of any kind, and, except as otherwise set forth on Schedule 3.16, the Company owns the entire right, title and interest in and to all such trademarks, service marks, trade names and copyrights so listed as well as the registrations and applications for registration therefor, free and clear of all Encumbrances, except Permitted Encumbrances. Correct and complete copies of all the patents and patent applications and of all of the trademarks, service marks, trade names and copyrights and registrations, applications or deposits therefor and all the agreements, commitments, contracts, understandings, licenses, sublicenses, assignments, and indemnities listed on Schedule 3.16 have heretofore been delivered or otherwise made available by the Company to the Purchaser. (c) Except as set forth in Schedule 3.16, all of the Company's Computerized Assets are Year 2000 Compliant. 3.17. Accounts Receivable, Inventories. -------------------------------- (a) All accounts receivable of the Company have arisen from bona fide transactions by the Company in the ordinary course of business and, to the knowledge of the Company or the Shareholders, are not subject to counterclaims or setoffs. Except as set forth on Schedule 3.17, no such receivable has been outstanding for more than 90 days beyond its due date. All of the accounts receivable reflected on the Balance Sheet, taken as a whole, are good and collectible in the ordinary course of business at the aggregate amounts recorded in respect thereof, net of any applicable allowance for doubtful accounts, which allowances will be determined on a basis consistent with the basis used in determining the allowances for doubtful accounts reflected in the Balance Sheet. (b) The inventories of the Company (including raw materials, supplies, work-in-process, finished goods and other materials) are in good, merchantable and useable condition and (i) are reflected in the Balance Sheet in accordance with generally accepted accounting principles and (ii) are reflected in the books and records of the Company at the lower of average cost or market value. The inventory obsolescence policies of the Company are appropriate for the nature of the products sold and the marketing methods used by the Company and the reserve for inventory obsolescence contained in the Balance Sheet fairly reflects the amount of obsolete inventory as of the Balance Sheet Date. The Company has heretofore delivered to the Purchaser a list of places where material inventories of the Company are located. 3.18. Title to Assets. The Company has good and marketable title in fee --------------- simple absolute to all Owned Real Property and to all buildings, structures and other improvements thereon, in each case free and clear of all Encumbrances, except for Permitted Encumbrances and except as set forth in Schedule 3.18. The Company has good title to all of its other assets reflected on the Balance Sheet as being owned by it and all of the assets thereafter acquired by it (except to the extent that such assets have been disposed of after the Balance Sheet Date in the ordinary course of business consistent with past practice), free and clear of all Encumbrances, except for Permitted Encumbrances and except as set forth in Schedule 3.18. 3.19. Employees. Schedule 3.19 contains a list of the employees of the --------- Company as of the date of Closing, and the annual compensation and a description of the fringe benefits provided to each such employee as of such date. As of the date hereof, all bonuses payable to employees of the Company for services performed on or prior to the date hereof have been paid in full and there are no 9 outstanding agreements, understandings or commitments of the Company with respect to any bonuses or increases in compensation. 3.20. Employee Matters. The Company has complied in all material respects ---------------- with all applicable laws, rules and regulations which relate to wages, hours, discrimination in employment and collective bargaining and to the operation of its business and is not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. The Company and the Shareholders believe that the Company's relations with its employees are satisfactory. Except as set forth in Schedule 3.20, the Company is not a party to any collective bargaining agreement, the Company has complied in all material respects with all collective bargaining agreements listed in such Schedule and the Company is not a party to, and it is not affected by or threatened with, any dispute or controversy with a union or with respect to unionization or collective bargaining involving its employees. The Company is not materially affected by any dispute or controversy with a union or with respect to unionization or collective bargaining involving any supplier or customer of the Company. Schedule 3.20 sets forth a description of any union organizing or election activities involving any non-union employees of the Company which have occurred since January 1, 1995 or, to the knowledge of the Company or the Shareholders, are threatened as of the date hereof. 3.21. Employee Benefit Plans. ---------------------- (a) Set forth on Schedule 3.21(a) is a true and complete list of each "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA) (the "Pension Plans") and each "employee welfare benefit plan" (the "Welfare Plans") maintained by the Company or which provides or will provide benefits to present or prior employees of the Company (the Pension Plans and Welfare Plans being the "ERISA Benefit Plans"). In addition, set forth on Schedule 3.21(a) is a true and complete list of each stock ownership, stock purchase, stock option, phantom stock, bonus, deferred compensation, incentive compensation, severance or termination pay, change of control and death benefit plan, agreement or arrangement maintained by the Company (the "Non-ERISA Commitments"). Except as set forth on Schedule 3.21(a), the Company has never maintained or been required to contribute to any "employee pension benefit plan" subject to Section 302 or Title IV of ERISA or any multiemployer plan," as such term is defined in Section 3(37) of ERISA. The Company does not have, and has never had, any ERISA Affiliate. Except as disclosed on Schedule 3.21(a), true copies of each ERISA Benefit Plan and Non-ERISA Commitment, the annual reports required to be filed under ERISA for the last two years with respect to any ERISA Benefit Plans, and the financial statements and actuarial reports for the most recent two years for which such statements and reports exist with respect to any Pension Plan have been delivered or made available to The Purchaser. (b) Neither the Company nor the Shareholders, any other "disqualified person" (within the meaning of Section 4975 of the Code) or any "party in interest" (within the meaning of Section 3(14) of the Code) has engaged in any non-exempt prohibited transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA), nor has any breach of fiduciary duty occurred, with respect to any of the ERISA Benefit Plans. Except as disclosed on Schedule 3.21(b), each of the ERISA Benefit Plans (i) has been administered in accordance with its terms and (ii) complies in form, and has been maintained in accordance with, the requirements of ERISA and, where applicable, the Code. Except as disclosed on Schedule 3.21(b), the Company has no obligations under any of the ERISA Benefit Plans or otherwise to provide health benefits to its former employees, except as specifically required by law. The Company has at all times complied with the health care continuation requirements of Part 6 of Title I of ERISA. Except as disclosed on 10 Schedule 3.21(b), each Pension Plan intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service, and to the knowledge of the Company or the Shareholders nothing has occurred and no condition exists that could cause the loss of such qualification. All contributions or payments that are due from the Company with respect to the ERISA Benefit Plans and Non-ERISA Commitments have been paid and any related insurance and third party administration contracts remain in full force and effect. There is no pending or to the knowledge of the Company or the Shareholder threatened claim in respect of any of the ERISA Benefit Plans or Non-ERISA Commitments other than routine claims for benefits in the ordinary course of business. The Company has not taken any action, nor has any event occurred, which has resulted or will likely result in any liability under Title IV of ERISA, including any withdrawal liability with respect to any "multiemployer plan" as defined in Section 4001(a) of ERISA. 3.22. Contracts. Except as set forth on Schedule 3.22 or any other --------- Schedule hereto, the Company is not a party to or bound by: (a) any contract for the purchase, sale or lease of real property or any option to purchase or sell real property; (b) any indebtedness, obligation or liability for borrowed money, or liability for the deferred purchase price of property in excess of $50,000, or any instrument guaranteeing any indebtedness, obligation or liability, or any obligation to incur any of the foregoing; (c) any joint venture, partnership or other arrangement involving a sharing of profits involving the Company; (d) any agreement which is material to the Business and which includes provisions regarding minimum volumes or volume discounts, excluding outstanding price quotations; (e) any agreement which is material to the Business and pursuant to which a rebate, discount, bonus, commission or other payment with respect to the sale of any product of the Company will be payable or required after the Closing; (f) any guarantee of the obligations of the Company's customers, suppliers, officers, directors, employees or Affiliates or others; (g) any consignment, distributor, dealer, manufacturer's representative, sales agency, advertising representative or advertising or public relations contract which is material to the Business; (h) any agreement limiting the Company's ability to engage in any business anywhere in the world; (i) any contract which provides for, or relates to, any non- competition or confidentiality arrangement with any Person, including any current or former officer or employee of the Company; (j) any contract or group of related contracts for capital expenditures in excess of $50,000 for any single project or related series of projects; 11 (k) any contract which involves payments or receipts by the Company of more than $50,000; or (1) any contract not made in the ordinary course of business. 3.23. Status of Contracts. Each of the leases, contracts and other ------------------- agreements listed on Schedules 3.12, 3.15, 3.16, 3.21(a) and 3.22, (collectively, the "Material Contracts"), constitutes a valid and binding obligation of the Company and, to the knowledge of the Company or the Shareholders, the other parties thereto, and is in full force and effect and each of the Material Contracts (except as set forth in Schedule 3.23 and except for those Material Contracts which by their terms will expire prior to the Closing Date or will be otherwise terminated prior to the Closing Date in accordance with the provisions hereof) will continue in full force and effect after the Closing Date, in each case without breaching the terms thereof or resulting in the forfeiture or impairment of any rights thereunder and without the consent, approval or act of, or the making of any filing with, any other party. The Company has fulfilled and performed its obligations under each of the Material Contracts and the Company is not in, or, to the knowledge of the Company or the Shareholders, alleged to be in, breach or default under, nor is there or, to the knowledge of the Company or the Shareholders, is there alleged to be any basis for termination of any of the Material Contracts. To the knowledge of the Company or the Shareholders, no other party to any of the Material Contracts has breached or defaulted thereunder. No event has occurred and no condition or state of facts exists which, with the passage of time or the giving of notice or both, would constitute such a default or breach by the Company or, to the knowledge of the Company or the Shareholders, by any other party. The Company is not currently renegotiating any of the Material Contracts or paying liquidated damages in lieu of performance thereunder. 3.24. No Violation, Litigation or Regulatory Action. Except as set forth --------------------------------------------- on Schedule 3.24: (a) The Company has complied with all laws, regulations, rules, writs, injunctions, ordinances, franchises, decrees, stipulations, awards or orders of any Governmental Body which are applicable to the Company or its Business; (b) No notice has been served upon the Company by any Governmental Body or other person of any violation of any Requirements of Law or calling attention to the necessity of any work, repairs, new construction, installation or alteration of any real or personal property owned, leased or used by the Company; (c) There are no lawsuits, claims, suits, or proceedings pending or, to the knowledge of the Company or the Shareholders, threatened against the Company or investigations pending regarding the Company nor, to the knowledge of the Company or the Shareholders, is there any basis for any of the same, and there are no lawsuits, suits or proceedings pending or contemplated in which the Company is the plaintiff or claimant; and (d) There is no action, suit or proceeding pending or, to the knowledge of the Company or the Shareholders, threatened which questions the legality or propriety of the transactions contemplated by this Agreement. 3.25. Insurance. The Company maintains policies of fire and casualty, --------- liability (general, products and other liability), workers' compensation and other forms of insurance and bonds in such 12 amounts and against such risks and losses as are insured against by companies engaged in the same or a similar business. Schedule 3.25 sets forth a list and brief description (including nature of coverage, limits, deductibles, premiums and the loss experience for the most recent five years with respect to each type of coverage) of all policies of insurance maintained, owned or held by the Company during the period from January 1, 1995 up to and including the date hereof. The Company has complied with each of such insurance policies and has not failed to give any notice or present any claim thereunder in a due and timely manner. Except as disclosed in Schedule 3.25, the full policy limits (subject to deductibles provided in such policies) are available and unimpaired under each such policy and to the knowledge of the Company or the Shareholders, no insurer under any of such policies has a basis to void such policy on grounds of non-disclosure on the part of the policyholder or the insured thereunder. Each of such policies is in full force and effect and will not in any way be affected by or terminate or lapse by reason of the transactions contemplated by this Agreement. 3.26. Environmental Protection. ------------------------ (a) All Facilities whether currently or heretofore owned, operated or leased by the Company were, during any period of ownership, operation or leasing by the Company, and, to the extent currently owned, operated or leased by the Company, continue to be in compliance with all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations, guidelines or any binding determinations of any Governmental Body (including consent decrees and administrative orders) relating to protection of the environment or public or worker health and safety (collectively, "Environmental Laws"). (b) Except as set forth in Schedule 3.26(b): (i) the Company's past and present operations have complied and are in compliance with all applicable Environmental Laws; (ii) the Company has obtained all environmental, health and safety Governmental Permits necessary for the operation of the Business, and all such Governmental Permits are in good standing and the Company is in compliance with all material terms and conditions of such permits; (iii) none of the Company, nor any of the Company's Facilities or its past or present operations, is subject to any on-going investigation by, order from or agreement with any Person (including without limitation any prior owner or operator of any Company property) respecting (x) any Environmental Laws, (y) any Remedial Action or (z) any claim of Losses and Expenses arising from the Release or threatened Release of a Contaminant into the environment; and (iv) the Company is not subject to any judicial or administrative proceeding, order, judgment, decree or settlement alleging or addressing a violation of or liability under any Environmental Laws. (c) There has been no Release by the Company of any Contaminant on, in, or under or from any Facility now or previously owned, operated or leased by the Company. (d) The Company is not subject to the environmental liabilities of any third party, whether by contractual agreement or operation of law. 3.27. Customers and Suppliers. Set forth in Schedule 3.27 hereto is (i) a ----------------------- list of names and addresses of the ten largest customers and the ten largest suppliers (measured by dollar volume of purchases or sales in each case) of the Company and the percentage of the Company's business which each such customer or supplier represents or represented during each of the years ended December 31, 1997 and December 31, 1998; and (ii) copies of the forms of purchase order for inventory and other supplies and sales contracts for finished goods used by the Company. Except as set forth in Schedule 3.27, there exists no actual or threatened termination, cancellation or limitation 13 of, or any modification or change in, the business relationship of the Company with any customer or group of customers or supplier or group of suppliers listed in Schedule 3.27, of whose purchases or sales individually or in the aggregate are material to the operations of the Business. 3.28. Shareholders' Assets. The Shareholders do not own, directly or -------------------- indirectly, any assets or properties relating to or used by the Company in the Business. 3.29. No Finder. The Company has not paid or become obligated to pay any --------- fee or commission to any broker, finder or intermediary for or on account of the transactions contemplated by this Agreement. 3.30. Transactions with Affiliates. Except as set forth on Schedule 3.30, ---------------------------- since January 1, 1998, there have been no transactions in respect of the Company between the Company and any officer, director or other Affiliate of the Company (including spouses, children and other relatives of any of the foregoing). 3.31. Disclosure. None of the representations or warranties of the ---------- Company contained herein, none of the information contained in the Schedules referred to in this Article III, and none of the other information or documents furnished or to be furnished to the Purchaser or any of its representatives by the Company, the Shareholders or their representatives pursuant to the terms of this Agreement, is false or misleading in any material respect or omits to state a fact herein or therein necessary to make the statements herein or therein not misleading in any material respect. There is no fact which adversely affects or in the future is likely to adversely affect the Company's assets or the Business in any material respect which has not been set forth or referred to in this Agreement or the Schedules hereto. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS The Shareholders represent and warrant to the Purchaser as follows: 4.1. Authority. The Shareholders have the capacity to enter into this --------- Agreement, to consummate the transactions contemplated hereby and thereby and to comply with the terms, conditions and provisions hereof and thereof. This Agreement constitutes the valid and binding obligation of the Shareholders, enforceable in accordance with its terms, subject to (i) general principles of equity, regardless of whether enforcement is sought in a proceeding in equity or at law, and (ii) bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or other similar laws relating to or affecting creditors' rights generally. 4.2. Non-Contravention, Required Consents. Except as set forth on ------------------------------------ Schedule 4.2 attached hereto, neither the execution of this Agreement by the Shareholders nor the consummation of the transactions contemplated hereby or thereby (i) will result in the breach of any term or provision of, constitute a default under, or accelerate or change the performance otherwise required under, or result in the creation of any Encumbrance upon any Company Common Stock owned by the Shareholders pursuant to any agreement (including without limitation any loan agreement or promissory note), indenture, instrument, order, law or regulation to which the Shareholders are a party or by which the Shareholders are bound or (ii) require the approval, consent, waiver, 14 authorization or act of, or the making by the Shareholders of any declaration, filing or registration with any third party or any Governmental Body. 4.3. Ownership of Company Common Stock. The number and percentage of the --------------------------------- shares of Company Common Stock held by the Shareholders are set forth on Schedule 3.3 attached hereto. Such shares are owned by the Shareholders as indicated on said Schedule 3.3 of record and beneficially, free and clear of all Encumbrances (other than restrictions under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations thereunder, and state securities laws). 4.4. Compliance with Law. The Shareholders acknowledge that the shares of ------------------- the Purchaser's Shares have not been and will not be registered under the Securities Act or any state securities laws and may not be resold without compliance with the Securities Act, any applicable state securities laws and the provisions of Article X. The Shareholders further represent, warrant and covenant that (i) the Purchaser's Shares are being acquired solely for their own accounts, for investment purposes only, and with no present intention of distributing, selling or otherwise disposing of it in connection with a distribution, and (ii) none of the Purchaser's Shares will be offered, sold, assigned, pledged, hypothecated, transferred or otherwise disposed of except after full compliance with all of the applicable provisions of the Securities Act and the rules and regulations of the Securities and Exchange Commission and after full compliance with any applicable state securities laws and the provisions of Article X. 4.5. Economic Risk, Sophistication. The Shareholders represent and ----------------------------- warrant that each Shareholder (i) is an "accredited investor" as such term is defined in Regulation D promulgated under the Securities Act, (ii) is able to bear the economic risk of an investment in the shares of the Purchaser's common stock to be acquired pursuant to this Agreement, (iii) can afford to sustain a total loss of such investment, and (iv) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the proposed investment in the Purchaser's common stock. The Shareholders further represent and warrant that each Shareholder has received, or had access to, information to which a reasonable investor would attach significance in making investment decisions and, without limiting the generality of the foregoing, has had an adequate opportunity to ask questions and receive answers from the officers of the Purchaser concerning any and all matters relating to the Purchaser and the transactions described herein, including the background and experience of the current officers and directors of the Purchaser. The Shareholders represent and warrant that they have asked any and all questions in the nature described in the preceding sentence and all questions have been answered to their satisfaction. ARTICLE V ADDITIONAL AGREEMENTS OF THE PARTIES 5.1. Ordinary Course. The Company and the Shareholders, jointly and --------------- severally, covenant that prior to the Closing, without the Purchaser's written consent, the Company shall not: (i) take or authorize any of the actions set forth in Section 3.6(b); (ii) issue or sell any shares of its capital stock of any class, or issue or sell any securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe to, any shares of its capital stock of any class, or make any commitment to issue or sell any such shares or securities; (iii) directly or indirectly solicit or negotiate with respect to any inquiries or proposals from any person relating to: (x) the merger or consolidation of the Company with any person; (y) the direct or indirect acquisition by any person of any of the assets of the Company (other than the sale of assets in the ordinary course of business 15 consistent with past practice, not otherwise prohibited by this Section 5.1); or (z) the acquisition of direct or indirect beneficial ownership or control of the Company or any securities thereof by any person; (iv) prepare or file any Tax Return inconsistent with past practice or, on any such Tax Return, take any position, make any election, or adopt any method that is inconsistent with positions taken, elections made or methods used in preparing or filing similar Tax Returns in prior periods (including, without limitation, positions, elections or methods which would have the effect of deferring income to periods ending after the Closing Date or accelerating deductions to periods ending on or prior to the Closing Date); or (v) agree or commit to do or authorize any of the foregoing. 5.2. Access Prior to Closing; Certain Notices. ---------------------------------------- (a) Upon reasonable notice, the Company, each of its directors, officers, agents and employees, and the Shareholders shall afford the Purchaser and its representatives, (including, without limitation, its independent public accountants, banks or other lenders' representatives and attorneys) reasonable access during regular business hours from the date hereof through the Closing to any and all of the premises, properties, contracts, books, records, data and personnel of the Company or relating to its operations. The Purchaser may contact the customers and vendors of the Company upon prior notice to the Company. The Company, its directors, officers, agents and employees, and the Shareholders shall cooperate fully in connection with the foregoing. The Company and the Shareholders shall use their respective best efforts to provide to the Purchaser such information and documents concerning the Company as reasonably may be requested and obtained without undue effort or expense upon the part of the Company or the Shareholders. The Company and the Shareholders promptly shall notify the Purchaser of any change or event which would reasonably be expected to materially and adversely affect the Business or the results of operations, properties or condition (financial or otherwise) of the Company. (b) The Company covenants that prior to the Closing the Company will promptly notify the Purchaser of any notice of any pending, threatened or contemplated lawsuit, claim, suit, proceeding or Governmental Body investigation which, if existing on the date hereof, would have been disclosable pursuant to Section 3.24(b) or (c). 5.3. Regulatory and Other Authorizations. ----------------------------------- (a) The Company, the Purchaser and the Shareholders will act diligently and reasonably, and shall cooperate in good faith with each other, to secure before the Closing Date, each consent, approval or waiver, in form and substance reasonably satisfactory to the Company or the Purchaser, required to be obtained to satisfy the conditions set forth in Section 6.1 and Section 6.2 below; provided that none of the Company, the Shareholders or the Purchaser shall have any obligation to pay any consideration in order to obtain any such consents or approvals. (b) During the period prior to the Closing Date, the Company, the Purchaser and the Shareholders shall act diligently and reasonably, and shall cooperate with each other, to secure any consents and approvals of any Governmental Body required to satisfy the conditions set forth in Sections 6.1 and 6.2 below; provided, however, that the Company shall not make any agreement ----------------- or understanding affecting its assets or the Business as a condition for obtaining any such consents or approvals except with the prior written consent of the Purchaser. 16 5.4. Further Assurances. At any time and from time to time at or after ------------------ the Closing, the parties agree to cooperate with each other, to execute and deliver such other documents, instruments of transfer or assignment, files, books and records and do all such further acts and things as may be reasonably required to carry out the transactions contemplated hereby. 5.5. Company's Financial Statements. The Company shall promptly provide ------------------------------ to the Purchaser copies of any financial statements prepared with respect to the Company as of a date or for a period subsequent to that reflected in the Company's Financial Statements. 5.6. Delivery of Documents. Subject to the satisfaction of the conditions --------------------- to their respective obligations contained in Article VI, the parties shall cause the delivery of the respective documents required to be delivered or caused to be delivered by them pursuant to Article VII. 5.7. Covenant Not to Compete or Solicit Business. In consideration of the ------------------------------------------- purchase price paid to the Shareholders, and to more effectively protect the value and goodwill of the assets and business of the Company to be acquired hereby, the Shareholders covenant and agree that, for a period ending on the third anniversary of the Closing Date, neither Shareholder nor any of the Shareholder's Affiliates will: (i) directly or indirectly (whether as principal, agent, independent contractor, partner or otherwise) own, manage, operate, control, participate in, perform services for, or otherwise carry on, a business similar to or competitive with the business of the Company or any of its Subsidiaries or Affiliates (collectively, the "Managed Companies") anywhere in the states in which the Company does business; or (ii) induce or attempt to persuade any employee, agent or customer of the Managed Companies to terminate such employment, agency or business relationship in order to enter into any such relationship on behalf of any other business organization in competition with the Managed Companies. In addition, each Shareholder covenants and agrees that neither he nor any of his Affiliates will divulge or make use of any trade secrets or other confidential information of the business of the Managed Companies other than to disclose such secrets and information to the Purchaser or its Affiliates. Without limiting the right of the Purchaser to pursue all other legal and equitable rights available to it for violation of this Section 5.7 by a Shareholder or his Affiliates, it is agreed that other remedies cannot fully compensate the Purchaser or the Company for such a violation and that the Purchaser and the Company shall each be entitled to injunctive relief to prevent violation or continuing violation thereof. It is the intent and understanding of each party hereto that if, in any action before any court or agency legally empowered to enforce this Section 5.7, any term, restriction, covenant or promise in this Section 5.7 is found to be unreasonable and for that reason unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency. Nothing contained in this Section 5.7 shall limit or otherwise affect a Shareholder's obligation under any employment agreement entered into with the Purchaser. 5.8. Continued Relationships. After the date hereof and through the ----------------------- Closing the Company shall use all reasonable efforts to preserve intact the business of the Company and keep available the services of its officers and employees and maintain good relationships with suppliers, advertising and other customers and others having business relations with the Company. 17 5.9. Transfer of the Company's Common Stock. The Shareholders covenant -------------------------------------- that, prior to the Closing, without the Purchaser's written consent, the Shareholders shall not (i) sell, transfer' mortgage, pledge, otherwise dispose of or suffer to be imposed any Encumbrance on any share of Company Common Stock held by them or (ii) grant to any person (other than the Purchaser) any proxy or other right to vote any shares of Company Common Stock held by them or over which they exercise voting power in a manner that would be inconsistent with its covenants set forth in this Agreement. 5.10. Preserve Accuracy of Representations and Warranties. Between the --------------------------------------------------- date hereof and the Closing Date, each of the parties hereto shall refrain from taking any action which would render any of its or his respective representations or warranties contained in Articles II, III, or IV of this Agreement inaccurate as of the Closing Date. Each party shall promptly notify the other of any action, suit or proceeding that shall be instituted or threatened against such party to restrain, prohibit or otherwise challenge the legality of any transaction contemplated by this Agreement. 5.11. Notification by the Company of Certain Matters. The Company shall ---------------------------------------------- promptly advise the Purchaser in writing of (i) any change or event having a Material Adverse Effect on the Company, (ii) any notice or other communication from any third Person alleging that the consent of such third Person is or may be required in connection with the transactions contemplated by this Agreement, and (iii) any material default under any Material Contract or event which, with notice or lapse of time or both, would become such a default on or prior to the Closing Date and of which the Company or the Shareholders have knowledge. 5.12. Necessary Actions. The Purchaser, the Company and the Shareholders ----------------- shall use all reasonable efforts to effect the purchase and sale of the Stock as promptly as possible after the date hereof. 5.13. Taxes. Any stock transfer Taxes, sales Taxes, use Taxes, or gains ----- Taxes, or other similar Taxes attributable to the purchase and sale of the Stock shall be paid by the Shareholders. 5.14. Working Capital. The Working Capital of the Company as of the ----------------- Closing shall be no less than $____________________. On the Closing Date the Shareholders shall deliver to the Purchaser a statement (the "Working Capital Statement") setting forth their calculation of the Working Capital of the Company as of the Closing. ARTICLE VI CONDITIONS TO CLOSING 6.1. The Company's and the Shareholders' Conditions to Close. The ------------------------------------------------------- obligations of the Company and the Shareholders under this Agreement are subject to the satisfaction at or prior to the Closing of each of the following conditions, but compliance with any or all of such conditions may be waived, in writing, by the Company or the Shareholders, as the case may be: (a) The representations and warranties of the Purchaser contained in this Agreement shall be true and correct on the date hereof and on the Closing Date (except to the extent that they expressly relate to an earlier date); 18 (b) The Purchaser shall have performed and complied in all material respects with all of the covenants and agreements contained in this Agreement and satisfied all of the conditions required by this Agreement to be performed or complied with or satisfied by the Purchaser at or prior to the Closing; (c) The Purchaser and the Company shall have received all approvals and actions of or by all Governmental Bodies, which are necessary to consummate the transactions contemplated hereby; (d) On the Closing Date, there shall be no injunction, restraining order or decree of any nature of any court or Governmental Body in effect that restrains or prohibits the consummation of the transactions contemplated by this Agreement; (e) No action, suit or proceeding shall have been instituted by any person or entity, or threatened by any Governmental Body, before a court or Governmental Body, to restrain or prevent the carrying out of the transactions contemplated by this Agreement; (f) A certificate, dated as of the Closing, signed by an officer of the Purchaser to the effect set forth in clauses (a) through (e), inclusive, of this Section 6.1; (g) The Purchaser shall have entered into the Escrow Agreement, in the form of Exhibit "1" hereto, the Shareholders Agreement, in the form of ----------- Exhibit "2" hereto, and the Urich Employment Agreement, and the Curtis - ---------- Employment Agreement, in the form of Exhibits "3-A" and "3-B" hereto. ------------- --- 6.2. The Purchaser's Conditions to Close. The obligations of the ----------------------------------- Purchaser under this Agreement are subject to the satisfaction at or prior to the Closing of each of the following conditions, but compliance with any or all of any such conditions may be waived, in writing, by the Purchaser: (a) The Purchaser shall have conducted a thorough due diligence review (the "Due Diligence Review") of the Business and the Company and shall be satisfied with the results and findings thereof. The Company and the Shareholders agree that the Purchaser and the Purchaser's representatives, legal counsel, accountants, advisors and representatives shall be given, until the Closing, full access to: (i) the assets and properties of the Company; (ii) the books and records (including electronic records) of the Company pertaining to the Business, including, but not limited to, income tax returns, sales and use tax returns, the Company's Financial Statements, and related materials, bank statements, invoices, accounts receivable, accounts payable and supplier lists; and (iii) all files maintained by the Company and the Company's attorneys, brokers or other agents relating to the Business. The Company shall permit the Purchaser to copy, at the Purchaser's expense, the contents of all such books, records and files. The Purchaser shall treat all information obtained as a result of the Due Diligence Review as confidential and proprietary information belonging to the Company; (b) The representations and warranties of the Company and the Shareholders contained in this Agreement shall be true and correct on the date hereof and on the Closing Date (except to the extent that they expressly relate to an earlier date); 19 (c) The Company and the Shareholders shall have performed and complied in all material respects with all the covenants and agreements contained in this Agreement and satisfied all the conditions required by this Agreement to be performed or complied with or satisfied by it or them at or prior to the Closing; (d) The Purchaser and the Company shall have received all approvals and actions of or by all Governmental Bodies, which are necessary to consummate the transactions contemplated hereby; (e) On the Closing Date, there shall be no injunction, restraining order or decree of any nature of any court or Governmental Body in effect that restrains or prohibits the consummation of the transactions contemplated by this Agreement; (f) No action, suit or proceeding shall have been instituted by any person or entity, or threatened by any Governmental Body, before a court or Governmental Body, to restrain or prevent the carrying out of the transactions contemplated by this Agreement or that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Business or the results of operations, properties or condition (financial or otherwise) of the Company; (g) The Company shall have received all necessary consents or approvals (including an approval of the transaction by the Company's Board of Directors and its remaining shareholders), in form and substance reasonably satisfactory to the Purchaser, to the transactions contemplated by this Agreement; (h) Since the Balance Sheet Date, there shall not have occurred any change which would have or would be likely to have a Material Adverse Effect with respect to the Company; (i) The Shareholders shall have entered into the Escrow Agreement, in the form of Exhibit "1" hereto and the Shareholders Agreement, in the form of ----------- Exhibit "2" hereto, Alex Urich shall have entered into the Urich Employment - ----------- Agreement, in the form of Exhibit "3-A" hereto, and Michael Curtis shall have ------------- entered into the Curtis Employment Agreement, in the form of Exhibit "3-B" ------------- hereto; (j) The Purchaser shall have received the Working Capital Statement; (k) Certificates, dated as of the Closing, signed by the Shareholders and by the President of the Company, respectively, to the effect set forth in clauses (b) and (c) of this Section 6.2, with the Certificate signed by the President of the Company to the additional effect set forth in clauses (b) through (h), inclusive, of this Section 6.2. ARTICLE VII THE CLOSING 7.1. Deliveries by the Company and the Shareholders. ---------------------------------------------- (a) At the Closing, the Company and the Shareholders shall deliver the following to the Purchaser: 20 (i) A certificate of status as of ten (10) days prior to the Closing Date from the California Secretary of State stating that the Company is a domestic corporation organized under the laws of the State of California and has not filed articles of dissolution. (ii) The Agreement, duly executed; (iii) The duly executed Shareholders Agreement, Urich Employment Agreement and Curtis Employment Agreement; (iv) The certificates described in Sections 6.2(k); (v) The Working Capital Statement; (vi) A true and complete copy of the Articles of Incorporation, as in effect on the Closing Date, of the Company, certified by the Secretary of State of the State of California and a true and complete copy of the By-laws, as in effect on the Closing Date, of the Company, certified by the Secretary of the Company; and (vii) A certificate from each Shareholder representing eighty (80) shares of the Company's common stock (collectively, one hundred sixty (160) shares of the Stock), together with a duly executed Assignment Separate From Certificate transferring the certificates to the Purchaser. (b) At the Closing, each of the Shareholders shall deliver to the Escrow Holder a certificate representing two hundred forty (240) shares of the Company's common stock (collectively, four hundred eighty (480) shares of the Stock), together with a duly executed Assignment Separate From Certificate transferring the certificates to the Purchaser, a certificate representing eighty (80) shares of the Company's common stock (collectively one hundred sixty (160) shares of the Stock), together with a duly executed Assignment Separate From Certificate transferring the certificates to the Purchaser, and a duly executed copy of the Escrow Agreement. 7.2. Purchaser's Deliveries. ---------------------- (a) At the Closing, the Purchaser shall deliver the following to the Company and the Shareholders: (i) Copies of duly adopted resolutions of the Purchaser's Boards of Directors approving the execution, delivery and performance of this Agreement, certified by the Secretary or an Assistant Secretary of the Purchaser; (ii) The Agreement, duly executed; (iii) Good funds in the amount of Two Hundred Fifty Thousand Dollars ($250,000) to each Shareholder; (iv) The duly executed Shareholders Agreement, Urich Employment Agreement and Curtis Employment Agreement; (v) The certificate described in Section 6.1(f). 21 (b) At the Closing, the Purchaser shall deliver to the Escrow Holder a duly executed copy of the Escrow Agreement. ARTICLE VIII INDEMNIFICATION 8.1. Indemnification by Shareholders. The Shareholders agree to indemnify ------------------------------- and hold harmless the Purchaser from and against any and all Losses and Expenses incurred by the Purchaser in connection with or arising from: (a) any breach by the Shareholders or the Company of, or other failure by the Shareholders or the Company to perform, any of the covenants of the Shareholders or the Company contained in this Agreement or in any other agreement (other than the Urich Employment Agreement and the Curtis Employment Agreement) executed and delivered by or on behalf of the Shareholders or the Company pursuant to this Agreement or in any certificate or other document delivered by the Shareholders or the Company pursuant to this Agreement; (b) any breach of any warranty or the inaccuracy of any representation of the Company or the Shareholders contained in this Agreement or any certificate or other document delivered by or on behalf of the Company or the Shareholders pursuant to this Agreement; and (c) any and all stock transfer Taxes or gains Taxes, sales Taxes, or other similar Taxes imposed by the State of California or any other state, or any political subdivision thereof, as a result of the transactions contemplated by this Agreement. Section 8.1 is an obligation solely of the Shareholders and, from and after the Closing, the Shareholders shall not have any right of contribution from the Company, its successors, or any assigns or any of them in respect of the obligations of the Shareholders under this Section 8.1. The right to recover from the Shareholders shall not require the Purchaser to seek any recovery from the Company in respect of any Loss or Expense. 8.2. Indemnification by Purchaser. The Purchaser agrees to indemnify and ---------------------------- hold harmless the Shareholders from and against any and all Losses and Expenses incurred by the Shareholders in connection with or arising from: (a) any breach by the Purchaser of, or other failure by the Purchaser to perform, any of the Covenants of Purchaser contained in this Agreement or in any other agreement (other than the Urich Employment Agreement or the Curtis Employment Agreement) executed on behalf of the Purchaser pursuant to this Agreement or in any certificate or other document delivered by the Purchaser pursuant to this Agreement; and (b) any breach of any warranty or the inaccuracy of any representation of the Purchaser contained in this Agreement or any certificate or other document delivered on behalf of the Purchaser pursuant to this Agreement. 22 8.3. Notice of Claims. ---------------- (a) If a party entitled to indemnity pursuant to section 8.1 or 8.2 (the "Indemnified Party") believes that he or it has suffered or incurred any Loss or incurred any Expense, the Indemnified Party shall so notify the party obligated to provide indemnification to the indemnifying party (the "Indemnitor") promptly in writing describing such Loss or Expense, the amount thereof, if known, and the method of computation of such Loss or Expense, all with reasonable particularity and containing a reference to the provisions of this Agreement or other agreement, instrument or certificate delivered pursuant hereto in respect of which such Loss or Expense shall have occurred. If any action at law or suit in equity is instituted by or against a third party with respect to which the Indemnified Party intends to claim any liability or expense as Loss or Expense under this Article VIII, the Indemnified Party shall promptly notify the Indemnitor of such action or suit. (b) The amount to which the Indemnified Party shall be entitled under this Article VIII shall be determined: (i) by written agreement between the Indemnified Party and the Indemnitor; (ii) by arbitration in accordance with Section 11.13 hereof, or (iii) by any other means to which the Indemnified Party and the Indemnitor shall agree. The judgment or decree of a court, or binding arbitration award, shall be deemed final when the time for appeal, if any, shall have expired and no appeal shall have been taken or when all appeals taken have been finally determined. The Indemnified Party shall have the burden of proof in establishing the amount of the Loss and Expense suffered by it. (c) Notwithstanding the foregoing, the failure of any person hereto to give any notice described in this Section 8.3 shall not relieve any party hereto of its obligations hereunder, except to the extent such failure shall have prejudiced such party. 8.4. Third Party Claims. ------------------ (a) Subject to Section 8.4(b), any Indemnified Party under this Article VIII shall have the right to conduct and control, through counsel of its choosing, any third party claim, action, suit, proceeding, investigation or other claim giving rise to a claim for indemnification hereunder (a "Third Party Claim") and the Indemnified Party may compromise or settle the same, provided that the Indemnified Party shall give the Indemnitor at least 10 days' advance notice of any proposed compromise or settlement. The Indemnified Party shall permit the Indemnitor to participate in the defense of any Third Party Claim through counsel chosen by it, provided that the fees and expenses of such counsel shall be borne by the Indemnitor. Subject to Section 8.4(b), any compromise or settlement with respect to a claim for money damages effected after the Indemnitor by notice to the Indemnified Party shall have disapproved such compromise or settlement shall discharge the Indemnitor from liability with respect to the subject matter thereof, and no amount in respect thereof shall be claimed as Loss or Expense under this Article VIII. (b) If the remedy sought in any Third Party Claim is solely money damages and will have no continuing effect on the business, reputation or future business prospects of any Indemnified Party, the Indemnitor shall have 15 days after receipt of the notice referred to in the last sentence of Section 8.3(a) to notify the Indemnified Party that it elects to conduct and control such Third Party Claim. If the Indemnitor gives the foregoing notice, the Indemnitor shall have the right to undertake, conduct and control, through counsel of its own choosing and at the sole expense of the Indemnitor, the conduct and settlement of such Third Party Claim, and the Indemnified Party shall 23 cooperate with the Indemnitor in connection therewith; provided that (x) the ------------- Indemnitor shall not thereby permit to exist any lien, encumbrance or other adverse charge upon any asset of any Indemnified Party; (y) the Indemnitor shall permit the Indemnified Party to participate in such conduct or settlement through counsel chosen by the Indemnified Party, but the fees and expenses of such counsel shall be borne by the Indemnified Party except as provided in clause (z) below; and (z) the Indemnitor shall agree promptly to reimburse the Indemnified Party for the full amount of any Loss arising from or relating to such Third Party Claim and all related Expense incurred by the Indemnified Party, except fees and expenses of counsel for the Indemnified Party incurred after the assumption of the conduct and control of such Third Party Claim by the Indemnitor. So long as the Indemnitor is contesting any such Third Party Claim in good faith, the Indemnified Party shall not pay or settle any such Third Party Claim. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay or settle any such Third Party Claim without the Indemnitor's approval, provided that in such event the Indemnified Party shall waive any right to indemnity therefor by the Indemnitor, and no amount in respect thereof shall be claimed as Loss or Expense under this Article VIII. ARTICLE IX TERMINATION ----------- 9.1. Termination. Anything contained in this Agreement to the contrary ----------- notwithstanding, this Agreement may be terminated at any time prior to the Closing Date: (a) By the mutual consent of the Shareholders and the Purchaser; (b) By the Shareholders or the Purchaser if the Closing shall not have occurred on or before December 3, 1999 (or such later date as shall be mutually agreed to in writing by the Shareholders and the Purchaser); provided that the party seeking termination is not in default or breach of this Agreement; (c) By the Shareholders in the event of a breach by the Purchaser of any of its representations, warranties or covenants contained in this Agreement, which breach is not cured by the Purchaser within 10 days after written notice of such breach; (d) By the Purchaser in the event of a breach by the Company or the Shareholders of any of their respective representations, warranties and covenants contained in this Agreement, which breach is not cured by the Company or the breaching Shareholder with ten (10) days after written notice of such breach; (e) By the Purchaser if the Purchaser is not satisfied with the results and findings of its Due Diligence Investigation. If the Purchaser terminates this Agreement pursuant to this section, then all books, records and files copied by the Purchaser during the Due Diligence Investigation shall be immediately returned to the Company; or (f) By the Purchaser if, in the Purchaser's reasonable opinion, there has been a Material Adverse Effect on the condition (financial or otherwise), affairs, business, assets or prospects of the Company. 9.2. Effect of Termination. In the event of the termination of this --------------------- Agreement pursuant to the preceding Section of this Agreement, all further obligations of the parties under this Agreement 24 shall be terminated without further liability of any party or its shareholders, directors or officers to the other parties, provided (i) that Section 11.1 shall survive any such termination and (ii) that nothing herein shall relieve any party from liability for its willful breach of this Agreement. ARTICLE X RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT, REGISTRATION 10.1. Restrictions on Transferability. The Purchaser's Shares acquired by ------------------------------- the Shareholders in connection with the Transaction, which shall include any other securities issued in respect of such Purchaser's Shares upon any conversion, stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Article X, which conditions are intended, among other things, to ensure compliance with the provisions of the Securities Act. The Shareholders will cause each proposed purchaser, assignee, transferee or pledgee of such to agree to take and hold such Purchaser's Shares subject to the provisions and upon the conditions specified in this Article X, subject, nevertheless, to any requirement of law that the Shareholder's property remain within such Shareholder's control. 10.2. Restrictive Legend. Each certificate representing the Purchaser's ------------------ Shares shall (unless otherwise permitted by the provisions of Section 10.3) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS STAAR SURGICAL COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR STAAR SURGICAL COMPANY) REASONABLY ACCEPTABLE TO STAAR SURGICAL COMPANY STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT AND THE SECURITIES LAWS OF ANY APPLICABLE STATE. The Shareholders consent to the Purchaser making a notation on its records and giving instructions to any transfer agent of such Purchaser's Shares in order to implement the restrictions on transfer established in this Section 10.2 and Section 10.3. 10.3. Notice of Proposed Transfers. The holder of each certificate ---------------------------- representing Purchaser's Shares required to bear the legend set forth in Section 10.2 ("Restricted Securities") by acceptance thereof agrees to comply in all respects with any provisions of this Section 10.3 applicable to such Restricted Securities. At least 10 days prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than a transfer not involving a change in beneficial ownership), unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Purchaser of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail and shall be accompanied, at such holder's expense, by either (i) a written opinion of legal counsel (such opinion to be reasonably satisfactory to the Purchaser), addressed to the Purchaser, to the effect 25 that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act or (ii) a "no action" letter from the Securities and Exchange Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to Purchaser. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made in compliance with Rule 144 of the Securities Act, the appropriate restrictive legend set forth in Section 10.2, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Purchaser such legend is not required in order to establish compliance with any provisions of the Securities Act. ARTICLE XI MISCELLANEOUS ------------- 11.1. Expenses. -------- (a) The Shareholders shall bear the expenses and fees of counsel to the Company or the Shareholders' and the Company's accountants incurred by the Company or the Shareholders in connection with the preparation, negotiation and execution of the Transaction Documents and consummation of the transactions contemplated hereby and thereby. (b) Except as otherwise provided herein, the Purchaser shall bear its own expenses and fees and commissions (including, but not limited to, all compensation and expenses of counsel, consultants and accountants) incurred in connection with its preparation, negotiation and execution of the Transaction Documents and consummation of the transactions contemplated hereby or thereby. 11.2. Notices. Any notices or other communications required under this ------- Agreement shall be in writing, shall be deemed to have been given when delivered in person, by telex or telecopier, when delivered to a recognized next business day courier, or, if made, when deposited in the United States mail, first class, registered or certified, return receipt requested, with proper postage prepaid, addressed as follows or to such other address as notice shall have been given pursuant hereto: If to the Shareholders or the Company prior to Closing, to: Mr. Alex Urich Mr. Michael Curtis Circuit Tree Medical, Inc. 23322 Madero Road, Suite F Mission Viejo, California 92691 and if to the Shareholders after the Closing, to: Mr. Alex Urich 27402 Via Caudaloso Mission Viejo, California 92691 26 Mr. Michael Curtis 26421 Pebble Creek Lake Forest, California 92630 If to the Purchaser to: STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016 Attn: Chief Financial Officer with a copy to: Pollet Law 10900 Wilshire Boulevard, Suite 500 Los Angeles, California 90024 Attn.: Andrew F. Pollet, Esq. 11.3. Assignment. Prior to the Closing Date, this Agreement may not be ---------- assigned, by operation of law or otherwise. Following the Closing Date, any party may assign any of its rights hereunder, but no such assignment shall relieve him or it of his or its obligations hereunder. 11.4. Interpretation. The article and section headings contained in this -------------- Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine or neuter forms. 11.5. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument; and shall become binding when two or more counterparts have been signed by each of the parties hereto and delivered to each of the Purchaser, the Shareholders and the Company. 11.6. Amendment. This Agreement may not be amended, modified or --------- supplemented except by a writing signed by an authorized representative of each of the parties hereto. 11.7. Entire Agreement. This Agreement (including the Schedules and ---------------- Exhibits attached hereto) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. With respect to the Schedules, an item is only deemed disclosed in connection with the specific representation to which it is explicitly referenced. 11.8. Binding Effect. This Agreement shall be binding upon and inure to --------------- the benefit of the parties hereto and their respective heirs, personal representatives, successors and permitted assigns. 11.9. Survival. The covenants, agreements, representations and warranties -------- of the Company, the Shareholders or the Purchaser made in or pursuant to this Agreement shall survive the Closing Date notwithstanding any investigation made or information obtained by or on behalf of the Purchaser; provided, however, ----------------- that the representations and warranties of the Company, the Shareholders or the Purchaser contained herein or in any certificate delivered with respect thereto 27 (other than the representations and warranties contained in Sections 2.3, 3.3, 3.4, 3.9, 3.22, 3.27, 4.1, 4.3 or 4.4 which shall survive for all applicable statute of limitations periods) shall terminate twelve months after the Closing Date. Except as otherwise expressly provided in Article VIII, no claim shall be made for breach of any representation or warranty contained herein or in any certificate delivered with respect thereto under this Agreement after the date on which such representations and warranties shall terminate as set forth in this Section; provided, however, that nothing shall effect or otherwise limit ----------------- the obligations of the Shareholders or rights of the Purchaser under Article VIII in respect of any breach of any representation or warranty of the Shareholders or the Company as to which the Purchaser has notified the Shareholders in accordance with Section 8.2 or prior to the date such representations or warranties would otherwise terminate in accordance with this Section 11.9. 11.10. Severability. Wherever possible, each provision hereof shall be ------------ interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective in the jurisdiction involved to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other provisions hereof, unless such a construction would be unreasonable. 11.11. Third Parties. Nothing contained in this Agreement or in any ------------- instrument or document executed by any party in connection with the transactions contemplated hereby shall create any rights in, or be deemed to have been executed for the benefit of, any person or entity that is not a party hereto or a successor or permitted assign of such a party. 11.12. Waivers. Any term or provision of this Agreement may be waived, or ------- the time for its performance may be extended, by the party or parties entitled to the benefit thereof Any such waiver shall be validly and sufficiently authorized for the purposes of this Agreement if, as to any party, it is authorized in writing by an authorized representative of such party. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of any party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. 11.13. Governing Law, Arbitration. This Agreement shall be governed by -------------------------- and construed in accordance with the internal laws (as opposed to the conflicts of law provisions) of the State of California. (i) Any dispute, controversy or claim arising out of or relating to this Agreement or its breach, interpretation, termination or validity, including any question whether a matter is subject to arbitration hereunder, is referred to herein as a "Dispute." (ii) If the parties fail to settle any Dispute within 30 days after any party has given notice to the other parties hereto of the claimed existence of a Dispute, the Dispute shall be resolved by a confidential, binding arbitration. All such Disputes shall be arbitrated in Los Angeles, California pursuant to the arbitration rules and procedures of the American Arbitration Association before an arbitrator or arbitrators selected in the manner provided in such rules and procedures, except that the "Final Offer (or Baseball)" Arbitration Option shall not be used unless otherwise agreed in writing. 28 (iii) Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction, and each party hereto consents and submits to the jurisdiction of such court for purposes of such action. The statute of limitations, estoppel, waiver, laches and similar doctrines, which would otherwise be applicable in any action brought by a party, shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed to the commencement of an action for those purposes. The Federal Arbitration Act shall apply to the construction, interpretation and enforcement of this arbitration provision. Each party shall bear its own expenses (including without limitation the fees and expenses of legal counsel and accountants) in connection with such arbitration and the Purchaser and the Shareholder shall each bear one-half of the arbitrators' fees and expenses, provided that the arbitral award shall allocate such fees and expenses of counsel, accountants, other advisors and arbitrators according to the relative success of the contesting parties in the arbitration, as determined by the arbitrators. The arbitrators shall award an amount equal to the actual monetary damages suffered by each contesting party, which may include interest costs incurred by such party, but the arbitrators shall not have the authority to award punitive damages. 11.14. Definitions. In this Agreement, the following terms have the ----------- meanings specified or referred to in this Section 11.14 and shall be equally applicable to both the singular and plural forms. "Affiliate" shall mean: any person or entity (i) that directly or --------- indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the person or entity involved, including, without limitation, officers and directors, (ii) that directly or beneficially owns or holds 5% or more of any equity interest in the person or entity involved, or (iii) 5% or more of whose voting securities (or in the case of a person which is not a corporation, 5% or more of any equity interest) is owned directly or beneficially by the person or entity involved. As used herein, the term "control" shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person or entity, whether through ownership of securities, by contract or otherwise. "Balance Sheet" means the unaudited Balance Sheet of the Company dated as ------------- of December, 31, 1998. "Balance Sheet Date" means December 31, 1998. ------------------ "Business" means the businesses engaged in by the Company as of the date of -------- this Agreement. "Closing" has the meaning specified in Section 1.3. ------- "Closing Date" has the meaning specified in Section 1.3. ------------ "Code" means the Internal Revenue Code of 1986, as amended. ---- "Company Common Stock" has the meaning specified in Section 3.3. -------------------- "Company's Financial Statements" has the meaning specified in Section 3.6. ------------------------------ 29 "Computerized Assets" means all information processing systems, operating ------------------- systems and delivery systems, internal environmental systems dependent on embedded microchips and all other computerized and electronic functions that are used by a Person in the conduct of its business. "Contaminant" means any waste, pollutant, hazardous substance, toxic ----------- substance, hazardous waste, medical waste, special waste, asbestos, petroleum or petroleum-derived substance, radioactive material or waste, or any constituent of any such substance or waste and including, without limitation, any substance which any Governmental Body or lawful representative thereof requires to be controlled,-removed, monitored, encapsulated or remediated or otherwise addressed for the purposes of protection of the environment or public or worker health and safety. "Current Assets" means those assets classified as current assets of the -------------- Company in accordance with GAAP. "Current Liabilities" means those liabilities classified as current ------------------- liabilities of the Company in accordance with GAAP. "Debt" means any and all indebtedness for borrowed monies and any other ---- long-term liabilities. "Dispute" has the meaning specified in Section 11.13. ------- "Encumbrance" means any lien, claim, charge, security interest, mortgage, ----------- pledge, easement, conditional sale or other title retention agreement, defect in title, covenant or other restriction of any kind. "Environmental Laws" has the meaning specified in Section 3.26(a). ------------------ "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "ERISA Affiliate" means (a) any corporation which at, or at any time --------------- before, the Closing Date is or was a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company or any predecessor of the Company; (b) any partnership, trade or business (whether or not incorporated) which at, or at any time before, the Closing Date is or was under common control (within meaning of Section 414(c) of the Code) with the Company; and (c) any entity, which at, or at any time before, the Closing Date is or was a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as either the Company or any predecessor of the Company, any corporation described in clause (a) or any partnership, trade or business described in clause (b). "ERISA Benefit Plans" has the meaning specified in Section 3.21(a). ------------------- "Expenses" means any and all reasonable expenses incurred in connection -------- with investigating, defending or asserting any claim, action, suit or proceeding incident to any matter indemnified against hereunder (including, without limitation, court filing fees, court costs, arbitration fees or costs, witness fees, and reasonable fees and disbursements of legal counsel, investigators, consultants, expert witnesses, accountants and other professionals). 30 "Facility" means any real or personal property, plant, building, facility, -------- structure, underground storage tank, or equipment or unit, or other asset owned, used, leased or operated by the Company. "GAAP" means generally accepted accounting principles in the United States ---- of America. "Governmental Body" means any court, government (federal, state, local or ----------------- foreign), department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. "Losses" means any and all losses, costs, obligations, liabilities, ------ settlement payments, awards, judgments, fines, penalties, excise taxes, damages, expenses, deficiencies or other charges. "Managed Companies" has the meaning specified in Section 5.7(i). ----------------- "Material Adverse Effect" means any change or effect (or any development ----------------------- that, insofar as can be reasonably foreseen, would result in any change or effect) that is materially adverse to the assets, business, financial condition, results of operations or prospects of the applicable Person or Persons. "Material Contracts" has the meaning specified in Section 3.23. ------------------ "Non-ERISA Commitments" has the meaning specified in Section 3.21(a). --------------------- "Purchaser Shares" has the meaning specified in Section 1.2(a)(ii). ---------------- "Pension Plans" has the meaning specified in Section 3.21(a). ------------- "Permitted Encumbrances" means: (a) encumbrances for taxes or assessments ---------------------- or other governmental charges which are not yet due and payable; (b) materialmen's, merchants', carriers', worker's, repairer's, or other similar Encumbrances arising in the ordinary course of business which are not yet due or payable and; (c) purchase money security interests. "Person" means any individual, corporation, partnership, joint venture, ------ association, joint-stock company, trust, unincorporated organization or Governmental Body. "Release" means any release, spill, emission, leaking, pumping, injection, ------- deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any Facility of any Contaminant, including the movement of Contaminants through or in the air, soil, surface water, groundwater or Facility. "Remedial Action" means actions required to (i) clean up, remove, treat or --------------- in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threatened Release or minimize the further Release of Contaminants or (iii) investigate and determine if a remedial response is needed and to design such a response and post-remedial investigation, monitoring, operation and maintenance and care. "Requirements of Law" means any federal, state or local law, rule or ------------------- regulation, Governmental Permit or other binding determination of any Governmental Body. 31 "Restricted Securities" has the meaning specified in Section 10.3. --------------------- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed as of the date first above written. "PURCHASER" STAAR Surgical Company By /s/ William Huddleston ---------------------------- Its: Executive Vice President "SHAREHOLDERS" /s/ Alex Urich ------------------------------- Alex Urich _______________________________ Michael Curtis "COMPANY" Circuit Tree Medical, Inc. By: Alex Urich President ---------------------------- Its: 32 EXHIBIT "1" ESCROW AGREEMENT ESCROW AGREEMENT ---------------- This ESCROW AGREEMENT dated as of December 3, 1999 by and among STAAR Surgical Company, a Delaware corporation (the "Purchaser"), Alex Urich, an individual, and Michael Curtis, an individual (Urich and Curtis are referred to individually as the "Shareholder" and collectively as the "Shareholders"), and Pollet Law (the "Escrow Agent"), all of whom are sometimes collectively referred to herein as the "parties". W I T N E S S E T H: ------------------- WHEREAS, the Purchaser and the Shareholders have entered into a Stock Purchase Agreement dated as of the date hereof (the "Stock Purchase Agreement"), pursuant to which the Purchaser is acquiring 80% of the Shareholders' outstanding common stock (the "Stock") in Circuit Tree Medical, Inc. (the "Company"); and WHEREAS, in order to complete the transfer of the purchase price for the Stock, which includes: (i) the transfer of good funds to each Shareholder in the amount of Two Hundred Fifty Thousand Dollars ($250,000) (the "Cash") and (ii) the transfer to each Shareholder of shares of the Purchaser's common stock (the "Purchaser's Shares"), the Shareholders and the Purchaser have agreed to enter into this Escrow Agreement; NOW, THEREFORE, in consideration of the mutual promises of the parties, and of other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereby respectively act and agree as follows: 1. Appointment of Escrow Agent. The Purchaser and the Shareholders hereby --------------------------- appoint Pollet Law as Escrow Agent, and Pollet Law hereby accepts such appointment and agrees to act as Escrow Agent under the terms and conditions of this Agreement. 2. Escrow Deposit by the Shareholders. On the Closing Date, as that term ---------------------------------- is defined in the Stock Purchase Agreement, each Shareholder shall deposit with the Escrow Agent, pursuant to Article I, Section 1.2(b) of the Stock Purchase Agreement, (i) a certificate representing eighty (80) shares of the Company's common stock, which certificate represents that portion of the Stock attributable to the purchase price to be paid with the Cash, and (ii) a certificate representing one hundred twenty (120) shares of the Company's common stock, which certificate represents that portion of the Stock attributable to the portion of the purchase price to be paid with the Purchaser's Shares, in each case together with a duly executed Assignment Separate From Certificate (the "Stock Power") and (iii) cross-receipts (collectively, the "Property Deposited by the Shareholders"). The Escrow Agent shall hold, manage, administer, and distribute the Property Deposited by the Shareholders in accordance with the terms and conditions of this Agreement. 3. Escrow Deposit by the Purchaser. The Purchaser shall deposit with ------------------------------- the Escrow Agent, pursuant to Article I, Section 1.2(a)(ii) of the Stock Purchase Agreement, (i) certificates -1- for the Purchaser's Shares registered in the names of the Shareholders, (ii) cross-receipts, and (iii) the Cash (collectively, the "Property Deposited by the Purchaser"). The certificates for the Purchaser's Shares shall be deposited within ten (10) days from the Closing Date, as that term is defined in the Stock Purchase Agreement, and the Cash shall be deposited with the Escrow Agent or wired to the Escrow Agent no later than 5:00 p.m. on January 5, 2000. The Escrow Agent shall hold, manage, administer, and distribute the Property Deposited by the Purchaser in accordance with the terms and conditions of this Agreement. 4. Distributions to the Shareholders and the Purchaser. Within twenty- --------------------------------------------------- four (24) hours of the Escrow Agent's receipt of the certificates for the Purchaser's Shares registered in the names of the Shareholders, the Escrow Agent shall distribute: (i) to the Purchaser the stock certificates and Stock Powers attributable to the portion of the purchase price to be paid with the Purchaser's Shares and the cross receipts and (ii) to the Shareholders the Purchaser's Shares and the cross receipts. Within twenty-four (24) hours of the Escrow Agent's receipt of the Cash, the Escrow Agent shall distribute: (i) to the Purchaser the stock certificates and Stock Powers attributable to the portion of the purchase price to be paid with the Cash and the cross receipts and (ii) to the Shareholders the Cash and the cross receipts. 5. Escrow Agent. ------------ (a) Fees and Costs. The normal fees and reasonable expenses incurred -------------- by the Escrow Agent in connection with its duties hereunder shall be paid one- half by the Purchaser and one-half by the Shareholders. (b) Duties. The duties of the Escrow Agent are only such as are ------ herein specifically provided, being purely ministerial in nature, and the Escrow Agent shall incur no liability whatever hereunder except for gross negligence or bad faith. The Escrow Agent shall be under no responsibility in respect of any of the items deposited with it other than to follow faithfully the instructions herein contained. The Escrow Agent is not charged with knowledge of any duties or responsibilities in connection with any other document or agreement. The Escrow Agent may consult with counsel and shall be fully protected in any action taken in good faith in accordance with such advice. The Purchaser and the Shareholders jointly and severally agree to assume liability for and do hereby agree to indemnify, protect, save, and hold harmless the Escrow Agent from and against any and all liabilities, obligations, losses, damages, claims, actions, suits, costs, and expenses of whatever kind and nature, including reasonable attorneys' fees, imposed upon, incurred by, or asserted against the Escrow Agent in any way relating to or arising out of this Agreement. The Escrow Agent shall not be required to institute legal proceedings of any kind. The Escrow Agent shall be fully protected in acting in accordance with any written notices, directions, or instructions given to it hereunder and believed by it to have been signed by the proper parties. 6. Resignation, Removal, Successorship and Accounting. The Escrow Agent -------------------------------------------------- may resign at any time by giving sixty (60) days prior written notice thereof to the Purchaser and the Shareholders. The Purchaser and the Shareholders may remove the Escrow Agent at any time upon written notice to the Escrow Agent at least ten (10) days prior to the date of removal. In -2- any such event, the Escrow Agent shall render to the Purchaser and the Shareholders an account in writing of the property held in the Escrow and any notices received by it. If the Purchaser and the Shareholders approve such account in writing or fail to object in writing to such account within twenty (20) days after the date of receipt of such account, the Escrow Agent shall be released forever from any and all claims or liabilities with respect to any actions or omissions hereunder. Simultaneously with such release, the Escrow Agent shall deliver the property held in the Escrow to its successor designated in writing by the Purchaser and the Shareholders. If the Purchaser and the Shareholders fail to agree on a successor Escrow Agent within such twenty (20) day period, the Escrow Agent may designate any California bank or trust company which has assets in excess of $500,000,000 as successor, which shall agree in writing to be bound by all of the provisions hereof, or the Escrow Agent may apply to the appropriate court for appointment of a successor. If either the Purchaser or the Shareholders object in writing to the account of the Escrow Agent within such twenty (20) day period, the Escrow Agent shall not be released hereunder and the parties hereto shall use their best efforts to reconcile their differences. Nothing in this Escrow Agreement shall prevent the Escrow Agent from bringing an action to settle its accounts, and obtain its release hereunder, in any court of competent jurisdiction; and in such case, the costs and expenses of the Escrow Agent incurred in such action, including its reasonable attorneys' fees, shall be paid by the party contesting the accounts if the Escrow Agent prevails. Any successor to the Escrow Agent appointed under any of the methods provided herein shall have all of the rights, obligations, and immunities of the Escrow Agent set forth herein and shall agree in writing to be bound by all of the provisions hereof. 7. Termination. This Agreement shall terminate upon the distribution of ----------- the Property Deposited by the Purchaser to the Shareholders and the Property Deposited by the Shareholders to the Purchaser. 8. Notices. Any notices or other communications required under this ------- Agreement shall be in writing, shall be deemed to have been given when delivered in person, by telex or telecopier, when delivered to a recognized next business day courier, or, if made, when deposited in the United States mail, first class, registered or certified, return receipt requested, with proper postage prepaid, addressed as follows or to such other address as notice shall have been given pursuant hereto: If to the Shareholders: Mr. Alex Urich 27402 Via Caudaloso Mission Viejo, California 92691 Mr. Michael Curtis 26421 Pebble Creek Lake Forest, California 92630 If to the Purchaser: STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016 Attn: Chief Financial Officer -3- with a copy to: Pollet Law 10900 Wilshire Boulevard, Suite 500 Los Angeles, California 90024 Attn.: Andrew F. Pollet, Esq. If to the Escrow Agent: Pollet Law 10900 Wilshire Boulevard, Suite 500 Los Angeles, California 90024 Attn.: Andrew F. Pollet, Esq. or to such other address as the addressee may hereafter designate by written notice to the other parties. 9. Waivers. No waivers by any party hereto of any condition or of any ------- breach of any provision of this Agreement shall be effective, unless in writing signed by the party waiving compliance. 10. Amendments. This Agreement may be amended only with the written ---------- consent of the Purchaser, the Shareholders and the Escrow Agent. 11. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the internal laws of the State of California, without regard to its conflict of laws provisions. 12. Headings. The section headings herein are inserted for convenience of -------- reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 13. Entire Agreement. This Agreement constitutes the entire agreement ---------------- between the parties hereto as to the subject matter hereof and supersedes all prior agreements and understandings relating thereto. 14. Severability. If any term or provision of this Agreement or the ------------ application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby and each term and provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. 15. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. -4- 16. Successors and Assignment. This Agreement shall be enforceable by, ------------------------- and shall inure to the benefit of and be binding upon, the parties hereto and their respective successors, assigns, and representatives. No party may assign any of its rights or obligations hereunder without the prior written consent of all parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed under seal as of the date first above written. STAAR Surgical Company By____________________________________ Its: ________________________________________ Alex Urich ________________________________________ Michael Curtis Pollet Law By:_____________________________________ Its: -5- EXHIBIT "2" SHAREHOLDERS AGREEMENT SHAREHOLDERS AGREEMENT ---------------------- The parties to this Shareholders Agreement (this "Agreement") made this 3rd day of December, 1999 are Circuit Tree Medical, Inc., a California corporation (the "Company"), Alex Urich and Michael Curtis (collectively, the "Founders"), and STAAR Surgical Company, a Delaware corporation ("STAAR"). As used herein, the term "Shareholders" refers collectively to the Founders and STAAR. Simultaneously with the execution and delivery of this Agreement, STAAR is purchasing from the Founders eighty percent (80%) of the issued and outstanding common stock of the Company. The parties wish to provide for certain matters regarding the transfer of the Company's issued and outstanding common stock and the governance of the Company. Accordingly, intending to be legally bound by the terms of this Agreement, the parties agree as follows: 1. Restriction on Transfer of Shares --------------------------------- 1.1. Transfers to be Made Only as Permitted by this Agreement. No -------------------------------------------------------- Founder may transfer any Shares (as defined in Section 6.1) acquired on, before or after the date of this Agreement, except to his spouse, children, parents or grandchildren or a trust for the benefit of any of the foregoing (a "Permitted Transferee") or as specifically required or permitted by this Agreement, and any purported transfer in any other manner shall be void. In addition, no Permitted Transferee may transfer any Shares, except as specifically required or permitted by this Agreement, and any purported transfer in any other manner shall be void. No transfer may be made to a Permitted Transferee unless the Permitted Transferee (or his or her custodian or guardian) executes and delivers a written agreement, in form and substance satisfactory to the Company, agreeing to be bound by the provisions of this Agreement, and thereupon such Permitted Transferee shall be deemed a "Shareholder" for all purposes of this Agreement. STAAR may transfer its Shares without any restriction whatsoever, other than compliance with Section 3.1 of this Agreement, compliance with applicable securities laws and the requirement that the transferee agree to be bound by the terms of this Agreement, subject to the same rights and obligations as STAAR. Any person to whom STAAR transfers its Shares under this Agreement shall be deemed a "Shareholder" for all purposes. The Company shall not issue any shares of common stock (including upon exercise of options issued by the Company) unless the person to whom such shares are issued executes and delivers a written agreement, in form and substance satisfactory to STAAR, agreeing to be bound by the provisions of this Agreement as a Shareholder. 1.2. Legend on Certificates. Each certificate representing Shares ---------------------- from time to time owned by the Shareholders shall bear a legend substantially as follows: "Transfer of the shares represented by this certificate is restricted by a Shareholders Agreement dated as of December 3, 1999, as the same may be amended, a copy of which is on file at the office of the Corporation." "The shares represented by this certificate have not been registered under the Securities Act of 1933, and may not be sold, pledged, hypothecated or otherwise transferred or offered for sale unless a registration statement has become and is then effective with respect to such shares or a written opinion that the proposed sale or transfer is exempt from registration under the Act has been rendered by counsel for the Company." 2. Purchase and Sale of Shares. --------------------------- 2.1. Purchase Upon Termination of Employment of Founder. -------------------------------------------------- (a) If the employment of a Founder is terminated for any reason, including his death, retirement, termination by the Company of his employment with or without cause (as hereinafter defined), resignation or disability (as hereinafter defined), then the Company shall have the option (exercisable by notice given to such Founder (or his personal representative) within the 90-day period (the "Option Period") following the termination of employment of the Founder) to purchase all, but not less than all, of his, and his Permitted Transferees, Shares. The purchase price for the Shares purchased pursuant to this Section 2.1(a) shall be determined by (i) the agreement of the Founder (or his personal representative) and STAAR or (ii) if for any reason they do not reach an agreement, using the following formula: (x) if a Founder's employment terminates at any time prior to December 3, 2000, the per share value of such Founder's Shares shall be determined by multiplying $3,000,000 times 120% and dividing the product by the number of all Shares issued and outstanding; (y) if a Founder's employment terminates during the period from December 3, 2000 through December 2, 2004, the per share value of such Founder's Shares shall be determined by multiplying $3,000,000 times 150% and dividing the product by the number of all Shares issued and outstanding; and (z) if a Founder's employment terminates at any time after December 2, 2004, the per share value of such Founder's Shares shall be determined in good faith by the Company's board of directors. (b) If, for any reason, the Company does not exercise its option pursuant to Section 2.1(a) with respect to any applicable Shares, STAAR shall have the option (exercisable by notice to the Founder (or his personal representative) given at any time within 90 days following expiration of the Option Period) to purchase those Shares on the terms and conditions set forth in Section 2.1(a). 2.2. Right of First Refusal. If any Founder (or his personal ---------------------- representative) or Permitted Transferee (an "Offeree") receives from an unrelated third party a bona fide offer to purchase for cash any of the ---- ---- Offeree's Shares and the Offeree wishes to accept the offer, the Offeree shall give notice of the offer to the Company and to STAAR (setting forth the name and address of the third party, the proposed purchase price and the other terms and conditions of the offer), and the Company shall have the option (exercisable by notice to the Offeree given within sixty (60) days after receipt of notice of the offer) to purchase all (but not fewer than all) of the Offeree's Shares at the same price. If the Company does not exercise its option with respect to all the Shares covered by the third party offer, STAAR shall be entitled to purchase all (but not fewer than all) such remaining Offeree's Shares at the same price. If neither the Company nor STAAR exercise their option with respect to all the Shares covered by the third party offer, then the Offeree (or his or her personal representative) may, within sixty (60) days after termination of the Company's option, transfer all (but not fewer than all) of his Shares to the third party upon the terms and conditions of the original offer (but, if the Shares are not transferred within that 60-day period, they shall again be subject to this Agreement); no such transfer may be made, however, unless the third party executes and delivers to the Company a written agreement, in form and substance satisfactory to the Company, agreeing to be bound by the provisions of this Agreement. 2.3. Closing. The closing of any purchase of Shares under this ------- Section 2 shall be held at a place and date specified by the purchaser of such Shares, but not more than sixty (60) days after the exercise by the Company or other purchaser of its option under this Section 2. At the closing, each Founder (or his personal representative) or Permitted Transferee shall deliver to the Company a certificate or certificates for the Shares being sold, duly endorsed in blank and with all stock transfer stamps attached, and the Company or other purchaser shall pay the purchase price for the Shares being purchased (net of withholding taxes, if any). The purchase price shall be payable in cash by the Company or other purchaser. If a Founder's personal representative is selling the Shares, he shall deliver to the Company at the closing all applicable estate tax waivers. 2.4 Insufficient Surplus. If, at any time the Company is required to -------------------- make any payment for any Shares purchased by it under this Section 2, and such payment is not legally permitted by applicable law, the entire amount legally permitted by applicable law shall be applied to the payment (and the Company shall promptly take all action, if any, that may be permitted by law in order to permit the payment to be made in full). To the extent that any such required payment would violate such law, then the payment shall be postponed until permitted and the amount of any postponed payment shall bear interest on the unpaid balance from time to time outstanding at eight percent (8%) per annum. 3. Other Rights. ------------ 3.1. Transfer of Shares by STAAR. If STAAR desires to sell any of --------------------------- its Shares pursuant to an arm's length, bona fide transaction with a third ---- ---- party, (which shall not include a transfer to any subsidiary or affiliate of STAAR), then the Founders shall sell, and STAAR shall purchase, prior to any such sale of its Shares, the Shares belonging to the Founders. The purchase price for the Shares purchased pursuant to this Section 3.1(a) shall be determined by (i) the agreement of the Founders and STAAR or (ii) if for any reason they do not reach an agreement, using the following formula: (x) if the sale of STAAR's Shares closes at any time prior to December 3, 2000, the per share value of each Founder's Shares shall be determined by multiplying $3,000,000 times 120% and dividing the product by the number of all Shares issued and outstanding; (y) if the sale of STAAR's Shares closes during the period from December 3, 2000 through December 2, 2004, the per share value of each Founder's Shares shall be determined by multiplying $3,000,000 times 150% and dividing the product by the number of all Shares issued and outstanding; and (z) if the sale of STAAR's Shares closes at any time after December 2, 2004, the per share value of each Founder's Shares shall be identical to the per share price to be received by STAAR for its Shares. 3.2. Rights to Purchase Additional Shares. If at any time the ------------------------------------ Company proposes to issue any Shares or other securities (other than debt securities with no equity feature) to any person, each Shareholder shall have the right to purchase, upon the same terms, a number of those Shares or other securities (but not less than such number) in the proportion that the number of Shares of Common Stock beneficially owned by such Shareholder bears to the total number of the Company's Shares of Common Stock outstanding immediately prior to such issuance. The Company shall give notice (the "Share Purchase Notice") to the Shareholders setting forth the identity of the person to whom it proposes to issue Shares or other securities and the time, which shall not be fewer than thirty (30) days, within which and the terms and conditions upon which the Shareholders may purchase the Shares or other securities, which shall be the same terms and conditions upon which the person to whom the proposed issuance is to be made may purchase the Shares or other securities. Within twenty (20) days after the giving of the Share Purchase Notice, each Shareholder shall give irrevocable notice of his or its decision to exercise the option under this Section 3.2. 3.3. Agreement to Vote Shares. If STAAR proposes that the Company ------------------------ sell, convey, lease or exchange all or substantially all of its assets in an arm's length, bona fide transaction with a third party or engage in a merger, ---- ---- business combination or other transaction with substantially the same effect, then the Founders (and any other shareholders bound by this Agreement) shall vote their Shares in favor of the transaction, and take such other actions as are reasonably requested by STAAR to enable the Company to consummate such transaction. If any Founder fails or refuses to vote his Shares as required by this Section 3.3, each other Shareholder (other than the failing or refusing Founder) shall have an irrevocable proxy during the term of this Agreement, exercisable by any one of them singly, coupled with an interest, so as to vote those Shares in accordance with this Section 3.3, and each Shareholder hereby grants to each other Shareholder such irrevocable proxy. To the extent permitted by law, each Shareholder waives any right to appraisal under California law in connection with any transaction approved in accordance with this Section 3.3. 4. Directors. --------- 4.1. Election and Removal of Directors Generally ------------------------------------------- (a) The Shareholders shall vote all their Shares to establish and maintain a board of directors elected in accordance with this Agreement. The Founders shall be entitled to nominate one (1) director (collectively, "Founder Director") and STAAR shall be entitled to nominate two (2) directors (the "STAAR Directors"). The Shareholders shall vote all of their Shares to elect the individuals so nominated to be directors. If the Shareholder or Shareholders that nominated a director give written notice to the other Shareholders that the Shareholder or Shareholders wish to remove their or its director, the Shareholders shall vote all of their Shares in favor of removing that director. If for any reason any director ceases to hold office, the Shareholder or Shareholders that nominated that director shall promptly nominate an individual to fill the vacancy so created for the unexpired term and the Shareholders shall vote all of their Shares for the individual nominated to fill the vacancy. 4.2. Current Directors. Effective upon the execution and delivery of ----------------- this Agreement, the directors initially shall consist of Alex Urich, John R. Wolf and William C. Huddleston. For purposes of Section 4.1 of this Agreement, Alex Urich shall be deemed to be the Founder Director, and William C. Huddleston and John R. Wolf shall be deemed to be the STAAR Directors. 4.3. Board of Director Meetings. The Company shall use its best -------------------------- efforts to ensure that meetings of its Board of Directors are held at least four times each year and at least once each quarter. 5. Company Financial Information. ----------------------------- 5.1. Annual Financial Statements and Budgets. The Company shall --------------------------------------- maintain a standard system of accounting in accordance with generally accepted accounting principles applied on a consistent basis ("GAAP") and shall make and keep books, records and accounts that, in reasonable detail, accurately and fairly reflect its transactions. The Company shall deliver to each Shareholder the following: (a) As soon as available, and in any event within 120 days after the end of each fiscal year of the Company commencing with December 31, 1999, an audited consolidated balance sheet, and related statements of operations and cash flows of the Company as of the end of such year; and (b) As soon as available, but in any event prior to commencement of each new fiscal year, a business plan and projected financial statements for such fiscal year. 5.2. Monthly Financial Statements and Budgets. The Company shall ---------------------------------------- deliver to the Shareholders: (a) Within thirty (30) days after the end of each month, an unaudited consolidated statement of operations and cash flows for such month and the current fiscal year to date and an unaudited consolidated balance sheet as of the end of each such month, setting forth in comparative form the figures for the corresponding periods of the previous fiscal year and the Company's projected financial statements for the current fiscal year and showing deviations from budget; (b) Promptly upon receipt, copies of all management letters from accountants and all certificates prepared by or for the Company as to compliance, defaults, material adverse changes, material litigation or similar matters, but only to the extent that the delivery thereof would not result in the loss of any generally recognizable privilege otherwise applicable thereto (provided, however, that nothing herein shall preclude disclosure of such -------- ------- letters and certificates to any members of the Company's board of directors); and (c) Upon written request, the Company shall also furnish, with reasonable promptness, such other information relating to the financial condition, business prospects or corporate affairs of the Company as any Shareholder may from time to time reasonably request. 5.3. Inspection. The Company shall permit the Shareholders, or their ---------- agents, at their own expense, to visit and inspect the Company's properties, to examine the Company's books of account and records, and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by any such Shareholder; provided, however, that the Company -------- ------- shall not be obligated pursuant to this Agreement to provide any information that it reasonably considers to be a trade secret or to contain confidential data unless the Shareholder shall have executed and delivered to the Company a confidentiality agreement in a form reasonably acceptable to the Company. 6. Miscellaneous ------------- 6.1. Definitions. As used in this Agreement: ----------- (a) "affiliate" means a person or entity that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, a Shareholder; (b) "personal representative" means the executor or executors or the administrator or administrators of the estate of a deceased Founder; (c) "Shares" means the shares of all classes and series of the capital stock of the Company owned by the Shareholders, irrespective of the time and manner of acquisition; and (d) "transfer" means the making of any sale, exchange, assignment of gift, the creation of any security interest or other encumbrance, or any other transfer or disposition, whether voluntary or involuntary (including, but not limited to, by levy of execution or seizure under legal process or by operation of law), affecting title to, or the right to possession of, any Shares in the Company. 6.2. Notice of Appointment of Personal Representative. The personal ------------------------------------------------ representative of a deceased Founder shall give prompt notice of his or her appointment, setting forth the address to which notices under this Agreement shall be given to the personal representative. 6.3. Construction. As used in this Agreement, unless the context ------------ otherwise requires: (i) references to "Section" are to a section of this Agreement; (ii) all "Exhibits" referred to in this Agreement are to Exhibits attached to this Agreement and are incorporated into this Agreement by reference and made a part of this Agreement; (iii) "include", "includes" and "including" are deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import; (iv) the headings of the various sections and other subdivisions of this Agreement are for convenience of reference only and shall not modify, define or limit any of the terms or provisions of this Agreement; and (v) "knowledge" of a person means the actual knowledge of such person and the knowledge that a prudent individual could be expected to discover or otherwise become aware of in the course of conducting a reasonably comprehensive investigation concerning the existence of the matters addressed. 6.4. Remedies. The parties will be irreparably damaged if this -------- Agreement is not specifically enforced. If any dispute arises concerning any transfer or other disposition of Shares under this Agreement, an injunction may be issued restraining the transfer or other disposition, pending the determination of the controversy, without any bond or other security being required. If any dispute arises concerning the right or obligation to purchase or sell or vote any Shares under this Agreement, the right or obligation shall be specifically enforceable in a court of competent jurisdiction upon application or petition by the Company or any Shareholder. 6.5. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of California applicable to agreements made and to be performed in California. 6.6. Assignment. This Agreement shall not be assignable except as ---------- expressly provided herein, and shall be binding upon and inure to the benefit of the respective successors and assigns of the Company and the respective successors, permitted assigns, heirs and legal representatives of the Shareholders. 6.7. Severability. If any provision of this Agreement, or the ------------ application of any provision to any person or circumstance, shall for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and the application of that provision to other persons or circumstances shall not be affected but shall be enforced to the full extent permitted by law. 6.8. Waivers. The failure of a party to insist upon strict adherence ------- to any terms of this Agreement on any occasion shall not be considered a waiver, or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing. 6.9. Notices. Any notices or other communications required under ------- this Agreement shall be in writing, shall be deemed to have been given when delivered in person, by telex or telecopier, when delivered to a recognized next business day courier, or, if made, when deposited in the United States mail, first class, registered or certified, return receipt requested, with proper postage prepaid, addressed as follows or to such other address as notice shall have been given pursuant hereto: If to the Founders, to: Mr. Alex Urich 27402 Via Caudaloso Mission Viejo, California 92691 Mr. Michael Curtis 26421 Pebble Creek Lake Forest, California 92630 If to STAAR to: STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016 Attn: Chief Financial Officer with a copy to: Pollet Law 10900 Wilshire Boulevard, Suite 500 Los Angeles, California 90024 Attn.: Andrew F. Pollet, Esq. 6.10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall constitute an original, but all of which together shall constitute but a single instrument. 6.11. No Rights of Employment. Nothing in this Agreement shall confer ----------------------- on any Founder any right to be employed by the Company or to perform services for the Company or to interfere in any way with the right of the Company to terminate the Founder's employment or services or to give the Founder any claim against the Company in respect of any such termination. 6.12. Complete Agreement; Modification and Termination. This ------------------------------------------------ Agreement contains a complete statement of all the arrangements among the parties with respect to its subject matter, supersedes all existing agreements among them concerning that subject matter and may be modified, waived or terminated only by a written instrument signed by the parties to it; provided, -------- however, that any Shareholder may agree, in a written instrument signed by that - ------- Shareholder, to waive the benefits of any provision of this Agreement applicable to that Shareholder without requiring the consent of any other party. This Agreement shall terminate on the earlier of the twenty-fifth (25/th/) anniversary of the date of this Agreement or the dissolution of the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed on the date and year first above written. THE COMPANY: CIRCUIT TREE MEDICAL, INC. ----------- By:___________________________ Name:_________________________ Title:________________________ STAAR: STAAR SURGICAL COMPANY ----- By:___________________________ Name:_________________________ Title:________________________ FOUNDERS: -------- ______________________________ Name: Alex Urich ______________________________ Name: Michael Curtis EXHIBIT "3-A" URICH EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT ("Agreement"), which is dated as of December 3, 1999, is made by and between CIRCUIT TREE MEDICAL, INC., a California corporation, located at 23322 Madero Road, Suite F, Mission Viejo, California 92691 and hereinafter referred to as "Company", and ALEX URICH, whose address is 27402 Via Caudaloso, Mission Viejo, California 92691, hereinafter referred to as "Employee", based upon the following: RECITALS -------- WHEREAS, Company wishes to retain the services of Employee as its President and Employee wishes to render services to Company in that capacity; WHEREAS, Company and Employee wish to set forth in this Agreement the duties and responsibilities that Employee has agreed to undertake on behalf of Company; WHEREAS, Company and Employee intend that this Agreement will supersede and replace any and all other employment agreements or arrangements for employment entered into by and between Company and Employee and that, upon execution of this Agreement, any such employment agreements or arrangements shall have no further force or effect. THEREFORE, in consideration of the foregoing and of the mutual promises contained in this Agreement, Company and Employee (who are sometimes individually referred to as a "party" and collectively referred to as the "parties") agree as follows: AGREEMENT --------- 1. SPECIFIED PERIOD. ---------------- Company hereby employs Employee pursuant to the terms of this Agreement and Employee hereby accepts employment with Company pursuant to the terms of this Agreement for the period beginning on the execution date of this Agreement and ending on December 2, 2004 (the "Term"). 2. GENERAL DUTIES. -------------- Employee shall report to Company's Board of Directors (the "Board"). Employee shall devote his entire productive time, ability, and attention to Company's business during the term of this Agreement. In his capacity as President, Employee shall do and perform all services, acts, or things necessary or advisable to discharge his duties under this Agreement, including, but not limited to, those duties and responsibilities included in the Position Description attached to this Agreement as Exhibit "A" and made a part of it. Employee shall perform such other duties which may, from time to time, be prescribed by the Company through its Board. Furthermore, Employee agrees to cooperate with and work to the best of his ability with Company's management team, which includes the Board and the officers and other employees, to continually improve Company's reputation in its industry for quality products and performance. 1 3. COMPENSATION. ------------ (a) Salary. During the term of this Agreement, Company shall pay to ------ Employee a base salary of One Hundred Thousand Dollars ($100,000) per year. (b) Bonus. Employee and the Board shall meet no later than 90 days ----- from the start of Company's fiscal year to establish performance standards and goals to be met by Employee, which standards and goals shall be based upon earnings, cash flows, EBITDA and other objectives that are mutually agreed to by Employee and the Board. Company shall pay to Employee, no later than thirty (30) days after the completion of the fiscal year, a cash bonus (the "Annual Bonus") in an amount that shall not be less than Fifty Thousand Dollars ($50,000) for each year in which the performance standards and goals are met or exceeded by Employee. Nothing in this section shall prevent Employee and the Board from mutually agreeing to an alternative computation of the Annual Bonus, which may be implemented and paid to Employee in place of the Annual Bonus described herein. The Annual Bonus shall be subject to any applicable tax withholdings and/or employee deductions. (c) Employee Benefit Plans. Employee shall be entitled, during the ---------------------- specified period of this Agreement, to participate equally with other employees of a similar rank in any retirement, pension, profit-sharing, health insurance, or other plans which may now be in effect or which may be adopted by Company. The benefit plans shall be with such underwriters and shall contain such provisions as Company, in its sole discretion, may determine from time to time. Company may delete benefits and otherwise amend and change the type of benefits it provides in its sole discretion. During the Term, Company shall pay the cost of group health insurance coverage, through Company's group health insurer, for Employee, Employee's spouse, and Employee's children. 4. REIMBURSEMENT OF BUSINESS EXPENSES. ---------------------------------- (a) Reimbursement for Ordinary Expenses. Company shall promptly ----------------------------------- reimburse Employee for all reasonable business expenses incurred by Employee in connection with the business of Company. However, each such expenditure shall be reimbursable only if Employee furnishes to Company adequate records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing authorities for the substantiation of each such expenditure as an income tax deduction. (b) Reimbursement for Extraordinary Expenses. Any single business ---------------------------------------- expense with a cost in excess of Ten Thousand Dollars ($10,000) which is not included in Company's budget as approved by the Board shall be deemed to be an extraordinary business expense. Employee shall not incur any extraordinary business expense unless the expense has been approved by the Board. If Employee fails to obtain the approval of the Board, Company may refuse to reimburse Employee for that expense. (c) Automobile Allowance and Insurance. Company shall pay to Employee ---------------------------------- the sum of Five Hundred Dollars ($500) per month toward the cost of an automobile. Payment of the aforesaid allowance shall be subject to any applicable tax withholdings and/or employee deductions. Company shall also pay the costs of insuring Employee as the driver of the automobile through an insurer to be agreed upon by Employee and Company. Employee shall be responsible for all income taxes imposed by reason of the automobile allowance and insurance. 2 5. ANNUAL VACATION/SICK LEAVE. -------------------------- Employee shall be entitled to thirty (30) days of vacation time in addition to holiday time and sick leave in accordance with Company's general policy for its employees. 6. PERSONAL CONDUCT. ---------------- Employee agrees promptly and faithfully to comply with all present and future policies, requirements, directions, requests and rules and regulations of Company in connection with Company's business. Employee further agrees to conform to all laws and regulations and not at any time to commit any act or become involved in any situation or occurrence tending to bring Company into public scandal, ridicule or which will reflect unfavorably on the reputation of Company. 7. TERMINATION FOR CAUSE. --------------------- Company reserves the right to declare Employee in default of this Agreement if Employee willfully breaches or habitually neglects the duties which he is required to perform under the terms of this Agreement, or if Employee commits such acts of dishonesty, fraud, misrepresentation, gross negligence or willful misconduct as would prevent the effective performance of his duties or which results in material harm to Company or its business. Upon such termination the obligations of Employee and Company under this Agreement shall immediately cease. Such termination shall be without prejudice to any other remedy to which Company may be entitled either at law, in equity, or under this Agreement. If Employee's employment is terminated pursuant to this paragraph, Company shall pay to Employee, upon such termination or as soon thereafter as they may be computed, any amounts earned but unpaid up to the termination date pursuant to paragraph 3(a) and any declared by unpaid Annual Bonus. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. 8. TERMINATION WITHOUT CAUSE. ------------------------- (a) Death. Employee's employment shall terminate upon the death of ----- Employee. Upon such termination, the obligations of Employee and Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive any amounts earned but unpaid up to the termination date pursuant to paragraph 3(a) and any declared but unpaid Annual Bonus. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. (b) Disability. Company reserves the right to terminate Employee's ---------- employment upon ten (10) days written notice if, for a period of sixty (60) days, Employee is prevented from discharging his duties under this Agreement due to any physical or mental disability. With the exception of the covenants included in paragraph 3 above, upon such termination the obligations of Employee and Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive any amounts earned but unpaid up to the termination date pursuant to paragraph 3(a) and any declared but unpaid Annual Bonus. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. 3 (c) Election By Employee. Employee's employment may be terminated at -------------------- any time by Employee upon not less than one hundred eighty (180) days written notice by Employee. With the exception of the covenants included in paragraph 3 above, upon such termination the obligations of Employee and Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive any amounts earned but unpaid up to the termination date pursuant to paragraph 3(a) and any declared but unpaid Annual Bonus. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. (d) Election By Company. Company may terminate Employee's employment ------------------- upon not less than thirty (30) days written notice by Company to Employee. With the exception of the covenants included in paragraph 3 above, upon such termination the obligations of Employee and Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive (i) any amounts earned but unpaid up to the termination date pursuant to paragraph 3(a) and any declared but unpaid Annual Bonus, and (ii) compensation equal to the balance of the Employee's unpaid base salary only (as set forth in paragraph 3(a)) through the expiration date of the term, payable in accordance with Company's payroll procedures as if Employee's employment by Company had continued until the expiration of the term. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. 9. MISCELLANEOUS. ------------- (a) Preparation of Agreement. It is acknowledged by each party that ------------------------ such party either had separate and independent advice of counsel or the opportunity to avail itself or himself of same. In light of these facts it is acknowledged that no party shall be construed to be solely responsible for the drafting hereof, and therefore any ambiguity shall not be construed against any party as the alleged draftsman of this Agreement. (b) Cooperation. Each party agrees, without further consideration, to ----------- cooperate and diligently perform any further acts, deeds and things and to execute and deliver any documents that may from time to time be reasonably necessary or otherwise reasonably required to consummate, evidence, confirm and/or carry out the intent and provisions of this Agreement, all without undue delay or expense. (c) Interpretation. -------------- (i) Entire Agreement/No Collateral Representations. Each party ---------------------------------------------- expressly acknowledges and agrees that this Agreement, including all exhibits attached hereto: (1) is the final, complete and exclusive statement of the agreement of the parties with respect to the subject matter hereof; (2) supersedes any prior or contemporaneous agreements, promises, assurances, guarantees, representations, understandings, conduct, proposals, conditions, commitments, acts, course of dealing, warranties, interpretations or terms of any kind, oral or written (collectively and severally, the "Prior Agreements"), and that any such prior agreements are of no force or effect except as expressly set forth herein; and (3) may not be varied, supplemented or contradicted by evidence of Prior Agreements, or by evidence of subsequent oral agreements. Any agreement hereafter made shall be ineffective to modify, supplement or discharge the terms of this Agreement, in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement of the modification or supplement is sought. 4 (ii) Waiver. No breach of any agreement or provision herein ------ contained, or of any obligation under this Agreement, may be waived, nor shall any extension of time for performance of any obligations or acts be deemed an extension of time for performance of any other obligations or acts contained herein, except by written instrument signed by the party to be charged or as otherwise expressly authorized herein. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or a waiver or relinquishment of any other agreement or provision or right or power herein contained. (iii) Remedies Cumulative. The remedies of each party under this ------------------- Agreement are cumulative and shall not exclude any other remedies to which such party may be lawfully entitled. (iv) Severability. If any term or provision of this Agreement ------------ or the application thereof to any person or circumstance shall, to any extent, be determined to be invalid, illegal or unenforceable under present or future laws effective during the term of this Agreement, then and, in that event: (A) the performance of the offending term or provision (but only to the extent its application is invalid, illegal or unenforceable) shall be excused as if it had never been incorporated into this Agreement, and, in lieu of such excused provision, there shall be added a provision as similar in terms and amount to such excused provision as may be possible and be legal, valid and enforceable, and (B) the remaining part of this Agreement (including the application of the offending term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable) shall not be affected thereby and shall continue in full force and effect to the fullest extent provided by law. (v) No Third Party Beneficiary. Notwithstanding anything else -------------------------- herein to the contrary, the parties specifically disavow any desire or intention to create any third party beneficiary obligations, and specifically declare that no person or entity, other than as set forth in this Agreement, shall have any rights hereunder or any right of enforcement hereof. (vi) Headings; References; Incorporation; Gender. The headings ------------------------------------------- used in this Agreement are for convenience and reference purposes only, and shall not be used in construing or interpreting the scope or intent of this Agreement or any provision hereof. References to this Agreement shall include all amendments or renewals thereof. Any exhibit referenced in this Agreement shall be construed to be incorporated in this Agreement. As used in this Agreement, each gender shall be deemed to include the other gender, including neutral genders or genders appropriate for entities, if applicable, and the singular shall be deemed to include the plural, and vice versa, as the context requires. (d) Enforcement. ----------- (i) Applicable Law. This Agreement and the rights and remedies -------------- of each party arising out of or relating to this Agreement (including, without limitation, equitable remedies) shall be solely governed by, interpreted under, and construed and enforced in accordance with the laws (without regard to the conflicts of law principles thereof) of the State of California, as if this agreement were made, and as if its obligations are to be performed, wholly within the State of California. (ii) Consent to Jurisdiction; Service of Process. Any action or ------------------------------------------- proceeding arising out of or relating to this Agreement shall be filed in and heard and litigated solely before the state courts of California located within the County of Los Angeles. Each party generally and unconditionally accepts the exclusive jurisdiction of such courts and to venue therein, consents to the service of process in any 5 such action or proceeding by certified or registered mailing of the summons and complaint in accordance with the notice provisions of this Agreement, and waives any defense or right to object to venue in said courts based upon the doctrine of "Forum Non Conveniens". Each party irrevocably agrees to be bound by any judgement rendered thereby in connection with this Agreement. (iii) Waiver of Right to Jury Trial. Each party hereby waives ----------------------------- such party's respective right to a jury trial of any claim or cause of action based upon or arising out of this Agreement. Each party acknowledges that this waiver is a material inducement to each other party hereto to enter into the transaction contemplated hereby, that each other party has already relied upon this waiver in entering into this Agreement, and that each other party will continue to rely on this waiver in their future dealings. Each party warrants and represents that such party has reviewed this waiver with such party's legal counsel, and that such party has knowingly and voluntarily waived its jury trial rights following consultation with legal counsel. (iv) Attorneys' Fees and Costs. If any party institutes or ------------------------- should the parties otherwise become a party to any action or proceeding based upon or arising out of this Agreement including, without limitation, to enforce or interpret this Agreement or any provision hereof, or for damages by reason of any alleged breach of this Agreement, or for a declaration of rights in connection herewith, or for any other relief, including equitable relief, in connection herewith, the prevailing party in any such action or proceeding shall be entitled to receive from the non-prevailing party as a cost of suit all costs and expenses of prosecuting or defending the action or proceeding, including, without limitation, reasonable attorneys' fees. (e) No Assignment of Rights or Delegation of Duties by Employee. ----------------------------------------------------------- Employee's rights and benefits under this Agreement are personal to him and therefore (i) no such right or benefit shall be subject to voluntary or involuntary alienation, assignment or transfer; and (ii) Employee may not delegate his duties or obligations hereunder. (f) Notices. Unless otherwise specifically provided in this ------- Agreement, all notices, demands, requests, consents, approvals or other communications (collectively and severally called "Notices") required or permitted to be given hereunder, or which are given with respect to this Agreement, shall be in writing, and shall be given by: (A) personal delivery (which form of Notice shall be deemed to have been given upon delivery), (B) by telegraph or by private airborne/overnight delivery service (which forms of Notice shall be deemed to have been given upon confirmed delivery by the delivery agency), (C) by electronic or facsimile or telephonic transmission, provided the receiving party has a compatible device or confirms receipt thereof (which forms of Notice shall be deemed delivered upon confirmed transmission or confirmation of receipt), or (D) by mailing in the United States mail by registered or certified mail, return receipt requested, postage prepaid (which forms of Notice shall be deemed to have been given upon the fifth {5th} business day following the date mailed). Each party, and their respective counsel, hereby agree that if Notice is to be given hereunder by such party's counsel, such counsel may communicate directly with all principals, as required to comply with the foregoing notice provisions. Notices shall be addressed to the address hereinabove set forth in the introductory paragraph 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. (g) Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, and all of which together shall constitute one and the same instrument, binding 6 on all parties hereto. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto by having attached to it one or more additional signature pages. (h) Execution by All Parties Required to be Binding; Electronically --------------------------------------------------------------- Transmitted Documents. This Agreement shall not be construed to be an offer and - --------------------- shall have no force and effect until this Agreement is fully executed by all parties hereto. If a copy or counterpart of this Agreement is originally executed and such copy or counterpart is thereafter transmitted electronically by facsimile or similar device, such facsimile document shall for all purposes be treated as if manually signed by the party whose facsimile signature appears. IN WITNESS WHEREOF, the parties have executed this Agreement. Company: CIRCUIT TREE MEDICAL, INC. a California corporation By:___________________________________ Employee: ______________________________________ ALEX URICH 7 EXHIBIT "A" POSITION DESCRIPTION The Company's President will be responsible for the general supervision, direction, and control over the Company's business and its officers. In this regard, the President will submit for approval to the Board, prior to the first quarter of each year, the following reports for the year: (a) A capital budget in respect of each business entity of the Company (and as consolidated); (b) Target/sales budgets in respect of each business entity of the Company (and as consolidated); (c) Operating budgets in respect of each business entity of the Company (and as consolidated); (d) Product development schedule; (e) Cash flow statement; and (f) Consolidated pro-forma income statement. The foregoing list may be revised from time-to-time by the Board. In addition to the above, the President will be responsible for the following: (1) determine employee staffing needs; in conjunction with approval by the Board of Directors, hire or terminate management and executive employees and consultants and determine appropriate compensation levels; approve hiring and termination policies and compensation levels for rank and file employees; and conduct employee evaluations for those employees directly supervised by the President on a basis consistent with the Company's policies relating to such evaluations; (2) assume primary responsibility for overseeing the preparation of the Company's monthly, quarterly and yearly financial statements; (3) in conjunction with review and approval by the Board of Directors, assume primary responsibility for overseeing the marketing of the Company's products and for guiding the development of new products; (4) negotiate, review, approve and recommend for approval by the Board of Directors all material contracts necessary for the operation of the Company's business; (5) exercise oversight of the Company's general operations; and (6) develop and implement, with the approval of the Board of Directors, long-term business and fiscal planning for the Company. The foregoing list is not meant to be exhaustive. The President will also undertake any further responsibilities which must be discharged in order to assure the smooth-running of the Company's business 8 and shall also perform such other duties which may, from time to time, be prescribed by the Company through its Board. 9 EXHIBIT "3-B" CURTIS EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT ("Agreement"), which is dated as of December 3, 1999, is made by and between CIRCUIT TREE MEDICAL, INC., a California corporation, located at 23322 Madero Road, Suite F, Mission Viejo, California 92691 and hereinafter referred to as "Company", and MICHAEL CURTIS, whose address is 26421 Pebble Creek, Lake Forest, California 92630, hereinafter referred to as "Employee", based upon the following: RECITALS -------- WHEREAS, Company wishes to retain the services of Employee as its Vice-President and Employee wishes to render services to Company in that capacity; WHEREAS, Company and Employee wish to set forth in this Agreement the duties and responsibilities that Employee has agreed to undertake on behalf of Company; WHEREAS, Company and Employee intend that this Agreement will supersede and replace any and all other employment agreements or arrangements for employment entered into by and between Company and Employee and that, upon execution of this Agreement, any such employment agreements or arrangements shall have no further force or effect. THEREFORE, in consideration of the foregoing and of the mutual promises contained in this Agreement, Company and Employee (who are sometimes individually referred to as a "party" and collectively referred to as the "parties") agree as follows: AGREEMENT --------- 1. SPECIFIED PERIOD. ---------------- Company hereby employs Employee pursuant to the terms of this Agreement and Employee hereby accepts employment with Company pursuant to the terms of this Agreement for the period beginning on the execution date of this Agreement and ending on December 2, 2004 (the "Term"). 2. GENERAL DUTIES. -------------- Employee shall report to Company's Board of Directors (the "Board"). Employee shall devote his entire productive time, ability, and attention to Company's business during the term of this Agreement. In his capacity as Vice- President, Employee shall do and perform all services, acts, or things necessary or advisable to discharge his duties under this Agreement, including, but not limited to, those duties and responsibilities included in the Position Description attached to this Agreement as Exhibit "A" and made a part of it. Employee shall perform such other duties which may, from time to time, be prescribed by the Company through its Board. Furthermore, Employee agrees to cooperate with and work to the best of his ability with Company's management team, which includes the Board and the officers and other employees, to continually improve Company's reputation in its industry for quality products and performance. 1 3. COMPENSATION. ------------ (a) Salary. During the term of this Agreement, Company shall pay to ------ Employee a base salary of One Hundred Thousand Dollars ($100,000) per year. (b) Bonus. Employee and the Board shall meet no later than 90 days ----- from the start of Company's fiscal year to establish performance standards and goals to be met by Employee, which standards and goals shall be based upon earnings, cash flows, EBITDA and other objectives that are mutually agreed to by Employee and the Board. Company shall pay to Employee, no later than thirty (30) days after the completion of the fiscal year, a cash bonus (the "Annual Bonus") in an amount that shall not be less than Fifty Thousand Dollars ($50,000) for each year in which the performance standards and goals are met or exceeded by Employee. Nothing in this section shall prevent Employee and the Board from mutually agreeing to an alternative computation of the Annual Bonus, which may be implemented and paid to Employee in place of the Annual Bonus described herein. The Annual Bonus shall be subject to any applicable tax withholdings and/or employee deductions. (c) Employee Benefit Plans. Employee shall be entitled, during the ---------------------- specified period of this Agreement, to participate equally with other employees of a similar rank in any retirement, pension, profit-sharing, health insurance, or other plans which may now be in effect or which may be adopted by Company. The benefit plans shall be with such underwriters and shall contain such provisions as Company, in its sole discretion, may determine from time to time. Company may delete benefits and otherwise amend and change the type of benefits it provides in its sole discretion. During the Term, Company shall pay the cost of group health insurance coverage, through Company's group health insurer, for Employee, Employee's spouse, and Employee's children. 4. REIMBURSEMENT OF BUSINESS EXPENSES. ---------------------------------- (a) Reimbursement for Ordinary Expenses. Company shall promptly ----------------------------------- reimburse Employee for all reasonable business expenses incurred by Employee in connection with the business of Company. However, each such expenditure shall be reimbursable only if Employee furnishes to Company adequate records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing authorities for the substantiation of each such expenditure as an income tax deduction. (b) Reimbursement for Extraordinary Expenses. Any single business ---------------------------------------- expense with a cost in excess of Ten Thousand Dollars ($10,000) which is not included in Company's budget as approved by the Board shall be deemed to be an extraordinary business expense. Employee shall not incur any extraordinary business expense unless the expense has been approved by the Board. If Employee fails to obtain the approval of the Board, Company may refuse to reimburse Employee for that expense. (c) Automobile Allowance and Insurance. Company shall pay to Employee ---------------------------------- the sum of Five Hundred Dollars ($500) per month toward the cost of an automobile. Payment of the aforesaid allowance shall be subject to any applicable tax withholdings and/or employee deductions. Company shall also pay the costs of insuring Employee as the driver of the automobile through an insurer to be agreed upon by Employee and Company. Employee shall be responsible for all income taxes imposed by reason of the automobile allowance and insurance. 2 5. ANNUAL VACATION/SICK LEAVE. -------------------------- Employee shall be entitled to thirty (30) days of vacation time in addition to holiday time and sick leave in accordance with Company's general policy for its employees. 6. PERSONAL CONDUCT. ---------------- Employee agrees promptly and faithfully to comply with all present and future policies, requirements, directions, requests and rules and regulations of Company in connection with Company's business. Employee further agrees to conform to all laws and regulations and not at any time to commit any act or become involved in any situation or occurrence tending to bring Company into public scandal, ridicule or which will reflect unfavorably on the reputation of Company. 7. TERMINATION FOR CAUSE. --------------------- Company reserves the right to declare Employee in default of this Agreement if Employee willfully breaches or habitually neglects the duties which he is required to perform under the terms of this Agreement, or if Employee commits such acts of dishonesty, fraud, misrepresentation, gross negligence or willful misconduct as would prevent the effective performance of his duties or which results in material harm to Company or its business. Upon such termination the obligations of Employee and Company under this Agreement shall immediately cease. Such termination shall be without prejudice to any other remedy to which Company may be entitled either at law, in equity, or under this Agreement. If Employee's employment is terminated pursuant to this paragraph, Company shall pay to Employee, upon such termination or as soon thereafter as they may be computed, any amounts earned but unpaid up to the termination date pursuant to paragraph 3(a) and any declared by unpaid Annual Bonus. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. 8. TERMINATION WITHOUT CAUSE. ------------------------- (a) Death. Employee's employment shall terminate upon the death of ----- Employee. Upon such termination, the obligations of Employee and Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive any amounts earned but unpaid up to the termination date pursuant to paragraph 3(a) and any declared but unpaid Annual Bonus. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. (b) Disability. Company reserves the right to terminate Employee's ---------- employment upon ten (10) days written notice if, for a period of sixty (60) days, Employee is prevented from discharging his duties under this Agreement due to any physical or mental disability. With the exception of the covenants included in paragraph 3 above, upon such termination the obligations of Employee and Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive any amounts earned but unpaid up to the termination date pursuant to paragraph 3(a) and any declared but unpaid Annual Bonus. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. 3 (c) Election By Employee. Employee's employment may be terminated -------------------- at any time by Employee upon not less than one hundred eighty (180) days written notice by Employee. With the exception of the covenants included in paragraph 3 above, upon such termination the obligations of Employee and Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive any amounts earned but unpaid up to the termination date pursuant to paragraph 3(a) and any declared but unpaid Annual Bonus. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. (d) Election By Company. Company may terminate Employee's ------------------- employment upon not less than thirty (30) days written notice by Company to Employee. With the exception of the covenants included in paragraph 3 above, upon such termination the obligations of Employee and Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive (i) any amounts earned but unpaid up to the termination date pursuant to paragraph 3(a) and any declared but unpaid Annual Bonus, and (ii) compensation equal to the balance of the Employee's unpaid base salary only (as set forth in paragraph 3(a)) through the expiration date of the term, payable in accordance with Company's payroll procedures as if Employee's employment by Company had continued until the expiration of the term. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. 9. MISCELLANEOUS. ------------- (a) Preparation of Agreement. It is acknowledged by each party that ------------------------ such party either had separate and independent advice of counsel or the opportunity to avail itself or himself of same. In light of these facts it is acknowledged that no party shall be construed to be solely responsible for the drafting hereof, and therefore any ambiguity shall not be construed against any party as the alleged draftsman of this Agreement. (b) Cooperation. Each party agrees, without further consideration, ----------- to cooperate and diligently perform any further acts, deeds and things and to execute and deliver any documents that may from time to time be reasonably necessary or otherwise reasonably required to consummate, evidence, confirm and/or carry out the intent and provisions of this Agreement, all without undue delay or expense. (c) Interpretation. -------------- (i) Entire Agreement/No Collateral Representations. Each party ---------------------------------------------- expressly acknowledges and agrees that this Agreement, including all exhibits attached hereto: (1) is the final, complete and exclusive statement of the agreement of the parties with respect to the subject matter hereof; (2) supersedes any prior or contemporaneous agreements, promises, assurances, guarantees, representations, understandings, conduct, proposals, conditions, commitments, acts, course of dealing, warranties, interpretations or terms of any kind, oral or written (collectively and severally, the "Prior Agreements"), and that any such prior agreements are of no force or effect except as expressly set forth herein; and (3) may not be varied, supplemented or contradicted by evidence of Prior Agreements, or by evidence of subsequent oral agreements. Any agreement hereafter made shall be ineffective to modify, supplement or discharge the terms of this Agreement, in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement of the modification or supplement is sought. 4 (ii) Waiver. No breach of any agreement or provision herein ------ any obligation under this Agreement, may be waived, nor shall any extension of time for performance of any obligations or acts be deemed an extension of time for performance of any other obligations or acts contained herein, except by written instrument signed by the party to be charged or as otherwise expressly authorized herein. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or a waiver or relinquishment of any other agreement or provision or right or power herein contained. (iii) Remedies Cumulative. The remedies of each party under ------------------- this Agreement are cumulative and shall not exclude any other remedies to which such party may be lawfully entitled. (iv) Severability. If any term or provision of this Agreement ------------ or the application thereof to any person or circumstance shall, to any extent, be determined to be invalid, illegal or unenforceable under present or future laws effective during the term of this Agreement, then and, in that event: (A) the performance of the offending term or provision (but only to the extent its application is invalid, illegal or unenforceable) shall be excused as if it had never been incorporated into this Agreement, and, in lieu of such excused provision, there shall be added a provision as similar in terms and amount to such excused provision as may be possible and be legal, valid and enforceable, and (B) the remaining part of this Agreement (including the application of the offending term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable) shall not be affected thereby and shall continue in full force and effect to the fullest extent provided by law. (v) No Third Party Beneficiary. Notwithstanding anything else -------------------------- herein to the contrary, the parties specifically disavow any desire or intention to create any third party beneficiary obligations, and specifically declare that no person or entity, other than as set forth in this Agreement, shall have any rights hereunder or any right of enforcement hereof. (vi) Headings; References; Incorporation; Gender. The ------------------------------------------- headings used in this Agreement are for convenience and reference purposes only, and shall not be used in construing or interpreting the scope or intent of this Agreement or any provision hereof. References to this Agreement shall include all amendments or renewals thereof. Any exhibit referenced in this Agreement shall be construed to be incorporated in this Agreement. As used in this Agreement, each gender shall be deemed to include the other gender, including neutral genders or genders appropriate for entities, if applicable, and the singular shall be deemed to include the plural, and vice versa, as the context requires. (d) Enforcement. ----------- (i) Applicable Law. This Agreement and the rights and remedies -------------- of each party arising out of or relating to this Agreement (including, without limitation, equitable remedies) shall be solely governed by, interpreted under, and construed and enforced in accordance with the laws (without regard to the conflicts of law principles thereof) of the State of California, as if this agreement were made, and as if its obligations are to be performed, wholly within the State of California. (ii) Consent to Jurisdiction; Service of Process. Any action or ------------------------------------------- proceeding arising out of or relating to this Agreement shall be filed in and heard and litigated solely before the state courts of California located within the County of Los Angeles. Each party generally and unconditionally accepts the exclusive jurisdiction of such courts and to venue therein, consents to the service of process in any 5 such action or proceeding by certified or registered mailing of the summons and complaint in accordance with the notice provisions of this Agreement, and waives any defense or right to object to venue in said courts based upon the doctrine of "Forum Non Conveniens". Each party irrevocably agrees to be bound by any judgement rendered thereby in connection with this Agreement. (iii) Waiver of Right to Jury Trial. Each party hereby waives ----------------------------- such party's respective right to a jury trial of any claim or cause of action based upon or arising out of this Agreement. Each party acknowledges that this waiver is a material inducement to each other party hereto to enter into the transaction contemplated hereby, that each other party has already relied upon this waiver in entering into this Agreement, and that each other party will continue to rely on this waiver in their future dealings. Each party warrants and represents that such party has reviewed this waiver with such party's legal counsel, and that such party has knowingly and voluntarily waived its jury trial rights following consultation with legal counsel. (iv) Attorneys' Fees and Costs. If any party institutes or ------------------------- should the parties otherwise become a party to any action or proceeding based upon or arising out of this Agreement including, without limitation, to enforce or interpret this Agreement or any provision hereof, or for damages by reason of any alleged breach of this Agreement, or for a declaration of rights in connection herewith, or for any other relief, including equitable relief, in connection herewith, the prevailing party in any such action or proceeding shall be entitled to receive from the non-prevailing party as a cost of suit all costs and expenses of prosecuting or defending the action or proceeding, including, without limitation, reasonable attorneys' fees. (e) No Assignment of Rights or Delegation of Duties by Employee. ----------------------------------------------------------- Employee's rights and benefits under this Agreement are personal to him and therefore (i) no such right or benefit shall be subject to voluntary or involuntary alienation, assignment or transfer; and (ii) Employee may not delegate his duties or obligations hereunder. (f) Notices. Unless otherwise specifically provided in this ------- Agreement, all notices, demands, requests, consents, approvals or other communications (collectively and severally called "Notices") required or permitted to be given hereunder, or which are given with respect to this Agreement, shall be in writing, and shall be given by: (A) personal delivery (which form of Notice shall be deemed to have been given upon delivery), (B) by telegraph or by private airborne/overnight delivery service (which forms of Notice shall be deemed to have been given upon confirmed delivery by the delivery agency), (C) by electronic or facsimile or telephonic transmission, provided the receiving party has a compatible device or confirms receipt thereof (which forms of Notice shall be deemed delivered upon confirmed transmission or confirmation of receipt), or (D) by mailing in the United States mail by registered or certified mail, return receipt requested, postage prepaid (which forms of Notice shall be deemed to have been given upon the fifth {5th} business day following the date mailed). Each party, and their respective counsel, hereby agree that if Notice is to be given hereunder by such party's counsel, such counsel may communicate directly with all principals, as required to comply with the foregoing notice provisions. Notices shall be addressed to the address hereinabove set forth in the introductory paragraph 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. (g) Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, and all of which together shall constitute one and the same instrument, binding 6 on all parties hereto. Any signature page of this Agreement may be detached from any counterpart of this Agreement and reattached to any other counterpart of this Agreement identical in form hereto by having attached to it one or more additional signature pages. (h) Execution by All Parties Required to be Binding; Electronically --------------------------------------------------------------- Transmitted Documents. This Agreement shall not be construed to be an offer - --------------------- and shall have no force and effect until this Agreement is fully executed by all parties hereto. If a copy or counterpart of this Agreement is originally executed and such copy or counterpart is thereafter transmitted electronically by facsimile or similar device, such facsimile document shall for all purposes be treated as if manually signed by the party whose facsimile signature appears. IN WITNESS WHEREOF, the parties have executed this Agreement. Company: CIRCUIT TREE MEDICAL, INC. a California corporation By:______________________________ Employee: _________________________________ MICHAEL CURTIS 7 EXHIBIT "A" POSITION DESCRIPTION The Company's Vice-President will be responsible, in conjunction with the Company's President, for the general supervision, direction, and control over the Company's business and its officers. In this regard, the Vice-President will assist the President with the preparation of the following for submission to the Board: (a) A capital budget in respect of each business entity of the Company (and as consolidated); (b) Target/sales budgets in respect of each business entity of the Company (and as consolidated); (c) Operating budgets in respect of each business entity of the Company (and as consolidated); (d) Product development schedule; (e) Cash flow statement; and (f) Consolidated pro-forma income statement. The foregoing list may be revised from time-to-time by the Board. In addition to the above, the Vice-President, along with the President, will be responsible for the following: (1) determine employee staffing needs; in conjunction with approval by the Board of Directors, hire or terminate management and executive employees and consultants and determine appropriate compensation levels; approve hiring and termination policies and compensation levels for rank and file employees; and conduct employee evaluations for those employees directly supervised by the President on a basis consistent with the Company's policies relating to such evaluations; (2) assume primary responsibility for overseeing the preparation of the Company's monthly, quarterly and yearly financial statements; (3) in conjunction with review and approval by the Board of Directors, assume primary responsibility for overseeing the marketing of the Company's products and for guiding the development of new products; (4) negotiate, review, approve and recommend for approval by the Board of Directors all material contracts necessary for the operation of the Company's business; (5) exercise oversight of the Company's general operations; and (6) develop and implement, with the approval of the Board of Directors, long-term business and fiscal planning for the Company. The foregoing list is not meant to be exhaustive. 8 [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.3. CAPITAL STOCK OF THE COMPANY Alex urich 500 Shares 27402 Via Caudaloso Mission Viejo, CA 92691 Michael Curtis 500 Shares 26421 Pebble Creek Lake Forest, CA 92630 [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.4. NON-CONTRAVENTION [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.5 FINANCIAL STATEMENTS Balance Sheet attached hereto and made a part hereof. CIRCUIT TREE MEDICAL, INC. BALANCE SHEET AS OF DECEMBER 31, 1998 Dec. 31, '98 ---------------- ASSETS Current Assets Checking/Savings WF CHECKING -19,220.69 WF MARKET RATE 2,002.82 WF Business Line -106.66 BA Checking 3,103.97 ---------------- Total Checking/Savings -14,220.56 Accounts Receivable Accounts Receivable 125,089.99 ---------------- Total Accounts Receivable 125,089.99 Other Current Assets Petty Cash 55.81 Inventory Asset -22,863.60 Undeposited Funds 7,000.00 ---------------- Total Other Current Assets -15,807.79 ---------------- Total Current Assets 95,061.64 Fixed Assets Fixed Assets 12,553.99 ---------------- Total Fixed Assets 12,553.99 ---------------- TOTAL ASSETS 107,615.63 ================ LIABILITIES & EQUITY Liabilities Current Liabilities Accounts Payable Accounts Payable 62,429.88 ---------------- Total Accounts Payable 62,429.88 Credit Cards WELLS FARGO BANK AU 142.14 WELLS FARGO BANK MC 1,372.74 ---------------- Total Credit Cards 1,514.88 Other Current Liabilities Loan Payable-Urich 278.50 Payroll Liabilities Federal Withholding 1,558.43 FICA -2,837.87 Medicare -2,318.42 SDI -2,746.66 State Withholding 2,938.68 -------------- Page 1 CIRCUIT TREE MEDICAL, INC. BALANCE SHEET AS OF DECEMBER 31, 1998 Dec. 31, '98 -------------- Total Payroll Liabilities -3,405.84 Sales Tax Payable 302.18 -------------- Total Other Current Liabilities -2,825.16 -------------- Total Current Liabilities 61,119.60 Long Term Liabilities Loan Payable -623.00 -------------- Total Long Term Liabilities -623.00 -------------- Total Liabilities 60,496.60 Equity Opening Bal Equity -954.07 Retained Earnings 66,222.57 Net Income -19,636.16 Shareholder's Equity 1,486.69 -------------- Total Equity 47,119.03 -------------- TOTAL LIABILITIES & EQUITY 107,615.63 ============== Page 2 [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.6. OPERATION SINCE BALANCE SHEET [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.7. NO UNDISCLOSED LIABILITIES, WORKING CAPITAL [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.8. TAXES All Tax Returns have been filed on a timely matter, except for the exception of filing extensions. Tax Returns for 1998 have been filed; there was an extension request for October 15, which was met. Circuit Tree Medical, Inc. shows an overpayment and has been requested by our tax accountant Dale R. Howe PH: (949) 830-9110 to be carried over and applied to our 1999 estimated tax payment. All Tax Returns have been filed. [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.9. AVAILABILITY OF ASSETS AND LEGALITY OF USE The assets owned or leased by Circuit Tree Medical, Inc., is entitled to use under license or other agreements used by the company are in good condition (subject to normal wear and tear) and serviceable condition are suitable for the uses for which they are intended. All such assets and their uses conform to all applicable laws, regulations, rules, ordinances, codes, licenses, franchises and permits. No written notice of any existing violation of any such matters relating to such assets or their use has been received by Circuit Tree Medical, Inc. [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.10. GOVERNMENTAL PERMITS Any necessary Governmental Permits have been filed to do business and/or sell products: 1. FDA Device Establishment Registration No. 2030501 2. Federal Tax I.D. No. 33-0627633 3. Seller Permit No. SREAA99643166 4. 510K(s) for: The Wave Digital Phaco System No. K981989 Phacoemuisifier No. K954242 Reusable Tubing Pak No. K962430 Phaco Handpiece No. K954237 Disposable Tubing Pak No. K962431 [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.11. REAL PROPERTY [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.12. REAL PROPERTY LEASES Circuit Tree Medical, Inc. has Real Property Lease with Davis Partners Incorporated, the Landlord being Mission Viejo Association. The term of the lease is through August 31, 2000, monthly payments are $1,676.16 payable the first of each month to Mission Viejo Association at 1420 Bristol Street North, Suite 100, Newport Beach, CA Ph: (714)752-2066. The premises is located at 23322 Madero Road, Suite F, Mission Viejo, CA 92691 with an approximate rentable square footage of 1,728. [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.14. PERSONAL PROPERTY Michael Curtis: Mercedes Benz 1997 - residual value of $21,000.00 at the termination of the lease April 2000. Alex Urich Jeep-Cherokee 1997 - residual value of $19,000.00 at the termination of the lease March 2000. [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.15. PERSONAL PROPERTY LEASES Michael Curtis Mercedes Benz Corporation PH: 800-654-6222 Account No. 01-100-96921-01-19001 Monthly Payment $499.01 Lease Expires - April 2000 Alex Urich Gold Lease Inc. PH: 800-677-1534 Account No. 7182633 Monthly Payment $372.66 Expiration of Lease - April 2000 [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.16. INTELLECTUAL PROPERTY Patents are attached hereto and made a part hereof: Trademarks - CLEO 2000 U.S. Trademark Application No. 75/757, 105 Circuit Tree Medical, Inc. is Y2K complaint.
CIRCUIT TREE MEDICAL, INC. PATENT STATUS REPORT TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Non-Invasive 02376.P001 Gheorghe 08/540,501 5,716,342 3.5 Maintenance Fee due Pressure Sensor Dumbraveanu, Alex 8/10/2001 CLIENT'S Urich, Michael FILING DATE ISSUE DATE FILE NUMBER Curtis 10/10/95 02/10/98 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------ TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Ultrasonic tip and a 02376.P002 Barry S. Seibel, 08/631.007 5,836,959 3.5 Maintenance Fee due method for Alex Urich 05/17/2002. __erocular surgery CLIENT'S FILING DATE ISSUE DATE FILE NUMBER 4/12/96 11/17/98 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------ TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Disposable Surgical 02376.P003 Alex Urich 08/819,301 5,879,363 3.5 Maintenance Fee due Ultrasonic 9/9/2002. _________ CLIENT'S FILING DATE ISSUE DATE FILE NUMBER 03/18/97 03/09/99 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------
1
CIRCUIT TREE MEDICAL, INC. PATENT STATUS REPORT TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Vacuum Controlled 02376.P004 Alex Urich; 09/097.099 Response to Office Action Surgical Ultrasound Michael Curtis due 9/4/99. CLIENT'S FILING DATE ISSUE DATE FILE NUMBER 06/12/98 COUNTRY ACTION ITEM [ ] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------ TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Vacuum Controlled a 02376.P004X Alex Urich; 09/372,476 Awaiting response from Surgical Ultrasound Michael Curtis U.S. Patent and Trademark CLIENT'S FILING DATE ISSUE DATE Office. FILE NUMBER 08/11/99 COUNTRY ACTION ITEM [X] NO [ ] YES BJY - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Vacuum Controlled a 02376.P004Z Alex Urich; 60/084,852 Awaiting response from Surgical Ultrasound Michael Curtis U.S. Patent and Trademark CLIENT'S FILING DATE ISSUE DATE Office. FILE NUMBER 05/08/98 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------
2
CIRCUIT TREE MEDICAL, INC. PATENT STATUS REPORT TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Venting Apparatus 02376.P005 09/351,066 Awaiting response from for Eye Surgery U.S. Patent and Trademark CLIENT'S FILING DATE ISSUE DATE Office FILE NUMBER 07/09/99 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------ TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Venting Apparatus 02376.P005Z Alex Urich; 60/092,676 Awaiting response from for Eye Surgery Michael Curtis U.S. Patent and Trademark CLIENT'S FILING DATE ISSUE DATE Office FILE NUMBER 07/13/98 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------ TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- _______ Incision 02376.P006 Alex Urich; 09/369,059 Awaiting response from Temperature Sensing Michael Curtis U.S. Patent and Trademark CLIENT'S FILING DATE ISSUE DATE Office FILE NUMBER 08/04/99 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------
3
CIRCUIT TREE MEDICAL, INC. PATENT STATUS REPORT TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Eye Incision 02376.P006Z Alex Urich; 60/095,274 Awaiting response from Temperature Sensing Michael Urich U.S. Patent and Trademark Device CLIENT'S FILING DATE ISSUE DATE Office FILE NUMBER 08/04/98 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------ TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Eye Incision 02376.P007 09/186,993 Awaiting response from Temperature U.S. Patent and Trademark Protecting Sleeve CLIENT'S FILING DATE ISSUE DATE Office FILE NUMBER 11/05/98 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------ TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Eye Incision 02376.P007Z 60/095,373 Awaiting response from Temperature U.S. Patent and Trademark Protecting Sleeve CLIENT'S FILING DATE ISSUE DATE Office FILE NUMBER 08/05/98 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------
4
CIRCUIT TREE MEDICAL, INC. PATENT STATUS REPORT TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Ultrasonic Shredder 02376.P008Z Alex Urich; 60/121,216 Awaiting response from on Surgical U.S. Patent and Trademark Applications CLIENT'S FILING DATE ISSUE DATE Office FILE NUMBER 02/22/99 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------ TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- _______ Tip-Cap 02376.P009Z Alex Urich; 60/121,215 Awaiting response from Sleeve With Cooling U.S. Patent and Trademark Orifice CLIENT'S FILING DATE ISSUE DATE Office FILE NUMBER 02/22/99 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------ TITLE DOCKET NUMBER INVENTORS APPLICATION NUMBER PATENT NUMBER REMARKS - ----- ------------- --------- ------------------ ------------- ------- Surgical Ultrasonic 02376.P010Z 60/155,669 Awaiting response from Transducer U.S. Patent and Trademark CLIENT'S FILING DATE ISSUE DATE Office FILE NUMBER 09/22/99 COUNTRY ACTION ITEM [X] NO [ ] YES USA - ------------------------------------------------------------------------------------------------------------------------------------
5 [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.17. Accounts Receivable, Inventories There are no accounts past 90 days and the terms stated per 3.17 of Article III are true. [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.18 Title to Assets [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.19. EMPLOYEES Yearly Bonus and Christmas Bonus for all employees each year based on Customer sales. Circuit Tree Medical, Inc. closes for two weeks Christmas vacation. Stephanie Stanistreet-monthly salary of $3,775.28 salary increase 5% Minimum beginning each year and bonus. PPO Insurance, Two Dental Exams With 30% coverage of all work and One Eye Exam each year. Ten(10) Sick Days and Five (5) Personal Days each year. Paid Vacation Time: Twenty (20) Days-Two Weeks taken at will, Two Weeks for Christmas Vacation. Gheorghe Dumbraveanu-monthly salary $2,520.00 salary increase 10% minimum beginning each year and bonus. HMO Medical Insurance. Seven (7) sick days, Five (5) personal days, Twenty (20) paid vacation days. Derek Albert-an hourly rate of $11.00, salary increase and bonus based on Performance and customer demand. HMO Medical Insurance. Seven (7) sick Days and Two (2) personal days, Two weeks paid vacation. Jim Jacobson-an hourly rate of $9.00 salary increase based on performance And customer demand. Employee Contracts on record. [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHARE HOLDERS SCHEDULE 3.20. Employees Matters [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.21. EMPLOYEE BENEFITS PLANS [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.22 Contracts (G) any consignment is not applicable, all business distributors are handled through purchase orders generated by the distributor. (1) We have confidentiality agreements with the following persons: Gheorghe Dumbraveanu-Employee Derek Albert-Employee Daniel Matew-Consultant Things To See-Distributor Alcon-Customer Shenyang Silver Sea Eye Center-Distributor Micro Surgical Technologie-Licensee (K) Staar Surgical [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.23 Status of Contracts In reference to Schedules 3.12, 3.15, 3.21 and 3.22 Circuit Tree Medical, Inc. is not in Breach, default and/or will not expire prior to closing date. [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.24. No Violation, Litigation or Regulatory Action [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.25. Insurance All Insurance Companies have remained the same since January 1.1995: The below policies are Paid to date and will continue to remain the same prior to close date. Aylor Insurance Agency, Inc. PH:(800)668-3445 Account No. 1441308-98 Workers Compensation Fund Total Annual Premium $1,966.00 Aylor Insurance Agency, Inc. PH:(800)244-2043 Account NO. CALH812426 Commercial Insurance Policy-Total Premium Policy $914.00 per year. Liability Form Coverage: ($221.00) General Aggregate Limit $2,000,000 Products-Completed Operations Aggregate Limit $2,000,000 Personal And Advertising injury limit $1,000,000 Each Occurrence Limit $1,000,000 Fire Damage Limit (any One Fire) $ 100,000 Medical Expense Limit (any one Person) $ 5,000 Property Form:($693.00) Personal Property: Limit of Insurance $25,000.00 Deductible 500.00 Valuation Replacement Cost Theft Deductible 500.00 Personal Property of Others Limit of Insurance $10,000.00 Deductible 500.00 Valuation Actual Cash Value Theft Deductible 500.00 Business Income Including Rental Limit of Insurance $20,000.00 No Waiting Period Signs: Limit of Insurance $10,000.00 Deductible 500.00 Electronic Data Processing: Limit of Insurance $10,000.00 Deductible 500.00 [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS MEDICAL INSURANCE Blue Cross of California Medical Insurance for employees: (Total Monthly Premium) Alex Urich and Family-PPO $566.00 Michael Curtis and Spouse ~ PPO #531.00 Stephanie Stanistreet ~ PPO $148.00 Gheorghe Dumbraveanu ~ HMO $163.00 Kaiser Permanent Medical insurance: Derek Albert $101.00 per month Car Insurance: Michael Curtis: Farmers Insurance Exchange PH:(714)637-1712 Policy No 97-10635-25-43 $1,100.00 per Year covers 1997 Mercedes Benaz Model No. 220 c/230 c Alex Urich Automobile Club of Southern California Policy No. G6362680 $1,037.00 per year. Covers 1997 Jeep Cherokee [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.27. Customers and Suppliers Customers: December 1997: Chiron Vision $174,676.31 ~ 651 Wharton Drive, Claremont, CA Surgin, Inc. $109,900.00 ~ 14762 Bentley Circle, Tustin, CA Sterilab $94,000.00 ~ 12720 Broken Saddle Road, Knoxville, TN Premier Laser $75,000 ~ 3 Morgan, Irvine, CA M. Imonti and Assoc. $45,000.00 25707 Compass Way, San Juan Capistrano, CA Irvine Biomedical Inc. $44,000.00 ~ 2146 Michelson Drive, Suit A, Irvine ,CA Shenyang Silver Sea Eye Center $35,500.00 ~ Huanghe Bei Da Street 128, Shenyang China Young Power $29,0000.00 ~ 332 S. Pomelo Avenue D, Monterey Park, CA Roson $19,000.00 ~ 2841 Satum, Suite K, Brea, CA December 1998: Staar Surgical $193,000.00 Chiron Vision $131,000.00 Surgin, Inc. $97,000.00 Shenyang Silver Sea Eye Center $79,000.00 MPB Enterprises $79,000.00 2705 Billys Road, Minen, NV Premier Laser $67,000.00 Irvine Biomedical $60,000.00 Scieran Technologies $43,000.00 ~ 27071 Cabot Rd. #127, Laguna Hills, CA M. Imonti&Assoc. $ 26,000.00 Young Power $22,000.00 Suppliers: December 1997 and 1998 Harry Kosalos $14,000.00/20,000.00 ~ 225511 Rimini, Laguna Hills, CA Laguna Machine $20,000.00/30,000.00 ~ 23121 La Cadena Drive, Laguna Hills, CA Linemaster $12,000.00/23,000.00 ~ 29 Palm Hill Rd., Woodstock, CT Benevente $10,000.00/14,000.00 ~ 3112 S. Halladay, Santa Ana, CA Allied Electronics $10,000.00/10,000.00 ~ P.O. Box 2325, Forth Worth TX Eastern Air Devices $10,000.00/14,000.00 ~ P.O. Box 4653, Boston, MA Schroff $11,000.00/9,200.00 ~ P.O. Box 861, Minneapolis, MN Newark Electronics $26,000.00/35,000.00 P.O. Box 94151, Palatine, IL Pacific Transformer $13,000.00/20,000.00 ~ 5399 E. Hunter Avenue Anaheim, CA Pro Tech $30,000.00/27,0000.00 ~ Mt. Wynne Circle, Fountain Valley, CA - -------------------------------------------------------------------------------- PURCHASE ORDER P.O. NUMBER - -------------------------------------------------------------------------------- TO: DATE: ---------------------------------------- DATE REQUIRED: ---------------------------------------- TERMS: NET 30 ---------------------------------------- SHIP VIA: ---------------------------------------- F.O.B. ---------------------------------------- SHIP TO: BILL TO: PHONE: Circuit Tree Medical, Inc. FAX: 23322 Madero Road, Suit F Mission Viejo, CA 92961: ATTN: - ---------------------------------------- PH: 949/454-2208 Fax: 949/454-1607 PAGE ONE OF ONE ATTN: Stephanie Stanistreet - ---------------------------------------- - ---------------------------------------- - -------------------------------------------------------------------------------- ITEM QTY. UNIT PLEASE SUPPLY ITEMS BELOW UNIT PRICE AMOUNT - -------------------------------------------------------------------------------- [SAMPLE SCHEDULE 3.27 PURCHASE ORDER] - -------------------------------------------------------------------------------- IMPORTANT |Please send 2 copies of your invoice. --------- |===================================== * This Purchase Order Number must | appear on all invoices, | acknowledgments, bills of lading, | /s/ M. Curtis correspendence and shipping labels. | ** Please notify us if you are unable to | ship complete order by date |------------------------------------- specified. Authorized Signature | Authorized Signature - -------------------------------------------------------------------------------- [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 3.30 Transaction with Affiliates [LETTERHEAD OF CIRCUIT TREE] ARTICLE III REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS SCHEDULE 4.2 NON-CONTRAVENTION, REQUIRED CONSENTS EX-10.45 5 LICENSE & SUPPLY AGREEMENT EXHIBIT 10.45 LICENSE & SUPPLY AGREEMENT THIS LICENSE AND SUPPLY AGREEMENT (the "Agreement"), dated this 6 day of May, 1999 (the "Effective Date"), is entered into by and between STAAR Surgical Company, a Delaware corporation and its wholly-owned subsidiary STAAR Surgical AG, a Swiss corporation (jointly "STAAR"), Lenstec, Incorporated, a Florida corporation and Lenstec Barbados Inc., a corporation existing under the laws of Barbados (jointly "Lenstec"). RECITALS A. Lenstec is the developer and manufacturer of a three-piece intraocular lens used in ophthalmic surgery, the haptics of which are made from polyimide, and the optic of which is a HEMA/Acrylic copolymer, the current Lenstec Model #LH3000 (the "Product"); B. STAAR desires to obtain the right to license and purchase finished Product directly from Lenstec for re-sale pursuant to the terms of this Agreement; and NOW, THEREFORE, in consideration of the mutual promises above and the agreements contained herein, the parties hereby agree as follows: AGREEMENT ARTICLE 1 EXCLUSIVE PRODUCT 1.1 License of Product. Lenstec agrees to license to STAAR on a ------------------- semi-exclusive basis, as set forth below, the Product for re-sale, and to manufacture and supply the Product for STAAR, on the terms set forth in this Agreement. Lenstec, pursuant to an existing agreement with Santen Pharmaceutical Co., Ltd., a Japanese corporation ("Santen") is obligated to offer to Santen for sale under Santen's proprietary brand, any product produced by Lenstec. Lenstec agrees to sell the Product only to STAAR, its affiliates and Santen during the term of this Agreement. Lenstec agrees that during the term of this agreement it will not sell a three piece Hema/Acrylic copolymer lens with haptics made from any suitable material to anyone other than the parties named herein in the respective territories named in paragraph 1.2 and 1.5. 1.2 Limitations. STAAR or its affiliated entities may not sell the ------------ Product in Japan. 1.3 Private Labeling. STAAR shall have the rights to have the Product ---------------- private labeled for STAAR with STAAR's labels and brand names. 1.4 Intellectual Property/License. By executing this Agreement, Lenstec ------------------------------ transfers to STAAR for use during the Effective Period, an exclusive, non-royalty bearing license to use any trademarks, trade names, copyrights, logos, service marks and symbols it owns which are derived from, associated with, or used with the Product. 1.5 Waiver of Distribution Rights by Santen. Prior to executing this --------------------------------------- Agreement, Lenstec will obtain from Santen, for the benefit of STAAR, a waivier of Santen's distribution rights to the Product, except as such rights relate to Japan and an agreement from Santen that STAAR and Santen shall have identical rights to distribute the Product in the Philipines, Malaysia, Singapore, Thailand, Korea, China, Tiawan, Vietnam and Indonesia. ARTICLE 2 TERM AND TERMINATION 2.1 Term. This Agreement shall remain in effect for a period of two ---- (2) years from the later of (i) the date that it is executed by STAAR and Lenstec, (the "Effective Period"). STAAR shall be entitled to extend the term of this Agreement for an additional period of one (1) year by giving notice of such election to Lenstec at least ninety (90) days prior to the expiration of the Effective Period. If STAAR extends the term of this Agreement for an additional one (1) year period (the "Extension Period"), then the Effective Period shall include both the initial term and the extended term. Upon the expiration of the Extension Period, this Agreement shall continue in full force and effect until such time as either party gives the other party ninety (90) days written notice of its intention to terminate this Agreement. ARTICLE 3 SUPPLY OF PRODUCT 3.1 Supply Obligation. Subject to the terms and conditions of this ----------------- Agreement, STAAR shall have the right to purchase the Product from Lenstec for marketing in all countries of the world with the exception of Japan. Lenstec agrees to manufacture and supply the Product for STAAR under the terms and conditions of this Agreement. Lenstec agrees that it will not sell other foldable lenses to any of STAAR's current distributors. 3.2 Contract Manufacture. Lenstec agrees to produce the Product -------------------- according to the Manufacturing Specifications and Requirements set forth in Appendix A to this Agreement. The Product shall be manufactured, packaged and sterilized by Lenstec in its Barbados production facility. 3.3 Forecast. Within fifteen (15) days from the first day of the -------- Effective Period, STAAR shall provide to Lenstec an annual forecast and a three (3) month projection ("Quarterly Forecast") of its purchase requirements for Product. Thereafter, at least five (5) days prior to the start of each three (3) month period, STAAR shall provide to Lenstec the Quarterly Forecast of its purchase requirements for the next quarter. 3.4 Orders. STAAR shall submit a purchase order ("Order") for the ------ Product on the 1st day of each month and Lenstec shall ship the Product to STAAR within thirty (30) days from receipt of the purchase order. Actual Orders for each three (3) month period may vary from STAAR's Quarterly Forecast for the period by no more 30%. All of STAAR's Orders for the Product shall be acknowledged by Lenstec by a faxed acknowledgment. In no event shall any acknowledgment or shipping document have the effect of varying, altering or modifying the terms and provisions of this Agreement. If there is any conflict between the acknowledgment and the terms of this Agreement, the terms of this Agreement shall prevail. 3.5 Order Quantities. During the initial six (6) months of the ---------------- Effective Period, Lenstec shall not be obligated to deliver more than 6,000 units of Product in any single month. Following the initial six months of the Effective Period, Lenstec shall not be obligated to deliver more than 10,000 units of Product in any single month, unless notified by STAAR at least sixty (60) days in advance. In no case shall Lenstec be obligated to deliver more than 15,000 units of Product during any one-month period. 3.6 Shipment Instruments. All Products supplied pursuant to this -------------------- Agreement will be delivered FOB Lenstec's production facility in Barbados. Lenstec will ship finished Product pursuant to STAAR's written instructions. All customs, duties, costs, taxes, insurance premiums and other expenses relating to transportation and shipment of Product shall be at STAAR's expense. 2 3.7 Certificate of Compliance. All deliveries of the Product shall be ------------------------- accompanied by a certificate which states that the Product meets the manufacturing and quality control release specifications which are jointly agreed to by STAAR and Lenstec (the "Specifications"), which Specifications are set forth on Exhibit "A" to this Agreement and made a part of it. 3.8 Breach. Failure by Lenstec to supply STAAR with the Product ------ ordered according to the terms of this Agreement (other than as a result of force majeure, as set forth in Section 9.12) shall be considered a material breach of this Agreement. Failure by STAAR to provide sufficient Orders to meet its purchase obligations under this Agreement shall be remedied as set forth in Section 4.5. ARTICLE 4 PRICE AND PAYMENTS 4.1 Pre-paid Purchase Deposit. Within five (5) days from the first day ------------------------- of the Effective Period, STAAR shall pay to Lenstec the sum of one hundred thousand U.S. dollars (U.S. $100,000). 4.2 Price of Product. Subject to the terms and conditions of this ---------------- Agreement, STAAR shall, during the first year of the Effective Period, purchase no less than sixty-five thousand (65,000) units of the Product at a price of forty-five U.S. dollars (U.S.$45) per unit. During the second year of the Effective Period, STAAR shall purchase annually no less than ninety thousand (90,000) units of the Product at a price of forty U.S. dollars (U.S. $40.00) per unit (unless the parties agree to another price.) If STAAR extends the terms of this Agreement pursuant to section 2.1 above, then STAAR and Lenstec shall negotiate in good faith to agree on the number of units of Product to be purchased by STAAR and on the price of the Product to be charged by Lenstec, provided, however, that during the Extension Period, STAAR shall purchase no less than ninety thousand (90,000) units of the Product annually from Lenstec and the price per unit charged by Lenstec shall not exceed, but may be less than, forty U.S. dollars (U.S. $40). 4.3 Payment Terms. One-half of the amount due for each Order shall be ------------- paid in U.S. dollars upon submission of the purchase order by STAAR. The remaining one-half shall be due and payable in U.S. dollars within fifteen days of notice of shipment. 4.4 Application of Pre-paid Purchase Deposit. Lenstec will apply a $10 ---------------------------------------- credit per unit of Product for the 10,000 units of Product ordered following the delivery of the initial 80,000 units of Product during year 2 of the Effective Period. Each credit will be taken at the time an Order is received, and each credit will reduce the remaining balance of the Pre-paid Purchase Deposit. 4.5 Order Shortfall. In the event that STAAR fails to provide Orders --------------- equal to (i) at least 70% of its Quarterly Forecast for any quarterly period, or (ii) its minimum annual purchase obligations under this Agreement, Lenstec shall be entitled to reduce the balance of the Pre-paid Purchase Deposit by an amount equal to the unit shortfall times one-half of the effective unit price for that period. In the event of an Order Shortfall, STAAR shall be obligated to replenish the Pre-paid Purchase Deposit prior to an Order for additional units of Product. 4.6 Payments. All payments shall be forwarded to the following bank -------- account: Barclays bank PLC New York ABA 026002574 Chips UID 240280 Beneficiary: Barbados Offshore Bank Unit A/C# 280 90 82/4677 For credit to: Lenstec Barbados Inc. A/C# 23 103-22-58 ARTICLE 5 PRODUCT REGISTRATION 5.1 Product Registration. If it so elects, which election shall be in -------------------- its sole and absolute discretion, STAAR shall, at its own expense, obtain the necessary regulatory approvals for the sale of the Product. Lenstec shall cooperate with STAAR in connection with such product registration activities and provide such information as may be reasonably requested by STAAR to meet such regulatory requirements. Lenstec will provide any and all information requested by any regulatory body or agency involved in any such approval process. If any regulatory body or agency requires a post-marketing study, then STAAR and Lenstec will cooperate fully in completing any such study. 5.2 Clinical Investigation Activities. If STAAR decides to use its --------------------------------- notified body and their notified body requires additional clinical studies, then STAAR will pay the cost of the clinical trials. 5.3 Choice of Notified Body. STAAR shall have the right, but not the ----------------------- obligation, to use its notified body for distributing the Product to the markets in Europe and other countries. If STAAR decides to use its notified body then Lenstec will, and will request its notified body to, cooperate fully with STAAR and STAAR's notified body so that STAAR may accomplish such distribution, including providing any and all information reasonably requested by STAAR's notified body or any governmental agency, such as, but not limited to, its technical file, design file, etc. STAAR shall use the CE mark obtained by Lenstec in the initial launch of the Product, and will decide within the 12 month period following the launch whether it will transfer the Product to its notified body. 5.4 Product Dossiers/Clinical Information. In the event that STAAR ------------------------------------- materially breaches this Agreement, and such material breach is not cured within six months of its occurrence, then STAAR will make available to Lenstec, in lieu of all other damages to which Lenstec may be entitled as a result of said material breach, all Product regulatory and clinical information obtained by STAAR in connection with its product registration activities. ARTICLE 6 ADVERTISING 6.1 Advertising. STAAR shall have the right to prepare all advertising, ----------- promotional material, and labeling to the Product. STAAR and/or Lenstec will seek approval from its respective notified body for any labeling so designated. Lenstec will, if requested, provide its promotional information regarding the Product and STAAR may, at its discretion, use such promotional information in the advertising promotional material and labeling it prepares. 4 ARTICLE 7 QUALITY CONTROL AND PRODUCT RECALL 7.1 Rejection of the Product. STAAR may reject and return the Product not ------------------------ conforming to the specifications provided for in Exhibit "A" hereof, or because of: (a) failure to meet the Specifications when they are delivered; (b) material manufacturing defects; or (c) FDA or applicable foreign agency recall because of acts or failure to act by Lenstec. In order to reject the Product, STAAR must give written notice to Lenstec of STAAR's intention to reject the shipment, which notice must be received by Lenstec within sixty (60) days of STAAR's receipt of such Product together with an indication of the reasons for such rejection. If no such notice of intent to reject is received, STAAR shall be deemed to have accepted the delivery provided, however, in the case of Product having latent defects which upon diligent examination by STAAR upon their receipt could not have been discovered, STAAR must give notice of STAAR's intent to reject such Product within thirty (30) days after discovery of such defects. In the event STAAR has paid for a shipment of the Product which has been rejected as provided herein, STAAR shall be entitled to a refund of the purchase price of the rejected Product (together with insurance and freight charges) at the time it is ultimately rejected, provided, however, that if Lenstec disputes the rejection, any appropriate refund shall be made at the time the dispute is finally resolved. Lenstec shall notify STAAR within fifteen (15) days of its receipt of STAAR's notice of rejection as to whether it accepts STAAR's basis for any rejection. 7.2 Manufacturing Standards. Lenstec shall manufacture the Product in ----------------------- compliance with ISO/EN 9001 and ISO/EN 46001 for CE Marking, and in accordance with other applicable foreign agency requirements, as requested, all in accordance with the Specifications. Lenstec understands and agrees that STAAR shall have no obligation to sell the Product pursuant to the terms of this Agreement until the Product receives the ISO and CE Mark that will allow STAAR to sell the product under its brand name. 7.3 Design Changes. STAAR may, as a result of complaints, adverse events, -------------- recalls, or recommendations or requirements as expressed by customers or regulatory bodies, require Lenstec to make modifications to the technical design or manufacturing of the Product. Lenstec will cooperate fully with STAAR in modifying the Product, as requested. The payment of the costs of such modifications, if less than $10,000, will be the responsibility of Lenstec. The party to be responsible for payment of the costs of such modifications, if significant (in excess of $10,000), will be negotiated in good faith by STAAR and Lenstec. 7.4 Records Maintenance. STAAR and Lenstec shall maintain all records ------------------- regarding the Product as may be required by any applicable foreign agency or by the FDA for IDE, PMA or CE Mark approved Product and shall supply each other, upon request by the other, with such records and other information and reports as may be required by the FDA or any applicable foreign agency or notified body. Any new reports or modifications of current reports required to be prepared by STAAR or Lenstec by the FDA, a notified body, or any applicable foreign agency shall become an obligation under this Agreement and Lenstec and STAAR shall assist each other, as necessary, in the preparation of such new reports or modifications of current reports. 7.5 Adverse Reaction Report. The following procedures shall be ----------------------- established and observed by the parties hereto: (a) In the event that STAAR receives any complaint, claims, or adverse reaction reports regarding the Product, STAAR shall, within five (5) business days, provide Lenstec with all information contained in the complaint. Lenstec will notify STAAR immediately by facsimile transmission of any information that it may have that affects the safe and effective use of the Product. 5 (b) STAAR shall be responsible for evaluating such complaints and, as required, notifying the appropriate regulatory authorities in writing. On a periodic basis, not less than annually, and, in the case of an adverse event, immediately by facsimile transmission, STAAR shall inform Lenstec in writing of the complaint and adverse reaction incidence rates of the Product. 7.6 Recall. In the event that Lenstec shall deem it necessary to recall, ------ or any applicable foreign agency, the notified body, or any similar regulatory authority requests recall of the Product, Lenstec shall be responsible for and shall bear all costs and expenses of such recall, including without limitation expenses or obligations to third parties, the costs of notifying customers, and costs associated with the shipment of such recalled products from customers. However, if such recall is caused by the advertising, promotion or labeling of STAAR or the negligence or willful misconduct of STAAR, STAAR shall bear the costs and expenses of such recall and shall promptly reimburse Lenstec for any amounts expended in connection therewith. In the event of any recall, the parties shall cooperate fully with each other in effecting such recall. 7.7 Warranties Relating to the Product. Lenstec warrants that the ---------------------------------- Product, when shipped to STAAR will: (a) conform in all respects to the Specifications outlined in Exhibit "A" or otherwise as then in effect; and (b) not be adulterated or misbranded within the meaning or applicable foreign agency regulations; provided, however, that no warranty is given for advertising, promotional materials, or labeling prepared by STAAR. 7.8 Warranties and Representations by the Parties. To induce the other to --------------------------------------------- enter into this Agreement and consummate the transactions contemplated by it, STAAR and Lenstec hereby represent, warrant and covenant that: (a) Organization and Good Standing. STAAR and Lenstec are each (i) ------------------------------ corporations duly organized, validly existing and in good standing under the laws of any state or country in which such corporation does business; and (ii) has all requisite corporate power and authority to conduct its business and to own, operate and lease its properties as and in the places where such business is now conducted and such properties are now owned, leased or operated. (b) Corporate Power, Authority and Enforceability. STAAR and Lenstec --------------------------------------------- each have all requisite power and authority to enter into this Agreement, and to carry out its obligations thereunder. The execution and delivery of this Agreement and the performance of the obligations thereunder, have been duly authorized by all necessary action. This Agreement, when executed and delivered on behalf of each party, shall constitute valid and binding obligations of each party, enforceable against the party in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, moratorium or similar laws of general application relating to or affecting creditor's rights generally and except for the limitations imposed by general principles of equity. The undersigned officers of STAAR and Lenstec are duly authorized and empowered to execute and attest the Agreement for and on behalf of STAAR and Lenstec. (c) To induce STAAR to enter into this Agreement and to consummate the transactions contemplated by it, Lenstec hereby represents, warrants and covenants that, as of the date of execution of this Agreement, it will have obtained; (i) any necessary permission or approval, as required, from Santen to enter into this Agreement, and (ii) the waiver contemplated by Section 1.5 above. 6 7.9 Indemnification. --------------- 7.9.1 Lenstec Indemnification. Lenstec shall defend, indemnify and hold ----------------------- STAAR and its parent and affiliates (and each of their employees, officers and directors) harmless from and against any and all damages, injuries, causes of action, costs, losses and expenses, including without limitation the costs of recalls, court costs and reasonable attorneys' fees, if any, resulting from third party product liability claims based on the negligence or willful misconduct of Lenstec, or any claim of infringement or violation of any patent, or common law or statutory rights, or proprietary rights by or on account of the use that STAAR is entitled to make of the Product, or failure of the Product to confirm to the specification set forth in Exhibit "A" hereof, or the breach by Lenstec of any representation, warranty, covenant, term or agreement included in this Agreement. 7.9.2 STAAR Indemnification. STAAR shall defend, indemnify and hold -------------------- Lenstec and its affiliates (and each of their employees, officers and directors) harmless from and against any and all damages, injuries, causes of action, costs, losses and expenses, including without limitation court costs and reasonable attorneys' fees, if any, resulting from third party liability claims arising out of the breach by STAAR of any representation, warranty, covenant, term or agreement included in this Agreement. 7.9.3 Settlement. If either party intends to claim indemnification from ---------- the other party pursuant to this Section 7.9, it shall not be entitled to settle any of the claims for which it claims or intends to claim indemnification without the consent of such other party, which consent shall not be unreasonably withheld. 7.9.4 Limitation on Indemnification. The indemnities of this Section ----------------------------- 7.9 shall not apply: (a) if the indemnified party fails to give the indemnifying party prompt written notice of any claim it receives, and such failure materially prejudices the indemnifying party; or (b) unless the indemnifying party is given the opportunity to approve such settlement, which approval shall not be unreasonably withheld. Furthermore, the indemnifying party shall not be liable for attorneys' fees or expenses of litigation of the indemnified party unless the indemnified party gives the indemnifying party the opportunity to assume control of the defense or settlement. In addition, if the indemnifying party assumes such control, it shall only be responsible for the legal fees and litigation expenses of the attorneys it designates to assume control of the litigation. In no event shall the indemnifying party assume control of the defense of the indemnified party without the consent of the indemnified party, which consent shall be given or not at its sole discretion. ARTICLE 8 CONFIDENTIALITY 8.1 Duty of Confidentiality Relating to Trade Secrets and Proprietary ----------------------------------------------------------------- Information. Each party ("Receiving Party") shall maintain in confidence and - ----------- ---- keep safe from third parties all information disclosed by the other ("Disclosing Party") which such party knows or has reason to know comprises trade secrets and other proprietary information of the other, including, without limitation, information relating to the Product. Each party shall use its best efforts to ensure that its employees, consultants and agents do not disclose to third parties such trade secrets or proprietary information. Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other's trade secrets or proprietary information. 8.2 Exceptions. The obligation of confidentiality contained in this ---------- Agreement shall not apply to the extent that (a) the Receiving Party is required to disclose the information by applicable law, regulation or order of a governmental agency or a court of competent jurisdiction; (b) the Receiving Party can demonstrate that the disclosed information was at the time of disclosure already in the public domain other than as a result of actions or failure to act by the Receiving Party in violation hereof; (c) the disclosed information was rightfully known by the Receiving Party (as shown by its written records) prior 7 to the date of disclosure to the Receiving Party in connection with this Agreement; or (d) the disclosed information was received by the Receiving Party on an unrestricted basis from a source which is neither STAAR nor Lenstec and which is not under a duty of confidentiality to the other party. ARTICLE 9 PRODUCT LIABILITY 9.1 Notification. Each party shall promptly notify the other of any ------------ claim or action by reason of the manufacture, use or sale of the Product of which it becomes aware. 9.2 Insurance. Lenstec shall maintain insurance coverage issued by one --------- or more insurance companies, with Best Rating B+ or higher, and shall name STAAR a co-insured thereon, adequate to cover the claims, liabilities, judgements, losses, damages, costs and expenses (including reasonable attorney's fees) indemnified in Article 6. ARTICLE 10 MISCELLANEOUS 10.1 Governing Law. This Agreement shall be governed by and interpreted ------------- in accordance with the laws of the State of California. 10.2 Dispute Resolution/Arbitration. All disputes shall be amicably ------------------------------ resolved, and if not so resolved, they shall be subject to arbitration as follows: (i) if Lenstec initiates a claim or demand against STAAR, then the arbitration shall be conducted in accordance with the rules of the International Arbitration Association and the location of arbitration shall be in southern California and (ii) if STAAR initiates a claim or demand against Lenstec, then the arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association and the location of arbitration shall be Tampa, Florida. Further, (iii) the arbitration shall be conducted in the English language. (iv) The award of the arbitrators will be final and binding upon the parties. Judgement upon the award may be entered in any court having jurisdiction. An application may be made to any such court for judicial acceptance of the award and an order of enforcement. (v) Any arbitration proceeding hereunder shall be conducted on a confidential basis. (vi) The arbitrator shall apply the principles of the laws of the State of California. 10.3 Notice. Unless otherwise specifically provided in this Agreement, ------ all notices, demands, requests, consents, approvals or other communications (collectively and severally called "Notices") required or permitted to be given hereunder, or which are given with respect to this Agreement, shall be in writing, and shall be given by: (A) personal delivery (which form of Notice shall be deemed to have been given upon delivery), (B) by telegraph or by private airborne/overnight delivery service (which forms of Notice shall be deemed to have been given upon confirmed delivery by the delivery agency), (C) by electronic or facsimile or telephonic transmission, provided the receiving party has a compatible device or confirms receipt thereof (which forms of Notice shall be deemed delivered upon confirmed transmission or confirmation of receipt), or (D) by mailing in the United States mail by registered or certified mail, return receipt requested, postage prepaid (which forms of Notice shall be deemed to have been given upon the fifth {5th} business day following the date mailed). Notices shall be addressed as follows, 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. 8 To STAAR: STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016 Attention: John Wolf, President PH: 626/303-7902 FAX: 626/358-3049 To Lenstec: Lenstec, Inc. 2860 Scherer Drive, Suite 600 St. Petersburg, Florida 33716 Attention: John Clough, President PH: 727/571-2272 FAX: 727/571-1792 10.4 Captions. The captions, articles, sections and subsections of --------- this Agreement are solely for convenience of reference and shall not affect its interpretation. 10.5 Entire Agreement. This Agreement represents the entire ---------------- understanding between the parties with respect to the subject matter hereof, and supersedes all prior agreements, negotiations, understandings, letters of intent, representations, statements and writings between the parties relating thereto. No modifications, alteration, waiver or change in any of the terms of this Agreement shall be valid or binding upon the parties hereto unless made in writing and duly executed on behalf of the party to be charged therewith. 10.6 Assignability. This Agreement may not be assigned or ------------- transferred in any manner by either party without the prior written consent of the other party, except that either party may assign or transfer this Agreement to a third party in connection with the transfer or sale of all or substantially all of its business to which this Agreement pertains or the merger of consolidation of a party with or into a third party if said third party agrees in writing to accept all of the terms and conditions of this Agreement. 10.7 Waiver. The waiver by either party of a breach of any provision ------ contained herein shall in no way be construed as a waiver of any subsequent breach of such provision or the waiver of the provision itself. 10.8 Invalidity of a Particular Provision. The invalidity or ------------------------------------ unenforceability of any term, provision, clause or any portion thereof of this Agreement shall in no way impair or affect the validity or enforcement of any other provision of this Agreement. 10.9 Survival. The provisions which by their meaning and intent have -------- applicability beyond the term of this Agreement shall survive the expiration or termination of this Agreement. 10.10 Relationship of the Parties. The relationship between STAAR and --------------------------- Lenstec is and shall be that of vendor and vendee. Neither party nor its agents and employees, shall under any circumstances be deemed agents or representatives of the other and neither shall have authority to act for and/or bind the other in any way, or represent that it is in any way responsible for acts of the other. This Agreement does not establish a joint venture, agency or partnership between the parties, nor does it create an employer/employee relationship. 10.11 Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. If this Agreement is executed in counterparts, no signatory hereto shall be bound until both the parties named below have duly executed or caused to be duly executed a counterpart of this Agreement. 10.12 Expenses. The prevailing party in any legal action to enforce or -------- interpret this Agreement shall be entitled to reimbursement of its costs and attorneys' fees in such action by the other party. 10.13 Force Majeure. A party shall not be liable for nonperformance or ------------- delay in performance caused by any event reasonably beyond the control of such party (provided such party shall use its best efforts to return to normal operations), including but not limited to wars, hostilities, revolutions, riots, civil commotion, national emergency, epidemics, fire, flood, earthquake, force of nature, explosion, embargo, or any other Act of God, or any law, proclamation, regulation, ordinance, or other act or order of any court, government or governmental agency. 10.14 Time. The parties agree that time is of the essence in the ---- performance of obligations under this Agreement. 10.15. Specific Performance. The parties acknowledge and agree that STAAR -------------------- will suffer irreparable harm in the event of a material breach of Lenstec's obligation to supply Product in accordance with the terms hereof. Accordingly, Lenstec agrees that STAAR will, in addition to any other remedies available to it at law or in equity, be entitled to injunctive relief to enforce Lenstec's obligation to supply Product in accordance with the terms hereof. 10.16 Confidentiality. The terms and conditions of this Agreement shall --------------- be confidential and shall not be disclosed by any of the parties to this Agreement to any third party, other than to an actual or potential affiliate, successor or assign, except that any party may disclose the terms and conditions of this Agreement (i) to its legal or accounting advisors, as necessary, so long as they agree to be bound by the terms of this confidentiality provision; or (ii) if such party receives a subpoena or other process or order to produce this Agreement, provided that such party shall, prior to any disclosure to any third party, promptly notify the other party to this Agreement so that the party has a reasonable opportunity to respond to such subpoena, process or order, or (iii) as otherwise required by law. The party receiving the subpoena, process or order shall take no action contrary to the confidentiality provisions set forth above and shall make reasonable efforts to produce only subject to a protective order. The party objecting shall have the burden of defending against such subpoena, process or order. The party receiving the subpoena, process or order shall be entitled to comply with it except to the extent that any other party is successful in obtaining an order modifying or quashing it. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. STAAR SURGICAL AG LENSTEC, INC. By: /s/ John R. Wolf By: /s/ John Clough --------------------- --------------------- Title: President Title: President ------------------ ------------------ Date: 5/10/99 Date: 5-6-99 ------------------- ------------------ STAAR SURGICAL COMPANY LENSTEC BARBADOS, INC. By: /s/ John R. Wolf By: /s/ John Clough -------------------- ---------------------- Title: Co-Chairman Title: Chairman ----------------- ------------------ Date: 5/10/99 Date: 5-6-99 ----------------- ------------------ 10 EXHIBIT "A" PRODUCT SPECIFICATIONS Conformity with GMP and ISO/EN 9001 Requirements: - ------------------------------------------------- All Product delivered shall be in compliance with applicable GMP and ISO guidelines for the manufacture and sterilization of intraocular lenses for human implantation. Product Sterility: - ------------------ For the initial 120 days of the Effective Period, Product Sterility shall be limited to one year. Thereafter, all Product delivered will have a sterility expiration of five (5) years. Product Design: - --------------- See attached engineering drawings. Manufacturing Controls/Inspection Procedures: - --------------------------------------------- [from Lenstec's ISO SOP Manual] 11 EX-10.46 6 PROMISSORY NOTE DATED 11-11-1999 EXHIBIT 10.46 PROMISSORY NOTE --------------- $100,000 November 11, 1999 Monrovia, California FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged, Peter J. Utrata, M.D. ("Maker"), hereby promises to pay to STAAR Surgical Company, 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 One Hundred Thousand Dollars ($100,000). 2. Interest. -------- Interest on the Principal Amount from time-to-time remaining unpaid shall accrue from the date of this Note at the lowest rate that may accrue without causing the imputation of interest under the Internal Revenue Code. 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 8, below, Maker shall pay the Principal Amount and all accrued and unpaid interest on the Principal Amount and all other indebtedness due under this Note three (3) years from the date of this Note, on November 10, 2002. 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 in lawful money of the United States or in such other property as Holder, in its sole and absolute discretion, may accept, 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. 1 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 description. No delay or omission on the part of Holder in exercising any rights under 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 Holder's right to exercise such right or of any other right under 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. 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. 8. 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: (a) If any part of the Principal Amount and/or interest thereon under this Note are not paid when due, provided, however, Maker shall be entitled to a grace period of ten (10) days following written notice of such event of default to cure said event of default; (b) If Maker shall breach any non-monetary condition or obligation imposed on Maker pursuant to the terms of this Note, provided, however, that if any such breach 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; (c) If Maker shall make an assignment for the benefit of creditors; (d) If a custodian, trustee, receiver, or agent is appointed or takes possession of substantially all of the property of Maker; (e) If Maker shall be adjudicated bankrupt or insolvent or admit in writing Maker's inability to pay Maker's debts as they become due; (f) 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; 2 (g) 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 (h) If any attachment, execution, or other writ is levied on substantially all of the assets of Maker and remains in effect for more than five (5) days. Maker shall notify Holder immediately if any event of default which is described in sub-paragraph (c) through sub-paragraph (h), above, occurs. 9. Collection Costs and Attorneys' Fees. ------------------------------------ Maker agrees to pay Holder all costs and expenses, including reasonable attorneys' fees, paid or incurred by Holder in connection with the collection or enforcement of this Note or any instrument securing payment of this 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, 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. 10. 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. 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. 11. 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 shall involve transcending the highest interest rate permitted by law which a court of competent jurisdiction deems applicable, then the obligations to be fulfilled shall be reduced to such maximum rate, 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 under this Note and not to the payment of interest, or, if such excessive interest exceeds the unpaid balance of the Principal Amount under this Note, such excess shall be refunded to Maker. This provision shall control every other provision of all agreements between Maker and Holder. 3 12. Jurisdiction; 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 Los Angeles County, California. MAKER: _________________________ Peter J. Utrata, M.D. MAKER'S ADDRESS: 1289 Arlington Avenue Columbus, Ohio 43212 HOLDER'S ADDRESS: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn.: Chief Financial Officer 4 EX-10.47 7 PROMISSORY NOTE DATED 11-12-1999 Exhibit 10.47 PROMISSORY NOTE --------------- $55,259.63 November 12, 1999 Monrovia, California FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged, John R. Wolf ("Maker"), hereby promises to pay to STAAR Surgical Company, 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 Fifty-five Thousand Two Hundred Fifty-nine Dollars and Sixty-three cents ($55,259.63). 2. Interest. -------- Interest on the Principal Amount from time-to-time remaining unpaid shall accrue from the date of this Note at the lowest rate that may accrue without causing the imputation of interest under the Internal Revenue Code. 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 8, below, Maker shall pay the Principal Amount and all accrued and unpaid interest on the Principal Amount and all other indebtedness due under this Note three (3) years from the date of this Note, on November 11, 2002. 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 in lawful money of the United States or in such other property as Holder, in its sole and absolute discretion, may accept, 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. 1 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 description. No delay or omission on the part of Holder in exercising any rights under 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 Holder's right to exercise such right or of any other right under 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. 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. 8. 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: (a) If any part of the Principal Amount and/or interest thereon under this Note are not paid when due, provided, however, Maker shall be entitled to a grace period of ten (10) days following written notice of such event of default to cure said event of default; (b) If Maker shall breach any non-monetary condition or obligation imposed on Maker pursuant to the terms of this Note, provided, however, that if any such breach 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; (c) If Maker shall make an assignment for the benefit of creditors; (d) If a custodian, trustee, receiver, or agent is appointed or takes possession of substantially all of the property of Maker; (e) If Maker shall be adjudicated bankrupt or insolvent or admit in writing Maker's inability to pay Maker's debts as they become due; (f) 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; 2 (g) 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 (h) If any attachment, execution, or other writ is levied on substantially all of the assets of Maker and remains in effect for more than five (5) days. Maker shall notify Holder immediately if any event of default which is described in sub-paragraph (c) through sub-paragraph (h), above, occurs. 9. Collection Costs and Attorneys' Fees. ------------------------------------ Maker agrees to pay Holder all costs and expenses, including reasonable attorneys' fees, paid or incurred by Holder in connection with the collection or enforcement of this Note or any instrument securing payment of this 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, 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. 10. 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. 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. 11. 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 shall involve transcending the highest interest rate permitted by law which a court of competent jurisdiction deems applicable, then the obligations to be fulfilled shall be reduced to such maximum rate, 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 under this Note and not to the payment of interest, or, if such excessive interest exceeds the unpaid balance of the Principal Amount under this Note, such excess shall be refunded to Maker. This provision shall control every other provision of all agreements between Maker and Holder. 3 12. Jurisdiction; 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 Los Angeles County, California. MAKER: _________________________ John R. Wolf MAKER'S ADDRESS: 1496 Bedford Road San Marino, California 91108 HOLDER'S ADDRESS: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn.: Chief Financial Officer 4 EX-10.48 8 PROMISSORY NOTE DATED 11-17-1999 EXHIBIT 10.48 PROMISSORY NOTE --------------- $49,302 November 17, 1999 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, 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 Forty-nine Thousand Three Hundred Two Dollars ($49,302). 2. Interest. -------- Interest on the Principal Amount from time-to-time remaining unpaid shall accrue from the date of this Note at the lowest rate that may accrue without causing the imputation of interest under the Internal Revenue Code. 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 8, below, Maker shall pay the Principal Amount and all accrued and unpaid interest on the Principal Amount and all other indebtedness due under this Note three (3) years from the date of this Note, on November 16, 2002. 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 in lawful money of the United States or in such other property as Holder, in its sole and absolute discretion, may accept, 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. 1 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 description. No delay or omission on the part of Holder in exercising any rights under 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 Holder's right to exercise such right or of any other right under 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. 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. 8. 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: (a) If any part of the Principal Amount and/or interest thereon under this Note are not paid when due, provided, however, Maker shall be entitled to a grace period of ten (10) days following written notice of such event of default to cure said event of default; (b) If Maker shall breach any non-monetary condition or obligation imposed on Maker pursuant to the terms of this Note, provided, however, that if any such breach 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; (c) If Maker shall make an assignment for the benefit of creditors; (d) If a custodian, trustee, receiver, or agent is appointed or takes possession of substantially all of the property of Maker; (e) If Maker shall be adjudicated bankrupt or insolvent or admit in writing Maker's inability to pay Maker's debts as they become due; (f) 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; 2 (g) 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 (h) If any attachment, execution, or other writ is levied on substantially all of the assets of Maker and remains in effect for more than five (5) days. Maker shall notify Holder immediately if any event of default which is described in sub-paragraph (c) through sub-paragraph (h), above, occurs. 9. Collection Costs and Attorneys' Fees. ------------------------------------ Maker agrees to pay Holder all costs and expenses, including reasonable attorneys' fees, paid or incurred by Holder in connection with the collection or enforcement of this Note or any instrument securing payment of this 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, 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. 10. 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. 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. 11. 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 shall involve transcending the highest interest rate permitted by law which a court of competent jurisdiction deems applicable, then the obligations to be fulfilled shall be reduced to such maximum rate, 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 under this Note and not to the payment of interest, or, if such excessive interest exceeds the unpaid balance of the Principal Amount under this Note, such excess shall be refunded to Maker. This provision shall control every other provision of all agreements between Maker and Holder. 3 12. Jurisdiction; 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 Los Angeles County, California. MAKER: /s/ William C. Huddleston -------------------------- William C. Huddleston MAKER'S ADDRESS: 363 Timkin Road Anaheim, California 92808 HOLDER'S ADDRESS: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn.: Chief Financial Officer 4 EX-10.49 9 PROMISSORY NOTE DATED 06-16-1999 Exhibit 10.49 PROMISSORY NOTE --------------- $1,258,000 June 16, 1999 Monrovia, California FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged, Peter J. Utrata, M.D. ("Maker"), hereby promises to pay to STAAR Surgical Company, 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 One Million Two Hundred Fifty- Eight Thousand Dollars ($1,258,000). 2. Interest. -------- Interest on the Principal Amount from time-to-time remaining unpaid shall accrue from the date of this Note at the lower of: (i) the rate of seven percent (7%) per annum, compounded annually; or (ii) at the lowest rate that may accrue without causing the imputation of interest under the Internal Revenue Code. 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 9, below, Maker shall pay the Principal Amount and all accrued and unpaid interest on the Principal Amount and all other indebtedness due under this Note five (5) years from the date of this Note, on June 15, 2004. 4. Security/Release of Security. ---------------------------- Maker shall pledge as security for the repayment of all sums payable under this Note 120,000 shares of Staar Surgical Company common stock (the "Stock"). Maker shall execute a Stock Pledge Agreement of even date herewith evidencing Holder's security interest in the Stock. If, for a period of fifteen (15) consecutive days, the fair market value of the Stock falls below all sums unpaid under this Note, then Maker will be required to transfer to Holder, upon receipt of Holder's written request, additional security, in any form acceptable to Holder, in an amount equal to the difference between all sums due under this Note and the fair market value of the Stock. Conversely if, for a period of thirty (30) consecutive days, the fair market value of the Stock equals or exceeds 150% of all sums unpaid under this Note, Holder shall release to Maker such portion of the Stock or other security the value of which exceeds the amount of all sums unpaid under the Note. 1 5. Prepayments. ----------- Maker shall have the right to prepay any portion of the Principal Amount without prepayment penalty or premium or discount. 6. Manner of Payments/Crediting of Payments. ---------------------------------------- Payments of any amount required hereunder shall be made in lawful money of the United States or in such other property as Holder, in its sole and absolute discretion, may accept, 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. 7. 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 description. No delay or omission on the part of Holder in exercising any rights under 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 Holder's right to exercise such right or of any other right under 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. 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. 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: (a) If any part of the Principal Amount and/or interest thereon under this Note are not paid when due, provided, however, Maker shall be entitled to a grace period of ten (10) days following written notice of such event of default to cure said event of default; (b) If Maker shall breach any non-monetary condition or obligation imposed on Maker pursuant to the terms of this Note, provided, however, that if any such breach 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; 2 (c) If Maker shall make an assignment for the benefit of creditors; (d) If a custodian, trustee, receiver, or agent is appointed or takes possession of substantially all of the property of Maker; (e) If Maker shall be adjudicated bankrupt or insolvent or admit in writing Maker's inability to pay Maker's debts as they become due; (f) 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; (g) 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 (h) If any attachment, execution, or other writ is levied on substantially all of the assets of Maker and remains in effect for more than five (5) days. Maker shall notify Holder immediately if any event of default which is described in sub-paragraph (c) through sub-paragraph (h), above, occurs. 10. Collection Costs and Attorneys' Fees. ------------------------------------ Maker agrees to pay Holder all costs and expenses, including reasonable attorneys' fees, paid or incurred by Holder in connection with the collection or enforcement of this Note or any instrument securing payment of this 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, 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. 11. 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. 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. 3 12. 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 shall involve transcending the highest interest rate permitted by law which a court of competent jurisdiction deems applicable, then the obligations to be fulfilled shall be reduced to such maximum rate, 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 under this Note and not to the payment of interest, or, if such excessive interest exceeds the unpaid balance of the Principal Amount under this Note, such excess shall be refunded to Maker. This provision shall control every other provision of all agreements between Maker and Holder. 13. Jurisdiction; 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 Los Angeles County, California. MAKER: /s/ Peter J. Utrata, M.D. -------------------------- Peter J. Utrata, M.D. MAKER'S ADDRESS: 1289 Arlington Avenue Columbus, Ohio 43212 HOLDER'S ADDRESS: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn.: Chief Financial Officer 4 EX-10.50 10 AGREEMENT ENTERED INTO 11-29-1999 EXHIBIT 10.50 Negotiated in Pinneberg, November 29 1999 In the offices of Axel Mallick - acting as a notary public - appeared the personally known , born 08/05/45, merchant, (address) Acting on behalf of 1. himself 2. Dr. Volker D. Anhacusser, who is acting on behalf of Staar Surgical AG, Nidau, Switzerland as their trustee The appeared asked the notary to certify the following: Preamble The acting person No. 1 ( ) owns shares (share capital) of , being registered in the commercial register of the county court of in the amount of 400,000.-, as the acting person No. 2 (VDA) owns a share capital of DM 600,000.- of the total nominal capital of 1 Million DM. I. Division of the share capital unit, Assignment The acting person is dividing his share capital unit into two equal parts of DM 200,000.- each. Thereafter the acting person 1 assigns the newly formed share unit of DM 200,000.- to the acting person No. 2, VDA. VDA is accepting the assignment in his own name, however as the trustee of Staar Surgical AG, the buyer. The acting person gives his consent for the assignment. II. Sales Act The acting person No. 2 (VDA) will perform the following compensation for the transfer of the shares 1. He pays a purchase price of DM 3,426,000.- being due and payable as follows: a) DM 2,000,000.- until Sept. 30 1999 b) DM 800,000.- until Dec. 01 1999 c) DM 626,000.- until Feb. 01 2000 To be paid on the bank account of the acting person No. 1 2. The acting person No. 2 will furthermore transfer 125,000 shares of Staar Surgical Company, Monrovia, CA. until Sept. 30 1999. III. Warranties and Representations The seller did the assignment without any warranties and representations. The seller however guarantees, that he owns the assigned share capital as his personal property without any limitations and restrictions, he especially guarantees, that he has not assigned the share capital to a third party nor that the shares have been incriminated or seized as a security. The articles of incorporation have not been changed since Jan. 1 1998. guarantees, that he has paid the initial capital to in full. None of the share capital has been repaid. The shares are not incriminated. The basis of this agreement, especially for estimating the purchase price, is the audit of BDO of Jan. 1999 as well as the financial statements, that has been provided to the buyer, VDA, prior to the sale of the shares. The financial statements have been set up according the principles of fair and continuous accounting under respect of the continuity. They show the real status of the company, in concern of the value, the financial and profit situation. Depreciations devaluations, if they were done, value corrections and contingent liabilities, csp. for taxes, were made in a reasonable amount. The seller also guarantees, that he has informed the buyer about all important and essential developments and incidents of the company. The company does not own real estate. IV. The day of transfer of the rights The shares are economically being transferred on Oct 1 1999. Therefore the parties agree that 3/4 of the shown profits of the company are paid out in relation of the share ownership prior to the sales act (60% VDA / 40% ). One quarter of the profits will be paid out according to the present relation in the participation of the company (80% VDA / 20% ). V. Costs Will be taken care of by the buyer incl. event. Taxes in concern of the sales act. Rest of the text are formalities. EX-10.51 11 EQUIPMENT PURCHASE AND SALE AGREEMENT EXHIBIT 10.51 EQUIPMENT PURCHASE AND SALE AGREEMENT THIS EQUIPMENT PURCHASE AND SALE AGREEMENT (the "Agreement"), dated this 6th day of May, 1999 (the "Effective Date"), is entered into by and between STAAR Surgical Company, a Delaware corporation ("STAAR"), and Lenstec, Incorporated, a Florida corporation, ("Lenstec") based upon the following. RECITALS A. Lenstec is the developer and manufacturer of certain production equipment and manufacturing technology used for the manufacture of three-piece intraocular lenses used in ophthalmic surgery; B. STAAR desires to obtain the right to purchase Lenstec manufacturing technology ("Technology") and purchase IOL manufacturing equipment ("Equipment") from Lenstec for installation and use in the manufacturing of three (3) piece and plate haptic Collomer IOLs in one of its production facilities. NOW, THEREFORE, in consideration of the mutual promises above and the agreements contained herein, the parties hereby agree as follows: AGREEMENT ARTICLE 1 PURCHASE OF MANUFACTURING EQUIPMENT 1.1 Purchase of Technology. Lenstec agrees to sell to STAAR its ---------------------- Technology, including its trade secrets and manufacturing technology, relating to the manufacture of three-piece and plate haptic Hydro Acrylic IOLs. Lenstec agrees that included in this purchase of technology will be the development of haptic design and assembly technique (as used in the Lenstec LH 3000 HEMA/acrylic copolymer lens) for a Staar developed collamer lens. This also includes the installation of the process, the training of Staar personnel in the manufacture of this lens and supplying standard operating procedures for the process. 1.2 Consent to Technology Transfer. To induce STAAR to enter into this ------------------------------ Agreement and to consummate the transactions contemplated by it, Lenstec hereby represents, warrants and covenants that as of the date of execution of this Agreement, it will have the right to sell its Equipment and training for the use of the equipment, relating to the manufacture of three-piece Hydro Acrylic IOLs and to sell the Equipment, all pursuant to the terms of this Agreement. ARTICLE 2 TERMS AND CONDITIONS 2.1 Term. This Agreement shall remain in effect for a period of three ---- (3) years from the date that it is executed by STAAR and Lenstec (the "Effective Period"). During the Effective Period STAAR shall have the right to purchase, and Lenstec will be obligated to sell, the Equipment at List Prices set forth in Exhibit "A" and in quantities not to exceed those set forth in Exhibit "B". At the end of the Effective Period, this Agreement will terminate with respect to Lenstec's obligations to supply equipment and installation assistance. 2.2 Equipment Purchase Orders. Within 60 days of the execution of this ------------------------- Agreement, STAAR shall provide to Lenstec an estimate of its timetable and preliminary quantities for required Equipment, which information STAAR agrees to update periodically. Upon submitting a purchase order ("Purchase Order") for Equipment, STAAR shall give Lenstec its target delivery/installation date. 2.3 Shipment. With the exception of those items of Equipment -------- designated on Exhibits "A" and "B" as "delivered and installed", which items Lenstec will ship at its expense, all Equipment supplied pursuant to this Agreement will be delivered FOB Lenstec's facility in St. Petersburg, Florida. Lenstec will ship the Equipment pursuant to STAAR's written instructions to STAAR's facility in Switzerland or California. All customs, duties, costs, taxes, insurance premiums and other expenses relating to transportation and shipment of the Equipment shall be at STAAR's expense. 2.4 Standard Warranty. All Equipment will be subject to Lenstec's ----------------- standard manufacturer's warranty for IOL Manufacturing Equipment, a copy of which is attached as Exhibit "C" to this Agreement. 2.5 Installation and Training. Lenstec personnel shall be available to ------------------------- provide technical assistance in connection with the installation and testing of the Equipment. In addition, Lenstec technical personnel shall provide, as required but subject to certain limitations, training assistance to STAAR manufacturing personnel in the operation and service of the Equipment. 2.6 Breach. Failure by Lenstec to supply STAAR with the Equipment ------ ordered according to the terms of this Agreement (other than as a result of force majeure, as set forth in Section 9.12) shall be considered a material breach of this Agreement. ARTICLE 3 PRICE AND PAYMENTS 3.1 Technology Transfer Fee. Upon the execution of this Agreement, ----------------------- STAAR shall deposit with Lenstec the sum of four hundred thousand U.S. dollars (U.S. $400,000) to be earned by Lenstec as follows: (a) $100,000.00 will be earned by Lenstec upon the successful manufacturing of lense optics made from collomer at either Lenstec's Florida or Barbados facilities. Testing will be completed within three weeks after signing this agreement. (b) $100,000.00 will be earned by Lenstec if the Equipment purchased by Staar in its first purchase order as set forth on Exhibit "A" is delivered and installed at STAAR's Monrovia facility within five (5) months from the date STAAR submits its purchase order to Lenstec; (c) $100,000 will be earned by Lenstec if, within five months after installation of the Equipment set forth on Exhibit "A", STAAR using commercially reasonable efforts, is successful in using the Equipment to manufacture at least 10,000 lenses; (d) $100,000 will be earned by Lenstec after the successful delivery and installation to STAAR of the Equipment set forth on Exhibit "B". If, through no fault whatsoever of STAAR, any of the above milestones are not achieved, STAAR at its sole discretion may decide not to purchase the equipment. If it so decides then the amount deposited 2 (without any premium) will be applied to the purchase of lenses pursuant to the terms of that certain License & Technology agreement of even date herewith, a copy of which is attached hereto as Exhibit "D". It is further agreed that if the collomer material proved to be not suitable for machining into this design of lense and STAAR decides not to go ahead with this design of lens, the technology transfer fee will be applied to the purchase of LH 3000 lenses. The application of the remaining deposit will be made at the rate of $10.00 per lens on the lenses sold to STAAR in the second year of the License and Supply agreement herein attached. 3.2 Price of Equipment. Lenstec agrees to provide the Equipment for the ------------------ List Prices set forth in Exhibit "A" attached hereto. Such List Prices are effective through December 31, 1999; thereafter, List Prices are subject to an adjustment. 3.3 Payment Terms. Equipment purchase orders shall be subject to the ------------- following payment terms: Percentage of List Price Timing ------------------------ ------ 30% upon placement of purchase order 30% 60 days from placement of purchase order 20% within 10 days after delivery of all Equipment ordered with the purchase order 20% within 10 days after satisfactory installation of all Equipment at STAAR's facility 3.4 Technical Assistance. Lenstec will absorb all personnel costs -------------------- relative to the installation and testing of the Equipment. In addition, Lenstec agrees to supply up to 240 man-hours of training-related assistance with respect to the operation of the Equipment. Additional technical assistance from Lenstec personnel will be available at a cost to STAAR of $800/man-day. All out-of- pocket expenses incurred by Lenstec technical assistance personnel shall be documented by Lenstec and reimbursed at cost by STAAR. 3.5 Shipping Costs. With the exception of those items of Equipment -------------- designated on Exhibits "A" and "B" as "delivered and installed", which items Lenstec will ship to Monrovia California at its expense, STAAR shall be responsible for the payment of all costs relating to shipping the Equipment from St. Petersburg to STAAR's facility. Should STAAR decide to build the laboratory in Switzerland, Lenstec will credit STAAR with the amount it would have cost to ship the "delivered and installed" equipment to Monrovia California. 3.6 Design Changes. In the event that STAAR requests modifications to the -------------- technical design Equipment, Lenstec will cooperate in modifying the Equipment, as requested. The payment of the costs of such modifications will be the responsibility of STAAR. 3.7 Payments. All payments shall be forwarded to the following bank -------- account: Barclays Bank PLC New York ABA 026002574 Chips UID 240280 Beneficiary: Barbados Offshore Bank Unit A/C# 280 90 82/4677 For credit to: Lenstec Barbados Inc. A/C# 23 103-22-58 ARTICLE 4 CONFIDENTIALITY 4.1 Duty of Confidentiality Relating to Trade Secrets and Proprietary ----------------------------------------------------------------- Information. - ----------- Each party ("Receiving Party") shall maintain in confidence and keep safe from third parties all information disclosed by the other ("Disclosing Party") which such party knows or has reason to know comprises trade secrets and other proprietary information of the other, including, without limitation, information relating to the Product. Each party shall use its best efforts to ensure that its employees, consultants and agents do not disclose to third parties such trade secrets or proprietary information. Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other's trade secrets or proprietary information. 4.2 Exceptions. The obligation of confidentiality contained in this ---------- Agreement shall not apply to the extent that: (a) the Receiving Party is required to disclose the information by applicable law, regulation or order of a governmental agency or a court of competent jurisdiction; (b) the Receiving Party can demonstrate that the disclosed information was at the time of disclosure already in the public domain other than as a result of actions or failure to act by the Receiving Party in violation hereof; (c) the disclosed information was rightfully known by the Receiving Party (as shown by its written records) prior to the date of disclosure to the Receiving Party in connection with this Agreement; or (d) the disclosed information was received by the Receiving Party on an unrestricted basis from a source which is neither STAAR nor Lenstec and which is not under a duty of confidentiality to the other party. ARTICLE 5 MISCELLANEOUS 5.1 Governing Law. This Agreement shall be governed by and interpreted ------------- in accordance with the laws of the State of California. 5.2 Dispute Resolution/Arbitration. All disputes shall be amicably ------------------------------ resolved, and if not so resolved, they shall be subject to arbitration as follows: (i) if Lenstec initiates a claim or demand against STAAR, then the arbitration shall be conducted in accordance with the rules of the American Arbitration Association and the location of arbitration shall be in Southern California; and (ii) if STAAR initiates a claim or demand against Lenstec, then the arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association and the location of arbitration shall be Florida. Further, (iii) the arbitration shall be conducted in the English language. (iv) the award of the arbitrators will be final and binding upon the parties. Judgment upon the award may be entered in any court having jurisdiction. An application may be made to any such court for judicial acceptance of the award and an order of enforcement. (v) Any arbitration proceeding hereunder shall be conducted on a confidential basis. (vi) The arbitrator shall apply the principles of the laws of the State of California. 5.3 Notice. Unless otherwise specifically provided in this Agreement, ------ all notices, demands, requests, consents, approvals or other communications (collectively and severally called "Notices") required or permitted to be given hereunder, or which are given with respect to this Agreement, shall be in writing, and shall be given by: (A) personal delivery (which form of Notice shall be deemed to have been given upon delivery), (B) by telegraph or by private airborne/overnight delivery service (which forms of Notice shall be deemed to have been given upon confirmed delivery by the delivery agency), (C) by electronic or facsimile or telephonic transmission, provided the receiving party has a compatible device or confirms receipt thereof (which forms of Notice shall be deemed delivered upon confirmed transmission or confirmation of receipt), or (D) by mailing in the United States mail by registered or certified mail, return receipt requested, postage prepaid (which forms of Notice shall be deemed to have been given upon the fifth (5th) business day following the date mailed). Notices shall be addressed as follows, 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. 4 To STAAR: STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016 Attention: John Wolf, President PH: 626/303-7902 FAX: 626/358-3049 5 To Lenstec,Inc: Lenstec,Inc. 2860 Soherer Drive 600, Suite 600 St. Petersburg, Florida 33716 Attention: John Clough, President PH: 727/571-2272 FAX: 727/571-1792 5.4 Captions. The caption, articles, sections and subsections of -------- this Agreements are solely for convenience of reference and shall not affect its interpretation. 5.5 Entire Agreement. This Agreement represents the entire ---------------- understanding between the parties with respect to the subject matter hereof, and supersedes all prior agreements, negotiations, understandings, letters of intent, representations, statements and writings between the parties relating thereto. No modification, alteration, waiver or change in any of the terms of this Agreement shall be valid or binding upon the parties hereto unless made in writing and duly executed on behalf of the party to be charged therewith. 5.6 Assignability. This Agreement may not be assigned or ------------- transferred in any manner by either party without the prior written consent of the other party, except that either party may assign or transfer this Agreement to a third party in connection with the transfer or sale of all or substantially all of its business to which this Agreement pertains or the merger of consolidation of a party with or into a third party if said third party agrees in writing to accept all of the terms and conditions of this Agreement. Any attempted assignment or transfer in violation of this Section 5.6 shall be void. 5.7 Waiver. The waiver by either party of a breach of any ------ provision contained herein shall in no way be construed as a waiver of any subsequent breach of such provision or the waiver of the provisions itself. 5.8 Invalidity of a Particular Provision. The invalidity or ---------------------------------- unenforceability of any term, provision, clause or any portion thereof of this Agreement shall in no way impair or affect the validity or enforcement of any other provision of this Agreement. 5.9 Survival. The provisions which by their meaning and intent have -------- applicability beyond the term of this Agreement shall survive the expiration or termination of this Agreement. 5.10 Relationship of the Parties. The relationship between STAAR and --------------------------- Lenstec is and shall be that of vendor and vendee. Neither party, nor its agents and employees, shall under any circumstances be deemed agents or representatives of the other and neither shall have authority to act for and/or bind the other in any way, or represent that it is in any way responsible for acts of the other. This Agreement does not establish a joint venture, agency or partnership between the parties, nor does it create an employer/employee relationship. 5.11 Counterparts. This Agreement may be executed in several ----------- counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. If this Agreement is executed in counterparts, no signatory hereto shall be bound until both the parties named below have duly executed or caused to be duly executed a counterpart of this Agreement. 5.12 Expenses. The prevailing party in any legal action to enforce or -------- interpret this Agreement shall be entitled to reimbursement of its costs and attorneys' fees in such action by the other party. 5.13 Force Majeure. A party shall not be liable for nonperformance or ------------- delay in performance caused by any event reasonably beyond the control of such party (provided such party shall use its best efforts to return to normal operations); including but not limited to wars, hostilities, revolutions, riots, 6 civil commotion, national emergency, epidemics, fire, flood, earthquake,force of nature, explosion, embargo, or any other Act of God, or any law, proclamation, regulation, ordinance, or other act or order of any court, government or governmental agency. 5.14 Time. The parties agree that time is of the essence in the ---- performance of obligations under this Agreement. 5.15 Specific Performance. The parties acknowledge and agree that -------------------- STAAR will suffer irreparable harm in the event of a material breach of Lenstec's obligation to supply Equipment in accordance with the terms hereof. Accordingly, Lenstec agrees that STAAR will, in addition to any other remedies available to it at law or in equity, be entitled to injunctive relief to enforce Lenstec's obligation to supply equipment in accordance with the terms hereof. 5.16 Confidentiality. The terms and conditions of this Agreement --------------- shall be confidential and shall not be disclosed by any of the parties to this Agreement to any third party, other than to an actual or potential affiliate, successor or assign, except that any party may disclose the terms and conditions of this Agreement (i) to its legal or accounting advisors, as necessary, so long as they agree to be bound by the terms of this confidentiality provision; or (ii) if such party receives a subpoena or other process or order to produce this Agreement, provided that such party shall, prior to any disclosure to any third party, promptly notify the other party to this Agreement so that the party has a reasonable opportunity to respond to such subpoena, process or order; or (iii) as otherwise required by law. The party receiving the subpoena, process or order shall take no action contrary to the confidentiality provisions set forth above and shall make reasonable efforts to produce only subject to a protective order. The party objecting shall have the burden of defending against such subpoena, process or order. The party receiving the subpoena, process or order shall be entitled to comply with it except to the extent that any other party is successful in obtaining an order modifying or quashing it. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. STAAR SURGICAL COMPANY LENSTEC, INC. By: /s/ John R. Wolf By: /s/ John Clough ------------------------------- -------------------------- Title: President Title: President ---------------------------- ----------------------- Date: 5/11/99 Date: 5/6/99 ---------------------------- ----------------------- 7 EXHIBIT "A" IOL MANUFACTURING EQUIPMENT EFFECTIVE LIST PRICES - APRIL 1999
Description List Price - ----------- ---------- Lenstec Lenslathes delivered and installed $85,000.00 Lenstec Lensmill delivered and installed $85,000.00 Rotlex Lens analyzers $30,000.00 CNC edge hole drills with fixturing $20,000.00 Three tier tumble polisher $17,000.00 Optical comparators $ 8,500.00 Additional inspection stations $30,000.00 Lens Blocking and deblocking system $ 5,000.00 Second Cut Blocks (each) $ 15.00
8 EX-10.52 12 STOCK PLEDGE AGREEMENT EXHIBIT 10.52 STOCK PLEDGE AGREEMENT ---------------------- This STOCK PLEDGE AGREEMENT (hereinafter "Agreement") is made and entered into as of the 16th day of June, 1999, by and between Peter J. Utrata, M.D., an individual ("Pledgor") and Staar Surgical Company, a Delaware corporation ("Pledgee") with reference to the following facts: RECITALS -------- WHEREAS, Pledgor has executed in favor of Pledgee a promissory note (the "Note"), a copy of which is attached hereto as Exhibit "1" and is incorporated herein by this reference, for the sum of One Million Two Hundred Fifty-Eight Thousand Dollars ($1,258,000); and WHEREAS, Pledgor desires to pledge to Pledgee the interest of Pledgor in certain common stock, which is included on Exhibit "2", attached hereto and incorporated herein by this reference, 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) Original 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 Pledgee a continuing security interest in the following: (i) One Hundred Twenty Thousand (120,000) shares of the Common Stock of Staar Surgical Company (the "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) Increase in Security. If, for a period of fifteen (15) -------------------- consecutive days, the fair market value of the Stock falls below all sums due under the Note, then Pledgor will be required to transfer to Pledgee, upon receipt of Pledgee's written request, additional security, in any form acceptable to Pledgee, in an amount equal to the difference between all sums due under the Note and the fair market value of the Stock. (c) Delivery of Stock Power to Pledgee. Pledgor shall deliver to ---------------------------------- Pledgee, concurrently with the execution of this Agreement, the Stock along with an Assignment of Corporate 1 Shares in the form of Exhibit "3" attached hereto and incorporated herein by this reference ("Stock Assignment"), signed by Pledgor, in blank, such Stock Assignment to be used by Pledgee in accordance with the terms of this Agreement. (d) Pledgee's Acceptance of Collateral and Appointment as Pledgor's --------------------------------------------------------------- Attorney-In-Fact. Pledgee 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 Pledgee 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. Pledgee shall release the Collateral from --------------------- this Agreement and return the Collateral to Pledgor upon satisfaction in full of Pledgor's obligations under the Note; provided, however, that, pursuant to paragraph 4 of the Note if, for a period of thirty (30) consecutive days, the fair market value of the Collateral equals or exceeds 150% of all sums unpaid under the Note, Pledgor shall release to Plegee such portion of the Collateral the value of which exceeds the amount of all sums unpaid 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 rights pertaining to the Stock, provided, however, so long as Pledgor is in "Default" as defined in Paragraph 3 of this Agreement, Pledgee shall vote the Stock and exercise any rights pertaining to the Stock. (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 distributed on account of the Stock. Notwithstanding the foregoing, Pledgee, 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 (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, Pledgee shall be paid any proceeds with respect to the Stock; provided, however, Pledgee shall apply such payments against the outstanding balance of the Note. 2 (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 Pledgee under the terms of this Agreement in the same manner as the Stock. 3. Default and Remedy on Default. ----------------------------- At the option of Pledgee, upon the happening of any of the following events of default ("Default"), Pledgee shall have all of the rights and remedies set forth therein: (a) Default Under Note. If an event of default, as set forth in ------------------ paragraph 9 of the Note, occurs 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. 4. Pledgor's Representations, Warranties and Covenants. --------------------------------------------------- Pledgor represents, warrants and covenants to Pledgee as follows: (a) Upon delivery to Pledgee 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 necessary to preserve Pledgee's rights in the Collateral against any claims of third parties; and (d) Pledgor has 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 Pledgee shall not 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. 5. 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 3 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 Pledgee for any costs and expenses incurred by 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. 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 non-prevailing 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 Delaware. (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. 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. This Agreement is to be read, construed and applied together with the Note, which, taken together, set forth the complete understanding and agreement of the parties with respect to the matters referred to herein and therein. (d) Pledgor may not delegate its 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 4 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 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 as provided in the Note. WHEREFORE, the parties hereto have executed this Agreement as of the date first set forth above. Pledgor: /s/ Peter J. Utrata, M.D. ------------------------------ Peter J. Utrata, M.D. Address: 1289 Arlington Avenue Columbus, Ohio 43212 Pledgee: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 By:_________________________ 5 EXHIBIT "1" ----------- PROMISSORY NOTE --------------- 6 EXHIBIT "2" ----------- LIST OF SHARES -------------- 120,000 shares of the common stock of STAAR Surgical Company represented by certificate number SS 9723-85-9724. ------------ 7 EXHIBIT "3" ----------- ASSIGNMENT OF CORPORATE SHARES (Without Certificate) FOR VALUE RECEIVED, the undersigned hereby assigns to Staar Surgical Company, a Delaware corporation, as Pledgee under that certain Stock Pledge Agreement entered into on June 16, 1999 by and between Peter J. Utrata, M.D. and Staar Surgical Company, one hundred twenty thousand (120,000) shares of the common stock of Staar Surgical Company, represented by certificate number(s) ____________________ standing in the undersigned's name on the books of said corporation, and does 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 ------------------------- WITNESS: __________________________________ 8 EX-10.53 13 REVOLVING LINE OF CREDIT EXHIBIT 10.53 WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE - -------------------------------------------------------------------------------- $10,000,000.00 West Covina, California July 1, 1999 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 San Gabriel Valley RCBO, 1000 Lakes Drive, Suite 250, West Covina, CA 91790, 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 .50000% below the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be 1.50000% 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, Page 1 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 notice is given to Bank prior to 10:00 a.m., California time, on the first day of the Fixed Rate Term. For each LIBOR 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 rate 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 which 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 evant, 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 August 1, 1999. 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, 2002. Page 2 (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, any one acting alone, who are authorized to request advances and direct the 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. Page 3 (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. (e) Any financial statement provided by any Borrower or Third Party Obligor to Bank proves to be incorrect, false or misleading in any material respect. (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 appellate 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 Page 4 EX-10.54 14 TERM NOTE DTD 7/1/99 EXHIBIT 10.54 WELLS FARGO BANK TERM NOTE - -------------------------------------------------------------------------------- $4,000,000.00 West Covina, California July 1, 1999 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 San Gabriel Valley RCBO, 1000 Lakes Drive, Suite 250, West Covina, CA 91790, 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 $4,000,000.00, with interest thereon 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 3, 6, 9 or 12 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 1OO% 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 the time this Note is disbursed or Borrower 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 Page 1 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 notice is given to Bank prior to 10:00 a.m., California time, on the first day of the Fixed Rate Term. For each LIBOR 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 rate 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 this Note is disbursed or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection for this Note or the principal amount to which 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 September 1, 1999. (e) Default Interest. From and after the maturity date of this Note, or ---------------- such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note. REPAYMENT AND PREPAYMENT: (a) Repayment. Principal shall be payable on the 1st day of each month in --------- installments of $66,666.67 each, commencing September 1, 1999, and continuing up to and including July 1, 2004, with a final installment consisting of all remaining unpaid principal due and payable in full on August 1, 2004. Page 2 (b) 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. (c) Prepayment. ---------- 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. 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. All prepayments of principal shall be applied on the most remote principal installment or installments then unpaid. 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. (e) Any financial statement provided by any Borrower or Third Party Obligor to Bank proves to be incorrect, false or misleading in any material respect. Page 3 (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 appellate 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 Page 4 EX-21 15 LIST OF SIGNIFICANT 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 Canon STAAR Japan EX-24 16 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY OFFICERS AND DIRECTORS OF STAAR SURGICAL COMPANY The undersigned director of STAAR Surgical Company, a Delaware corporation (the "Corporation"), which proposes to file a Form 10-K under the provisions of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, Washington D.C., hereby constitutes and appoints William C. Huddleston, with full power of substitution and resubstitution, as attorney to sign for the undersigned in any and all capacities such Form 10-K and any and all amendments thereto, and any and all applications or other documents to be filed pertaining to such Form 10-K 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 attorney-in-fact and agent, or any of his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Executed this 24th day of March, 2000. /s/ Peter J. Utrata, M.D. --------------------------- PETER J. UTRATA, M.D. EXHIBIT 24 POWER OF ATTORNEY OFFICERS AND DIRECTORS OF STAAR SURGICAL COMPANY The undersigned director of STAAR Surgical Company, a Delaware corporation (the "Corporation"), which proposes to file a Form 10-K under the provisions of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, Washington D.C., hereby constitutes and appoints William C. Huddleston, with full power of substitution and resubstitution, as attorney to sign for the undersigned in any and all capacities such Form 10-K and any and all amendments thereto, and any and all applications or other documents to be filed pertaining to such Form 10-K 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 attorney-in-fact and agent, or any of his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Executed this 24th day of March, 2000. /s/ Andrew F. Pollet -------------------------------- ANDREW F. POLLET EX-27.1 17 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1999 DEC-31-1999 3,344,128 0 9,802,891 376,078 22,318,131 43,567,379 27,443,525 14,767,045 85,273,274 17,976,705 0 0 0 147,523 52,536,106 85,273,274 58,954,700 59,208,141 22,934,939 55,091,836 0 28,468 683,072 3,434,390 861,766 2,154,057 0 0 0 2,154,057 0.15 0.15
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