-----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, UTbR5GZ/6bErb13sqw7PQhJbvCcQP6ia1+D6BeaS2V+7mMKX73s6yMtMxuKFY+vS OToGyY/fHkpboaUyeOXA3A== 0000898430-99-001415.txt : 19990403 0000898430-99-001415.hdr.sgml : 19990403 ACCESSION NUMBER: 0000898430-99-001415 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19990101 FILED AS OF DATE: 19990401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAAR SURGICAL COMPANY CENTRAL INDEX KEY: 0000718937 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 953797439 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-11634 FILM NUMBER: 99586087 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 FOR THE PERIOD ENDED 01/01/1999 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual For the fiscal year ended January 1, 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 incorporation or (I.R.S. Employer Identification No.) organization) 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 30, 1999 was approximately $86,200,000 based upon the closing price per share of the Common Stock of $7.75 on that date. The number of shares outstanding of the issuer's classes of Common Stock as of March 30, 1999: Common Stock, $.01 Par Value -- 14,029,810 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 1999 Annual Meeting of Stockholders. ADVISEMENT Certain statements contained in this Annual Report on Form 10-K constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") which reflect the Company's current expectations regarding the future results of operations, performance and achievements of the Company, or industry results. The Company has tried, wherever possible, to identify these forward looking statements by, among other things, using words such as "anticipate," "believe," "estimate," "expect" and similar expressions. These statements reflect the current beliefs of the Company and are based on information currently available to it. Accordingly, these statements are subject to known and unknown risks, uncertainties and other factors which could cause the actual results, performance or achievements of the Company or the industry to differ materially from those expressed in, or implied by, these statements. The Company is not obligated to update or revise these "forward looking" statements to reflect new events or circumstances. PART I ------ ITEM 1. BUSINESS General 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 for the purpose of developing, producing, and marketing IOLs and other products for minimally invasive ophthalmic surgery. The Company was reincorporated in Delaware in April 1986. 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 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 1998 are discussed below. The year ending January 1, 1999 set the stage for growth as significant progress was made in expanding the Company's market focus from the cataract market alone to include the refractive and glaucoma markets, increasing global sales of the Company's products, and increasing the Company's international revenues. Revenues for 1998 were $55.1 million, an increase of $9.6 million, or more than 21%, from 1997. Net earnings for 1998 amounted to $2.5 million, or $0.17 per diluted share, compared to $7.4 million, or $0.53 per diluted share, reported in 1997. Significant operational matters affected 1998 including the completion of the purchase of five international sales subsidiaries, a change in the Company's product mix of manufactured vs. purchased items and increased expenditures related to the Company's regulatory and marketing efforts for its new products. Also during 1998 the Company adopted Statement of Position 98-5 issued by the American Institute of Certified Public Accounts, related to start- up costs which resulted in a charge of $0.12 per diluted share which is reported as a change in accounting method. During 1998, the Company completed the establishment of or otherwise acquired five international subsidiaries for sales of ophthalmic medical devices. These acquisitions accounted for an increase in the Company's revenues of $18.2 million or 33%. A primary function of these sales subsidiaries is to provide better control of the release of the Company's newer products, particularly the ICL(TM) and AQUA-FLOW(TM) 1 glaucoma device, into the marketplace. The Company plans to continue acquiring or establishing sales subsidiaries in areas where market share and profitability make it feasible to do so. The Company now has eleven Company-owned sales subsidiaries operating outside the United States. While these sales subsidiaries sell the Company's products, several carry products from other manufacturers and earn substantial revenues from the sales of those products. During 1998 the Company also continued working toward obtaining approval from the United States Food and Drug Administration ("FDA"), for sale in the United States, of its myopic and hyperopic ICLs(TM) and its AQUA-FLOW(TM) glaucoma device. The clinical trials of the ICLs(TM) began in March 1997. Phase I was completed in November 1997 for the Company's myopic ICL(TM) and in April 1998 for its hyperopic ICL(TM). The Company completed Phase II of the clinical trials for the myopic ICL(TM) in December 1998. In October 1998, the FDA permitted the Company to expand its clinical trial of the myopic ICL(TM) to Phase III, and to enroll a total of 350 patients with refractive errors from 3 to 20 diopters in each study. The Company expects to receive clearance to begin clinical trials for Phase III of the hyperopic ICL(TM) during 1999. In late 1997 the Company began clinical trials for its AQUA-FLOW(TM) glaucoma device and, as of January 1, 1999, the Company was over half way through with enrollment for these trials. The Company has obtained the CE Mark for the myopic and hyperopic ICLs(TM) and the AQUA-FLOW(TM) glaucoma device. The CE Mark allows the Company to market these products to members of the European Economic Union. 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. In late 1998 the Company also introduced the Wave(TM) Phacoemulsification Machine, which removes the cataractous debris resulting from the destruction of the patient's natural lens during cataract surgery. 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 1998 the cataract market remained the primary source of the Company's revenues. 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 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. 2 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: Approximately 50% of the world's population needs some form of vision correction. 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 155 million people are in need of some type of vision correction. Of this group, approximately 67 million (43%) had some degree of myopia (near-sightedness), approximately 72 million (46%) had some degree of hyperopia (far-sightedness), and approximately 45 million (29%) had some degree of astigmatism. Most individuals over age 45 also had presbyopia. Approximately 23 million (35%) people had moderate to high myopia, which is defined as greater than 2.5 diopters and 23 million 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. Worldwide, more than $25 billion is spent annually, on correcting vision problems. In the United States, people are seeking to correct their vision by means other than glasses and contact lenses. In 1998, approximately 380,000 laser procedures were performed to correct vision problems. Analysts have projected that this market will grow 75% per year for the next four years. Some analysts have even predicted that in the year 2000, over 775,000 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 2.3 million IOLs were implanted in the United States in 1998, generating approximately $243 million in sales. The Company believes that approximately 2.5 million IOLs were implanted outside the United States during 1998 (not including China and Russia, for which no reliable data exists), generating an additional $350 million of sales. The Company believes that approximately 75% of the domestic market for IOLs in 1998 was held by foldable IOLs, compared to approximately 15% in 1992, and that approximately 50% 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 3 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 two million persons in the United States, and that the number of international cases exceeds that of the United States. The worldwide market for glaucoma drugs is approximately $850 million. It is estimated that 100,000 trabeculectomies and 300,000 laser trabeculoplasties were performed in the United States alone in 1998, representing total expenditures of approximately $400 million. The Company believes glaucoma surgery is more prevalent than glaucoma drug therapy in certain foreign countries due to cost and other considerations. 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 normal lens using minimally invasive surgical techniques similar to implanting an IOL during cataract surgery, except that the human lens is not removed. The five 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) may potentially afford a number of advantages over existing refractive surgical procedures, such as radial keratotomy, photo-refractive keratectomy and laser in-situs keratomileusis, including the possibility of 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), keratoconus, etc. Management intends to seek approval from the FDA to market the ICL(TM) to achieve these benefits. 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 the first two phases of the IDE, pursuant to which 72 ICLs(TM) each for myopia and hyperopia have been implanted, and is presently engaged in the third phase of the IDE for myopia, pursuant to which 278 additional ICLs(TM) will be implanted. During the first half of the 1999 calendar year, the Company expects to submit an application to proceed to the third phase of the IDE for hyperopia. 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 4 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 advanced single-piece ELASTIC(TM) model, and the ELASTIMIDE(TM) model based upon the traditional three-piece design. The selection of one model over the other is primarily based upon the preference of the ophthalmologist, although the Company believes more experienced ophthalmologists prefer the single-piece ELASTIC(TM) model. Sales of foldable IOLs accounted for approximately 71% of total revenues for its 1998 fiscal year, approximately 85% of total revenues for its 1997 fiscal year and approximately 91% of total revenues for its 1996 fiscal year. The Company has developed and currently markets worldwide the Toric(TM) IOL, a 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. Phacoemulsification (phaco) machines are used during cataract surgery to remove the patient's cataractous lens, usually through a small incision. The most desired equipment is efficient, reliable, easily maintained, and cost effective. There are approximately 1,000 to 1,500 phaco machines sold annually at prices ranging from $20,000 to $85,000. The market for this equipment ranges from $5 million to $10 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 510k approval. The Company believes that it will receive CE Mark approval in the near future 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. 5 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 biocompatible material which, through its porosity and hydrophilic properties, 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 the hydrophilic properties of the AQUA-FLOW(TM) device and the minimally invasive nature of the surgery offer several advantages over continued use of drugs and existing surgical procedures, including: (i) greater efficacy, (ii) a longer-term solution, (iii) reduced risk of surgical complications, and (iv) cost effectiveness. The Company believes the AQUA-FLOW(TM) device is an attractive product for: (i) managed care and health maintenance organizations and group purchasing organizations who desire to control their costs and at the same time provide their customers with a higher standard of health care; (ii) less developed countries which lack the resources and infrastructure to provide 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 the advanced skills necessary 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 175 patients. The Company, after concluding this study, will submit a pre-market application to the FDA for approval of the AQUA-FLOW(TM) device for marketing in the United States. 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 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. 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 6 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 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 being manufactured for the Company by unaffiliated third parties. 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 ophthalmologic 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. 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 (or former Union of Soviet Socialists Republic) and China. In January 1996, IRTC granted an exclusive royalty bearing license to STAAR Surgical AG to manufacture, use and sell 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 protection afforded by any single patent. 7 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 a number of other marks and has applied for registration for a number of these marks. An adverse decision from a Court of competent jurisdiction affecting the validity or enforceability of the Company's patents or proprietary rights owned by or licensed to the Company could have, depending generally on the economic importance of the country or countries to which such patents or proprietary rights relate, an adverse effect on the Company and on its business prospects. Legal costs relating to prosecuting or defending patent infringement litigation may be substantial. Costs of litigation related to successful prosecution of patent litigation are capitalized and amortized over the estimated useful life of the relevant patent. There can be no assurance that the Company will be able to successfully defend its patents and proprietary rights in the future. See "Uncertainties and Risk Factors - Patents and Proprietary Rights" in Item 7. 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 foldable patents which were granted on an exclusive basis to Canon STAAR (for Japan only), on a non-exclusive basis to Alcon, Bausch & Lomb, Mentor and Canon STAAR (with respect to the world other than Japan), and on a co-exclusive basis to AMO. At the time these licenses were granted, the Company received substantial pre-payments of royalties on all but one of the licenses. The pre-payment 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. 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 more 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. 8 The Company believes its primary competition in the development and sale of products used to surgically correct cataracts, namely foldable IOLs and phaco 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 which 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 Most of the Company's products are subject to regulation as medical devices by the FDA, requiring FDA approval or clearance before they can be sold within the United States, and mandating continuous compliance of the Company's manufacturing facilities and distribution procedures with FDA regulations, including "Good Manufacturing Practices." Initial approval or clearance of medical devices for sale is subject to differing levels or types of FDA review and evaluation depending on the classification of the device under the Food, Drug and Cosmetic Act ("FD&C Act") and whether the use of the medical device can be demonstrated to be substantially equivalent to a directly related medical device in commerce prior to May 1976 (the month and year of enactment of the FD&C Act). Pursuant to the FD&C Act, medical devices are classified as either Class I, Class II or Class III devices. If classified as a Class I device, the medical device will be subject only to general controls which are applicable to all devices. Such controls include regulations regarding FDA inspections of facilities, "Good Manufacturing Practices," labeling, maintenance of records and filings with the FDA. If classified as a Class II device, the medical device must also meet general performance standards established by the FDA. If classified as a Class III device, the applicant must present sufficient data derived through clinical studies demonstrating the product's safety, reliability and effectiveness. FDA approval for a Class III device begins with the submission of an application for an Investigational Device Exemption or IDE which, if granted, will permit the implantation of a limited number of products (typically less than 100) on a clinical study basis. Based upon the results from the initial core population, the FDA will then allow one or more additional core studies to be performed, typically 350 to 500 implants. The complete clinical results will then be reviewed by an FDA advisory panel of outside experts. If the advisory panel approves the product based upon the results, the FDA will then generally grant pre-market approval assuming satisfaction of its other requirements. The grant of an IDE, the performance of clinical studies, the submission of an application for pre-market approval, and advisory panel approval, may take three to ten years depending, in part, upon the complexity and known attributes or history of the medical device. 9 A medical device that is substantially equivalent to a directly related medical device previously in commerce may be eligible for abbreviated FDA pre- market notification "510(k) review" process. The review period and FDA determination as to substantial equivalence should be made within 90 days of submission of a 510(k) application, unless additional information or clarification or clinical studies are requested or required by the FDA. As a practical matter, the review process and FDA determination often take significantly longer than 90 days. FDA 510(k) clearance is a "grandfather" process. As such, FDA clearance does not imply that the safety, reliability and effectiveness of the medical device has been approved or validated by the FDA, but merely means that the medical device is substantially equivalent to a previously cleared commercially-related medical device. The Company's IOLs, ICLs(TM), 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. 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. The Company is presently conducting clinical studies under an IDE for the ICL(TM) (during 1998 the Company began Phase III of the clinical study relating to the myopic lens and during 1999 the Company expects to begin Phase III of the clinical study for the hyperopic lens) and its AQUA-FLOW(TM) glaucoma device (single phase). The Company is also subject to mandatory Medical Device Reporting ("MDR") regulations which obligate the Company to provide information to the FDA on injuries alleged to have been associated with the use of a product or in connection with certain product failures which could cause injury. Clinical Regulatory Requirements in Foreign Countries There is a wide variation in the approval or clearance requirements necessary to market products in foreign countries. The requirements range from virtually no requirements to a level comparable to or even greater than those of the FDA. For example, many countries in South America have minimal regulatory requirements, while many developed countries, such as Japan, 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 Economic Union (the "Union") require that all medical products which are 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 ("HCFA") adopted rules that limit Medicare reimbursement for IOLs implanted in ambulatory surgical centers to a flat fee of $150. HCFA's Medicare reimbursement rate for IOLs implanted in hospitals was set at $150 plus 50% of cost. The Company is also subject to various federal, state and local laws applicable to its operations including, among other things, working conditions, laboratory and manufacturing practices, and the use and disposal of 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 10 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 20 employees. Over the past year, the Company has principally focused its research and development efforts on: (i) developing the Company's ICLs(TM), AQUA-FLOW(TM) glaucoma device and Toric(TM) lenses, for both IOLs and ICLs(TM),; (ii) improving insertion and delivery systems for the Company's foldable products; and (iii) generally improving the manufacturing systems and procedures for all products to reduce manufacturing costs. Research and development expenses amounted to approximately $3,570,000, $3,936,000 and $4,085,000 for the Company's 1998, 1997 and 1996 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 environment 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 60% of a major European sales subsidiary which distributes both the Company's products and products from various other manufacturers. Employees The Company and its subsidiaries had a total of 270 employees as of January 1, 1999, including 40 in administration, 90 in marketing and sales, 20 in research and development and technical services and 120 in manufacturing, quality control and shipping. Financial Information About Foreign and Domestic Operations And Export Sales Approximately $25,348,000, $30,397,000 and $29,069,000 in the Company's overall revenues were generated in the United States for its 1998, 1997 and 1996 fiscal years, respectively, constituting approximately 46% 67% and 69% 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 $24,099,000 $8,924,000 and $8,576,000 in revenues for the Company's 1998, 1997 and 1996 fiscal years, respectively, constituting approximately 43%, 20% and 20% of the Company's overall revenues for such respective fiscal years. The balance of the 11 Company's foreign sales were distributed among the Asian/Pacific, Middle Eastern, South African and South American geographic areas. Most all products sold in 1998 were manufactured in the United States. 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 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 92,000 square feet. The leases expire between 1999 and 2002, and currently require aggregate payments of approximately $38,000 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 $12,000 per month. The Company believes its properties to be adequate for its current business plans. ITEM 3. PENDING LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended January 1, 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 ------ ---- --- 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 1997: Fourth Quarter $18.625 $14.375 Third Quarter 18.125 10.500
12 Second Quarter 14.125 9.625 First Quarter 14.125 9.875
The last reported sale price for the Company's Common Stock on the Nasdaq National Market on March 30, 1999 was $7.75 per share. As of March 30, 1999, there were approximately 1,022 record holders of the Common Stock. The Company has not paid any cash dividends on its Common Stock since its inception. The Company currently anticipates that all income will be retained to develop further the Company's business and that no cash dividends on the Common Stock will be declared in the foreseeable future. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data of the Company with respect to the Company's five most recent fiscal years ended January 1, 1999, January 2, 1998, January 3, 1997, December 29, 1995, and December 30, 1994. 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 January 1, 1999 and January 2, 1998, 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 December 29, 1995, and December 30, 1994 and the consolidated balance sheet data set forth below at January 3, 1997, December 29, 1995, and December 30, 1994, 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 -------------------------------------------------------- January January January December December 1, 2, 3, 29, 30, 1999 1998 1997 1995 1994 ------- ------- ------- ------- ------- (In thousands, except per share data) Statement of Income Data: Sales................................................. $54,244 $42,480 $41,213 $34,180 $26,333 Royalty and other income.............................. 899 3,040 1,000 514 1,020 ------- ------- ------- ------- ------- Total revenues..................................... 55,143 45,520 42,213 34,694 27,353 Cost of sales......................................... 18,533 10,262 10,196 8,441 6,059 ------- ------- ------- ------- ------- Gross profit....................................... 36,610 35,258 32,017 26,253 21,294 Selling general and administrative General and administrative......................... 6,770 6,334 5,628 5,000 4,365 Marketing and selling.............................. 18,709 12,719 12,227 10,911 8,694 Research and development........................... 3,570 3,936 4,085 3,254 2,718 ------- ------- ------- ------- ------- Total selling general and administrative........ 29,049 22,989 21,940 19,165 15,777 ------- ------- ------- ------- ------- Operating income...................................... 7,561 12,269 10,077 7,088 5,517 ------- ------- ------- ------- ------- Total other income (expense).................... (763) (579) 153 303 625 ------- ------- ------- ------- ------- Income before income taxes, minority interest and cumulative effect of change in accounting method...... 6,798 11,690 10,230 7,391 6,142 Income tax provision (benefit)(1)..................... 1,999 4,271 3,339 (91) (2,184) Minority Interest..................................... 662 - - - - ------- ------- ------- ------- ------- Net income before accounting change................... 4,137 7,419 6,891 7,482 8,326 Cumulative effect of accounting change................ (1,680) - - - -
13 Net income............................................ $ 2,457 $ 7,419 $ 6,891 $ 7,482 $ 8,326 ======= ======= ======= ======= ======= Diluted income per share before effect of change...... $ 0.29 $ 0.53 $ 0.50 $ 0.55 $ 0.63 in accounting method................................. ======= ======= ======= ======= ======= Basic net income per share............................ $ 0.18 $ 0.57 $ 0.53 $ 0.59 $ 0.67 ======= ======= ======= ======= ======= Diluted net income per share.......................... $ 0.17 $ 0.53 $ 0.50 $ 0.55 $ 0.63 ======= ======= ======= ======= ======= Weighted average number of basic shares............... 13,542 13,124 12,910 12,756 12,514 Weighted average number of diluted shares............. 14,268 14,113 13,867 13,679 13,170 Balance Sheet Data: Working capital....................................... $26,925 $24,936 $15,000 $16,335 $14,166 Total assets.......................................... 73,290 62,391 52,056 38,803 28,888 Notes payable and current portion of long-term debt... 2,312 1,608 8,193 4,029 1,792 Long-term debt........................................ 10,021 5,750 844 1,212 572 Stockholders' equity.................................. 47,706 44,783 36,604 28,678 22,029
(1) Includes recognition of deferred tax asset of $2.4 million for 1994 and $900,000 for 1995. The following table sets forth unaudited operating data for each of the specified quarters of the fiscal years ended January 2, 1998 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 January 1, 1999 (in thousands except per share data) Revenues $14,101 $13,983 $12,901 $14,158 Gross Profit 9,817 10,155 8,323 8,315 Income Before Accounting Change 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 For the Fiscal Year Ended January 2, 1998 Revenues $10,555 $11,584 $11,825 $11,556 Gross Profit 8,095 8,889 9,065 9,209 Net Income 1,749 1,953 2,064 1.653 Basic Income Per Share 0.13 0.15 0.16 0.13 Diluted Income Per Share 0.13 0.14 0.14 0.12
(1) Income before cumulative effect of change in accounting method for start-up costs. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 14 AND RESULTS OF OPERATIONS 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 January January January 1997 1996 1, 2, 3, vs. vs. 1999 1998 1997 1998 1997 ------- ------- ------- ------- ------- Total revenues........................................... 100.0% 100.0% 100.0% 21.1% 7.8% Cost of sales............................................ 33.6 22.5 24.2 80.6 0.7 ----- ----- ----- Gross profit............................................. 66.4 77.5 75.8 3.8 10.1 Costs and expenses: General and administrative............................ 12.3 13.9 13.3 6.9 12.5 Marketing and selling.................................... 33.9 27.9 29.0 47.1 4.0 Research and development................................. 6.5 8.6 9.7 (9.3) (3.6) ----- ----- ----- Total costs and expenses.............................. 52.7 50.5 52.0 26.4 4.8 Operating income......................................... 13.7 27.0 23.9 (38.4) 21.7 ----- ----- ----- Other expense, net....................................... (1.4) (1.3) 0.4 31.7 - ----- ----- ----- Income before income taxes............................... 12.3 25.7 24.2 (41.8) 14.3 Income tax provision..................................... 3.6 9.4 7.9 ( 20.3) 27.9 Minority interest........................................ 1.2 - - 100.0 - Accounting change-write-off of startup costs............. 3.0 - - 100.0 - ----- ----- ----- Net income............................................... 4.5% 16.3% 16.3% (66.9) 7.7% ===== ===== =====
15 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. In 1998 the Company began 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 new sales subsidiaries, new products such as its Collamer(TM) IOL, the new WAVE(TM) Phacoemulsification Machine and its newly acquired access to lines of IOLs, equipment and instruments from other manufactures. 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." The Company's objective for the future will be to sell more of the refractive products it manufactures and to use its recently acquired sales subsidiaries to move into the marketplace more of its instruments and equipment. Management believes it can reduce costs of sales by selling more of its refractive products and/or by purchasing in larger quantities the instruments and equipment. 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 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 resulting from 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 16 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 $3.3 million to $4.1 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, 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 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. 1997 Fiscal Year Compared To 1996 Fiscal Year Revenues. Revenues for the year ended January 2, 1998 were $45.5 million, representing a 7.8% increase over $42.2 million in revenues for the prior year ended January 3, 1997. The increase in revenues was principally attributable to: (i) an increase in royalty payments, primarily due to a payment by a licensee of past royalties; and (ii) increased sales of the Company's new products and increased international sales of the Company's IOLs, partially offset by domestic and international price decreases. Royalty revenues increased from $1.0 million to $3.0 million. Revenues from the sale of the Company's new products, principally its ICLs(TM), AQUA-FLOW(TM) and new IOL products including the TORIC(TM) IOL, increased to $2.2 million in fiscal 1997 from $660,000 in fiscal 1996. International sales of IOLs in fiscal 1997 increased by 38% in unit volume, and by $1.6 million in dollar terms, over the prior fiscal year, respectively. Total international sales increased to 35% of total revenues for the 1997 fiscal year, as compared to 30% of total revenues for the prior fiscal year, reflecting the Company's ongoing efforts to develop international markets as well as the conversion of these markets to foldable IOLs. Increases in sales of IOLs in unit volume were partially offset by an average price decrease for IOLs of nearly 10%, as a result of competitive pressures, both domestically and internationally. Cost of Sales. Due primarily to additional royalty income and also continued manufacturing efficiencies, cost of sales as a percentage of revenues for the year ended January 2, 1998 declined to 22.5% of revenues as compared to 24.2% for the prior fiscal year. This reduction was effectuated notwithstanding price decreases resulting from competitive pressures and a product mix change due to an increased demand for the ELASTIMIDE(TM) IOL (which is more expensive to manufacture than the ELASTIC(TM) model). General and Administrative. General and administrative expense for the year ended January 2, 1998 was $6.3 million, or 13.9% of revenues, as compared to $5.6 million, or 13.3% or revenues, for the prior fiscal year. The increase in general and administrative expense, both in dollars and as a percentage of revenues, was attributable to additional administrative infrastructure expenditures required to support the increase in revenues and costs related to investor relations. Marketing and Selling. Marketing and selling expense for the year ended January 2, 1998 was $12.7 million, or 27.9% of revenues, as compared to $12.2 million, or 29.0% of revenues, for the prior fiscal year. 17 The decline in marketing and selling expense as a percentage of revenues was attributable to the significant growth in overall revenues permitting greater absorption of fixed marketing and selling (i.e., non-commission) costs. The increase in marketing and selling expense in dollars was principally attributable to additional selling and marketing expenses arising from the operations of the Company's new European sales subsidiaries. Research and Development. Research and development expense for the year ended January 2, 1998 was $3.9 million, or 8.6% of revenues, as compared to $4.1 million, or 9.7% of revenues, for the prior fiscal year. These expenditures were attributable to the Company's continued investment in developing new products, manufacturing systems and distribution systems, cost reduction projects for manufacturing, and increased costs incurred conducting clinical studies in the United States. Other Expense or Income, Net. Other expense for the year ended January 2, 1998 was $579,000, or 1.3% of revenues, as compared to other income of $153,000, or 0.4% of revenues, for the prior fiscal year. The primary reasons for the overall increase in other expenses over income were increased interest expense, and losses in translating foreign currency. Income Tax Provision. Income taxes increased to a provision of $4.3 million for the year ended January 2, 1998, as compared to a provision of $3.3 million for the prior fiscal year. The Company's tax rate increased from a rate of 32.6% in fiscal 1996 to a rate of 36.5% for fiscal 1997, primarily due to a greater percentage of income before taxes being subject to taxation at the higher United States 40% combined federal and state marginal tax rate. During fiscal 1997 the Company utilized all of its remaining tax operating loss carryforwards for federal income tax purposes. See Note 7 to the Consolidated Financial Statements. As a result of the Company's positive operating results for each of the three years ended January 1, 1999, January 2, 1998 and January 3, 1997, the Company determined that deferred tax assets of $1.2 million and $2.3 million should be recognized as of January 2, 1998 and January 3, 1997. These amounts were based on a consideration of current and future anticipated earnings. Future income levels should result in full recognition of the deferred tax assets. The amount recorded as of January 3, 1997 includes the capitalization of the remaining balance of the Company net operating loss carryforwards. Management believes it is more likely than not that the deferred tax assets will be realized in full. Liquidity and Capital Resources The Company has funded its activities over the past several years principally from cash flow generated from operations, credit facilities provided by institutional domestic and foreign lenders, and the exercise of stock options and warrants. The Company's principal domestic credit facility is a line of credit originally entered into on a secured basis in June 1996, and refinanced on an unsecured basis in June 1997 and again in June 1998, 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 2001. The underlying loan agreement requires the Company to satisfy certain financial tests, and limits the amount of indebtedness the Company may incur to others. Borrowings outstanding as of January 1, 1999 were approximately $6.9 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 18 principal amounts borrowed will be payable monthly at a rate of interest not to exceed the prime interest rate, less 0.25% (or, at the election of the Company, if more than $100,000 is outstanding, at a rate of interest equal to LIBOR, plus 1.75%). The underlying loan agreement requires the Company to satisfy certain financial tests, and limits the amount of indebtedness the Company may incur to others. The principal amount outstanding as of January 1, 1999 was approximately $3.6 million. 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 $796,000 (1.1 million Swiss Francs) at a 5.0% rate of interest as of January 1, 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 January 1, 1999 under the line of credit were approximately $1,000,000. Under the term loan, STAAR Surgical AG obtained a $796,000 (1.1 million Swiss Francs) loan guaranteed partially by the Swiss government and partially by the Company. Interest on this loan is 6.25%, which the Company shares on an equal basis with the bank and the Swiss government. The principal amount of this loan was required to be repaid in four equal annual installments, beginning in December 1996. Borrowings outstanding at January 1, 1999 were approximately $214,000. As of January 1, 1999, the Company had net working capital of approximately $26.9 million, as compared to $24.9 million and $15.0 million as of January 2, 1998 and January 3, 1997, respectively. Excluding the impact of working capital received by way of the Company's acquisition of a 60% interest in a European sales subsidiary, working capital increased $2.0 million. The increase in working capital was primarily attributable to increases in inventories of $2.1 million, prepaids and other assets of $ .7 million, accounts receivable of $ .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 $ .7 million. As of January 1, 1999, the Company had cash and cash equivalents of approximately $4.7 million, as compared to $6.3 million and $6.5 million as of January 2, 1998 and January 3, 1997, respectively. The decline in the Company's cash position for the year ended January 1, 1999 was attributable to the decrease in cash provided by operations. The slight decline in the Company's cash position for the year ended January 2, 1998 was primarily attributable to the increase in the effect of exchange rate changes in cash and cash equivalents. Cash flows from operating activities for the year ended January 1, 1999 were approximately $4.3 million, a decrease of approximately $3.3 million from the prior fiscal year. The decrease in cash flow from operating activities was principally attributable to lower net income of approximately $5.0 million offset by increased depreciation, amortization and the write-off of start-up costs. Cash flows from operating activities for the year ended January 2, 1998 were approximately $7.6 million, a decrease of approximately $1.7 million from the prior fiscal year. The decrease in cash flow from operating activities was principally attributable to a $3.9 million change in operating working capital offset by a $550,000 increase in amortization of patents, licenses and other intangibles, and full utilization of a $1.3 million increase in deferred income taxes. Cash used in investing activities for the year ended January 1, 1999 was $10.1 million, representing an increase of approximately $2.7 million relative to the year ended January 2, 1998. This increase was due primarily to the acquisition of a 60% interest in a European sales subsidiary. Cash used in investing activities for the year ended January 2, 1998 was $7.4 million, representing a decrease of approximately $3.6 million relative to the year ended January 3, 1997. This decrease was due primarily to a $1.4 million decrease in the acquisition of property, plant and equipment and a $2.7 million decrease in the acquisition of patents and licenses, partially offset by a $590,000 increase in other assets. 19 Cash flows from financing activities for the year ended January 1, 1999 were $4.1 million, representing an increase of approximately $4.0 million. This increase was principally attributable to the loan obtained by the Company to acquire a 60% interest in a European sales subsidiary. Cash flows from financing activities for the year ended January 2, 1998 were $123,000, representing a decrease of approximately $4.4 million relative to the year ended January 3, 1997. This decrease was principally attributable to a $2.4 million decrease in borrowings and a $2.1 million increase in payments on notes payable and long-term debt. The Company's capital expenditures for the fiscal years ended January 1, 1999 and January 2, 1998 were approximately $2.0 million and $2.8 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 1999 are approximately $2.0 million, to be used primarily to improve and expand the Company's manufacturing capacity for the foldable IOL, ICL(TM) and AQUA- FLOW(TM) glaucoma device, which the Company anticipates will ultimately reduce manufacturing costs. Capitalized additions for patents and licenses for the fiscal years ended January 1, 1999 and January 2, 1998 were approximately $2.0 million and $3.2 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 1999 for patents and licenses. Management believes that cash flow from operations and available credit facilities, together with its current cash balances, will provide adequate financial resources to finance an increase in the level of the Company's operations, including 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. Year 2000 Compliance The Company's management understands the importance of identifying and addressing Year 2000 compliance issues and has placed a high priority on this project. Accordingly, the Company's Year 2000 efforts are guided by a special Year 2000 Steering Committee which reports to the President of the Company. The Steering Committee is made up of designees from each department within the Company and includes representatives of its foreign subsidiaries. The Committee meets on a regular basis to discuss the progress of each department in achieving its Year 2000 goals and to discuss new information. The Company has developed a comprehensive plan for achieving Year 2000 compliance that is consistent with the five-step process prescribed by federal regulators as follows: 20 . Awareness - Creating and maintaining awareness of the Company's Year 2000 effort at all levels of the organization. . Assessment - Determining which computers, operating systems, applications, machinery and equipment, and facilities are impacted and prioritizing the remediation effort. . Renovation - Fixing any problems. . Validation - Testing and certification (which is expected to be complete by the end of April 1999). . Implementation - Implementation of validated systems (which is expected to be completed by June 1999). The Company's principal computer hardware used by its business application systems has been certified to be Year 2000 compliant by the vendor, Hewlett- Packard. The Company's principal internal operating systems are UNIX/Unidata based. These systems use a sequentially incremented integer to store the date beginning with a day 1 of January 1, 1968. Therefore, the date logic of these systems had few Year 2000 related problems, the vendor has addressed such problems and the Company has upgraded its systems to a Year 2000 certified version. The Company's principal business application software is a modified version of one purchased from a third party. The Company's personnel have assessed, modified and installed the modified programs into a test environment. Testing by the Company's information system personnel is complete, including advancing the system date to the Year 2000, and all programs functioned as expected. The Company has recently successfully completed user testing of all mission critical programs. Testing will continue with installation of the programs in the United States scheduled for the second quarter of 1999. These same systems and programs are used by the majority of the Company's subsidiaries and those installations are scheduled to be complete during the third quarter of 1999. In general, the Company is ahead of its schedule for this project and has met all internal milestones. For those subsidiaries using other systems, either those systems have been certified as Year 2000 compliant or plans are in place to upgrade or replace with the Company's principal system. In addition to reviewing its internal systems, the Company is contacting certain suppliers, vendors, and other providers of goods and services to determine their ability to do business in the Year 2000 and have included Year 2000 considerations in the vendor selection and certification process. The Company expects this process to be ongoing as companies progress with their own Year 2000 issues. In any event, contingency plans are being developed in the event that the Year 2000 does impact critical suppliers or vendors. The Company's costs of achieving Year 2000 compliance to date have been immaterial to financial position, results of operations or cash flows. The Company does not anticipate that additional amounts incurred in connection with its Year 2000 compliance program will be material to its financial conditions or results of operations. Due to the uncertainties involved, the Company cannot predict the impact of the Year 2000 on its operations. Achieving Year 2000 compliance is dependent on may factors, some of which are not within the Company's control, including, without limitation, the continuity of services provided by the government, utilities, transportation industry and other service providers. Should one of these systems fail, or should the Company's internal systems or the internal systems of one or more significant vendors or suppliers fail to achieve Year 2000 compliance, the Company's business and its results of operations could be adversely affected. 21 Uncertainties and Risk Factors The Company may be subject to a number of significant uncertainties and risks including, without limitation and without purporting to be a complete or exhaustive list, those described below and those described elsewhere in this Annual Report, which may ultimately affect the Company in a manner and to a degree which cannot be foreseen at this time. Risks Relating to Commercialization of New Products. The extent and pace of market acceptance of the Company's new products, including its AQUA-FLOW(TM) glaucoma device, and ICL(TM), will be a function of many variables, including the following: the efficacy, performance and attributes of such new products; the ability of the Company to obtain necessary regulatory approvals to commercially market such new products; the effectiveness of the Company's marketing and sales efforts, including educating ophthalmologists and other potential customers as to the distinctive characteristics and benefits of these new products; the rate at which 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 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 Economic 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 such regulatory approvals on a timely basis or at all, or without delays adversely affecting the marketing and sale of the Company's products. In addition, 22 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 future violations, and/or assess civil or criminal penalties against the Company and its officers or employees. Although the Company and its products have not been the subject of any such FDA enforcement action, any such action by the FDA could result in a disruption of the Company's operations for an undetermined time. Patents and Proprietary Rights. The Company's ability to compete effectively is materially dependent upon the proprietary nature of the designs, processes, technologies and materials owned, used by or licensed to the Company. Although the Company attempts to protect its proprietary property, technologies and processes through a combination of patent law, trade secrets and non- disclosure agreements, there is no assurance that any or all of these measures will prove to be effective. For example, in the case of patents, there can be no assurance that existing patents granted to the Company or its licensors will not be invalidated, that patents currently or prospectively applied for by the Company or its licensors will be granted, or that patents will provide significant commercial benefits. Moreover, it is possible that competing companies may circumvent patents the Company or its licensors have received or applied for by developing products which closely emulate but do not infringe the Company's or its licensor's patents, and thereby market products that compete with the Company's products without obtaining a license from the Company. In addition to patented or potentially patentable designs, technologies, processes and materials, the Company also relies on proprietary designs, technologies, processes and know-how not eligible for patent protection, and there is no assurance that competitors may not independently develop the same or superior designs, technologies, processes and know-how. The Company believes that the international market for its products is as important as the domestic market, and therefore seeks patent protection for its products or those of its licensors in selected foreign countries. Because of the differences in foreign patent and other laws concerning proprietary rights, the Company's products may not receive the same degree of protection in certain foreign countries as they would 23 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 Company's exposure to fluctuations in foreign currencies may increase, and the Company may utilize forward exchange rate contracts or engage in other efforts to mitigate foreign currency risks. If entered into, there can be no assurance as to the effectiveness of such efforts in limiting any adverse effects of foreign currency fluctuations on the Company's international operations and on the Company's overall results of operations. See "Business" in Item 1 and "Management's Discussion and Analysis of Financial Condition and Results of Operations Foreign Exchange" above. Product Liability Claims; Insufficiency of Product Liability Insurance Coverage; Product Recall Risks. As a supplier of products used in medical treatments, the Company faces an inherent business risk of exposure to product liability claims in the event the end use of its products results in unanticipated adverse effects on patients, including serious personal injury or death. Certain of the Company's new products, such as its 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 24 Company. In the event of a successful product liability suit against the Company, lack or insufficiency of insurance coverage could have a material adverse effect on the Company. The Company may, in the event there are material deficiencies or defects in the design or manufacture of any of its products, be required to recall such defective products. In the event of a product recall, the cost to, and the potential liability of, the Company could be significant and could have a material adverse effect on the Company's business and operations, especially if such liability relates to the recall of a product generating significant revenues and earnings for the Company, such as its foldable IOLs. Potential negative publicity from a recall could also adversely affect sales and/or regulatory approvals of the Company's other products. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements and the Report of Independent Certified Public Accountants are filed with this Annual Report on Form 10-K in a separate section following Part IV, as shown on the index under Item 14(a) of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III -------- ITEMS 10., 11., 12. and 13. Information required by Part III (Items 10, 11, 12 and 13) is incorporated by reference to the Company's definitive proxy statement for its 1998 Annual Meeting of Stockholders. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
Page ---- (a)(1) Financial statements required by Item B of this form are filed as a separate part of this report following Part IV Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheets at January 1, 1999 and January 2, 1998 F-3 Consolidated Statements of Income for the years ended January 1, 1999, January 2, F-4 1998 and January 3, 1997 Consolidated Statements of Stockholders' Equity for the years ended January 1, F-5 1999, January 2, 1998, and January 3, 1997
25 Consolidated Statements of Cash Flows for the years ended January 1, 1999, F-6 January 2, 1998, and January 3, 1997 Notes to Consolidated Financial Statements F-11 (2) Schedules required by Regulation S-X are filed as an exhibit to this report: Independent Certified Public Accountants' Report on Schedules and Consent F-23 II. Valuation and Qualifying Accounts and Reserves F-24 Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements notes thereto
(3) Exhibits 3.1 Certificate of Incorporation, as amended(1) 3.4 By-laws, as amended(7) 4.1 1990 Stock Option Plan(2) 4.2 1991 Stock Option Plan(3) 4.3 1995 STAAR Surgical Company Consultant Stock Plan(4) 4.4 1996 STAAR Surgical Company Non-Qualified Stock Plan(8) 4.5 Stockholders' Rights Plan, dated effective April 20, 1995(6) 4.6 1998 STAAR Surgical Company Stock Plan, adopted April 17, 1998(9) 10.1 Joint Venture Agreement, dated May 23, 1988, between the Company, Canon Sales Co, Inc. and Canon, Inc.(11) 10.2 License Agreement, dated March 9, 1990, between Chiron Ophthalmics, Inc. and the Company(5) 10.3 License Agreement, dated March 9, 1990, between Chiron Ophthalmics, Inc. and the Company(5) 10.4 Promissory Note, dated February 28, 1991, from John R. Wolf to the Company(8) 10.5 Stock Pledge/Security Agreement, dated February 28, 1991, between John R. Wolf, the Company and Pollet & Associates(8)
26 10.6 Promissory Note, dated February 28, 1991, from William C. Huddleston to the Company(8) 10.7 Stock Pledge/Security Agreement, dated February 28, 1991, between William C. Huddleston, the Company and Pollet & Associates(8) 10.8 Promissory Note, dated May 26, 1992, from the Andrew F. Pollet and Sally M. Pollet Revocable Trust dated March 6, 1990(10) 10.9 Deed of Trust, dated September 21, 1992, by the Andrew F. Pollet and Sally M. Pollet Revocable Trust dated March 6, 1990(10) 10.10 Promissory Note, dated July 3, 1992, from William C. Huddleston to the Company(10) 10.11 Stock Pledge/Security Agreement, dated July 3, 1992, between William C. Huddleston the Company and Pollet & Associates(10) 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(10) 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(10) 10.14 Patent License Agreement, dated May 24, 1995, with Eye Microsurgery Intersectoral Research and Technology Complex(7) 10.15 Patent License Agreement, dated January 1, 1996, with Eye Microsurgery Intersectoral Research and Technology Complex(8) 10.16 Promissory Note, dated March 18, 1993, from William C. Huddleston to the Company(5) 10.17 Modification To Employment Agreement, dated December 20, 1994, between the Company and John R. Wolf(5) 10.18 First Amendment To Sales Representative Agreement, dated December 20, 1994, between the Company and John R. Wolf(5) 10.19 Employment Agreement, dated March 1, 1994, between the Company and Vladimir Feingold(5) 10.20 Modification To Employment Agreement, dated May 6, 1996, between the Company and Vladimir Feingold(8) 10.21 Employment Agreement, dated March 1, 1994, between the Company and William C. Huddleston(5)
27 10.22 Modification To Employment Agreement, dated May 6, 1996, between the Company and William C. Huddleston(8) 10.23 Employment Agreement, dated March 1, 1994, between the Company and Carl M. Manisco(5) 10.24 Modification To Employment Agreement, dated May 6, 1996, between the Company and Carl M. Manisco(8) 10.25 Employment Agreement, dated March 1, 1994, between the Company and Michael J. Lloyd(5) 10.26 Modification To Employment Agreement, dated May 6, 1996, between the Company and Michael J. Lloyd(8) 10.27 Employment Agreement, dated March 1, 1994, between the Company and Stephen L. Ziemba(5) 10.28 Modification To Employment Agreement, dated May 6, 1996, between the Company and Stephen L. Ziemba(8) 10.29 Employment Agreement, dated September 4, 1998, between the Company and Donald R. Sanders(11) 10.30 Amended IOL Supply Agreement, dated June 10, 1994, between the Company and Chiron Vision Corporation(5) 10.31 Manufacturing Site Agreement, dated June 10, 1994, between the Company and Chiron Vision Corporation(5) 10.32 Form of Non-Qualified Stock Option Agreements granted to Directors of Company in June and August 1994(5) 10.33 Agreement For Purchase And Sale Of Assets, dated October 1, 1994, between STAAR Surgical Australasia Pty. Ltd. and Bionica Pty. Ltd.(5) 10.34 Agreement, dated October 10, 1995, with China Eye Joint Venture(7) 10.35 Stock Pledge Agreement, dated September 4, 1998, between the Company and John R. Wolf(11) 10.36 Promissory Note, dated September 4, 1998, from John R. Wolf to the Company(11) 10.37 Stock Pledge Agreement, dated September 4, 1998, between the Company and William C. Huddleston(11) 10.38 Promissory Note, dated September 4, 1998, from William C. Huddleston to the Company(11) 10.39 Stock Pledge Agreement, dated September 4, 1998, between the Company and Carl Manisco(11)
28 10.40 Promissory Note, dated September 4, 1998, from Carl Manisco to the Company(11) 10.41 Stock Pledge Agreement, dated September 4, 1998, between the Company and Andrew F. Pollet(11) 10.42 Promissory Note, dated September 4, 1998, from Andrew F. Pollet to the Company(11) 10.43 Supply Agreement, dated January 28, 1998, between the Company and Mentor Medical, Inc. (11) 10.44 Agreement, dated December 31, 1997, between the Company and Mentor Corporation. (11) 10.45 Agreement regarding the purchase of shares effective January 5, 1998. (11)* 10.46 Revolving Line of Credit Note, dated June 1, 1998, between the Company and Wells Fargo Bank. (11) 10.47 Stock Option Certificate, dated September 4, 1998, between the Company and Andrew F. Pollet(11) 10.48 Stock Option Certificate, dated September 4, 1998, between the Company and John R. Wolf(11) 10.49 Stock Option Certificate, dated September 4, 1998, between the Company and Donald R. Sanders(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-18, File No. 2-83434, as filed on April 29, 1983 (2) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-37248, as filed on October 11, 1990 (3) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-76404, as filed on March 11, 1994 (4) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-60241, as filed on June 15, 1995 (5) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 30, 1994, as filed on March 30, 1995 29 (6) 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 (7) 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 (8) 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 (9) Incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Stockholders held on May 29, 1998, as filed on May 1 1998. (10) 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 (11) Filed herewith (12) Re-filed herewith pursuant to Reg. (S)229.10(d) * Certain confidential information redacted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of Regulation C of the Securities Act of 1933, as amended 30 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on April 1, 1999. 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 April 1, 1999 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/ Donald R. Sanders, M.D.* Director - ---------------------------- Donald R. Sanders /s/ Andrew F. Pollet* Director - ---------------------------- Andrew F. Pollet /s/ Michael R. Deitz, M.D.* Director - ---------------------------- Michael R. Deitz, M.D. * /s/ William C. Huddleston - ---------------------------- William C. Huddleston (Attorney in Fact) 31 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 1, 1999, JANUARY 2, 1998 AND JANUARY 3, 1997 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders STAAR Surgical Company We have audited the accompanying consolidated balance sheets of STAAR Surgical Company and subsidiaries as of January 1, 1999 and January 2, 1998, 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 January 1, 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 consolidated financial position of STAAR Surgical Company and subsidiaries as of January 1, 1999 and January 2, 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 1, 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 22, 1999 F-2 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 1, 1999 and January 2, 1998
1998 1997 ---- ---- ASSETS ------ Current assets: Cash and cash equivalents $ 4,689,574 $ 6,279,136 Accounts receivable, less allowance for doubtful accounts of $232,841 and $128,070 (Note 1) 10,167,449 7,983,399 Other receivables (Notes 7 and 9) 1,386,830 3,250,000 Inventories (Note 2) 20,139,979 14,712,398 Prepaids, deposits and other current assets 3,624,390 2,006,075 Deferred income tax (Note 7) 1,108,761 1,182,136 ------------ ------------ Total current assets 41,116,983 35,413,144 ------------ ------------ Investment in joint venture (Note 4) 3,178,477 2,740,163 Property, plant and equipment, net (Note 3) 10,379,997 10,024,181 Patents and licenses, net of accumulated amortization of $3,751,769 and $2,397,920 (Notes 8 and 9) 12,038,023 11,121,436 Goodwill, net of accumulated amortization of $488,596 and $160,729 5,047,982 967,789 Other assets 1,528,150 2,124,168 ------------ ------------ $73,289,612 $62,390,881 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Notes payable (Note 5) $ 1,034,801 $ 983,276 Accounts payable 4,975,222 1,528,436 Current portion of long-term debt (Note 6) 1,277,474 624,698 Deferred income tax (Note 7) 2,822,706 3,174,000 Other current liabilities (Notes 11 and 12) 4,081,885 4,166,963 ------------ ------------ Total current liabilities 14,192,088 10,477,373 ------------ ------------ Long-term debt, net of current portion (Note 6) 10,021,287 6,666,438 Other long-term liabilities (Note 12) 513,699 464,286 ------------ ------------ Total liabilities 24,727,074 17,608,097 ------------ ------------ Minority interest 856,039 - ------------ ------------ Commitments and contingencies (Notes 11 and 13) Stockholders' equity (Notes 10, 11 and 15): Common stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding 13,994,593 and 13,246,161 139,946 132,462 Capital in excess of par value 46,039,428 42,810,700 Accumulated other comprehensive income (536,491) (695,502) Retained earnings 7,317,778 4,861,139 ------------ ------------ 52,960,661 47,108,799 Notes receivable from officers and directors (Note 10) (5,254,162) (2,326,015) ------------ ------------ Total stockholders' equity 47,706,499 44,782,784 ------------ ------------ $73,289,612 $62,390,881 ============ ============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-3 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended January 1, 1999, January 2, 1998 and January 3, 1997
1998 1997 1996 ------------- ------------- ------------- Sales $ 54,244,315 $ 42,480,014 $ 41,212,511 Royalty and other income (Note 9) 898,443 3,039,571 1,000,000 ------------- ------------- ------------- Total revenues 55,142,758 45,519,585 42,212,511 Cost of sales 18,533,319 10,261,748 10,195,396 ------------- ------------- ------------- Gross profit 36,609,439 35,257,837 32,017,115 ------------- ------------- ------------- Selling, general and administrative expenses: General and administrative (Note 13) 6,769,791 6,333,781 5,627,576 Marketing and selling 18,709,076 12,719,166 12,227,593 Research and development 3,569,876 3,936,293 4,084,991 ------------- ------------- ------------- Total selling, general and administrative expenses 29,048,743 22,989,240 21,940,160 ------------- ------------- ------------- Operating income 7,560,696 12,268,597 10,076,955 ------------- ------------- ------------- Other income (expense): Equity in earnings of joint venture (Note 4) 438,314 336,437 486,398 Interest expense--net (560,345) (595,810) (450,276) Other income (expense) (640,560) (319,808) 116,563 ------------- ------------- ------------- Total other income (expense) (762,591) (579,181) 152,685 ------------- ------------- ------------- Income before income taxes, minority interest and cumulative effect of change in accounting method 6,798,105 11,689,416 10,229,640 Income tax provision (Note 7) 1,999,030 4,270,286 3,338,544 Minority interest 661,623 - - ------------- ------------- ------------- Income before cumulative effect of change in accounting method 4,137,452 7,419,130 6,891,096 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 $ 2,456,639 $ 7,419,130 $ 6,891,096 ============= ============= ============= Basic earnings per share (Notes 10 and 15): Income before cumulative effect of change in accounting method $ 0.30 $ 0.57 $ 0.53 Cumulative effect of change in accounting method (0.12) - - ------------- ------------- ------------- Net income $ 0.18 $ 0.57 $ 0.53 ============= ============= ============= Dilutive earnings per share (Notes 10 and 15): Income before cumulative effect of change in accounting method $ 0.29 $ 0.53 $ 0.50 Cumulative effect of change in accounting method (0.12) - - ------------- ------------- ------------- Net income $ 0.17 $ 0.53 $ 0.50 ============= ============= =============
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 January 1, 1999, January 2, 1998 and January 3, 1997
Accumulated Capital in Retained Other Common Excess of Earnings Comprehensive Notes Stock Par Value (Deficit) Income Receivable Total ---------- ------------- ------------- -------------- ------------- ----------- Balance, at December 29, 1995 $127,841 $40,325,287 $(9,449,087) $ - $(2,326,015) $28,678,026 Common stock issued upon exercise of options (Note 10) 2,266 983,926 - - - 986,192 Common stock issued upon exercise of warrants (Note 10) 375 64,625 - - - 65,000 Common stock issued as payment for services (Note 10) 444 458,492 - - - 458,936 Common stock repurchased and cancelled (219) (314,281) - - - (314,500) Foreign currency translation adjustment - - - (160,573) - (160,573) Net income - - 6,891,096 - - 6,891,096 -------- ----------- ----------- --------- ----------- ----------- Balance, at January 3, 1997 130,707 41,518,049 (2,557,991) (160,573) (2,326,015) 36,604,177 Common stock issued upon exercise of options (Note 10) 1,607 1,020,886 - - - 1,022,493 Common stock issued as payment for services (Note 10) 241 324,759 - - - 325,000 Common stock repurchased and cancelled (93) (136,994) - - - (137,087) Stock-based compensation (Note 10) - 84,000 - - - 84,000 Foreign currency translation adjustment - - - (534,929) - (534,929) Net income - - 7,419,130 - - 7,419,130 -------- ----------- ----------- --------- ----------- ----------- Balance, at January 2, 1998 132,462 42,810,700 4,861,139 (695,502) (2,326,015) 44,782,784 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 - - - 65,000 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 ======== ============= =========== ========= =========== ===========
Comprehensive income and its components consist of the following:
1998 1997 1996 ------------ ------------ ------------ Net income $ 2,456,639 $ 7,419,130 $ 6,891,096 Foreign currency translation adjustment 159,011 (534,929) (160,573) ------------ ------------ ------------ Comprehensive income $ 2,615,650 $ 6,884,201 $ 6,730,523 ============ ============ ============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-5 STAAR SURGICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended January 1, 1999, January 2, 1998 and January 3, 1997 Increase (Decrease) in Cash and Cash Equivalents
1998 1997 1996 -------------- ------------- -------------- Cash flows from operating activities: Net income $ 2,456,639 $ 7,419,130 $ 6,891,096 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation of property and equipment 2,172,834 1,742,737 1,720,379 Amortization of intangibles 2,166,164 1,782,192 1,230,005 Write-off of start-up costs 1,680,813 - - Change in deferred revenue (232,143) 210,432 485,998 Equity in earnings of joint venture (438,314) (336,437) (486,398) Deferred income taxes (277,919) 3,322,939 1,992,649 Stock-based compensation expense 85,000 84,000 - Common stock issued for services 65,000 325,000 458,936 Change in operating working capital, excluding effects of acquisition (Note 14) (4,061,214) (6,954,502) (2,956,497) Minority interest 661,623 - - -------------- ------------- -------------- Net cash provided by operating activities 4,278,483 7,595,491 9,336,168 -------------- ------------- -------------- Cash flows from investing activities: Acquisition of property and equipment (2,019,533) (2,845,929) (4,278,671) Increase in patents and licenses (2,104,454) (3,217,728) (5,936,144) Increase in other assets (1,718,231) (1,370,449) (780,275) Dividends received - 60,414 - Purchase of foreign distributor (net of cash acquired) (4,269,923) -------------- ------------- -------------- Net cash used in investing activities (10,112,141) (7,373,692) (10,995,090) -------------- ------------- -------------- Cash flows from financing activities: Increase in borrowings under notes payable and long-term debt 4,433,648 1,109,480 2,133,077 Payments on other notes payable and long-term debt (1,908,803) (2,679,075) (536,028) Net borrowings under line-of-credit 1,402,175 806,940 2,188,259 Proceeds from the exercise of stock options and warrants 362,165 1,022,493 1,051,191 Payments for repurchase of common stock (204,100) (137,087) (314,500) -------------- ------------- -------------- Net cash provided by financing activities 4,085,085 122,751 4,521,999 -------------- ------------- -------------- Effect of exchange rate changes on cash and cash equivalents 159,011 (534,929) (160,573) (Decrease) increase in cash and cash equivalents (1,589,562) (190,379) 2,702,504 Cash and cash equivalents, at beginning of year 6,279,136 6,469,515 3,767,011 -------------- ------------- -------------- Cash and cash equivalents, at end of year $ 4,689,574 $ 6,279,136 $ 6,469,515 ============== ============= ==============
See accompanying summary of accounting policies and notes to consolidated financial statements. F-6 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES Years Ended January 1, 1999, January 2, 1998 and January 3, 1997 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 which 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 60% of a major European sales subsidiary which distributes both the Company's products and products from various other manufacturers. 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
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. During 1998, 1997 and 1996, the net foreign translation (gain) loss was $(159,011), $534,929 and $160,573 and net foreign currency transaction loss was $120,737, $228,547 and $261,181, 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. The year ended January 3, 1997 included 53 weeks. Revenue Recognition The Company generally supplies a quantity of foldable IOLs with different specifications to customers, generally ophthalmologists, surgical centers, hospitals and other health providers, on a consignment basis, and recognizes sales when an ophthalmic surgeon implants the consigned foldable IOL. Sales of the AQUA-FLOW(TM) and the ICL(TM) 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 the 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-7 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 twenty years. The Company periodically evaluates the recoverablity 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 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 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. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, contingent liabilities, revenues, and expenses at the date and for the periods that the financial statements are prepared. Actual results could differ from those estimates. F-8 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES--(Continued) Fair Value of Financial Instruments The carrying values of cash, cash equivalents, accounts receivable, accounts payable, and current notes payable approximate their fair values because of the short maturity of these instruments. With respect to long-term debt, based on the borrowing rates currently available to the Company for similar bank and equipment loans and capitalized leases, the amounts reported approximate the fair value of the respective financial instruments. Net Income Per Share As of January 2, 1998, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). SFAS 128 provides for the calculation of Basic and Diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could occur if securities or other contracts (such as stock options 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 During the year ended January 1, 1999, the Company adopted Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income," ("SFAS 130") issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general- purpose financial statements. The Company 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. Adoption of SFAS 130 did not have an impact on the Company's financial position or results of operations. Segments of an Enterprise During the year ended January 1, 1999, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," ("SFAS 131") issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. SFAS 131 requires that public companies report certain information about operating segments, products, services and geographical areas in which they operate and their major customers. Adoption of SFAS 131 did not have an impact on the Company's financial position or results of operations. Adoption of SFAS 131 resulted in expanded disclosures for the year and all prior periods. See Note 16, Geographic and Product Data and Export Sales. F-9 STAAR SURGICAL COMPANY AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES--(Continued) Reclassifications Certain reclassifications have been made to the prior year consolidated financial statements to conform with the 1998 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-10 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended January 1, 1999, January 2, 1998 and January 3, 1997 NOTE 1--ACCOUNTS RECEIVABE Accounts receivable are summarized as follows:
1998 1997 ------------ ------------ Domestic $ 3,785,253 $ 4,640,393 Foreign 6,615,037 3,471,076 ------------ ------------ 10,400,290 8,111,469 Less allowance for doubtful accounts 232,841 128,070 ------------ ------------ $10,167,449 $ 7,983,399 ============ ============
NOTE 2--INVENTORIES Inventories are summarized as follows:
1998 1997 ------------ ------------ Raw materials and purchased parts $ 2,189,154 $ 1,976,467 Work in process 2,279,002 1,736,339 Finished goods 15,671,823 10,999,592 ------------ ------------ $20,139,979 $14,712,398 ============ ============
NOTE 3--PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are summarized as follows:
1998 1997 ------------ ------------ Machinery and equipment $14,423,622 $11,890,362 Furniture and fixtures 5,692,531 4,896,349 Leasehold improvements 3,659,375 3,240,727 ------------ ------------ 23,775,528 20,027,438 Less accumulated depreciation and amortization 13,395,531 10,003,257 ------------ ------------ $10,379,997 $10,024,181 ============ ============
F-11 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 4--INVESTMENT IN JOINT VENTURE The Company owns a 50% equity interest in a joint venture, the CANON-STAAR Company, Inc. ("CSC"), with Canon Inc. ("Canon") and Canon Sales Co, Inc. ("Canon Sales"). The joint venture was formed to manufacture and sell the Company's IOL products to Canon Sales or other distributors in Japan. The Company sold CSC an exclusive license to manufacture and market its products in Japan. The Company recorded $1,500,000 of deferred revenue on the sale of the license, which was recognized over eight years through October 1996 on a straight-line basis. The Company uses the equity method of accounting for this investment. The financial statements of CSC include assets of approximately $7,740,000 and $6,213,000, and liabilities of approximately $1,689,000 and $1,364,000, as of January 1, 1999 and January 2, 1998, respectively. The Company's equity in earnings of the joint venture is calculated as follows:
1998 1997 1996 ------------ ------------ ------------- Joint venture net income $ 876,627 $ 672,873 $ 685,296 Equity interest 50% 50% 50% ------------ ------------ ------------- Equity in net income 438,314 336,437 342,648 Recognition of deferred gain on sale of license - - 143,750 ------------ ------------ ------------- Equity in earnings of joint venture $ 438,314 $ 336,437 $ 486,398 ============ ============ =============
The Company recorded sales of certain IOL products to CSC of approximately $16,000, $469,000 and $845,000 in 1998, 1997 and 1996, respectively. NOTE 5--NOTES PAYABLE In May 1994, the Company entered into a revolving credit facility with a Swiss bank, which provides for borrowings up to $796,178 (1,125,000 Swiss Francs at the exchange rate at January 1, 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 January 1, 1999 and January 2, 1998 were $1,034,801 (1,437,339 Swiss Francs) and $926,112 (1,359,440 Swiss Francs), respectively. As of January 1, 1999 and January 2, 1998, the balance exceeded the maximum allowable borrowings. The excess borrowings were permitted due to adequate compensating cash balances. F-12 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 6--LONG-TERM DEBT Long-term debt consists of the following:
1998 1997 --------------- ------------- Note payable to bank, interest at a rate not to exceed prime less .5% payable monthly, due June 1, 2001(1) $ 6,857,590 $ 5,506,940 Note payable to bank, payable in monthly installments plus interest at a rate not to exceed prime less .25% due March 1, 2003 (2) 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 214,127 397,186 Note payable to equipment vendor, interest at 13%, payable in monthly installments plus interest through December 1999, secured by equipment 44,954 74,778 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 468,907 916,000 Obligations under capitalized leases (see Note 11) 88,035 396,232 --------------- ------------- 11,298,761 7,291,136 Less current portion 1,277,474 624,698 --------------- ------------- Long-term debt due after one year $ 10,021,287 $ 6,666,438 =============== =============
(1) In June 1998, 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 (7.75% at January 1, 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 loan agreement requires the Company to satisfy certain financial tests and limits the amount of other indebtedness the Company may incur. The line of credit expires June 2001. Borrowings are not collateralized. The Company was in compliance with the financial restrictive covenants as of January 1, 1999. (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 (7.75% at January 1, 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. In conjunction with the June 1998 bank loan agreement described in the preceding paragraph, this loan is subject to the same restrictive convenants as the line-of-credit. Annual future minimum payments under long-term debt consist of:
Fiscal Year ----------- 1999 $ 1,277,474 2000 1,266,238 2001 8,007,690 2002 747,359 ----------- $11,298,761 ===========
F-13 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:
1998 1997 1996 --------------- ------------- ------------- Current tax provision: U.S. federal (net of $0, $1,258,000 and $2,006,000 tax benefit from operating loss carryforwards) $ 100,264 $ 245,000 $ 492,000 State 96,851 581,000 725,000 Foreign 1,384,008 121,357 128,544 --------------- ------------- ------------- Total current provision 1,581,123 947,357 1,345,544 --------------- ------------- ------------- Deferred tax provision (benefit): U.S. federal and state (328,990) 3,374,000 1,993,000 Foreign 51,071 (51,071) - --------------- ------------- ------------- Total deferred provision (277,919) 3,322,929 1,993,000 --------------- ------------- ------------- Provision for income taxes 1,303,204 4,270,286 3,338,544 Tax benefit from cumulative change in accounting method 695,826 - - --------------- ------------- ------------- Provision for income taxes, before cumulative effect of change in accounting method $ 1,999,030 $ 4,270,286 $ 3,338,544 =============== ============= =============
The Company utilized all of its remaining tax net operating loss carryforwards for federal income tax purposes during 1997. The Company has income taxes recoverable at January 1, 1999 of $1,386,830, reported on the balance sheet as other receivables. Alternative minimum tax (AMT) credit carryforward at January 1, 1999 was approximately $349,000. The AMT credit does not have an expiration date. 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:
1998 1997 1996 -------- --------- -------- Computed provision for taxes based on income at statutory rate 34.0% 35.0% 34.0% Permanent differences - (0.1) 1.5 State taxes, net of federal income tax benefit (0.8) 4.7 6.1 Tax effect attributed to foreign operations 1.6 (4.0) (10.1) Other - 0.9 1.1 -------- --------- -------- Effective tax provision rate 34.8% 36.5% 32.6% ======== ========= ========
Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $4.7 million at January 1, 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-14 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets (liabilities) as of January 1, 1999 and January 2, 1998 are as follows:
1998 1997 --------------- -------------- Deferred tax assets: Allowance for doubtful accounts $ 61,000 $ 65,000 Inventory reserves and uniform capitalization 458,000 341,000 Accrued vacation 158,000 130,000 State taxes 82,000 204,000 AMT tax credit carryforwards 349,000 391,000 Deferred taxes on foreign operations - 51,000 --------------- -------------- Total deferred tax assets $ 1,108,000 $ 1,182,000 --------------- -------------- Deferred tax liabilities: Amortization of deferred gain - (1,041,000) Depreciation and amortization (2,645,000) (2,133,000) Discount on trade receivables (177,000) - --------------- -------------- Total deferred tax liabilities (2,822,000) (3,174,000) --------------- -------------- Net deferred tax (liabilities) assets $ (1,714,000) $ (1,992,000) =============== ==============
NOTE 8--PATENTS During 1995, the Company acquired from the Intersectoral Research and Technology Complex Eye Microsurgery ("IRTC"), a Russian Federation located in Moscow, Russia, exclusive patent rights to use and sell glaucoma devices in the United States and certain foreign countries. During 1996, the Company acquired from IRTC exclusive rights to several domestic and foreign patents associated with the Company's implantable contact lenses (ICLs). The transactions involve a specified amount for the patent rights and payments of royalties over the life of the patents. In 1996, the Company acquired a license, as part of the settlement of litigation with Allergan Medical Optics, relating to an apparatus for insertion of an intraocular lens. The amount paid has been included in patents in the accompanying balance sheet. NOTE 9--LICENSING AGREEMENTS The Company has issued Allergan Medical Optics ("AMO"), Alcon Surgical, Inc. (Alcon), Pharmacia & Upjohn, Bausch and Lomb Surgical and Mentor Corporation with licenses to utilize certain of its patents involving foldable IOLs in the United States and selected foreign countries. Each license has a certain amount of prepaid royalties (which were received by the Company when the license was issued) which will be utilized by that licensee as sales of the licensed products are made. The Company recorded $232,000, $3,040,000 and $1,000,000 of royalty income in 1998, 1997 and 1996, respectively, from these licenses. F-15 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 10--STOCKHOLDERS' EQUITY Common Stock In 1996, the Company issued 44,384 shares to consultants for services rendered to the Company. Also during 1996, the Company repurchased and cancelled 21,879 shares. 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. 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. Notes Receivable As of January 1, 1999 and January 2, 1998, notes receivable from officers and directors totalling $5,254,162 and $2,326,015, were outstanding. The notes were issued in connection with purchases of the Company's common stock. The notes bear interest at rates ranging between 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 December 29, 1995 1,227,754 $ 4.87 Options granted 574,000 $12.50 Options exercised (226,552) $ 4.26 -------------- ------------- Balance at January 3, 1997 1,575,202 $ 7.72 Options granted 413,400 $10.94 Options exercised (160,719) $ 6.36 Options forfeited (5,108) $ 9.65 -------------- ------------- Balance at January 2, 1998 1,822,775 $ 8.56 Options 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 exercisable (vested) at January 1, 1999 1,089,252 $ 6.31 ============== =============
Included in the table above are options to purchase 12,585 shares of common stock outstanding at January 1, 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 314,500 shares were outstanding at January 1, 1999, with exercise prices ranging between $2.50 to $9.25 per share. F-16 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 160,000, 566,000 and 570,000 shares were outstanding at January 1, 1999, January 2, 1998 and January 3, 1997, 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 1996, the Company granted options to officers, directors and consultants to purchase 574,000 shares of the Company's common stock at a price of $12.50, the quoted market value at date of grant. Out of the above, 4,000 options were issued under the 1991 stock option plan and 570,000 options were issued as non- qualified stock options. In 1996, officers, employees, and others exercised 226,550 options from the 1990, 1991 and non-qualified stock option plans at prices from $2.50 to $5.875 resulting in cash and stock proceeds totaling $966,191. In 1997, the Company granted options to directors to purchase 240,000 shares at $12.00 per share and 173,400 shares to consultants at varying amounts which was then the fair market value. In 1997, officers, employees and others exercised 160,719 options from the 1990, 1991 and non-qualified stock option plans at prices from $2.50 to $12.50 resulting in cash and stock proceeds totalling $1,022,493. 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. 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 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; and in 1996: dividend yield of 0 percent; expected volatility of 11 percent; risk-free interest rate of 6.73 percent; and expected lives of 7 years. The weighted average fair value of options granted during the year ended January 1, 1999, January 2, 1998 and January 3, 1997 were $1.84 to $2.89, $1.57 and $3.60, respectively. Under the accounting provisions of FASB 123, the Company's net income and earnings per share for 1998, 1997 and 1996 would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 -------------- --------------- -------------- Net income As reported $ 2,457,000 $ 7,419,000 $ 6,891,000 Pro forma $ 2,340,000 $ 6,771,000 $ 6,705,000 Basic earnings per share As reported $ .18 $.57 $.53 Pro forma $ .17 $.52 $.52 Diluted earnings per share As reported $ .17 $.53 $.50 Pro forma $ .16 $.48 $.48
F-17 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 1996 through 1998. The following table summarizes information about stock options outstanding at January 1, 1999.
Options Outstanding Weighted- Number Average Weighted- Number Weighted- Range of Outstanding Remaining Average Exercisable Average Exercise Prices at 1/1/99 Contractual Life Exercise Price at 1/1/99 Exercise Price - ----------------- ------------- ------------------ ---------------- ------------- -------------- $2.50 to $4.75 334,585 4.3 years $ 3.94 334,585 $ 3.94 $5.875 to $6.25 897,500 8.0 years $ 6.21 549,167 $ 6.19 $9.00 to $12.00 313,500 4.9 years $11.02 205,500 $10.50 - ----------------- ------------- ------------------ ---------------- ------------- -------------- $2.50 to $12.00 1,545,585 6.6 years $ 6.69 1,089,252 $ 6.31 ================= ============= ================== ================ ============= ==============
Warrants The table below summarizes the transactions related to the Company's warrants to purchase common stock:
Weighted- Average Number Exercise of Shares Price ------------- -------------- Balance at December 29, 1995 284,394 $1.89 Warrants exercised (37,500) $1.73 ------------- -------------- Balance at January 3, 1997 and January 2, 1998 246,894 $1.91 Warrants exercised (186,750) $1.19 ------------- -------------- Balance at January 1, 1999 60,144 $3.94 ============= ==============
All warrants are exercisable as of January 1, 1999. NOTE 11--COMMITMENTS AND CONTINGENCIES The Company leases certain property, plant and equipment under capital and operating lease agreements. In the later part of 1995, the Company entered into a capital lease agreement to finance surgical equipment that was sent to China in consideration of a five year exclusive supply agreement with a hospital in Hangzhou, China. The Company committed a $300,000 letter of credit as further collateral for the lease. During 1998, the letter of credit was released and the lease obligations fulfilled. The buyout provisions of the leases were exercised subsequent to year end. F-18 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Annual future minimum lease payments under noncancellable capital and operating lease commitments as of January 1, 1999 are as follows:
Capital Operating Fiscal Year Leases Leases - ----------- ----------- ----------- 1999 $ 36,300 $ 1,210,818 2000 36,300 765,172 2001 27,225 525,870 2002 - 469,613 2003 - 263,509 Thereafter - 48,933 --------- ------------- Total minimum lease payments 99,825 $ 3,283,915 ============= Imputed interest 11,790 --------- Present value of net minimum lease payments $ 88,035 =========
Rent expense was approximately $1,147,000, $686,000 and $700,000 for the years ended January 1, 1999, January 2, 1998 and January 3, 1997, respectively. Litigation and Claims The Company is involved in legal actions and claims arising in the ordinary course of business. It is the opinion of management (based on advice of legal counsel) that such litigation will be resolved without material effect on the Company's financial position or results of operations. Other Commitments During 1993, the Company entered into consulting agreements with certain individuals to assist the Company in the development of new products and the promotion of its current products. Such agreements provide for payments of cash and the issuance of shares of the Company's common stock and options to purchase the Company's common stock, at $7 to $11 per share over a five year period. All common stock was issued at fair market value. The agreements expired during 1998. Included in other current liabilities January 2, 1998, is approximately $402,000 due to these consultants, payable in cash and shares of the Company's common stock. NOTE 12--OTHER LIABILITIES Other Current Liabilities Included in other current liabilities at January 1, 1999 and January 2, 1998 are approximately $1,274,000 and $1,261,000 of commissions due to outside sales representatives; income tax payable of $500,000 and $638,000; and deferred revenue of $232,000 and $232,000, respectively. Other Long-Term Liabilities Included in other long-term liabilities at January 1, 1999 and January 2, 1998 is deferred revenue of approximately $232,000 and $464,000 and a pension obligation of approximately $260,000 related to an officer of a foreign subsidiary and $0, respectively. NOTE 13--RELATED PARTY TRANSACTIONS The Company has had significant related party transactions as discussed in Notes 4 and 10. On February 29, 1996, the Company forgave a $120,000 note receivable from one of the Company's officers in exchange for the officer's efforts in obtaining certain patents. During 1998, 1997 and 1996, a law firm, of which a principal is director and stockholder of the Company, received approximately $525,000, $280,000 and $322,000 for fees in connection with legal services performed on behalf of the Company. As of January 1, 1999 and January 2, 1998, included in prepaid, deposits, and other current assets are $250,000 and $280,000 of prepaid legal fees. F-19 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 $400,000, $420,000 and $412,000 during 1998, 1997 and 1996, respectively. NOTE 14--STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL DISCLOSURES Cash Flows Net cash provided by operating activities includes interest paid of approximately $740,000, $723,000 and $557,000 for the years ended January 1, 1999, January 2, 1998 and January 3, 1997, respectively. Income taxes paid amounted to approximately $1,450,000, $315,000 and $1,160,000 for the years ended January 1, 1999, January 2, 1998 and January 3, 1997, respectively. Changes in operating working capital as shown in the consolidated statements of cash flows for the years ended January 1, 1999, January 2, 1998 and January 3, 1997 are comprised of:
1998 1997 1996 --------------- -------------- -------------- Decrease (increase) in: Accounts receivable $ (672,715) $ (1,156,149) $ 696,200 Other receivables 1,863,170 (3,250,000) - Inventories (2,086,968) (2,346,531) (2,804,980) Prepaids, deposits and other current assets (714,454) (673,300) (1,110,039) Increase (decrease) in: Accounts payable (713,574) (76,590) 283,929 Other current liabilities (1,736,673) 548,068 (21,607) --------------- -------------- -------------- Change in operating working capital $ (4,061,214) $ (6,954,502) $ (2,956,497) =============== ============== ==============
Supplemental Disclosures of Cash Flow Information
1998 1997 1996 --------------- --------------- -------------- Non cash financing activities: Notes receivable (Note 10) $ 2,928,147 $ - $ - Acquisition of business: Assets acquired 4,027,000 93,000 - Goodwill 4,247,000 1,038,000 - Liabilities assumed (3,736,000) (58,000) - Cash paid (163,000) - - Debt incurred $ (4,375,000) $ (1,073,000) $ - =============== ============== ==============
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:
1998 1997 1996 --------------- --------------- -------------- Basic weighted average shares outstanding 13,541,644 13,123,950 12,909,506 Diluted effect of stock options and warrants 726,385 989,133 957,602 --------------- --------------- -------------- Diluted weighted average shares outstanding 14,268,029 14,113,083 13,867,108 =============== =============== ==============
F-20 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE 16--GEOGRAPHIC AND PRODUCT DATA AND EXPORT SALES The Company develops, manufactures and distributes medical devices used in minimally invasive ophthalmic surgery. Substantially all of the Companies revenues result from the sale of the Companies 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, South Africa, Germany, Sweden and Norway.
1998 1997 1996 --------------- --------------- -------------- Sales to unaffiliated customers U.S. $ 24,658,000 $ 27,843,000 $ 29,069,000 Switzerland 3,970,000 5,397,000 4,371,000 Foreign distributors 25,616,000 9,240,000 7,772,000 --------------- --------------- -------------- Total sales to unaffiliated customers $ 54,244,000 $ 42,480,000 $ 41,212,000 =============== =============== ============== Sales to affiliated customers U.S. $ 3,670,000 $ 2,936,000 $ 5,098,000 Switzerland 3,232,000 2,766,000 633,000 Foreign distributors - - - --------------- --------------- -------------- Total sales to affiliated customers $ 6,902,000 $ 5,702,000 $ 5,731,000 =============== =============== ============== Depreciation and amortization U.S. $ 3,201,000 $ 2,920,000 $ 2,509,000 Switzerland 667,000 319,000 156,000 Foreign distributors 471,000 286,000 285,000 --------------- --------------- -------------- Total depreciation and amortization $ 4,339,000 $ 3,525,000 $ 2,950,000 =============== =============== ============== Operating income U.S. $ 1,714,000 $ 10,621,000 $ 7,983,000 Switzerland 2,800,000 1,519,000 1,533,000 Foreign distributors 3,047,000 129,000 561,000 --------------- --------------- -------------- Total operating income $ 7,561,000 $ 12,269,000 $ 10,077,000 =============== =============== ============== Profit and loss Total operating income (as reported above) $ 7,561,000 $ 12,269,000 $ 10,077,000 Equity in earnings of joint venture 438,000 336,000 486,000 Interest expense--net (560,000) (596,000) (450,000) Other income (expense) (640,000) (320,000) 117,000 Minority interest (662,000) - - Income taxes (1,999,000) (4,270,000) (3,339,000) Cumulative effect of change in accounting method, write-off of start-up costs, net of income taxes (1,681,000) - - --------------- --------------- -------------- Net income $ 2,457,000 $ 7,419,000 $ 6,891,000 =============== =============== ==============
F-21 STAAR SURGICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1998 1997 1996 --------------- --------------- -------------- Identifiable assets U.S. $ 50,774,000 $ 49,653,000 $ 41,034,000 Switzerland 6,796,000 7,860,000 7,301,000 Foreign distributors 15,720,000 4,878,000 3,721,000 --------------- --------------- -------------- Total identifiable assets $ 73,290,000 $ 62,391,000 $ 52,056,000 =============== =============== ============== Capital expenditures U.S. $ 1,604,000 $ 1,978,000 $ 3,922,000 Switzerland 126,000 792,000 168,000 Foreign distributors 290,000 76,000 189,000 --------------- --------------- -------------- Total capital expenditures $ 2,020,000 $ 2,846,000 $ 4,279,000 =============== =============== ============== Non-cash items U.S. $ 3,078,000 $ 409,000 $ 459,000 Switzerland - - - Foreign distributors - - - --------------- --------------- -------------- Total non-cash items $ 3,078,000 $ 409,000 $ 459,000 =============== =============== ============== Investment in joint venture U.S. $ 3,178,000 $ 2,740,000 $ 2,464,000 =============== =============== ==============
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. During the fiscal years ended January 1, 1999, January 2, 1998 and January 3, 1997, the Company had foreign sales, primarily to Europe, South Africa, Australia and Southeast Asia, of approximately $29,586,000, $14,637,000 and $12,143,000, respectively. Of these sales, approximately $23,891,000, $8,438,000 and $7,576,000 were to Europe, which has been the Company's principal foreign market for the last three fiscal years. The Company sells its products internationally, which subject the Company to several potential risks, including fluctuating exchange rates (to the extent the Company's transactions are not in U.S. dollars), regulation of fund transfers by foreign governments, United States and foreign export and import duties and tariffs and political instability. F-22 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 22, 1999, included the related financial statement schedule as of January 1, 1999, and for each of the three years in the period ended January 1, 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 22, 1999, relating to the consolidated balance sheets of STAAR Surgical Company and subsidiaries as of January 1, 1999 and January 2, 1998 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 January 1, 1999, which report appears in the January 1, 1999 annual report on Form 10-K of STAAR Surgical Company and subsidiaries. BDO Seidman, LLP Los Angeles, California April 1, 1999 F-23 STAR 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 ----------- ---------- --------- ---------- ---------- 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(2) 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 =========== ========== ========== =========== 1996 Allowance for doubtful accounts deducted from accounts receivable in balance sheet $ 119,000 $ - $ 7,000(1) $ 112,000 Reserve for obsolescence deducted from inventories in balance sheet 31,000 - 31,000(2) - ----------- ---------- ---------- ----------- $ 150,000 $ - $ 38,000 $ 112,000 =========== ========== ========== ===========
___________ (1) Writeoffs of accounts receivable. (2) Obsolete inventory written down to zero value. F-24 EXHIBIT INDEX ------------- Exhibits 3.1 Certificate of Incorporation, as amended(1) 3.4 By-laws, as amended(7) 4.1 1990 Stock Option Plan(2) 4.2 1991 Stock Option Plan(3) 4.3 1995 STAAR Surgical Company Consultant Stock Plan(4) 4.4 1996 STAAR Surgical Company Non-Qualified Stock Plan(8) 4.5 Stockholders' Rights Plan, dated effective April 20, 1995(6) 4.6 1998 STAAR Surgical Company Stock Plan, adopted April 17, 1998(9) 10.1 Joint Venture Agreement, dated May 23, 1988, between the Company, Canon Sales Co, Inc. and Canon, Inc.(11) 10.2 License Agreement, dated March 9, 1990, between Chiron Ophthalmics, Inc. and the Company(5) 10.3 License Agreement, dated March 9, 1990, between Chiron Ophthalmics, Inc. and the Company(5) 10.4 Promissory Note, dated February 28, 1991, from John R. Wolf to the Company(8) 10.5 Stock Pledge/Security Agreement, dated February 28, 1991, between John R. Wolf, the Company and Pollet & Associates(8) 10.6 Promissory Note, dated February 28, 1991, from William C. Huddleston to the Company(8) 10.7 Stock Pledge/Security Agreement, dated February 28, 1991, between William C. Huddleston, the Company and Pollet & Associates(8) 10.8 Promissory Note, dated May 26, 1992, from the Andrew F. Pollet and Sally M. Pollet Revocable Trust dated March 6, 1990(10) 10.9 Deed of Trust, dated September 21, 1992, by the Andrew F. Pollet and Sally M. Pollet Revocable Trust dated March 6, 1990(10) 10.10 Promissory Note, dated July 3, 1992, from William C. Huddleston to the Company(10) 10.11 Stock Pledge/Security Agreement, dated July 3, 1992, between William C. Huddleston the Company and Pollet & Associates(10)
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(10) 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(10) 10.14 Patent License Agreement, dated May 24, 1995, with Eye Microsurgery Intersectoral Research and Technology Complex(7) 10.15 Patent License Agreement, dated January 1, 1996, with Eye Microsurgery Intersectoral Research and Technology Complex(8) 10.16 Promissory Note, dated March 18, 1993, from William C. Huddleston to the Company(5) 10.17 Modification To Employment Agreement, dated December 20, 1994, between the Company and John R. Wolf(5) 10.18 First Amendment To Sales Representative Agreement, dated December 20, 1994, between the Company and John R. Wolf(5) 10.19 Employment Agreement, dated March 1, 1994, between the Company and Vladimir Feingold(5) 10.20 Modification To Employment Agreement, dated May 6, 1996, between the Company and Vladimir Feingold(8) 10.21 Employment Agreement, dated March 1, 1994, between the Company and William C. Huddleston(5) 10.22 Modification To Employment Agreement, dated May 6, 1996, between the Company and William C. Huddleston(8) 10.23 Employment Agreement, dated March 1, 1994, between the Company and Carl M. Manisco(5) 10.24 Modification To Employment Agreement, dated May 6, 1996, between the Company and Carl M. Manisco(8) 10.25 Employment Agreement, dated March 1, 1994, between the Company and Michael J. Lloyd(5) 10.26 Modification To Employment Agreement, dated May 6, 1996, between the Company and Michael J. Lloyd(8)
10.27 Employment Agreement, dated March 1, 1994, between the Company and Stephen L. Ziemba(5) 10.28 Modification To Employment Agreement, dated May 6, 1996, between the Company and Stephen L. Ziemba(8) 10.29 Employment Agreement, dated September 4, 1998, between the Company and Donald R. Sanders(11) 10.30 Amended IOL Supply Agreement, dated June 10, 1994, between the Company and Chiron Vision Corporation(5) 10.31 Manufacturing Site Agreement, dated June 10, 1994, between the Company and Chiron Vision Corporation(5) 10.32 Form of Non-Qualified Stock Option Agreements granted to Directors of Company in June and August 1994(5) 10.33 Agreement For Purchase And Sale Of Assets, dated October 1, 1994, between STAAR Surgical Australasia Pty. Ltd. and Bionica Pty. Ltd.(5) 10.34 Agreement, dated October 10, 1995, with China Eye Joint Venture(7) 10.35 Stock Pledge Agreement, dated September 4, 1998, between the Company and John R. Wolf(11) 10.36 Promissory Note, dated September 4, 1998, from John R. Wolf to the Company(11) 10.37 Stock Pledge Agreement, dated September 4, 1998, between the Company and William C. Huddleston(11) 10.38 Promissory Note, dated September 4, 1998, from William C. Huddleston to the Company(11) 10.39 Stock Pledge Agreement, dated September 4, 1998, between the Company and Carl Manisco(11) 10.40 Promissory Note, dated September 4, 1998, from Carl Manisco to the Company(11) 10.41 Stock Pledge Agreement, dated September 4, 1998, between the Company and Andrew F. Pollet(11) 10.42 Promissory Note, dated September 4, 1998, from Andrew F. Pollet to the Company(11)
10.43 Supply Agreement, dated January 28, 1998, between the Company and Mentor Medical, Inc. (11) 10.44 Agreement, dated December 31, 1997, between the Company and Mentor Corporation. (11) 10.45 Agreement regarding the purchase of shares effective January 5, 1998. (11)* 10.46 Revolving Line of Credit Note, dated June 1, 1998, between the Company and Wells Fargo Bank. (11) 10.47 Stock Option Certificate, dated September 4, 1998, between the Company and Andrew F. Pollet(11) 10.48 Stock Option Certificate, dated September 4, 1998, between the Company and John R. Wolf(11) 10.49 Stock Option Certificate, dated September 4, 1998, between the Company and Donald R. Sanders(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-18, File No. 2-83434, as filed on April 29, 1983 (2) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-37248, as filed on October 11, 1990 (3) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-76404, as filed on March 11, 1994 (4) Incorporated by reference from the Company's Registration Statement on Form S-8, File No. 33-60241, as filed on June 15, 1995 (5) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 30, 1994, as filed on March 30, 1995 (6) 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 (7) 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 (8) 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 (9) Incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Stockholders held on May 29, 1998, as filed on May 1, 1998. (10) 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 (11) Filed herewith (12) Re-filed herewith pursuant to Reg. (S)229.10(d) * Certain confidential information redacted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of Regulation C of the Securities Act of 1933, as amended. EX-10.1 2 JOINT VENTURE AGREEMENT EXHIBIT 10.1 JOINT VENTURE AGREEMENT ----------------------- THIS AGREEMENT entered into the 23 day of May, 1988 by and among STAAR Surgical Company, a corporation organized and existing under the laws of the State of Delaware, with head office at 1911 Walker Avenue, Monrovia, California 91016, U.S.A. (hereinafter referred to as "STAAR"), Canon Inc., a corporation organized and existing under the laws of Japan, with head office at 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo, Japan (hereinafter referred to as "CANON") and Canon Sales Co., Inc., a corporation organized and existing under the laws of Japan, with head office at 11-28, Mita 3-chome, Minato-ku, Tokyo, Japan (hereinafter referred to as "CANON SALES"). WITNESSETH: WHEREAS, STAAR, CANON and CANON SALES desire to form a new company which will engage in the business of manufacturing in Japan and selling in Japan and other countries certain intraocular lenses and other products. NOW, THEREFORE, in consideration of the mutual promises herein contained it is agreed among the parties hereto as follows: 1. Formation of New Company ------------------------ 1.1 Formation and purpose By June 1, 1988 or as soon thereafter as is practicable, a Japanese joint stock company (Kabushiki Kaisha) shall be formed which shall have as its principal purpose the design, manufacture and sale in Japan of intraocular lenses, surgical packs, phaco emulsification machines and ophthalmic drugs and other medical products (hereinafter referred to as the "New Company"). Unless hereafter approved by the shareholders of the New Company, the New Company shall not market directly its products. Instead, it is the intention of the parties hereto that the New Company shall market its products worldwide through CANON, CANON SALES, their subsidiaries and/or STAAR or such other distributors as the Board of Directors of the New Company may approve. The terms of any ---------------- such distribution arrangement shall be subject to the unanimous --------------------------------------------------------------- approval of the Board of Directors of the New Company. ----------------------------------------------------- 1.2 Name The name of the New Company shall be Canon Staar Kabushiki Kaisha (in English, Canon Staar Co., Inc.) or such other name as is agreed to by resolution of the shareholder. 1.3 Articles of Incorporation The Articles of Incorporation of the New Company to be adopted at the time of formation shall be, in form and in substance, substantially identical to those attached hereto as Exhibit A, provided that the original copies of the Articles of Incorporation of the New Company shall be prepared in the Japanese language. 2. Capitalization -------------- 2.1 Initial Capital The New Company shall have an authorized capital of one billion (1,000,000,000) Japanese Yen consisting of twenty thousand (20,000) ------------------------ shares of voting common stock, having a par value of fifty thousand ----------------------------- (50,000) Japanese Yen each. The total number of shares to be issued by ------------------------------------------ the New Company at the time of formation shall be seven thousand and -------------------------------------------------------------------- five hundred (7,500) shares. The shares to be issued at the time of --------------------------- formation shall be subscribed to and paid for in cash by the below- mentioned parties as follows (the terms and conditions of the subscriptions, other than those provided by this Agreement, shall be determined by a separate agreement of all the parties hereto.): Number of Shares Subscription Amount ---------------- ------------------- STAAR 3,750 shares Yen 187,500,000 CANON 1,875 shares Yen 93,750,000 CANON SALES 1,875 shares Yen 93,750,000 The subscription by each party of the relevant shares of the New Company shall be made on the condition that the Notification concerning Domestic Direct Investment to be filed by STAAR with respect to the shares of the New Company to be subscribed by STAAR as aforesaid has been filed with and duly accepted by the Japanese Government under the Foreign Exchange and Foreign Trade Control Law and STAAR's acquisition of such shares has been duly authorized thereunder. 2.2 Promoters It is understood and agreed that CANON shall nominate seven (7) promoters including CANON for the purpose of the formation of the New Company (as required by Japanese law) and that all shares subscribed for by such promoters other than CANON immediately after the formation of the New Company. 3. Management ---------- -2- 3.1 Board of Directors The New Company will have three (3) directors on the Board of Directors, one of whom shall be appointed by STAAR, one by CANON and one by CANON SALES respectively. Initially the New Company shall have a President, an Executive Vice President and another Director with specific titles. All of them shall be representative directors with authority to represent the New Company. The President shall be designated by STAAR, and the Executive Vice President and the Director with specific titles shall be designated by CANON and CANON SALES. It is understood that pursuant to Japanese law, no remuneration shall be paid to the directors of the New Company unless remuneration is authorized by the shareholders of the New Company. 3.2 Statutory Auditor Upon its formation, the New Company will have one (1) statutory auditor who shall be designated by CANON and CANON SALES. It is understood that pursuant to Japanese law, no remuneration shall be paid to the statutory auditor of the New Company unless remuneration is authorized by the shareholders of the New Company. 3.3 Independent Auditors The New Company's independent auditors shall be an international independent accountant firm having an office in Tokyo, Japan, which shall conduct audits in accordance with generally accepted auditing standards. Neither STAAR, CANON nor CANON SALES should have any obligation to pay said auditing firm. 3.4 Board of Director's Decisions In addition to the matters provided by the Japanese Commercial Code and the matter set forth in the Section 1.1, the following important items concerning the management and the business operation of the New Company shall be decided by the Board of Directors of the New Company, provided that the below-mentioned (a), (d), (e) and (f) shall require unanimous approval of the Board of Directors of the New Company. (a) Appointment or removal of the position of President, Executive Vice President or other Directors with specific titles; (b) Expansion or important changes of the New Company's facilities, and manufacture of new products; (c) Investment to or advance of a new business (including establishment of a subsidiary or participation in the management of other businesses than that handle by the New Company); (d) Acquisition or disposal of assets of which value exceed 20% of total book value ^^ all the New Company's assets per single transaction; (e) Granting of any mortgage, pledge, charge, or encumbrance in respect of any part of the assets or legal property or contractual rights of the New Company in case such part exceeds 20 % of total book value of all the New Company's assets, or entering into any agreement to do so; (f) Borrowing in the principal amount of more than 20 % of total book value of all the New Company's assets per single borrowing; (g) Guarantee of any indebtedness owed by any third party; (h) Acquisition, disposal or licensing of industrial property right or its license; (i) Organization of the New Company, salary payment policy of the New Company, and personnel matters regarding key personnel of the New Company; (j) Determination of a basic policy concerning manufacture or sales; (k) Determination of a budget or a long-term business plan; (l) Conclusion or amendments of an important agreement concerning design, manufacture and sales of products, and of an agreement entered into by or among the New Company and the parties; and (m) Determination of any other important matters than those specified in the preceding paragraphs (a) through (l) which affect management or administration of the New Company. 4. Agreements ---------- 4.1 Technical Assistance and License Agreement Upon the formation of the New Company, the parties shall cause the -------------------------------------------------------------------- New Company to enter into a technical assistance and license agreement ---------------------------------------------------------------------- with STAAR, which agreement shall be substantially in the form attached ----------------------------------------------------------------------- hereto as Exhibit B. ------------------- 4.2 Distribution Agreement Upon the formation of the New Company, STAAR will grant to the New ------------------------------------------------------------------ Company a right of first refusal with respect to any distribution of -------------------------------------------------------------------- its products in Japan. If the New Company exercise such right, STAAR --------------------- and the -4- New Company shall enter into an agreement providing for detail terms and conditions of distribution of such products. 4.3 Purchase Agreement Upon the formation of the New Company, STAAR will grant to the New ------------------------------------------------------------------ Company the right to purchase from STAAR such manufacturing equipment --------------------------------------------------------------------- and tooling as is necessary to manufacture both soft and hard ------------------------------------------------------------- intraocular lenses. If the New Company exercise such right, STAAR and ------------------ the New Company shall enter into an agreement providing for detail terms and conditions of purchase of such manufacturing equipment and tooling. 4.4 Company's Name License Agreement Upon the formation of the New Company, the parties will grant to the New Company a license to use their names as part of the New Company's name. 5. Partners Continuing Assistance ------------------------------ STAAR, CANON and CANON SALES shall endeavor to assist the New Company until such time as the New Company is operated on its own. To that end, CANON and CANON SALES shall provide to the New Company its initial Production Technicians and (on a part-time basis) its initial Administrative Manager, and STAAR shall provide to the New Company its initial Technical Manager or Managers. All such personnel shall be employees of the New Company. The New Company has no responsibility to reimburse the shareholders of the New Company for costs and expenses (including, but not limited to, accounting, consulting and attorneys' fees) incurred by them. 6. Restrictions on Assignment, Etc. of Shares ------------------------------------------ No party shall assign, transfer, offer as a security or otherwise ----------------------------------------------------------------- dispose of the whole or any portion of the shares of the New Company -------------------------------------------------------------------- owned by STAAR, CANON and CANON SALES without the prior written consent ----------------------------------------------------------------------- of the other parties. -------------------- 7. Termination of Agreement ---------------------------- 7.1 Prior to the formation of the New Company, STAAR, CANON or CANON SALES --- ----------------------------------------- may terminate this Agreement immediately upon the occurrence of any of the following events (provided that in the case of paragraph (2), (3) or (4), the party in respect of which the relevant event has occurred may not terminate this Agreement): (1) The Notification concerning Domestic Direct Investment referred to in Section 2.1 is not accepted by the Japanese Government. -5- (2) One of the parties cannot pay its debts, or applies for commencement of proceedings in bankruptcy, composition, reorganization or other similar proceedings, or such application is made against such party, or such party decides that it will be dissolved or be put into liquidation proceedings, or terminate its business activities. (3) In the event that one of the other parties defaults in performing its obligations hereunder, such default is not cured within ninety (90) days from the date such party receives a notice of such default from STAAR, CANON or CANON SALES. (4) One of the parties hereto merges or consolidates with any other person (who is not a party hereto) or disposes of substantially all of its assets to any other person (who is not a party hereto) or any material change occurs in the management of one of the parties hereto, or any person (who is not a party hereto) attempts to acquire all or a substantial portion of the issued and outstanding shares of any party hereto by way of tender offer or otherwise or attempts to acquire all or substantial portion of the business or assets or property of any party hereto. (5) An event set forth in Section 8.5 occurs and the continuance thereof has a material adverse effect on the formation or business operation of the New Company. (6) In the event that any problem which materially affects the New Company or continuance of the New Company's business activities is not resolved among STAAR, CANON and CANON SALES after they negotiated fully in order to resolve such problem for a period of six (6) months. 7.2 After the formation of the New Company, this Agreement shall remain in effect until all of shares of the New Company owned by STAAR, CANON or CANON SALES are assigned to one of the parties or until the New Company is dissolved. 7.3 After the formation of the New Company, if paragraph (5) of Section 7.1 occurs, STAAR, CANON and CANON SALES shall dissolve the New Company and put into the liquidation proceedings. 7.4 After the formation of the New Company, if any event referred to in paragraph (2) or (3) or (4) of Section 7.1 occurs in respect of any party hereto (such party being hereinafter referred to as the "Defaulting Party"), any of the other parties may request the -6- Defaulting Party to assign within sixty (60) days after such request at a book value all of the shares of the New Company held by the Defaulting Party to the requesting party or any person other than the Defaulting Party designated by the requesting party, and upon receipt by the Defaulting Party of such request, the Defaulting Party shall become obligated forthwith to assign the shares of the New Company as aforesaid. 7.5 After the formation of the New Company, if paragraph (6) of Section 7.1 occurs, STAAR, CANON and CANON SALES shall negotiate about the assignment of all of the shares of the New Company owned by STAAR, CANON or CANON SALES to the other parties, and if such negotiation ends in failure, the New Company shall be dissolved and put into the liquidation proceedings. 8. General Provisions ------------------ 8.1 Reimbursement of Expenses The expenses arising from the formation of the New Company, such as the cost of registration of the New Company, etc., shall be reimbursed by the New Company. 8.2 Modification, Etc. of Agreement This Agreement shall not be amended, varied or added without the prior written consent of STAAR, CANON and CANON SALES. 8.3 Assignment STAAR, CANON and CANON SALES shall not assign or transfer all or any part of their rights and obligations under this Agreement to a third party without the prior written consent of other parties. 8.4 Non-disclosure Each party agrees not to disclose to any third party the fact that STAAR, CANON and CANON SALES have made this Agreement or its contents unless the parties mutually agree for a disclosure. 8.5 Force Majeure No party shall be responsible for its non-performance or delay of performance of all or a part of its obligations hereunder directly or indirectly due to natural calamities, orders issued or restrictions imposed by any government, wars, rebellions, strikes, lock-outs, fires, floods or such other causes or accidents as are deemed to be beyond the parties' reasonable control; provided, however, that the affected party shall inform the other parties of such event of force majeure immediately after the occurrence of such event. -7- 8.6 Notice Any notice which is required to be given under this Agreement shall be in writing and shall be given by personal service or by prepaid registered mail addressed to the following addresses or such other addresses as the applicable party may designate: To STAAR: STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016, U.S.A. Attn: Chairman To CANON: Cannon Inc. 53 Imaikami-cho Nakahara-ku, Kawasaki-shi Kanagawa Pref. 211, Japan Attn: Chief Executive Optical Products Operations To CANON SALES: Canon Sales Co., Inc. 11-28, Mita 3-chome Minato-ku, Tokyo 108, Japan Attn: Director and Headquarters' Chief Optical Products Sales Headquarters All notices specified hereunder shall be deemed effective when actually received. 8.7 Governing Law The validity, construction and performance of this Agreement shall be governed by and interpreted in accordance with the laws of Japan. 8.8 Arbitration All disputes, controversies or differences which may arise among STAAR, CANON and CANON SALES, out of, in relation to or in connection with this Agreement, shall be finally settled by arbitration in Tokyo, Japan in accordance with the Commercial Arbitration Rules of The Japan Commercial Arbitration Association. The award rendered by arbitrator(s) shall be final and binding upon the parties. 8.9 Entire Agreement This Agreement constitutes the entire agreement among the parties hereto and supersedes all previous negotiations, agreements and commitments in respect thereto. - 8 - In witness whereof, the parties have caused this Agreement to be executed in triplicate, and each of the parties has one original. STAAR Surgical Company By: /s/ Tom Waggoner ------------------------- Thomas R. Waggoner Chairman Canon, Inc. By: /s/ Torakiyo Yamanaka ------------------------- Torakiyo Yamanaka Managing Director and Chief Executive Optical Products Operations Canon Sales Co., Inc. By: /s/ H. Fujiwara ------------------------- Hirosuko Fujiwara Director and Headquarters' Chief Optical Products Sales Headquarters -9- Exhibit A --------- ARTICLES OF INCORPORATION OF CANON STAAR KABUSHIKI KAISHA Chapter I. General Provisions Article 1. Name - --------------- The name of the Company shall be Canon Staar Kabushiki Kaisha, and, in English, Canon Staar Co., Inc. Article 2. Objects - ------------------ The objects of the Company shall be to engage in the following business: (1) Manufacture and sale of intraocular lenses, surgical packs, phaco emulsification machines, ophthalmic solutions and other pharmaceuticals and medical equipment. (2) Any and all business incidental to the preceding item. Article 3. Location of Head Office - --------------------------------- The Company shall have its principal office at Minato-ku, Tokyo. Article 4. Method of Public Notices - ----------------------------------- Public notices of the Company shall be made in the Kampo, the official __azette. Chapter II. Shares Article 5. Total Number of Shares - --------------------------------- The total number of shares authorized to be issued by the Company shall be twenty thousand (20,000) shares. Article 6. Par Value Shares - --------------------------- All shares to be issued by the Company shall be par value voting common shares and the par value of each share shall be fifty thousand (50,000) yen. Article 7. New Shares - --------------------- The Shareholders of the Company shall have the preemptive right to subscribe to all new shares of the Company. Article 8. Share Certificates - ----------------------------- The share certificates to be issued by the Company shall all be in registered nominative form, in three (3) denominations, of one (1) share, ten (10) shares and one hundred (100) shares. Provided, however, that whenever necessary, other denominations of share certificates may be issued by resolution of the Board of Directors. Article 9. Registration of Transfer - ----------------------------------- (1) In the case of an application for registration of a transfer of shares because of assignment, an application shall be submitted to the Company in the Company prescribed form together with the applicant's seal impression or the signature in the case of a foreigner accustomed to using a signature, together with the share certificate if such has been issued. (2) In the case of an application for registration of transfer of shares in cases other than assignment, the procedures under the preceding paragraph shall be followed and in addition, a document evidencing the acquisition shall be submitted at the request of the Company; provided, however, that when the share certificate has not been issued, it is not necessary to submit the share certificate. Article 10. Notification - ------------------------ (1) Each shareholder, registered pledgee or his legal representative shall notify the Company of his name and address, and present his seal-impression. Provided, however, that a copy of his signature can be substituted for the seal impression. (2) Each shareholder, registered pledgee or his legal representative residing abroad shall establish a provisional address or appoint an agent in Japan, and shall notify the Company of such provisional address or the name and address of such agent in Japan. (3) In the case of changes in matters for which notification has been made in accordance with the preceding two paragraphs, the Company shall be notified. Article 11. Registration of Pledge or Indication of Trust - --------------------------------------------------------- Property or Cancellation Thereof -------------------------------- In the case of an application for registration of a pledge or for indication of trust property, the application shall be submitted in the Company prescribed form together with the applicant's seal impression or the signature in the case of a foreigner accustomed to using a signature, together with the share certificate, if such has been issued. The same shall -3- also apply in the case of an application for cancellation of such registration or indication. Article 12. Notice of Non-possession of Share Certificates and -------------------------------------------------- Application for Delivery of Non-possessed Share ----------------------------------------------- Certificates ------------ (1) In the case of notice of non-possession of share certificates the written notice shall be submitted in the Company prescribed form, together with the share certificate; provided, however, that when the share certificate has not been issued, it is not necessary to submit the share certificate. (2) In order for a shareholder who has given notice of non-possession of share certificates to apply for the issuance of such share certificates, he shall submit the application in the prescribed form. Article 13. Representatives of Corporate and Joint-owned Share - -------------------------------------------------------------- (1) If a shareholder is a corporation, such shareholder shall not file notification of its representative with the Company. In case of a change in the such representative, notification shall be filed with the Company in the Company prescribed form, together with a certified extract of the corporate register. (2) Shareholders who own shares jointly shall select a representative and file notification of such representative in the prescribed form. The same shall also apply with regard to any change occurring in such representative. Article 14. Re-issuance of Share Certificates - --------------------------------------------- (1) In the case of an application for issuance of a new share certificate due to division or consolidation of share certificates, the application shall be submitted to the Company in the prescribed form, together with the share certificates. -4- (2) In the case of an application for issuance of a new share certificate due to loss of share certificate, the application shall be submitted to the Company in the prescribed form, together with an original or an authenticated copy or a certified copy of the judgment of nullification. (3) In the case of an application for issuance of a new share certificate due to defacement or destruction of share certificate, the application shall be submitted in the prescribed form, together with the share certificate; provided, however that if it is difficult to ascertain the information on the share certificate concerned or the genuineness thereof, the procedures under the preceding paragraph (2) shall be followed. Article 15. Fee - --------------- Any person making any request under Articles 9, 10 and 13 shall pay to the Company such fees as the Company may from time to time determine. Article 16. Restrictions of Transfer - ------------------------------------ The Shareholders shall not assign any of the shares of this Company held by them, or any pre-emptive right to new shares allotted to them without obtaining the approval by resolution of the Board of Directors thereto in advance. Article 17. Record Date - ----------------------- (1) The shareholders who are entitled to exercise their rights as shareholders at the ordinary general meeting of shareholders for each fiscal year shall be those shareholders entitled to vote and appearing in the register of shareholders as of the last day of such fiscal year. (2) In addition to the preceding paragraph, the Company -5- may, whenever the need arises and by giving two (2) weeks prior notice thereof suspend the register of shareholders as of a certain date in which case only those shareholders or registered pledges appearing in the register of shareholders as of said date shall be shareholders or pledgees who are entitled to exercise the rights thereof. Chapter III. General Meeting of Shareholders Article 18. Holding of General Meeting - -------------------------------------- (1) The ordinary general meeting of shareholders shall be convened within three (3) months after the end of each fiscal year and an extraordinary general meeting of shareholders shall be convened whenever necessary. (2) A general meeting of shareholders of the Company shall be held at the head office of the Company or at such place to which all shareholders agree in writing. (3) Notice of any general meeting of shareholders shall be dispatched at least fourteen (14) days before the day set for such meeting. The notice shall set forth the agenda of the meeting and shall be handed, mailed (by postage prepaid registered airmail to the shareholders with addresses outside of Japan), or cabled by prepaid telegram. Said fourteen (14) days period of notice may be shortened by written agreement of all the shareholders. (4) Unless otherwise provided by laws or ordinances, a general meeting of shareholders shall be convened by the Representative Director in accordance with the resolution of the Board of Directors. (5) If the Representative Director is unable to act, such meeting shall be convened by another Director in -6- accordance with the order prescribed in advance by resolution of the Board of Directors. Article 19. Chairmanship - ------------------------ (1) The chairmanship of a general meeting of shareholders shall be assumed by the Representative Director, provided that if the Company has more than one Representative Director, such chairmanship shall be assumed in accordance with the order prescribed in advance by resolution of the Board of Directors. (2) If the Representative Director is unable to act, such chairmanship shall be assumed by another Director in accordance with the order prescribed in advance by resolution of the Board of Directors. Article 20. Method of adopting resolutions - ------------------------------------------ Unless otherwise provided by mandatory provisions of laws or ordinances or by these Articles of Incorporation, the presence of shareholders representing a majority of all the issued shares shall be required to make a quorum, and resolutions at a general meeting of shareholders shall be adopted by the affirmative vote of a majority of shareholders present at a meeting where a majority of all shareholders is present or represented. Article 21. Exercise of Voting Rights by Proxy - ---------------------------------------------- Shareholders may exercise their votes by proxy. In such case, the proxy shall file with the Company a document evidencing his authority prior to each general meeting of shareholders. - 7 - Article 22. Minutes of General Meeting - --------------------------------------- The substance of the proceedings at a general meeting of shareholders and the results thereof shall be recorded in minutes of the meeting, which shall bear the signatures or the names and seals of the Chairman and of the Directors present at the meeting, and shall be kept in the Company's principal office. An English translation of all such minutes shall be made and shall bear the signatures or the names and seals of the Chairman and of the Directors present. Chapter IV. Directors, Auditors and Board of Directors Article 23. Number of Directors and Auditors - --------------------------------------------- The Company shall have three (3) Directors and one (1) Auditor. Article 24. Election - --------------------- The election of Directors shall not be made by cumulative voting. Article 25. Term of Office - --------------------------- (1) The term of office of Directors and Auditors shall expire upon conclusion of the ordinary general meeting of shareholders for the last fiscal year within two (2) years after their assumption of office. (2) The term of office of Directors and/or Auditors elected to fill a vacancy shall expire with the expiration of the remaining term of office of the retired Director and/or Auditor. (3) The term of office of Directors elected by reason of - 8 - an increase in the number of Directors shall expire with the expiration of the remaining term of office of the other Directors presently in office. Article 26. Representative Directors - ------------------------------------ (1) Not more than three (3) Representative Directors to represent the Company shall be elected by resolution of the Board of Directors. (2) Each Representative Director is authorized to represent the Company. Article 27. Directors with Specific Titles - ------------------------------------------ By resolution of the Board of Directors, the Company shall have a President and other Directors with specific titles. Article 28. Convening and Presiding - ----------------------------------- (1) Unless otherwise provided by laws or ordinances, a meeting of the Board of Directors shall be convened and presided over by the President. (2) If the President is unable to act, such meeting shall be convened and presided over by another Director in accordance with the order prescribed in advance by resolution of the Board of Directors. (3) Notice of convocation of a meeting of the Board of Directors shall be dispatched to each Director and each Statutory Auditor at least ten (10) days before the date of such meeting; provided, however, that such period may be shortened to three (3) days in case of necessity and that, with the consent of all directors, the convocation procedures may be omitted. -9- Article 29. Board of Directors - ------------------------------ (1) The Board of Directors shall be composed of the Directors and, in addition to the matters provided by laws or ordinances or by these Articles of Incorporation, shall make decisions regarding the execution of important business of the Company. (2) The Board of Directors shall supervise the execution by Directors of their duties. (3) The Board of Directors shall receive reports on the progress of execution of business from the President or a Director named by him, at least once every three months. Article 30. Resolutions - ----------------------- (1) Resolutions at a meeting of the Board of Directors shall be adopted by the majority vote of the Directors present, who shall constitute at least two (2) Directors. (2) Directors having special interest in any resolution under the preceding paragraph shall not participate in the voting on such resolution. (3) The number of Directors who can not participate in the voting on a resolution in accordance with the provision of the preceding paragraph shall not be counted in number of Directors under paragraph 1. Article 31. Minutes of Meetings - ------------------------------- The substance of proceedings at a meeting of the Board of Directors and the results thereof shall be recorded in minutes of the meeting, which shall bear the signatures or the names and seals of the Chairman and of the Directors present at -10- the meeting, and shall be preserved in the Company's head office. An English translation of all such minutes shall be made and shall bear the signatures or the names and seals of the Chairman and of the Directors present. Chapter V. Accounting Article 32. Fiscal Year - ----------------------- The fiscal year of the Company shall be from January 1 to December 31 of the same year each year, and the settlement of accounts of the Company shall be made at the end of the fiscal year. Article 33. Dividends and Interim Dividends - ------------------------------------------- (1) Dividends shall be paid to the shareholders or pledgees appearing on the register of shareholders as of the last day of each fiscal year. (2) By resolution of the Board of Directors, the Company may distribute interim dividends to the shareholders or pledgees appearing on the register of shareholders as of June 30 each year. (3) Dividends and/or interim dividends shall revert to the company when not received within three (3) years after the day when they first become payable. (4) No interest shall accrue on dividends and/or interim dividends. Chapter VI. Supplementary Provisions Article 34. Shares to be Issued at the Time of Incorporation - ------------------------------------------------------------ -11- The number of shares to be issued by the Company at the time of incorporation shall be seven thousand and five hundred (7,500) common par value shares, and the issuing price shall be fifty-thousand (50,000) yen per share. Article 35. Term of Office of the First Directors and the First Statutory - ------------------------------------------------------------------------- Auditors -------- Notwithstanding the provisions of Article 25, the term of office of the first Directors and the first Statutory Auditors shall expire at the conclusion of the first ordinary general meeting of shareholders after their assumption of office. Article 36. First Fiscal Year - ----------------------------- The first fiscal year of the Company shall be from the day of its incorporation until the 31st day of December of the year of its incorporation. Article 37. Promoters - --------------------- The names and addresses of the promoters as well as the number of shares subscribed to by each of them are as follows:
Number of Shares Name and Address of Promoter ---------------- ---------------------------- (1) share (2) share (3) share (4) share (5) share (6) share (7) share
- 12 - The undersigned promoters for Canon Sta____ Co., Inc. have made these Articles of Incorporation in accordance with the provisions of the Commercial Code of Japan and have hereunto affixed their signatures or names and seals, with their respective addresses, this ____ day of _____________, 1988. (1) _________________________________________ (2) _________________________________________ (3) _________________________________________ (4) _________________________________________ (5) _________________________________________ (6) _________________________________________ (7) _________________________________________ -13- Exhibit B --------- TECHNICAL ASSISTANCE AND LICENSE AGREEMENT ------------------------------------------ THIS AGREEMENT, entered into as of the ____ day of _________, 1988, by and between STAAR Surgical Company, a corporation organized and existing under the laws of the State of Delaware, U.S.A., with head office at 1911 Walker Avenue, Monrovia, California 91016, U.S.A. (hereinafter referred to as "STAAR") and Canon Staar Co., Inc., a company organized and existing under the laws of Japan, with head office at __________________________________, Japan (hereinafter referred to as the "JV"). WITNESSETH: WHEREAS, STAAR, Canon Inc., a Japanese corporation with head office at 30- 2, Shimomaruko 3-chome, Ohta-ku, Tokyo, Japan and Canon Sales Co., Inc., a Japanese corporation with head office at 11-28, Mita 3-chome, Minato-ku, Tokyo, Japan have jointly organized the JV pursuant to the Joint Venture Agreement of ______________, 1988; and WHEREAS, the JV desires to obtain a fully paid-up, license under the patent applications, patents, technical information, knowhow and other intellectual property owned or controlled by STAAR to manufacture and market throughout the world certain intraocular and other products; and WHEREAS, STAAR agrees to grant the JV subject to agreements previously made by STAAR with third parties, such a license under the patent applications, patents, technical information, knowhow and other intellectual property owned or controlled by STAAR. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE 1 - DEFINITIONS - ----------------------- 1.1 The term "LICENSED PATENTS" as used herein shall mean any and all patents, applications for patent (including utility models) throughout the world owned or controlled by STAAR now and hereafter or under which STAAR has the right to license now and hereafter, any and all corresponding patents in any country of the world, any and all patents (including utility models) resulting from continuations, continuations-in-part, divisions and changes of application of any such applications for patent, and any and all reissues, reexaminations or extensions of any such patents, including, but not limited to, Japanese patent applications in the Appendix attached to this Agreement. 1.2 The term "LICENSED TECHNOLOGY" as used herein shall mean any and all intellectual property, including but not limited to, the LICENSED PATENTS, copyright rights, software, drawings, knowhow, inventions, technical documentation and specifications relating to intraocular lenses, surgical packs, phaco emulsification machines, ophthalmic solutions, other pharmaceuticals and medical equipment, owned or controlled by STAAR now and hereafter or under which STAAR has the right to license now and hereafter. 1.3 The term "EFFECTIVE DATE" as used herein shall mean the day on which this Agreement becomes effective in accordance with ARTICLE 5, Paragraph 5.1 of this Agreement. ARTICLE 2 - GRANT - ----------------- 2.1 STAAR grants to the JV under the LICENSED TECHNOLOGY a royalty free and payment free, fully paid-up, irrevocable, exclusive license to make, have made, use, sell, lease or otherwise dispose of any products in Japan, and grants to the JV under the LICENSED TECHNOLOGY a royalty free and payment free, fully paid-up, irrevocable, non-exclusive license to use, sell, lease 2 The JV has the right to use the LICENSED TECHNOLOGY to make any products pursuant to the licenses granted in this Paragraph 2.1. 2.2 The JV is authorized to apply to the Japanese Patent Office for the creation of the registration of the exclusive-license granted herein under the laws of Japan at any time during the term of this Agreement. STAAR agrees, upon request by the JV, to execute all necessary documents and to take all reasonable steps to assist the JV in the creation of such registration. ARTICLE 3 - TRANSFER AND TRAINING - --------------------------------- 3.1 Transfer - Within a certain period from the EFFECTIVE DATE which such -------- period shall be agreed upon between the parties, STAAR agrees to provide to the JV the LICENSED TECHNOLOGY in written or other tangible form to enable the JV to make, sell and service products, pursuant to the licenses set forth in ARTICLE 2, Paragraph 2.1 hereof. 3.2 Training - Within a certain period from the EFFECTIVE DATE which such -------- period shall be agreed upon between the parties, STAAR agrees to provide the following training program at the JV's premises to engineers and/or employees of the JV: (a) General. Explanations of the LICENSED TECHNOLOGY; (b) Basic manufacturing and service trainings for products in utilizing the LICENSED TECHNOLOGY. 3.3 Consulting Services - Within a period beginning on the EFFECTIVE DATE ------------------- of this Agreement, STAAR agrees to give the continuing assistance in starting up the JV's manufacture of the products. ARTICLE 4 - PAYMENT - ------------------- 4.1 In consideration of the licenses and right granted herein, the JV agrees to pay STAAR the sum of Three Million 3 from the EFFECTIVE DATE of this Agreement. 4.2 The payment by the JV to STAAR shall, except in the case where STAAR specifically designates, be made in the United States currency to the bank account designated by STAAR. In the event the JV is required to withhold income tax imposed by the Government of Japan at the source on the payment to be made by the JV to the STAAR hereunder, the JV may as of the time of payment deduct the sum of the Japanese income tax from the payment to be made to STAAR, which sum shall not exceed the rate stipulated in the Convention between Japan and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. In the event the JV withheld and paid such income tax, the JV shall transmit to STAAR official tax receipt or other evidence issued by the appropriate Japanese tax authorities sufficient to enable STAAR to support a claim for United States tax credit, in respect of any such tax withheld and paid, against income taxes which may be levied by the United States Government. ARTICLE 5 - TERM AND TERMINATION - -------------------------------- 5.1 This Agreement shall become effective on the day on which governmental clearance hereof is obtained under the foreign exchange and foreign trade control law of Japan, and shall continue in effect until such time when the parties agree to terminate. ARTICLE 6 - WARRANTY AND INDEMNIFICATION - ---------------------------------------- 6.1 STAAR represents and warrants that it has the right to grant the right and licenses granted by it herein, and that it has not granted any right or license to any third party which will prevent STAAR from granting such right or licenses to the JV. 4 patent or utility model or to maintain any patent or utility model in force. STAAR agrees to consult with the JV prior to abandoning any application for patent or utility model, or any patent or utility model by giving the JV prior written notice thereof and granting to the JV a first right of refusal for obtaining such application, patent or utility model at the JV's expense. 6.3 If any claim that the manufacture, use, sell, lease and/or other disposition of the products under the LICENSED TECHNOLOGY license granted hereunder constitutes infringement of any third party's patent, utility model or other intellectual property is brought against the JV, its agents, distributors and/or customers, STAAR shall, at its own expense, defend such claim and hold the JV, its agents, distributors and/or customers harmless from any loss, expense, cost or damage suffered from or incurred by the JV, its agents, distributors and/or customers, provided the JV shall promptly notify STAAR of such claim and shall cooperate in the defense thereof. STAAR's liability to the JV under this Paragraph 6.3 shall not exceed One Million United States Dollars (U.S. $1,000,000). ARTICLE 7 - GENERAL PROVISIONS - ------------------------------ 7.1 Modification, Etc. of Agreement - This Agreement shall not be ------------------------------- amended, varied or added without the prior written consent of STAAR and the JV. 7.2 Assignment - This Agreement may not be assigned or transferred in ---------- whole or in part by any party to any third party without the prior written consent of the other party. 7.3 Non-Disclosure - Neither party shall, without first securing the -------------- written consent of the other, disclose any of the terms and conditions hereof to any third party, except as required by law or government regulation. 5 ^^^ is required to be given under this Agreement shall be in writing and shall be given by personal service or by prepaid registered air mail addressed to the following addresses or such other addresses as the applicable party may designate: To STAAR: STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016 U.S.A. Attn: Chairman To the JV: All notices specified hereunder shall be deemed effective when actually received. 7.5 Governing Law - The validity, construction and performance of this ------------- Agreement shall be governed by and interpreted in accordance with the laws of Japan. 7.6 Entire Agreement - This Agreement constitutes the entire agreement ---------------- between the parties hereto and supercedes all previous negotiations, agreements and commitments in respect thereto. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate, and each of the parties has one original. STAAR SURGICAL COMPANY CANON STAAR CO., INC. By: /s/ Tom Waggoner By: ------------------------- ------------------------ Thomas R. Waggoner Chairman 6 APPENDIX -------- Japanese Patent Application No. 18005/1983 Filed: February 5, 1983 Laid Open: August 31, 1983 (No. 146346/1983) Japanese Patent Application No. 134221/1983 Filed: July 22, 1983 Laid Open: March 6, 1984 (No. 40860/1984) Japanese Patent Application No. 134222/1983 Filed: July 22, 1983 Laid Open: April 17, 1984 (No. 67944/1984) Japanese Patent Application No. 225057/1986 Filed: September 25, 1986 Laid Open: May 20, 1987 (No 109563/1987) Japanese Patent Application No. 226364/1986 Filed: September 26, 1986 Laid Open: May 20, 1987 (No. 109564/1987) EX-10.29 3 EMPLOYMENT AGREEMENT (SANDERS) EXHIBIT 10.29 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT ("Agreement"), which is dated as of September 4, 1998, is made by and between STAAR SURGICAL COMPANY, a Delaware corporation, located at 1911 Walker Avenue, Monrovia, California, 91016 and hereinafter referred to as "Company", and DONALD R. SANDERS, whose address is 11 West Birchwood, Hinsdale, Illinois 60521, hereinafter referred to as "Employee", based upon the following: RECITALS -------- WHEREAS, Company wishes to retain the services of Employee as its Director of Clinical Affairs and to set forth in this Agreement the duties and responsibilities Employee has agreed to undertake on behalf of Company; and WHEREAS, Employee wishes to render services to Company as Director of Clinical Affairs and to have set forth in this Agreement the duties and responsibilities he has agreed to undertake on behalf of Company. 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 a period of five (5) years, beginning on September 4, 1998 and ending on September 3, 2003. 2. GENERAL DUTIES. -------------- Employee shall report to Company's Chief Executive Officer or his designee. In his capacity as Director of Clinical Affairs, 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 hereto as Exhibit "A". Employee shall perform such other duties as may, from time to time, be prescribed by the Company through its Board of Directors (the "Board") or its officers. 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. NONCOMPETITION, NONSOLICITATION AND NONINTERFERENCE --------------------------------------------------- AND PROPRIETARY PROPERTY AND CONFIDENTIAL ----------------------------------------- INFORMATION PROVISIONS. ---------------------- (a) Noncompetition. -------------- (1) "Applicable Definitions" For purposes of this paragraph 3, ---------------------- the following capitalized terms shall have the definitions set forth below: i. "Business Segments" - The term "Business Segments" is ----------------- defined as each of Company's (or Company's affiliates') products or product lines. ii. "Competitive Business" - The term "Competitive -------------------- Business" is defined as any business that is or may be competitive with or similar to or adverse to any of Company's (or Company's affiliates') Business Segments, whether such business is conducted by a proprietorship, partnership, corporation or other entity or venture. iii. "Territory" - The term "Territory" is defined as the --------- geographic area (both within the United States and internationally) in which each Business Segment is carried on including, by way of example and not limitation, the entire geographic area in which Company conducts various phases of such Business Segment, including purchasing, production, distribution, promotional and marketing activities, sales, and location of plants and warehouses. (2) Covenant Not To Compete. Except as otherwise provided herein, ----------------------- Employee hereby covenants and agrees that during the term of this Agreement, and for a period of one (1) year from the date this Agreement is terminated or expires, Employee shall not, with respect to each Business Segment and within the boundaries of the Territory applicable to such Business Segment, without the prior written consent of Company (which consent may be withheld in the sole and absolute discretion of Company), directly or indirectly, either alone or in association or in connection with or on behalf of any person, firm, partnership, corporation or other entity or venture now existing or hereafter created: (i) be or become interested or engaged in, directly or indirectly, with any Competitive Business including, without limitation, being or becoming an organizer, investor, lender, partner, joint venturer, stockholder, officer, director, employee, manager, independent sales representative, associate, consultant, agent, supplier, vendor, vendee, lessor, or lessee to any Competitive Business, or (ii) in any manner associate with, or aid or abet or give information or financial assistance to any Competitive Business, or (iii) use or permit the use of Employee's name or any part thereof to be used or employed in connection with any Competitive Business (collectively and severally, the "Noncompetition Covenants"). Notwithstanding the foregoing, ------------------------ the provisions of this paragraph 3(a)2. shall not be deemed to prevent the purchase or ownership by Employee as a passive investment of the outstanding capital shares of any publicly held corporation, so long as any other obligation or duty under the Noncompetition Covenants are not breached. 2 (3) Separate Covenants. The Noncompetition Covenants shall be ------------------ construed to be divided into separate and distinct Noncompetition Covenants with respect to (i) each Business Segment and (ii) each matter or type of conduct described therein. Each of such divided Noncompetition Covenants shall be separate and distinct from all such other Noncompetition Covenants with respect to the same or any other Business Segment. (4) Acknowledgements. Employee acknowledges that: (i) the covenants ---------------- and the restrictions contained in the Noncompetition Covenants are necessary, fundamental, and required for the protection of Company's business; (ii) the Noncompetition Covenants relate to matters which are of a special, unique and extraordinary value; and (iii) a breach of any of the Noncompetition Covenants will result in irreparable harm and damages which cannot be adequately compensated by a monetary award. (5) Judicial Limitation. Notwithstanding the foregoing, if at any ------------------- time a court of competent jurisdiction holds that any portion of any Noncompetition Covenant is unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, such Noncompetition Covenant shall be interpreted to extend only over the maximum period of time, maximum geographical area, or maximum extent in all other respects, as the case may be, as to which it may be enforceable, all as determined by such court in such action. (b) Nonsolicitation and Noninterference. ----------------------------------- (1) Covenants. Employee hereby covenants and agrees that during the --------- term of this Agreement, and for a period of one (1) year from the date this Agreement terminates or expires, Employee shall not, either for Employee's own account or directly or indirectly in conjunction with or on behalf of any person, partnership, corporation or other entity or venture: i. Solicit or employ or attempt to solicit or employ any person who is then or has, within twelve (12) months prior thereto, been an officer, partner, manager, agent or employee of Company or any affiliate of Company whether or not such a person would commit a breach of that person's contract of employment with Company or any affiliate of Company, if any, by reason of leaving the service of Company or any affiliate of Company (the "Nonsolicitation Covenant"); or ------------------------ ii. On behalf of, directly or indirectly, any Competitive Business (as such term is defined in paragraph 3(a)1.ii.), or for the purpose of or with the reasonably foreseeable effect of harming the business of Company, solicit the business of any person, firm or company which is then, or has been at any time during the preceding twelve (12) months prior to such solicitation, a customer, cli ent, contractor, supplier or vendor of Company or any affiliate of Company (the "Noninterference Covenant)". ------------------------ (2) Acknowledgements. Each of the parties acknowledges that: (i) the ---------------- 3 covenants and the restrictions contained in the Nonsolicitation and Noninterference Covenants are necessary, fundamental, and required for the protection of the business of Company; (ii) such Covenants relate to matters which are of a special, unique and extraordinary value; and (iii) a breach of either of such Covenants will result in irreparable harm and damages which cannot be adequately compensated by a monetary award. (3) Judicial Limitation. Notwithstanding the foregoing, if at any ------------------- time, despite the express agreement of Company and Employee, a court of competent jurisdiction holds that any portion of any Nonsolicitation or Noninterference Covenant is unenforceable by reason of its extending for too great a period of time or by reason of its being too extensive in any other respect, such Covenant shall be interpreted to extend only over the maximum period of time or to the maximum extent in all other respects, as the case may be, as to which it may be enforceable, all as determined by such court in such action. (c) Proprietary Property; Confidential Information. ---------------------------------------------- (1) "Applicable Definitions" For purposes of this paragraph 3(c), ---------------------- the following capitalized terms shall have the definitions set forth below: i. "Confidential Information" - The term "Confidential ------------------------ Information" is collectively and severally defined as any information, matter or thing of a secret, confidential or private nature, whether or not so labeled, which is connected with Company's business or methods of operation or concerning any of Company's suppliers, customers, licensors, licensees or others with whom Company has a business relationship, and which has current or potential value to Company or the unauthorized disclosure of which could be detrimental to Company. Confidential Information shall be broadly defined and shall include, by way of example and not limitation: (i) matters of a business nature available only to management and owners of Company of which Employee may become aware (such as information concerning customers, vendors and suppliers, including their names, addresses, credit or financial status, buying or selling habits, practices, requirements, and any arrangements or contracts that Company may have with such parties, Company's marketing methods, plans and strategies, the costs of materials, the prices Company obtains or has obtained or at which Company sells or has sold its products or services, Company's manufacturing and sales costs, the amount of compensation paid to employees of Company and other terms of their employment, financial information such as financial statements, budgets and projections, and the terms of any contracts or agreements Company has entered into) and (ii) matters of a technical nature (such as product information, trade secrets, know-how, formulae, innovations, inventions, devices, discoveries, techniques, formats, processes, methods, specifications, designs, patterns, schematics, data, compilation of information, test results, and research and development projects). For purposes of the foregoing, the term "trade secrets" shall mean the broadest and most inclusive interpretation of trade secrets as defined by Section 3426.1(d) of the California Civil Code (the Uniform Trade --------------------- Secrets Act) and cases interpreting the scope of said Section. ii. "Proprietary Property" - The term "Proprietary -------------------- Property" is 4 collectively and severally defined as any written or tangible property owned or used by Company in connection with Company's business, whether or not such property also qualifies as Confidential Information. Proprietary Property shall be broadly defined and shall include, by way of example and not limitation, products, samples, equipment, files, lists, books, notebooks, records, documents, memoranda, reports, patterns, schematics, compilations, designs, drawings, data, test results, contracts, agreements, literature, correspondence, spread sheets, computer programs and software, computer print outs, other written and graphic records, and the like, whether originals, copies, duplicates or summaries thereof, affecting or relating to the business of Company, financial statements, budgets, projections, invoices. (2) Ownership of Proprietary Property. Employee acknowledges that all --------------------------------- Proprietary Property which Employee may prepare, use, observe, come into possession of and/or control shall, at all times, remain the sole and exclusive property of Company. Employee shall, upon demand by Company at any time, or upon the cessation of Employee's employment, irrespective of the time, manner, cause or lack of cause of such cessation, immediately deliver to Company or its designated agent, in good condition, ordinary wear and tear and damage by any cause beyond the reasonable control of Employee excepted, all items of the Proprietary Property which are or have been in Employee's possession or under his control, as well as a statement describing the disposition of all items of the Proprietary Property beyond Employee's possession or control in the event Employee has not previously returned such items of the Proprietary Property to Company. (3) Agreement Not to Use or Divulge Confidential Information. Employee -------------------------------------------------------- agrees that he will not, in any fashion, form or manner, unless specifically consented to in writing by Company, either directly or indirectly use, divulge, transmit or otherwise disclose or cause to be used, divulged, transmitted or otherwise disclosed to any person, firm or corporation, in any manner whatsoever (other than in Employee's performance of duties for Company or except as required by law) any Confidential Information of any kind, nature or description. The foregoing provisions shall not be construed to prevent Employee from making use of or disclosing information which is in the public domain through no fault of Employee, provided, however, specific information shall not be deemed to be in the public domain merely because it is encompassed by some general information that is published or in the public domain or in Employee's possession prior to Employee's employment with Company. (4) Acknowledgement of Secrecy. Employee acknowledges that the -------------------------- Confidential Information is not generally known to the public or to other persons who can obtain economic value from its disclosure or use and that the Confidential Information derives independent economic value thereby, and Employee agrees that he shall take all efforts reasonably necessary to maintain the secrecy and confidentiality of the Confidential Information and to otherwise comply with the terms of this Agreement. (5) Inventions, Discoveries. Employee acknowledges that any ----------------------- inventions, discoveries or trade secrets, whether patentable or not, made or found by Employee in 5 the scope of his employment with Company constitute property of Company and that any rights therein now held or hereafter acquired by Employee individually or in any capacity are hereby transferred and assigned to Company, and agrees to execute and deliver any confirmatory assignments, documents or instruments of any nature necessary to carry out the intent of this paragraph when requested by Company without further compensation therefor, whether or not Employee is at the time employed by Company. 4. COMPLIANCE WITH SECURITIES LAWS. Employee acknowledges that Company ------------------------------- and Employee will be subject to the provisions of Sections 10(b), 16(a) and 16(b) of the Securities Exchange Act of 1934. Employee acknowledges that Section 16(a) of the Securities Exchange Act may require Employee to report the ownership or transfer of his stock or other securities in Company to the Securities and Exchange Commission and that Sections 10(b) and 16(b) can prohibit Employee from selling or transferring his stock or securities in Company. Employee agrees that he will comply with Company's policies, as stated from time to time, relating to selling or transferring his stock or securities in Company. 5. COMPENSATION. ------------ (a) Salary. During the term of this Agreement, Company shall pay to ------ Employee a base salary of Thousand Dollars ($ ) per ----------------- --------- year. (b) Additional Compensation. As additional compensation, Employee ----------------------- shall receive options to purchase one hundred thousand (100,000) shares of Company's common stock pursuant to the terms of the 1998 STAAR Surgical Company Stock Plan (the "Plan"), which options shall vest over a period of three (3) years, thirty three thousand three hundred thirty-three (33,333) shares each on September 4, 1999, and September 4, 2000 and thirty three thousand three hundred thirty-four (33,334) shares on September 4, 2001. The purchase price shall be six dollars and twenty-five cents ($6.25) per share. Stock issued pursuant to the Plan shall be restricted stock, although Company shall reserve the right to issue registered shares if it so decides. Employee agrees to be bound by the terms of the Plan as adopted. (c) Severance Pay Upon Change of Control. Upon the sale or ------------------------------------ disposition by Company of substantially all of its business or assets or the sale of the capital stock of Company in connection with the sale or transfer of a controlling interest in Company to a third party or the merger or consolidation of Company with another corporation as part of a sale or transfer of a controlling interest in Company to a third party, Employee shall receive, as additional compensation and not in lieu of his rights under this Agreement, two (2) years' salary. "A controlling interest" shall be defined as 50% or more of the common stock of the Company. "Two (2) years' salary" shall be defined as only the cash compensation paid to Employee pursuant to subparagraph (a) above, as it may be modified from time to time, and shall not include employee benefits, incentive stock options, automobile allowance or debt forgiveness, if any. Employee shall be entitled to receive this additional compensation if Employee's employment is terminated as a 6 result of the change of control described herein or, if Employee, at Employee's election, terminates his employment as a result of such change of control. 6. 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 One Thousand Dollars ($1,000) 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 Chief Executive Officer. If Employee fails to obtain the approval of the Chief Executive Officer, Company may refuse to reimburse Employee for that expense. 7. INDEMNIFICATION OF LOSSES. ------------------------- So long as Employee's actions were taken in good faith and in furtherance of Company's business and within the scope of Employee's duties and authority, Company shall indemnify and hold Employee harmless to the full extent of the law from any and all claims, losses and expenses sustained by Employee as a result of any action taken by him to discharge his duties under this Agreement, and Company shall defend Employee, at Company's expense, in connection with any and all claims by stockholders or third parties which are based upon actions taken by Employee to discharge his duties under this Agreement. 8. 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 9. 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. Company may terminate this Agreement for cause by giving written notice of termination 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. 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, immediately upon such termination, any deferred or unpaid compensation to which Employee is entitled on the date of such termination. 10. 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. (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. (c) Election. Employee's employment may be terminated at any time by -------- Employee upon not less than one hundred eighty (180) days written notice by Employee to the Company's Chief Executive Officer. 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. 11. 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. 8 (b) Cooperation. Each party agrees, without further consideration, to ----------- cooperate and diligently perform any further acts, deeds and things and to execute and deliver any documents that may from time to time be reasonably necessary or otherwise reasonably required to consummate, evidence, confirm and/or carry out the intent and provisions of this Agreement, all without undue delay or expense. (c) Interpretation. -------------- (i) Entire Agreement/No Collateral Representations. Each party ---------------------------------------------- expressly acknowledges and agrees that this Agreement, including all exhibits attached hereto: (1) is the final, complete and exclusive statement of the agreement of the parties with respect to the subject matter hereof; (2) supersedes any prior or contemporaneous agreements, promises, assurances, guarantees, representations, understandings, conduct, proposals, conditions, commitments, acts, course of dealing, warranties, interpretations or terms of any kind, oral or written (collectively and severally, the "Prior Agreements"), and that any such prior agreements are of no force or effect except as expressly set forth herein; and (3) may not be varied, supplemented or contradicted by evidence of Prior Agreements, or by evidence of subsequent oral agreements. Any agreement hereafter made shall be ineffective to modify, supplement or discharge the terms of this Agreement, in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement of the modification or supplement is sought. (ii) Waiver. No breach of any agreement or provision herein ------ contained, or of any obligation under this Agreement, may be waived, nor shall any extension of time for performance of any obligations or acts be deemed an extension of time for performance of any other obligations or acts contained herein, except by written instrument signed by the party to be charged or as otherwise expressly authorized herein. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or a waiver or relinquishment of any other agreement or provision or right or power herein contained. (iii) Remedies Cumulative. The remedies of each party under ------------------- this Agreement are cumulative and shall not exclude any other remedies to which such party may be lawfully entitled. (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 9 application of the offending term or provision to persons or circumstances other than those as to which it is held invalid, illegal or unenforceable) shall not be affected thereby and shall continue in full force and effect to the fullest extent provided by law. (v) Time is of the Essence. It is expressly understood and agreed ---------------------- that time of performance is strictly of the essence with respect to each and every term, condition, obligation and provision hereof and that the failure to timely perform any of the terms, conditions, obligations or provisions hereof by any party shall constitute a material breach and a noncurable (but waiveable) default under this Agreement by the party so failing to perform. (vi) No Third Party Beneficiary. Notwithstanding anything else -------------------------- herein to the contrary, the parties specifically disavow any desire or intention to create any third party beneficiary obligations, and specifically declare that no person or entity, other than as set forth in this Agreement, shall have any rights hereunder or any right of enforcement hereof. (vii) No Reliance Upon Prior Representation. The parties ------------------------------------- acknowledge that no other party has made any oral representation or promise which would induce them prior to executing this Agreement to change their position to their detriment, partially perform, or part with value in reliance upon such representation or promise; the parties acknowledge that they have taken such action at their own risk; and the parties represent that they have not so changed their position, performed or parted with value prior to the time of their execution of this Agreement. (viii) Headings; References; Incorporation; Gender. The ------------------------------------------- headings used in this Agreement are for convenience and reference purposes only, and shall not be used in construing or interpreting the scope or intent of this Agreement or any provision hereof. References to this Agreement shall include all amendments or renewals thereof. 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 10 solely before the state courts of California located within the County of Los Angeles. Each party generally and unconditionally accepts the exclusive jurisdiction of such courts and to venue therein, consents to the service of process in any such action or proceeding by certified or registered mailing of the summons and complaint in accordance with the notice provisions of this Agreement, and waives any defense or right to object to venue in said courts based upon the doctrine of "Forum Non Conveniens". Each party irrevocably agrees to be bound by any judgement rendered thereby in connection with this Agreement. (iii) 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. (vi) Consent to Specific Performance and Injunctive Relief and --------------------------------------------------------- Waiver of Bond or Security. Each party acknowledges that Company may, as a - -------------------------- result of Employee's breach of the covenants and obligations included in paragraph 3 of this Agreement, sustain immediate and long-term substantial and irreparable injury and damage which cannot be reasonably or adequately compensated by damages at law. Each party agrees that in the event of Employee's breach or threatened breach of the covenants and obligations included in paragraph 3, Company shall be entitled to obtain from a court of competent jurisdiction or arbitration, as the case may be under this Agreement, equitable relief, including, without limitation, enforcement of all of the provisions of this Agreement by specific performance and/or temporary, preliminary and/or permanent injunctions enforcing any of Company's rights, requiring performance by Employee, or enjoining any breach by Employee, all without proof of any actual damages that have been or may be caused to Company by such breach or threatened breach and without the posting of bond or other security in connection therewith. Employee waives the claim or defense that Company has an adequate remedy at law and Employee shall not allege or otherwise assert the legal position that any such remedy at law exists. Each party agrees and acknowledges: (1) that the terms of this paragraph are fair, reasonable and necessary to protect the legitimate interests of the other party; (2) that this waiver is a material inducement to the other party to enter into the transaction contemplated hereby; (3) that the other party has already relied upon this waiver in entering into this Agreement; and (4) that each party will continue to rely on this waiver in their future dealings. Each party warrants and represents that such party has reviewed this provision with such party's legal counsel, and that such party has knowingly and voluntarily waived its rights following consultation with legal counsel. (v) Attorneys' Fees and Costs. If any party institutes or should ------------------------- the parties otherwise become a party to any Action Or Proceeding (as defined below) based upon or 11 arising out of this Agreement including, without limitation, to enforce or interpret this Agreement or any provision hereof, or for damages by reason of any alleged breach of this Agreement or any provision hereof, or for a declaration of rights in connection herewith, or for any other relief, including equitable relief, in connection herewith, the Prevailing Party in any such Action Or Proceeding, whether or not such Action Or Proceeding proceeds to final judgement or determination, shall be entitled to receive from the non-Prevailing Party as a cost of suit, and not as damages, all Costs And Expenses (as defined below) of prosecuting or defending the Action Or Proceeding, as the case may be, including, without limitation, reasonable Attorneys' And Other Fees. (vi) Definitions. The term "Action Or Proceeding" is defined as ----------- any and all claims, suits, actions, notices, inquiries, proceedings, hearings, arbitrations or other similar proceedings, including appeals and petitions therefrom, whether formal or informal, governmental or non-governmental, or civil or criminal. The term "Prevailing Party" is defined as the party who is determined to prevail by the Court after its consideration of all damages and equities in the Action Or Proceeding, whether or not the Action Or Proceeding proceeds to final judgment. The Court shall retain the discretion to determine that no party is the Prevailing Party in which case no party shall be entitled to recover its Costs And Expenses under this subparagraph 11(d). The term "Attorneys' And Other Fees" is defined as attorneys' fees, accountants' fees, fees of other professionals, witness fees (including experts engaged by the parties, but excluding shareholders, officers, employees or partners of the parties), and any and all other similar fees incurred in the prosecution or defense of the Action Or Proceeding. The term "Costs And Expenses" is defined as the cost to take depositions, the cost to arbitrate this dispute, if applicable, and the costs and expenses of travel and lodging incurred with respect to the Action Or Proceeding, provided, however, the party incurring said travel and lodging expense must ordinarily travel over one hundred (100) miles, one way, from his or her residence in incurring such expense. (e) No Assignment of Rights or Delegation of Duties 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 12 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 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: STAAR SURGICAL COMPANY, a Delaware corporation By: /s/ John R. Wolf ---------------------------------- Employee: /s/ Donald R. Sanders _______________________________________ Donald R. Sanders 13 EXHIBIT "A" POSITION DESCRIPTION DIRECTOR OF CLINICAL AFFAIRS The Director of Clinical Affairs reports to the Chief Executive Officer. Generally, the Director of Clinical Affairs directs The duties and responsibilities of the position include, but are not limited to: (1) 14 EX-10.35 4 STOCK PLEDGE AGREEMENT (WOLF) EXHIBIT 10.35 STOCK PLEDGE AGREEMENT ---------------------- This STOCK PLEDGE AGREEMENT (hereinafter "Agreement") is made and entered into this 4th day of September, 1998, by and between John R. Wolf, 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 eight hundred thirty nine thousand three hundred and seventy five dollars ($839,375); 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 and fifty five thousand (155,000) 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) This security is the only security pledged by the Pledgor for the note and therefore in case of default by Pledgor, is the sole remedy of Pledgee against Pledgor. (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 1 Corporate 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 2 proceeds with respect to the Stock; provided, however, Pledgee shall apply such payments against the outstanding balance of the Note. (c) Stock Adjustments. In the event that, during the term of this ----------------- Agreement, any stock dividend, reclassification, readjustment, or other change is declared or made in the capital structure of the issuing corporation, all new, substituted and additional shares or other securities issued with respect to the Stock by reason of any such change shall be delivered to and held by 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. 3 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 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 4 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 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: John R. Wolf 1911 Walker Avenue Monrovia, California 91016 Pledgee: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 By:_________________________ 5 EXHIBIT "1" ----------- PROMISSORY NOTE --------------- 6 EXHIBIT "2" ----------- LIST OF SHARES -------------- NUMBER OF SHARES CERTIFICATE ---------------- #_____________ 155,000 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 September 4, 1998 by and between John R. Wolf and Staar Surgical Company, one hundred and fifty five thousand (155,000) shares of the common stock of Staar Surgical Company, represented by certificate number SS___________ 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: September, 4, 1998 /s/ John R. Wolf ______________________________ John R. Wolf WITNESS: __________________________________ 8 EX-10.36 5 PROMISSORY NOTE (WOLF) EXHIBIT 10.36 PROMISSORY NOTE --------------- $ 839,375 September 4, 1998 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 eight hundred thirty nine thousand three hundred and seventy five dollars ($ 839,375). 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 September 4, 2003. 4. Security/Release of Security. ---------------------------- Maker shall pledge as security for the repayment of all sums payable under this Note 155,000 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. This Promissory Note is non-recourse except for the security held and secured as part of this note. In the event of default, the holders sole remedy is to proceed against the stock secured hereunder. 5. Prepayments. ----------- Maker shall have the right to prepay any portion of the Principal Amount without prepayment penalty or premium or discount. 1 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. 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 sixty (60) 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 ninety (90) 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; (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 ninety (90) days of the date of filing; or 2 Maker shall notify Holder immediately if any event of default which is described in sub-paragraph (c) through sub-paragraph (g), 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 the Note or any instrument securing payment of the Note, including without limitation, defending the priority of such instrument or conducting a trustee sale thereunder. In the event any litigation is initiated concerning the enforcement, interpretation or collection of this Note, 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 the Municipal or Superior Court of Los Angeles County, California. MAKER: /s/ John R. Wolf John R. Wolf MAKER'S ADDRESS: 1911 Walker Avenue Monrovia, California 91016 Attn: John R. Wolf HOLDER'S ADDRESS: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn.: Chief Financial Officer 4 EX-10.37 6 STOCK PLEDGE AGREEMENT (HUDDLESTON) EXHIBIT 10.37 STOCK PLEDGE AGREEMENT ---------------------- This STOCK PLEDGE AGREEMENT (hereinafter "Agreement") is made and entered into this 4th day of September, 1998, by and between William C. Huddleston, 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 four hundred sixty one thousand eight hundred and seventy five dollars ($461,875); 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) Eighty five thousand (85,000) 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) This security is the only security pledged by the Pledgor for the note and therefore in case of default by Pledgor, is the sole remedy of Pledgee against Pledgor. (c) Delivery of Stock Power to Pledgee. Pledgor shall deliver to ---------------------------------- Pledgee, 1 concurrently with the execution of this Agreement, the Stock along with an Assignment of Corporate 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. 2 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. (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. 3 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 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 4 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 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/ William C. Huddleston William C. Huddleston 1911 Walker Avenue Monrovia, California 91016 Pledgee: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 By:_________________________ 5 EXHIBIT "1" ----------- PROMISSORY NOTE --------------- 6 EXHIBIT "2" ----------- LIST OF SHARES -------------- CERTIFICATE NUMBER OF SHARES #_____________ ---------------- 85,000 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 September 4, 1998 by and between William C. Huddleston and Staar Surgical Company, eighty five thousand (85,000) shares of the common stock of Staar Surgical Company, represented by certificate number SS___________ 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: September, 4, 1998 /s/ William C. Huddleston ______________________________ William C. Huddleston WITNESS: __________________________________ 8 EX-10.38 7 PROMISSORY NOTE (HUDDLESTON) EXHIBIT 10.38 PROMISSORY NOTE --------------- $ 461,875 September 4, 1998 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 four hundred sixty one thousand eight hundred and seventy five dollars ($ 461,875). 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 September 4, 2003. 4. Security/Release of Security. ---------------------------- Maker shall pledge as security for the repayment of all sums payable under this Note 85,000 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. This Promissory Note is non-recourse except for the security held and secured as part of this note. In the event of default, the holders sole remedy is to proceed against the stock secured hereunder. 5. Prepayments. ----------- Maker shall have the right to prepay any portion of the Principal Amount without prepayment penalty or premium or discount. 1 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. 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 sixty (60) 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 ninety (90) 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; (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 ninety (90) days of the date of filing; or 2 Maker shall notify Holder immediately if any event of default which is described in sub-paragraph (c) through sub-paragraph (g), 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 the Note or any instrument securing payment of the Note, including without limitation, defending the priority of such instrument or conducting a trustee sale thereunder. In the event any litigation is initiated concerning the enforcement, interpretation or collection of this Note, 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 the Municipal or Superior Court of Los Angeles County, California. MAKER: /s/ William C. Huddleston William C. Huddleston MAKER'S ADDRESS: 1911 Walker Avenue Monrovia, California 91016 Attn: John R. Wolf HOLDER'S ADDRESS: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn.: Chief Financial Officer 4 EX-10.39 8 STOCK PLEDGE AGREEMENT (MANISCO) EXHIBIT 10.39 STOCK PLEDGE AGREEMENT ---------------------- This STOCK PLEDGE AGREEMENT (hereinafter "Agreement") is made and entered into this 4th day of September, 1998, by and between Carl Manisco, 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 five hundred eleven thousand five hundred and sixty three dollars ($511,563); 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) Ninety two thousand five hundred (92,500) 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) This security is the only security pledged by the Pledgor for the note and therefore in case of default by Pledgor, is the sole remedy of Pledgee against Pledgor. (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 1 Corporate 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 - ---------------- 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 2 proceeds with respect to the Stock; provided, however, Pledgee shall apply such payments against the outstanding balance of the Note. (c) Stock Adjustments. In the event that, during the term of this ----------------- Agreement, any stock dividend, reclassification, readjustment, or other change is declared or made in the capital structure of the issuing corporation, all new, substituted and additional shares or other securities issued with respect to the Stock by reason of any such change shall be delivered to and held by 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. 3 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 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 4 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 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/ Carl Manisco Carl Manisco 1911 Walker Avenue Monrovia, California 91016 Pledgee: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 /s/ John R. Wolf By:_________________________ 5 EXHIBIT "1" ----------- PROMISSORY NOTE --------------- 6 EXHIBIT "2" ----------- LIST OF SHARES -------------- CERTIFICATE NUMBER OF SHARES ---------------- #_____________ 92,500 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 September 4, 1998 by and between Carl Manisco and Staar Surgical Company, ninety two thousand and five hundred (92,500) shares of the common stock of Staar Surgical Company, represented by certificate number SS___________ 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: September, 4, 1998 /s/ Carl M. Manisco ______________________________ Carl Manisco WITNESS: /s/ Yolando Emilio __________________________________ 8 EX-10.40 9 PROMISSORY NOTE (MANISCO) EXHIBIT 10.40 PROMISSORY NOTE --------------- $ 511,563 September 4, 1998 Monrovia, California FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged, Carl Manisco ("Maker"), hereby promises to pay to STAAR Surgical Company, ("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 five hundred eleven thousand five hundred and sixty three dollars ($ 511,563). 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 September 4, 2003. 4. Security/Release of Security. ---------------------------- Maker shall pledge as security for the repayment of all sums payable under this Note 92,500 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. This Promissory Note is non-recourse except for the security held and secured as part of this note. In the event of default, the holders sole remedy is to proceed against the stock secured hereunder. 5. Prepayments. ----------- Maker shall have the right to prepay any portion of the Principal Amount without prepayment penalty or premium or discount. 1 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. 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 sixty (60) 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 ninety (90) 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; (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 ninety (90) days of the date of filing; or 2 Maker shall notify Holder immediately if any event of default which is described in sub-paragraph (c) through sub-paragraph (g), 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 the Note or any instrument securing payment of the Note, including without limitation, defending the priority of such instrument or conducting a trustee sale thereunder. In the event any litigation is initiated concerning the enforcement, interpretation or collection of this Note, 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 the Municipal or Superior Court of Los Angeles County, California. MAKER: /s/ Carl Manisco Carl Manisco MAKER'S ADDRESS: 1911 Walker Avenue Monrovia, California 91016 Attn: John R. Wolf HOLDER'S ADDRESS: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn.: Chief Financial Officer 4 EX-10.41 10 STOCK PLEDGE AGREEMENT (POLLET) EXHIBIT 10.41 STOCK PLEDGE AGREEMENT ---------------------- This STOCK PLEDGE AGREEMENT (hereinafter "Agreement") is made and entered into this 4th day of September, 1998, by and between Andrew F. Pollet, 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 Nine Hundred Eighty-Seven Thousand Eight Hundred Thirty-Five Dollars ($987,835); 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) Two hundred four thousand (204,000) 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 1 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 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. 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. 2 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. (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. 3 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 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 4 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 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: Andrew F. Pollet /s/ Andrew F. Pollet _________________________________________ Address: 10934 Alto Court Oak View, California 93022 Pledgee: STAAR Surgical Company /s/ William C. ^^^ By:______________________________________ Address: 1911 Walker Avenue Monrovia, California 91016 5 EXHIBIT "1" ----------- PROMISSORY NOTE --------------- 6 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 September ____, 1998 by and between _______________ and Staar Surgical Company, _______________________ (_______) shares of the common stock of Staar Surgical Company, represented by certificate number ____ (__) 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-10.42 11 PROMISSORY NOTE (POLLET) EXHIBIT 10.42 PROMISSORY NOTE --------------- $987,835 September 4, 1998 Monrovia, California FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged, Andrew F. Pollet ("Maker"), hereby promises to pay to STAAR Surgical Company, ("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 Nine Hundred Eighty-Seven Thousand Eight Hundred Thirty-Five Dollars ($987,835). 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 September 3, 2003. 4. Security. -------- Maker shall pledge as security for the repayment of all sums payable under this Note two hundred four thousand (204,000) 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. 5. Prepayments. ----------- Maker shall have the right to prepay any portion of the Principal Amount without prepayment penalty or premium or discount. 1 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; (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; 2 (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 the Note or any instrument securing payment of the Note, including without limitation, defending the priority of such instrument or conducting a trustee sale thereunder. In the event any litigation is initiated concerning the enforcement, interpretation or collection of this Note, 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. 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 3 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 the Municipal or Superior Court of Los Angeles County, California. 14. Note Non-Negotiable by Holder. ----------------------------- Holder shall not assign, convey, pledge, hypothecate, discount or otherwise transfer or dispose of the Note. MAKER: /s/ Andrew F. Pollet _________________________________________ ANDREW F. POLLET MAKER'S ADDRESS: 10934 Alto Court Oak View, California 93022 HOLDER'S ADDRESS: STAAR SURGICAL COMPANY 1911 Walker Avenue Monrovia, California 91016 Attn.: Chief Financial Officer 4 EX-10.43 12 SUPPLY AGREEMENT (MENTOR MEDICAL INC.) EXHIBIT 10.43 SUPPLY AGREEMENT ---------------- This Supply Agreement (the "Agreement") is made and entered into as of the date this Agreement is signed by the last party to sign as shown on the signature page ("Effective Date"), by and between Mentor Medical Inc. ("Mentor"), a Delaware corporation, and STAAR Surgical Company ("Purchaser"), a Delaware corporation. RECITALS -------- A. WHEREAS, Mentor Ophthalmics, Inc. is a party to a Private Label Manufacturing Agreement ("the Manufacturing Agreement") with Lifecore Biomedical, Inc. ("Lifecore") dated February 8, 1996. Mentor is the successor in interest to all rights of Mentor Ophthalmics, Inc. under the Manufacturing Agreement. Pursuant to the Manufacturing Agreement, Lifecore manufactures OPTIMIZE(TM) viscoelastic ophthalmic solution packaged in single use syringes (the "Product") for Mentor and sells the Product to Mentor. Lifecore sells the Product to Mentor on a non-exclusive basis for sale in all parts of the world except the United States and Canada. Following receipt of Domestic Regulatory Approval (as defined in the Manufacturing Agreement), Lifecore will sell the Product to Mentor for use in the United States and Canada. B. WHEREAS, Purchaser desires to buy the Product from Mentor as ordered by Purchaser from time to time for sale to its customers under its own tradename and packaging; C. WHEREAS, Mentor desires to supply Purchaser with the Product subject to the terms and limitations of the Manufacturing Agreement; and D. WHEREAS, Purchaser understands that Lifecore has not obtained Domestic Regulatory Approval to sell the Product in the United States or Canada, and further understands that such approval is not imminent and in fact may never occur. NOW, THEREFORE, in consideration of the foregoing, the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT --------- 1. PURCHASE AND SALE. ----------------- 1.1 One-Time Fee. Purchaser shall pay to Mentor a one-time fee of One ------------ Million United States Dollars ($1,000,000), payable at the time of Purchaser's execution of this Agreement, in exchange for the rights granted it under this Agreement. -1- 1.2 Product Pricing. During the term of this Agreement, Purchaser shall --------------- have the right, but not the obligation, to purchase and Mentor shall sell the Product at the prices set forth in Sections 6 (for sale in Exclusive Territory) and 12 (for sale in Non-Exclusive Territory) of the Manufacturing Agreement attached as Exhibit "A" hereto. 1.3 Terms of Payment. Unless otherwise agreed in writing, terms are thirty ---------------- (30) days net from date of invoice, subject to approval by Mentor of amount and terms of credit. Mentor reserves the right to require payment in advance or C.O.D. and otherwise to modify credit terms. If Purchaser fails to fulfill these terms of payment, Purchaser shall reimburse Mentor for all resulting costs, fees and penalties Mentor incurs, including, but not limited to, those costs, fees and penalties imposed by Section 15 of the Manufacturing Agreement. 1.4 Purchaser's Customers. Consistent with Mentor's obligations under --------------------- Sections 4 (Exclusive Territory) and 10 (Non-Exclusive Territory) of the Manufacturing Agreement, Purchaser shall sell the Product for use in ophthalmic surgery only. Purchaser may not sell the Product for any other use. 2. ORDERS AND SHIPMENT. ------------------- 2.1 Orders and Forecasts. Purchaser shall, not later than one hundred -------------------- twenty (120) days before the commencement of each Contract Year (as defined in Sections 1.2 and 1.3 of the Manufacturing Agreement), provide Mentor with: (a) a firm purchase order setting forth its Domestic and/or International annual purchase obligations with respect to the Product for that year, and (b) Purchaser's reasonable best estimate of the quantity and delivery dates desired for such firm order. Purchaser agrees to comply in every other respect pertaining to its orders with Section 14 of the Manufacturing Agreement. Purchaser shall have no obligation to make any purchases hereunder, except pursuant to a firm purchase order. 2.2 Cancelled Orders. In the event Purchaser cancels an order or refuses ---------------- to accept shipment of Product previously ordered, Purchaser shall reimburse Mentor for all resulting costs, fees and penalties Mentor incurs, including, but not limited to, such costs, fees and penalties Mentor must pay Lifecore pursuant to Sections 7 and 13 of the Manufacturing Agreement. 2.3 Shipment and Taxes. ------------------ (a) Purchaser shall pay a pro-rata share of all loading, freight, shipping, insurance, duties, forwarding and handling charges, taxes, storage and all other charges which are incurred by Mentor, based upon the percentage that the Purchaser's orders bears to the total volume purchased from Lifecore by both Mentor and Purchaser. (b) Mentor shall ship Product to Purchaser F.O.B. Shipping Point according to Purchaser's written instructions. All loading, freight, shipping, insurance, duties, forwarding and handling charges, taxes, storage and all other charges applicable to Mentor's shipment of Purchaser's orders shall be at Purchaser's expense. -2- 2.4 Agreement Controls. In no event shall any order, acknowledgment, ------------------ shipping document or other such business form have the effect of varying, altering, or modifying the terms and provisions of this Agreement. If there is any conflict between any such document and this Agreement, the terms of this Agreement shall prevail. 3. INTELLECTUAL PROPERTY. --------------------- 3.1 Labels and Trade Name. Purchaser may not market, advertise, or sell --------------------- the Product under any Mentor name or mark, nor may Purchaser utilize any Mentor package label or other material in its sale of the Product, except that Purchaser may utilize the syringe and cannula in which the Product is shipped. Purchaser shall develop and utilize, at its sole expense, all labeling and packaging for the Product. 3.2 Intellectual Property Rights. Purchaser acknowledges that it has ---------------------------- received no rights from Mentor or Lifecore in intellectual property pursuant to the terms of this Agreement, including without limitation any patents, trademarks, tradenames, copyrights, logos, services marks and symbols owned or used by Mentor or Lifecore. 4. TERM OF THE AGREEMENT. --------------------- 4.1 Term. This Agreement shall commence on the Effective Date and shall ---- terminate: (a) on December 31, 2000, or (b) concurrent with the expiration or termination of the Manufacturing Agreement, as set forth in Sections 2.5, 5, 11 and 19 of that document, or (c) pursuant to Section 4.3 below, whichever shall occur first. It is expressly understood and agreed by the parties that Mentor has no obligation to continue its relationship with Lifecore, or any other supplier of the Product. Mentor shall not be liable to Purchaser or suffer any penalty under this or any other Agreement with Purchaser in the event Mentor ceases to have a supply of the Product to sell to Purchaser, whether by expiration or termination of the Manufacturing Agreement or otherwise. 4.2 Alternate Supply. ---------------- (a) In the event that the Manufacturing Agreement expires or terminates, Mentor may, but is not obligated to, enter into new or other agreements with another manufacturer and/or supplier of the Product. In the event that Mentor does enter into such an agreement, Mentor will sell the Product to Purchaser under the same terms under which it purchases the Product from the new manufacturer and/or supplier. However, it is expressly understood and agreed that Mentor has no obligations of any nature whatsoever to supply the Product to Purchaser unless Mentor has a satisfactory source of the Product. (b) Upon the expiration or termination of the Manufacturing Agreement, Purchaser shall have the right to negotiate with Lifecore to purchase the Product directly from Lifecore. In such an event, Mentor agrees to waive its right to Confidential Information (as -3- defined by the Manufacturing Agreement) which will facilitate Purchaser's purchase of the Product from Lifecore. In no event will this Section 4.2(b) require Mentor to disclose to Purchaser any Confidential Information of Lifecore. 4.3 Termination Rights of Both Parties. In addition to their respective ---------------------------------- rights set forth herein, either party shall have the right to terminate this Agreement on written notice pursuant to Section 9.3 to the other party under the ----------- following circumstances: (a) by mutual agreement; (b) if the other party materially defaults in the performance of any obligation hereunder and such default continues for more than thirty (30) days after receiving written notice from the other party of such default and continues to exist at the time of notice of termination; provided, however, there shall be no default under this provision if the defaulting party has cured the default within thirty (30) days; (c) in the event that the other party is declared insolvent or bankrupt by a court of competent jurisdiction, or a voluntary petition in bankruptcy is filed in any court of competent jurisdiction by such other party, or such other party shall make or execute an assignment for the benefit of creditors, or a receiver is appointed for all or a substantial portion of the other party's assets and such receivership is not dismissed within thirty (30) days of appointment; (d) in the event of the issuance of a final order, decree or other action by any competent judicial authority or governmental agency which restrains, enjoins or prohibits the sale or introduction into interstate commerce of the Product and such restraint, injunction or prohibition is not vacated within thirty (30) days thereafter; or (e) in the event Mentor determines that it is more likely than not that the terms of the Manufacturing Agreement, applicable healthcare laws or other laws in effect or to become effective as of a date certain, with respect to the transactions contemplated in this Agreement, (1) prohibit the transactions contemplated by this Agreement, or (2) subject Mentor or Purchaser or any of their officers, directors or employees to civil, criminal or administrative prosecution or other adverse proceeding, then Mentor shall inform Purchaser of such determination. The parties shall attempt to amend this Agreement in order to avoid the events described in (1) or (2) of this Section. If the parties acting in good faith are unable to amend the Agreement in order to avoid the events, this Agreement shall immediately be terminated. 4.4 Obligations After Termination. Termination or expiration of this ----------------------------- Agreement, in whole or in part, shall be without prejudice to: (a) the right of any party to receive upon its request all payments accrued and unpaid, or Product ordered and not delivered (if available), at the effective date of such expiration or termination; (b) the remedy of either party with respect to any previous breach of any of the representations, warranties or covenants herein contained; (c) any -4- rights to indemnification set forth herein; and (d) any other provisions hereof which expressly or necessarily call for performance after such expiration or termination. 5. WARRANTY AND LIMITATION OF REMEDIES. Purchaser shall enjoy the same ----------------------------------- Limited Warranty, and the restrictions thereon, set forth in Section 17.1 of the Manufacturing Agreement. THIS LIMITED WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED (INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE). Mentor shall not be liable to Purchaser, its agents or customers, for any indirect, collateral, special, incidental or consequential loss. Purchaser shall abide by the requirements of Section 17.2 of the Manufacturing Agreement regarding Notice of Warranty claims and remedies. 6. INDEMNITY. Purchaser shall indemnify, defend and hold Mentor harmless from --------- any and all claims, actions, lawsuits, demands, costs, liabilities, losses, damages and/or expenses (including reasonable attorneys' fees and costs of litigation) by any other party resulting from or relating to any acts, omissions or misrepresentations of Purchaser, its Agents or any of them. Without limiting the generality of the foregoing, Purchaser shall have indemnity obligations toward Mentor commensurate with Mentor's indemnity obligations toward Lifecore set forth in Section 18.3 of the Manufacturing Agreement. ~ 7. INDEPENDENT PARTIES. The relationship between Mentor and Purchaser pursuant ------------------- to this Agreement is solely that of an independent seller and an independent buyer. Neither party is in any manner the legal representative or agent of the other for any purpose and shall not have the power to assume or create, in writing or otherwise, any obligation or responsibility of any kind, express or implied, in the name of the other unless specifically provided for in this Agreement. Neither party may use the trade name, brand, logo, trademark, or trade dress of the other party without the prior written consent of the other party. 8. CONFIDENTIAL INFORMATION. In the event either party receives any proprietary ----------------------- or confidential information from the other party, such information shall be retained as confidential by the receiving party and shall not be disclosed to any third party without the prior written consent of the disclosing party. Purchaser's duty of confidentiality extends both to Mentor's proprietary and confidential information and to any proprietary or confidential information of Lifecore, as set forth in Section 24 of the Manufacturing Agreement. Mentor retains all rights to any invention, discovery, improvement, or patent relating to the Product delivered pursuant hereto. 9: LIMITATION ON DAMAGES. Purchaser's exclusive remedies for any breach of this --------------------- Agreement or for any claims shall be, at Mentor's option, either: (a) damages, and the measure of Mentor's liability for damages from any cause whatsoever (whether based on contract, negligence, strict liability, tort or otherwise) shall be the purchase price of the goods or service in respect to which the breach or claim relates, or (b) replacement of such goods. Furthermore, Mentor shall in no event be liable to Purchaser for punitive damages, and Purchaser waives any right to claim same. -5- 10. MISCELLANEOUS PROVISIONS. (a) Purchaser agrees to abide by the terms of the ------------------------ following Sections of the Manufacturing Agreement: 21 (Recall), 22 (Traceability) and 23 (Intellectual Property), with the exception of Section 23.3. (b) Purchaser's obligations to bide by the terms of those Sections of the Manufacturing Agreement so referenced in this Agreement are subject to the following rules of interpretation: (a) all references in such Sections to "Mentor" shall apply to Purchaser; (b) all notices and communications from Purchaser shall be directed to Mentor; and (c) Purchaser may not communicate or have any form of contact with Lifecore, its employees or agents, regarding the subject matter of this Agreement without the prior written approval of Mentor. 11. RECORDS MAINTENANCE. ------------------- 11.1 Mentor's Records. Mentor shall keep accurate records of the prices ---------------- Mentor paid Lifecore for Products ordered on Purchaser's behalf and shall maintain such records for a period of not less than four (4) years. Purchaser shall have the right, at its sole cost and expense, not more than once each year, to have a certified public accountant review such records. The information received by the certified public accountant shall be held in confidence and the accountant shall disclose to Purchaser only its determination of the price Mentor paid Lifecore for Products ordered on Purchaser's behalf. If the review determines that the originally charged price exceeded the amount which should have been charged as determined by the certified public accountant by more than three percent (3%), then Mentor shall bear the expense of such review. 11.2 Purchaser's Records. Purchaser 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 approvals and shall supply to Mentor, upon its request, with such records and other information and reports as may be required by the FDA or any applicable foreign agency. Any new reports or modifications or current reports required of Purchaser or Mentor by the FDA or any applicable foreign agency shall become an obligation under this Agreement. 11.3 Adverse Reaction Report. The following procedures shall be ----------------------- established and observed by the parties hereto: (a) In the event that Purchaser receives any complaint, claim, or adverse reaction report regarding the Product, Purchaser shall, within five (5) business days, provide Mentor with all information contained in the complaint. (b) Purchaser shall be responsible for evaluating such complaints and, as required, notifying the appropriate regulatory authorities in writing. On a periodic basis, not less STAAR Surgical Company Supply Agreement -6- than annually, Purchaser shall inform Mentor in writing of the complaint and adverse reaction incidence rates of the Product. 12. GENERAL PROVISIONS. ------------------ 12.1 Amendment. All amendments or modifications of this Agreement shall be --------- in writing and shall be signed by each of the parties hereto. 12.2 Waiver. Any waiver of any right, power, or privilege granted by this ------ Agreement must be in writing and signed by the party being charged with the waiver. No delay on the part of any party hereto in exercising any right, power, or privilege granted by this Agreement shall operate as a waiver of any other right, power, or privilege granted by this Agreement, nor shall any single or partial exercise of any right, power, or privilege granted by this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. 12.3 Notices. All notices or other communications required or permitted to ------- be given pursuant to this Agreement shall be in writing and shall be delivered personally or sent by overnight courier, by facsimile with confirmation by first class mail, or by certified mail, return receipt requested. Notices delivered personally or sent by overnight courier or by facsimile with confirmation by first class mail shall be effective on the date received, while notices sent by certified mail, return receipt requested, shall be deemed to have been received and to be effective five (5) business days after deposit into the mail. Notices shall be given to the parties at the following respective addresses, or to such other addresses as any party shall designate in writing: If to Mentor: Mentor Medical Inc. Attention: Bill Freeman 5425 Hollister Ave. Santa Barbara, CA 93111 Telephone: (805) 681-6000 Facsimile: (805) 964-2712 With a copy to: Chief Counsel Mentor Corporation 5425 Hollister Avenue Santa Barbara, CA 93111 Telephone: (805) 681-6000 Facsimile: (805) 681-6006 If to Purchaser: STAAR Surgical Company Attention: John Wolf, President 1911 Walker Avenue Monrovia, CA 91016 Telephone: (626) 303-7902 Facsimile: (626) 358-3049 STAAR Surgical Company Supply Agreement -7- With a copy to: Pollet & Woodbury Attention: Andrew F. Pollet, Esq. 10900 Wilshire Blvd., Suite 500 Los Angeles, CA 90024 Telephone: (310) 208-1182 Facsimile: (310) 208-1154 12.4 Successors and Assigns. This Agreement shall inure to the benefit of, ---------------------- and be binding upon, the respective successors and assigns of the respective parties hereto; provided, however, that Purchaser shall not have the right to -------- ------- assign any of its rights, delegate any of its duties, or subcontract or contract out any of its duties under this Agreement without the prior written consent of Mentor which may be withheld in its sole discretion. Mentor has the express right to assign its rights and interest in and to this Agreement in connection with the merger or consolidation of Mentor with a wholly-owned subsidiary, its parent company or a wholly-owned subsidiary of its parent company; and provided, further, that neither party hereto shall be relieved of its - -------- ------- respective right or obligations hereunder upon any assignment, whether voluntary, involuntary or by operation of law. Subject to the preceding sentence, each term and provision of this Agreement shall be binding upon and enforceable against and inure to the benefit of any successors or assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto and their respective successors and assigns any rights or remedies under or by reason of this Agreement. 12.5 Law Governing. This Agreement shall be governed by and construed ------------- and enforced in accordance with the laws of the State of California, without regard for its conflict of laws rules. 12.6 U.N. Convention Excluded. The U.N. Convention on Contracts for the ------------------------ International Sales of Goods shall not apply to this Agreement. 12.7 Attorneys' Fees. Should a lawsuit be commenced to interpret or --------------- enforce the terms of this Agreement, the prevailing party shall be entitled to recover costs and attorneys' fees. 12.8 Counterparts. This Agreement may be executed in two or more ------------ counterparts, all of which together shall constitute a single instrument. 12.9 Headings. The headings in the paragraphs of this Agreement are for -------- convenience only and shall not constitute a part hereof. 12.10 Pronouns and Number. Whenever the context so requires, the masculine ------------------- shall include the feminine and the neuter, the singular shall include the plural, and conversely. 12.11 Severability of Provisions. In the event any one or more of the -------------------------- provisions of this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this STAAR Surgical Company Supply Agreement -8- Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 12.12 Integration. This Agreement (including the exhibits hereto) ----------- constitutes the entire understanding and agreement between the parties with respect to the transactions contemplated herein and supersedes all previous communications, representations, or understandings, either oral or written, between the parties relating to the subject matter hereof, all of which are merged herein. 12.13 Plain Meaning. The terms and all parts of this Agreement shall be ------------- interpreted according to their plain meaning and neither for nor against any party hereto. 12.14 Force Majeure. Either party shall be temporarily excused from ------------- performance under this Agreement in the event that any force majeure, including but not limited to disaster, fire, war, civil commotion, strike, governmental regulation, energy shortage, or other occurrence beyond the reasonable control of such party should have happened and made it impossible for such party to perform its obligations under this Agreement. Under such circumstances, performance under this Agreement that relates to the delay shall be suspended for the duration of the delay, provided that the party so affected resumes the performance of its obligations with due diligence as soon as practicable after the effects of such event have been alleviated. In case of any such suspension, the parties shall use their best efforts to overcome the cause and effect of such suspension. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. MENTOR MEDICAL INC. STAAR SURGICAL COMPANY By: /s/ Dennis Condon By: /s/ John R. Wolf --------------------------- ---------------------------- Dennis Condon, President John Wolf, President Date: 1/28/97 Date: 1/28/98 ------------------------- -------------------------- STAAR Surgical Company Supply Agreement -9- EXHIBIT "A" MANUFACTURING AGREEMENT (Attached) Star Surgical Company Supply Agreement -10- PRIVATE LABEL MANUFACTURING AGREEMENT This Agreement is entered into between LIFECORE BIOMEDICAL, INC., a Minnesota (U.S.A.) corporation with offices located at 3515 Lyman Boulevard, Chaska, Minnesota 55318 ("Lifecore") and MENTOR OPHTHALMICS, INC., having a place of business at 5425 Hollister Avenue, Santa Barbara, CA 93111 ("Mentor"), effective as of February 8, 1996 ("Effective Date"). BACKGROUND Lifecore has developed the proprietary LUROCOAT(R) ophthalmic solution described on Exhibit A (the "Product"), which is packaged in single use syringes for use in ophthalmic surgery. Upon receipt of appropriate regulatory approvals, Mentor desires that Lifecore manufacture the Product and sell it to Mentor on an exclusive basis in the United States and Canada, and on a non-exclusive basis in other parts of the world. Mentor will then market the Product under its own trade name or trademark and package to its customers in these areas. Lifecore and Mentor agree to seek regulatory approvals and, if obtained, for Lifecore to manufacture and sell the Product to Mentor for this purpose, on the terms and conditions contained in this Agreement. Part I of this Agreement shall govern the exclusive domestic relationship, Part II shall govern the non-exclusive international relationship, and Part III will govern both relationships. NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows: 1. Definitions. 1.1 "Affiliate" shall mean any person, corporation, partnership or --------- other legal entity which is in control of or is controlled by, or is under common control with a party to this Agreement, directly or indirectly. 1.2 "Domestic Contract Year" shall mean the twelve-month period ---------------------- commencing with the first day of the month following the month during which Lifecore receives the PMA for the marketing and sale of the Product in the United States, and each consecutive twelve-month period thereafter. 1.3 "International Contract Year" shall mean the twelve-month period --------------------------- commencing on the first day of the month during which Lifecore ships the first shipment of Mentor's first Firm Annual Order (as defined in Section 14.1) and each consecutive twelve-month period thereafter. 1.4 "Domestic Regulatory Approvals" shall mean all registrations, ----------------------------- licenses and approvals required for the importation, sale and distribution of the Product for ophthalmic surgery in the Exclusive Territory. 1.5 "International Regulatory Approvals" shall mean all ---------------------------------- registrations, licenses and approvals required for the importation, sale and distribution of the Product for ophthalmic surgery in the Non-Exclusive Territory. 1.6 "Exclusive Territory" shall mean the United States and Canada. ------------------- 1.7 "Non-Exclusive Territory" shall mean the rest of the world ------------------------ outside of the United States and Canada. 1.8 "PMA" shall mean Pre-Market Approval from the United States Food --- and Drug Administration ("FDA") with respect to the manufacture, marketing and sale of the Product for use in ophthalmic surgery. 1.9 "Confidential Information" shall mean information which a party ------------------------ to this Agreement considers confidential and secret, including without limitation, inventions, research and development, technology, formulations, methods and procedures, price lists, marketing plans, discount sheets, trade secrets, technical information, physical specimens, models and technical specimens and specifications related to the Product. The definition of Confidential Information shall exclude information that the receiving party can demonstrate: (i) is in the public domain in its entirety in a unified form at the time of disclosure to the other party or, without a breach of this section by such party, later becomes part of the public domain; (ii) is already in its lawful possession prior to its disclosure by the other party, as evidenced by written records kept in the ordinary course of business, (iii) is received by one party from a third party without a breach of confidentiality owed by the third party to the other party to this Agreement, or (iv) is developed by one party independently and without benefit of the Confidential Information of the other party, as evidenced by appropriate documentation. PART I EXCLUSIVE DOMESTIC AGREEMENT 2. Domestic Regulatory Approvals. 2.1 Necessary Approvals. Lifecore shall devote high priority efforts to the development of the Product and, with the assistance of Mentor as provided herein, the procurement of all Domestic Regulatory Approvals, including the PMA from the FDA and the equivalent approval from Canadian regulatory authorities for the manufacture, marketing and sale of the Product in the United States and Canada for use in ophthalmic surgery. 2.2 Application Process. Except as provided in Sections 2.3, 2.4.2, and 2.5, Lifecore shall make all final decisions regarding the applications, clinical studies and 2 processing of the Domestic Regulatory Approvals. Lifecore shall submit all applications for Domestic Regulatory Approval of the Product in its name and all Domestic Regulatory Approvals shall be in the name of and owned exclusively by Lifecore. Mentor shall provide Lifecore with all information and assistance which Lifecore may reasonably require in conjunction with the Domestic Regulatory Approval process. Lifecore and Mentor agree to form an advisory task force made up of representatives of each firm to oversee the clinical studies and application process for the Domestic Regulatory Approvals. The task force will meet from time to time to discuss the details of the development, clinical studies and regulatory approval processes. The task force will not have any administrative or executive authority within either of the parties. 2.3 Clinical Studies. In connection with the PMA application, Lifecore, with the assistance of Mentor, shall conduct human clinical testing and evaluation of the Product. Such testing shall be conducted in accordance with a testing protocol to be developed by Lifecore, in consultation with Mentor, which protocol shall include all matters, such as testing and evaluation processes, required to comply with applicable FDA guidelines. Clinical trial performance results and U.S. and Canadian regulatory filings, shall be deemed to be Confidential Information of Lifecore subject to the terms of Section 24 of this Agreement respecting the protection of Confidential Information of the parties. In the event either party desires to publish such results or filings in one or more scientific journals, such party must obtain the prior written consent of the other party, which consent shall not be unreasonably withheld. 2.4 Funding of Clinical Studies for Domestic Regulatory Approvals. 2.4.1 As an exclusive license fee, Mentor shall pay to Lifecore: (a) $250,000 upon the execution of this Agreement; and (b) $250,000 upon receipt of the PMA for the Product. 2.4.2 In addition, Mentor shall pay all the Direct Costs of the clinical studies of the Product, up to a maximum amount of $1,000,000. "Direct Costs" shall mean expenses paid to third parties and shall exclude costs associated with Mentor's and Lifecore's corporate overhead and compensation to their respective employees and Affiliates. In the event the Direct Costs exceed $750,000, any additional costs will be subtracted from the payment required under Section 2.4.1 above upon receipt of the PMA. As the Direct Costs approach $1,000,000, Mentor and Lifecore shall consult as to whether to continue the studies. If both parties agree in writing to continue, any Direct Costs in excess of $1,000,000 shall be shared equally by Lifecore and Mentor. In the event that either party is billed directly for any Direct Costs for which the other party is responsible, the responsible party shall reimburse the other for such costs within thirty (30) days of the date of the invoice issued to the responsible party. 3 2.5 Early Termination of Clinical Study. Mentor shall have the right to terminate the Exclusive Domestic portion of this Agreement prior to the conclusion of the clinical studies, without penalty or further remedy to either party, by giving Lifecore thirty (30) days written notice of its intent to do so. Mentor shall cooperate, at its own expense, with Lifecore in winding down all clinical trials in a scientifically sound and reasonable manner. In the event of such termination, neither Lifecore nor Mentor shall have any further rights or obligations under this Exclusive Domestic Agreement; provided, however, that the rights and obligations of the parties under Sections 21 (Recall), 23 (Intellectual Property), and 24 (Confidential Information) shall survive termination of this Agreement and remain in full force and effect. The provisions of Section 2.4.2 (Payment of Direct Expenses) shall survive such termination of the Agreement until the obligations for payment by Mentor of Direct Costs incurred prior to the effective date of termination, shall have been fulfilled. As a result of this termination, Mentor will forfeit any rights to a private label manufacturing relationship with Lifecore for the Product in the United States and Canada. The termination of the Exclusive Domestic Agreement portion of this Agreement under this section 2.5 shall have no effect on the Non-Exclusive International Agreement contained in Parts II and III, which shall remain in full force and effect. 3. Purchase and Sale of the Product for Domestic Marketing. 3.1 Following receipt of the Domestic Regulatory Approvals and throughout the remaining term of Part I of this Agreement, Mentor agrees to purchase on an exclusive basis from Lifecore all of its requirements for viscoelastic syringes for use in ophthalmic surgery in the Exclusive Territory, and Lifecore agrees to sell to Mentor its requirements of the Product for such purpose, subject to the terms and conditions of this Exclusive Domestic Agreement. Mentor's and Lifecore's obligations under the preceding sentence shall be mutually dependent upon, and shall be conditions concurrent with respect to, each other. 3.2 During the term of this Exclusive Domestic Agreement, Lifecore shall not sell the Product, nor any other higher or lower molecular weight versions of the Product in the molecular weight range of 650,000-1,000,000 Daltons, excluding any products within such range that combine hyaluronan with other agents (such as chondroitin sulphate) or drugs, to others within the Exclusive Territory for use in ophthalmic surgery. The sale of the Product to Mentor under this Exclusive Domestic Agreement shall in no manner restrict Lifecore's right to sell the Product in the Exclusive Territory for uses other than ophthalmic surgery or to sell the Product in any manner Lifecore may desire outside of the Exclusive Territory, including without limitation, directly by Lifecore, through distributors, or through other private label purchasers. 3.3 Lifecore agrees to offer Mentor the opportunity to enter into a private label manufacturing agreement for all subsequent hyaluronan-based viscoelastic products that are developed by Lifecore for the field of ophthalmology, where Lifecore has the right to 4 offer the new products, at its discretion, to other private label customers during the term of this Exclusive Domestic Agreement. Lifecore will provide written notice of its intent to market any such new product in the Exclusive Territory and Lifecore's proposed minimum purchase requirements for such product, along with any adjustments to the current minimum purchase requirements for the Product under this Agreement. Mentor and Lifecore agree to negotiate in good faith for a period of sixty (60) days to establish reasonable minimum purchase requirements for the Product and the new product. If Mentor and Lifecore are able to agree in writing as to appropriate minimum purchase requirements for both products, Exhibit A will be revised to add the new products and the minimum purchase commitment described in Section 7 shall be adjusted as agreed. All other terms and conditions of this Agreement will govern such new products. If Mentor and Lifecore are unable to agree on these issues within sixty (60) days after notification by Lifecore or Mentor decides not to incorporate the new products into this Agreement, Lifecore may enter into any other arrangements for the new products that it desires, subject to Section 3.2 and provided those arrangements are not on terms more favorable to Lifecore's customers than the terms previously offered to Mentor. 4. Product Usage. As provided in Section 23, Mentor is hereby licensing the right to sell the Product in the Exclusive Territory for use in ophthalmic surgery. Mentor may not sell the Product for any other use. 5. Term. The term of the Exclusive Domestic Agreement governed by Parts I and III of this Agreement shall commence on the Effective Date and, unless terminated earlier in accordance with Section 2.5 or 19, shall continue for a period of eight (8) Domestic Contract Years. Upon expiration, the Exclusive Domestic Agreement shall terminate without further act or deed of either party. 6. Price. 6.1 The price to be paid for Product purchased by Mentor for sale to its customers in the Exclusive Territory during the first and second Domestic Contract Years will be based upon the quantity of viscoelastic syringes ordered for delivery during such year as follows:
No. of Syringes Purchased in a Domestic Contract Year Price per Syringe - ----------------------------------------------------- ----------------- 15,000 - 50,000 $17.00 50,000 - 100,000 $16.00 100,000 - 150,000 $15.00 150,000 - 200,000 $14.00 200,000 - or more $13.00
5 If during a Domestic Contract Year, Mentor purchases enough Product to qualify for a lower price based on the quantities and prices listed above, then Mentor may immediately take a credit for the amount it has paid in excess of the prices listed above for Product already purchased, to the extent that a credit has not already been taken for that excess. Within thirty (30) days following the end of each Domestic Contract Year, Lifecore shall refund to Mentor an amount equal to the difference between the total price paid by Mentor for Product purchased during the immediately preceding Domestic Contract Year and the applicable price for the annual volume set forth above. 6.2 These prices shall be adjusted up or down by Lifecore effective as of the first day of the third Domestic Contract Year and each Domestic Contract Year thereafter, according to the percentage change in the U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index for Domestic Manufacturers of Pharmaceutical Finished Goods for the twelve-month period immediately preceding such adjustment date. All prices exclude VAT and federal, state or local sales and use taxes, which shall all be added to the price or billed separately to Mentor where Lifecore has the legal obligation to collect the taxes or fees, and all expenses related to shipping, insurance, handling, storage, and customs duties and fees. 7. Minimum Purchase Requirements. 7.1 Throughout the term of this Exclusive Domestic Agreement, Mentor shall devote reasonable commercial efforts to the market development, sales and marketing of the Product in the Exclusive Territory. During each Domestic Contract Year, Mentor shall purchase the minimum quantities of the Product set forth below, subject to Lifecore's meeting its obligations under Section 3.1 to supply Mentor its Domestic requirements of the Product:
Domestic Contract Year Minimum No. of Syringes ---------------------- ----------------------- 1 15,000 2 15,000 3 100,000 4 125,000 5 150,000 6 150,000 7 150,000 8 150,000
Thirty percent (30%) of the annual minimum purchase requirement shall be purchased by Mentor as of the end of the first six (6) months of each Domestic Contract Year, and fifty percent (50%) of the annual minimum purchase requirement shall be purchased by Mentor as of the end of the first nine (9) months of each Domestic Contract Year. 6 7.2 In the event Mentor shall fail to meet any annual minimum purchase requirement set forth in Section 7.1, Lifecore's sole and liquidated damages for such failure shall be an amount equal to fifty percent (50%) of the difference between the annual minimum quantity and the quantity actually purchased multiplied by the price in effect for the Product for the Domestic Contract Year respecting which Mentor did not meet the minimum purchase requirement, which Mentor shall pay within thirty (30) days after receipt of Lifecore's invoice, which invoice shall be issued within thirty (30) days after the end of that Domestic Contract Year. If Mentor fails to pay such liquidated damages under the preceding sentence with respect to any one or more failures of Mentor to meet its annual minimum purchase requirement, Lifecore may at any time thereafter terminate Mentor's exclusive rights under Section 3.2 by giving Mentor written notice of such termination and may thereafter sell the Product to others in any part or all of the Exclusive Territory for use in ophthalmic surgery. If Mentor purchases less than fifty percent (50%) of the annual minimum quantity in a Domestic Contract Year and fails to pay the liquidated damages described in this paragraph, Lifecore may at any time thereafter elect to terminate the Exclusive Domestic portion of this Agreement pursuant to Section 19. In the event of such termination, Mentor shall no longer have the right to purchase and sell the Product in the Exclusive Territory. PART II NON-EXCLUSIVE INTERNATIONAL AGREEMENT 8. International Regulatory Approvals. Prior to the first International Contract Year, Lifecore shall obtain, at its own expense, CE Marking for the Product and applicable export authorization. Mentor shall obtain, at its own expense, all other appropriate International Regulatory Approvals from the proper authorities in the areas of the Non-Exclusive Territory where Mentor desires to sell and distribute the Product. Mentor and Lifecore shall each notify the other party when the CE Marking and any other International Regulatory Approvals are obtained and promptly provide the other party documentation of such approvals. Upon expiration or termination of Part II of this Agreement, Mentor and Lifecore shall cooperate with respect to the exchange of information regarding any and all International Regulatory Approvals. 9. Purchase and Sale of Product for International Marketing. Following receipt of applicable International Regulatory Approvals and throughout the remaining term of Part II of this Agreement, Mentor agrees to purchase on a non-exclusive basis from Lifecore all of its requirements for viscoelastic syringes for use in ophthalmic surgery in the Non- Exclusive Territory, and Lifecore agrees to sell to Mentor its requirements of the Product for such purpose, subject to the terms and conditions of this Non-Exclusive International Agreement. Mentor's and Lifecore's obligations under the preceding sentence shall be mutually dependent on and conditions concurrent with respect to each other. The sale of the Product to Mentor under Part II of this Agreement shall in no manner restrict Lifecore's right to sell the Product for uses other than ophthalmic surgery under its own label or under the label of other private label purchasers, or to sell the Product outside of the Exclusive Territory in any manner Lifecore may desire anywhere in 7 the world, including without limitation, directly by Lifecore, through distributors, or through other private label purchasers. Lifecore agrees, however, that, if requested by Mentor, Lifecore will not enter into direct private label purchase agreements or distributor agreements for the Product, nor any other hyaluronan-based viscoelastic product Lifecore develops with molecular weight greater than or equal to 650,000 Daltons and less than 1,000,000 Daltons, for use in ophthalmic surgery during the term of the Non-Exclusive International Agreement with those distributors in the Non-Exclusive Territory who, as of the Effective Date are parties to an existing distributor relationship with Mentor under which such distributor is regularly selling products in the territory involved. Prior to the execution of this Agreement, Mentor will provide a written list of the names and territories of these distributors. 10. Product Usage. As provided in Section 23, Mentor is hereby licensed to sell the Product purchased under this Part II anywhere in the world outside of the United States and Canada for use in ophthalmic surgery. Mentor may not sell the Product for any other use. 11. Term. The term of the Non-Exclusive International Agreement governed by Parts II and III of this Agreement shall commence on the Effective Date and, unless terminated earlier in accordance with Section 19 in Part III of this Agreement, shall continue for a period of five (5) International Contract Years. Upon expiration, the Non-Exclusive International Agreement shall terminate without further act or deed of either party. 12. Price. 12.1 The price to be paid for Product purchased by Mentor for sale to its. customers in the Non-Exclusive Territory during the first and second International Contract Years will be based upon the quantity of viscoelastic syringes ordered for delivery during such years as follows:
No. of Syringes Purchased in an Price Per Syringe Price Per Syringe International Contract in First International in Second International Year Contract Year Contract Year ---------------------- ---------------------- ----------------------- 15,000-25,000 $16.00 $17.00 25,000-50,000 $15.00 $16.00 50,000-100,000 $13.50 $15.00 100,000-150,000 $13.00 $14.00 150,000-or more $12.50 $13.00
If during an International Contract Year, Mentor purchases enough Product to qualify for a lower price based on the quantities and prices listed above, then Mentor may immediately take a credit for the amount it has paid in excess of the prices listed above for Product already purchased, to the extent that a credit has not already been taken for that excess. Within thirty (30) days following the end of each International Contract Year, 8 Lifecore shall refund to Mentor an amount equal to the difference between the total price paid by Mentor for Product purchased during the immediately preceding International Contract Year and the applicable price for the annual volume set forth above. 12.2 These prices shall be adjusted up or down by Lifecore effective as of the first day of the third International Contract Year and each International Contract Year thereafter, according to the percentage change in the U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index for Domestic Manufacturers of Pharmaceutical Finished Goods for the twelve-month period immediately preceding such adjustment date. All prices exclude VAT and federal, state or local sales and use taxes, which shall be added to the price or billed separately to Mentor where Lifecore has the legal obligation to collect the taxes or fees, and all expenses related to shipping, insurance, handling, storage, and customs duties and fees. 13. Minimum Purchase Requirements. Separate from the Domestic minimum purchase requirements set forth in Section 7 of this Agreement, Mentor shall, during each International Contract Year, purchase the minimum quantity of 15,000 syringes of the Product for distribution outside of the United States and Canada, subject to Lifecore's meeting its obligations under Section 9 to supply Mentor its International requirements of the Product. Thirty percent (30%) of such annual minimum quantity shall be purchased by Mentor as of the end of the first six (6) months of each International Contract Year, and fifty percent (50%) of such annual minimum quantity shall be purchased by Mentor as of the end of the first nine (9) months of each International Contract Year. In the event Mentor shall fail to meet any annual minimum purchase requirement set forth in this Section 13, Lifecore's sole and liquidated damages for such failure shall be an amount equal to fifty percent (50%) of the difference between the annual minimum quantity and the quantity actually purchased multiplied by the price in effect for the Product for the International Contract Year respecting which Mentor did not meet the minimum purchase requirement, which Mentor shall pay within thirty (30) days after receipt of Lifecore's invoice, which invoice shall be issued within thirty (30) days after the end of that International Contract Year. If Mentor purchases less than fifty percent (50%) of the annual minimum quantity in a International Contract Year and fails to pay the liquidated damages described in this paragraph, Lifecore may at any time thereafter elect to terminate the International portion of this Agreement pursuant to Section 19. PART III GENERAL TERMS GOVERNING BOTH THE EXCLUSIVE DOMESTIC AGREEMENT AND THE NON-EXCLUSIVE INTERNATIONAL AGREEMENT 14. Purchase Orders and Forecasts. 14.1 Mentor shall, not later than ninety (90) days before the commencement of each Domestic Contract Year and each International Contract Year thereafter, provide Lifecore with (a) a firm purchase order setting forth its Domestic or International, as the 9 case may be, annual purchase obligations with respect to the Product of that year ("Firm Annual Orders"), and (b) Mentor's reasonable best estimate of the quantity and delivery dates desired for shipment of the Firm Annual Orders (the "Delivery Estimate"). At the time of the Firm Annual Order and not later than ninety (90) days prior to the start of the second, third, and fourth quarters of each year, Mentor shall provide Lifecore with a firm delivery schedule specifying the quantity and requested dates for shipments under the Firm Annual Order for that quarter (the "Firm Delivery Schedule"). Unless waived by Lifecore, the Firm Delivery Schedule for a quarter shall not be less than eighty percent (80%) of the Delivery Estimate for that quarter. Except as otherwise agreed in writing by Lifecore, a Firm Annual Order may not be canceled in whole or in part after it has been received by Lifecore. A Firm Delivery Schedule may be amended only upon the written consent of both Mentor and Lifecore. 14.2 Mentor may submit supplemental purchase orders for Mentor's additional requirements of Product throughout the term of this Agreement. No such supplemental order will be binding upon Lifecore until accepted in writing by Lifecore, provided that Lifecore shall give such orders high priority. Except as otherwise agreed in writing by Lifecore, a supplemental order may not be canceled by Mentor after it has been received by Lifecore. A supplemental purchase order may state a Firm Delivery Schedule, as long as the order is received by Lifecore at least ninety (90) days prior to the start of the quarter during which the supplemental shipment is requested. 14.3 All sales of the Product by Lifecore to Mentor hereunder shall be subject to the provisions of this Agreement and shall not be subject to the terms and conditions contained in any purchase order of Mentor or confirmation of Lifecore, except insofar as any such purchase order or confirmation establishes (a) the quantity of the Product sold or (b) the shipment date of the Product in conformity with the provisions of this Agreement. 15. Payment. 15.1 Unless otherwise agreed in writing by Lifecore, terms of payment for the Product shall be net forty-five (45) days. Past due amounts will be subject to a late fee of 1 1/2% per month or the highest rate allowed by law, whichever is less. In the event of litigation to collect payment under this Agreement, the losing party shall be liable for the other party's attorney's fees and court costs. 15.2 If Mentor fails to fulfill the terms of payment, Lifecore may decline to make further deliveries under this or any other contract between Lifecore and Mentor, except upon receipt of cash, a letter of credit or other satisfactory security. This requirement will not release Mentor from any previous obligation. Lifecore's rights under this section shall be in addition to all other rights and remedies available to Lifecore upon Mentor's default. 10 16. Shipment and Taxes. 16.1 Subject to delay due to force majeure, Lifecore shall ship the Products on the date(s) indicated in Firm Delivery Schedules submitted in accordance with Sections 14.1 and 14.2. In the event of a shortage of Product, Lifecore shall allocate its hyaluronan-based viscoelastic product supply in an equitable manner. Such allocation shall not excuse any failure to meet a Firm Delivery Schedule, other than in the event of a force majeure. 16.2 All Products sold by Lifecore to Mentor hereunder will be shipped by Lifecore FOB Lifecore's manufacturing facility ("Shipping Point"). Mentor will pay all loading, freight, shipping, insurance, duties, forwarding and handling charges, taxes, storage (including any fees for specific cold storage requirements for the Product), and all other charges applicable to the Products after they are delivered by Lifecore to the Shipping Point. Mentor shall assume all risk of loss for the Products upon delivery by Lifecore of the Products to the Shipping Point. 17. Warranty and Limitation of Remedies. 17.1 Limited Warranty. Lifecore warrants to Mentor that the Products will be manufactured in accordance with applicable current Good Manufacturing Practices, as promulgated by the FDA, and will satisfy the applicable specifications set forth on Exhibit A at the time of shipment and for a period of one (1) year after the date of delivery of the Product by Mentor to its customer (but in any event, not later than 18 months after delivery of the product by Lifecore to Mentor). THIS LIMITED WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED (INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABIILITY OR FITNESS FOR A PARTICULAR PURPOSE. The liability of Lifecore under this limited warranty does not extend to any abuse or misuse of the Product by anyone other than Lifecore, or to any Product which is sold by anyone other than Lifecore after its expiration date, or when handling, storage, or improper use by anyone other than Lifecore causes a loss of sterilization or other problem affecting proper performance of the Product. Lifecore shall not be liable to Mentor, its agents or purchasers, for any indirect, collateral, special, incidental or consequential loss. 17.2 Notice of Warranty Claim/Remedies. Except as provided in Section 18, Mentor shall notify Lifecore of any claimed breach of the warranty stated in Section 17.1 within thirty (30) days after discovery by Mentor or its customer. The notice shall include the lot number for such Product, as well as the number and date of invoice thereof and shall be accompanied by samples of such shipment if reasonably available to Mentor. 11 Lifecore will promptly examine the Product. If Lifecore agrees with the results of Mentor's analysis that Lifecore is responsible for such defect, Mentor shall, at Lifecore's option and expense, either return the defective Product to Lifecore or dispose of it, and Lifecore shall, at its option, either replace such Product or refund the amount paid by Mentor for such Product. Except as provided in Section 18, replacement or refund shall be Mentor's exclusive remedy. If the Product is to be returned to Lifecore, written authorization and shipping instruction shall be transmitted by Lifecore. Any Product returned to Lifecore under this Section 17.2 shall become the property of Lifecore. 18. Indemnity. 18.1 Lifecore shall indemnify and hold Mentor harmless from any and all claims, liabilities, judgments, losses, damages, costs, and expenses (including reasonable attorney's fees) incurred by or asserted against Mentor, by any person or entity, as a result of any injury, illness, death; property damage or other loss or damage arising from a defect in any Product or any failure of a particular Product to comply with the warranty contained in Section 17, or resulting from the negligence, fault or wrongful activity of Lifecore. Mentor shall give Lifecore written notice of any such claim, action, suit or proceeding immediately upon Mentor's receipt of notice thereof Mentor shall cooperate fully and promptly with Lifecore in defending or otherwise resolving any such claims, actions, suits and proceedings. To the extent that both Lifecore and Mentor are found or determined to be liable based upon any theory of liability to any person or entity as a result of any injury, illness, death, property damage, or other loss or damage arising out of the sale or use of any Product, all rights of contribution between Lifecore and Mentor are preserved and contribution between them shall be calculated based upon a comparison of the relative fault or percentage of liability of Mentor and Lifecore. 18.2 Lifecore shall maintain insurance issued by one or more insurance companies, with Best Rating B+ or higher, adequate to cover the claims, liabilities, judgments, losses, damages, costs, and expenses (including reasonable attorney's fees) indemnified under Section 18.1. Subject to Lifecore's maintenance of such insurance, Lifecore shall have full control of any such claims, actions, suits, and proceedings, and Mentor shall promptly tender defense thereof to Lifecore and Mentor shall not settle or compromise any such claim, suit, action or proceeding without the prior consent of Lifecore, in its sole discretion. 18.3 Mentor shall indemnify and hold Lifecore harmless from any and all claims, liabilities, judgments, losses, damages, costs, and expenses (including reasonable attorney's fees) incurred by or asserted against Lifecore, by any person or entity, as a result of any injury, illness, death, property damage or other loss or damage arising from negligent or willful misconduct by Mentor, its employees, agents, or representatives. Without limiting the generality of the foregoing, Mentor shall indemnify, defend and hold Lifecore harmless from and against any liability, cost and expense of any nature caused by 12 Mentor's improper storage, alteration, handling or uses of the Product or any statements, representations, warranties, or advertisements concerning the Product which exceed in scope or are different in meaning from the statements made by Lifecore in its own literature. 18.4 The indemnification obligations of each party to the opposite party shall extend only to losses, damages, costs and expenses (including reasonable attorney's fees) incurred with respect to claims of any third parties and shall not include any claims for incidental or consequential damages (including, without limitation, loss of profits or business opportunities) by a party to this Agreement or any of its affiliates as a result of the incident or matter involved, and each party waives and relinquishes any and all claims it my have against the opposite party for incidental or consequential damages, lost profits, loss of business reputation, and lost business opportunity. 19. Expiration and Termination, 19.1 In addition to the right of Mentor to terminate the Exclusive Domestic Agreement under Section 2.5 of Part I; either party may terminate either the Exclusive Domestic Agreement or the Non-Exclusive Agreement, without affecting the other Part of this Agreement, upon sixty (60) days written notice to the other party in the event of a material breach by the other party of any of the terms of such Part or of the terms of Part III as applicable to such Part, provided that such breach is not cured within said sixty (60) day period. 19.2 In the event the first Domestic Contract Year does not commence on or before January 1, 2000, either party may terminate the Exclusive Domestic Agreement by sixty (60) days written notice to the other party. In the event the first International Contract year does not commence on or before January 1, 1998, either party may terminate the Non-Exclusive International Agreement by sixty (60) days written notice to the other party. 19.3 Either party may terminate this entire Agreement immediately upon written notice to the other party if (i) the other party shall become insolvent, make a general assignment for the benefit of its creditors, have a receiver or manager appointed or otherwise commence, or become the subject of any action relating to bankruptcy, insolvency, reorganization, dissolution or winding up; (ii) the other party ceases to function as a going concern or conduct its operations in the normal course of business as currently conducted; or (iii) the other party is convicted of or pleads guilty or no contest to a charge of.violating any law relating to its business or engages in any act which materially impairs the goodwill associated with the Product or with the terminating party's trademark, trade name or logo. 13 19.4 In the event of the expiration or termination of all or one Part of this Agreement: 19.4.1 Acceptance by Lifecore of any orders from Mentor after expiration or termination shall not constitute a renewal of such Agreement or a waiver of the right of Lifecore to treat all or such part of the Agreement as expired or terminated. 19.4.2 The parties expressly agree that the notice periods under this Agreement with respect to termination are reasonable under the contemplated circumstances. 19.4.3 Lifecore shall deliver and Mentor shall accept and pay for all Products ordered under purchase orders issued by Mentor and received by Lifecore prior to the date of expiration or termination. Expiration or termination shall not relieve or release either party from its obligations to make any other payment which may be owing to the other party under the terms of any part of this Agreement or from any other liability which either may have to the other arising out of this Agreement or breach of this Agreement. The provisions of Sections 17, 18, 21-35 shall survive expiration or termination and continue thereafter in full force and effect. 19.4.4 In the event the Exclusive Domestic Agreement is terminated pursuant to Section 19.1 due to Lifecore's failure to supply Mentor's Domestic requirements of the Product under Section 3.1 or pursuant to Section 19.2, Lifecore shall refund to Mentor a portion of any license fees paid under Section 2.4.1 to account for the shortening of Mentor's eight (8) year period of exclusivity, linearly prorated based on the period of shortening. It is specifically agreed that this Section 19.4.4 shall not apply to any termination of the Exclusive Domestic Agreement by Mentor pursuant to Section 2.5 of this Agreement. 20. Labeling and Packaging. Mentor and Lifecore shall jointly develop, at Mentor's expense, "camera-ready" copies of all artwork for labeling and packaging for the Product, which packaging shall comply with applicable requirements of the Domestic and International Regulatory Approvals. Lifecore shall utilize such camera-ready copies to produce all such labeling and packaging for the Product manufactured by Lifecore pursuant to this Agreement. In addition, Lifecore agrees to use reasonable efforts to develop, with the assistance of Mentor, a unique packaging/syringe/cannula design for the Product. Mentor shall compensate Lifecore for its costs of materials and employee time, plus a 20% premium, expended in such development. Lifecore will not be required to implement any change to the Product that may impair the safety or efficacy of the Product. Further, if the new package design increases the Direct Cost of manufacturing the Product, Lifecore and Mentor shall mutually agree upon an appropriate price 14 increase for the Product. Mentor shall review and approve in writing all such labeling and packaging to be used in connection with the Product. Lifecore shall not change any such label or packaging during the term of this Agreement without Mentor's written approval (which approval shall not be unreasonably withheld). At the time of manufacture, Lifecore shall add its lot or serial number to the label of each Product and shall certify each lot as to compliance with the specifications set forth on Exhibit A. 21. Recall. Mentor shall maintain complete and accurate records of all the Products sold by Mentor, its agents, distributors or employees (including without limitation a complete and current list of all customers who have purchased, the date of such purchases, the quantity purchased and the lot numbers of the units purchased). In the event of a recall of any of the Products, Lifecore shall be responsible for any direct expenses of notification and return of Product. Mentor will cooperate fully with Lifecore in effecting such recall, including without limitation, promptly contacting any purchasers Lifecore desires be contacted during the course of any such recall, and promptly communicating to such purchasers such information or instructions as Lifecore may desire be transmitted to such purchasers. This section shall specifically survive the termination or expiration of this Agreement. 22. Traceability. Mentor agrees to comply with all traceability programs required by applicable international, federal, state, or local law, regulation, or order or by standard established by international standards organization. 23. INTELLECTUAL PROPERTY. 23.1 Lifecore hereby grants to Mentor and its customers, during the term of this Agreement, a worldwide license under all patents, either owned by Lifecore or with respect to which it has the right to grant licenses, to, use in ophthalmic surgery, offer to sell for ophthalmic surgery, and sell for ophthalmic surgery Product purchased by Mentor under this Agreement. During the term of the Exclusive Domestic Agreement, such license shall be exclusive with respect to uses of products covered by Section 3.2 in ophthalmic surgery within the United States and Canada and with respect to offers for sale and sales for such uses. 23.2 Except as otherwise provided in this Agreement, neither party shall use any trademark, trade name or logo belonging to the other party or any confusingly similar trademark, trade name or logo during or after the term of this Agreement without the prior written consent of the other party. Upon termination of this Agreement, each party shall cease any and all use of the trademarks, trade names and logos of the other party. 23.3 Except as otherwise provided in this Agreement, each party shall retain all right, title, and interest in all patents, copyrights, trade secrets, and other intellectual property rights owned by it on the Effective Date and each party shall have all right, title, and interest in all such intellectual property rights to inventions, developments processes, 15 Date. All right, title and interest in all such intellectual property to inventions, developments, processes, improvements and work of authorship made or developed jointly by Lifecore and Mentor after the Effective Date shall be owned by Lifecore subject to: (i) a royalty-free non-exclusive license for Mentor to use such jointly developed intellectual property and to make and sell any product embodying such jointly developed intellectual property; and (ii) a right of Mentor to share equally in any royalties received by Lifecore for licensing such jointly developed intellectual property. Mentor agrees to cooperate with Lifecore in preparing, filing, and prosecuting any application for patent, design, or copyright registration on such jointly developed intellectual property. Lifecore will account to Mentor for all royalties received from any license agreement involving jointly developed intellectual property. Notwithstanding the foregoing, Mentor shall own all intellectual property rights to the unique packaging/syringe/cannula design to be developed by Lifecore at Mentor's expense under Section 20. 23.4 Lifecore warrants that to its best knowledge, Mentor's offer for sale and sale of the Product as it exists on the Effective Date for use in ophthalmic surgery and such use by Lifecore and its customers does not infringe any patent or other intellectual property right of another. In the event a patent infringement claim is commenced or threatened against Lifecore or Mentor involving the Product in the United States or any other country ("Infringement Claim"), Lifecore may elect to discontinue, or have discontinued, the manufacture, use or the sale of the Product in the jurisdiction in which the Infringement Claim is initiated or threatened. Lifecore shall promptly notify Mentor of any Infringement Claim. Immediately upon written notice from Lifecore, Mentor shall discontinue the sale of the Product to the extent requested by Lifecore. 23.5 Mentor shall indemnify and hold Lifecore harmless against any and all liabilities, losses and expenses (including reasonable attorney's fees), judgments and awards suffered or incurred by Lifecore as a result of Mentor's failure to promptly discontinue the sale of the Product in a given jurisdiction if so requested by Lifecore. Lifecore shall reimburse Mentor for direct expenses incurred in returning Product to Lifecore as directed by Lifecore. 23.6 Provided that Mentor discontinues the sale of Products as provided for in Section 23.4, Lifecore shall reimburse Mentor for damages awarded against Mentor in a final judgment, from which no appeal is or can be taken entered by a court of competent jurisdiction, arising from or relating to, and defend Mentor against, any Infringement Claim relating to Mentor's sales of the Product before notice of the Infringement Claim is received by Mentor. Mentor shall give Lifecore written notice of an Infringement Claim against Mentor immediately upon Mentor's receipt of notice thereof. Mentor shall, at its own expense, cooperate fully and promptly with Lifecore in defending or otherwise resolving any such claims, actions, suits and proceedings. Lifecore may elect to have full control of any litigation relating to an Infringement Claim, and Mentor shall promptly tender defense thereof to Lifecore. 16 control of any litigation relating to an Infringement Claim, and Mentor shall promptly tender defense thereof to Lifecore. 24. Confidential Information. Mentor and Lifecore each acknowledge that during the term of this Agreement, such party will acquire Confidential Information of the other party. Each party shall keep the other party's Confidential Information secret and confidential and agrees not to disclose, furnish, communicate, or make such Confidential Information accessible to any third party or use it in any way for such party's own or another's benefit, or permit the same to be used in competition with the other party. Each of Mentor and Lifecore shall require its agents and employees to agree to be bound by the terms of this section. Each of Mentor and Lifecore shall refrain from all acts and omissions that would reduce the value of the other party's Confidential Information. The obligation of the parties to keep the other party's Confidential Information confidential shall survive the termination or expiration of this Agreement. Each of Mentor and Lifecore shall immediately return all copies of any written Confidential Information received by it upon the expiration or termination of this Agreement or upon the request of the party to whom such Confidential Information belongs. Each of Mentor and Lifecore acknowledges that its failure to maintain the confidentiality of the other party's Confidential Information may result in immediate and irreparable damage to the other party. Therefore, each of Mentor and Lifecore shall be entitled to such equitable relief, in addition to any damages, as any court of competent jurisdiction may deem proper to enforce the provision of this Section 24. 25. Force Majeure. Neither party shall be liable to the other party for any failure to perform its obligations under this Agreement, to the extent and for the time such performance is delayed, in whole or in part, directly or indirectly, by strikes, lockouts, or any other labor troubles, fires, floods, acts of God, accidents, embargoes, war, riots, act or order of any government or governmental agency, inability to obtain or delay in the delivery of raw material, parts, or completed merchandise by the supplier thereof or any other cause, other than financial difficulties, beyond the control of or occurring without the fault of the party required to perform. 26. Notice. All notices under this Agreement shall be in writing, and may be delivered by hand or sent by facsimile transaction, telex, or registered mail, return receipt requested. Notices sent by mail shall be deemed received on the date of receipt indicated by the return verification provided by the national postal service involved. Notices sent by facsimile transaction or telex shall be deemed received the day on which sent, and shall be conclusively presumed to have been received in the event that the sender's copy of the facsimile transmission or telex contains the "answer back" of the other party's facsimile transmission or telex. Notices shall be given, or sent to the parties at the following addresses: 17 If to Mentor: Mentor Ophthalmics, Inc. Attn: William M. Freeman 5425 Hollister Avenue Santa Barbara, CA 93111 With a copy to: Mentor Ophthalmics, Inc. Attn: Legal Department 5425 Hollister Avenue Santa Barbara, CA 93111 If to Lifecore: Lifecore Biomedical, Inc. Attn: President 3515 Lyman Boulevard Chaska, MN 55318 Facsimile: (612) 368-3411 Any party hereto may designate any other address for notices given it hereunder by written notice to the other party given at least ten (10) days prior to the effective date of such change. 27. Entire Contract. This Agreement supersedes all previous oral and written arrangements between the parties and is intended as a complete and exclusive statement of the terms of their understanding with respect to the subjects covered by this Agreement, including the sale and purchase of the Products. 28. Amendments. Amendments, if any, shall be in~writing and valid only when signed by both parties. 29. Assignment. Except as otherwise provided in this Section, neither party shall assign or otherwise transfer this Agreement or any part thereof to any third party without the written consent of the other party. Each party, in its sole discretion, may assign this Agreement or sublicense or transfer all or a portion of its rights under this Agreement to any of its Affiliates, or designate or cause any Affiliate to have the benefit of all or a portion of its rights hereunder; provided, however, that any such party shall remain liable for the performance by its Affiliate of the obligations of the Affiliate under this Agreement. Also, either party may assign this Agreement to a party purchasing substantially all of the assets of the operations of such party relating to the manufacture or distribution of the Products. An Affiliate shall mean a person or entity controlling, controlled by or under common control with a party. This Agreement shall inure to the benefit of be binding upon, and be enforceable against the parties hereto, their permitted successors and assigns. 18 30. SEVERABILITY. IN THE EVENT THAT any provision of this Agreement is held invalid by the final judgment of any court of competent jurisdiction, the remaining provisions shall remain in full force and effect as if such invalid provision had not been included herein. 31. MUTUAL WARRANTIES AND REPRESENTATIONS, 31.1 Lifecore and Mentor each represent and warrant to the other that it is duly organized, validly existing and in good standing under the laws of the State or Commonwealth (as applicable) in which incorporated, and that it has full corporate power and authority to carry on the business presently being conducted by it and to enter into and to perform its obligations under this Agreement. 31.2 Lifecore and Mentor each represent and warrant to the other that it has taken all action necessary to authorize the execution and delivery of this Agreement and the performance of each party's respective obligations hereunder. Each party's officer executing this Agreement on its behalf has the legal power, right and authority to bind the party to the terms and conditions of this Agreement, and when he or she executes and delivers this Agreement and any instruments contemplated herein, he or she they will have the power, right and authority to bind the party thereto. 31.3 Lifecore and Mentor each represent and warrant to the other that the execution, delivery and performance of and compliance with this Agreement has not resulted, and to the best of its knowledge will not result, in any violation of or be in conflict with, or constitute a material default under, any contract, indenture, mortgage, agreement, instrument, franchise, permit, license, judgment, decree, order, statute, nile or regulation applicable to it. 32. U.N. Convention Excluded. The U.N. Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. 33. Language. This Agreement may be translated into any language but it shall be construed and interpreted in English. 34. Applicable Law. Except as altered or expanded by this Agreement, the substantive law (and not the law of conflicts) of the State of Minnesota, U.S.A., shall govern this Agreement in all respects as to the validity, interpretation, construction and enforcement of this Agreement. 35. Waiver of Breach. The waiver or failure of either party to enforce the terms of this Agreement in one instance shall not constitute a waiver of said party's rights under this Agreement with respect to other violations. 19 IN WITNESS WHEREOF, the parties have hereunto set their hands and seal as of the day and year first above written. LIFECORE BIOMEDICAL, INC. By: /s/ Brian J. Kane ------------------------------- /s/ Brian J. Kane ---------------------------------- (Witness) Its: V.P. New Business Development ------------------------------ Date: 2/8/96 ----------------------------- MENTOR OPHTHALMICS, INC. By: /s/ William Freeman ------------------------------- ---------------------------------- (Witness) Its: President ------------------------------ Date: 2/9/96 ----------------------------- 20 EXHIBIT A --------- CONFIDENTIAL INFORMATION -- REDACTED EXHIBIT A - page 2 --------- CONFIDENTIAL INFORMATION -- REDACTED EX-10.44 13 AGREEMENT DATED DECEMBER 31, 1997 (MENTOR CORP.) EXHIBIT 10.44 AGREEMENT This Agreement (the "Agreement") is entered into as of the 31st day of December, 1997, by and between STAAR Surgical Company, a Delaware corporation, whose principal place of business is 1911 Walker Avenue, Monrovia, California 91016 (hereinafter "Staar") and Mentor Corporation, a Minnesota corporation, whose principal place of business is 5425 Hollister Avenue, Santa Barbara, California 93111, and its affiliated companies (hereinafter "Mentor"). Staar and Mentor are sometimes referred to individually herein as a "party" and collectively as the "parties." RECITALS A. On December 16, 1986, Staar and Optical Radiation Corporation ("ORC") entered into that certain License Agreement (the "License Agreement") whereby Staar granted to ORC a license to practice the inventions claimed in U.S. Patent No. 4,573,998 (the "998 Patent"). B. Mentor is the rightful assignee of the License Agreement and, accordingly, has the right to practice the 998 Patent claimed inventions pursuant to the terms of the License Agreement. C. A dispute has arisen between the parties relating to the interpretation of various terms and conditions of the License Agreement and the rights transferred under it (the "Dispute"). D. The parties wish to amend and restate the License Agreement as well as to relinquish any and all claims between them relating to the right to practice the claimed inventions of the 998 Patent. Neither party acknowledges the merit of the other party's interpretation of the License Agreement. NOW, THEREFORE, the parties agree as follows: DEFINITIONS, FINAL TERMS AND RELEASES For and in consideration of their mutual promises, covenants and agreements included in this Agreement, the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Definitions. ----------- For the purpose of this Agreement, and solely for this purpose, the terms set forth hereinafter shall be defined as follows: (a) "998 Patent" shall mean United States Patent No. 4,573,998, issued March 4, 1986, and entitled METHODS FOR IMPLANTATION OF DEFORMABLE INTRAOCULAR LENSES and any reissue thereof, as well as all divisional applications, 1 continuations, continuations-in-part, re-examinations, restrictions and foreign counterparts. (b) "Valid Patent Claim" shall mean a bona fide, unexpired claim in the 998 Patent which has not been held invalid by a decision of a court or other goernmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid by the owner through reissue or disclaimer. If there should be two or more such decisions conflicting with respect to the validity of the same claim the decision of the higher or highest tribunal shall thereafter control; however, should the tribunals be of equal dignity, the decision or decisions holding the claim invalid shall prevail. (c) "Licensed Products" shall mean any product, including intraocular lenses, especially made, used, or sold by Mentor to its customers, for use in a manner covered by a Valid Patent Claim of the 998 Patent. (d) "Net Sales" or "Net Selling Price" shall mean the actual selling price of Licensed Products sold by Mentor to others as per the invoices covering Mentor's sales, less bona fide trade and cash discounts, allowance for returns, give aways, royalties other than those due pursuant to this Agreement, and sales and other taxes and governmental charges applicable to sales and packages. 2. Consideration for Agreement. --------------------------- (a) Consideration from Mentor. The consideration extended by Mentor to Staar for entering into this Agreement is the payment to Staar, upon execution of this Agreement, of three million two hundred fifty thousand dollars ($3,250,000). (b) Consideration from Staar. The consideration extended by Staar to Mentor for entering into this Agreement is: (i) a covenant, as set forth in Section 6 below, not to sue Mentor for practicing the claimed inventions of the 998 Patent which covenant shall be in effect during the period beginning upon Mentor's acquisition of its rights under the License Agreement and ending on December 31, 2000 (the "Initial Term"); and (ii) the grant of an option to Mentor to extend the covenant not to sue, for the period beginning on January 1, 2001 and ending on the expiration of the 998 Patent, pursuant to the terms set forth in Section 7 below. 3. Staar's Release of Mentor. Staar and its affiliates, for themselves and ------------------------- their agents, successors and assigns, do hereby forever release and discharge Mentor, its affiliates and any of their past or present agents, employees, officers, directors, attorneys 2 and suppliers, and any past or present distributors, re-sellers, purchasers and/or end users of products sold or distributed by Mentor or its affiliates from any causes of action, losses, promises, damages, costs, expenses, liabilities and/or demands of whatsoever character, nature and kind, known or unknown, suspected or unsuspected, fixed or contingent, arising out of or in any way related to any actions, conduct, omissions, or events alleged, or which could have been alleged (including allegations of patent infringement), relating to any matter whatsoever, including, but not limited to, Mentor's obligation to pay royalties currently due but unpaid and any future monetary obligations under the License Agreement other than the payments described in Sections 2(a) and 7 herein, the License Agreement and any matter which could be considered an infringement or form the basis of an action or claim of infringement against Mentor under the 998 Patent occurring on or prior to the date hereof, except as to obligations arising out of this Agreement and the exhibits to it. 4. Mentor's Release of Staar. Mentor and its affiliates, for themselves and ------------------------- their agents, successors and assigns, do hereby forever release and discharge Staar, its affiliates and any of their past or present agents, employees, officers, directors, attorneys and suppliers, and any past or present distributors, re-sellers, purchasers and/or end users of products sold or distributed by Staar or its affiliates from any causes of action, losses, promises, damages, costs, expenses, liabilities and/or demands of whatsoever character, nature and kind, known or unknown, suspected or unsuspected, fixed or contingent, arising out of or in any way related to any actions, conduct, omissions, or events alleged, or which could have been alleged (including allegations of patent infringement) relating to any matter whatsoever, including, but not limited to, the License Agreement and any matter which could be considered an infringement or form the basis of an action or claim of infringement against Staar under the 998 Patent occurring on or prior to the date hereof, except as to obligations arising out of this Agreement and the exhibits to it. 5. Waiver of Section 1542 of the Civil Code. The parties specifically ---------------------------------------- understand, acknowledge and agree that this is a full and final release, which shall be effective as a bar to all actions, claims, counterclaims, obligations, causes of action, losses, promises, damages, costs, expenses, liabilities and demands of whatsoever character, nature and kind, known and unknown, suspected or unsuspected, fixed or contingent, hereinabove specified to be so barred. The parties, having been fully advised by their respective counsel, hereby expressly and voluntarily waive all rights or benefits that they and each of them might otherwise have under the provisions of Section 1542 of the Civil Code of the state of California, which provides as follows, and under all federal, state and/or common law statutes or principles of similar effect: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. 6. Covenant Not To Sue. Pursuant to the terms of this Section 6, Staar ------------------- covenants and agrees that, during the Initial Term, neither it nor its affiliates will sue Mentor and its 3 affiliates for any infringement of the 998 Patent. This covenant not to sue shall relate to any past or present infringements of the 998 Patent, irrespective of when such infringements occurred, as well as to any infringement of the 998 Patent which may occur during the Initial Term. This covenant is for the benefit of, and may be enforced by, Mentor, purchasers of the Licensed Products from Mentor, and any assigns permitted pursuant to Section 13(k) of this Agreement. Staar agrees that it shall not attempt to recover from Mentor, at law or in equity, any damages that it may sustain during the covenant period, or any extension thereof, pursuant to Section 7 below. 7. Option to Extend Covenant Not To Sue. Within thirty (30) days before the ------------------------------------ expiration of the Initial Term, Mentor shall have the right to extend the covenant not to sue for a period which shall end on March 4, 2003, the date of the expiration of the 998 Patent. Mentor may, at its sole and absolute discretion, exercise this right by either: (i) making a lump sum payment to Staar, on or before December 31, 2000, of three million dollars ($3,000,000); provided, however, that if Mentor does not have Net Sales, worldwide, during the Initial Term, of at least $55,000,000 in Licensed Products, then the lump sum payment will be computed by multiplying the difference between $55,000,000 and Net Sales by a factor of 6% and subtracting the product from $3,000,000. For example, if Mentor's Net Sales during the Initial Term total $30,000,000, then the lump sum payment shall be computed as follows: $55,000,000 - $30,000,000 = $25,000,000 x 6% = $1,500,000. $3,000,000 - $1,500,000 = $1,500,000; or (ii) paying to Staar a royalty of six percent (6%) on Net Sales of all Licensed Products sold on or after January 1, 2001. Royalties shall be paid within forty-five (45) days after each calendar quarter. Mentor shall prepare and send to Staar a report stating the Net Sales made by Mentor during such quarterly period, as set forth in Section 9 below, which report shall contain a computation of the payment due and the payment. 8. Modification of License Agreement. Pursuant to Section 9.3 of the License --------------------------------- Agreement, upon execution of this Agreement the License Agreement shall be deemed to be modified as follows: (i) Section 2(a) of the License Agreement shall be modified to state: "Staar grants to Mentor, upon the terms and conditions of this Agreement as modified on December 31, 1997, a non-exclusive license under the 998 Patent. There is no right to sublicense included by this grant." Section 2(b) of the License Agreement shall be deleted in its entirety. (ii) The remaining terms and conditions of the License Agreement shall be superseded and replaced in their entirety by the terms and conditions of this Agreement; any obligations of either party to the other incurred pursuant to the terms of the License Agreement prior to this modification, including the payment of royalties incurred but unpaid and any future monetary obligations under the License Agreement other than the 4 payments described in Sections 2(a) and 7 herein, shall be governed by this Agreement. 9. Accounting and Records. ---------------------- The following sub-sections shall be the responsibility of Mentor if it elects to extend the covenant not to sue pursuant to sub-section 7(ii) above. (a) Reporting Requirements. Within forty-five (45) days after each calendar quarter, Mentor shall prepare and send to Staar a report setting forth the Net Sales of the Licensed Products made by Mentor during such quarterly period (b) Record Requirements and Review of Records. Mentor shall keep accurate records in respect of all sales of the Licensed Products and shall maintain such records for a period of not less than three years from the date of the report made pursuant to Section 9.1 above. Staar shall have the right, at its sole cost and expense, not more than once during each calendar year, to review Mentor's records in respect of sales of the Licensed Products at times which are reasonably convenient to Mentor and may use for that purpose an independent certified public accounting firm acceptable to Mentor. Any reports rendered by Mentor to Staar prior to the date of such review as to which Staar raises no reasonable written objection within one hundred twenty (120) days after the commencement of such review shall be deemed conclusive and binding, provided that Mentor has not unreasonably impeded such review. If Staar shall dispute the accuracy of any report, the dispute shall be resolved by a panel of three independent certified public accountants, one selected by Mentor at its sole cost and expense, one selected by Staar at its sole cost and expense, and the third selected by the previously selected accountants, the cost and expense of the third to be borne equally by Staar and Mentor. The determination of said panel by majority vote shall be conclusive and binding on Staar and Mentor. (c) Final Reporting Requirement. At the termination of this Agreement, Mentor shall render a final report to Staar within sixty (60) days after the end of the last quarterly period. 10. Term. This Agreement shall become effective on the date it is signed ---- by both parties and, unless terminated as provided in Section 11 below, shall remain in effect until March 4, 2003, the date of the expiration of the 998 Patent or at the earliest date on which there is not at least one Valid Patent Claim pertinent to the operations of Mentor still in existence or effect. 11. Termination and Effect of Termination. ------------------------------------- (a) Termination. This Agreement may be terminated by one party giving written notice to the other party of its intent to terminate, while stating with specificity the grounds for termination in the event that the other party fails to perform or otherwise breaches any material obligations hereunder. The party so notified shall have sixty (60) 5 days after receipt of the notice to cure the breach or seek legal redress. In no event shall such notice of intention to terminate be deemed to waive any right to damages or any other remedy which the party giving the notice may have as a consequence of such failure or such breach. (b) Disposition of Licensed Products. In the event that this Agreement is finally terminated (i.e., by operation of the present terms or legal decree), then Mentor shall have the right to dispose of all the Licensed Products coming under the terms of this Agreement, to utilize all inventory then on hand to produce such Licensed Products, and to complete all orders for Licensed Products then on hand. In the event that this Agreement is finally terminated (i.e., by operation of the present terms or legal decree), then both parties shall be released from all obligations and duties imposed or assumed under this Agreement except the payment of royalties pursuant to Section 7(ii) above. 12. Representations and Warranties. ------------------------------ (a) By Staar. Staar, on behalf of itself and its affiliates, represents and warrants to Mentor and its affiliates as follows: (i) Staar has not assigned, in whole or in part, any claim which has been released pursuant to the terms of this Agreement. (ii) Staar has the authority to enter into this Agreement. (iii) Staar and/or its affiliates have not filed any litigation relating to the 998 Patent against Mentor or its affiliates in any jurisdiction, nor does Staar have any unasserted claims against Mentor or its affiliates that are not resolved upon execution of this Agreement. (iv) Staar has the right, free of any limitation or encumbrance, to grant the covenant not to sue set forth in Sections 6 and 7 above. (b) By Mentor. Mentor, on behalf of itself and its affiliates, represents --------- and warrants to Staar and its affiliates as follows: (i) Mentor has not assigned, in whole or in part, any claim which has been released pursuant to the terms of this Agreement. (ii) Mentor has the authority to enter into this Agreement. (iii) Mentor and/or its affiliates have not filed any litigation relating to the 998 Patent against Staar or its affiliates in any jurisdiction, nor does Mentor have any unasserted claims against Staar or its affiliates that are not resolved upon execution of this Agreement. 6 13. Miscellaneous. ------------- (a) 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. 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. (b) Entire Agreement/No Collateral Representations. Each party expressly acknowledges and agrees that this Agreement, together with the exhibits attached hereto and the agreements and documents referenced herein : (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, proposals, commitments, guarantees, assurances, communications, discussions, promises, representations, understandings, conduct, acts, courses of dealing, warranties, interpretations or terms of any kind, whether 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. No prior drafts of this Agreement, and no words or phrases from any prior drafts, shall be admissible into evidence in any action or suit involving this Agreement. (c) Amendment; Waiver; Forbearance. Except as expressly provided otherwise herein, neither this Agreement nor any of the terms, provisions, obligations or rights contained herein, may be amended, modified, supplemented, augmented, rescinded, discharged or terminated (other than by performance), except by a written instrument or instruments signed by all of the parties to this Agreement. No waiver of any breach of any term, provision or agreement contained herein, or of the performance of any act or obligation under this Agreement, or of any right granted under this Agreement, or the grant of any extension of time for performance of any such act or obligation, shall be effective and binding unless such waiver shall be in a written instrument or instruments signed by each party claimed to have given or consented to such waiver and each party affected by such waiver. Except to the extent that the party or parties claimed to have given or consented to a waiver may have otherwise agreed in writing, no such waiver shall be deemed a waiver or relinquishment of any other term, provision, agreement, act, obligation or right granted under this Agreement, or any preceding or subsequent breach thereof. No forbearance by a party to seek a remedy for any noncompliance or breach by another party hereto shall be deemed to be a waiver by such forbearing party of its rights and remedies with respect to such noncompliance or 7 breach, unless such waiver shall be in a written instrument or instruments signed by the forbearing party. (d) 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. (e) 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, then, and in that event: (1) 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 (2) 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. (f) Parties in Interest. Notwithstanding anything else to the contrary herein, nothing in this Agreement shall confer any rights or remedies under or by reason of this Agreement on any persons other than the parties hereto and their respective successors and assigns, if any, as may be permitted hereunder, nor shall anything in this Agreement relieve or discharge the obligation or liability of any third person to any party to this Agreement. (g) No Reliance Upon Prior Representation. Each party acknowledges that: (i) no other party has made any oral representation or promise which would induce them prior to executing this Agreement to change their position to their detriment, to partially perform, or to part with value in reliance upon such representation or promise; and (ii) such party has not so changed its position, performed or parted with value prior to the time of the execution of this Agreement, or such party has taken such action at its own risk. (h) Headings; References; Incorporation; "Person"; Gender; Statutory References. 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 by such reference. As used in this Agreement, the term "person" is defined in its broadest sense as any individual, entity or fiduciary who has legal standing to enter into this Agreement such as, by way of example and not limitation, individual or natural persons and trusts. As used in this Agreement, each gender shall be deemed to include the other gender, including neutral genders appropriate for entities, if applicable, and the singular shall be deemed to include the 8 plural, and vice versa, as the context requires. Any reference to statutes or laws will include all amendments, modifications, or replacements of the specific sections and provisions concerned. (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) 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. (j) Consent to Jurisdiction; Service of Process. Any "action or proceeding" (as such term is defined below) arising out of or relating to this Agreement shall (except to the extent governed by sub-section (l) relating to arbitration) 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 venue therein; consents to the service of process in any such action or proceeding by certified or registered mailing of the summons and complaint in accordance with the notice provisions of this Agreement; and waives any defense or right to object to venue in said courts based upon the doctrine of "forum non conveniens." The term "action or proceeding" is defined as any and all claims, suits, actions, hearings, arbitrations or other similar proceedings, including appeals and petitions therefrom, whether formal or informal, governmental or non-governmental, or civil or criminal. (k) Successors and Assigns. All of the representations, warranties, covenants, conditions and provisions of this Agreement shall be binding upon and shall inure to the benefit of each party and such party's respective successors and permitted assigns, spouses, heirs, executors, administrators, and personal and legal representatives. The rights and obligations of each party under this Agreement shall not be assignable or otherwise transferable without the prior written consent of the other, except that (i) Mentor may assign any or all of its rights or obligations under this Agreement to any of its affiliates, which assignment shall not release Mentor from any of its obligations under this Agreement, and (ii) Mentor may assign all of its rights and obligations under this Agreement to any person in connection with the transfer or sale of all or a portion of its business or the merger or consolidation of Mentor with or into any other company, so long as such transferee, purchaser or surviving company shall assume such obligations of Mentor. For purposes of this sub-section, "affiliates" shall mean any corporation, other juridical entity, partnership or other business enterprise which qualifies under any one of the following: (x) fifty-one percent (51%) or more of the voting rights with respect to the election of directors or other governing body or members is owned or controlled, directly or indirectly, by Mentor; (y) fifty-one percent (51%) or more of the voting rights with respect to the election of directors or other governing body or members is owned or controlled, directly or indirectly, by any corporation, other juridical entity, partnership or other business qualifying under item (x); or (z) an exclusive distributor retained under contract. 9 (l) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument, binding on all parties hereto. This Agreement may be executed manually or by facsimile signature in two or more counterparts, each of which shall be deemed an original, and all of which together shall constitute but one and the same instrument. (m) Notices. Unless otherwise specifically provided in this Agreement, all notices or other communications (collectively and severally called "Notices") required or permitted to be given under 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), or (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). Notices shall be addressed to the address set forth in the introductory section 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 party. (n) 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. WHEREFORE, the parties hereto have, for purposes of this Agreement, executed this Agreement in the City of Los Angeles, County of Los Angeles, State of California, as of the date first written above. STAAR Surgical Company By: /s/ John R. Wolf ______________________________________ John Wolf, its President Mentor Corporation By: /s/ Anthony R. Gette ______________________________________ Anthony R. Gette, its President 10 EX-10.45 14 AGREEMENT EFFECTIVE JANUARY 5, 1998 No. 1075 of the register of documents of 1997 Exhibit 10.45 Negotiated in Pinneberg on 25 November 1997 Before me, the officiating notary Axel Mallick officially based in Pinneberg. the following appeared today of known identity: 1. [*], businessman [*] 2. Dr Volker Dietrich Anhausser, lawyer business address: KriegsstraBe 85, 76133 Karlsruhe on the basis of an authorisation to be submitted action for: a) Staar Surgical AG HauptstraBe 104, CH-2560 Nidau b) himself regarding the following (S) 13 The persons appearing acting as specified requested the officiating notary to authenticate the following Agreement regarding the purchase of shares and declared: [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -2- Preamble [*] is the sole owner and proprietor of all business shares of [*] with a nominal capital totalling DM 1,000,000.00 registered in the commercial register of the Local Court in Hamburg (HRB 38182). The initial capital contributions for the shares have been paid in in full. Staar Surgical AG is a joint stock company in accordance with Swiss law. The joint stock company is represented by Vladimir Feingold (president of the board of directors) and John Wolf (vice-president of the board of directors). (S)1 Object of purchase, transfer (1) The Seller sells the Buyer the business shares at the par value of DM 20,000.00 DM 30,000.00 DM 17,000.00 DM 233,000.00 and DM 300,000.00 with all the appertaining rights to future profits and other ancillary rights which arise from 05 January 1998 onwards. The aforementioned business shares are united in a separate deed to form a business share of DM 600,000.00. (2) The economic transition deadline for the business shares described in paragraph 1 and for the combined business share is 05 January 1998. (3) In his capacity as sole shareholder and managing director, the Seller, [*], grants his consent as is required in (S)11 para. 1 of the Articles, in the version of the Articles changed today before the officiating notary in register of documents no. 1077/1977. (S)2 Purchase price (1) The purchase price is DM 7,800,000.00 (in words: seven million eight hundred thousand Deutschmarks). The purchase price was determined on the basis of the company valuation executed by the accountant Dipl.-Kauffrau Hortense Thielsen, Hamburg, of 29/07/97 which is an integral part of the agreement of purchase of the Company and is enclosed with this agreement as [*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -3- Appendix 1. The valuation was also based on the Company's audited annual accounts for 1994, 1995, 1996 and the non-audited interim balance sheet for the period January 1997 to 31 October 1997. The estimated further development of sales and profits for the period 1997 to the year 2000, predicted by the Seller was of decisive importance for determining the purchase price. (2) The purchase price is to be paid as follows: The payment of the purchase price is to be arranged on 05 January 1998, with the proviso that the proprietorship of the purchase price objects has been proven by then. The payment is to be transferred to an account which is still to be named, kept by the attesting notary in his own name for the Buyer on a trust basis. The notary drew the parties' attention to the standard deadlines in international payment transactions. The notary is instructed only to dispose of the purchase price in favour of the buyer once one of the parties of this agreement has proven that the buyer has become proprietor of the purchase object mentioned in January 1 or when both parties declare this unanimously. (3) The Seller has made distributions in advance on the company profits expected for 1997. If and in so far as these advance distributions should exceed the yields from the annual statement of accounts of 31/12/1997 applicable for the distribution of profits, any excess distributions are to be reimbursed without delay. (4) Additional uncovered expenses for taxes and contributions due to entering on the liabilities side in the annual statement of accounts of 31/12/1997 are to be reimbursed to the Buyer by the Seller. This also applies if this first results following external audits at a later date. (S) 3 Guarantees from the Seller The Seller guarantees the Buyer as follows: (1) The share capital has been paid in full. No repayments from the assets necessary to maintain the share capital have been made. The shares are not encumbered with third party's rights. (2) The annual statements of accounts on which the valuation of the Company is based have been drawn up according to the principles of proper accounting and the continuity of balance sheet preservation. They reflect the actual state of the Company with regard to their assets, income and financial situation. Any write- offs, devaluations, valuation adjustments and operating reserves, -4- especially for taxes, were made in the sufficient amount. (3) The Seller has not concluded any agreements between him and the Company apart from the contract of employment as Managing Director, including any which affect the partnership beyond 31/12/97. There are also no agreements with the shareholder ECC GmbH who has withdrawn and the shareholders who are legally and financially behind ECC. Agreements regarding cooperations, joint ventures etc were also not concluded. (4) There are no letters of support in favour of third parties. (5) The purchase of the initial contributions by the Buyer is not classified as taking over the property of another person as defined by (S) 419 German Civil Code. The Seller assures that he additionally owns other actual net assets which are worth at least 20% of the purchase price agreed. (6) There are no preemptive rights, option rights or other purchase rights governing the object of purchase. (7) The fixed assets which were taken into consideration in the company valuation and are included in the list of the development of the fixed assets of 01/01/1996 and are handed over as Appendix 2 are in the unrestricted possession of the Company and are also available for the unlimited use of the Company with the exception of disposals caused by operational use. (8) All objects to be found in the Company are capable of being used without any limitations. (9) Existing delivery and performance commitments can be met. (10) The brands and trademarks listed in Appendix 3 are due only to the Company without any restrictions. They are not encumbered with any rights of third parties. In particular no third parties hold usufructs for these trademarks and brands. No licences have been awarded to third parties. -5- All brands and trademarks are valid. These rights have not been challenged by third parties. As far as the Seller is aware, no industrial property rights of third parties have been violated by the use of the brands and trademarks. Measures required to maintain the property rights have without exception been initiated in good time and sufficient provisions have been made to guarantee that the property rights are upheld. Finally, all fees which are due have also been paid in full. (11) No other distribution agreements have been made with manufacturers apart from those listed in Appendix 4 of this agreement. The texts of the agreements have been enclosed in full. There are no supplementary stipulations, side letters etc. In so far as no written agreements were made the agreements have been fully and correctly transcribed. The agreements and oral agreements do not affect the interests of STAAR SURGICAL. The Seller further assures that there are no sales representatives or - from the Company's viewpoint - similar persons who are entitled to represent the Company in connection with the sales and distribution of their products or otherwise result in financial commitments or temporal obligations for the Company. (12) The fixed assets and inventions are free of rights of third parties. In particular they have neither been attached nor has their ownership been transferred by way of security. (13) The Seller commits himself in good time before his withdrawal to train a successor for the management of the Company and to pass on to him/her all contacts with people, companies and institutions which are of importance for the management, in particular for sales and distribution, so that these can be implemented in the Company without any problem. (14) The orders on hand can be processed smoothly without exception. The individual orders are reasonably priced in accordance with the business procedures of the Company exercised to date. The orders are processed in accordance with the agreement. There are no deals pending which are connected with particular risks. The Seller is not aware of any other circumstances which could conceal the risk of permanently negatively affecting the intrinsic value or the earning power of the Company. -6- (15) The list of customers which is submitted as Appendix 5 is complete. The gross margins stated in it are correct. (16) There are no restrictions from authorities, judicial or neighbourly measures on the business currently practised. By conducting this business, as far as the Seller knows, no regulations of industrial law, criminal law or any other public legal matters are being violated. (17) The list of the company's liabilities which is submitted as Appendix 6 is complete and correct. The Company has fulfilled all its financial obligations punctually. (18) The Company does not receive any investment subsidies or other subsidies. (19) The Company is neither involved in a law suit or execution proceedings, nor is there any risk of a law suit or execution proceedings being lodged. An exception in this case is the legal action with the customer Morawetz GmbH against which claims to the amount of approx. DM 18,000.00 have been lodged. Bankruptcy proceedings have been petitioned for this customer's assets. (20) All known fiscal commitments have been fully met. (21) The list of stock in hand "Inventory October 1997 of 03/11/97" which has been submitted by the Seller and enclosed as Appendix 7 contains the complete inventory. The values specified are the net purchase prices. The objects are at the free disposal of and unencumbered property of the Company. The purchase prices have been paid. All inventories are fully functional and vendible. Therefore no value adjustment was necessary. -7- (22) There are no legal disputes between the (previous) shareholders and the Company. (23) The accounts receivables list which is submitted as Appendix 8 is complete and correct. The claims are all good with the exception of the above mentioned claim against Morawetz GmbH. The Seller guarantees that he is not aware of any conditions, and there are also no signs of any which could make the ability of the claims listed to be collected questionable. (24) The Company has sufficient own financial funds to maintain the business operation as it has in the past and make the targeted profits. (25) No bad debt losses due to short term expiry of the limitation of action have to be dealt with. (26) There are only loan commitments to Bankhaus Wolbern & Co., Hamburg. A credit limit of DM 1.5 million has been granted which has been taken advantage of to the amount of DM 1,242,467.86 as of 14/11/97. The details of the loan commitment are outlined in the bank's letter of 23 July 97 which is submitted as Appendix 9. The credit balances are listed in the "Daily bank statement" lists, Appendix 10. (27) None of the existing sales agreements are in conflict with the interests of the Buyer. -8- (S)4 Employment (1) In Appendix 11 all employees are listed with which written or oral contracts of employment have been made. Without any exceptions, identical contracts of employment have been concluded with the employees. Solely the wage agreements are different. With the sales representatives the employment form was concluded in each case which is submitted as Appendix 12. With the other employees, a contract of employment was concluded subject to the proviso of the contract text enclosed as Appendix 13. The sample contracts of employment duly reflect the full agreements. (2) The list Appendix 11 referred to above specifies in full the total gross emoluments including bonuses, commissions and shares in profits. After the agreement has been concluded the contracts of employment are only concluded, changed or terminated with the prior approval of the Buyer. (3) Within the past 12 months no pay or wage increases have been made or assured by the Seller which have not been recorded in the payroll - Appendix 11. The increases which were expressed or assured therefore have no influence on the total payroll. Neither were agreements made to the effect that employees are entitled to old age or survivors' pensions. Assurances with regard to this were also not made. There are no financial commitments made on the basis of Company practice. Employees who have left the company and their dependants have not been made any undertakings that they should receive pensions or other payments. The exception here is the Seller. As managing director he has been made a pension undertaking to receive a gross pension of DM 8,000.00 monthly. This undertaking does not however represent any financial burden for the Company with the exception of the contributions for the direct insurance as well as the employer's pension liability insurance. The financial commitments in the insured event are covered by an adequate employer's pension liability insurance. -9- (4) Binding collective wage agreements, works agreements and commitments on the basis of Company practice to a degree of financial importance do not exist apart from Christmas and holiday pay. (5) The Seller will prevent, that after the agreement has been concluded new contracts for the Company will be concluded with today's shareholders or their near relatives without the Buyer issuing its prior approval. (S) 5 Managing director contract of employment of the Seller (1) The current contract of employment of the Seller is continued basically at the same financial conditions, however is considerably changed in the layout as is evident from Appendix 14. The Seller receives an annual gross salary of DM 450,000.00 plus a share in profits of 5% of the annual net profit. The Buyer's decision to buy is considerably based on the future trustworthy cooperation with the Seller. Additionally, that the succession of the Company is secured. On the basis of the latter, the Seller has agreed in (S) 3 Item 13 to train a successor in good time before he withdraws. To cover the financial risk of the Company in the event of the Seller suddenly withdrawing due to death of the Seller, the Company will take out a term life insurance policy on the life of the Seller [*]. The Company in doing so is granted an irrevocable preemptive right. The sum insured will be DM 5.0 million. The policy will run for 10 years. If the event insured occurs, the sum insured received by the Company is left out of count when determining the amount of compensation for the Seller's business share in the Company. (2) The gross remuneration of the Seller is to be adapted to the modified situations of the Company. The details are regulated by the modified Managing director contract of employment in force from 05/01/1998. (3) The pension agreement is not affected by the paragraphs above. (4) The Seller will repay all financial commitments which he has towards the Company which result from [*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -10- Appendix 15 by 31/12/1997 at the latest. Additionally the Company has extended other loans to third parties the current standing of which can be seen in Appendix 16 The Seller guarantees that these loans will be paid back by 31/12/1997 at the latest. (S) 6 Competition clause (1) The Seller will not enter into competition neither indirectly nor directly with the Buyer, the Company or a company affiliated with these for the duration of 12 years from the day of the conclusion of this agreement. This prohibition to compete is limited to the field of ophthalmology. This means that for the relationship after the contract, a post-contractual prohibition to compete will exist for two years. (2) The Seller understands that the restrictions on competition were a decisive factor for the Buyer when concluding this agreement. (3) The Seller is aware that the Buyer supplies customers in Germany directly. Even after this agreement has been concluded and enforced, the Buyer may supply the customer [*] without any restrictions. For the rest, the Buyer will terminate its other existing customer relations within an appropriate period from the enforcement of the agreement. (4) The Seller will ensure and commits itself, if necessary to agree at a shareholders' meeting that the Company ends the business relations with other suppliers within an appropriate period in accordance with an agreement having been made, in so far as they supply products which could be supplied by the Buyer, its parent company or subsidiaries. (5) The Buyer intends to grant the Company the exclusive sales rights for Germany at a point in time which cannot yet be defined. [*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. -11- (S) 8 Responsibility for taxes, contributions and other charges to be paid (1) Any payment of taxes from the period up to 31/12/1997, if these are not listed in the balance sheet, reduce the purchase price in so far as they are based on expenditure of the Seller or members of his family which are not recognised as business expenses or other hidden profit distributions. (2) The payments for income tax on wages and salaries and social insurance contributions due before the transfer deadline for the employees have been or will be correctly determined, cleared and paid. (3) All tax returns have been given in correctly and punctually. (4) The buyer will inform the Seller without delay of a pending fiscal audit and give the Seller the opportunity to defend itself against this. (S) 9 Legal proceedings The Seller once again expressly assures that there are no pending legal proceedings against the Company and that there are no claimed or threatened legal or contractual claims against the Company with the exception of the claims expressly mentioned in this agreement. (S) 10 Consequences in the event of breach of agreement (1) If the Seller should not meet his obligations taken on with this agreement at all or in full or does not meet them in keeping with the agreement in any other way, the Buyer is entitled to set a reasonable period of grace to give the Seller the opportunity to create the state as conformable to the agreement. The period of grace should be no less than two weeks. It is however dispensable if the state as conformable to the agreement cannot be created or the Seller refuses performance or if this is unreasonable for the Buyer. (2) If the state as conformable to the agreement is not created within the time set or if the period of grace is dispensable, the Buyer can either demand that the financial prejudice sustained be made good or make use of the legally available rights with the exception of rescission. -12- (3) The following applies for the compensation for financial prejudice sustained: To be compensated is the expense of the Buyer, which is required to create the state as conformable to the agreement, or which results from the state as conformable to the agreement not being able to be created at all, in full permanently or only temporarily. The expense proven by the Buyer is to be compensated. Advantages in excess what is required are duly taken into account. For the rest, the Buyer is to be financially reimbursed so that it is in the same position financially as it would be if the undertakings were correct or as it would be if the obligations had been executed as stipulated by the agreement. (S) 11 Costs of the agreement The notary's office's costs for the authentication of this agreement are to be equally borne by both parties of this agreement. For the rest, each party pays for its own consulting costs separately. (S) 12 Purchase through trustees (1) Both parties are in agreement that the shares will be purchased through Dr Volker D. Anhausser, lawyer in Karisruhe, as trustee for the Buyer. This is because both parties consider it to be wise that it does not become known on the relevant market that the Buyer has shares in the Company. (2) Furthermore both parties are in agreement that, even if the purchase takes place through the trustee, the contractual parties treat each other as if the Buyer were the direct contractual partner. (3) This agreement is also met and enforced with the authentication of the assignment of the shares to the amount of DM 600,000.00 by the Swiss notary Dr Suter on Friday 21 November 1997. (4) Dr Anhausser (lawyer) enters into this agreement as party in so far as he commits himself to purchase the business shares for the Buyer as a trustee. - 13 - (S) 13 Assignment of the shares (1) The Seller herewith declares the assignment of the shares listed in J 1 para. 1 which following the agreement made with ECC GmbH still have to be formally assigned to him. (2) Dr. Volker D. Anhausser, lawyer, accepts the assignment in his own name, however as trustee of the Buyer, STAAR SURGICAL AG, Nidau, Switzerland. (3) The agreement is subject to the condition precedent that the Seller purchases from the current copartner ECC GmbH the shares described in detail in J 1 of this document by 10 December 1997. The assignment becomes effective with the assignment of the shares to the Buyer. (S) 14 Choice of law and jurisdiction (1) This agreement including all appendices, additional agreements and ancillary agreements is subject to German law. The parties are in agreement that the uniform UN law on the sale of goods should not apply. (2) A court of arbitration decides about all legal disputes from this agreement and from all existing and future additional agreements and ancillary agreements ousting the jurisdiction of normal courts subject to the proviso of the arbitration agreement concluded in a separate deed. (S) 15 Limitation of actions The parties agree a uniform limitation period of 4 years for all claims resulting from this contractual relationship. (S) 16 Option to buy For each sale, the parties agree a right of first refusal. In this instance, it is of no consequence whether the shares in the Company are being sold in part or in full. The purchase price at which the shares are to be offered is to be determined with binding force for both parties by the Chamber of Auditors based in Dusseldorf. -14- (2) The Seller's obligation to offer the shares for sale also exists if the parties unanimously establish that a further cooperation is no longer possible. In this case, a purchase price should if possible be determined by mutual agreement. Each contractual party can force the other to sell at a price which corresponds to 120% of the determined value of the shares. (3) If a third party with the approval of the board of directors of the Buyer's parent company should purchase shares in the parent company, which constitute a controlling interest, the Seller has the right to sell his shares in the Company, if in this case, he no longer wishes to continue the cooperation. This is to be assumed if either the majority of the shares issued which are freely traded on the market, *verb is missing* or in the case the assets are purchased or through a merger. The same applies if a share majority is acquired with which a decisive change in the executive management of the parent company (Staar Surgical Company) is enforced. The Buyer itself or a third party to be named by it, in this case has the obligation to buy the shares at the determined value of the shares. If the third party is not a buyer which was approved by the board of directors of the parent company, the Buyer or a third party to be named by it, must buy the shares at a price which constitutes 150% of the determined value if the Seller wishes to terminate cooperation (with the Company) in this case. (S) 17 Written form Changes and supplements to this agreement require the written form and if legally required an additional notary's authentication. This also applies to a change of this written form clause. The written form clause should not be contracted out of the agreement formlessly, especially not orally. (S) 18 Escape clause (1) If clauses of this agreement or a clause included in it in future are fully or partially legally invalid or not executable or later lose their validity or practicability, the validity of the other clauses is not affected. The same applies if it should be shown that the agreement has a gap in the regulations. - 15 - (2) In place of the invalid or impracticable clause or to fill the gap an appropriate regulation should apply which in so far as legally possible is as nearest to what the parties desired or would have wanted defined by and for the purpose of the agreement in so far as they had considered the matter on concluding the agreement or when later including a point. (3) The same also applies if the invalidity of a clause is based on a measure of performance or time (deadline) specified in the agreement; in this case the legally permissible measure of performance or time (deadline) as near to the one desired should apply. (4) The parties are obliged to lay down whatever is valid according to paragraphs 1-3 through a formal modification or supplement to the text of the agreement in proper form. Parts of the agreement This agreement was concluded with reference to the following appendices: Appendix 1: Company valuation of accountant Hortense Thielsen Appendix 2: List of the development of the fixed assets as of 01/01/1996 Appendix 3: Copies of brand and trademark registrations Appendix 4: Sales agreements with manufacturers Appendix 5: List of customers Appendix 6: List of liabilities Appendix 7: List of stock in hand "Inventory October 1997 of 03/11/97" Appendix 8: List of accounts receivables Appendix 9: Letter from Bankhaus Wolbern of 23/07/97 Appendix 10: List of "Daily bank statements" Appendix 11: List of employees with wage/salary specifications Appendix 12: Sample contract of employment sales representatives Appendix 13: Sample contract of employment in-house staff Appendix 14: Modification to the Managing director contract of employment Appendix 15: List of liabilities of the Seller owed to the Company as well as loans to third parties - 16 - The following negotiation was read out to those appearing, approved by them and signed by their own hand as follows: signed [*] signed Volker D. Anhausser L.S. signed Mallick, notary [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. EX-10.46 15 REVOLVING LINE OF CREDIT NOTE, DATED JUNE 1, 1998 Exhibit 10.46 [LOGO WELLS FARGO BANK] San Gabriel Valley Regional Commercial Banking Office 1000 Lakes Drive, Suite 250 West Covina, CA 91790 June 1, 1998 Staar Surgical Company 1911 Walker Avenue Monrovia, CA 91016 Gentlemen: This letter is to confirm that Wells Fargo Bank, National Association ("Bank"), subject to all terms and conditions contained herein, has agreed to make available to Staar Surgical Company ("Borrower") the following described credit accommodations (each, a "Credit" and collectively, the "Credits"): 1. A revolving line of credit under which Bank will make advances to Borrower from time to time up to and including June 1, 2001, not to exceed at any time the maximum principal amount of Ten Million Dollars ($10,000,000.00) ("Line of Credit"), the proceeds of which shall be used to finance Borrower's working capital requirements. 2. A term loan in the original principal amount of Five Million Dollars ($5,000,000.00) ("Term Loan"), on which the outstanding principal balance as of the date hereof is $4,125,160.09. Subject to the terms and conditions of this letter, Bank hereby confirms that the Term Loan remains in full force and effect. 3. A facility under which Bank will enter into foreign exchange contracts for the account of Borrower from time to time up to and including June 1, 2001, not to exceed at any time the maximum principal amount of One Million United States Dollars (US$1,000,000.00) ("Foreign Exchange Facility"). I. CREDIT TERMS: 1. LINE OF CREDIT: (a) Line of Credit Note. Borrower's obligation to repay advances under the ------------------- Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which --------- are incorporated herein by this reference. Staar Surgical Company June 1, 1998 Page (b) Letter of Credit Subfeature. As a subfeature under the Line of Credit, --------------------------- Bank agrees from time to time during the term thereof to issue standby letters of credit for the account of Borrower to support performance requirement (each, a "Letter of Credit" and collectively, "Letters of Credit"); provided however, that the form and substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion; and provided further, that the aggregate undrawn amount of all outstanding Letters of Credit shall not at any time exceed Five Million Dollars ($5,000,000.00). Each Letter of Credit shall be issued for a term not to exceed 365 days, as designated by Borrower; provided however, that no Letter of Credit shall have an expiration date subsequent to the maturity date of the Line of Credit. The undrawn amount of all Letters of Credit shall be reserved under the Line of Credit and shall not be available for borrowings thereunder. Each Letter of Credit shall be subject to the additional terms and conditions of the Letter of Credit Agreement and related documents, if any, required by Bank in connection with the issuance thereof. Each draft paid by Bank under a Letter of Credit shall be deemed an advance under the Line of Credit and shall be repaid by Borrower in accordance with the terms and conditions of this letter applicable to such advances; provided however, that if advances under the Line of Credit are not available, for any reason, at the time any draft is paid by Bank, then Borrower shall immediately pay to Bank the full amount of such draft, together with interest thereon from the date such amount is paid by Bank to the date such amount is fully repaid by Borrower, at the rate of interest applicable to advances under the Line of Credit. In such event Borrower agrees that Bank, in its sole discretion, may debit any demand deposit account maintained by Borrower with Bank for the amount of any such draft. (c) Borrowing and Repayment. Borrower may from time to time during the term ----------------------- of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. 2. TERM LOAN: (a) Term Note. Bank has made a loan to Borrower in the original principal --------- amount of Five Million Dollars ($5,000,000.00), on which the outstanding principal balance as of the date hereof is $4,125,160.09. Borrower's obligation to repay the Term Loan is evidenced by a promissory note substantially in Staar Surgical Company June 1, 1998 Page the form of Exhibit B attached hereto ("Term Note"), all terms of which are --------- incorporated herein by this reference. Any reference in the Term Note to any prior loan agreement between Bank and Borrower shall be deemed a reference to this letter. (b) Repayment. The principal amount of the Term Loan shall be repaid in --------- accordance with the provisions of the Term Note. (c) Prepayment. Borrower may prepay principal on the Term Loan solely in ---------- accordance with the provisions of the Term Note. 3. FOREIGN EXCHANGE FACILITY: (a) Foreion Exchange Facility. Bank will enter into foreign exchange ------------------------- contracts for the account of Borrower under the Foreign Exchange Facility for the purchase and/or sale by Borrower in United States dollars of Five Million; provided however, that the aggregate of all outstanding foreign exchange contracts shall not at any time exceed the maximum principal amount available under the Foreign Exchange Facility, as set forth above. No foreign exchange contract shall be executed for a term in excess of two (2) months or for a term which extends beyond the maturity date of the Line of Credit. Borrower shall have a "Delivery Limit" under the Foreign Exchange Facility not to exceed at any time the aggregate principal amount of One Million United States Dollars (US$1,000,000.00), which Delivery Limit reflects the maximum principal amount of Borrower's foreign exchange contracts which may mature during any sixty (60) day period. All foreign exchange transactions shall be subject to the additional terms of a Foreign Exchange Agreement, substantially in the form of Exhibit C attached hereto ("Foreign Exchange Agreement"), all terms of which are incorporated herein by this reference. (b) Settlement. Each foreign exchange contract under the Foreign Exchange ---------- Facility shall be settled on its maturity date by Bank's debit to any demand deposit account maintained by Borrower with Bank. II. INTEREST/FEES: 1. Interest. The outstanding principal balance of the Line of Credit and -------- Term Loan shall bear interest at the rate of interest set forth in the Line of Credit Note and the Term Note. 2. Computation and Payment. Interest shall be computed on the basis of a ----------------------- 360-day year, actual days elapsed. Interest shall Staar Surgical Company June 1, 1998 Page be payable at the times and place set forth in the Line of Credit Note and the Term Note. 3. Unused Commitment Fee. Borrower shall pay to Bank an unused commitment --------------------- fee equal to a percentage per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which percentage shall be determined on the basis of the following grid which sets a different percentage depending upon the "Applicable Libor Margin" in effect under the Line of Credit Note during the calculation period. This unused commitment fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears within thirty (30) days after each billing is sent by Bank. Applicable Libor Margin Unused Fee Percentage 1.750% .25% 1.500% .20% 1.375% .15% 1.250% .15% 4. Letter of Credit Fees. Borrower shall pay to Bank (a) fees upon the --------------------- issuance of each Letter of Credit equal to one percent (1.00%) per annum (computed on the basis of a 360-day year, actual days elapsed) of the face amount thereof; and (b) fees upon the payment or negotiation by Bank of each draft under any Letter of Credit and fees upon the occurrence of any other activity with respect to any Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank's standard fees and charges then in effect for such activity. 5. Collection of Payments. Borrower authorizes Bank to collect all ---------------------- principal, interest and fees due under each Credit by charging Borrower's demand deposit account number 4 159-251172 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. Staar Surgical Company June 1, 1998 Page III. REPRESENTATIONS AND WARRANTIES: Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this letter and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this letter. 1. Legal Status. Borrower is a corporation, duly organized and existing and ------------ in good standing under the laws of the state of Delaware, and is qualified or licensed to do business in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. 2. Authorization and Validity. This letter, the Line of Credit Note and -------------------------- Term Note, and each other document, contract or instrument deemed necessary by Bank to evidence any extension of credit to Borrower pursuant to the terms and conditions hereof, or now or at any time hereafter required by or delivered to Bank in connection with this letter (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. 3. No Violation. The execution, delivery and performance by Borrower of ------------ each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in a breach of or constitute a default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. 4. Litigation. There are no pending, or to the best of Borrower's knowledge ---------- threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. 5. Correctness of Financial Statement. The financial statement of Borrower ---------------------------------- dated April 3, 1998, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower Staar Surgical Company June 1, 1998 Page that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the condition or operation of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. 6. Income Tax Returns. Borrower has no knowledge of any pending assessments ------------------ or adjustments of its income tax payable with respect to any year. 7. No Subordination. There is no agreement, indenture, contract or ---------------- instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this letter to any other obligation of Borrower. 8. Permits, Franchises. Borrower possesses, and will hereafter possess, all ------------------- permits, consents, approvals, franchises and licenses required and all rights to trademarks, trade names, patents and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law. 9. ERISA. Borrower is in compliance in all material respects with all ----- applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event, as defined in ERISA, has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. 10. Other Obligations. Borrower is not in default on any obligation for ----------------- borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. Staar Surgical Company June 1, 1998 Page 11. Environmental Matters. Except as disclosed by Borrower to Bank in --------------------- writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. IV. CONDITIONS: 1. Conditions of Initial Extension of Credit. The obligation of Bank to ----------------------------------------- grant any of the Credits is subject to fulfillment to Bank's satisfaction of all of the following conditions: (a) Documentation. Bank shall have received each of the Loan Documents, ------------- duly executed and in form and substance satisfactory to Bank. (b) Financial Condition. There shall have been no material adverse change, ------------------- as determined by Bank, in the financial condition or business of Borrower, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower. (c) Insurance. Borrower shall have delivered to Bank evidence of insurance --------- coverage on all Borrower's property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank, including without limitation, policies of fire and extended coverage insurance covering all real property collateral required hereby, with replacement cost and mortgagee loss payable endorsements, and such policies of insurance against specific hazards affecting any such real property as may be required by governmental regulation or Bank. Staar Surgical Company June 1, 1998 Page 2. Conditions of Each Extension of Credit. The obligation of Bank to make -------------------------------------- each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) Compliance. The representations and warranties contained herein ---------- and in each of the other Loan Documents shall be true on and as of the date of the signing of this letter and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no default hereunder, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such a default, shall have occurred and be continuing or shall exist. (b) Documentation. Bank shall have received all additional documents which ------------- may be required in connection with such extension of credit. V. COVENANTS: Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: 1. Punctual Payment. Punctually pay all principal, interest, fees or other ---------------- liabilities due under any of the Loan Documents at the times and place and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance of any of the Credits at any time exceeds any limitation on borrowings applicable thereto]. 2. Accounting Records. Maintain adequate books and records in accordance ------------------ with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same and inspect the properties of Borrower. Staar Surgical Company June 1, 1998 Page 3. Financial Statements. Provide to Bank all of the following, in form and -------------------- detail satisfactory to Bank: (a) not later than 120 days after and as of the end of each fiscal year, an audited financial statement of Borrower, prepared by a certified public accountant acceptable to Bank, to include balance sheet, income statement, statement of cash flow and all footnotes; (b) not later than 60 days after and as of the end of each fiscal quarter, a consolidating financial statement of Borrower, prepared by Borrower, to include balance sheet and income statement; (c) from time to time such other information as Bank may reasonably request. 4. Compliance. Preserve and maintain all licenses, permits, governmental ---------- approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of a governmental agency applicable to Borrower and/or its business. 5. Insurance. Maintain and keep in force insurance of the types and in --------- amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. 6. Facilities. Keep all properties useful or necessary to Borrower's ---------- business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. 7. Taxes and Other Liabilities. Pay and discharge when due any and all --------------------------- indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except (a) such as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank's satisfaction, for Staar Surgical Company June 1, 1998 Page eventual payment thereof in the event Borrower is obligated to make such payment. 8. Litigation. Promptly give notice in writing to Bank of any litigation ---------- pending or threatened against Borrower with a claim in excess of $250,000.00. 9. Financial Condition. Maintain Borrower's financial condition as follows ------------------- using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein): (a) Tangible Net Worth not at any time less than $30,000,000.00, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (b) Total Liabilities divided by Tangible Net Worth not at any time greater than 0,80 to 1.0, with "Total Liabilities" defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (c) Quick Ratio not at any time less than 0.90 to 1.0, with "Quick Ratio" defined as the aggregate of unrestricted cash, unrestricted marketable securities and receivables convertible into cash divided by total current liabilities. (d) Net income after taxes not less than $1.00 on an annual basis, determined as of each fiscal year end, and pre-tax profit not less than $1.00 on a quarterly basis, determined as of each fiscal quarter end. (e) Funded Debt/EBITDA Coverage Ratio not greater than 2.0 to 1.0, on a rolling four-fiscal quarter basis, determined as of each fiscal quarter end, commencing with the fiscal quarter ending June 30, 1998; with "Funded Debt" defined as all interest bearing obligations, including but not limited to all interest bearing obligations owing to Bank and all interest bearing obligations owing to shareholders, plus capital leases; with "EBITDA" defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense; and with "Funded Debt/EBITDA Coverage Ratio" defined as Funded Debt divided by EBITDA. Staar Surgical Company June 1, 1998 Page 10. Capital Expenditures. Not make any additional investment in fixed -------------------- assets in any fiscal year in excess of an aggregate of $5,000,000.00. 11. Lease Expenditures. Not incur operating lease expense in any fiscal ------------------ year in excess of an aggregate of $3,000,000.00. 12. Other Indebtedness. Not create, incur, assume or permit to exist any ------------------ indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof and (c) purchase money contracts not to exceed in aggregate of $3,000,000.00. 13. Merger, Consolidation, Transfer of Assets. Not merge into or ----------------------------------------- consolidate with any other entity; nor make any substantial change in the nature of Borrower's business as conducted as of the date hereof; nor acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. 14. Guaranties. Not guarantee or become liable in any way as surety, ---------- endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank. 15. Loans, Advances, Investments. Not make any loans or advances to or ---------------------------- investments in any person or entity, except any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof, and additional investments in amounts not to exceed an aggregate of $5,000,000.00 in any fiscal year. 16. Pledge of Assets. Not mortgage, pledge, grant or permit to exist a ---------------- security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, Staar Surgical Company June 1, 1998 Page except any of the foregoing in favor of Bank or which are existing as of, and disclosed to Bank in writing prior to, the date hereof. 17. Year 2000 Compliance. Perform all acts reasonably necessary to ensure -------------------- that (a) Borrower and any business in which Borrower holds a substantial interest, and (b) all customers, suppliers and vendors that are material to Borrower's business, become Year 2000 Compliant in a timely manner. Such acts shall include, without limitation, performing a comprehensive review and assessment of all of Borrower's systems and adopting a detailed plan, with itemized budget, for the remediation, monitoring and testing of such systems. As used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that all software, hardware, firmware, equipment, goods or systems utilized by or material to the business operations or financial condition of such entity, will properly perform date sensitive functions before, during and after the year 2000. Borrower shall, immediately upon request, provide to Bank such certifications or other evidence of Borrower's compliance with the terms hereof as Bank may from time to time require. VI. DEFAULT, REMEDIES: 1. Default, Remedies. Upon the violation of any term or condition of any of ----------------- the Loan Documents, or upon the occurrence of any default or defined event of default under any of the Loan Documents: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any of the Credits and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of any such breach or default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. 2. No Waiver. No delay, failure or discontinuance of Bank in exercising any --------- right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, Staar Surgical Company June 1, 1998 Page power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. VII. MISCELLANEOUS: 1. Notices. All notices, requests and demands which any party is required ------- or may desire to give to any other party under any provision of this letter must be in writing delivered to each party at its address first set forth above, or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. 2. Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank ----------------------------------- 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 Bank's in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this letter and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, 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. 3. Successors, Assignment. This letter shall be binding upon and inure to ---------------------- the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written Staar Surgical Company June 1, 1998 Page consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith Bank may disclose all documents and information which Bank now has or hereafter may acquire relating to any of the Credits, Borrower or its business, [any guarantor hereunder or the business of such guarantor,] or any collateral required hereunder. 4. Entire Agreement; Amendment. This letter and the other Loan Documents --------------------------- constitute the entire agreement between Borrower and Bank with respect to the Credits and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This letter may be amended or modified only in writing signed by each party hereto. 5. No Third Party Beneficiaries. This letter is made and entered into for ---------------------------- the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this letter or any other of the Loan Documents to which it is not a party. 6. Severability of Provisions. If any provision of this letter shall be -------------------------- prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this letter. 7. Governing Law. This letter shall be governed by and construed in ------------- accordance with the laws of the state of California. 8. Arbitration. ----------- (a) Arbitration. Upon the demand of any party, any Dispute shall be ----------- resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this letter. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Loan Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Loan Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Loan Documents. Any party may by summary proceedings bring an action in court to compel Staar Surgical Company June 1, 1998 Page arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) Governing Rules. Arbitration proceedings shall be administered by the --------------- American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Loan Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. SS91 or any similar applicable state law. (c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No ---------------------------------------------------------- provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. (d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be -------------------------------------------- active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive law applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make Staar Surgical Company June 1, 1998 Page effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. (e) Judicial Review. Notwithstanding anything herein to the contrary, in --------------- any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of California, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of California. (f) Real Property Collateral; Judicial Reference. Notwithstanding anything -------------------------------------------- herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such Staar Surgical Company June 1, 1998 Page indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (g) Miscellaneous. To the maximum extent practicable, the AAA, the ------------- arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. Staar Surgical Company June 1, 1998 Page Your acknowledgment of this letter shall constitute acceptance of the foregoing terms and conditions. Bank's commitment to extend any credit to Borrower pursuant to the terms of this letter shall terminate on June 30, 1998, unless this letter is acknowledged by Borrower and returned to Bank on or before that date. Sincerely, WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Nancy Martorano ---------------------------- Nancy Martorano Vice President Acknowledged and accepted as of : ------------- STAAR SURGICAL COMPANY By: ------------------------- William C. Huddleston Chief Financial Officer [LOGO OF WELLS FARGO BANK] San Gabriel RCBO 1000 Lakes Drive, Suite 250 West Covina, CA 91790 June 1, 1998 Staar Surgical Company 1911 Walker Avenue Monrovia, CA 91016 Gentlemen: It is anticipated that from time to time your company (the "Customer") and Wells Fargo Bank, National Association ("Bank"), at the request of Customer, may enter into foreign exchange contracts for either spot or future delivery of foreign currencies and/or for options to purchase or sell (i.e., trade) foreign currencies. This letter sets forth the terms and conditions governing such transactions as follows: 1. Confirmations. Bank will send Customer a confirmation of each ------------- transaction duly requested by Customer and agreed to by Bank. Upon Customer's receipt of each such confirmation, Customer shall promptly sign and return a copy of such confirmation to Bank; provided however, that Customer's failure either to sign or to return any confirmation shall not release Customer from any of its obligations or liabilities hereunder or with respect to the foreign exchange transaction described therein. 2. Performance. Should Customer fail fully to perform its obligations under ----------- any foreign exchange contract entered into by Bank with or for the benefit of Customer as set forth herein on the due date thereof, or to perform any of Customer's obligations hereunder, or should Customer breach any representation or warranty made by Customer to Bank herein, without limiting Bank's rights and remedies under applicable law: (a) Bank may, in its sole discretion, cancel any foreign exchange contracts then existing for the benefit of Customer; (b) Customer shall indemnify Bank for, and defend and hold Bank harmless from and against, any and all damages, costs, expenses and losses that may arise from any such failure or breach, and/or from the exercise of Bank's rights as aforesaid, including without limitation, all losses resulting from the liquidation of Bank's positions in the relevant currencies, and all reasonable legal fees (to include outside counsel fees and all allocated costs of Bank's in-house Staar Surgical Company June 1, 1998 Page counsel) incurred by Bank in pursuance of its rights hereunder; and (c) Bank may set off and apply against Customer's liability to Bank any deposits or any other liability to Customer, irrespective of the due date or nature thereof, notwithstanding that such set off may give rise to penalties for early withdrawal of funds. 3. Cancellation. Bank shall evaluate any request for a trade hereunder ------------ individually, and may, in its sole discretion, refuse to enter into or perform any proposed foreign exchange contract, without prejudice to entering into or performing any other foreign exchange contract with or for the benefit of Customer. In the event that (a) Customer shall request that Bank cancel or extend the term of a foreign exchange contract, and (b) Bank, in its sole discretion, shall agree to such request, Customer shall forthwith reimburse Bank for any and all damages, costs, expenses and tosses that may arise as a result thereof, including without limitation, all losses resulting from the liquidation of Bank's position in the relevant currency. 4. Warranties. Each request by Customer that Bank enter into a foreign ---------- exchange contract with or for the benefit of Customer shall be deemed a representation and warranty by Customer that such transaction is in conformity with all applicable laws and regulations. Bank is not an investment advisor, and Bank expressly disclaims all investment advice with respect to any transaction ordered by Customer pursuant hereto. Customer agrees to take the sole risk of any and all market fluctuations in any currency traded pursuant to the terms hereof. 5. Liability. Bank shall not be liable for any losses or damages in --------- consequence of any present or future laws, regulations or other directives of any government or of any other event or circumstances beyond Bank's control, or due to any other actions performed by Bank pursuant to the terms hereof, all such risks being expressly assumed by Customer, except for the gross negligence or willful misconduct of Bank. In no event shall Bank be responsible or liable for any consequential damages resulting from its actions pursuant to this agreement. The provisions of this paragraph 5 shall survive any termination hereof. 6. Term. The agreements set forth in this letter may be terminated in ---- writing by either party, at which point the obligations of the parties hereto shall end, except for closing out existing foreign exchange contracts and except as otherwise set forth herein. Staar Surgical Company June 1, 1999 Page 3 7. Successors and Assigns. This letter shall be binding upon and inure to ---------------------- the benefit of the respective heirs, legal representatives, successors and assigns of the parties; provided however, that Customer may not assign or otherwise transfer any of its rights or obligations hereunder or under any foreign exchange contract subject hereto without Bank's prior written consent. 8. Governing Law. This letter and all foreign exchange contracts subject ------------- hereto shall be governed by and construed in accordance with the laws of the State of California. Please indicate your acceptance of the terms and conditions contained herein by signing and dating the enclosed copy of this letter and returning it to Bank at the above address. Very truly yours, WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Nancy Martorano ------------------------- Nancy Martorano Vice President Agreed and accepted as of : ----------------- STAAR SURGICAL COMPANY By: ------------------------------ William C. Huddleston Chief Financial Officer "Exhibit B" TERM COMMITMENT NOTE $5,000,000.00 West Covina, California November 7, 1997 FOR VALUE RECEIVED, the undersigned STAAR SURGICAL COMPANY ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its San Gabriel Valley Regional Commercial Banking Office at 1000 S. Garvey Avenue South, Suite 250, West Covina, California, 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 Five Million Dollars ($5,000,000.00), 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 three (3), six (6), nine (9) or twelve (12) months, as designated by Borrower, during the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, 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%) and determined pursuant to the following formula: LIBOR = Base LIBOR ------------------------------- 100% - 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 one-quarter percent (.25%) below the Prime Rate in effect from time to time, or (ii) at a fixed rate per annum determined by Bank to be one and one and three-quarters percent (1.75%) 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 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 this Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end the Fixed Rate Term applicable thereto so that it bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time this Note bears interest determined in relation to the Prime Rate, Borrower may convert it 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 the 2 outstanding principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower and (ii) 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 three (3) Business Days after such telephone notice is given, and (B) such notice is given to Bank prior to 10:00 am., 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) 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 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 3 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. (c) Payment of Interest. Interest accrued on this Note shall be payable on ------------------- the first day of each month, commencing November 1, 1997. (d) 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 four percent (4%) above the rate of interest from time to time applicable to this Note. 4 BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time to and ----------------------- including March 31, 1998, borrow and partially or wholly repay its outstanding borrowings, 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 amounts repaid may not be reborrowed; and provided further, that the total borrowings under this Note shall not 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. (b) Required Principal Payments. Principal shall be payable on the first --------------------------- day each month in installments of Eighty-Three Thousand, Three Hundred, Thirty- Four Dollars ($83,334.00) each, commencing April 1, 1998, and continuing up to and including February 1, 2003, with a final installment consisting of all remaining unpaid principal due and payable in full on March 1, 2003. (c) Advances. Advances hereunder, to the total amount of the principal sum -------- stated above, may be made by the holder at the oral or written request of 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. (d) 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. 5 PREPAYMENT: (a) Prime Rate. Borrower may prepay principal on 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 this Note when it bears ----- interest determined in relation to LIBOR at any time and in the minimum amount of One Hundred Thousand Dollars ($100,000.00); provided however, that if the outstanding principal balance 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 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 two percent (2.00%) 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. 6 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. (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. 7 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. 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. See Addendum to Promissory Note attached hereto, all terms of which are incorporated herein by this reference. 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 8 [LOGO OF WELLS FARGO] San Gabriel RCBO 1000 Lakes Drive, Suite 250 West Covina, CA 91790 June 1, 1998 Staar Surgical Company 1911 Walker Avenue Monrovia, CA 91016 Gentlemen: It is anticipated that from time to time your company (the "Customer") and Wells Fargo Bank, National Association ("Bank"), at the request of Customer, may enter into foreign exchange contracts for either spot or future delivery of foreign currencies and/or for options to purchase or sell (i.e., trade) foreign currencies. This letter sets forth the terms and conditions governing such transactions as follows: 1. Confirmations. Bank will send Customer a confirmation of each ------------- transaction duly requested by Customer and agreed to by Bank. Upon Customer's receipt of each such confirmation, Customer shall promptly sign and return a copy of such confirmation to Bank; provided however, that Customer's failure either to sign or to return any confirmation shall not release Customer from any of its obligations or liabilities hereunder or with respect to the foreign exchange transaction described therein. 2. Performance. Should Customer fail fully to perform its obligations under ----------- any foreign exchange contract entered into by Bank with or for the benefit of Customer as set forth herein on the due date thereof, or to perform any of Customer's obligations hereunder, or should Customer breach any representation or warranty made by Customer to Bank herein, without limiting Bank's rights and remedies under applicable law: (a) Bank may, in its sole discretion, cancel any foreign exchange contracts then existing for the benefit of Customer; (b) Customer shall indemnify Bank for, and defend and hold Bank harmless from and against, any and all damages, costs, expenses and losses that may arise from any such failure or breach, and/or from the exercise of Bank's rights as aforesaid, including without limitation, all losses resulting from the liquidation of Bank's positions in the relevant currencies, and all reasonable legal fees (to include outside counsel fees and all allocated costs of Bank's in-house Staar Surgical Company June 1, 1998 Page 2 counsel) incurred by Bank in pursuance of its rights hereunder; and (c) Bank may set off and apply against Customer's liability to Bank any deposits or any other liability to Customer, irrespective of the due date or nature thereof, notwithstanding that such set off may give rise to penalties for early withdrawal of funds. 3. Cancellation. Bank shall evaluate any request for a trade hereunder ------------ individually, and may, in its sole discretion, refuse to enter into or perform any proposed foreign exchange contract, without prejudice to entering into or performing any other foreign exchange contract with or for the benefit of Customer. In the event that (a) Customer shall request that Bank cancel or extend the term of a foreign exchange contract, and (b) Bank, in its sole discretion, shall agree to such request, Customer shall forthwith reimburse Bank for any and all damages, costs, expenses and losses that may arise as a result thereof, including without limitation, all losses resulting from the liquidation of Bank's position in the relevant currency. 4. Warranties. Each request by Customer that Bank enter into a foreign ---------- exchange contract with or for the benefit of Customer shall be deemed a representation and warranty by Customer that such transaction is in conformity with all applicable laws and regulations. Bank is not an investment advisor, and Bank expressly disclaims all investment advice with respect to any transaction ordered by Customer pursuant hereto. Customer agrees to take the sole risk of any and all market fluctuations in any currency traded pursuant to the terms hereof. 5. Liability. Bank shall not be liable for any losses or damages in --------- consequence of any present or future laws, regulations or other directives of any government or of any other event or circumstances beyond Bank's control, or due to any other actions performed by Bank pursuant to the terms hereof, all such risks being expressly assumed by Customer, except for the gross negligence or willful misconduct of Bank. In no event shall Bank be responsible or liable for any consequential damages resulting from its actions pursuant to this agreement. The provisions of this paragraph 5 shall survive any termination hereof. 6. Term. The agreements set forth in this letter may be terminated in ---- writing by either party, at which point the obligations of the parties hereto shall end, except for closing out existing foreign exchange contracts and except as otherwise set forth herein. Staar Surgical Company June 1, 1999 Page 3 7. Successors and Assigns. This letter shall be binding upon and inure to ---------------------- the benefit of the respective heirs, legal representatives, successors and assigns of the parties; provided however, that Customer may not assign or otherwise transfer any of its rights or obligations hereunder or under any foreign exchange contract subject hereto without Bank's prior written consent. 8. Governing Law. This letter and all foreign exchange contracts subject ------------- hereto shall be governed by and construed in accordance with the laws of the State of California. Please indicate your acceptance of the terms and conditions contained herein by signing and dating the enclosed copy of this letter and returning it to Bank at the above address. Very truly yours, WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Nancy Martorano -------------------------- Nancy Martorano Vice President Agreed and accepted as of : ----------------- STAAR SURGICAL COMPANY By: ------------------------------ William C. Huddleston Chief Financial Officer ADDENDUM TO PROMISSORY NOTE (LIBOR PRICING ADJUSTMENTS) THIS ADDENDUM is attached to and made a part of that certain promissory note executed by STAAR SURGICAL COMPANY ("Borrower") and payable to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"), or order, dated as of June 1, 1998, in the principal amount of Ten Million Dollars ($l0,000,000.00) (the "Note"). The following provisions are hereby incorporated into the Note to reflect the interest rate adjustments agreed to by Bank and Borrower: INTEREST RATE ADJUSTMENTS: (a) Initial LIBOR Margin. The initial LIBOR margin applicable to this Note -------------------- shall be as set forth in the "Interest" paragraph herein. (b) LIBOR Rate Adjustments. Bank shall adjust the LIBOR margin used to ---------------------- determine the rate of interest applicable to LIBOR options selected by Borrower under this Note on a quarterly basis, commencing with Borrower's fiscal quarter ending June 30, 1998, if required to reflect a change in Borrower's Funded Debt/EBITDA Coverage Ratio as defined in the Credit Agreement referenced herein),in accordance with the following grid:
Applicable Funded Debt/EBITDA LIBOR Coverage Ratio Margin -------------- ------ 1.50 to 1.0 or greater 1.750% at least 1.00 to 1.0 but less than 1.50 to 1.0 1.500% at least .50 to 1.0 but less than 1.00 to 1.0 1.375% less than .50 to 1.0 1.250%
Each such adjustment shall be effective on the first Business Day of Borrower's fiscal quarter following the quarter during which Bank receives and reviews Borrower's most current fiscal quarter-end financial statements in accordance with any requirements established by Bank for the preparation and delivery thereof. IN WITNESS WHEREOF, this Addendum has been executed as of the same date as the Note. STAAR SURGICAL COMPANY By: ----------------------------- William C. Huddleston Chief Financial Officer -2- WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE - -------------------------------------------------------------------------------- $10,000,000.00 West Covina, California June 1,1998 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 1.37500% 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 [ILLEGIBLE] date, principal amount, interest rate and Fixed Rate Term applicable thereto and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. (b) Selection of Interest Rate Options. At any time any portion of this ---------------------------------- Note bears interest determined in relation to LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term applicable thereto so that all or a portion thereof bears interest determined in relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term. Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower: (ii) the Revolving Line of Credit Note (08/96), Page 1 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 event, any obligation of Bank to make available such unlawful LIBOR options shall immediately be cancelled, and in the latter event, any such unlawful LIBOR-based interest rates then outstanding shall be converted, at Bank's option, so that interest on the portion of the outstanding principal balance subject thereto is determined in relation to the Prime Rate; provided however, that if any such Change in Law shall permit any LIBOR-based interest rates to remain in effect until the expiration of the Fixed Rate Term applicable thereto, then such permitted LIBOR-based interest rates shall continue in effect until the expiration of such Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any fines, fees, charges, penalties or other costs incurred or payable by Bank as a result thereof and which are attributable to any LIBOR options made available to Borrower hereunder, and any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (iii) If any Change in Law or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject Bank to any tax, duty or other charge with respect to any LIBOR options, or change the basis of taxation of payments to Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of Bank; or (C) impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any LIBOR options hereunder and/or to reduce any amount receivable by Bank in connection therewith, then in any such case, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any additional costs incurred by Bank and/or reductions in amounts received by Bank which are attributable to such LIBOR options. In determining which costs incurred by Bank and/or reductions in amounts received by Bank are attributable to any LIBOR options made available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (d) Payment of Interest. Interest accrued on this Note shall be payable on ------------------- the 1st day of each month, commencing July 1, 1998. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may, from time to time during the ----------------------- term of this Note [ILLEGIBLE], 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 fall on June 1, 2001. (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 Revolving Line of Credit Note (08/96), Page 2 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 falls 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 [ILLEGIBLE] 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. Revolving Line of Credit Note (08/96), Page 3 (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: ------------------------ William C. Huddleston Chief Financial Officer Revolving Line of Credit Note (08/96), Page 4 EX-10.47 16 STOCK OPTION CERTIFICATE, DATED SEPTEMBER 4, 1998 EXHIBIT 10.47 STOCK OPTION CERTIFICATE ------------------------ THE OPTION RIGHTS REPRESENTED BY THIS STOCK OPTION CERTIFICATE DO NOT CONSTITUTE A SECURITY WHICH IS REQUIRED TO BE REGISTERED UPON THE GRANT OF THESE OPTION RIGHTS (AND THEREFORE HAVE NOT BEEN REGISTERED) WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, INSOFAR AS THE RECIPIENT OF THIS OPTION HAS NOT AND WILL NOT BE REQUIRED TO PAY OR GIVE ANY CONSIDERATION WITH RESPECT TO THE GRANT OF THESE OPTION RIGHTS, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION REVIEWED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THE RECIPIENT'S STOCK OPTION CERTIFICATE. THE OPTION RIGHTS REPRESENTED BY THIS STOCK OPTION CERTIFICATE CONSTITUTE A SECURITY WHICH HAS NOT BEEN REGISTERED OR QUALIFIED, AS THE CASE MAY BE, UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES WHICH MAY BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION OR QUALIFICATION, AS THE CASE MAY BE, AFFORDED BY SUCH STATE OR TERRITORIAL SECURITIES LAWS INCLUDING, WITHOUT LIMITATION, WITH THE CALIFORNIA DEPARTMENT OF CORPORATIONS, IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 25102(o) OF THE CALIFORNIA BLUE SKY LAW, AS AMENDED, NOR HAS ANY SUCH SECURITIES REGULATORY AGENCY REVIEWED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS STOCK OPTION CERTIFICATE. This Stock Option Certificate is entered into between STAAR Surgical Company, a Delaware corporation (the "Company"), whose principal executive ------- office is located at 1911 Walker Avenue, Monrovia, California 91016, and Andrew F. Pollet (the "Recipient") whose address is 10900 Wilshire Boulevard, Suite --------- 500, Los Angeles, California 90024, pursuant to that certain 1998 STAAR Surgical Company Stock Plan (the "Plan") adopted by the Board of Directors on April 17, ---- 1998 and approved by the shareholders on May 29, 1998. 1. Grant of Option. This Stock Option Certificate certifies that the --------------- Company has granted to the Recipient, pursuant to the terms of the Plan, a stock option (the "Option") to purchase, in whole or in part, sixty thousand (60,000) ------ shares of the voting common stock, par value $ .01 (the "Common Stock") of the ------ ----- Company (collectively and severally, the "Option Shares"), at the price of six ------ ------ dollars and twenty-five cents ($6.25) per Option Share (the "Option Price"), ------ ----- subject to the following terms and conditions. 2. Plan: Plan Summary. Subject to the terms of this Stock Option ------------------ Certificate, the Recipient's rights to purchase the Option Shares are governed by the Plan, the terms of which are incorporated herein by this reference. 3. Character of Option. This Option (i) is [ xx ] a Non-Qualified Option ------------------- -- or (ii) is [ ] an Incentive Option. --- 4. Capacity of Recipient. This Option is granted to the Recipient in the --------------------- Recipient's capacity as (i) [____] an employee, (ii) [ xx ] a director, or (iii) ---- [____] a consultant. 5. Expiration of Option. The right to exercise the Options granted by this -------------------- Stock Option Certificate shall expire and be null and void ab initio and of no -- ------ further force or effect to the extent not exercised by 5:00 p.m. Pacific Time, on the 3rd day of September, 2001 (the "Option Expiration Date"). ------ ---------- ---- Notwithstanding the foregoing, to the extent the Options are not fully vested, the right to exercise the Options shall be subject to earlier expiration as provided in Article X of the Plan. --------- 6. Exercise Vesting Conditions. The Option Shares are (i) [____] fully --------------------------- vested upon date of grant, or (ii) [ xx ] subject to Article V, Section 5.05 of ---- --------- ------------ the Plan, and will be subject to the following vesting schedule based upon continued performance of services in the capacity hereinabove indicated as a condition of exercise:
Cumulative Vested Percentage of Date Option Shares ------------ ---------------- September 4, 1998 33 1/3% September 4, 1999 66 2/3 September 4, 2000 100.0%
7. Manner of Exercise and Payment. This Option shall be exercised by ------------------------------ delivery of this Option Certificate to the Secretary of the Company, together with: (a) A Consent of Spouse (as such consent is defined in the Plan) from the spouse of the Recipient, if any, duly signed by such spouse; and (b) Full payment for the Option Shares to be purchased in goods funds (in U.S. dollars) by cash or . check, and/or the following items (if checked by the Company): (i) [ xx ] shares of Common Stock pursuant to -- Article VIII of the Plan, (ii) [ xx ] surrender or relinquishment of rights ------------ -- to acquire Common Stock as more particularly described below, or (iii) [ xx ] a full recourse promissory note as more particularly described -- below: [DESCRIPTION -------------------------------------------------------------------------- ---------------------------------------------------------------------. 8. Forfeiture; Vesting Conditions. The Option Shares: (i) [____] will be ------------------------------ fully vested upon date of grant, or (ii) [ xx ] subject to Article V, Section -- --------- ------- 5.05 and Article X of the Plan, will be subject to forfeiture based upon the - ---- --------- continued performance of services in the capacity hereinabove indicated: 9. Vesting on Change of Control. Any unvested Option Shares shall ---------------------------- immediately vest upon the occurrence of a Change In Control. 2 10. Representations, Warranties and Covenants. The Recipient hereby ----------------------------------------- represents, warrants and covenants to the Company, each of which is deemed to be a separate representation, warranty and covenant, whichever the case may be, that: (a) The Recipient's legal permanent residence and domicile is the State of California. (b) The Recipient, if a natural person, is age eighteen (18) or over. (c) The Recipient has received a copy of the Plan which explains the administration and operation of the Plan and certain other relevant matters pertaining to the Plan, and has read and understood the Plan. (d) By reason of the Recipient's business or financial experience, the Recipient can be reasonably assumed to have the capacity to protect the Recipient's own interests in connection with the transaction contemplated by this Stock Option Certificate. (e) Before purchasing the Option Shares, the Recipient has had the opportunity, to the extent the Recipient has determined to be necessary, to be provided with financial and other written information about the Company; to ask questions and receive answers concerning the terms and conditions of this Stock Option Certificate, an investment in the Option Shares, and the business of the Company and its finances; and that the Recipient has, to the extent he has availed himself of this opportunity, received satisfactory information and answers. (f) Prior to exercising the Option, the Recipient had the opportunity to consult with the Recipient's investment advisors who are independent of the Company including, without limitation, investment, tax, accounting and legal advisors, relative to (i) the investment merits of a proposed investment in the Option Shares and (ii) the tax consequences of the grant and exercise of the Option and the subsequent disposition of the Option Shares and the effect of same upon the Recipient's personal financial circumstances, and that the Recipient has, to the extent he has availed himself of this opportunity, received satisfactory information and answers from such investment advisors. (g) The Recipient has been informed and understands and agrees as follows: there are substantial restrictions on the transferability of the Option Shares as are more particularly described in Article XI, Section 11.02 of the Plan and, as a result of such restrictions, it may not be possible for the Recipient to sell or otherwise liquidate the Option Shares in the case of emergency and/or other need, and the Recipient must therefore be able to hold the Option Shares until the lapse of said restrictions; the Recipient must have adequate means of providing for the Recipient's current needs and personal contingencies; the Recipient must have no need for liquidity in an investment in the Option Shares; and the Recipient has evaluated the Recipient's financial resources and investment position in view of the foregoing; and that the Recipient is able to bear the economic risk of an investment in the Option Shares. (h) The Option Shares are being purchased by the Recipient as principal and not by any other person, with the Recipient's own funds and not with the funds of any other person, and for the 3 account of the Recipient and not as a nominee or agent and not for the account of any other person. The Recipient is purchasing the Option Shares for investment for an indefinite period and not with a view to the sale or distribution of any part or all thereof by public or private sale or other disposition. No person other than the Recipient will have any interest, beneficial or otherwise, in the Option Shares, and the Recipient is not obligated to transfer the Option Shares to any other person nor does the Recipient have any agreement or understanding to do so. (i) To the best of the Recipient's knowledge and belief the offer and sale of the Option Shares was not accomplished by the publication of any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; nor was the offer and sale of the Option Shares accomplished through any seminar or meeting to which the Recipient was invited by any such publication or advertisement. Each representation, warranty and covenant of the Recipient shall be deemed made at the time of grant of this Option, shall be deemed remade at any time the Recipient exercises this Option, and shall survive the date of closing with respect to the exercise of the last Option hereunder. 11. Miscellaneous. ------------- (a) Preparation of Stock Option Certificate. This Stock Option --------------------------------------- Certificate was prepared by the Company or its legal counsel solely on behalf of the Company. It is acknowledged by the Recipient that such party was not represented by the Company or any of its officers, directors, employees or agents (including the Company's legal counsel) in connection with the transaction contemplated by this Stock Option Certificate, and that the Recipient had separate and independent advice of counsel. In light of the foregoing it is acknowledged by the Recipient that the Company shall not be construed to be solely responsible for the drafting hereof, and that any ambiguity in the Plan or this Stock Option Certificate, or the interpretation thereof or hereof, shall not be construed against the Company as the alleged draftsman of this Stock Option Certificate. (b) Interpretation. -------------- (i) Entire Agreement/No Collateral Representations. The ---------------------------------------------- Recipient acknowledges and agrees that this Stock Option Certificate, together with and subject to the Plan: (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 or understandings 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. (ii) Amendment; Waiver. Except as expressly otherwise ----------------- provided herein, this Stock Option Certificate nor any of its terms contained herein may not be amended, supplemented, discharged or terminated (other than by performance), except as provided in the Plan or by a written instrument or instruments signed by all of the parties to this Stock Option Certificate. No waiver of any acts 4 or obligations hereunder shall be effective unless such waiver shall be in a written instrument or instruments signed by each party claimed to have given or consented to such waiver and each party affected by such waiver. (iii) Severability. If any term or provision of this Stock ------------ Option Certificate 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 Stock Option Certificate, 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 Stock Option Certificate, 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 Stock Option Certificate (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. (iv) No Reliance Upon Prior Representation. The Recipient ------------------------------------- acknowledges that neither the Company nor any of its officers, directors, employees or agents have made any oral representation or promise which would induce the Recipient prior to executing this Stock Option Certificate to change the Recipient's position to the Recipient's detriment, partially perform, or part with value in reliance upon such representation or promise; the Recipient acknowledges that he or she has taken such action at its own risk; and the Recipient represents that he or she has not so changed his or her position, performed or parted with value prior to the time of his or her execution of this Stock Option Certificate. (c) Enforcement. This Stock Option Certificate and the ----------- rights and remedies of each party arising out of or relating to this Stock Option Certificate shall be solely governed in accordance with the laws (without regard to the conflicts of law principles thereof) of the State of California. (d) Successors and Assigns. The Recipient may not ---------------------- delegate any of his or her duties or obligations under this Stock Option Certificate, in whole or in part, without the prior written consent of the Company, except pursuant to the terms of the Plan. Subject to the foregoing, all of the representations, warranties, covenants, conditions and provisions of this Stock Option Certificate shall be binding upon and shall inure to the benefit of each party and such party's respective successors and permitted assigns, spouses, heirs, executors, administrators, and personal and legal representatives. (e) Notices. Unless otherwise specifically provided in ------- this Stock Option Certificate, 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 Stock Option Certificate, 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 5 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). WHEREFORE, the parties hereto have for purposes of this Stock Option Certificate executed this Stock Option Certificate in the City of Monrovia, County of Los Angeles, State of California, effective as of the 4th day of September, 1998. COMPANY: STAAR Surgical Company, a Delaware corporation By: ---------------------------------- John R. Wolf, President ATTEST: By: ---------------------------------- William C. Huddleston, Secretary RECIPIENT: ---------------------------------- Andrew F. Pollet 6 Attachment to Stock Option Certificate NOTICE OF EXERCISE OF STOCK OPTION ---------------------------------- NOTICE OF EXERCISE OF STOCK OPTION ---------------------------------- [To be signed by the Recipient only upon exercise of Option] TO: Secretary STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016 The undersigned, the holder of Options under that certain Stock Option Certificate dated effective the --------------------------- day of - ---------------------------, -------------- (the "Option Certificate"), between ------ ----------- STAAR Surgical Company, a Delaware corporation (the "Company") and the ------- undersigned (the "Recipient"), hereby irrevocably elects, in accordance with the --------- terms and conditions of that certain 1998 STAAR Surgical Company Stock Plan (the "Plan") adopted by the Board of Directors on April 17, 1998 and approved by the ---- shareholders on May 29, 1998, under which the Option Certificate was granted, to exercise the undersigned's Option under the Plan to purchase ------------------ (---------------) /(1)/ shares of the voting common stock, no par value ("Common ------ Stock") of the Company (collectively and severally, the "Option Shares"), for - ----- ------ ------ the aggregate purchase price of ---------------------------------------------- ($------------------------) /(2)/. (1) Insert number of Option Shares as specified in the Option Certificate which are vested Option Shares (as defined by the Plan) which the Recipient is exercising the Option to purchase. (2) Number of Option Shares to be exercised as hereinabove specified multiplied by the Option Price per share. The Recipient hereby remakes, reaffirms and reacknowledges all agreements, representations, warranties and covenants set forth in the Option Certificate as of the date of the Recipient's notice, all of which shall survive the Closing with respect to the shares of Common Stock purchased hereby. The Recipient hereby acknowledges that the following legend (or any variation thereof determined appropriate by the Company) will be placed on the share certificate or certificates for the Option Shares to comply with applicable federal and state securities laws: 7 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN (1) REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION AFFORDED BY SUCH ACT, OR (2) REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES WHICH MAY BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION OR QUALIFICATION AFFORDED BY SUCH STATE OR TERRITORIAL SECURITIES LAWS INCLUDING, WITHOUT LIMITATION, SECTION 25102(o) OF THE CALIFORNIA BLUE SKY LAW, AS AMENDED. THESE SECURITIES HAVE BEEN ACQUIRED FOR THE HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH A VIEW FOR RESALE OR DISTRIBUTION. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS (A) THEY HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 AS WELL AS UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES AS MAY THEN BE APPLICABLE, OR (B) THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A NO-ACTION OR INTERPRETIVE LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE STATE OR TERRITORIAL SECURITIES REGULATORY AGENCY TO THE EFFECT THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER. (Signature must conform in all respects to name of the Recipient as specified in the Plan, unless the undersigned is the Recipient's Successor, in which case the undersigned must submit appropriate proof of the right of the undersigned to exercise the Option) Signature: ____________________________________ Print Name: ____________________________________ Address: ____________________________________ ____________________________________ Date: ____________________________________ 8 EX-10.48 17 STOCK OPTION CERTIFICATE, DATED SEPTEMBER 4, 1998 EXHIBIT 10.48 STOCK OPTION CERTIFICATE ------------------------ THE OPTION RIGHTS REPRESENTED BY THIS STOCK OPTION CERTIFICATE DO NOT CONSTITUTE A SECURITY WHICH IS REQUIRED TO BE REGISTERED UPON THE GRANT OF THESE OPTION RIGHTS (AND THEREFORE HAVE NOT BEEN REGISTERED) WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, INSOFAR AS THE RECIPIENT OF THIS OPTION HAS NOT AND WILL NOT BE REQUIRED TO PAY OR GIVE ANY CONSIDERATION WITH RESPECT TO THE GRANT OF THESE OPTION RIGHTS, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION REVIEWED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THE RECIPIENT'S STOCK OPTION CERTIFICATE. THE OPTION RIGHTS REPRESENTED BY THIS STOCK OPTION CERTIFICATE CONSTITUTE A SECURITY WHICH HAS NOT BEEN REGISTERED OR QUALIFIED, AS THE CASE MAY BE, UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES WHICH MAY BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION OR QUALIFICATION, AS THE CASE MAY BE, AFFORDED BY SUCH STATE OR TERRITORIAL SECURITIES LAWS INCLUDING, WITHOUT LIMITATION, WITH THE CALIFORNIA DEPARTMENT OF CORPORATIONS, IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 25102(o) OF THE CALIFORNIA BLUE SKY LAW, AS AMENDED, NOR HAS ANY SUCH SECURITIES REGULATORY AGENCY REVIEWED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS STOCK OPTION CERTIFICATE. This Stock Option Certificate is entered into between STAAR Surgical Company, a Delaware corporation (the "Company"), whose principal executive ------- office is located at 1911 Walker Avenue, Monrovia, California 91016, and John R. Wolf (the "Recipient") whose address is 1496 Bedford Road, San Marino, --------- California 91108, pursuant to that certain 1998 STAAR Surgical Company Stock Plan (the "Plan") adopted by the Board of Directors on April 17, 1998 and ---- approved by the shareholders on May 29, 1998. 1. Grant of Option. This Stock Option Certificate certifies that the --------------- Company has granted to the Recipient, pursuant to the terms of the Plan, a stock option (the "Option") to purchase, in whole or in part, sixty thousand (60,000) ------ shares of the voting common stock, par value $ .01 (the "Common Stock") of the ------ ----- Company (collectively and severally, the "Option Shares"), at the price of six ------ ------ dollars and twenty-five cents ($6.25) per Option Share (the "Option Price"), ------ ----- subject to the following terms and conditions. 2. Plan; Plan Summary. Subject to the terms of this Stock Option ------------------ Certificate, the Recipient's rights to purchase the Option Shares are governed by the Plan, the terms of which are incorporated herein by this reference. 3. Character of Option. This Option (i) is [____] a Non-Qualified Option ------------------- or (ii) is [ xx ] an Incentive Option. ---- 4. Capacity of Recipient. This Option is granted to the Recipient in the --------------------- Recipient's capacity as (i) [ xx ] an employee, (ii) [____] a director, or (iii) ---- [____] a consultant. 5. Expiration of Option. The right to exercise the Options granted by this -------------------- Stock Option Certificate shall expire and be null and void ab initio and of no -- ------ further force or effect to the extent not exercised by 5:00 p.m. Pacific Time, on the 3rd day of September, 2008 (the "Option Expiration Date"). ------ ---------- ---- Notwithstanding the foregoing, to the extent the Options are not fully vested, the right to exercise the Options shall be subject to earlier expiration as provided in Article X of the Plan. --------- 6. Exercise Vesting Conditions. The Option Shares are (i) [____] fully --------------------------- vested upon date of grant, or (ii) [ xx ] subject to Article V, Section 5.05 -------- --------- ------------ of the Plan, and will be subject to the following vesting schedule based upon continued performance of services in the capacity hereinabove indicated as a condition of exercise:
Cumulative Vested Percentage of Date Option Shares ------------ ------------------------ September 4, 1998 33 1/3% September 4, 1999 66 2/3 September 4, 2000 100.0%
7. Manner of Exercise and Payment. This Option shall be exercised by delivery ------------------------------ of this Option Certificate to the Secretary of the Company, together with: (a) A Consent of Spouse (as such consent is defined in the Plan) from the spouse of the Recipient, if any, duly signed by such spouse; and (b) Full payment for the Option Shares to be purchased in goods funds (in U.S. dollars) by cash or . check, and/or the following items (if checked by the Company): (i) [ xx ] shares of Common Stock pursuant to Article VIII of the -- ------------ Plan, (ii) [ xx ] surrender or relinquishment of rights to acquire Common Stock -- as more particularly described below, or (iii) [ xx ] a full recourse promissory -- note as more particularly described below: [DESCRIPTION ------------------------------------- - --------------------------------------------------------------------. 8. Forfeiture; Vesting Conditions. The Option Shares: (i) [____] will be ------------------------------ fully vested upon date of grant, or (ii) [ xx ] subject to Article V, Section ---- --------- ------- 5.05 and Article X of the Plan, will be subject to forfeiture based upon the - ---- --------- continued performance of services in the capacity hereinabove indicated: 9. Vesting on Change of Control. Any unvested Option Shares shall ---------------------------- immediately vest upon the occurrence of a Change In Control. 2 10. Representations, Warranties and Covenants. The Recipient hereby ----------------------------------------- represents, warrants and covenants to the Company, each of which is deemed to be a separate representation, warranty and covenant, whichever the case may be, that: (a) The Recipient's legal permanent residence and domicile is the State of California. (b) The Recipient, if a natural person, is age eighteen (18) or over. (c) The Recipient has received a copy of the Plan which explains the administration and operation of the Plan and certain other relevant matters pertaining to the Plan, and has read and understood the Plan. (d) By reason of the Recipient's business or financial experience, the Recipient can be reasonably assumed to have the capacity to protect the Recipient's own interests in connection with the transaction contemplated by this Stock Option Certificate. (e) Before purchasing the Option Shares, the Recipient has had the opportunity, to the extent the Recipient has determined to be necessary, to be provided with financial and other written information about the Company; to ask questions and receive answers concerning the terms and conditions of this Stock Option Certificate, an investment in the Option Shares, and the business of the Company and its finances; and that the Recipient has, to the extent he has availed himself of this opportunity, received satisfactory information and answers. (f) Prior to exercising the Option, the Recipient had the opportunity to consult with the Recipient's investment advisors who are independent of the Company including, without limitation, investment, tax, accounting and legal advisors, relative to (i) the investment merits of a proposed investment in the Option Shares and (ii) the tax consequences of the grant and exercise of the Option and the subsequent disposition of the Option Shares and the effect of same upon the Recipient's personal financial circumstances, and that the Recipient has, to the extent he has availed himself of this opportunity, received satisfactory information and answers from such investment advisors. (g) The Recipient has been informed and understands and agrees as follows: there are substantial restrictions on the transferability of the Option Shares as are more particularly described in Article XI, Section 11.02 of the Plan and, as a result of such restrictions, it may not be possible for the Recipient to sell or otherwise liquidate the Option Shares in the case of emergency and/or other need, and the Recipient must therefore be able to hold the Option Shares until the lapse of said restrictions; the Recipient must have adequate means of providing for the Recipient's current needs and personal contingencies; the Recipient must have no need for liquidity in an investment in the Option Shares; and the Recipient has evaluated the Recipient's financial resources and investment position in view of the foregoing; and that the Recipient is able to bear the economic risk of an investment in the Option Shares. (h) The Option Shares are being purchased by the Recipient as principal and not by any other person, with the Recipient's own funds and not with the funds of any other person, and for the 3 account of the Recipient and not as a nominee or agent and not for the account of any other person. The Recipient is purchasing the Option Shares for investment for an indefinite period and not with a view to the sale or distribution of any part or all thereof by public or private sale or other disposition. No person other than the Recipient will have any interest, beneficial or otherwise, in the Option Shares, and the Recipient is not obligated to transfer the Option Shares to any other person nor does the Recipient have any agreement or understanding to do so. (i) To the best of the Recipient's knowledge and belief the offer and sale of the Option Shares was not accomplished by the publication of any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; nor was the offer and sale of the Option Shares accomplished through any seminar or meeting to which the Recipient was invited by any such publication or advertisement. Each representation, warranty and covenant of the Recipient shall be deemed made at the time of grant of this Option, shall be deemed remade at any time the Recipient exercises this Option, and shall survive the date of closing with respect to the exercise of the last Option hereunder. 11. Miscellaneous. ------------- (a) Preparation of Stock Option Certificate. This Stock Option --------------------------------------- Certificate was prepared by the Company or its legal counsel solely on behalf of the Company. It is acknowledged by the Recipient that such party was not represented by the Company or any of its officers, directors, employees or agents (including the Company's legal counsel) in connection with the transaction contemplated by this Stock Option Certificate, and that the Recipient had separate and independent advice of counsel. In light of the foregoing it is acknowledged by the Recipient that the Company shall not be construed to be solely responsible for the drafting hereof, and that any ambiguity in the Plan or this Stock Option Certificate, or the interpretation thereof or hereof, shall not be construed against the Company as the alleged draftsman of this Stock Option Certificate. (b) Interpretation. -------------- (i) Entire Agreement/No Collateral Representations. The ---------------------------------------------- Recipient acknowledges and agrees that this Stock Option Certificate, together with and subject to the Plan: (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 or understandings 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. (ii) Amendment; Waiver. Except as expressly otherwise ----------------- provided herein, this Stock Option Certificate nor any of its terms contained herein may not be amended, supplemented, discharged or terminated (other than by performance), except as provided in the Plan or by a written instrument or instruments signed by all of the parties to this Stock Option Certificate. No waiver of any acts 4 or obligations hereunder shall be effective unless such waiver shall be in a written instrument or instruments signed by each party claimed to have given or consented to such waiver and each party affected by such waiver. (iii) Severability. If any term or provision of this Stock Option ------------ Certificate 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 Stock Option Certificate, 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 Stock Option Certificate, 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 Stock Option Certificate (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. (iv) No Reliance Upon Prior Representation. The Recipient ------------------------------------- acknowledges that neither the Company nor any of its officers, directors, employees or agents have made any oral representation or promise which would induce the Recipient prior to executing this Stock Option Certificate to change the Recipient's position to the Recipient's detriment, partially perform, or part with value in reliance upon such representation or promise; the Recipient acknowledges that he or she has taken such action at its own risk; and the Recipient represents that he or she has not so changed his or her position, performed or parted with value prior to the time of his or her execution of this Stock Option Certificate. (c) Enforcement. This Stock Option Certificate and the rights and ----------- remedies of each party arising out of or relating to this Stock Option Certificate shall be solely governed in accordance with the laws (without regard to the conflicts of law principles thereof) of the State of California. (d) Successors and Assigns. The Recipient may not delegate any of his ---------------------- or her duties or obligations under this Stock Option Certificate, in whole or in part, without the prior written consent of the Company, except pursuant to the terms of the Plan. Subject to the foregoing, all of the representations, warranties, covenants, conditions and provisions of this Stock Option Certificate shall be binding upon and shall inure to the benefit of each party and such party's respective successors and permitted assigns, spouses, heirs, executors, administrators, and personal and legal representatives. (e) Notices. Unless otherwise specifically provided in this Stock Option ------- Certificate, 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 Stock Option Certificate, 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 5 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). WHEREFORE, the parties hereto have for purposes of this Stock Option Certificate executed this Stock Option Certificate in the City of Monrovia, County of Los Angeles, State of California, effective as of the 4th day of September, 1998. COMPANY: STAAR Surgical Company, a Delaware corporation By: _________________________________ John R. Wolf, President ATTEST: By: _________________________________ William C. Huddleston, Secretary RECIPIENT: _____________________________________ John R. Wolf 6 Attachment to Stock Option Certificate NOTICE OF EXERCISE OF STOCK OPTION ---------------------------------- NOTICE OF EXERCISE OF STOCK OPTION ---------------------------------- [To be signed by the Recipient only upon exercise of Option] TO: Secretary STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016 The undersigned, the holder of Options under that certain Stock Option Certificate dated effective the ____________ day of ___________________________________, _______ (the "Option Certificate"), between ------ ----------- STAAR Surgical Company, a Delaware corporation (the "Company") and the ------- undersigned (the "Recipient"), hereby irrevocably elects, in accordance with the --------- terms and conditions of that certain 1998 STAAR Surgical Company Stock Plan (the "Plan") adopted by the Board of Directors on April 17, 1998 and approved by the ---- shareholders on May 29, 1998, under which the Option Certificate was granted, to exercise the undersigned's Option under the Plan to purchase _____________________________________________________________________________ (____________)/(1)/ shares of the voting common stock, no par value ("Common ------ Stock") of the Company (collectively and severally, the "Option Shares"), for - ----- ------ ------ the aggregate purchase price of _______________________________________________________________________________ ($_______________)/(2)/. /(1)/ Insert number of Option Shares as specified in the Option Certificate which are vested Option Shares (as defined by the Plan) which the Recipient is exercising the Option to purchase. /(2)/ Number of Option Shares to be exercised as hereinabove specified multiplied by the Option Price per share ($________.________ per share). The Recipient hereby remakes, reaffirms and reacknowledges all agreements, representations, warranties and covenants set forth in the Option Certificate as of the date of the Recipient's notice, all of which shall survive the Closing with respect to the shares of Common Stock purchased hereby. The Recipient hereby acknowledges that the following legend (or any variation thereof determined appropriate by the Company) will be placed on the share certificate or certificates for the Option Shares to comply with applicable federal and state securities laws: 7 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN (1) REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION AFFORDED BY SUCH ACT, OR (2) REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES WHICH MAY BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION OR QUALIFICATION AFFORDED BY SUCH STATE OR TERRITORIAL SECURITIES LAWS INCLUDING, WITHOUT LIMITATION, SECTION 25102(o) OF THE CALIFORNIA BLUE SKY LAW, AS AMENDED. THESE SECURITIES HAVE BEEN ACQUIRED FOR THE HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH A VIEW FOR RESALE OR DISTRIBUTION. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS (A) THEY HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 AS WELL AS UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES AS MAY THEN BE APPLICABLE, OR (B) THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A NO-ACTION OR INTERPRETIVE LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE STATE OR TERRITORIAL SECURITIES REGULATORY AGENCY TO THE EFFECT THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER. (Signature must conform in all respects to name of the Recipient as specified in the Plan, unless the undersigned is the Recipient's Successor, in which case the undersigned must submit appropriate proof of the right of the undersigned to exercise the Option) Signature: ____________________________________________________________ Print Name: ____________________________________________________________ Address: ____________________________________________________________ Date: ____________________________________________________________ 8 EX-10.49 18 STOCK OPTION CERTIFICATE, DATED SEPTEMBER 4, 1998 EXHIBIT 10.49 STOCK OPTION CERTIFICATE ------------------------ THE OPTION RIGHTS REPRESENTED BY THIS STOCK OPTION CERTIFICATE DO NOT CONSTITUTE A SECURITY WHICH IS REQUIRED TO BE REGISTERED UPON THE GRANT OF THESE OPTION RIGHTS (AND THEREFORE HAVE NOT BEEN REGISTERED) WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, INSOFAR AS THE RECIPIENT OF THIS OPTION HAS NOT AND WILL NOT BE REQUIRED TO PAY OR GIVE ANY CONSIDERATION WITH RESPECT TO THE GRANT OF THESE OPTION RIGHTS, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION REVIEWED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THE RECIPIENT'S STOCK OPTION CERTIFICATE. THE OPTION RIGHTS REPRESENTED BY THIS STOCK OPTION CERTIFICATE CONSTITUTE A SECURITY WHICH HAS NOT BEEN REGISTERED OR QUALIFIED, AS THE CASE MAY BE, UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES WHICH MAY BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION OR QUALIFICATION, AS THE CASE MAY BE, AFFORDED BY SUCH STATE OR TERRITORIAL SECURITIES LAWS INCLUDING, WITHOUT LIMITATION, WITH THE CALIFORNIA DEPARTMENT OF CORPORATIONS, IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION AFFORDED BY SECTION 25102(o) OF THE CALIFORNIA BLUE SKY LAW, AS AMENDED, NOR HAS ANY SUCH SECURITIES REGULATORY AGENCY REVIEWED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS STOCK OPTION CERTIFICATE. This Stock Option Certificate is entered into between STAAR Surgical Company, a Delaware corporation (the "Company"), whose principal executive ------- office is located at 1911 Walker Avenue, Monrovia, California 91016, and Donald R. Sanders (the "Recipient") whose address is 11 West Birchwood, Hinsdale, --------- Illinois 60521, pursuant to that certain 1998 STAAR Surgical Company Stock Plan (the "Plan") adopted by the Board of Directors on April 17, 1998 and approved by ---- the shareholders on May 29, 1998. 1. Grant of Option. This Stock Option Certificate certifies that the --------------- Company has granted to the Recipient, pursuant to the terms of the Plan, a stock option (the "Option") to purchase, in whole or in part, one hundred thousand ------ (100,000) shares of the voting common stock, par value $ .01 (the "Common ------ Stock") of the Company (collectively and severally, the "Option Shares"), at the - ----- ------ ------ price of six dollars and twenty-five cents ($6.25) per Option Share (the "Option ------ Price"), subject to the following terms and conditions. - ----- 2. Plan; Plan Summary. Subject to the terms of this Stock Option ------------------ Certificate, the Recipient's rights to purchase the Option Shares are governed by the Plan, the terms of which are incorporated herein by this reference. 3. Character of Option. This Option (i) is [____] a Non-Qualified Option ------------------- or (ii) is [ xx ] an Incentive Option. ---- 4. Capacity of Recipient. This Option is granted to the Recipient in the --------------------- Recipient's capacity as (i) [ xx ] an employee, (ii) [____] a director, or (iii) ---- [____] a consultant. 5. Expiration of Option. The right to exercise the Options granted by -------------------- this Stock Option Certificate shall expire and be null and void ab initio and -- ------ of no further force or effect to the extent not exercised by 5:00 p.m. Pacific Time, on the 3rd day of September, 2008 (the "Option Expiration Date"). ------ ---------- ---- 6. Exercise Vesting Conditions. The Option Shares are (i) [____] fully --------------------------- vested upon date of grant, or (ii) [ xx ] subject to Article V, Section 5.05 of ---- --------- ------------ the Plan, and will be subject to the following vesting conditions, but not upon continued performance of services in the capacity hereinabove indicated:
Cumulative Vested Percentage of Date Option Shares --------- ----------------- September 4, 1999 33 1/3% September 4, 2000 66 2/3 September 4, 2001 100.0%
7. Manner of Exercise and Payment. This Option shall be exercised by ------------------------------ delivery of this Option Certificate to the Secretary of the Company, together with: (a) A Consent of Spouse (as such consent is defined in the Plan) from the spouse of the Recipient, if any, duly signed by such spouse; and (b) Full payment for the Option Shares to be purchased in goods funds (in U.S. dollars) by cash or check, and/or the following items (if checked by the Company): (i) [ xx ] shares of Common Stock pursuant to Article VIII of the Plan, (ii) [ xx ] surrender or relinquishment of rights to acquire Common Stock as more particularly described below, or (iii) [ xx ] a full recourse promissory note as more particularly described below: [DESCRIPTION ------------------------------------------------------------------ ---------------------------------------------------------------------. 8. Forfeiture; Vesting Conditions. The Option Shares: (i) [____] will be ------------------------------ fully vested upon date of grant, or (ii) [ xx ] are subject to Article V, ---- --------- Section 5.05 of the Plan and will be subject to the vesting conditions set forth - ------------ above. 9. Vesting on Change of Control. Any unvested Option Shares shall ---------------------------- immediately vest upon the occurrence of a Change In Control. 10. Representations, Warranties and Covenants. The Recipient hereby ----------------------------------------- represents, warrants and covenants to the Company, each of which is deemed to be a separate representation, warranty and covenant, whichever the case may be, that: 2 (a) The Recipient's legal permanent residence and domicile is the State of Illinois. (b) The Recipient, if a natural person, is age eighteen (18) or over. (c) The Recipient has received a copy of the Plan which explains the administration and operation of the Plan and certain other relevant matters pertaining to the Plan, and has read and understood the Plan. (d) By reason of the Recipient's business or financial experience, the Recipient can be reasonably assumed to have the capacity to protect the Recipient's own interests in connection with the transaction contemplated by this Stock Option Certificate. (e) Before purchasing the Option Shares, the Recipient has had the opportunity, to the extent the Recipient has determined to be necessary, to be provided with financial and other written information about the Company; to ask questions and receive answers concerning the terms and conditions of this Stock Option Certificate, an investment in the Option Shares, and the business of the Company and its finances; and that the Recipient has, to the extent he has availed himself of this opportunity, received satisfactory information and answers. (f) Prior to exercising the Option, the Recipient had the opportunity to consult with the Recipient's investment advisors who are independent of the Company including, without limitation, investment, tax, accounting and legal advisors, relative to (i) the investment merits of a proposed investment in the Option Shares and (ii) the tax consequences of the grant and exercise of the Option and the subsequent disposition of the Option Shares and the effect of same upon the Recipient's personal financial circumstances, and that the Recipient has, to the extent he has availed himself of this opportunity, received satisfactory information and answers from such investment advisors. (g) The Recipient has been informed and understands and agrees as follows: there are substantial restrictions on the transferability of the Option Shares as are more particularly described in Article XI, Section 11.02 of the Plan and, as a result of such restrictions, it may not be possible for the Recipient to sell or otherwise liquidate the Option Shares in the case of emergency and/or other need, and the Recipient must therefore be able to hold the Option Shares until the lapse of said restrictions; the Recipient must have adequate means of providing for the Recipient's current needs and personal contingencies; the Recipient must have no need for liquidity in an investment in the Option Shares; and the Recipient has evaluated the Recipient's financial resources and investment position in view of the foregoing; and that the Recipient is able to bear the economic risk of an investment in the Option Shares. (h) The Option Shares are being purchased by the Recipient as principal and not by any other person, with the Recipient's own funds and not with the funds of any other person, and for the account of the Recipient and not as a nominee or agent and not for the account of any other person. The Recipient is purchasing the Option Shares for investment for an indefinite period and not with a view to the sale or distribution of any part or all thereof by public or private sale or other disposition. No person other than the Recipient will have any interest, beneficial or otherwise, in the Option Shares, and the Recipient is 3 not obligated to transfer the Option Shares to any other person nor does the Recipient have any agreement or understanding to do so. (i) To the best of the Recipient's knowledge and belief the offer and sale of the Option Shares was not accomplished by the publication of any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; nor was the offer and sale of the Option Shares accomplished through any seminar or meeting to which the Recipient was invited by any such publication or advertisement. Each representation, warranty and covenant of the Recipient shall be deemed made at the time of grant of this Option, shall be deemed remade at any time the Recipient exercises this Option, and shall survive the date of closing with respect to the exercise of the last Option hereunder. 11. Miscellaneous. ------------- (a) Preparation of Stock Option Certificate. This Stock Option --------------------------------------- Certificate was prepared by the Company or its legal counsel solely on behalf of the Company. It is acknowledged by the Recipient that such party was not represented by the Company or any of its officers, directors, employees or agents (including the Company's legal counsel) in connection with the transaction contemplated by this Stock Option Certificate, and that the Recipient had separate and independent advice of counsel. In light of the foregoing it is acknowledged by the Recipient that the Company shall not be construed to be solely responsible for the drafting hereof, and that any ambiguity in the Plan or this Stock Option Certificate, or the interpretation thereof or hereof, shall not be construed against the Company as the alleged draftsman of this Stock Option Certificate. (b) Interpretation. -------------- (i) Entire Agreement/No Collateral Representations. The ---------------------------------------------- Recipient acknowledges and agrees that this Stock Option Certificate, together with and subject to the Plan: (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 or understandings 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. (ii) Amendment; Waiver. Except as expressly otherwise provided ----------------- herein, this Stock Option Certificate nor any of its terms contained herein may not be amended, supplemented, discharged or terminated (other than by performance), except as provided in the Plan or by a written instrument or instruments signed by all of the parties to this Stock Option Certificate. No waiver of any acts or obligations hereunder shall be effective unless such waiver shall be in a written instrument or instruments signed by each party claimed to have given or consented to such waiver and each party affected by such waiver. 4 (iii) Severability. If any term or provision of this Stock Option ------------ Certificate 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 Stock Option Certificate, 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 Stock Option Certificate, 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 Stock Option Certificate (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. (iv) No Reliance Upon Prior Representation. The Recipient ------------------------------------- acknowledges that neither the Company nor any of its officers, directors, employees or agents have made any oral representation or promise which would induce the Recipient prior to executing this Stock Option Certificate to change the Recipient's position to the Recipient's detriment, partially perform, or part with value in reliance upon such representation or promise; the Recipient acknowledges that he or she has taken such action at its own risk; and the Recipient represents that he or she has not so changed his or her position, performed or parted with value prior to the time of his or her execution of this Stock Option Certificate. (c) Enforcement. This Stock Option Certificate and the rights and ----------- remedies of each party arising out of or relating to this Stock Option Certificate shall be solely governed in accordance with the laws (without regard to the conflicts of law principles thereof) of the State of California. (d) Successors and Assigns. The Recipient may not delegate any of his or ---------------------- her duties or obligations under this Stock Option Certificate, in whole or in part, without the prior written consent of the Company, except pursuant to the terms of the Plan. Subject to the foregoing, all of the representations, warranties, covenants, conditions and provisions of this Stock Option Certificate shall be binding upon and shall inure to the benefit of each party and such party's respective successors and permitted assigns, spouses, heirs, executors, administrators, and personal and legal representatives. (e) Notices. Unless otherwise specifically provided in this Stock Option ------- Certificate, 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 Stock Option Certificate, 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). 5 WHEREFORE, the parties hereto have for purposes of this Stock Option Certificate executed this Stock Option Certificate in the City of Monrovia, County of Los Angeles, State of California, effective as of the 4th day of September, 1998. COMPANY: STAAR Surgical Company, a Delaware corporation By: -------------------------------- John R. Wolf, President ATTEST: By: -------------------------------- William C. Huddleston, Secretary RECIPIENT: ----------------------------------- Donald R. Sanders 6 Attachment to Stock Option Certificate NOTICE OF EXERCISE OF STOCK OPTION ---------------------------------- NOTICE OF EXERCISE OF STOCK OPTION ---------------------------------- [To be signed by the Recipient only upon exercise of Option] TO: Secretary STAAR Surgical Company 1911 Walker Avenue Monrovia, California 91016 The undersigned, the holder of Options under that certain Stock Option Certificate dated effective the ____________ day of _________________________, _______ (the "Option Certificate"), between STAAR Surgical Company, a Delaware ------ ----------- corporation (the "Company") and the undersigned (the "Recipient"), hereby ------- --------- irrevocably elects, in accordance with the terms and conditions of that certain 1998 STAAR Surgical Company Stock Plan (the "Plan") adopted by the Board of ---- Directors on April 17, 1998 and approved by the shareholders on May 29, 1998, under which the Option Certificate was granted, to exercise the undersigned's Option under the Plan to purchase _________________________ (____________)/(1)/ shares of the voting common stock, no par value ("Common Stock") of the Company ------ ----- (collectively and severally, the "Option Shares"), for the aggregate purchase ------ ------ price of ($_______________)/(2)/. /(1)/ Insert number of Option Shares as specified in the Option Certificate which are vested Option Shares (as defined by the Plan) which the Recipient is exercising the Option to purchase. /(2)/ Number of Option Shares to be exercised as hereinabove specified multiplied by the Option Price per share. The Recipient hereby remakes, reaffirms and reacknowledges all agreements, representations, warranties and covenants set forth in the Option Certificate as of the date of the Recipient's notice, all of which shall survive the Closing with respect to the shares of Common Stock purchased hereby. The Recipient hereby acknowledges that the following legend (or any variation thereof determined appropriate by the Company) will be placed on the share certificate or certificates for the Option Shares to comply with applicable federal and state securities laws: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN (1) REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION AFFORDED BY SUCH ACT, 7 OR (2) REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES WHICH MAY BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION OR QUALIFICATION AFFORDED BY SUCH STATE OR TERRITORIAL SECURITIES LAWS INCLUDING, WITHOUT LIMITATION, SECTION 25102(o) OF THE CALIFORNIA BLUE SKY LAW, AS AMENDED. THESE SECURITIES HAVE BEEN ACQUIRED FOR THE HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH A VIEW FOR RESALE OR DISTRIBUTION. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS (A) THEY HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 AS WELL AS UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES AS MAY THEN BE APPLICABLE, OR (B) THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A NO-ACTION OR INTERPRETIVE LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE STATE OR TERRITORIAL SECURITIES REGULATORY AGENCY TO THE EFFECT THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER. (Signature must conform in all respects to name of the Recipient as specified in the Plan, unless the undersigned is the Recipient's Successor, in which case the undersigned must submit appropriate proof of the right of the undersigned to exercise the Option) Signature: ___________________________________ Print Name: ___________________________________ Address: ___________________________________ ___________________________________ Date: ___________________________________ 8 EX-21 19 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 20 POWERS OF ATTORNEY 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 29th day of March, 1999. ---------- /s/ ANDREW F. POLLET ---------------------- ANDREW F. POLLET 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 26 day of March, 1999. ---------- /s/ DONALD R. SANDERS, M.D. --------------------------- DONALD R. SANDERS, M.D. 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 30 day of March, 1999. ---------- /s/ MICHAEL R. DEITZ ---------------------- MICHAEL R. DEITZ, M.D. 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 26 day of March, 1999. ---------- /s/ PETER J. UTRATA ---------------------- PETER J. UTRATA, M.D. EX-27.1 21 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JAN-01-1999 JAN-01-1999 4,689,574 0 10,400,290 232,841 20,139,979 41,116,983 23,775,528 13,395,531 73,289,612 14,192,088 0 0 139,946 0 47,566,553 73,289,612 54,244,315 55,142,758 18,533,319 47,582,062 762,591 33,298 560,345 6,798,105 1,999,030 4,137,452 0 0 1,680,813 2,456,639 0.18 0.17
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