-----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, WHKpV+CdGg7Wb7Js0y5NWE9Ov/yjdgbLBTYMhCZ+Yom03b7Tk9/ETYHfNqe7W7Cd cqFsPZ212CztbSo+eKOQqA== 0000898430-02-002948.txt : 20020812 0000898430-02-002948.hdr.sgml : 20020812 20020812141952 ACCESSION NUMBER: 0000898430-02-002948 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020628 FILED AS OF DATE: 20020812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAAR SURGICAL COMPANY CENTRAL INDEX KEY: 0000718937 STANDARD INDUSTRIAL CLASSIFICATION: OPHTHALMIC GOODS [3851] IRS NUMBER: 953797439 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11634 FILM NUMBER: 02726536 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-Q 1 d10q.htm FORM 10-Q PERIOD ENDING 06/28/2002 Prepared by R.R. Donnelley Financial -- Form 10-Q period ending 06/28/2002
Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: June 28, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
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 organization)
  
(I.R.S. Employer
Identification No.)
 
1911 Walker Avenue
Monrovia, California
91016
(Address of principal executive offices)
(Zip Code)
 
(626) 303-7902
(Registrant’s telephone number including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 
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    ¨
 
The Registrant has 17,205,347 shares of common stock, par value $0.01 per share, issued and outstanding as of July 30, 2002.
 
Total number of sequentially numbered pages in this document: 16
 

Table of Contents
 
STAAR SURGICAL COMPANY
 
INDEX
 
PART I
         
PAGE NUMBER
Item 1—
  
Financial Information
       
        
1
        
2
        
3
        
4
Item 2—
       
9
PART II
           
Item 1—
       
14
Item 2—
       
14
Item 3—
       
14
Item 4—
       
14
Item 5—
       
15
Item 6—
       
15
    
16

Table of Contents
STAAR SURGICAL COMPANY
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
 
    
June 28,
2002
     
December 28, 2001
  
    
(Unaudited)
         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
615
 
   
$
853
 
Restricted cash
   
 
2,000
 
   
 
2,000
 
Accounts receivable, net
   
 
6,888
 
   
 
7,542
 
Other receivables
   
 
2,145
 
   
 
2,041
 
Inventories
   
 
13,323
 
   
 
15,231
 
Prepaids, deposits, and other current assets
   
 
2,877
 
   
 
2,470
 
Deferred income tax, current
   
 
5,304
 
   
 
5,304
 
    
  
Total current assets
   
 
33,152
 
   
 
35,441
 
    
  
Investment in joint venture
   
 
432
 
   
 
466
 
Property, plant and equipment, net
   
 
8,019
 
   
 
8,742
 
Patents and licenses, net
   
 
9,503
 
   
 
9,896
 
Goodwill, net
   
 
5,985
 
   
 
5,985
 
Deferred income tax, non-current
   
 
3,982
 
   
 
3,982
 
Other assets
   
 
1,363
 
   
 
1,293
 
    
  
Total assets
   
$
62,436
 
   
$
65,805
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Notes payable
   
$
8,210
 
   
$
8,216
 
Accounts payable
   
 
5,243
 
   
 
5,593
 
Other current liabilities
   
 
4,892
 
   
 
4,852
 
    
  
Total current liabilities
   
 
18,345
 
   
 
18,661
 
    
  
Other long-term liabilities
   
 
303
 
   
 
316
 
    
  
Total liabilities
   
 
18,648
 
   
 
18,977
 
    
  
Minority interest
   
 
377
 
   
 
382
 
    
  
Stockholders’ equity:
                  
Common stock, $.01 par value; 30,000 shares authorized; issued and outstanding 17,161 at June 28, 2002 and 17,158, at December 28, 2001
   
 
172
 
   
 
172
 
Capital in excess of par value
   
 
75,706
 
   
 
75,573
 
Accumulated other comprehensive income
   
 
10
 
   
 
(1,728
)
Accumulated deficit
   
 
(29,169
)
   
 
(24,263
)
    
  
    
 
46,719
 
   
 
49,754
 
Notes receivable from officers and directors
   
 
(3,308
)
   
 
(3,308
)
    
  
Total stockholders’ equity
   
 
43,411
 
   
 
46,446
 
    
  
Total liabilities and stockholders’ equity
   
$
62,436
 
   
$
65,805
 
    
  
Note:
 
The amounts presented in the December 28, 2001 balance sheet are derived from the audited financial statements for the year ended December 28, 2001. See accompanying notes to the condensed consolidated financial statements.

1

Table of Contents
STAAR SURGICAL COMPANY
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
    
Three Months Ended
     
Six Months Ended
  
    
June 28, 2002
     
June 29, 2001
     
June 28, 2002
     
June 29, 2001
  
Sales
   
$
12,008
 
   
$
12,780
 
   
$
23,639
 
   
$
25,684
 
Royalty and other income
   
 
80
 
   
 
110
 
   
 
180
 
   
 
208
 
    
  
  
  
Total revenues
   
 
12,088
 
   
 
12,890
 
   
 
23,819
 
   
 
25,892
 
Cost of sales
   
 
6,064
 
   
 
11,025
 
   
 
12,083
 
   
 
16,205
 
    
  
  
  
Gross profit
   
 
6,024
 
   
 
1,865
 
   
 
11,736
 
   
 
9,687
 
    
  
  
  
Selling, general, and administrative expenses:
                                    
General and administrative
   
 
2,298
 
   
 
2,355
 
   
 
4,700
 
   
 
4,614
 
Marketing and selling
   
 
4,500
 
   
 
5,587
 
   
 
8,502
 
   
 
10,679
 
Research and development
   
 
977
 
   
 
937
 
   
 
2,053
 
   
 
1,754
 
Subsidiary closure charges
   
 
1,225
 
   
 
—  
 
   
 
1,225
 
   
 
—  
 
    
  
  
  
Total selling, general, and administrative expenses
   
 
9,000
 
   
 
8,879
 
   
 
16,480
 
   
 
17,047
 
    
  
  
  
Operating loss
   
 
(2,976
)
   
 
(7,014
)
   
 
(4,744
)
   
 
(7,360
)
    
  
  
  
Other income (expense):
                                    
Equity in earnings of joint venture
   
 
(6
)
   
 
—  
 
   
 
6
 
   
 
—  
 
Interest income
   
 
19
 
   
 
103
 
   
 
37
 
   
 
171
 
Interest expense
   
 
(166
)
   
 
(147
)
   
 
(293
)
   
 
(354
)
Other income (expense)
   
 
(422
)
   
 
(9
)
   
 
(445
)
   
 
25
 
    
  
  
  
Total other expense, net
   
 
(575
)
   
 
(53
)
   
 
(695
)
   
 
(158
)
    
  
  
  
Loss before income taxes and minority interest
   
 
(3,551
)
   
 
(7,067
)
   
 
(5,439
)
   
 
(7,518
)
    
  
  
  
Income tax provision (benefit)
   
 
304
 
   
 
(2,915
)
   
 
(628
)
   
 
(3,181
)
Minority interest
   
 
54
 
   
 
25
 
   
 
95
 
   
 
69
 
    
  
  
  
Net loss
   
$
(3,909
)
   
$
(4,177
)
   
$
(4,906
)
   
$
(4,406
)
    
  
  
  
Net loss per share
   
$
(.23
)
   
$
(.25
)
   
$
(.29
)
   
$
(.26
)
    
  
  
  
Weighted average shares outstanding
   
 
17,163
 
   
 
16,954
 
   
 
17,161
 
   
 
16,953
 
    
  
  
  
 
 
See accompanying notes to the condensed consolidated financial statements.

2

Table of Contents
 
STAAR SURGICAL COMPANY
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
    
June 28, 2002
     
June 29, 2001
  
Cash flows from operating activities:
                  
Net loss
   
$
(4,906
)
   
$
(4,406
)
Adjustments to reconcile net loss to net cash used in operating activities:
                  
Depreciation of property and equipment
   
 
1,188
 
   
 
1,164
 
Amortization of intangibles
   
 
467
 
   
 
559
 
Equity in earnings of joint venture
   
 
34
 
   
 
—  
 
Deferred revenue
   
 
—  
 
   
 
467
 
Deferred income taxes
   
 
—  
 
   
 
(3,421
)
Stock-based compensation expense
   
 
127
 
   
 
—  
 
Subsidiary closure charges and inventory write-down
   
 
1,225
 
   
 
5,585
 
Minority interest
   
 
(5
)
   
 
69
 
Changes in working capital:
                  
Accounts receivable
   
 
566
 
   
 
292
 
Other receivable
   
 
(104
)
   
 
690
 
Inventories
   
 
1,546
 
   
 
(2,096
)
Prepaids, deposits, and other current assets
   
 
(234
)
   
 
22
 
Accounts payable
   
 
(348
)
   
 
263
 
Other current liabilities
   
 
138
 
   
 
(1,802
)
    
  
Net cash used in operating activities
   
 
(307
)
   
 
(2,614
)
    
  
Cash flows from investing activities:
                  
Acquisition of property and equipment
   
 
(472
)
   
 
(820
)
Increase in patents and licenses
   
 
(74
)
   
 
(238
)
Increase in other assets
   
 
(79
)
   
 
175
 
Proceeds from notes receivable and other
   
 
—  
 
   
 
321
 
    
  
Net cash used in investing activities
   
 
(625
)
   
 
(562
)
    
  
Cash flows from financing activities:
                  
Increase (decrease) in borrowings under notes payable
   
 
(19
)
   
 
1,564
 
Proceeds from stock options
   
 
6
 
   
 
62
 
    
  
Net cash provided by (used in) financing activities
   
 
(13
)
   
 
1,626
 
    
  
Effect of exchange rate changes on cash and cash equivalents
   
 
706
 
   
 
(583
)
    
  
Decrease in cash and cash equivalents
   
 
(238
)
   
 
(2,133
)
Cash and cash equivalents, at the beginning of the period
   
 
853
 
   
 
6,087
 
    
  
Cash and cash equivalents, at the end of the period
   
$
615
 
   
$
3,954
 
    
  
 
See accompanying notes to the condensed consolidated financial statements.

3

Table of Contents
 
STAAR SURGICAL COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
June 28, 2002
 
1.    Basis of Presentation
 
The accompanying consolidated financial statements include the accounts of the Company, its wholly and its 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 period. The resulting translation gains and losses are deferred and are shown as a separate component of stockholders’ equity as accumulated other comprehensive income. During the six-months ended June 28, 2002 and June 29, 2001, the net foreign currency translation gain (loss) was $706 and ($583). The net foreign currency transaction gain (loss) included in other expense, for the three and six months ended June 28, 2002 and June 29, 2001 was ($341) and $30 and ($344) and $123, respectively.
 
Investment in the Japanese joint venture is accounted for using the equity method of accounting except for the nine-months ended September 29, 2001 and the year ended December 28, 2000 when the investment was written off and earnings were recognized on a cash basis.
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements for the three and six months ended June 28, 2002 and June 29, 2001, in the opinion of management, include all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition and results of operations. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2001. The results of operations for the three and six months ended June 28, 2002 and June 29, 2001 are not necessarily indicative of the results to be expected for any other interim period or the entire year.
 
Each of the Company’s reporting periods ends on the Friday nearest to the quarter ending date.
 
2.    Geographic and Product Data
 
The Company develops, manufactures and distributes medical devices used in minimally invasive ophthalmic surgery. Substantially all of the Company’s revenues result from the sale of the Company’s medical devices. The Company distributes its medical devices in the cataract, refractive and glaucoma segments within ophthalmology. During the periods presented, revenues from the refractive and glaucoma segments were less than 10% of total revenue. Accordingly, there is not enough difference for the Company to account for these products separately or to justify segmented reporting by product type.

4

Table of Contents
 
The Company markets its products in over 40 countries and has manufacturing sites in the United States and Switzerland. Other than the United States and Germany, the Company does not conduct business in any country in which its sales in that country exceed 5% of consolidated sales. Sales are attributed to countries based on the location of customers. The composition of the Company’s sales to unaffiliated customers between those in the United States, Germany, and those in other locations for each period is set forth below.
 
    
Three Months Ended
   
Six Months Ended
    
June 28, 2002
   
June 29, 2001
   
June 28, 2002
   
June 29, 2001
Sales to unaffiliated customers
                            
United States
   
$
6,354
   
$
6,835
   
$
12,606
   
$
13,741
Germany
   
 
3,995
   
 
3,772
   
 
7,687
   
 
7,533
Other
   
 
1,659
   
 
2,173
   
 
3,346
   
 
4,410
    
  
  
  
Total
   
$
12,008
   
$
12,780
   
$
23,639
   
$
25,684
    
  
  
  
 
The Company sells its products internationally. International transactions subject the Company to several potential risks, including fluctuating exchange rates (to the extent the Company’s transactions are not in U.S. dollars), regulation of fund transfers by foreign governments, United States and foreign export and import duties and tariffs and possible political instability.
 
3.    Inventories
 
Inventories are valued at the lower of cost (first-in, first-out) or market (net realizable value) and consisted of the following at June 28, 2002 and December 28, 2001:
 
    
June 28, 2002
   
December 28, 2001
Raw materials and purchased parts
   
$
1,408
   
$
1,610
Work in process
   
 
2,845
   
 
3,252
Finished goods
   
 
9,070
   
 
10,369
    
  
    
$
13,323
   
$
15,231
    
  
 
4.    Notes Payable
 
On March 29, 2002 the Company’s line of credit was amended. The amended terms extend the maturity date to March 31, 2003, provide as additional collateral 66% of the common stock of STAAR Surgical AG and 100% of the Company’s interest in Circuit Tree Medical, Inc. Additionally, the bank, at its option, may request collateral in the form of the Company’s interest in its subsidiaries in Australia and Canada. The interest rate is prime plus a spread from 1% to 4% plus a commitment fee of .25% to 1% based on the Company’s ratio of funded debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) at each fiscal quarter on a trailing 12-month basis. The agreement requires the Company to satisfy certain financial tests, which include positive and negative covenants and also requires the maintenance of minimum cash balances.

5

Table of Contents
 
During the quarter ended June 28, 2002, the Company was not in compliance with certain restrictive covenants of its loan agreement with its domestic lender resulting in a renegotiation of the agreement. The restated agreement, effective July 31, 2002, provides for a release of restricted cash in the amount of $2.0 million to be used to pay down the note and reduces the loan amount from $7.0 million to $4.5 million. The agreement also provides for additional monthly reductions for a total of $1.0 million through February 2003. There was no change in term, collateral or pricing and certain restrictive covenants were eliminated or relaxed. Certain covenant violations were waived through July 2002. The balance outstanding under the note at June 28, 2002 was approximately $4.8 million. The Company has reviewed its cash requirements over the next nine months and has determined that the credit available will be sufficient to meet the Company’s needs until such time as additional or new financing can be obtained.
 
5.    Subsidiary Closure Charges
 
In connection with its business strategy to reduce operating expenses announced during the third quarter of 2001, the Company completed the sale of its South African subsidiary and the closure of its Swedish subsidiary during the quarter ended June 28, 2002. As a result of transactions the Company recorded $1.2 million of subsidiary closure charges. The charges were primarily related to the recognition of deferred losses resulting from the translation of foreign currency statements into U.S. dollars (previously included in equity in the balance sheet in accordance with FAS-52). Since the charges had been included in equity their subsequent recognition, while impacting retained earnings, had no impact on total stockholders’ equity. The Company will continue its presence in the South African and Swedish markets through distributors.
 
6.    Reclassifications
 
Certain reclassifications have been made to the 2001 consolidated financial statements to conform to the 2002 presentation.
 
7.    Contingencies
 
The Company terminated its former President and Chief Executive Officer, John R. Wolf, on May 30, 2000. Mr. Wolf filed an action against the Company claiming that his termination was wrongful. Mr. Wolf also filed an action for declaratory relief and injunctive relief relating to his attempt to exercise stock options. The Company believes it has claims against Mr. Wolf relating to loans made by the Company to him, and has filed an action against Mr. Wolf on that basis. The Company’s action also seeks a declaration that the Company had cause to terminate Mr. Wolf’s employment.
 
8.    Loss Per Share
 
For the three months ended June 28, 2002 and June 29, 2001, 0 and 5 warrants and 3,177 and 2,499 options to purchase shares of the Company’s common stock were outstanding. These potential common shares were excluded from the computation of diluted earnings per share for both periods, because their inclusion would have an antidilutive effect.

6

Table of Contents
 
9.    New Accounting Pronouncements
 
In June 2001, the FASB finalized FASB Statements No. 141, “Business Combinations” (SFAS 141), and No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires the Company to recognize acquired intangible assets apart from goodwill if they meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142 that the Company reclassify the carrying amounts of intangible assets and goodwill based on criteria in SFAS 141.
 
SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142.
 
The Company has adopted SFAS 141 and 142 effective December 29, 2001. Our previous business combinations were accounted for using the purchase method and the Company has no intangible assets acquired in connection with the business combinations that are required to be recognized separately from goodwill. The Company ceased amortization of goodwill effective as of December 29, 2001. As provided under SFAS 142, the initial testing of goodwill for possible impairment was completed within the first six months of 2002 and no impairment has been identified. As of June 28, 2002, the gross book value of goodwill was $7,384 and accumulated amortization was $1,399.
 
In accordance with SFAS 142, prior period amounts were not restated. The net loss for the three and six months ended June 28, 2002 adjusted for the exclusion of amortization of goodwill would have been $85 and $160 less than reported and earnings per share would have increased by $0.01.
 
The Company also has other intangible assets, consisting of patents and licenses, with a gross book value of $14,004 and accumulated amortization of $4,501 as of June 28, 2002. The estimated useful life of these intangible assets is based on legal and contractual provisions that limit their useful lives.
 
In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company believes the adoption of this statement will have no material impact on its financial statements.
 
In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of”. SFAS 144 addresses financial accounting and reporting requirements for the impairment or disposal of long-lived assets. This statement also expands the scope of a discontinued operation to include a component of an entity, and

7

Table of Contents
eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. The provisions of this statement are effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, although early adoption is permitted. The Company’s adoption of SFAS 144 did not have a material impact on its financial position and results of operations.
 
In May 2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 eliminates Statement 4 (and Statement 64, as it amends Statement 4), which requires gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, and thus, also the exception to applying Opinion 30 is eliminated as well. This statement is effective for years beginning after May 2002 for the provisions related to the rescission of Statements 4 and 64, and for all transactions entered into beginning May 2002 for the provision related to the amendment of Statement 13. The Company has not yet determined what impact the adoption of FAS 145 will have on our operations and financial position.
 
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized.

8

Table of Contents
 
PART 1—ITEM 2
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
In addition to historical information, this Quarterly Report contains forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the Section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 28, 2001 and the Quarterly Reports on Form 10-Q filed by the Company in fiscal 2002.
 
Results of Operations
 
The following table sets forth the percentage of total revenues represented by certain items reflected in the Company’s Statement of Operations for the period indicated and the percentage increase or decrease in such items over the prior period.
 
    
Percent of Total Revenues for Three Months
       
Percent Change for Three Months
     
Percent of Total Revenues for Six Months
     
Percent Change for Six Months
  
    
June 28, 2002
     
June 29, 2001
       
2002
vs.
2001
     
June 28, 2002
     
June 29, 2002
     
2002
vs.
2001
  
Total Revenues
   
100.0
%
   
100.0
%
     
(6.2
)%
   
100.0
%
   
100.0
%
   
(8.0
)%
Cost of Sales
   
50.2
 
   
85.5
 
     
(45.0
)
   
50.7
 
   
62.6
 
   
(25.4
)
    
  
           
  
      
Gross Profit
   
49.8
 
   
14.5
 
     
223.0
 
   
49.3
 
   
37.4
 
   
21.1
 
    
  
           
  
      
Costs and Expenses:
                                            
General and Administrative
   
19.0
 
   
18.3
 
     
(2.4
)
   
19.7
 
   
17.8
 
   
1.9
 
Marketing and Selling
   
37.2
 
   
43.3
 
     
(19.5
)
   
35.7
 
   
41.2
 
   
(20.4
)
Research and Development
   
8.1
 
   
7.3
 
     
4.4
 
   
8.6
 
   
6.8
 
   
17.1
 
Subsidiary Closure Charges
   
10.1
 
   
—  
 
     
100.0
 
   
5.1
 
   
—  
 
   
100.0
 
    
  
           
  
      
Total Costs and Expenses
   
74.5
 
   
68.9
 
     
1.4
 
   
69.2
 
   
65.8
 
   
(3.3
)
    
  
           
  
      
Operating Loss
   
(24.6
)
   
(54.4
)
     
(57.6
)
   
(19.9
)
   
(28.4
)
   
(35.5
)
    
  
           
  
      
Other Expense, Net
   
(4.8
)
   
(0.4
)
     
—  
 
   
(2.9
)
   
(0.6
)
   
—  
 
    
  
           
  
      
Loss Before Income Taxes
   
(29.4
)
   
(54.8
)
     
(49.8
)
   
(22.8
)
   
(29.0
)
   
(27.7
)
Income Tax Provision (Benefit)
   
2.5
 
   
(22.6
)
     
(110.4
)
   
(2.6
)
   
(12.3
)
   
(80.3
)
Minority Interest
   
0.4
 
   
0.2
 
     
113.7
 
   
0.4
 
   
0.3
 
   
37.6
 
    
  
           
  
      
Net Loss
   
(32.3
)%
   
(32.4
)%
     
(6.4
)%
   
(20.6
)%
   
(17.0
)%
   
11.3
%
    
  
           
  
      

9

Table of Contents
 
Revenues
 
Revenues for the three-month period ended June 28, 2002 decreased over the three-month period ended June 29, 2001 by $802,000 or 6.2%. Revenues for the six month period ended June 28, 2002 decreased over the six-month period ended June 29, 2001 by $2.1 million or 8.0%.
 
The decrease in revenues for the three and six month periods was due to decreased sales of foreign subsidiaries that were closed in 2001, decreased average selling prices of the Company’s silicone intraocular lenses (IOLs) and its Collamer IOL, and decreased units sales of the Company’s Elastimide silicone IOL and its Collamer IOL primarily in the United States. The decreases in U.S. sales were partly offset by increased sales of the AquaFlow Glaucoma Device and STAARVISC II. Sales of the Company’s Implantable Contact Lens (ICL) also increased due to the approval of the product for sale in Canada and Korea.
 
Cost of Sales
 
Cost of sales for the quarter ended June 28, 2002 was 50.2% of revenues compared to the second quarter of 2001 when it was 42.2% of revenues (excluding one-time charges of $5.6 million), representing an increase of 11.6% over the previous quarter on lower sales.
 
Cost of sales for the six months ended June 28, 2002 was 50.7% of revenues compared to the six months ended June 29, 2001 when it was 41.0% of revenues (excluding one-time charges of $5.6 million), representing an increase of 13.8% over the six months ended June 29, 2001 on lower sales.
 
The increases for the three and six month periods were primarily due to higher unit costs of IOL inventory manufactured last year during a period of low production volumes. The Company has sold most of this high cost inventory and expects to see an improvement in gross profit over the rest of the year as a result.
 
General and Administrative
 
General and administrative expenses for the quarter ended June 28, 2002 were 19% of revenues compared to 18.3% of revenues for the same period last year. The increase as a percentage of revenues is due to decreased revenues. In terms of dollars, general and administrative expense for the quarter was down 2.4% or $57,000 over the previous quarter. This decrease was due to the elimination of goodwill amortization as a result of the adoption of SFAS 142 during the first quarter of 2002. Goodwill amortization for the three-months ended June 29, 2001 was approximately $85,000.
 
General and administrative expenses for the six months ended June 28, 2002 were 19.7% of revenues compared to 17.8% of revenues for the same period last year. The increase as a percent of revenues was due primarily to lower overall revenues. The increase in terms of dollars was due to increased utility expenses, increased insurance costs, and increased professional fees. Increases in general and administrative expenses were partially offset by the elimination of goodwill amortization as a result of the adoption of SFAS 142 during the quarter ended March 29, 2002. Goodwill amortization for the six-months ended June 29, 2001 was approximately $160,000.

10

Table of Contents
 
Marketing and Selling
 
Marketing and selling expenses for the three and six month periods ended June 28, 2002 were 37.2% of revenues compared to 43.3% for the second quarter of 2001 and 35.7% of revenues compared to 41.2% for the six months ended June 29, 2001. Overall, sales and marketing expense decreased over the quarter and six months of 2001 by $1.1 million or 19.5% and $2.2 million or 20.4%, respectively. The improvement is due to the cost savings the Company has realized as a result of subsidiary closures in the previous year and cost containment measures which have reduced overall spending in the U.S.
 
Research and Development
 
Research and development expenses for the three and six month periods ended June 28, 2002 were 8.1% of revenues compared to 7.3% for the second quarter of 2001 and 8.6% of revenues compared to 6.8% of revenues for the six months ended June 29, 2001. Overall, research and development expense increased over the quarter and year of 2001 by $40,000 or 4.3% and $299,000 or 17.0%, respectively. The increase as a percent of revenues is due to lower revenues. In terms of dollars, the increase is related to costs associated with the redesign and launches of the Collamer three piece IOL and new cartridge technology. ICL research and development activities and associated costs also increased.
 
Subsidiary Closure Charges
 
In connection with its business strategy to reduce operating expenses announced during the third quarter of 2001, the Company completed the sale of its South African subsidiary and the closure of its Swedish subsidiary during the quarter ended June 28, 2002. As a result of transactions the Company recorded $1.2 million of subsidiary closure charges. The charges were primarily related to the recognition of deferred losses resulting from the translation of foreign currency statements into U.S. dollars (previously included in equity in the balance sheet in accordance with FAS-52). Since the charges had been included in equity their subsequent recognition, while impacting retained earnings, had no impact on total stockholders’ equity. The Company will continue its presence in the South African and Swedish markets through distributors.
 
Other Expense, Net
 
Other expense, net for the three and six month periods ended June 28, 2002 increased approximately $523,000 and $536,000, respectively over the same periods in 2001 as a result of exchange losses on Swiss Franc denominated debt and decreased interest income.
 
Income Tax Benefit
 
Due to the Company’s near term inability to realize its deferred tax assets, the Company adopted a more prudent accounting policy and recorded no income tax benefits in 2002 on current U.S. losses. The Company recorded a tax benefit in the first quarter of 2002 associated with legislation enacted on March 9, 2002 enabling the Company to carryback portions of its 2000 and 2001 losses to 1996, 1997, and 1998. The refund claim in the amount of approximately $959,000 was filed in the second quarter of 2002 and the refund is expected in the third quarter of 2002.

11

Table of Contents
 
The income tax benefit recorded in the U.S. was offset by an income tax provision recorded by a profitable foreign subsidiary.
 
Realization of deferred tax assets is dependent upon the Company’s ability to generate sufficient future taxable income. Management believes that it is more likely than not that future taxable income will be sufficient to realize the recorded deferred tax assets, net of the existing valuation allowance of $4.3 million at June 28, 2002. Future taxable income is based on management’s forecast of the operating results of the Company and there can be no assurance that such results will be achieved. Management continually reviews such forecasts in comparison with actual results and expected trends. In the event management determines that sufficient future taxable income may not be generated to fully realize the net deferred tax assets, the Company will increase the valuation allowance by a charge to income tax expense in the period of such determination.
 
Liquidity and Capital Resources
 
Cash and cash equivalents for the six months ended June 28, 2002 decreased by approximately $238,000 relative to the fiscal year ended December 28, 2001 and were used for investments in property and equipment.
 
During the six months ended June 28, 2002, inventories decreased by $1.9 million relative to the fiscal year ended December 28, 2001. The decrease was a result of better inventory management and a continued emphasis on lowering overall inventory quantities.
 
On March 29, 2002 the Company’s line of credit was amended. The amended terms extend the maturity date to March 31, 2003, provide as additional collateral 66% of the common stock of STAAR Surgical AG and 100% of the Company’s interest in Circuit Tree Medical, Inc. Additionally, the bank, at its option, may request collateral in the form of the Company’s interest in its subsidiaries in Australia and Canada. The interest rate is prime plus a spread from 1% to 4% plus a commitment fee of .25% to 1% based on the Company’s ratio of funded debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) at each fiscal quarter on a trailing 12-month basis. The agreement requires the Company to satisfy certain financial tests, which include positive and negative covenants and also required the maintenance of minimum cash balances.
 
During the quarter ended June 28, 2002, the Company was not in compliance with certain restrictive covenants of its loan agreement with its domestic lender resulting in a renegotiation of the agreement. The restated agreement, effective July 31, 2002, provides for a release of restricted cash in the amount of $2.0 million to be used to pay down the note and reduces the loan amount from $7.0 million to $4.5 million. The agreement also provides for additional monthly reductions for a total of $1.0 million through February 2003. There was no change in term, collateral or pricing and certain restrictive covenants were eliminated or relaxed. Certain covenant violations were waived through July 2002. The balance outstanding under the note at June 28, 2002 was approximately $4.8 million. The Company has reviewed its cash requirements over the next nine months and has determined that the credit available will be sufficient to meet the Company’s needs until such time as additional or new financing can be obtained.
 
As of June 28, 2002, the Company had a current ratio of 1.8:1, net working capital of $14.8 million and net equity of $43.4 million compared to December 28, 2001 when the Company’s current ratio was 1.9:1, its net working capital was $16.8 million, and its net equity was $46.4 million.

12

Table of Contents
 
The Company expects to be profitable in the future and believes that cash flow from operations and available credit facilities, together with its current cash balances, will provide adequate economic resources to fund existing operations.
 
All sales by the Company are denominated in U.S. dollars or the currency of the country of origin and, accordingly, the Company does not enter into hedging transactions with regard to any foreign currencies. Currency fluctuations can, however, increase the price of the Company’s products to its foreign customers which can adversely impact the level of the Company’s export sales from time to time. The majority of the Company’s cash equivalents are bank accounts, and the Company does not believe it has significant market risk exposure with regard to its investments. We are also exposed to the impact of interest rate changes. For example, based on average borrowings of $10 million during a three-month period, if the interest rate indices on which our bank borrowings are based were to increase 100 basis points in the three-month period, interest incurred would increase and cash flow would decrease by $25,000.

13

Table of Contents
 
PART II—ITEM 1    LEGAL PROCEEDINGS
 
William D. Kray v. STAAR Surgical Company.    Superior Court of California, County of Los Angeles, Case No. GC 026905. On March 16, 2001 William Kray, a former consultant to the Company, filed an action against the Company for alleged unpaid consulting fees in the amount of $239,325. In June 2002, the Company entered into a settlement agreement with Mr. Kray pursuant to which it agreed to pay to him the sum of $150,000 over a period of three months. A third party, who was not named as a defendant in Mr. Kray’s action, has agreed, in a separate agreement with the Company, to pay one-half of the settlement amount.
 
In re Sally M. Pollet, Debtor.    United States Bankruptcy Court for the Central District of California, Case No. ND01-13364RR. The Company filed a claim in this bankruptcy proceeding for the repayment of loans made by the Company to Andrew F. Pollet, its former director, in the amount of $2,749,795. A settlement has been reached with Mrs. Pollet and with Pollet, Richardson & Patel, A Law Corporation, for payment of the loans. The settlement agreement has been prepared and submitted to the Court for approval.
 
Richard Leza v. STAAR Surgical Company, Pollet & Richardson,    Los Angeles Superior Court, Case Number BC257159: This action was filed on August 30, 2001. Plaintiff Richard Leza was the Company’s former Vice President of Finance, Business Development and Corporate Strategy. He was terminated on November 1, 2000. Mr. Leza alleges that no cause existed for his termination, that he was entitled to acceleration of an option to purchase 50,000 shares of the Company’s Common Stock, that a loan in the amount of $120,000 made to him by the Company should have been forgiven, and that he is entitled to a severance payment of $130,000. Mr. Leza also alleged that the Company breached the implied covenant of good faith and fair dealing and terminated him in violation of public policy. During the second quarter of 2002, Pollet & Richardson was dismissed from this action. The Company remains a party.
 
PART II—ITEM 2    CHANGES IN SECURITIES AND USE OF PROCEEDS
 
Not applicable
 
PART II—ITEM 3    DEFAULTS UPON SENIOR SECURITIES
 
Not applicable
 
PART II—ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
The annual meeting of the Company’s shareholders was held on May 30, 2002.
 
One Class I director, David Bailey, was elected to a three year term. Mr. David Bailey was elected by a vote of 11,349,298 for and 62,529 against with 373,709 votes abstaining. Continuing in office were Dr. Peter Utrata and Dr. Volker Anhaeusser, the Class II directors and Mr. John Gilbert and Mr. David Morrison, the Class III directors.
 
Aside from electing one Class I director, no other matters were voted on at the meeting.

14

Table of Contents
 
PART II—ITEM 5    OTHER INFORMATION
 
Not applicable
 
PART II—ITEM 6    EXHIBITS AND REPORTS ON FORM 8-K
 
3.1
   
Certificate of Incorporation, as amended(1)
3.2
   
By-laws, as amended(2)
4.5
   
Stockholders’ Rights Plan, dated effective April 20, 1995(2)
10.1
   
Employment Agreement effective January 3, 2002 between the Company and John Bily(3)
10.2
   
Employment Agreement effective January 22, 2002 between the Company and Helene Lamielle(3)
10.3
   
Settlement Agreement effective June 20, 2002 between the Company and William D. Kray(3)
10.4
   
First Amendment to the Amended and Restated Credit Agreement dated July 31, 2002 between the Company and Wells Fargo Bank, N.A.(3)
10.5
   
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
 
Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, as filed on March 28, 2000
(2)
 
Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 29, 2000, as filed on March 29, 2001
(3)
 
Filed herewith

15

Table of Contents
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
STARR SURGICAL COMPANY
by:
  
/s/    JOHN BILY        
   
John Bily
Chief Financial Officer and
Duly Authorized Officer
(Principal accounting and financial
Officer for the quarter)
Date:    August 9, 2002

16
EX-10.1 3 dex101.txt BILY - EMPLOYMENT AGREEMENT DATED 01/03/02 Exhibit 10.1 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is made and entered into by and between STAAR Surgical Company (the "Company"), a Delaware corporation located at 1911 Walker Avenue, Monrovia, California 91016 and John Bily (hereinafter the "Employee"), located at 1606 Fairford Drive, Fullerton, CA 92833, effective January 3, 2002. RECITALS -------- A. WHEREAS, the Company wishes to retain the services of Employee and Employee wishes to render services to Company as . B. WHEREAS, the Employee and the Company desire to enter into this Employment Agreement and to establish the terms and conditions of the Employee's employment. C. WHEREAS, the Company and the Employee intend that this Agreement will supercede and replace any and all other employment agreements or arrangements for employment entered into by and between the Company and the Employee, and that such employment agreements or arrangements shall have no further force or effect. AGREEMENT --------- NOW, THEREFORE, for and in consideration of the promises, covenants, and agreements contained herein, the parties hereto agree as follows: ARTICLE 1 EMPLOYMENT ---------- 1.1 Employment. The Company hereby agrees to employ the Employee and the Employee hereby agrees to serve the Company in the capacity of Chief Financial Officer, based upon the terms and conditions set forth in this agreement. 1.2 Duties. During the term of his employment, the Employee shall devote his full time, efforts, abilities, and energies to the Company's business and, in particular, shall use his best efforts, skill, and abilities to promote the general welfare and interests of the Company. The Employee shall loyally, conscientiously, and professionally do and perform all such duties and responsibilities as shall be reasonably assigned by the Company and the Employee's superiors from time to time, and shall comply with all of the Company's personnel policies and procedures, including, but not limited to, those contained in The Company's Employee Handbook. 1.3 Noncompetition, Nonsolicitation and Noninterference and ------------------------------------------------------- Proprietary Property and Confidential Information Provisions. - ------------------------------------------------------------ (a) Applicable Definitions. ---------------------- For purposes of this paragraph, 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. (b) Nonsolicitation and Noninterference. ----------------------------------- (1) Covenants. Employee hereby covenants and agrees that 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) During the term of this Agreement and for a period of one (1) year from the date this Agreement terminates or expires, 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) During the term of this Agreement and for a period of one (1) year from the date of the Agreement, on behalf of, directly or indirectly, any Competitive Business, 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, client, contractor, supplier or vendor of Company or any affiliate of Company (the "Noninterference Covenant)". 2 (2) Acknowledgements. Each of the parties acknowledges that: (i) the 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 this Nonsolicitation and/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. (4) Termination of Agreement. The covenants and agreements contained in the Nonsolicitation and Noninterference Covenant shall terminate and be of no effect if this Agreement is terminated by Company without Cause. (c) Proprietary Property; Confidential Information. ---------------------------------------------- (1) "Applicable Definitions" - For purposes of this paragraph, 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 3 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 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 4 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 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. Provided, however, notwithstanding the foregoing, Employee shall not be required to assign his rights in any invention which qualifies fully under the provisions of Section 2870(a) of the California Labor Code, which provides, in pertinent part, that the requirement to assign "shall not apply to any invention that the employee developed entirely on his or her own time without using employer's equipment, supplies, facilities or trade secret information except for those inventions that either: (i) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or (ii) Result from any work performed by the employee for the employer." 5 Employee understands that be bears the full burden of proving to Company that an invention qualifies fully under Section 2870(a). By signing this Agreement, Employee acknowledges receipt of a copy of this Agreement and of written notification of the provisions of Section 2870. ARTICLE 2 COMPENSATION ------------ 2.1 Salary. The Company shall pay the Employee a salary payable at the gross rate of $7,692.30 per pay period, to be paid on a bi-weekly basis. Employee's annual salary shall be reviewed periodically by Company for the purpose of determining whether Employee's salary shall be increased. 2.2 Bonus. In addition to the salary described above, the Employee shall be eligible for an annual bonus based on 40% of annual salary, which shall be payable on employee's anniversary date of hire and shall be subject to the achievement of corporate milestones. Active employment on the date of the bonus payment is a condition precedent to earning the bonus. If the Employee is not employed by the Company on January 3, 2003, for any reason, he will be entirely ineligible for any bonus whatsoever. No other bonuses will be paid by the Company to Employee, unless the Company determines, in its sole and absolute discretion, to provide additional bonus monies. 2.3 Stock Options. Company grants to Employee an option to purchase 100,000 (100,000) shares of Company's stock. The options shall be subject to the 1998 STAAR Surgical Company Stock Option Plan (the "Plan"). The options shall vest in equal increments over three years. However, the vesting schedule may accelerate based on employee's achievement of specific goals and objectives. The exercise price per share shall be based on the price at the close of business on the date the offer letter of employment is signed. The employee agrees to be bound by the terms of the Plan. 2.3 Employee Benefits. In addition to the compensation specified above, the Employee shall be permitted to participate in certain employee benefit programs in the same manner and subject to the same terms, conditions, and limitations as other full-time employees of the Company. The Employee will also be entitled to four weeks vacation time without loss of compensation. 2.4 Business Expenses. The Company will reimburse the Employee for reasonable business expenses such as cellular phone, mileage, and business entertainment expenses, provided that these expenses were incurred on Company business and provided that expense reports regarding these expenses are submitted to the Company in a timely manner. 6 ARTICLE 3 TERMINATION OF EMPLOYMENT 3.1 Termination. This employment relationship may be terminated for any of the reasons provided below: a. Termination for Cause. Company may terminate this Agreement for "Cause". Cause means any of the following: (1) willful breach or habitual neglects of the duties which Employee is required to perform under the terms of this Agreement, (2) any act of dishonesty, fraud, insubordination, misrepresentation, gross negligence or willful misconduct, (3) conviction of a felony, or (4) intentional violation of any Company policy. Company may terminate this Agreement for Cause by giving written or verbal notice of termination to Employee. With the exception of the covenants set forth in Paragraph 1.3, 4.1 and 4.3, 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, the Company shall pay to Employee, immediately upon such termination, any accrued but unpaid compensation to which Employee is entitled on the date of such termination. b. Termination for Poor Performance. Employer may terminate employee's employment under this Agreement for "Poor Performance". Poor Performance is a failure of the Employee to properly meet the duties and responsibilities of his/her position in a competent fashion, as determined by the Chief Executive Officer. Such termination for "Poor Performance" shall occur only after employee has been advised in writing of the failure to meet the duties and responsibilities, or guidelines/goals and given a reasonable period of time of at least 30 days to cure the Poor Performance. Poor Performance shall occur if Employee has failed to meet guidelines/goals for three consecutive months. Following the termination for Poor Performance, the Employee shall be entitled to payment of his base salary through the last day of his employment, and shall receive one additional month of base salary. Employee shall be entitled to no other payments or benefits after a termination for Poor Performance. With the exception of the covenants set forth in Paragraph 1.3, 4.1 and 4.3, upon such termination the obligations of Employee and Company under this Agreement shall immediately cease. c. Death. Employee's employment shall terminate upon the death of Employee. Upon such termination, the obligations of Employee and 7 Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive any amount of compensation earned but unpaid. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. d. Election By Employee. Employee's employment may be terminated at any time by Employee upon not less than ninety (90) days written notice to Company. With the exception of the covenants set forth in Paragraphs 1.3, 4.1 and 4.3, upon such termination the obligations of Employee and the Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive any amount of compensation earned but unpaid. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. e. Election by Company Due to a Change of Control. If Employee's employment is terminated by Company due to the sale or disposition by the 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, in lieu of any other rights or benefits under this Agreement, one (1) year's salary, and any option held by Employee which is unvested on the date of termination shall immediately vest. "A controlling interest" shall be defined as 50% or more of the common stock of the Company. "One (1) year's salary" shall be defined as only the cash compensation paid to Employee pursuant to paragraph 2.1, as it may be modified from time to time, and shall not include employee benefits, bonus, stock options, automobile allowance or debt forgiveness, if any. With the exception of the covenants contained in Paragraphs 1.3(c), 4.1 and 4.3, upon such termination the obligations of Employee and the Company shall immediately cease. f. Termination Without Cause. Company is entitled to terminate the Employee's employment without cause for any reason; provided, however, that the Employee shall be entitled to 90 days written notice and six months/weeks pay as severance, as well as any accrued but unpaid compensation in lieu of any other rights or benefits under this Agreement, to which Employee is entitled on the date of such termination. With the exception of the covenants contained in Paragraphs 1.3(c), 4.1 and 4.3, upon such termination the obligations of Employee and the Company shall immediately cease. 8 ARTICLE 4 --------- ADDITIONAL OBLIGATIONS ---------------------- 4.1 Non-Interference. The Employee shall not now or in the future, either during or subsequent to the period of the Employee's employment, disrupt, damage, impair or interfere with the business of the Company in any manner, including, without limitation, inducing an employee to leave the employ of the Company or inducing an employee, a consultant, a sales representative, or an independent contractor to sever that person's relationship with the Company either by interfering with or raiding the Company's employees or sales representatives, disrupting the relationships with customers, agents, independent contractors, representatives or vendors, or otherwise. 4.2 Conflicts of Interest. If the Employee is involved, directly or indirectly, in an activity that presents a potential or actual conflict of interest, as determined by the Company, by virtue of the Employee's employment or employment relationship with the Company, the Employee shall immediately terminate such activity, employment and/or relationship unless the Employee has the express written permission of the Company to continue it. If the Employee has any doubts as to whether a potential or actual conflict of interest is involved, the Employee must disclose all pertinent facts to the Company before undertaking the activity. The Company shall make the final decision as to whether such a conflict or potential conflict exists in its sole and subjective discretion. 4.3 Confidentiality. The Employee agrees, at all times during and after the Employee's employment hereunder, to hold in the strictest confidence, and not to disclose to any person, firm or corporation without the express written authorization of the Chairman of the Board of the Company, any trade secret, such as any financial information or any secret, proprietary, or confidential information relating to the research and development programs, vendor and marketing programs, customers, customers' information, sales or business of the Company, except as such disclosure or use may be required in connection with his work for the Company or is published or is otherwise readily available to the public or becomes known to the public other than by his breach of this Agreement. If it is at any time determined that any of the information or materials identified above are, 9 in whole or in part, not entitled to protection as trade secrets, the Employee and the Company agree that they shall nevertheless be considered and treated as confidential information that is protected under this Agreement, in the same manner as trade secrets, to the extent permitted by law. The Employee further agrees, upon termination of this Agreement, to promptly deliver to the Company all notes, books, correspondence, drawings, computer storage information, and any and all other written and graphical records in his possession or under his control relating to the past, present or future business, accounts, or projects of the Company. ARTICLE 5 --------- MISCELLANEOUS -------------- 5.1 Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes any and all other arrangements, communications, understandings, promises, stipulations, arrangements, whether any of the same are either oral or in writing, or express or implied, between the parties hereto with respect to the subject matter hereof, including, but not limited to, any implied-in-law or implied-in-fact covenants or duties relating to employment or the termination of employment. No change to or modification of this Agreement shall be valid or binding unless the same shall be in writing and signed by both the Employee and the President of the Company. 5.2 Severability. In the event that any one or more of the provisions of this Agreement shall be held invalid, illegal, or unenforceable, in any respect, by a court of competent jurisdiction, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected thereby. 5.3 Applicable Law. This Agreement and the rights and remedies of each party arising out of or relating to this Agreement, shall be governed by, interpreted under and enforced under the laws of the State of California. 5.4 Counterparty. This Agreement may be executed in counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, the parties hereto acknowledge that they have read this Agreement, fully understand it, and have freely and voluntarily entered into it. 10 "EMPLOYEE" DATED: 12/20/01 ___________________________ ----------- "The Company" DATED: 1/3/02 By____________________________ ----------- STAAR Surgical Company 11 EX-10.2 4 dex102.txt LAMIELLE - EMPLOYMENT AGREEMENT DATED 01/22/02 Exhibit 10.2 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is made and entered into by and between STAAR Surgical Company (the "Company"), a Delaware corporation located at 1911 Walker Avenue, Monrovia, California 91016 and Helene Lamielle (hereinafter the "Employee"), located at 18741 Via Siena, Irvine, CA 92612, effective January 22, 2002. -- RECITALS -------- A. WHEREAS, the Company wishes to retain the services of Employee and Employee wishes to render services to Company as Vice President of Research and Development. B. WHEREAS, the Employee and the Company desire to enter into this Employment Agreement and to establish the terms and conditions of the Employee's employment. C. WHEREAS, the Company and the Employee intend that this Agreement will supercede and replace any and all other employment agreements or arrangements for employment entered into by and between the Company and the Employee, and that such employment agreements or arrangements shall have no further force or effect. AGREEMENT --------- NOW, THEREFORE, for and in consideration of the promises, covenants, and agreements contained herein, the parties hereto agree as follows: ARTICLE 1 EMPLOYMENT ---------- 1.1 Employment. The Company hereby agrees to employ the Employee and the Employee hereby agrees to serve the Company in the capacity of Vice President of Research and Development, based upon the terms and conditions set forth in this agreement. 1.2 Duties. During the term of her employment, the Employee shall devote her full time, efforts, abilities, and energies to the Company's business and, in particular, shall use her best efforts, skill, and abilities to promote the general welfare and interests of the Company. The Employee shall loyally, conscientiously, and professionally do and perform all such duties and responsibilities as shall be reasonably assigned by the Company and the Employee's superiors from time to time, and shall comply with all of the Company's personnel policies and procedures, including, but not limited to, those contained in The Company's Employee Handbook. 1.3 Noncompetition, Nonsolicitation and Noninterference and ------------------------------------------------------- Proprietary Property and Confidential Information Provisions. - ------------------------------------------------------------ (a) Applicable Definitions. ---------------------- For purposes of this paragraph, 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. (b) Nonsolicitation and Noninterference. ----------------------------------- (1) Covenants. Employee hereby covenants and agrees that 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) During the term of this Agreement and for a period of one (1) year from the date this Agreement terminates or expires, 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) During the term of this Agreement and for a period of one (1) year from the date of the Agreement, on behalf of, directly or indirectly, any Competitive Business, 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, client, contractor, supplier or vendor of Company or any affiliate of Company (the "Noninterference Covenant)". 2 (2) Acknowledgements. Each of the parties acknowledges that: (i) the 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 this Nonsolicitation and/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. (4) Termination of Agreement. The covenants and agreements contained in the Nonsolicitation and Noninterference Covenant shall terminate and be of no effect if this Agreement is terminated by Company without Cause. (c) Proprietary Property; Confidential Information. ---------------------------------------------- (1) "Applicable Definitions" - For purposes of this paragraph, 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 3 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 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 4 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 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 therefore, whether or not Employee is at the time employed by Company. Provided, however, notwithstanding the foregoing, Employee shall not be required to assign his rights in any invention which qualifies fully under the provisions of Section 2870(a) of the California Labor Code, which provides, in pertinent part, that the requirement to assign "shall not apply to any invention that the employee developed entirely on his or her own time without using employer's equipment, supplies, facilities or trade secret information except for those inventions that either: (i) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or (ii) Result from any work performed by the employee for the employer." 5 Employee understands that she bears the full burden of proving to Company that an invention qualifies fully under Section 2870(a). By signing this Agreement, Employee acknowledges receipt of a copy of this Agreement and of written notification of the provisions of Section 2870. ARTICLE 2 COMPENSATION ------------ 2.1 Salary. The Company shall pay the Employee a salary payable at the gross rate of $7,692.30 per pay period, to be paid on a bi-weekly basis. Employee's annual salary shall be reviewed periodically by Company for the purpose of determining whether Employee's salary shall be increased. 2.2 Bonus. In addition to the salary described above, the Employee shall be eligible for an annual bonus based on 25% of annual salary, which shall be payable on employee's anniversary date of hire and shall be subject to the achievement of corporate milestones. Active employment on the date of the bonus payment is a condition precedent to earning the bonus. If the Employee is not employed by the Company on the anniversary date of hire for any reason, she will be entirely ineligible for any bonus whatsoever. No other bonuses will be paid by the Company to Employee, unless the Company determines, in its sole and absolute discretion, to provide additional bonus monies. 2.3 Stock Options. Company grants to Employee an option to purchase 75,000 (seventy five thousand) shares of Company's stock. The options shall be subject to the 1998 STAAR Surgical Company Stock Option Plan (the "Plan"). The options shall vest in equal increments over three years. However, the vesting schedule may accelerate based on employee's achievement of specific goals and objectives. The exercise price per share shall be based on the price at the close of business on the date the offer letter of employment is signed. The employee agrees to be bound by the terms of the Plan. 2.4 Education Reimbursement. In order to further develop the employee's potential, the Company agrees to support the Employee's Health Care Executive MBA program. The company will make direct payment to the University of California, Irvine, up to a total amount of $27,000 toward the tuition fees due for the program. This payment shall be made in August, 2002. The Company also considers the hours that the Employee spends in class for the Executive MBA program (a current schedule of which is attached hereto and is subject to modification) as working hours for the Company and/or that the Employee's compensation shall not be deducted as a result of the employee's hours of attendance in these classes. 6 2.5 Employee Benefits. In addition to the compensation specified above, the Employee shall be permitted to participate in certain employee benefit programs in the same manner and subject to the same terms, conditions, and limitations as other full-time employees of the Company. 2.6 Business Expenses. The Company will reimburse the Employee for reasonable business expenses such as cellular phone, mileage, and business entertainment expenses, provided that these expenses were incurred on Company business and provided that expense reports regarding these expenses are submitted to the Company in a timely manner. 2.7 Vacation Time. The Employee will be entitled to three weeks vacation time without loss of compensation. ARTICLE 3 TERMINATION OF EMPLOYMENT 3.1 Termination. This employment relationship may be terminated for any of the reasons provided below: a. Termination for Cause. Company may terminate this Agreement for "Cause". Cause means any of the following: (1) willful breach or habitual neglects of the duties which Employee is required to perform under the terms of this Agreement, (2) any act of dishonesty, fraud, insubordination, misrepresentation, gross negligence or willful misconduct, (3) conviction of a felony, or (4) intentional violation of any Company policy. Company may terminate this Agreement for Cause by giving a written notice of termination to Employee. With the exception of the covenants set forth in Paragraph 1.3, 4.1 and 4.3, 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, the Company shall pay to Employee, immediately upon such termination, any accrued but unpaid compensation to which Employee is entitled on the date of such termination. b. Termination for Poor Performance. Employer may terminate employee's employment under this Agreement for "Poor Performance". Poor Performance is a failure of the Employee to properly meet the duties and responsibilities of his/her position in a competent fashion, as determined by the 7 Chief Executive Officer. Such termination for "Poor Performance" shall occur only after employee has been advised in writing of the failure to meet the duties and responsibilities, or guidelines/goals and given a reasonable period of time of at least 30 days to cure the Poor Performance. Poor Performance shall occur if Employee has failed to meet guidelines/goals for three consecutive months. Following the termination for Poor Performance, the Employee shall be entitled to payment of his base salary through the last day of his employment, and shall receive one additional month of base salary. Employee shall be entitled to no other payments or benefits after a termination for Poor Performance. With the exception of the covenants set forth in Paragraph 1.3, 4.1 and 4.3, upon such termination the obligations of Employee and Company under this Agreement shall immediately cease. c. Death. Employee's employment shall terminate upon the death of Employee. Upon such termination, the obligations of Employee and Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive any amount of compensation earned but unpaid. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. d. Election By Employee. Employee's employment may be terminated at any time by Employee upon not less than ninety (90) days written notice to Company. With the exception of the covenants set forth in Paragraphs 1.3, 4.1 and 4.3, upon such termination the obligations of Employee and the Company under this Agreement shall immediately cease. In the event of a termination pursuant to this paragraph, Employee shall be entitled to receive any amount of compensation earned but unpaid. All other rights Employee has under any benefit or stock option plans and programs shall be determined in accordance with the terms and conditions of such plans and programs. e. Election by Company Due to a Change of Control. If Employee's employment is terminated by Company due to the sale or disposition by the 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, in lieu of any other rights or benefits under this Agreement, one (1) year's salary, and any option held by Employee which is unvested on the date of termination shall immediately vest. "A controlling interest" shall be defined as 50% or more of the common stock of the Company. "One (1) year's salary" shall be defined as only the cash compensation paid to Employee pursuant to paragraph 2.1, as it may be modified from time to 8 time, and shall not include employee benefits, bonus, stock options, automobile allowance or debt forgiveness, if any. With the exception of the covenants contained in Paragraphs 1.3(c), 4.1 and 4.3, upon such termination the obligations of Employee and the Company shall immediately cease. f. Termination Without Cause. Company is entitled to terminate the Employee's employment without cause for any reason; provided, however, that the Employee shall be given a written notice of termination three months prior to the effective date of termination. On the effective date of termination, the employee will be given six (6) months pay as severance, as well as any accrued but unpaid compensation in lieu of any other rights or benefits under this Agreement, to which Employee is entitled on the date of such termination. With the exception of the covenants contained in Paragraphs 1.3(c), 4.1 and 4.3, upon such termination the obligations of Employee and the Company shall immediately cease. ARTICLE 4 --------- ADDITIONAL OBLIGATIONS ---------------------- 4.1 Non-Interference. The Employee shall not now or in the future, either during or subsequent to the period of the Employee's employment, disrupt, damage, impair or interfere with the business of the Company in any manner, including, without limitation, inducing an employee to leave the employ of the Company or inducing an employee, a consultant, a sales representative, or an independent contractor to sever that person's relationship with the Company either by interfering with or raiding the Company's employees or sales representatives, disrupting the relationships with customers, agents, independent contractors, representatives or vendors, or otherwise. 4.2 Conflicts of Interest. If the Employee is involved, directly or indirectly, in an activity that presents a potential or actual conflict of interest, as determined by the Company, by virtue of the Employee's employment or employment relationship with the Company, the Employee shall immediately terminate such activity, employment and/or relationship unless the Employee has the express written permission of the Company to continue it. If the Employee has any doubts as to whether a potential or actual conflict of interest is involved, the Employee must disclose all pertinent facts to the Company before undertaking the 9 activity. The Company shall make the final decision as to whether such a conflict or potential conflict exists in its sole and subjective discretion. 4.3 Confidentiality. The Employee agrees, at all times during and after the Employee's employment hereunder, to hold in the strictest confidence, and not to disclose to any person, firm or corporation without the express written authorization of the Chairman of the Board of the Company, any trade secret, such as any financial information or any secret, proprietary, or confidential information relating to the research and development programs, vendor and marketing programs, customers, customers' information, sales or business of the Company, except as such disclosure or use may be required in connection with his work for the Company or is published or is otherwise readily available to the public or becomes known to the public other than by his breach of this Agreement. If it is at any time determined that any of the information or materials identified above are, in whole or in part, not entitled to protection as trade secrets, the Employee and the Company agree that they shall nevertheless be considered and treated as confidential information that is protected under this Agreement, in the same manner as trade secrets, to the extent permitted by law. The Employee further agrees, upon termination of this Agreement, to promptly deliver to the Company all notes, books, correspondence, drawings, computer storage information, and any and all other written and graphical records in his possession or under his control relating to the past, present or future business, accounts, or projects of the Company. ARTICLE 5 --------- MISCELLANEOUS ------------- 5.1 Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes any and all other arrangements, communications, understandings, promises, stipulations, arrangements, whether any of the same are either oral or in writing, or express or implied, between the parties hereto with respect to the subject matter hereof, including, but not limited to, any implied-in-law or implied-in-fact covenants or duties relating to employment or the termination of employment. No change to or modification of this Agreement shall be valid or binding unless the same shall be in writing and signed by both the Employee and the President of the Company. 10 5.2 Severability. In the event that any one or more of the provisions of this Agreement shall be held invalid, illegal, or unenforceable, in any respect, by a court of competent jurisdiction, the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected thereby. 5.3 Applicable Law. This Agreement and the rights and remedies of each party arising out of or relating to this Agreement, shall be governed by, interpreted under and enforced under the laws of the State of California. 5.4 Counterparty. This Agreement may be executed in counterparts, each of which shall be deemed an original. IN WITNESS WHEREOF, the parties hereto acknowledge that they have read this Agreement, fully understand it, and have freely and voluntarily entered into it. "EMPLOYEE" DATED: 15th, of January 2002 ----------------------- ___________________________ "The Company" DATED:_______________________ By____________________________ STAAR Surgical Company 11 PROGRAM DATES Health Care Executive MBA (HC 6) - ------------------------------------------------------------------------------- Fall 2001: Mgmt HC200 Mgmt of Complex Organizations (Opening Residential) Residential Dates: September 4- 9,2003 Location: Irvine Hyatt Fall Class Dates: Sept 27 - Sept 30 Oct 18 - Oct 21 Nov 15 - NOV 18 - ------------------------------------------------------------------------------- Winter 2002: Jan 10 - Jan 13 Feb 7 - Feb 10 Mar 7 - Mar 10 - ------------------------------------------------------------------------------- Spring 2002: April 4 - April 7 May 2 - May 5 June 6 - June 9 - ------------------------------------------------------------------------------- Summer 2002: July 11 - July 14 August 8 - August 11 - ------------------------------------------------------------------------------- DATES AFTER FALL 02 ARE VERY TENTATIVE! *Fall 2002: Sept 26 - Sept 29 Oct 17 - Oct 20 Nov 14 - Nov 17 - ------------------------------------------------------------------------------- *Winter 2003: Mgmt HC295 Federal Policy in HC (Washington D.C. Residential) Residential Dates: Jan 26 - Feb 1,2003 Location: Washington D.C. Winter Class Dates: Jan 9 - Jan 12 Feb 20 - 23 (President's Holiday, Monday, Feb 17) Mar 13 - Mar 16 - ------------------------------------------------------------------------------- *Spring 2003: April 3 - April 6 May 1 - May 4 June 5 - June 8 - ------------------------------------------------------------------------------- *Summer 2003: Mgmt HC296 Executive Leadership (Residential) Residential Dates: Sunday, Aug 24- Friday, Aug 29,2003 (UCLA Conference Center closed 6/15/03 - 9/5/03) Location: Aliso Creek Summer Class Dates: July 10 - July 13 August 7 - August 10 (Master's Degree Paperwork for Summer Degree Conferral: September 9,2003) - ------------------------------------------------------------------------------- Note: Dates Subject to Change - ------------------------------------------------------------------------------- EX-10.3 5 dex103.txt KRAY - SETTLEMENT AGREEMENT DATED 06/20/02 Exhibit 10.3 SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF ALL CLAIMS ----------------------------------------------------- This Settlement Agreement and Mutual Release of Claims ( Hereinafter "Agreement") is made and entered into by the following parties: William D. Kray (Hereinafter "Kray") and Staar Surgical Company, Inc. a Delaware Corporation (Hereinafter "Staar"). RECITALS There is now pending before the Superior Court of the State of California, for the County of Los Angeles, NorthEast District, a civil action captioned, Kray v. Staar, Case Number GC026905 (Hereinafter "Action"), in which Kray has received a Judgment for damages. Whereas, the parties now desire to settle and resolve fully and finally all of their claims against each other whether they be past, present or future, as to Kray's Judgment in the Action against Staar, Staar's challenges to and appeal of Kray's Judgment in the Action, and also as to each and every one of Staar's alleged claims for damages against Kray, including but not limited to any specific claims for damages, negligence, breach of contract, professional negligence and or indemnity concerning the removal of several million dollars of silicon IOL lenses that had been sold to customers by Staar, including the cost of removal of said lenses from the market, damages to reputation, and damages caused by claims made resulting from an increased number of torn lenses, without any admission of liability or of wrongdoing by either Staar or by Kray . In consideration of this Agreement, Staar shall pay Kray, the sum of $150,000.00, payable in three equal installments of $50,000.00, with the first installment due on July 15, 2002, the second installment due on August 15, 2002 and the third installment due on September 15, 2002, made payable to William D. Kray and Andrew P. Altholz ACTA. In consideration of this Agreement, Kray shall voluntarily stay enforcement of the Judgment in the Action, while Staar pays the installments as agreed and under the terms set forth in the above paragraph, and only after full payment $150,000.00 under the terms set forth above, Kray shall file an Acknowledgment of Satisfaction of Judgment in the action and provide a conformed copy to Staar by no later than October 15, 2002. All parties hereby enter into mutual releases as set forth in this Agreement. 1 AGREEMENT Each recital set forth above is incorporated herein by this reference as if fully set forth. In consideration of the matters set forth in the recitals above, each party, Kray and Staar, both as Releasor and as Releasee, agrees to fully and completely release each other party respectively, on their own behalf, and only on behalf of their respective past and present employees, their attorneys of record in the Action, their past and present Officers, Directors and Shareholders, subsidiaries, parent companies, partnerships and joint ventures, predecessors, successors and assigns, from any and all demands, liabilities, causes of action and all claims, whether the claims are known, suspected or unknown, whether anticipated or unanticipated, whether past or present or future, whether based in tort, contract, Federal or State Statute, or other legal theory of recovery, including but not limited to any claims relating as to Kray's Judgment in the Action against Staar, Staar's challenges to Kray's Judgment in the Action including any appeal thereof, and also as to each and every one of Staar's alleged claims for damages against Kray, including but not limited to any specific claims for damages, negligence, breach of contract, professional negligence and or indemnity concerning the removal of several million dollars of silicon IOL lenses that had been sold to customers by Staar, including the cost of removal of said lenses from the market, damages to reputation, and damages caused by claims made resulting from an increased number of torn lenses, and any claims arising from the prosecution of the Action by Kray or his attorney. Each party, Kray and Staar, respectively, enter into this Agreement as a mutual, full and final general release, of all matters, including those set forth above, and specifically waiving the provisions of California Civil Code Section 1542, to effectuate the fullest possible general release. California Civil Code Section 1542 provides that " 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." Each party, Kray and Staar ,represents and warrants that no promise or inducement has been offered except as set forth in this Agreement. Each party, Kray and Staar, represents and warrants that he/she/it has not assigned or transferred their claims against each other, directly or by way of subrogation, to any other person or entity. Each party, Kray and Staar, represents and warrants that he/she/it has exercised his own judgment after the opportunity to consult with legal counsel and or any other advisor of his/her/its choice and warrants that in entering this Agreement that he/she/it has not relied upon any representations made by any other party or any other third party. 2 Each party, Kray and Staar, represents and warrants that this Agreement is executed free of duress and without reliance upon any warranty, statement or representation which is not set forth in writing in this Agreement and that parole evidence may not be used to augment or interpret this agreement. Each party, Kray and Staar, understands this Agreement is a compromise of matters involving disputed liability and disputed issues of law and fact and that he/she/it assumes the risk of the possibility that they may discover differences in the law or facts which they now believe to be true, and that this Agreement shall remain effective notwithstanding any such difference. Each Releasor, Kray and Staar, warrants that he/she/it is of legal age and capacity, legally competent, that he/she/it has fully read and understood and voluntarily accepted this agreement. Each party, Kray and Staar, shall bear his/her/its own costs, expenses and attorneys fees arising from the Action and as to the claims discharged in this Agreement and or relating to this Agreement. This Agreement shall be construed under the laws of the State of California and jurisdiction over this Agreement shall be solely in Los Angeles County California and the Court in the Action shall retain jurisdiction over the obligations required by this Agreement. To the extent any term or terms of this Agreement are construed or adjudged to be invalid or partially enforceable, the remaining terms are to remain in full force and effect. This Agreement is deemed to have been drafted jointly by all parties, Kray and Staar, each, through his/her/its legal representative, who have reviewed and contributed to the revision of the terms contained in it such that any uncertainty or ambiguity is not to be construed against any one of the parties hereto. This agreement may be executed in counterparts by each party hereto and is effective upon execution. Fax signatures are binding. The effective date of this agreement shall be June 20, 2002. This document is the full integration and the entire agreement of the parties, Kray and Staar, and replaces any and all prior agreements or understandings in writing or oral. 3 This Agreement may only be modified or amended by a written document signed by all parties. IT IS SO AGREED: DATED:____________ ____________________________ William D. Kray DATED: 7/11/02 /s/________________________ Staar Surgical ------------ Company, Inc., a Delaware Corporation by its President, David Bailey authorized to sign on its behalf APPROVED AS TO FORM AND CONTENT: DATED:____________ ____________________________ Andrew P. Altholz, Counsel for William D. Kray Pollet, Richardson & Patel DATED:____________ _____ ____________________________ by Addison Adams, Counsel for Staar Surgical Company, Inc a Delaware Corporation 4 EX-10.4 6 dex104.txt AMENDED AND RESTATED CREDIT AGMT DATED 07/31/02 Exhibit 10.4 July 31, 2002 Staar Surgical Company 1911 Walker Avenue Monrovia, California 91016 Attention: John Bily Chief Financial Officer Re: First Amendment to Amended and Restated Credit Agreement Ladies and Gentlemen: We refer to the Amended and Restated Credit Agreement dated as of March 29, 2002 (the "Credit Agreement") between Staar Surgical Company, a Delaware corporation (the "Borrower"), and Wells Fargo Bank, National Association, a national banking association (the "Bank"). Terms defined in the Credit Agreement and not otherwise defined herein have the same respective meanings when used herein. 1. Amendments to Credit Agreement. As of the effective date of this letter amendment but subject to satisfaction of the terms and conditions specified herein, the Credit Agreement is hereby amended as set forth below. (a) Section 1.1(a) of the Credit Agreement is amended by deleting the amount "$7,000,000" and substituting "$7,000,000, as such amount is reduced from time to time pursuant to Sections 1.1(c) and 1.4(a)." (b) Section 1.1 of the Credit Agreement is amended by adding a new subsection (c) to read as follows: "(c) Mandatory Reduction of Line of Credit. On each date specified in Schedule 3, the Line of Credit shall be automatically and permanently reduced to the amount set forth opposite such date under the heading `Line of Credit,' but only if and to the extent that the Line of Credit has not previously been reduced to such amount or less pursuant to Section 1.4(a)." (c) The table set forth in Section 1.2(c) of the Credit Agreement is amended in full to read as follows: Staar Surgical Company July 31, 2002 Page 2 - -------------------------------------------------------------------------------- Level Funded Debt to EBITDA Ratio Applicable Interest Margin - ----- --------------------------- -------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 ****0.00:1.00 but *2.00:1.00 1.00% per annum - -------------------------------------------------------------------------------- 2 ****2.00:1.00 but *4.00:1.00 2.00% per annum - -------------------------------------------------------------------------------- 3 ****4.00:1.00 but *6.00:1.00 3.00% per annum - -------------------------------------------------------------------------------- 4 ****6.00:1.00 or *0.00:1.00 4.00% per annum - -------------------------------------------------------------------------------- (d) The table set forth in Section 1.2(f) of the Credit Agreement is amended in full to read as follows: - -------------------------------------------------------------------------------- Level Funded Debt to EBITDA Ratio Applicable Fee Rate - ----- --------------------------- ------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 ****0.00:1.00 but *2.00:1.00 0.25% per annum - -------------------------------------------------------------------------------- 2 ****2.00:1.00 but *4.00:1.00 0.50% per annum - -------------------------------------------------------------------------------- 3 ****4.00:1.00 but *6.00:1.00 0.75% per annum - -------------------------------------------------------------------------------- 4 ****6.00:1.00 or *0.00:1.00 1.00% per annum - -------------------------------------------------------------------------------- (e) Section 1.4 of the Credit Agreement is amended by adding a new subsection (c) to read as follows: "(c) Overadvances. If at any time the aggregate principal amount of advances outstanding under this Agreement exceeds the maximum amount of the Line of Credit, Borrower will immediately, without any notice or request by Bank, repay the advances in the amount equal to such excess." (f) Section 4.2 of the Credit Agreement is amended by deleting the word "June" therein and substituting "the third quarter." (g) Section 4.3(e) of the Credit Agreement is amended by inserting "for such month and" immediately after the second reference to "Borrower." (h) Section 4.3 of the Credit Agreement is further amended by deleting the word "and" immediately after the semicolon in subsection (h), by re-lettering subsection (i) as subsection (j) and by inserting a new subsection (i) to read as follows: "(i) within 45 days after the end of each fiscal quarter of Borrower, written notice in reasonable detail of (i) the filing during such quarter of any application by or on behalf of Borrower or any Subsidiary thereof with the United States Patent and Trademark Office, the United States Copyright * Represent less than **** Represent greater than or equal to Staar Surgical Company July 31, 2002 Page 3 Office or any other office with respect to, or the acquisition during such quarter by Borrower or any Subsidiary thereof of any interest in (including, without limitation, any interest as exclusive licensee), any patent, trademark, copyright or other intellectual property, together with a copy of such application or the documentation concerning such acquisition, as applicable, and (ii) in the event that no such filing or acquisition has been made during such quarter, a certificate executed by the Chief Financial Officer of Borrower certifying to that effect; and." (i) Section 4.9 of the Credit Agreement is amended by restating subsections (b), (c), (d), (e), (f), (g) and (h) in full to read as follows: "(b) Tangible Net Worth, tested as of the last day of each fiscal month commencing with August of 2002, not less than $26,500,000, with `Tangible Net Worth' being defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets; "(c) for each fiscal month of Borrower, operating cash flow (as defined in accordance with Financial Accounting Standards Board Statement No. 95 (`FASB 95')) to be greater than the sum of required capitalized lease payments plus required debt repayments plus capital expenditures (as defined in accordance with FASB 95), tested as of the last day of each such fiscal month commencing with August of 2002; provided, however, that, if Borrower fails to comply with the foregoing covenant in respect of any fiscal month, then such failure shall not constitute a default of such covenant unless Borrower fails to comply with such covenant when applied to such fiscal month combined with the immediately preceding fiscal month; further provided, however, that, if Borrower fails to comply with the foregoing covenant in respect of any fiscal month and the immediately preceding fiscal month, then such failure shall not constitute a default of such covenant unless Borrower fails to comply with such covenant when applied to such fiscal month combined with the immediately preceding two fiscal months; "(d) for each fiscal month of Borrower, negative variance from projected revenues (based on the monthly and quarterly projections attached hereto as Schedule 2) to be less than 15%, tested as of the last day of each fiscal month commencing with August of 2002; provided, however, that, if Borrower fails to comply with the foregoing covenant in respect of any fiscal month, then such failure shall not constitute a default of such covenant unless Borrower fails to comply with such covenant when applied to such fiscal month combined with the immediately preceding fiscal month; further provided, however, that, if Staar Surgical Company July 31, 2002 Page 4 Borrower fails to comply with the foregoing covenant in respect of any fiscal month and the immediately preceding fiscal month, then such failure shall not constitute a default of such covenant unless Borrower fails to comply with such covenant when applied to such fiscal month combined with the immediately preceding two fiscal months; "(e) negative variance from projected net operating income or loss (based on the monthly and quarterly projections attached hereto as Schedule 2) for each period of three consecutive fiscal months to be less than $250,000 in the aggregate for such months, tested as of the last day of each fiscal month commencing with August of 2002, with `net operating income or loss' being defined as income or loss before interest income or expense, equity in earnings of any unconsolidated affiliate, currency-exchange gains or losses, any other income or expenses, taxes and minority interests in affiliates; "(f) [Intentionally Omitted.]; "(g) [Intentionally Omitted.]; and "(h) ratio of total liabilities to Tangible Net Worth not more than 0.80 to 1.00, tested as of the last day of each fiscal month commencing with August of 2002." (j) Section 4.10 of the Credit Agreement is amended by inserting the word "and" immediately before subsection (e) therein, by deleting the word "and" immediately before subsection (f) therein and by deleting subsection (f) in its entirety. (k) Section 4.11 of the Credit Agreement is amended by adding the following before the period at the end thereof: "; provided, however, that, on August 7, 2002, $2,000,000 in cash proceeds of such liquid assets shall be released from the lien in favor of Bank and applied to the principal amount of advances outstanding under this Agreement, and the remainder, if any, of such liquid assets shall be subject to the instructions of Borrower." (l) Schedule 2 to the Credit Agreement is amended in full to be in the form attached hereto as Schedule 2. (m) A new Schedule 3 is added to the Credit Agreement to be in the form attached hereto as Schedule 3. Staar Surgical Company July 31, 2002 Page 5 (n) Exhibit A to the Credit Agreement is amended in full to be in the form attached hereto as Exhibit A. (o) Exhibit C to the Credit Agreement is amended in full to be in the form attached hereto as Exhibit C. 2. Waiver of Events of Default under Credit Agreement. As of the effective date of this letter amendment but subject to satisfaction of the terms and conditions specified herein, the Bank hereby waives (subject, in the case of clause (a) below, to the provisions of paragraph 5 hereof) the Events of Default caused by the Borrower's violation of (a) the covenant contained in Section 4.3(a)(ii) of the Credit Agreement by failing to deliver a copy of a letter of Borrower's accountants to the management of Borrower in connection with Borrower's 2001 annual audited financial statements, (b) the covenant contained in Section 4.9(c) of the Credit Agreement with respect to April, May, June and July of 2002 and (c) the covenant contained in Section 4.9(e) of the Credit Agreement with respect to April, May, June and July of 2002. 3. Representations and Warranties. The Borrower hereby represents and warrants for the benefit of the Bank that (a) the representations and warranties of the Borrower contained in the Loan Documents are correct in all material respects on and as of the effective date of this letter amendment, before and after giving effect to the same, as if made on and as of such date, and (b) no event has occurred and is continuing, or would result from the effectiveness of this letter amendment, that constitutes an Event of Default. 4. Conditions Precedent. This letter amendment shall become effective as of the date first set forth above, subject to the condition subsequent set forth in paragraph 5 below, when and if (a) the Borrower and the Bank execute counterparts of this letter amendment and deliver them to each other, (b) the Borrower executes a new Line of Credit Note substantially in the form of Exhibit A to the Credit Agreement, as amended, and delivers it to the Bank, (c) the Bank receives from the Borrower an amendment fee in the amount of $11,250 (i.e., 0.25% of $4,500,000) and (d) the Borrower, the Bank and Wells Fargo Brokerage Services, LLC execute counterparts of a letter substantially in the form of Exhibit A attached hereto and deliver them to each other. 5. Condition Subsequent. The Borrower's delivery to the Bank, not later than September 30, 2002, of a copy of the letter prepared by BDO Seidman to the management of Borrower in connection with the Borrower's 2001 annual audited financial statements shall be a condition subsequent to the effectiveness of this letter amendment. Staar Surgical Company July 31, 2002 Page 6 6. Release of Claims. The Borrower represents and warrants to the Bank that it has diligently and thoroughly investigated the existence of any Claim (as defined below) and that, to its knowledge and belief, no Claim exists and no facts exist that could give rise to or support a Claim. As additional consideration for the Bank's entering into this letter amendment, the Borrower and each of its agents, employees, directors, officers, attorneys, affiliates, subsidiaries, successors and assigns (each a "Releasing Party") hereby release and forever discharge the Bank and each of its agents, direct and indirect shareholders, employees, directors, officers, attorneys, branches, affiliates, subsidiaries, successors and assigns (each a "Released Party") from any and all damages, losses, claims, demands, liabilities, obligations, actions and causes of action whatsoever (collectively "Claims") that the Releasing Parties or any of them may, as of the effective date of this letter amendment, have or claim to have against any or all of the Released Parties, in each case whether currently known or unknown or with respect to which the facts are known (or should have been known), that could give rise to or support a Claim on account of or in any way relating to, arising out of or based upon any Loan Document, any amendment, waiver or other modification with respect thereto, the negotiation or documentation hereof or thereof, any of the transactions contemplated hereby or thereby, or any action or omission in connection with any of the foregoing, including all such damages, losses, claims, demands, liabilities, obligations, actions and causes of action heretofore sustained or that may arise as a consequence of the dealings between the parties up to the effective date of this letter amendment in connection with or in any way related to any Loan Document or any amendment, waiver or other modification with respect thereto. Each Releasing Party further represents and warrants that it has not heretofore assigned, and covenants and agrees that it will not hereafter sue any Released Party upon, any Claim released or purported to be released under this section. Each Releasing Party will indemnify and hold harmless the Released Parties against any loss or liability on account of any actions brought by any Releasing Party or its assigns or prosecuted on behalf of any Releasing Party and relating to any Claim released or purported to be released under this section. It is further understood and agreed that any and all rights under the provisions of Section 1542 of the California Civil Code are expressly waived by each of the Releasing Parties. Section 1542 of the California Civil Code provides as follows: "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." 7. Reference to and Effect on Loan Documents. On and after the effective date of this letter amendment, (a) each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement," "thereunder," Staar Surgical Company July 31, 2002 Page 7 "thereof," "therein" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended by this letter amendment, and (b) each reference in the other Loan Documents to "the Line of Credit Note," "thereunder," "thereof," "therein" or words of like import referring to the Line of Credit Note shall mean and be a reference to the new Line of Credit Note executed by the Borrower in connection with this letter amendment. The Credit Agreement, as amended by this letter amendment, is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. 8. Execution in Counterparts. This letter amendment may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same letter amendment. 9. GOVERNING LAW. THIS LETTER AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE CHOICE-OF-LAW PRINCIPLES THEREOF. Very truly yours, WELLS FARGO BANK, NATIONAL ASSOCIATION By:_____________________________ Name:___________________________ Title:__________________________ Agreed as of the date first written above: STAAR SURGICAL COMPANY By: /s/ John Bily ----------------------------- Name: John Bily --------------------------- Title: CFO --------------------------- SCHEDULE 2 TO AMENDED AND RESTATED CREDIT AGREEMENT MONTHLY AND QUARTERLY PROJECTIONS --------------------------------- SCHEDULE 3 TO AMENDED AND RESTATED CREDIT AGREEMENT MANDATORY REDUCTION OF LINE OF CREDIT ------------------------------------- Date Amount of Reduction Line of Credit - ---- ------------------- -------------- August 7, 2002 $2,500,000 $4,500,000 August 30, 2002 $100,000 $4,400,000 September 30, 2002 $100,000 $4,300,000 October 31, 2002 $125,000 $4,175,000 November 29, 2002 $150,000 $4,025,000 December 31, 2002 $150,000 $3,875,000 January 31, 2003 $175,000 $3,700,000 February 28, 2003 $200,000 $3,500,000 March 31, 2003 $3,500,000 $0 EXHIBIT A TO FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT July 31, 2002 BY TELECOPIER (213-614-2418) & COURIER - -------------------------------------- Wells Fargo Brokerage Services, LLC 707 Wilshire Boulevard MAC E2818-170 Los Angeles, California 90017 Attention: Annalise Lasater (Telephone 213-614-2267) Re: Account Number 12663076 of Staar Surgical Company at Wells Fargo Brokerage Services, LLC Ladies and Gentlemen: By this letter, (1) Staar Surgical Company, a Delaware corporation ("Staar"), hereby irrevocably and unconditionally instructs Wells Fargo Brokerage Services, LLC ("WFBS") to wire-transfer $2,000,000 on August 7, 2002 from account number 12663076 (the "WFBS Account") maintained by Staar with WFBS to account number 4159251172 (the "Bank Account") at Wells Fargo Bank, National Association (the "Bank"), to pay down the Bank's loan to Staar, and (2) the Bank hereby notifies WFBS that, upon the wiring of $2,000,000 to the Bank Account on August 7, 2002, the Bank's lien on the WFBS Account shall be automatically released, and any funds remaining in the WFBS Account shall be subject to the instructions of Staar. Very truly yours, STAAR SURGICAL COMPANY By:_______________________________ Name:_____________________________ Title:____________________________ WELLS FARGO BANK, NATIONAL ASSOCIATION By:_______________________________ Name:_____________________________ Title:____________________________ EXHIBIT A TO AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED REVOLVING LINE OF CREDIT NOTE -------------------------------------------------- $7,000,000.00 Monrovia, California July 31, 2002 FOR VALUE RECEIVED, the undersigned, STAAR SURGICAL COMPANY, a Delaware corporation ("Borrower"), promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association ("Bank"), at its office at 333 South Grand Avenue, Los Angeles, California 90071, 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 amount of seven million dollars ($7,000,000.00), 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. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year and actual days elapsed) at a rate per annum equal at all times to the sum of the Prime Rate (as defined in the Credit Agreement referred to below) in effect from time to time plus the Applicable Interest Margin (as defined in the Credit Agreement). (b) Payment of Interest. Interest accrued on this Note shall be payable on the first business day of each calendar month, commencing on April 1, 2002. (c) Default Interest. Upon the occurrence and during the continuation of any Event of Default (as defined in the Credit Agreement referred to below), 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 and actual days elapsed) equal to four percent (4%) above the rate of interest from time to time otherwise applicable to this Note. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of the Amended and Restated Credit Agreement dated as of March 29, 2002, as amended by a First Amendment to Amended and Restated Credit Agreement dated as of July 31, 2002 (as it may be further amended, restated or otherwise modified from time to time, the "Credit Agreement"), between Borrower and Bank and any other 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 (subject to reduction as provided in the Credit Agreement). The unpaid principal balance of this Note at any time shall be the total amount advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on March 31, 2003. (b) Advances. Advances hereunder, to the total amount of the principal amount stated above (subject to reduction as provided in the Credit Agreement), may be made by the holder at the oral or written request of (i) those persons who are authorized from time to time by Borrower (as evidenced by such documents as Bank may require) 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 deposit account of Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of 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 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. CREDIT AGREEMENT: This Note is made pursuant to, and is subject to the terms and conditions of, the Credit Agreement. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all amounts 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 Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder, immediately upon demand, the full amount of all payments, advances, charges, costs and expenses, including, without limitation, reasonable attorneys' fees (to include, without limitation, 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, without limitation, any of the foregoing incurred in connection with any bankruptcy proceeding (including, without limitation, any 2 adversary proceeding, contested matter or motion brought by Bank or any other person) relating to 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. (d) Amendment and Restatement. This Note amends and restates the Revolving Line of Credit Note dated March 29, 2002 made by Borrower in favor of Bank. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. STAAR SURGICAL COMPANY By:__________________________ Name:________________________ Title:_______________________ 2 EXHIBIT C COMPLIANCE CERTIFICATE ---------------------- __________, 200_ Reference is made to the Amended and Restated Credit Agreement dated as of March 29, 2002, as amended by a First Amendment to Amended and Restated Credit Agreement dated July 31, 2002 (as the same may be further amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), between Staar Surgical Company, a Delaware corporation ("Borrower"), and Wells Fargo Bank, National Association, a national banking association ("Bank"). Capitalized terms used and not otherwise defined herein have the meanings assigned thereto in the Credit Agreement. The undersigned hereby certifies as of the date hereof that he/she is the Chief Financial Officer of Borrower, that, as such, he/she is authorized to execute and deliver this Certificate to Bank on behalf of Borrower and that: 1. Attached as Schedule 1 hereto is (a) a correct and complete copy of the unaudited consolidating and consolidated balance sheets of Borrower as of the end of the month ended on __________, 200_, (b) a correct and complete copy of the unaudited consolidated and consolidating statements of income and cash flows of Borrower for such month and for the period commencing at the end of the preceding fiscal year and ending with the end of such month and (c) a narrative discussion and analysis by the undersigned concerning the financial performance of Borrower, and any variance of more than 10% from Borrower's projections attached as Schedule 2 to the Credit Agreement, evidenced by such financial statements. 2. The undersigned has reviewed and is familiar with the terms of the Credit Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and conditions (financial or otherwise) of Borrower during the accounting period covered by the attached financial statements. 3. The attached financial statements have been prepared in accordance with generally accepted accounting principles (subject to normal year-end audit adjustments and the absence of footnotes) on a basis consistent with prior periods (except as approved by such officer and disclosed therein) and fairly state the financial position and results of operations of Borrower. 4. To the best of the undersigned's knowledge, no Event of Default and no condition, event or act exists that, with the giving of notice or the passage of time or both, would constitute an Event of Default. 5. The following financial covenant analyses and information set forth on Schedule 2 attached hereto are true and accurate on and as of the date of this Certificate. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of __________, 200_. STAAR SURGICAL COMPANY By:_____________________________ Name:___________________________ Title:__________________________ 2 Date: ________________________________ For the month ended on __________, 200_ SCHEDULE 2 to Compliance Certificate ($ in 000's, consolidated) - -------------------------------------------------------------------------------------- (a) Current Ratio - -------------------------------------------------------------------------------------- (i) Total current assets $____________ - -------------------------------------------------------------------------------------- (ii) Total current liabilities $____________ - -------------------------------------------------------------------------------------- (iii) Line (i) divided by line (ii) ____________ - -------------------------------------------------------------------------------------- (iv) If line (iii) is 1.10 or more, indicate "Yes - Comply"; if line (iii) is less than 1.10, indicate "No - In Default" ____________ - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------- (b) Tangible Net Worth - -------------------------------------------------------------------------------------- (i) Stockholders' equity $____________ plus Subordinated debt ____________ minus Intangible assets ____________ Tangible net worth $____________ - -------------------------------------------------------------------------------------- (ii) If line (i) equals or exceeds $26,500,000, indicate "Yes - Comply"; if less than $26,500,000, indicate "No - In Default" ____________ - -------------------------------------------------------------------------------------- (c) Operating Cash Flow to Sum of Capitalized Lease Payments, Debt Repayments and Capital Expenditures for Month - --------------------------------------------------------------------------------------
Date: ________________________________ For the month ended on __________, 200_ - ------------------------------------------------------------------------------------- (i) Operating cash flow (as defined in accordance with FASB 95) $____________ - -------------------------------------------------------------------------------------- (ii) Required capitalized lease payments $____________ Required debt repayments ____________ Capital expenditures (as defined in accordance with FASB 95) ____________ Subtotal $____________ - -------------------------------------------------------------------------------------- (iii) Line (i) minus line (ii) $____________ - -------------------------------------------------------------------------------------- (iv) If line (iii) is positive, indicate "Yes - Comply"; if line (iii) is negative, continue to line (v) ____________ - -------------------------------------------------------------------------------------- (v) Operating cash flow for previous month $____________ Operating cash flow from line (i) ____________ Subtotal (two-month operating cash flow) $____________ - -------------------------------------------------------------------------------------- (vi) Required capitalized lease payments for previous month $____________ Required debt repayments for previous month Capital expenditures for previous month ____________ Add subtotal from line (ii) ____________ ____________ Subtotal (two-month capitalized lease payments, debt repayments and capital expenditures) $____________ - --------------------------------------------------------------------------------------
- 2 - Date: ________________________________ For the month ended on __________, 200_ - -------------------------------------------------------------------------------------- (vii) Line (v) minus line (vi) $____________ - -------------------------------------------------------------------------------------- (viii)If line (vii) is positive, indicate "Yes - Comply"; if line (vii) is negative, continue to line (ix) ____________ - -------------------------------------------------------------------------------------- (ix) Operating cash flow for second preceding $____________ month Add subtotal from line (v) ____________ Subtotal (three-month operating cash flow) $____________ - -------------------------------------------------------------------------------------- (x) Required capitalized lease payments for $____________ second preceding month Required debt repayments for second ____________ preceding month Capital expenditures for second preceding month ____________ Add subtotal from line (vi) ____________ Subtotal (three-month capitalized $____________ lease payments, debt repayments and capital expenditures) - -------------------------------------------------------------------------------------- (xi) Line (ix) minus line (x) $____________ - -------------------------------------------------------------------------------------- (xii) If line (xi) is positive, indicate "Yes - Comply"; if line (xi) is negative, indicate "No - In Default" ____________ - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------- (d) Revenues to Projections - -------------------------------------------------------------------------------------- (i) Revenues for month $____________ - -------------------------------------------------------------------------------------- (ii) Projected revenues for month as $____________ provided in Schedule 2 to Credit Agreement - --------------------------------------------------------------------------------------
- 3 - Date: ________________________________ For the month ended on __________, 200_ - -------------------------------------------------------------------------------------- (iii) 85% of line (ii) $____________ - -------------------------------------------------------------------------------------- (iv) If line (i) is greater than line (iii), indicate "Yes - Comply"; if line (i) is less than or equal to line (iii), continue to line (v) ____________ - -------------------------------------------------------------------------------------- (v) Revenues for previous month $____________ Revenues from line (i) ____________ Subtotal (two-month revenues) $____________ - -------------------------------------------------------------------------------------- (vi) Projected revenues for previous month $____________ as provided in Schedule 2 to Credit Agreement Projected revenues from line (ii) ____________ Subtotal (two-month projected revenues) $____________ - -------------------------------------------------------------------------------------- (vii) 85% of line (vi) $____________ - -------------------------------------------------------------------------------------- (viii)If line (v) is greater than line (vii), indicate "Yes - Comply"; if line (v) is less than or equal to line (vii), continue to line (ix) ____________ - -------------------------------------------------------------------------------------- (ix) Revenues for second preceding month $____________ Add subtotal from line (v) ____________ Subtotal (three-month revenues) $____________ - -------------------------------------------------------------------------------------- (x) Projected revenues for second preceding $____________ month as provided in Schedule 2 to Credit Agreement Add subtotal from line (vi) ____________ Subtotal (three-month projected revenues) $____________ - -------------------------------------------------------------------------------------- (xi) 85% of line (x) $____________ - -------------------------------------------------------------------------------------- (xii)If line (ix) is greater than line (xi), indicate "Yes - Comply"; if line (ix) is less than or equal to line (xi), indicate ____________ "No - In Default" - --------------------------------------------------------------------------------------
- 4 - Date: ________________________________ For the month ended on __________, 200_ - -------------------------------------------------------------------------------------- (e) Net Operating Income (or Loss) to Projection - -------------------------------------------------------------------------------------- (i) Net operating income (or loss) for: Test month $____________ Preceding month ____________ Second preceding month ____________ Total $____________ - -------------------------------------------------------------------------------------- (ii) Projected net operating income (or loss) as provided in Schedule 2 to Credit Agreement for: Test month $____________ Preceding month ____________ Second preceding month ____________ Total $____________ - -------------------------------------------------------------------------------------- (iii) Positive variance or negative variance $____________ - -------------------------------------------------------------------------------------- (iv) If positive variance, indicate "Yes - Comply"; if negative variance greater than $250,000, indicate "No - In Default" ____________ - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------- (f) Total Liabilities to Tangible Net Worth - -------------------------------------------------------------------------------------- (i) Total liabilities $____________ - -------------------------------------------------------------------------------------- (ii) Tangible net worth from line (i) of (b) above $____________ - -------------------------------------------------------------------------------------- (iii) Line (i) divided by line (ii) ____________ - --------------------------------------------------------------------------------------
- 5 - Date: ________________________________ For the month ended on __________, 200_ - -------------------------------------------------------------------------------------- (iv) If line (iii) is 0.80 or less, indicate "Yes - Comply"; if line (iii) is more than 0.80, indicate "No - In Default" ____________ - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------- (g) Capital Expenditures - -------------------------------------------------------------------------------------- (i) Aggregate amount of capital expenditures (as defined in accordance with FASB 95) made by Borrower and its Subsidiaries in current fiscal year to date $____________ - -------------------------------------------------------------------------------------- (ii) If line (i) is equal to or less than $2,000,000, indicate "Yes - Comply"; if line (i) is more than $2,000,000, indicate "No - In Default" ____________ - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------- (h) Operating Lease Expense - -------------------------------------------------------------------------------------- (i) Aggregate amount of operating lease expenses incurred by Borrower and its Subsidiaries in current fiscal year to date $____________ - -------------------------------------------------------------------------------------- (ii) If line (i) is equal to or less than $1,000,000, indicate "Yes - Comply"; if line (i) is more than $1,000,000, indicate "No - In Default" ____________ - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------- (i) Liabilities of Swiss Sub to UBS AG - -------------------------------------------------------------------------------------- (i) Liabilities of Swiss Sub to UBS AG Swiss Francs ____________ - -------------------------------------------------------------------------------------- (ii) If line (i) is equal to or less ____________ than Swiss Francs 5,000,000, indicate "Yes - Comply"; if line (i) is more than Swiss Francs 5,000,000, indicate "No - In - --------------------------------------------------------------------------------------
- 6 - Date: ________________________________ For the month ended on __________, 200_ - -------------------------------------------------------------------------------------- Default" - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------- (j) Purchase-Money Indebtedness and Capitalized Leases - -------------------------------------------------------------------------------------- (i) Aggregate amount of outstanding purchase-money indebtedness and capitalized leases incurred in connection with purchase or lease $____________ of equipment by Borrower and its Subsidiaries - -------------------------------------------------------------------------------------- (ii) If line (i) is equal to or less than $1,000,000, indicate "Yes - Comply"; if line (i) is more than $1,000,000, ____________ indicate "No - In Default" - --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------- (k) Loans to Foreign Subsidiaries - -------------------------------------------------------------------------------------- (i) Aggregate amount of outstanding loans, advances and other extensions of credit (including, without limitation, for products sold) made by Borrower to its foreign Subsidiaries $____________ - --------------------------------------------------------------------------------------- (ii) If line (i) is equal to or less than $8,500,000, indicate "Yes - Comply"; if line (i) is more than $8,500,000, indicate "No - In Default" ____________ - --------------------------------------------------------------------------------------
- 7 - EX-10.5 7 dex105.txt CERTIFICATION PURSUANT TO SEC.906 SARBANES-OXLEY Exhibit 10.5 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-Q for the quarterly period ended June 28, 2002 (the "Report") by STAAR Surgical Company ("Registrant"), each of the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant as of and for the periods presented in the Report. by: /s/ DAVID BAILEY ------------------------------ David Bailey President, Chief Executive Officer, Chairman and Director by: /s/ JOHN BILY ------------------------------- John Bily Chief Financial Officer (principal accounting and financial officer) -----END PRIVACY-ENHANCED MESSAGE-----