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