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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 2, 1998
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 0-11634
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STAAR SURGICAL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-3797439
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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1911 WALKER AVENUE, MONROVIA, CALIFORNIA 91016
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(626) 303-7902
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this Chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 24, 1998 was approximately $174,200,000 based upon the
closing price per share of the Common Stock of $15.75 on that date.
The number of shares outstanding of the issuer's classes of Common Stock as
of March 24, 1998:
Common Stock, $.01 Par Value--13,278,342 shares
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference to the Company's definitive proxy statement for its 1998 Annual
Meeting of Stockholders.
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TABLE OF CONTENTS
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PART I................................................................... 1
ITEM 1. BUSINESS........................................................ 1
General......................................................... 1
Overview........................................................ 1
Development of Business Over Past Five Years and Relevant Prior
Events......................................................... 1
Financial Information About Industry Segments................... 2
Narrative Description of Business............................... 2
Background...................................................... 2
Markets......................................................... 2
Strategy........................................................ 4
Products........................................................ 4
Research and Development........................................ 6
Marketing, Selling and Distribution............................. 6
Competition..................................................... 7
Manufacturing and Suppliers..................................... 7
Licenses and Distribution Rights................................ 8
Subsidiaries.................................................... 8
Facilities...................................................... 8
Employees and Labor Relations................................... 8
Intellectual Property Rights.................................... 9
Regulatory Requirements......................................... 9
Financial Information About Foreign and Domestic Operations and
Export Sales................................................... 11
ITEM 2. PROPERTIES...................................................... 11
ITEM 3. PENDING LEGAL PROCEEDINGS....................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 11
PART II.................................................................. 12
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS................................................. 12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA............................ 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................... 14
Overview........................................................ 14
Results of Operations........................................... 15
1997 Fiscal Year Compared to 1996 Fiscal Year................... 15
1996 Fiscal Year Compared to 1995 Fiscal Year................... 16
Liquidity and Capital Resources................................. 17
Other Matters................................................... 19
Foreign Exchange................................................ 19
Inflation....................................................... 19
Year 2000 Compliance............................................ 19
Uncertainties and Risk Factors.................................. 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE........................................... 23
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TABLE OF CONTENTS--(CONTINUED)
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PART III.................................................................. 23
ITEMS 10., 11., 12. AND 13................................................ 23
PART IV................................................................... 24
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K..................................................... 24
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ADVISEMENT
Certain Statements contained in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act") which reflect the Company's
current expectations regarding the future results of operations, performance
and achievements of the Company, or industry results. The Company has tried,
wherever possible, to identify these forward looking statements by, among
other things, using words such as "anticipate," "believe," "estimate,"
"expect" and similar expressions. These statements reflect the current beliefs
of the Company and are based on information currently available to it.
Accordingly, these statements are subject to known and unknown risks,
uncertainties and other factors which could cause the actual results,
performance or achievements of the Company or the industry to differ
materially from those expressed in, or implied by these statements. The
Company is not obligated to update or revise these "forward looking"
statements to reflect new events or circumstances.
PART I
ITEM 1. BUSINESS
GENERAL
Overview
STAAR Surgical Company ("STAAR" or the "Company") is a publicly traded
(Nasdaq National Market symbol "STAA") developer, manufacturer and global
distributor of medical devices used in minimally invasive ophthalmic surgery.
The Company's products are designed to improve the quality of patient
outcomes, minimize patient risk and discomfort, and simplify ophthalmic
surgical procedures for the benefit of surgeons and patients. The Company's
primary products are its foldable intraocular lenses ("IOLs"), its Glaucoma
Wick(TM), a "wick" style glaucoma implant, its Implantable Contact Len(TM)
("ICL(TM)"), a deformable intraocular refractive corrective lens, and its
STAARVISC(TM) viscoelastic solution.
The Company's foldable IOLs are used as replacements for the natural lens
after its removal in cataract surgery. The ophthalmic surgeon can implant the
foldable IOL through an incision as small as two millimeters. This provides
numerous patient benefits including reduced risk of infection, decreased post-
operative pain and discomfort, and shorter hospitalization and recovery time.
The Glaucoma Wick(TM) is an innovative ocular device developed to provide a
more effective and longer-term solution for glaucoma, a leading cause of
blindness worldwide. The ICL(TM) is a deformable intraocular implant designed
to correct refractive disorders, such as myopia (near-sightedness), hyperopia
(far-sightedness) and potentially astigmatism. STAARVISC(TM) is a viscoelastic
solution used during IOL and ICL(TM) implant procedures.
The Company markets its IOLs, which accounted for 90% of its domestic
revenues and 74% of its international revenues in 1997, respectively. The
Company markets the Glaucoma Wick(TM), which the Company introduced in late
1995, and its ICLs(TM) and STAARVISC(TM) viscoelastic solution, which the
Company introduced in late 1996, in selected foreign countries.
Development of Business Over Past Five Years and Relevant Prior Events
The Company was incorporated in California in 1982 as a successor to a
partnership for the purpose of developing, producing and marketing IOLs and
other products for minimally invasive ophthalmic surgery. The Company was
reincorporated in Delaware in April 1986.
In 1982 and 1983 the Company's operations consisted mainly of research and
development and preliminary marketing and capital raising activities. In 1982
the Company commenced the development of foldable IOLs in association with Dr.
Thomas R. Mazzocco, M.D., who patented the concept of folding or otherwise
deforming an IOL or ICL(TM) for use in minimally invasive surgery. The Company
acquired Dr. Mazzocco's patent, and began production and sale of foldable IOLs
in 1986 for implantation in connection with clinical studies for such
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products. In September 1991, the Company received United States Food and Drug
Administration ("FDA") pre-market approval for its foldable IOLs, which has
been the Company's principal product line to date. See "Intellectual Property
Rights" and "Products" in Item 1.
In May 1995 and January 1996, the Company acquired certain exclusive royalty
bearing licenses from Intersectoral Research and Technology Complex Eye
Microsurgery ("IRTC") related to its glaucoma device and implantable contact
lens. See "Licenses and Distribution Rights" and "Products" in Item 1.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Through 1997 the Company operated primarily within the cataract medical
device segment of the overall ophthalmic market. Information relating to the
Company's financial condition for the fiscal years ended January 2, 1998,
January 3, 1997 and December 29, 1995 is set forth in "Item 8--Financial
Statements and Supplementary Data." In late 1995 the Company introduced the
Glaucoma Wick(TM), and in late 1996 the Company introduced the ICL(TM) and
STAARVISC(TM) viscoelastic solution, for sale in selected foreign countries.
NARRATIVE DESCRIPTION OF BUSINESS
Background
The human eye is a specialized sensory organ capable of light reception and
able to receive visual images that are transmitted to the visual center in the
brain. The main parts of the eye are the cornea, the iris, the lens, the
retina, and the trabecular meshwork. The cornea is typically a spherically
shaped window in the front of the eye through which light passes. The iris is
a muscular curtain located behind the cornea which opens and closes to
regulate the amount of light entering the eye through the pupil, an opening at
the center of the iris. The lens is a clear structure located behind the iris
which changes shape to better focus the light to the retina, located in the
back of the eye. The retina is a layer of nerve tissue consisting of millions
of light receptors called rods and cones, which receive the light image and
transmit it to the brain via the optic nerve. The anterior chamber of the eye,
located in front of the iris, is filled with a watery fluid called the aqueous
humour, while the portion of the eye behind the iris is filled with a jelly-
like material called the vitreous humour. The trabecular meshwork, a drainage
channel located between the cornea and the surrounding white portion of the
eye, maintains a low pressure in the anterior chamber of the eye by draining
excess aqueous humour.
The eye is affected by a number of ocular diseases, such as cataracts and
glaucoma, and by common visual refractive disorders, such as myopia, hyperopia
and astigmatism. Cataracts are an irreversible and progressive ophthalmic
condition wherein the eye's natural lens loses its usual transparency and
becomes opaque. Glaucoma results from the build-up of excessive intraocular
pressure, primarily due to poor drainage of the aqueous humor. The increase in
pressure slowly and progressively damages the optic disc, resulting in a
gradual loss of vision. Myopia and hyperopia are caused by an anatomical
imbalance between the shape of the eye and the resulting distance between the
cornea and the retina. Astigmatism is caused by irregularities in the
smoothness and curvature of the cornea, causing improper focusing of the
incoming light on the retina and consequential blurring of vision.
Markets
The market for ophthalmic products is a large and dynamic segment of the
healthcare industry. The major factors influencing this market are the aging
worldwide population, significant technological medical advancements which
have created cost effective treatments and therapies, the evolution toward
managed care and the growing importance of international markets. The
Company's products serve the following segments of the ophthalmic market:
Cataract Lenses. Cataracts occur in varying degrees in approximately one-
half of Americans between the ages of 65 and 75, and approximately 70% of
those over the age of 75. Approximately 20% to 25% of cataract patients have
pre-existing astigmatism. Industry sources estimate that approximately 2.3
million IOLs were
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implanted in the United States in 1997, generating approximately $242 million
in sales. The Company believes approximately 2.5 million IOLs were implanted
outside the United States during 1997 (not including China and Russia, for
which no reliable data exists), generating an additional $350 million of
sales. The Company believes that approximately 65% of the domestic market for
IOLs in 1997 was held by foldable IOLs, compared to approximately 15% in 1992,
and that approximately 35% to 45% of the international market share is
presently held by foldable IOLs. The Company believes the share of the
worldwide market held by foldable IOLs will continue to increase by virtue of
the benefits of foldable IOLs over hard IOLs.
Glaucoma Treatments. This market encompasses drug therapies as well as
traditional and laser surgical procedures for use in mitigating the effects of
glaucoma. There is no known cure for glaucoma; the most commonly prescribed
glaucoma drugs either inhibit the build-up of intraocular fluid or promote
increased drainage, in either case reducing intraocular pressure and eye
damage. Traditional surgical procedures for glaucoma (trabeculectomies) and
laser surgical procedures for glaucoma (trabeculoplasties) remove a portion of
the trabecular meshwork to create a channel for fluid to drain from the eye.
The selection of drug treatment over a trabeculectomy or trabeculoplasty is,
in part, dependent upon the stage of the disease and the prevailing glaucoma
treatment used in the country in which the treatment is given.
The Company believes that glaucoma currently afflicts approximately three
million persons in the United States, and that the number of international
cases exceeds that of the United States. The worldwide market for glaucoma
drugs is approximately $850 million, including approximately $450 million from
the sale of a single glaucoma drug. It is estimated that 100,000
trabeculectomies and 300,000 laser trabeculoplasties were performed in the
United States alone in 1994, representing total expenditures of approximately
$400 million. The Company believes glaucoma surgery is more prevalent than
glaucoma drug therapy in certain foreign countries due to cost and other
considerations.
Refractive Vision Correction. The refractive vision correction market
includes corrective eyewear such as eyeglasses and external contact lenses and
traditional and laser surgical procedures. Approximately 50% of the world's
population is afflicted with common refractive vision disorders such as
myopia, hyperopia and astigmatism, and approximately 150 million people within
the United States currently use some form of eyewear to correct for these
disorders. In 1996, the vision correction market in the United States was
approximately $15 billion. This market includes corrective eyeglasses,
external contact lenses and various surgical procedures such as radial
keratotomy ("RK"), a conventional surgical technique, and photorefractive
keratectomy ("PRK") and laser in-situs keratomileusis ("LASIK"), surgical
techniques performed with the use of a laser. It is estimated that over one
million RK procedures have been performed in the United States, most of which
have occurred since 1989. In 1995, 350,000 RK procedures were performed, at an
average cost of $1,000 to $3,000 per procedure. Management believes that
surgeons have used PRK and LASIK, more recently developed refractive surgery
techniques, in an estimated one million procedures to date worldwide. The
procedure was approved in the United States in 1996. Laser procedures are
expected to gain market share from RK. Industry sources estimate that the
number of laser procedures in the United States could reach 300,000 in 1998,
representing a potential market of $450 million. Approximately seven million
people in the United States are afflicted with severe cases of myopia and
hyperopia of greater than seven diopters which are not currently addressed by
existing conventional or laser surgical procedures and frequently can be only
partially corrected with eyeglasses and external contact lenses.
Viscoelastic Solution Products. The viscoelastic solution market relates to
gel-like substances used during ophthalmic surgeries to maintain the space and
shape of the eye, to act as a buffer against cell damage and to otherwise act
as a lubricant for minimally invasive eye surgery. Industry studies indicate
that approximately 2.8 million units of viscoelastic solution were sold within
the United States in 1997, generating approximately $148 million in sales.
Management believes the international market for viscoelastic solution is at
least the size of the domestic market for this product.
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Strategy
The Company's strategy is to increase its share of the worldwide market for
ophthalmic products through the development and marketing of innovative "next
generation" products and technologies which utilize minimally invasive
surgical procedures. The key elements of this strategy are to: (i) develop
products that deliver distinct clinical and economic benefits to patients and
surgeons; (ii) maintain a leading technological role in the industry; and
(iii) expand markets worldwide.
Products
The Company develops, manufactures and globally distributes medical devices
used in minimally invasive ophthalmic surgery. The Company's products are
designed to: (i) improve patient outcomes; (ii) minimize patient risk and
discomfort; and (iii) simplify ophthalmic procedures for the benefit of
surgeons and patients. The Company's principal customers are ophthalmologists,
surgical centers, hospitals, managed care providers, health maintenance
organizations and group purchasing organizations.
Intraocular Lenses (IOLs) and Related Cataract Products. The Company's
principal products are its foldable IOLs for use in minimally invasive
cataract surgical procedures. The Company's IOLs can be folded or otherwise
deformed, and therefore can be implanted into the eye through an incision as
small as 2 mm. Once inserted, the Company's IOL unfolds naturally into the
capsular bag which previously held the cataractous lens. The primary
advantages of using minimally invasive surgical procedures are:
. Fewer Surgical Complications. A smaller incision minimizes eye trauma
and the potential for infection. In addition, the Company's foldable IOL
can typically be implanted under topical anesthesia, thereby avoiding
complications associated with the administration of local anesthesia.
. Reduced Level of Surgically Induced Astigmatism. The ability to
eliminate sutures as a result of the smaller incision leads to a
reduction in the incidence of surgically induced astigmatism caused by
uneven healing of the surgical wound.
. Faster Recovery of Vision. Patients can typically recover their best
vision the same day the procedure is performed, as opposed to thirty- to
forty-five days following surgery in the case of hard IOLs.
. Enhanced Benefits to Surgeons. The use of foldable IOLs enables
ophthalmologists to more quickly perform surgical procedures at lower
cost, and with greater ease and consistently higher quality outcomes.
The Company's foldable IOLs come in two differently configured styles, the
advanced single-piece ELASTIC(TM) model, and the ELASTIMIDE(TM) model based
upon the traditional three-piece design. The selection of one model over the
other is primarily based upon the preference of the ophthalmologist, although
the Company believes more experienced ophthalmologists prefer the single-piece
ELASTIC(TM) model. Sales of foldable IOLs accounted for approximately 85% of
total revenues for its 1997 fiscal year, 91% of total revenues for its 1996
fiscal year, and 97% of the Company's total revenues for its 1995 fiscal year.
The Company has developed, and currently markets in selected foreign
countries, its TORIC(TM) IOL, a toric version of its ELASTIC(TM) IOL, which is
specifically designed for patients with pre-existing astigmatism. The Company
is the only IOL manufacturer to offer a product for astigmatism. In July 1997,
the Company received a CE Mark allowing it to sell its toric IOL in each of
the countries comprising the European Union. The Company has completed
clinical studies for the TORIC(TM) IOL, and filed a pre-market application to
market this product in the United States with the FDA. The pre-market
application has been approved by the FDA pending review and approval by the
FDA ophthalmic panel. The Company anticipates that the ophthalmic panel will
review the application in mid-1998 and, if the panel approves the application,
the FDA will grant final pre-market approval to market the TORIC(TM) IOL in
the United States shortly thereafter. No assurance can be given as to when or
if ophthalmic panel and/or FDA pre-market approval for this product will be
obtained.
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As part of its approach to providing a complete line of complementary
products for use in minimally invasive cataract surgery, the Company also
markets several styles of lens injectors and sterile cartridges used to insert
its IOLs, a phacoemulsification machine used to remove the cataractous lens,
and several styles of disposable and reusable surgical packs and ultrasonic
cutting tips used with the Company's phacoemulsification machine.
Glaucoma Wick(TM). The Glaucoma Wick(TM) is a medical device surgically
implanted into the eye to reduce intraocular pressure ("IOP"). It is made of
biocompatible material which, through its porosity and hydrophilic properties,
promotes drainage of excess eye fluid. The Glaucoma Wick(TM) is specifically
designed for patients suffering from open-angled glaucoma, which is the most
prevalent type of glaucoma. In contrast to trabeculectomies and
trabeculoplasties, implantation of the Glaucoma Wick(TM) does not require
penetration of the anterior chamber of the eye. Instead, a small flap of the
outer eye tissue is folded back, the Glaucoma Wick(TM) is placed above the
trabecular meshwork and the outer flap is refolded into place. The Glaucoma
Wick(TM) swells to approximately five to ten times its original size, and is
absorbed within one to six months after implantation, creating a new drainage
pathway. The fifteen- to thirty-minute surgical procedure to implant the
Glaucoma Wick(TM) is performed under local or topical anesthesia, typically on
an outpatient basis.
Management believes the hydrophilic properties of the Glaucoma Wick(TM) and
the minimally invasive nature of the surgery offer several advantages over
existing surgical procedures, including: (i) greater efficacy, (ii) a longer-
term solution, (iii) reduced risk of surgical complications, and (iv) cost
effectiveness.
The Company believes the Glaucoma Wick(TM) is an attractive product for: (i)
managed care and health maintenance organizations and group purchasing
organizations who desire to control their costs and at the same time provide
their customers with a higher standard of health care; (ii) less developed
countries which lack the resources and infrastructure to provide continuous
treatments; and (iii) ophthalmic surgeons who have traditionally referred
their patients to glaucoma specialists. Adoption by ophthalmic surgeons,
however, will be dependent upon the rate at which they learn the advanced
surgical skills necessary to perform the implant or at which time
instrumentation is developed to simplify the procedure. The Company will
promote this product by educating surgeons through its highly trained
technical sales force. See "Uncertainties and Risk Factors--Risks Relating to
Commercialization of New Products" in Item 7.
The Company introduced the Glaucoma Wick(TM) in late 1995 for commercial
sale on a limited basis in South Africa and selected countries in Europe and
South America. In August 1997, the Company received a CE Mark allowing it to
sell the Glaucoma Wick(TM) in each of the countries comprising the European
Union. In November 1997, the FDA granted the Company an IDE permitting the
Company to conduct a single-phase clinical study allowing the Company to
implant the Glaucoma Wick(TM) in 175 patients. The Company would, after
concluding this study, submit a pre-market application to the FDA for approval
of the Glaucoma Wick(TM). No assurance can be given that the clinical study
will be successful and, if so, as to when or if FDA 510(k) clearance for this
product will be obtained. See "Uncertainties and Risk Factors--Government
Regulation and Uncertainty of Product Approval" in Item 7.
Implantable Contact Lenses(TM) (ICLs(TM)). ICLs(TM) are medical devices
implanted in the eye to permanently correct common refractive vision disorders
including myopia, hyperopia and potentially astigmatism. The ICL(TM) is
initially targeted to persons afflicted with severe hyperopia and myopia
(defined as more than seven diopters) which are not currently being addressed
through current traditional or laser surgical procedures, and frequently can
be only partially corrected with eyeglasses or external contact lenses. The
Company believes that these individuals, who suffer significant vision
impairment, are the most likely to seek surgical alternatives. The Company
also believes the ICL(TM) will be an attractive alternative for individuals
afflicted with moderate cases of myopia and hyperopia.
The Company's ICL(TM) is folded and implanted into the eye behind the iris
and in front of the normal lens using minimally invasive surgical techniques
similar to implanting an IOL during cataract surgery, except that the human
lens is not removed. The five- to twenty-minute surgical procedure to implant
the ICL(TM) is typically performed with topical anesthesia on an outpatient
basis.
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Management believes the use of an ICL(TM) affords a number of advantages
over existing refractive surgical procedures, such as RK, PRK and LASIK,
including the following: (i) potentially corrects all levels of myopia and
hyperopia; (ii) may provide superior predictability of results; (iii) enables
faster recovery of vision and rehabilitation; and (iv) produces potentially
superior refractive results.
The Company commenced commercial sales of ICLs(TM) in late 1996 on a limited
basis in South Africa, China, and selected countries in Europe and South
America. In August 1997, the Company received a CE Mark allowing it to sell
the ICL(TM) in each of the countries comprising the European Union. In
February 1997, the FDA granted the Company an IDE to commence clinical studies
consisting of three distinct phases within the United States. The Company has
completed the first phase of the IDE, pursuant to which the Company has
implanted ten ICLs(TM) each for myopia and hyperopia, and is presently engaged
in the second phase of the IDE, pursuant to which the Company will implant 62
ICLs(TM) each for myopia and hyperopia. No assurance can be given as to the
ultimate results of the second phase of the clinical study, whether the FDA
will grant approval to expand the study to the third phase, or as to when or
if the FDA will grant pre-market approval for the ICL(TM). See "Uncertainties
and Risk Factors--Government Regulation and Uncertainty of Product Approval"
in Item 7.
Viscoelastic Solution Products. Viscoelastic solution is a gel-like
substance which can be used during IOL and ICL(TM) surgery to assist the
ophthalmic surgeon in establishing and maintaining the space and shape of the
anterior and posterior chambers of the eye. It also acts as a resilient buffer
to protect against inadvertent damage to the vital endothelial cells in the
eye. Viscoelastic solution is also effective as a lubricant for injection of
foldable IOLs and ICLs(TM) using minimally invasive surgical procedures. The
Company believes it can effectively market its STAARVISC(TM) hyaluronic acid-
based viscoelastic solution in conjunction with its foldable IOL and ICL(TM)
products.
The Company introduced its STAARVISC(TM) viscoelastic solution in late 1996
for commercial sale on a limited basis in Canada and selected countries in
Europe and South America. In August 1997, the Company received a CE Mark
allowing it to sell its STAARVISC(TM) viscoelastic solution in each of the
countries comprising the European Union. The only significant pending action
necessary to obtain FDA pre-market approval to commercially market
STAARVISC(TM) within the United States is satisfaction of FDA regulations
pertaining to Good Manufacturing Practices. The Company believes it has
addressed all matters raised by the FDA concerning Good Manufacturing
Practices and expects to receive FDA pre-market approval in the near future.
See "Uncertainties and Risk Factors--Government Regulation and Uncertainty of
Product Approval" in Item 7.
Research and Development
The Company is focused on furthering technological advancements in the
ophthalmic products industry through continuous development and innovation of
ophthalmic products and materials, and related surgical techniques to promote
these products. See "Business--Strategy" above. The Company maintains an
active internal research and development program comprised of over 25
employees. Over the past year, the Company has principally focused its
research and development efforts on: (i) developing the Company's ICLs,
Glaucoma Wick(TM) and TORIC(TM) IOL; (ii) improving insertion and delivery
systems for the Company's foldable IOLs; and (iii) generally improving the
manufacturing systems and procedures for all products to reduce manufacturing
costs. Research and development expenses amounted to approximately $3,936,000,
$4,085,000 and $3,254,000 for the Company's 1997, 1996 and 1995 fiscal years,
respectively.
Marketing, Selling and Distribution
The Company maintains a highly trained sales force that works closely with
its customers (primarily surgeons and other health care providers) to educate
them on the benefits of its products, and the skills and techniques needed to
perform minimally invasive surgical procedures. The Company supplements its
direct sales efforts through advertising in medical and trade journals and by
sponsoring surgical procedure courses, seminars and technical presentations
chaired by leading ophthalmologists.
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The Company's products are sold domestically through a network of
independent regional manufacturers representatives and their territorial
representatives. International sales are primarily conducted through the
Company's subsidiaries that sell through independent sales representatives
engaged on a basis similar to that of sales representatives within the United
States. In countries where the Company's subsidiaries do not have a direct
presence, sales are conducted through country or area medical distributors.
Competition
Competition in the medical device field is intense and characterized by
extensive research and development and rapid technological change. Development
by competitors of new or improved products, processes or technologies may make
the Company's products obsolete or less competitive. The Company will be
required to devote continued efforts and significant financial resources to
enhance its existing products and/or develop new products for the ophthalmic
industry. See "Uncertainties and Risk Factors--Highly Competitive Industry;
Rapid Technological Change" in Item 7.
The Company believes its primary competition for foldable IOLs includes
Bausch & Lomb Surgical ("Bausch & Lomb"), a subsidiary of Bausch & Lomb,
Incorporated; Allergan Medical Optics ("AMO"), a subsidiary of Allergan, Inc.
("Allergan"); Alcon Surgical, Inc. ("Alcon"), a subsidiary of Alcon
Laboratories, Inc.; Pharmacia & Upjohn, Inc. ("Pharmacia & Upjohn") and Mentor
Corporation ("Mentor"). Each of these competitors is a licensee of the
Company's foldable patents. Significant competitors in the hard IOL market are
believed to include Bausch & Lomb, AMO, Pharmacia & Upjohn, Alcon and Mentor.
The Company's primary competition for glaucoma products is from
pharmaceutical companies. The Company believes Merck & Company, Inc., Alcon,
Allergan and Bausch & Lomb are the largest providers of glaucoma drugs within
the United States, and CIBA Vision Corporation, a subsidiary of CIBA-GEIGY
Corporation, Pharmacia & Upjohn and Lederle Laboratories, a subsidiary of
American Home Products, are the largest internationally. The portion of this
market held by glaucoma devices is insignificant at present.
The Company will face significant competition for its ICLs(TM) generally
from manufacturers and distributors of corrective eyeglasses and external
contact lenses, and particularly from providers of conventional and laser
surgical procedures. The Company believes its primary competitors for laser
surgical procedures are Summit Technology, Inc. ("Summit"), VISX, Incorporated
("VISX"), Sunrise Medical, Bausch & Lomb and Nidek Co., Ltd. Summit's and
VISX's excimer lasers for PRK are the only products which have received pre-
market approval from the FDA for sale within the United States. KeraVision,
Inc. is developing the corneal ring.
Pharmacia & Upjohn, which distributes and manufactures a hyaluronic acid-
based viscoelastic solution known as Healon(TM), is the primary competitor for
this product. Other companies, such as AMO, Bausch & Lomb and Alcon, also sell
viscoelastic type products.
Manufacturing and Suppliers
The Company principally manufactures its IOLs at its facilities located in
California, and its Glaucoma Wick(TM) and ICLs(TM) at its facilities located
in Switzerland. Many components of the Company's products are purchased to its
specifications from suppliers or subcontractors. Most of these components are
standard parts available from multiple sources at competitive prices. The
Company presently has one supplier of silicone, the principal raw material for
its lenses, although it can purchase this raw material from several
distributors. Similarly, certain items used by the Company in its disposable
surgical packs are provided by a single supplier. The Company's PHACO XL(TM)
phacoemulsification machine is being manufactured for the Company by
unaffiliated third parties. If any of these supply sources becomes
unavailable, the Company believes that it would be able to secure alternate
supply sources within a short period of time and with minimal or no
disruption.
7
<PAGE>
Licenses and Distribution Rights
The Company has granted licenses to certain of its patents, trade secrets
and technology, including its foldable technology, to other companies for use
in connection with their cataract products. The licenses under the patents
extend for the life of the patents. The licensees include AMO, Alcon, Bausch &
Lomb, Mentor and Canon STAAR, a joint venture owned equally by the Company and
Canon, Inc. and Canon Sales Co., Inc. Included in some of the licenses granted
are licenses to certain of the Company's foldable patents which were granted
on an exclusive basis to Canon STAAR (for Japan only), on a non-exclusive
basis to Alcon, Bausch & Lomb, Mentor and Canon STAAR (with respect to the
world other than Japan), and on a co-exclusive basis to AMO. At the time these
licenses were granted, the Company received substantial pre-payments of
royalties on all but one of the licenses. The pre-payment period on many of
these licenses have since lapsed or will lapse in the near future. The
Company's business strategy is not dependent upon realizing royalties from
these licenses in the future.
In May 1995, IRTC granted an exclusive royalty bearing license to STAAR
Surgical AG to manufacture, use and sell IRTC's glaucoma devices in the United
States, Europe, Latin America, Africa, Asia and Japan, and non-exclusive
rights with respect to the countries in the Commonwealth of Independent States
(or former Union of Soviet Socialists Republic) and China. In January 1996,
IRTC granted an exclusive royalty bearing license to STAAR Surgical AG to
manufacture, use and sell ICLs(TM) using IRTC's biocompatible materials in the
United States, Europe, Latin America, Africa, Asia and Japan, and non-
exclusive rights with respect to the Commonwealth of Independent States. The
terms of these licenses extend for the life of the patents. In connection with
these licenses, IRTC also assigned its patent for its biocompatible material
for IOLs and ICLs(TM) to the Company. The Company has since adopted IRTC's
biocompatible material and glaucoma device design for the Company's Glaucoma
Wick(TM), and has incorporated IRTC's biocompatible materials for use with the
Company's proprietary ICL(TM) design.
Significant Subsidiaries
The Company's only significant subsidiary is STAAR Surgical AG, a wholly
owned subsidiary formed in Switzerland to develop, manufacture and distribute
worldwide certain of the Company's products, including its Glaucoma Wick(TM)
and ICLs(TM). The Company and STAAR Surgical AG have also formed or acquired a
number of directly or indirectly owned subsidiaries to distribute and market
the Company's products in selected foreign countries.
Facilities
The Company's executive and its principal manufacturing and warehouse
facilities are located in Monrovia, California. STAAR Surgical AG maintains
executive offices and manufacturing and warehouse facilities in Berne,
Switzerland The Company also maintains complete laboratory facilities in each
of its Monrovia and Berne facilities. Certain of the Company's distribution
subsidiaries also lease storage facilities to facilitate their distribution
activities. See "Item 2--Properties."
The Company believes that its existing facilities have been adequate for its
needs, and will continue to be adequate for existing levels of operations. The
Company expects no difficulties in renewing leases, or replacing or making
additions to its existing facilities or in establishing new facilities.
Employees and Labor Relations
The Company and its subsidiaries had a total of 269 employees as of January
2, 1998, including 54 in administration, 55 in marketing and sales, 26 in
research and development and technical services and 134 in manufacturing,
quality control and shipping. The Company and its subsidiaries are non-
unionized. The Company believes that its relations with its employees are
good.
8
<PAGE>
Intellectual Property Rights
The Company and/or its licensors have pending patent applications and issued
patents in various countries relating specifically to the Company's products
or various aspects thereof, including the Company's core patent (the "Mazzocco
Patent") relating to methods of folding or deforming a foldable IOL or ICL(TM)
for use in minimally invasive surgery. The Mazzocco Patent was granted by the
United States Patent Office in March 1986 to Dr. Thomas Mazzocco, M.D., a
practicing ophthalmologist and a co-founder of the Company. The Company has
since obtained patent protection for the Mazzocco Patent or made application
for such protection in certain foreign countries. The Company has also
received an assignment from IRTC of its patents for glaucoma devices and
biocompatible material for IOLs.
The Company has obtained a registered trademark on the mark STAAR and
associated logo. The Company also has common law trademark rights to a number
of other marks and has also applied for registration for a number of these
marks.
An adverse decision from a Court of competent jurisdiction affecting the
validity or enforceability of the Company's patents (principally the Company's
core Mazzocco Patent) or proprietary rights owned by or licensed to the
Company could have, depending generally on the economic importance of the
country or countries to which such patents or proprietary rights relate, an
adverse effect on the Company and on its business prospects. Legal costs
relating to prosecuting or defending patent infringement litigation may be
substantial. Costs of litigation related to successful prosecution of patent
litigation are capitalized and amortized over the estimated useful life of the
relevant patent. There can be no assurance that the Company will be able to
successfully defend its patents and proprietary rights in the future. See
"Uncertainties and Risk Factors--Patents and Proprietary Rights" in Item 7.
Regulatory Requirements
The Company's products are subject to regulatory approval or clearance in
both the United States and in foreign countries. The following discussion
outlines the various kinds of reviews to which the Company's products or
facilities may be subject.
Clinical Regulatory Requirements Within the United States. Most of the
Company's products are subject to regulation as medical devices by the FDA,
requiring FDA approval or clearance before they can be sold within the United
States, and mandating continuous compliance of the Company's manufacturing
facilities and distribution procedures with FDA regulations, including "Good
Manufacturing Practices."
Initial approval or clearance of medical devices for sale is subject to
differing levels or types of FDA review and evaluation depending on the
classification of the device under the Food, Drug and Cosmetic Act
("FD&C Act") and whether the use of the medical device can be demonstrated to
be substantially equivalent to a directly related medical device in commerce
prior to May 1976 (the month and year of enactment of the FD&C Act).
Pursuant to the FD&C Act, medical devices are classified as either Class I,
Class II or Class III devices. If classified as a Class I device, the medical
device will be subject only to general controls which are applicable to all
devices. Such controls include regulations regarding FDA inspections of
facilities, "Good Manufacturing Practices," labeling, maintenance of records
and filings with the FDA. If classified as a Class II device, the medical
device must also meet general performance standards established by the FDA. If
classified as a Class III device, the applicant must present sufficient data
derived through clinical studies demonstrating the product's safety,
reliability and effectiveness.
FDA approval for a Class III device begins with the submission of an
application for an Investigational Device Exemption or IDE which, if granted,
will permit the implantation of a limited number of products (typically less
than 100) on a clinical study basis. Based upon the results from the initial
core population, the FDA will then allow one or more additional core studies
to be performed, typically 500 to 700 implants. The
9
<PAGE>
complete clinical results will then be reviewed by an FDA advisory panel of
outside experts. If the advisory panel approves the product based upon the
results, the FDA will then generally grant pre-market approval assuming
satisfaction of its other requirements. The grant of an IDE, the performance
of clinical studies, the submission of an application for pre-market approval,
and advisory panel approval, may take three to ten years depending, in part,
upon the complexity and known attributes or history of the medical device.
A medical device that is substantially equivalent to a directly related
medical device previously in commerce may be eligible for abbreviated FDA pre-
market notification "510(k) review" process. The review period and FDA
determination as to substantial equivalence should be made within 90 days of
submission of a 510(k) application, unless additional information or
clarification or clinical studies are requested or required by the FDA. As a
practical matter, the review process and FDA determination often take
significantly longer than 90 days. FDA 510(k) clearance is a "grandfather"
process. As such, FDA clearance does not imply that the safety, reliability
and effectiveness of the medical device has been approved or validated by the
FDA, but merely means that the medical device is substantially equivalent to a
previously cleared commercially-related medical device.
The Company's IOLs, ICLs(TM), Glaucoma Wick(TM) and STAARVISC(TM)
viscoelastic solution are Class III devices, and its phacoemulsification
equipment, lens injectors, ultrasonic cutting tips and surgical packs are
Class II devices. The Company has received FDA pre-market approval for its
IOLs (other than its TORIC(TM) IOL), and FDA 510(k) clearance for its
phacoemulsification equipment, lens injectors, ultrasonic cutting tips and
surgical packs. The Company is presently conducting clinical studies under an
IDE for its ICL(TM) (second of three phases) and its Glaucoma Wick(TM) (single
phase). The Company believes it has addressed all matters raised by the FDA
concerning its STAARVISC(TM) viscoelastic solution and expects to receive FDA
pre-market approval in the near future. The Company anticipates that the FDA's
ophthalmic panel will review the Company's pre-market application for the
TORIC(TM) IOL in mid-1998 and, if the panel approves the application, the FDA
will grant final pre-market approval to market the TORIC(TM) IOL in the United
States shortly thereafter.
The Company is also subject to mandatory Medical Device Reporting ("MDR")
regulations which obligate the Company to provide information to the FDA on
injuries alleged to have been associated with the use of a product or in
connection with certain product failures which could cause injury.
Clinical Regulatory Requirements in Foreign Countries. There is a wide
variation in the approval or clearance requirements necessary to market
products in foreign countries. The requirements range from virtually no
requirements to a level comparable to or even greater than those of the FDA.
For example, many countries in South America have minimal regulatory
requirements, while many developed countries, such as Japan and Germany, have
conditions at least as stringent as those of the FDA. FDA acceptance is not
always a substitute for foreign government approval or clearance.
The member countries of the European Economic Union (the "Union") currently
permit, and by June 14, 1998 will require, all medical products sold within
their borders to carry a "CE" marking. The CE marking denotes that the
applicable medical device has been found to be in compliance with guidelines
concerning manufacturing and quality control, technical specifications and
biological/chemical and clinical safety. The CE marking supersedes all current
medical device regulatory requirements for Union countries. The Company has
obtained the CE mark for all of its principal products, including its IOLs
(including the TORIC(TM) IOL), ICLs(TM), Glaucoma Wick(TM) and STAARVISC(TM)
viscoelastic solution.
Other Regulatory Requirements. Sales of the Company's products may be
affected by health care reimbursement practices. For example, in January 1994,
the Health Care Financing Administration ("HCFA") adopted rules that limit
medicare reimbursement for IOLs implanted in ambulatory surgical centers to a
flat fee of $150. HCFA's medicare reimbursement rate for IOLs implanted in
hospitals was set at $150 plus 50% of cost.
The Company is also subject to various federal, state and local laws
applicable to its operations including, among other things, working
conditions, laboratory and manufacturing practices, and the use and disposal
of
10
<PAGE>
hazardous or potentially hazardous substances used in connection with research
work. The extent of government regulation which might result from future
legislation or administrative action and their potential adverse impact on the
Company cannot be accurately predicted.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Approximately $30,397,000, $29,069,000 and $26,561,000 in the Company's
overall revenues were generated in the United States for its 1997, 1996 and
1995 fiscal years, respectively, constituting approximately 67%, 69% and 77%
of its overall revenues for such fiscal years, respectively. Europe, which is
the Company's principal foreign market, generated approximately $8,924,000,
$8,173,000 and $4,841,000 in revenues for the Company's 1997, 1996 and 1995
fiscal years, respectively, constituting approximately 20%, 19% and 14% of the
Company's overall revenues for such respective fiscal years. The balance of
the Company's foreign sales were distributed amongst the Asian/Pacific, Middle
Eastern, South African and South American geographic areas. Substantially all
products sold in 1997 were manufactured in the United States. See Note 16 to
the Consolidated Financial Statements.
ITEM 2. PROPERTIES
The Company's Monrovia, California, facilities consist of leased industrial
buildings of approximately 92,000 square feet. The leases expire between 1998
and 2002, and currently require aggregate payments of approximately $37,000
per month. STAAR Surgical AG's facilities in Berne, Switzerland, consist of a
leased industrial building of approximately 11,000 square feet. The lease
expires in 2000, and currently require payments of approximately $10,000 per
month. See "Narrative Description of Business--Facilities," in Item 1 above.
ITEM 3. PENDING LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended January 2, 1998.
11
<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 under the
symbol "STAA." The following table sets forth the reported high and low sale
prices and volume of trading of the Common Stock as reported by Nasdaq for the
calendar periods indicated:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ------- -------
<S> <C> <C>
1997:
Fourth Quarter............................................. $18.625 $14.375
Third Quarter.............................................. 18.125 10.500
Second Quarter............................................. 14.125 9.625
First Quarter.............................................. 14.125 9.875
1996:
Fourth Quarter............................................. $14.375 $10.375
Third Quarter.............................................. 16.500 11.875
Second Quarter............................................. 17.875 12.375
First Quarter.............................................. 14.750 9.875
1995:
Fourth Quarter $12.675 $ 9.875
Third Quarter.............................................. 12.750 8.250
Second Quarter............................................. 11.375 7.500
First Quarter.............................................. 13.125 7.875
</TABLE>
The last reported sale price for the Company's Common Stock on the Nasdaq
National Market on March 24, 1998, was $15.75 per share. As of March 24, 1998,
there were approximately 1,206 record holders of the Common Stock.
The Company has not paid any cash dividends on its Common Stock since its
inception. The Company currently anticipates that all income will be retained
to develop further the Company's business and that no cash dividends on the
Common Stock will be declared in the foreseeable future.
12
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company with respect to the Company's five most recent fiscal years ended
January 2, 1998, January 3, 1997, December 29, 1995, December 30, 1994 and
December 31, 1993. The selected consolidated statement of operations data set
forth below for each of the three fiscal years in the period ended January 2,
1998, and the selected consolidated balance sheet data set forth below at
January 2, 1998 and January 3, 1997, are derived from the Consolidated
Financial Statements of the Company which have been audited by BDO Seidman,
LLP, independent certified public accountants, as indicated in their report
which is included elsewhere in this Annual Report. The selected consolidated
statement of operations data set forth below for each of the two fiscal years
in the period ended December 30, 1994, and the consolidated balance sheet data
set forth below at December 29, 1995, December 30, 1994 and December 31, 1993,
are derived from the Company's audited consolidated financial statements not
included elsewhere in this Annual Report. The selected consolidated financial
data should be read in conjunction with the Consolidated Financial Statements
of the Company, the Notes thereto, included elsewhere in this Annual Report,
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Item 7.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------
JANUARY 2, JANUARY 3, DECEMBER 29, DECEMBER 30, DECEMBER 31,
1998 1997 1995 1994 1993
---------- ---------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... $42,480 $41,213 $34,180 $26,333 $19,603
Royalty income.......... 3,040 1,000 514 1,020 473
------- ------- ------- ------- -------
Total revenues...... 45,520 42,213 34,694 27,353 20,076
Cost of sales........... 10,262 10,196 8,441 6,059 3,980
------- ------- ------- ------- -------
Gross profit........ 35,258 32,017 26,253 21,294 16,096
Costs and expenses:
General and
administrative....... 6,334 5,628 5,000 4,365 4,907
Marketing and selling. 12,719 12,227 10,911 8,694 6,998
Research and
development.......... 3,936 4,085 3,254 2,718 2,260
------- ------- ------- ------- -------
Total costs and
expenses........... 22,989 21,940 19,165 15,777 14,165
Operating income........ 12,269 10,077 7,088 5,517 1,931
Other income (expense).. (579) 153 303 625 685
------- ------- ------- ------- -------
Income before income
taxes.................. 11,690 10,230 7,391 6,142 2,616
Income tax provision
(benefit)(1)........... 4,271 3,339 (91) (2,184) 81
------- ------- ------- ------- -------
Net income.............. $ 7,419 $ 6,891 $ 7,482 $ 8,326 $ 2,535
======= ======= ======= ======= =======
Basic net income per
share.................. $ 0.57 $ 0.53 $ 0.59 $ 0.67 $ 0.21
======= ======= ======= ======= =======
Diluted net income per
share.................. $ 0.53 $ 0.50 $ 0.55 $ 0.63 $ 0.20
======= ======= ======= ======= =======
Weighted average number
of basic shares........ 13,124 12,910 12,756 12,514 12,335
======= ======= ======= ======= =======
Weighted average number
of diluted shares...... 14,113 13,867 13,679 13,170 12,823
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Working capital......... $24,936 $15,000 $16,335 $14,166 $ 7,354
Total assets............ 62,391 52,056 38,803 28,888 18,776
Notes payable and cur-
rent portion of long-
term debt.............. 1,608 8,193 4,029 1,792 1,634
Long-term debt.......... 5,750 844 1,212 572 0
Stockholders' equity.... 44,783 36,604 28,678 22,029 11,986
</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.
13
<PAGE>
The following table sets forth unaudited operating data for each of the
specified quarters of fiscal years 1996 and 1997. This quarterly information
has been prepared on the same basis as the annual consolidated financial
statements and, in the opinion of management, contains all adjustments
necessary to state fairly the information set forth herein. The sum of the
four quarters earnings per share may not agree to the fiscal year earnings per
share due to rounding. The unaudited quarterly financial data presented below
has not been subject to a review by BDO Seidman, LLP, the Company's
independent certified public accountants.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
For the Fiscal Year Ended January 2, 1998
Revenues................................. $10,555 $11,584 $11,825 $11,556
Gross profit............................. $ 8,095 $ 8,889 $ 9,065 $ 9,209
Net income............................... $ 1,749 $ 1,953 $ 2,064 $ 1,653
Basic income per share................... $ 0.13 $ 0.15 $ 0.16 $ 0.13
Diluted income per share................. $ 0.13 $ 0.14 $ 0.14 $ 0.12
For the Fiscal Year Ended January 3, 1997
Revenues................................. $ 9,529 $10,327 $10,799 $11,557
Gross profit............................. $ 7,255 $ 7,885 $ 8,164 $ 8,713
Net income............................... $ 1,498 $ 1,745 $ 1,775 $ 1,873
Basic income per share................... $ 0.12 $ 0.13 $ 0.14 $ 0.14
Diluted income per share................. $ 0.11 $ 0.12 $ 0.13 $ 0.14
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company develops, manufactures and globally distributes medical devices
used in minimally invasive ophthalmic surgery. The Company's primary products
are its foldable IOLs, its Glaucoma Wick(TM), its ICLs(TM) and its
STAARVISC(TM) viscoelastic solution. The Company markets its principal
products, its IOLs, both domestically and in numerous foreign countries. IOL
sales accounted for 90% of the Company's domestic revenues and 74% of the
Company's international revenues in 1997, respectively. The Company markets
the Glaucoma Wick(TM), which the Company introduced in late 1995, and its
ICLs(TM) and STAARVISC(TM) viscoelastic solution, which the Company introduced
in late 1996, in selected foreign countries.
The Company has marketed its foldable IOLs internationally since 1986 and,
in September 1991, following a lengthy period of clinical studies, received
FDA pre-market approval to fully market the Company's ELASTIMIDE(TM) and
ELASTIC(TM) foldable IOL models within the United States. Since that time, the
Company's total revenues increased from $10.2 million in its 1992 fiscal year
to $45.5 million in its 1997 fiscal year, representing a compound annual
growth rate of 35%. The Company also receives royalty income with respect to
certain of its licensed technologies, although it does not consider the
royalty income to be material to its prospective financial condition.
International revenues represented 33.2% of total revenues for the 1997
fiscal year, up from 10.7% for the 1992 fiscal year. The mix of the Company's
revenues and profits, on both a product and geographic basis, will be affected
by the continued introduction and acceptance of the Company's Glaucoma
Wick(TM), ICLs(TM) and STAARVISC(TM) viscoelastic solution in various markets
worldwide, including the United States. Sales of the Company's Glaucoma
Wick(TM) and ICLs(TM) will be limited to international markets until such
products receive United States FDA pre-market approval. The Company's
objective is to increase international revenues to account for one-half of
total revenue.
The Company's principal customers are ophthalmologists, ambulatory surgical
centers, hospitals, managed care providers, health maintenance organizations
and group purchasing organizations. The Company generally
14
<PAGE>
supplies a quantity of foldable IOLs with different specifications to customers
on a consignment basis and recognizes sales when an ophthalmic surgeon implants
the consigned foldable IOL. Sales to distributors are generally recognized upon
shipment. The Company typically does not have any backlog of orders for its
products. The Company's customers for foldable IOLs are generally eligible to
receive reimbursements from government or private third-party payors, such as
Medicare, subject to certain limitations and pricing pressures. The Company
does not expect that ICLs(TM) will be eligible for, and there can be no
assurance that the Glaucoma Wick(TM) will be eligible for, reimbursement by
government or private third-party payors.
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues represented
by certain items reflected in the Company's income statement for the period
indicated and the percentage increase or decrease in such items over the prior
period.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF TOTAL REVENUES CHANGE
---------------------------------- -----------
FISCAL
FISCAL YEAR ENDED YEAR ENDED
---------------------------------- -----------
1996 1995
JANUARY 2, JANUARY 3, DECEMBER 29, VS. VS.
1998 1997 1995 1997 1996
---------- ---------- ------------ ---- -----
<S> <C> <C> <C> <C> <C>
Total revenues............. 100.0% 100.0% 100.0% 7.8% 21.7 %
Cost of sales.............. 22.5 24.2 24.3 0.7 20.8
----- ----- -----
Gross profit............... 77.5 75.8 75.7 10.1 22.0
Costs and expenses:
General and
administrative.......... 13.9 13.3 14.4 12.5 12.6
Marketing and selling.... 27.9 29.0 31.5 4.0 12.1
Research and development. 8.6 9.7 9.4 (3.6) 25.5
----- ----- -----
Total costs and
expenses.............. 50.5 52.0 55.3 4.8 14.5
Operating income........... 27.0 23.9 20.4 21.7 42.2
Other income (expense),
net....................... (1.3) 0.4 0.9 -- (49.6)
----- ----- -----
Income before income taxes. 25.7 24.2 21.3 14.3 38.4
Income tax provision (bene-
fit)...................... 9.4 7.9 (0.3) 27.9 --
----- ----- -----
Net income................. 16.3% 16.3% 21.6% 7.7% (7.9)%
===== ===== =====
</TABLE>
1997 Fiscal Year Compared to 1996 Fiscal Year
Revenues. Revenues for the year ended January 2, 1998 were $45.5 million,
representing a 7.8% increase over $42.2 million in revenues for the prior year
ended January 3, 1997. The increase in revenues was principally attributable
to: (i) an increase in royalty payments, primarily due to a payment by a
licensee of past royalties; and (ii) increased sales of the Company's new
products and increased international sales of the Company's IOLs, partially
offset by domestic and international price decreases. Royalty revenues
increased from $1.0 million to $3.0 million. Revenues from the sale of the
Company's new products, principally its ICLs(TM), Glaucoma Wick(TM) and new IOL
products including the TORIC(TM) IOL, increased to $2.2 million in fiscal 1997
from $660,000 in fiscal 1996. International sales of IOLs in fiscal 1997
increased by 38% in unit volume, and by $1.6 million in dollar terms, over the
prior fiscal year. Total international sales increased to 35% of total sales
for the 1997 fiscal year, as compared to 30% of total sales for the prior
fiscal year, reflecting the Company's ongoing efforts to develop international
markets as well as the conversion of these markets to foldable IOLs. Increases
in sales of IOLs in unit volume were partially offset by an average price
decrease for IOLs of nearly 10%, as a result of competitive pressures, both
domestically and internationally.
15
<PAGE>
Management anticipates that international sales revenues will continue to
increase at a rate significantly greater than domestic sales, reflecting: (i)
the Company's increased efforts to broaden its international distribution
channels and to promote its products internationally; (ii) increased IOL unit
volumes due to the continued conversion of international IOL markets to
foldable IOLs; and (iii) greater international awareness and acceptance of the
Company's ICLs(TM) and Glaucoma Wick(TM), particularly as ophthalmologists
continue to receive the surgical training required to implant these ocular
products, and the Company continues to proceed with its United States clinical
studies. Management also believes that it will continue to benefit from volume
increases attributable to the continuing conversion of the domestic cataract
market to foldable IOLs, albeit at a slower rate of increase due to the higher
rate of conversion to date of the domestic market to foldable IOLs. Management
believes that the prices of IOLs will continue to be affected by competition.
Cost of Sales. Due primarily to additional royalty income and also continued
manufacturing efficiencies, cost of sales as a percentage of revenues for the
year ended January 2, 1998 declined to 22.5% of revenues as compared to 24.2%
for the prior fiscal year. This reduction was effectuated notwithstanding price
decreases resulting from competitive pressures and a product mix change due to
an increased demand for the ELASTIMIDE(TM) IOL (which is relatively more
expensive to manufacture than the ELASTIC(TM) model).
General and Administrative. General and administrative expense for the year
ended January 2, 1998 was $6.3 million, or 13.9% of revenues, as compared to
$5.6 million, or 13.3% or revenues, for the prior fiscal year. The increase in
general and administrative expense, both in dollar terms and as a percentage of
revenues, was attributable to additional administrative infrastructure
expenditures required to support the increase in revenues and costs related to
investors relations.
Marketing and Selling. Marketing and selling expense for the year ended
January 2, 1998 was $12.7 million, or 27.9% of revenues, as compared to $12.2
million, or 29.0% of revenues, for the prior fiscal year. The decline in
marketing and selling expense as a percentage of revenues was attributable to
the significant growth in overall revenues permitting greater absorption of
fixed marketing and selling (i.e. non-commission) costs. The increase in
marketing and selling expense in dollar terms was principally attributable to
additional selling and marketing expenses arising from the operations of the
Company's new European distribution subsidiaries.
Research and Development. Research and development expense for the year ended
January 2, 1998 was $3.9 million, or 8.6% of revenues, as compared to $4.1
million, or 9.7% of revenues, for the prior fiscal year. These expenditures
were attributable to the Company's continued investment in developing new
products, manufacturing and distribution systems, cost reduction projects for
manufacturing and increased costs incurred conducting clinical studies in the
United States.
Other Expense or Income, Net. Other expense for the year ended January 2,
1998 was $579,000, or 1.3% of revenues, as compared other income of $153,000,
or 0.4% of revenues, for the prior fiscal year. The primary reasons for the
overall increase in other expenses over income were increased interest
expenses, and losses in translating foreign currency.
Income Tax Provision. Income taxes increased to a provision of $4.3 million
for the year ended January 2, 1998, as compared to a provision of $3.3 million
for the prior fiscal year. The Company's tax rate increased from a rate of
32.6% in fiscal 1996 to a rate of 36.5% for fiscal 1997, primarily due to a
greater percentage of income before taxes being subject to taxation at the
higher United States 40% combined federal and state marginal tax rate. During
fiscal 1997 the Company utilized all of its remaining tax operating loss
carryforwards for federal income tax purposes. See Note 7 to the Consolidated
Financial Statements.
As a result of the Company's positive operating results for each of the three
years ended January 2, 1998 the Company determined that deferred tax assets of
$1.2 million and $2.3 million should be recognized as of January 2, 1998 and
January 3, 1997. These amounts were based on a consideration of current and
future anticipated earnings. Future income levels should result and in full
recognition of the deferred tax assets. The
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amount recorded as of January 3, 1997 includes the capitalization of the
remaining balance of the Company net operating loss carryforwards. Management
believes it is more likely than not that the deferred tax assets will be
realized in full.
1996 Fiscal Year Compared to 1995 Fiscal Year
Revenues. Revenues for the year ended January 3, 1997 were $42.2 million,
representing a 21.7% increase over $34.7 million in revenues for the prior year
ended December 29, 1995. The increase in revenues was principally attributable
to the continued growth in unit sales of the Company's primary products, its
foldable IOLs, in both the domestic and international markets, partially offset
by certain domestic price decreases due to competitive pressures. Increases in
unit volume are attributable, in significant part, to the continuing conversion
of the cataract market to foldable IOLs. Revenues from international sales
increased to 30% of total revenues for the year ended January 3, 1997, as
compared to 24% for the prior fiscal year, reflecting the Company's increased
efforts to develop international markets, as well as the conversion of these
markets to foldable IOLs. Also included in revenues for the year ended January
3, 1997 are international sales of $625,000 resulting from the commercial
introduction in selected foreign markets of the Company's Glaucoma Wick(TM) at
the end of 1995 and its ICLs(TM) and STAARVISC(TM) viscoelastic solution at the
end of fiscal 1996. Revenues from royalties also increased from $500,000 for
1995 to $1 million for fiscal 1996.
Cost of Sales. Cost of sales as a percentage of revenues for the year ended
January 3, 1997 declined slightly to 24.2% of revenues as compared 24.3% for
the prior fiscal year. The principal reasons for this slight decline were
increased operating efficiencies and economies of scale from increased sales
volume. These savings were offset by price decreases resulting from competitive
pressures and a product mix change due to an increased demand for the
ELASTIMIDE(TM) IOL, which is relatively more expensive to manufacture.
General and Administrative. General and administrative expense for the year
ended January 3, 1997 was $5.6 million, or 13.3% of revenues, as compared to $5
million, or 14.4% or revenues, for the prior fiscal year. The decline in
general and administrative expense as a percentage of revenues was attributable
to the significant growth in overall revenues permitting greater absorption of
general and administrative costs. The increase in general and administrative
expense in dollar terms was attributable to additional administrative
infrastructure expenditures required to support the increase in revenues.
Marketing and Selling. Marketing and selling expense for the year ended
January 3, 1997 was $12.2 million, or 29.0% of revenues, as compared to $10.9
million, or 31.5% of revenues, for the prior fiscal year. The decline in
marketing and selling expense as a percentage of revenues was attributable to
the significant growth in overall revenues permitting greater absorption of
fixed marketing and selling (i.e., non-commission) costs. The increase in
marketing and selling expense in dollar terms was principally attributable to
greater commissions paid arising from increased sales revenues.
Research and Development. Research and development expense for the year ended
January 3, 1997 was $4.1 million, or 9.7% of revenues, as compared to $3.3
million, or 9.4% of revenues, for the prior fiscal year. This increase was
attributable to the Company's continued investment in developing new products,
manufacturing systems and distribution systems, cost reduction projects for
manufacturing, and increased costs incurred conducting clinical studies in the
United States.
Other Income, Net. Other income for the year ended January 3, 1997 was
$153,000, or 0.4% of revenues, as compared to $303,000, or 0.9% of revenues,
for the prior fiscal year. The primary reasons for this decrease were increased
interest expenses, losses in translating foreign currency, and a decline in
deferred revenue arising from the sale of a license to the Canon STAAR joint
venture. The deferred revenue reported in fiscal 1996 is the last portion of
total deferred revenue realized with respect to the Canon STAAR license.
Income Tax Provision. Income taxes increased to a provision of $3.3 million
for the year ended January 3, 1997 from a benefit of $100,000 for the prior
fiscal year. Fiscal 1996 is the first year the Company has reported
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an income tax provision without having offsets related to net operating loss
carryforwards. However, the Company will not pay any significant Federal
income taxes until it fully utilizes the remaining $2.5 million of net
operating loss carryforwards for tax purposes. The Company fully utilized its
net operating loss carryforwards for state taxes in 1995. The Company has
recorded a deferred tax asset of $1.3 million as of January 3, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its activities over the past several years
principally from cash flow generated from operations, credit facilities
provided by institutional domestic and foreign lenders, and the exercise of
stock options and warrants.
The Company's principal domestic credit facility is a line of credit
originally entered into on a secured basis in June 1996, and refinanced on an
unsecured basis in June 1997, which currently allows the Company to borrow up
to $10.0 million on a revolving basis, at a rate of interest not to exceed the
prime interest rate, less 0.25% (or, at the election of the Company, if more
than $500,000 is outstanding, at a rate of interest equal to LIBOR, plus
1.75%). This line of credit expires in June 1999. The underlying loan
agreement requires the Company to satisfy certain financial tests, and limits
the amount of indebtedness the Company may incur to others. The refinance of
the line of credit in June 1997 resulted in a reclassification of debt from
short-term to long-term. Borrowings outstanding under this line of credit as
of January 2, 1998 were approximately $5.5 million.
In November 1997, the Company's domestic lender supplemented the Company's
domestic credit facility by committing through March 31, 1998 to make
additional advances to the Company of up to $5 million for business
acquisitions. Any principal amounts borrowed pursuant to this commitment would
be repaid in monthly installments of principal of $83,334 until such amounts
were repaid. Interest on any such principal amounts borrowed will be payable
monthly at a rate of interest not to exceed the prime interest rate, less
0.25% (or, at the election of the Company, if more than $100,000 is
outstanding, at a rate of interest equal to LIBOR, plus 1.75%). The underlying
loan agreement requires the Company to satisfy certain financial tests, and
limits the amount of indebtedness the Company may incur to others. No
borrowings under this commitment have been made as of January 2, 1998.
The Company's foreign credit facility consists of a separate revolving line
of credit and a term loan extended in May 1994 by a Swiss bank to the
Company's subsidiary, STAAR Surgical AG. The revolving line of credit facility
provides for borrowings up to $766,000 (1.1 million Swiss Francs) at a 5.5%
rate of interest as of January 2, 1998. A commission rate of 0.25% is payable
each quarter. The line of credit does not have a termination date and is
secured by a general assignment of claims. Borrowings outstanding as of
January 2, 1998 under the line of credit were approximately $926,000, which
balance exceeded the maximum allowable borrowings. The excess borrowings were
permitted by the lender due to adequate compensating cash balances. Under the
term loan, STAAR Surgical AG obtained a $766,000 (1.1 million Swiss Francs)
loan guaranteed partially by the Swiss government and partially by the
Company. Interest on this loan is 6.25%, which the Company shares on an equal
basis with the bank and the Swiss government. The principal amount of this
loan is required to be repaid in four equal annual installments, beginning in
December 1996. Borrowings by STAAR Surgical AG under this loan outstanding as
of January 2, 1998 were approximately $397,000.
As of January 2, 1998, the Company had net working capital of approximately
$24.9 million, as compared to $15.0 million and $16.3 million as of January 3,
1997 and December 29, 1995, respectively. The increase in net working capital
for the fiscal year ended January 2, 1998 was primarily attributable to a $1.2
million increase in accounts receivable, a $2.3 million increase in inventory,
a $3.25 million note receivable recorded in a settlement with a licensee, a
$6.5 million decrease in notes payable as a result of the full payment of a
$2.0 million note and the reclassification of debt from short-term to long-
term offset by a $3.3 million change in deferred income taxes. The decrease in
net working capital for the fiscal year ended January 3, 1997 was primarily
attributable to a $4.2 million increase in notes payable, $5.9 million
investment in patents and licenses, and $4.3 million expended to acquire
additional property and equipment, offset by a $2.8 million increase in
inventories and a $2.7 million increase in cash.
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As of January 2, 1998, the Company had cash and cash equivalents of
approximately $6.3 million, as compared to $6.5 million and $3.8 million as of
January 3, 1997 and December 29, 1995, respectively. The slight decline in the
Company's cash position for the year ended January 2, 1998 was primarily
attributable to the increase in the effect of exchange rate changes in cash and
cash equivalents. The improvement in the Company's cash position for the year
ended January 3, 1997 was primarily attributable to net cash provided by
operating activities (approximately $9.3 million) and cash provided by
financing activities (approximately $4.5 million), partially offset by cash
used for the acquisition of property, plant and equipment to establish
production facilities for new products and to improve operations for current
products and reduce current manufacturing costs (approximately $4.3 million)
and to acquire patents and licenses and to fund patent litigation
(approximately $5.9 million).
Cash flows from operating activities for the year ended January 2, 1998 were
approximately $7.6 million, a decrease of approximately $1.7 million from the
prior fiscal year. The decrease in cash flow from operating activities was
principally attributable to a $3.9 million change in operating working capital
offset by a $550,000 increase in amortization of patents, licenses and other
intangibles, and a $1.3 million increase in deferred income taxes. Cash flows
from operating activities for the year ended January 3, 1997 were approximately
$9.3 million, an improvement of approximately $4.3 million from the prior
fiscal year. The increase in cash flow from operating activities was
principally attributable to the utilization of deferred tax asset of $2.9
million and an increase in depreciation and amortization of $1.5 million.
Cash used in investing activities for the year ended January 2, 1998, was
$7.4 million, representing a decrease of approximately $3.6 million relative to
the year ended January 3, 1997. This decrease was due primarily to a $1.4
million decrease in the acquisition of property, plant and equipment and a $2.7
million decrease in the acquisition of patents and licenses, partially offset
by a $590,000 increase in other assets. Cash used in investing activities for
the year ended January 3, 1997 was $11.0 million, representing an increase of
approximately $4.9 million relative to the year ended December 29, 1995. This
increase was due primarily to an increase of $792,000 in expenditures for
property and equipment and $4.0 million for patents and licenses.
Cash flows from financing activities for the year ended January 2, 1998 were
$122,751, representing a decrease of approximately $4.4 million relative to the
year ended January 3, 1997. This decrease was principally attributable to a
$2.4 million decrease in borrowings and a $2.1 million increase in payments on
notes payable and long-term debt. Cash flows from financing activities for the
year ended January 3, 1997 were $4.5 million, representing an increase of
approximately $2.9 million relative to the year ended December 29, 1995. This
increase was principally attributable to increased net borrowings of
approximately $1.4 million, increased exercises of stock options of $617,000,
and decreased expenditures to repurchase Common Stock (approximately $315,000,
as compared to $1.6 million for the prior fiscal year).
As of January 2, 1998, the Company had $396,000 due with respect to an open-
ended capital lease agreement wherein the Company leased $1.2 million in
surgical equipment. The Company's obligations under this lease agreement are
secured by a $300,000 letter of credit.
The Company's capital expenditures for the fiscal years ended January 2, 1998
and January 3, 1997 were approximately $2.8 million and $4.3 million,
respectively. These expenditures were used to upgrade existing production
equipment, set up new production facilities for new products, and reduce
current manufacturing costs. The Company's planned capital expenditures for
1998 are approximately $4.0 million, primarily to improve and expand the
Company's foldable IOL, ICL(TM) and Glaucoma Wick(TM) manufacturing capacity
and to reduce manufacturing costs.
Capitalized additions for patents and licenses for the fiscal years ended
January 2, 1998 and January 3, 1997 were approximately $3.2 million and $5.9
million, respectively. The Company capitalizes the costs of acquiring patents
and licenses as well as the legal costs of defending its rights to these
patents. The Company expects to spend approximately $2.0 million in 1998 for
patents and licenses.
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Management believes that cash flow from operations and available credit
facilities, together with its current cash balances, will provide adequate
financial resources to finance an increase in the level of the Company's
operations, including some capital expenditures, and research and development
activities. Should additional funding be needed, such as for significantly
increased levels of operations, major capital expenditures or acquisitions,
the Company believes, so long as the financial position of the Company remains
constant, that these funds could be obtained through borrowings or a secondary
public offering.
OTHER MATTERS
New Accounting Standards
See "Recent Accounting Pronouncements" in the Consolidated Financial
Statements.
Foreign Exchange
Management does not believe that the fluctuation in the value of the dollar
in relation to the currencies of its suppliers or customers in the last three
fiscal years has adversely affected the Company's ability to purchase or sell
products at agreed upon prices. No assurance can be given, however, that
adverse currency exchange rate fluctuations will not occur in the future,
which would affect the Company's operating results. See "Uncertainties and
Risk Factors--Risks Associated with International Transactions" below.
Inflation
Management believes inflation has not had a significant impact on the
Company's operations during the past three years.
Year 2000 Compliance
Management has reviewed the Company's internal computer systems and software
products for Year 2000 problems and believes that such systems and products
are, or will soon be, Year 2000 compliant, and management therefore does not
expect Year 2000 considerations will materially impact the Company's internal
operations. Year 2000 considerations may have an affect on some of the
Company's customers and suppliers, and thus indirectly affect the Company. It
is not possible to quantify the aggregate cost to the Company with respect to
customers and suppliers with Year 2000 problems, although the Company does not
anticipate it will have a material adverse impact on its business.
UNCERTAINTIES AND RISK FACTORS
The Company may be subject to a number of significant uncertainties and
risks including, without limitation and without purporting to be a complete or
exhaustive list, those described below and those described elsewhere in this
Annual Report, which may ultimately affect the Company in a manner and to a
degree which cannot be foreseen at this time.
Risks Relating to Commercialization of New Products. The extent and pace of
market acceptance of the Company's new products, including its Glaucoma
Wick(TM), ICL(TM) and STAARVISC(TM) viscoelastic solution, will be a function
of many variables, in the following: the efficacy, performance and attributes
of such new products; the ability of the Company to obtain necessary
regulatory approvals to commercially market such new products; the
effectiveness of the Company's marketing and sales efforts, including
educating ophthalmologists and other potential customers as to the distinctive
characteristics and benefits of these new products; the rate at which
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ophthalmologists attain the necessary surgical skills to implant these new
products; the ability of the Company to meet manufacturing and delivery
schedules; and product pricing. The extent and pace of market acceptance will
also depend upon general economic conditions affecting customers' purchasing
patterns. As the Glaucoma Wick(TM) and ICL(TM) are new medical devices, there
is a material risk that the marketplace may not accept, or be receptive to, the
potential benefits of these new products. Unless and until these new products
are accepted by the market and generating meaningful revenues and profits, the
Company's financial condition and prospects will continue to be solely
dependent upon its line of cataract products. See "Uncertainties and Risk
Factors--Government Regulation and Uncertainty of Product Approval" and
"Business--Products."
Highly Competitive Industry; Rapid Technological Change. Competition in the
ophthalmic industry is intense and characterized by extensive research and
development and rapid technological change. The Company has licensed certain of
its patents and technologies relating to its cataract products to competitors.
Many of the Company's current and prospective competitors have greater
financial, technical and marketing resources and trade name recognition than
the Company, which may enable them to successfully develop and/or market
products based on technologies or approaches similar to those of the Company,
or develop products based on other technologies or approaches, which are, or
may be, competitive with the Company's products. Development by competitors of
new or improved products, processes or technologies may make the Company's
products less competitive or obsolete. The Company will be required to devote
significant financial and other resources to enhance its existing products and
develop new products for the ophthalmic industry. Competitive pressures could
lead to a decline in sales volumes of existing products, the inability to
attain sufficient market penetration for new products, or price reductions, any
or all of which could adversely affect the Company's operating and financial
results. There can be no assurance that the Company will be able to compete
successfully in the industry, particularly in view of rapid technological
change. See "Business--Competition" and "Business--Licenses and Distribution
Rights" in Item 1.
Government Regulation and Uncertainty of Product Approval. The manufacture
and sale of the Company's products are subject to extensive international and
domestic regulation. In order to sell these products within the United States,
clearance or approval from the FDA is required. The FDA clearance or approval
process is expensive and time consuming, and no assurance can be given that any
of the Company's products which have not received FDA clearance or approval to
date will obtain such FDA clearance or approval on a timely basis or at all, or
without delays adversely affecting the marketing and sale of the Company's
products. Foreign regulatory requirements differ from jurisdiction to
jurisdiction and may, in some cases, be more stringent or difficult to obtain
than FDA clearance or approval. In order to sell products in the countries
comprising the European Economic Union (the "Union"), the Company must satisfy,
by no later than 1998, certain Union-wide regulatory requirements,
notwithstanding the Company's previous receipt of approvals from member
countries. No assurance can be given that the Company will obtain such
regulatory approvals on a timely basis or at all, or without delays adversely
affecting the marketing and sale of the Company's products. In addition,
clearances or approvals that have been or may be granted are subject to
continual review, which could result in product labeling restrictions,
withdrawal of products from the market or other adverse consequences.
To date, the Company has conducted clinical studies in certain foreign
countries, and is in the process of conducting clinical studies in the United
States, on the feasibility of (i) using the Glaucoma Wick(TM) for the treatment
of glaucoma, and (ii) using the ICL(TM) for the treatment of myopia and
hyperopia. There can be no assurance that the clinical trial results to date
from these studies are necessarily indicative of future clinical trial results
with respect to these new products. There can also be no assurance that long-
term safety and efficacy data, when collected, will be consistent with the
clinical results to date, and will demonstrate that (i) the Glaucoma Wick(TM)
can be used safely and successfully to treat glaucoma in a broad segment of the
patient population or on a long-term basis, or (ii) that the ICL(TM) can be
used safely and successfully to treat myopia or hyperopia on a long-term basis.
Furthermore, no assurance can be given that there will be no serious
complications or side effects, or that any such complications or side effects
will not impair or delay the Company's obtaining regulatory approval for these
new products in the United States and other key markets.
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In addition to the review and approval process for its products, the Company
is also subject to government regulation of its manufacturing facilities and
procedures including "good manufacturing practice" regulations promulgated by
the FDA. The Company believes it is in compliance with all applicable
regulations. However, the FDA and comparable regulatory agencies in other
countries have substantial discretion in the interpretation and enforcement of
applicable regulations. There can be no assurance that future interpretations
made by any regulatory bodies, including the FDA, with possible retroactive
effect, will not adversely affect the Company. Moreover, the Company could
suffer a material adverse effect from a change in these regulations. The
Company cannot predict the extent or impact of future federal, state, local or
foreign legislation or regulation. See "Business--Regulatory Requirements" in
Item 1.
If, as a result of FDA inspections, MDR reports or other information, the FDA
believes that the Company is not in compliance with the law, the FDA can
institute proceedings to detain or seize products, enjoin future violations,
and/or assess civil or criminal penalties against the Company and its officers
or employees. Although the Company and its products have not been the subject
of any such FDA enforcement action, any such action by the FDA could result in
a disruption of the Company's operations for an undetermined time.
Patents and Proprietary Rights. The Company's ability to compete effectively
is materially dependent upon the proprietary nature of the designs, processes,
technologies and materials owned, used by or licensed to the Company. Although
the Company attempts to protect its proprietary property, technologies and
processes through a combination of patent law, trade secrets and non-disclosure
agreements, there is no assurance that any or all of these measures will prove
to be effective. For example, in the case of patents, there can be no assurance
that existing patents granted to the Company or its licensors will not be
invalidated, that patents currently or prospectively applied for by the Company
or its licensors will be granted, or that patents will provide significant
commercial benefits. Moreover, it is possible that competing companies may
circumvent patents the Company or its licensors have received or applied for by
developing products which closely emulate but do not infringe the Company's or
its licensor's patents, and thereby market products that compete with the
Company's products without obtaining a license from the Company. In addition to
patented or potentially patentable designs, technologies, processes and
materials, the Company also relies on proprietary designs, technologies,
processes and know-how not eligible for patent protection, and there is no
assurance that competitors may not independently develop the same or superior
designs, technologies, processes and know-how.
The Company believes that the international market for its products is as
important as the domestic market, and therefore seeks patent protection for its
products or those of its licensors in selected foreign countries. Because of
the differences in foreign patent and other laws concerning proprietary rights,
the Company's products may not receive the same degree of protection in certain
foreign countries as they would in the United States.
There can be no assurance that the Company will be able to successfully
defend its patents and proprietary rights. The invalidation or circumvention of
key patents (principally the Company's core patents for insertion of foldable
or deformable IOLs or ICLs through minimally invasive surgical techniques) or
proprietary rights owned by or licensed to the Company could have an adverse
effect on the Company and on its business prospects. There can be no assurance
that the Company will not be required to defend against litigation involving
the patents or proprietary rights of others, or that licenses under such rights
will be available. Legal and accounting costs relating to prosecuting or
defending patent infringement litigation may be substantial. See "Business--
Intellectual Property Rights" in Item 1.
Third-Party Reimbursement. The Company's ability to sell its products is, in
part, dependent upon policies of government or private third-party payors
regarding reimbursement to ophthalmic surgeons with respect to their use of the
Company's products. There can be no assurance that such third-party payors will
continue to authorize or otherwise budget reimbursement for use of the
Company's existing products (principally its IOLs) at current levels. For
example, reimbursement rates for IOLs, such as that of Medicare, have declined
in recent years. Changes in policies regarding reimbursement for ophthalmic
products or services could adversely affect the prospects for future sales of
the Company's products. The Company does not expect that ICLs(TM) will be
eligible
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for reimbursement, and there can be no assurance that any of the Company's
other new products will be eligible for reimbursement by government or private
third-party payors.
Risks Associated with International Transactions. The Company sells its
products internationally which subjects it to several potential risks,
including risks associated with fluctuating exchange rates, the regulation of
fund transfers by foreign governments, United States and foreign export and
import duties and tariffs, and political instability. There can be no assurance
that any of the foregoing will not have a material adverse effect upon the
business of the Company. The Company has not previously engaged in activities
to mitigate the effects of foreign currency fluctuations, as the Company is
generally paid in U.S. dollars with respect to its international operations. If
earnings from international operations increase, the Company's exposure to
fluctuations in foreign currencies may increase, and the Company may utilize
forward exchange rate contracts or engage in other efforts to mitigate foreign
currency risks. If entered into, there can be no assurance as to the
effectiveness of such efforts in limiting any adverse effects of foreign
currency fluctuations on the Company's international operations and on the
Company's overall results of operations. See "Business" in Item 1 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Foreign Exchange" above.
Product Liability Claims; Insufficiency of Product Liability Insurance
Coverage; Product Recall Risks. As a supplier of products used in medical
treatments, the Company faces an inherent business risk of exposure to product
liability claims in the event the end use of its products results in
unanticipated adverse effects on patients, including serious personal injury or
death. Certain of the Company's new products, such as its Glaucoma Wick(TM) and
its ICL(TM), are based upon unique designs and materials. Product liability
risk is higher with respect to these products, as they have a limited history
of testing, use and performance, and unknown defects associated with such
products may only be identified through the passage of time. Potential negative
publicity concerning the defective product could also affect the Company's
other products. No assurance can be given that the Company will not experience
product liability claims in the future with respect to its established or new
products. Any product liability claim could have a material adverse effect on
the Company.
Any product liability claims will be subject to the uncertainties attendant
to litigation. The Company currently maintains product liability insurance
coverage. No assurance can be given that such insurance coverage is in an
amount sufficient to cover all possible liabilities, or one or more large
claims, or that the insurer will be solvent at the time of any covered loss.
Also, no assurance can be given that adequate product liability insurance will
continue to be available in the future or maintained at a reasonable cost to
the Company. In the event of a successful product liability suit against the
Company, lack or insufficiency of insurance coverage could have a material
adverse effect on the Company.
The Company may, in the event there are material deficiencies or defects in
the design or manufacture of any of its products, be required to recall such
defective products. In the event of a product recall, the cost to, and the
potential liability of, the Company could be significant and could have a
material adverse effect on the Company's business and operations, especially if
such liability relates to the recall of a product generating significant
revenues and earnings for the Company, such as its foldable IOLs. Potential
negative publicity from a recall could also adversely affect sales and/or
regulatory approvals of the Company's other products.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and the Report of Independent Certified Public
Accountants are filed with this Annual Report on Form 10-K in a separate
section following Part IV, as shown on the index under Item 14(a) of this
Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEMS 10., 11., 12. AND 13.
Information required by Part III (Items 10, 11, 12 and 13) is incorporated by
reference to the Company's definitive proxy statement for its 1998 Annual
Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial statements required by Item B of this form are filed as a
separate part of this report following Part IV
<TABLE>
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PAGE
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<S> <C>
Report of Independent Certified Public Accountants........................ F-2
Consolidated Balance Sheets at January 2, 1998 and January 3, 1997........ F-3
Consolidated Statements of Income for the years ended January 2, 1998,
January 3, 1997 and December 29, 1995.................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
January 3, 1997, December 29, 1995 and December 30, 1994................. F-5
Consolidated Statements of Cash Flows for the years ended January 3, 1997,
December 29, 1995 and December 30, 1994.................................. F-6
Notes to Consolidated Financial Statements................................ F-11
(2) Schedules required by Regulation S-X are filed as an exhibit to this
report:
Independent Certified Public Accountants' Report on Schedules and Consent. F-23
II. Valuation and Qualifying Accounts and Reserves........................ F-24
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements notes thereto
</TABLE>
(3) Exhibits
24
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
3.1 Certificate of Incorporation, as amended(1)
3.4 By-laws, as amended(8)
4.1 1990 Stock Option Plan(2)
4.2 1991 Stock Option Plan(3)
4.3 1995 STAAR Surgical Company Consultant Stock Plan(4)
4.4 1996 STAAR Surgical Company Non-Qualified Stock Plan(9)
4.5 1996 STAAR Surgical Company Non-Qualified Stock Plan(9)
4.6 Stockholders' Rights Plan, dated effective April 20, 1995(7)
10.1 Non-Exclusive License Agreement, dated March 13, 1986, between the
Company and CooperVision, Inc.(6)
10.2 Technology License Agreement And Option To Purchase Equity Interest,
dated March 13, 1986, between the Company and CooperVision, Inc.(6)
10.3 License Agreement, dated December 17, 1986, between the Company and
Optical Radiation Corporation(11)
10.4 Joint Venture Agreement, dated May 23, 1988, between the Company, Canon
Sales Co, Inc. and Canon, Inc.(5)
10.5 License Agreement, dated March 9, 1990, between Chiron Ophthalmics,
Inc. and the Company(6)
10.6 License Agreement, dated March 9, 1990, between Chiron Ophthalmics,
Inc. and the Company(6)
10.7 Promissory Note, dated February 28, 1991, from John R. Wolf to the
Company(9)
10.8 Stock Pledge/Security Agreement, dated February 28, 1991, between John
R. Wolf, the Company and Pollet & Associates(9)
10.9 Promissory Note, dated February 28, 1991, from William C. Huddleston to
the Company(9)
10.10 Stock Pledge/Security Agreement, dated February 28, 1991, between
William C. Huddleston, the Company and Pollet & Associates(9)
10.11 Amended and Restated Soft IOL License Agreement, restated as of January
31, 1992, between the Company, Softlensco, Inc., and Iolab
Corporation(9)
10.12 Promissory Note, dated May 26, 1992, from the Andrew F. Pollet and
Sally M. Pollet Revocable Trust dated March 6, 1990 (11)
10.13 Deed of Trust, dated August 1, 1997, by the Andrew F. Pollet and Sally
M. Pollet Revocable Trust dated March 6, 1990(10)
10.14 Promissory Note, dated July 3, 1992, from William C. Huddleston to the
Company(11)
10.15 Stock Pledge/Security Agreement, dated July 3, 1992, between William C.
Huddleston the Company and Pollet & Associates(11)
10.16 Lease, dated November 9, 1992, by and between Linda Lee Brown and
Phyllis Ann Bailey and the Company regarding real property located at
1941 Walker Avenue, Monrovia, California(11)
10.17 Indenture of Lease, dated October 20, 1983, by and between Dale E.
Turner and Frances R. Turner and the Company regarding real property
located at 1911 Walker Avenue, Monrovia, California, and all Lease
Additions thereto(11)
10.18 Patent License Agreement, dated May 24, 1995, with Eye Microsurgery
Intersectoral Research and Technology Complex(8)
10.19 Patent License Agreement, dated January 1, 1996, with Eye Microsurgery
Intersectoral Research and Technology Complex(9)
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.20 Promissory Note, dated March 18, 1993, from William C. Huddleston to
the Company(6)
10.21 Revolving Line of Credit Note, dated June 1, 1997, between STAAR
Surgical Company and Wells Fargo Bank(10)
10.22 Modification To Employment Agreement, dated December 20, 1994, between
the Company and John R. Wolf(6)
10.23 First Amendment To Sales Representative Agreement, dated December 20,
1994, between the Company and John R. Wolf(6)
10.24 Employment Agreement, dated March 1, 1994, between the Company and
Vladimir Feingold(6)
10.25 Modification To Employment Agreement, dated May 6, 1996, between the
Company and Vladimir Feingold(9)
10.26 Employment Agreement, dated March 1, 1994, between the Company and
William C. Huddleston(6)
10.27 Modification To Employment Agreement, dated May 6, 1996, between the
Company and William C. Huddleston(9)
10.28 Employment Agreement, dated March 1, 1994, between the Company and Carl
M. Manisco(6)
10.29 Modification To Employment Agreement, dated May 6, 1996, between the
Company and Carl M. Manisco(9)
10.30 Employment Agreement, dated March 1, 1994, between the Company and
Michael J. Lloyd(6)
10.31 Modification To Employment Agreement, dated May 6, 1996, between the
Company and Michael J. Lloyd(9)
10.32 Employment Agreement, dated March 1, 1994, between the Company and
Stephen L. Ziemba(6)
10.33 Modification To Employment Agreement, dated May 6, 1996, between the
Company and Stephen L. Ziemba(9)
10.34 Employment Contract, dated May 26, 1996, between the Company and Donald
Ferguson(9)
10.35 Amended IOL Supply Agreement, dated June 10, 1994, between the Company
and Chiron Vision Corporation(6)
10.36 Manufacturing Site Agreement, dated June 10, 1994, between the Company
and Chiron Vision Corporation(6)
10.37 Form of Non-Qualified Stock Option Agreements granted to Directors of
Company in June and August 1994(6)
10.38 Agreement For Purchase And Sale Of Assets, dated October 1, 1994,
between STAAR Surgical Australasia Pty. Ltd. and Bionica Pty. Ltd.(6)
10.39 Agreement, dated October 10, 1995, with China Eye Joint Venture(8)
21 List of Significant Subsidiaries(10)
24 Powers of Attorney(10)
27.1 Financial Data Schedule at and for the year ended January 2, 1998(11)
27.2 Restated Financial Data Schedule at and for the years ended January 3,
1997 and December 29, 1995(10)
27.3 Restated Financial Data Schedule at and for the periods ended September
27, 1996, June 28, 1996, and March 29, 1996(10)
27.4 Restated Financial Data Schedule at and for the periods ended October
3, 1997, July 4, 1997, and April 4, 1997(10)
</TABLE>
26
<PAGE>
- --------
(Footnotes to Exhibits):
(1) Incorporated by reference from the Company's Registration Statement on
Form S-18, File No. 2-83434, as filed on April 29, 1983
(2) Incorporated by reference from the Company's Registration Statement on
Form S-8, File No. 33-37248, as filed on October 11, 1990
(3) Incorporated by reference from the Company's Registration Statement on
Form S-8, File No. 33-76404, as filed on March 11, 1994
(4) Incorporated by reference from the Company's Registration Statement on
Form S-8, File No. 33-60241, as filed on June 15, 1995
(5) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, as filed on March 31, 1994
(6) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 30, 1994, as filed on March 30, 1995
(7) Incorporated by reference from the Company's Proxy Statement for its
Annual Meeting of Stockholders held on June 6, 1995, as filed on May 12,
1995
(8) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 29, 1995, as filed on March 28, 1996
(9) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended January 3, 1997, as filed on April 2, 1997
(10) Filed herewith
(11) Refiled herewith pursuant to Reg. (S)201.24
(b) Reports on Form 8-K. During the three months ended January 2, 1998 the
Company did not file any reports on Form 8-K.
27
<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 31, 1998.
STAAR SURGICAL COMPANY
/s/ John R. Wolf
By: _________________________________
John R. Wolf,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant on March 31, 1998 and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ John R. Wolf President, Chief Executive Officer and
_____________________________________ Chairman
John R. Wolf
/s/ William C. Huddleston Vice President and Chief Financial
_____________________________________ Officer (principal accounting and
William C. Huddleston financial officer)
/s/ Peter J. Utrata, M.D.* Director
_____________________________________
Peter J. Utrata, M.D.
/s/ Donald R. Sanders* Director
_____________________________________
Donald R. Sanders
/s/ Andrew F. Pollet* Director
_____________________________________
Andrew F. Pollet
/s/ Michael R. Deitz, M.D.* Director
_____________________________________
Michael R. Deitz, M.D.
/s/ William C. Huddleston
*By: ________________________________
William C. Huddleston
(Attorney in Fact)
</TABLE>
28
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995
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 January 2, 1998, and January 3, 1997,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended January 2, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of STAAR Surgical Company and subsidiaries as of January 2, 1998 and January
3, 1997, and the results of their operations and their cash flows for each of
the three years in the period ended January 2, 1998, in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
Los Angeles, California
March 6, 1998
F-2
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 1998 AND JANUARY 3, 1997
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......................... $ 6,279,136 $ 6,469,515
Accounts receivable, less allowance for doubtful
accounts
of $128,070 and $111,525 (Note 1)................. 7,983,399 6,827,250
Other receivable (Note 9).......................... 3,250,000 --
Inventories (Note 2)............................... 14,712,398 12,365,867
Prepaid, deposits and other current assets......... 2,006,075 1,676,611
Deferred income tax (Note 7)....................... 1,182,136 2,268,075
----------- -----------
Total current assets............................. 35,413,144 29,607,318
----------- -----------
Investment in joint venture (Note 4)............... 2,740,163 2,464,140
Property, plant and equipment, net (Note 3)........ 10,024,181 8,920,989
Patents and licenses, net of accumulated
amortization of $2,397,920 and $1,401,392 (Notes 8
and 9)............................................ 11,121,436 8,900,236
Other assets....................................... 3,091,957 2,163,336
----------- -----------
$62,390,881 $52,056,019
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable (Note 5)............................. $ 983,276 $ 7,489,549
Accounts payable................................... 1,528,436 1,605,026
Current portion of long-term debt (Note 6)......... 624,698 703,260
Deferred income tax (Note 7)....................... 3,174,000 937,000
Other current liabilities (Notes 11 and 12)........ 4,166,963 3,872,750
----------- -----------
Total current liabilities........................ 10,477,373 14,607,585
----------- -----------
Long-term debt (Note 6).............................. 5,750,478 844,050
Other long-term liabilities (Note 6)................. 1,380,246 207
----------- -----------
Total liabilities................................ 17,608,097 15,451,842
----------- -----------
Commitments and contingencies (Notes 11 and 13)
Stockholders' equity (Notes 10, 11 and 13):
Common stock, $.01 par value, 30,000,000 shares
authorized;
issued and outstanding 13,246,161 and 13,070,705.. 132,462 130,707
Capital in excess of par value..................... 42,810,700 41,518,049
Accumulated translation adjustment................. (695,502) (160,573)
Retained earnings (deficit)........................ 4,861,139 (2,557,991)
----------- -----------
47,108,799 38,930,192
Notes receivable (Note 10)....................... (2,326,015) (2,326,015)
----------- -----------
Total stockholders' equity....................... 44,782,784 36,604,177
----------- -----------
$62,390,881 $52,056,019
=========== ===========
</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 JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Sales................................... $42,480,014 $41,212,511 $34,180,420
Royalty income (Note 9)................. 3,039,571 1,000,000 514,000
----------- ----------- -----------
Total revenues...................... 45,519,585 42,212,511 34,694,420
Cost of sales........................... 10,261,748 10,195,396 8,441,099
----------- ----------- -----------
Gross profit........................ 35,257,837 32,017,115 26,253,321
----------- ----------- -----------
Selling, general and administrative
expenses:
General and administrative (Note 13).. 6,333,781 5,627,576 5,000,484
Marketing and selling................. 12,719,166 12,227,593 10,911,240
Research and development.............. 3,936,293 4,084,991 3,253,536
----------- ----------- -----------
Total selling, general and
administrative expenses............ 22,989,240 21,940,160 19,165,260
----------- ----------- -----------
Operating income.................... 12,268,597 10,076,955 7,088,061
----------- ----------- -----------
Other income (expense):
Equity in earnings of joint venture
(Note 4)............................. 336,437 486,398 517,507
Interest expense--net................. (595,810) (450,276) (265,645)
Other income (expense)................ (319,808) 116,563 51,145
----------- ----------- -----------
Total other income (expense)........ (579,181) 152,685 303,007
----------- ----------- -----------
Income before income taxes.............. 11,689,416 10,229,640 7,391,068
Income tax provision (benefit) (Note 7). 4,270,286 3,338,544 (90,652)
----------- ----------- -----------
Net income.............................. $ 7,419,130 $ 6,891,096 $ 7,481,720
=========== =========== ===========
Net income per share (Note 10):
Basic................................. $ 0.57 $ 0.53 $ 0.59
=========== =========== ===========
Diluted............................... $ 0.53 $ 0.50 $ 0.55
=========== =========== ===========
</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 JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995
<TABLE>
<CAPTION>
CAPITAL IN RETAINED ACCUMULATED
COMMON EXCESS OF EARNINGS TRANSLATION NOTES
STOCK PAR VALUE (DEFICIT) ADJUSTMENT RECEIVABLE TOTAL
-------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, at December 30,
1994................... $127,045 $41,158,736 $(16,930,807) $ - $(2,326,015) $22,028,959
Common stock issued upon
exercise of options
(Note 10).............. 872 399,902 -- -- -- 400,774
Common stock issued upon
exercise of warrants
(Note 10).............. 277 32,987 -- -- -- 33,264
Common stock issued as
payment for services
(Note 10).............. 511 432,302 -- -- -- 432,813
Common stock repurchased
and cancelled.......... (1,750) (1,626,980) -- -- -- (1,628,730)
Cash paid on common
stock issued for
cashless exercise of
138,026 options and
warrants............... 886 (71,660) -- -- -- (70,774)
Net income.............. -- -- 7,481,720 -- -- 7,481,720
-------- ----------- ------------ --------- ----------- -----------
Balance, at December 29,
1995................... 127,841 40,325,287 (9,449,087) -- (2,326,015) 28,678,026
Common stock issued upon
exercise of options
(Note 10).............. 2,266 983,926 -- -- -- 986,192
Common stock issued upon
exercise of warrants
(Note 10).............. 375 64,625 -- -- -- 65,000
Common stock issued as
payment for services
(Note 10).............. 444 458,492 -- -- -- 458,936
Common stock repurchased
and cancelled.......... (219) (314,281) -- -- -- (314,500)
Foreign currency
translation adjustment. -- -- -- (160,573) -- (160,573)
Net income.............. -- -- 6,891,096 -- -- 6,891,096
-------- ----------- ------------ --------- ----------- -----------
Balance, at January 3,
1997................... 130,707 41,518,049 (2,557,991) (160,573) (2,326,015) 36,604,177
Common stock issued upon
exercise of options
(Note 10).............. 1,607 1,020,886 -- -- -- 1,022,493
Common stock issued as
payment for services
(Note 10).............. 241 324,759 -- -- -- 325,000
Common stock repurchased
and cancelled.......... (93) (136,994) -- -- -- (137,087)
Stock-based compensation
(Note 10).............. -- 84,000 -- -- -- 84,000
Foreign currency
translation adjustment. -- -- -- (534,929) -- (534,929)
Net income.............. -- -- 7,419,130 -- -- 7,419,130
-------- ----------- ------------ --------- ----------- -----------
Balance, at January 2,
1998................... $132,462 $42,810,700 $ 4,861,139 $(695,502) $(2,326,015) $44,782,784
======== =========== ============ ========= =========== ===========
</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 JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 7,419,130 $ 6,891,096 $ 7,481,720
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation of property and
equipment......................... 1,742,737 1,720,379 1,159,610
Amortization of patents, licenses
and other intangibles............. 1,782,192 1,230,005 299,171
Provision for allowance for
doubtful accounts................. 16,545 111,525 111,512
Change in deferred revenue......... 210,432 485,998 --
Equity in earnings of joint
venture........................... (336,437) (486,398) (517,507)
Deferred income taxes.............. 3,322,939 1,992,649 (923,724)
Stock-based compensation expense... 84,000 -- --
Common stock issued for services... 325,000 458,936 432,813
Change in operating working capital
(Note 14)......................... (6,971,047) (3,068,022) (3,030,452)
----------- ------------ -----------
Net cash provided by operating
activities...................... 7,595,491 9,336,168 5,013,143
----------- ------------ -----------
Cash flows from investing activities:
Acquisition of property and
equipment........................... (2,845,929) (4,278,671) (3,486,744)
Increase in patents and licenses..... (3,217,728) (5,936,144) (1,980,211)
Increase in other assets............. (1,370,449) (780,275) (583,505)
Dividends received................... 60,414 -- --
----------- ------------ -----------
Net cash used in investing
activities...................... (7,373,692) (10,995,090) (6,050,460)
----------- ------------ -----------
Cash flows from financing activities:
Increase in borrowings under notes
payable and long-term debt.......... 1,109,480 2,133,077 794,199
Payments on other notes payable and
long-term debt...................... (2,679,075) (536,028) (11,128)
Net borrowings under line-of-credit.. 806,940 2,188,259 2,082,836
Proceeds from the exercise of stock
options............................. 1,022,493 1,051,191 434,107
Cash paid in lieu of exercise of
stock options and warrants.......... -- -- (70,774)
Payments for repurchase of common
stock............................... (137,087) (314,500) (1,628,799)
----------- ------------ -----------
Net cash provided by financing
activities...................... 122,751 4,521,999 1,600,441
----------- ------------ -----------
Effect of exchange rate changes on cash
and cash equivalents.................. (534,929) (160,573) --
(Decrease) increase in cash and cash
equivalents........................... (190,379) 2,702,504 563,124
Cash and cash equivalents at beginning
of year............................... 6,469,515 3,767,011 3,203,887
----------- ------------ -----------
Cash and cash equivalents at end of
year.................................. $ 6,279,136 $ 6,469,515 $ 3,767,011
=========== ============ ===========
</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 JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995
ORGANIZATION AND DESCRIPTION OF BUSINESS
STAAR Surgical Company (the "Company") is a developer, manufacturer and
global distributor of medical devices used in minimally invasive ophthalmic
surgery. The Company was incorporated in California in 1982 as a successor to
a partnership for the purpose of developing, producing, and marketing
intraocular lenses ("IOLs") and other products for minimally invasive
ophthalmic surgery. The Company was reincorporated in Delaware in April 1986.
In 1982 and 1983, the Company's operations consisted mainly of research and
development and preliminary marketing and capital raising activities. In 1982,
the Company commenced the development of foldable IOLs, which are used as
replacements for the natural lens after its removal in cataract surgery, and
began production and sale of foldable IOLs in 1986 for implantation in
connection with clinical studies for such products. In September 1991, the
Company received United States Food and Drug Administration ("FDA") pre-market
approval for the Company's ELASTIMIDE(TM) and ELASTIC(TM) foldable IOL models,
which the Company now markets worldwide. The Company's other primary products,
developed more recently, are its "wick" style glaucoma implant (the "Glaucoma
Wick"), an ocular device developed to provide a more effective and longer-term
solution for glaucoma; the ICL(TM), a deformable intraocular refractive
corrective lens, designed to correct refractive disorders such as myopia
(near-sightedness), hyperopia (far-sightedness) and potentially astigmatism;
and its STARRVISC(TM) viscoelastic solution, used during IOL and ICL(TM)
surgery. The Company markets the Glaucoma Wick, which the Company introduced
in late 1995, its ICL(TM) and STAARVISC(TM) viscoelastic solution, which the
Company introduced in late 1996, on a limited basis in selected foreign
countries.
The Company's only significant subsidiary is STAAR Surgical AG, a wholly
owned subsidiary formed in Switzerland to develop, manufacture and distribute
worldwide certain of the Company's products, including its Glaucoma Wick(TM)
and ICL(TM)s. The Company and STAAR Surgical AG have also formed or acquired a
number of directly or indirectly owned subsidiaries to distribute and market
the Company's products in Canada, Australia, France, Austria, South Africa,
Germany, Sweden and Norway.
BASIS OF PRESENTATION
The accompanying financial statements consolidate the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Assets and
liabilities of foreign subsidiaries are translated at rates of exchange in
effect at the close of the period. Revenues and expenses are translated at the
weighted average of exchange rates in effect during the year. The resulting
gains and losses are deferred and are shown as a separate component of
stockholders' equity. During 1997 and 1996, the net foreign translation loss
was $534,929 and $160,573 and net foreign currency transaction loss was
$228,547 and $261,181, respectively. During 1995, foreign currency translation
and transaction gains and losses were not material. Investments in affiliates
and joint ventures are accounted for using the equity method of accounting.
The Company's fiscal year ends on the Friday nearest December 31. The year
ended January 3, 1997 included 53 weeks.
REVENUE RECOGNITION
The Company generally supplies a quantity of foldable IOLs with different
specifications to customers, generally ophthalmologists, surgical centers,
hospitals and other health providers, on a consignment basis, and recognizes
sales when an ophthalmic surgeon implants the consigned foldable IOL. Sales to
foreign distributors
F-7
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
are recognized upon shipment. Revenue from license and technology agreements
is recorded as income over the term of the respective agreement when the
Company has satisfied the terms of such agreements and is notified of the
amounts.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market
(net realizable value).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives, which are generally not greater than ten years. Leasehold
improvements are amortized over the life of the lease or estimated useful
life, if shorter. Property, plant and equipment are reviewed each year to
determine whether any events or circumstances indicate that the carrying
amount of the assets may not be recoverable. Such review includes estimating
future cash flows. Property, plant and equipment costs are expensed when
determined not realizable.
PATENTS AND LICENSES
The Company capitalizes the costs of acquiring patents and licenses as well
as the legal costs of successfully defending its rights to these patents.
Amortization is computed on the straight-line basis over the estimated useful
lives, which range from 8 to 17 years. Capitalized patent costs are reviewed
each year based on management's estimates of sales of the related products.
Patent and license costs are expensed when determined not realizable.
The Company's ability to compete effectively is materially dependent upon
the proprietary nature of the designs, processes, technologies and materials
owned, used by or licensed to the Company. The Company has been and will
continue to be involved in litigation to protect its copyrights, patents and
proprietary properties and technology.
START-UP COSTS
Included in Other Assets at January 2, 1998 and January 3, 1997 are start-up
costs of $1,642,429 and $1,010,903. These expenditures are directly related to
the start-up phase of the production of two new products: the ICL(TM), a
deformable intraocular refractive corrective lens, and hyaluronic acid. The
costs primarily consists of direct labor and overhead associated with the
start-up. The start-up costs are being amortized on a straight-line basis over
a period not to exceed three years. Recoverability of these costs are assessed
on an on-going basis. Amortization of start-up costs at January 2, 1998,
January 3, 1997 and December 30, 1995 were $315,307, $193,675 and $100,175,
respectively.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
contingent liabilities, revenues, and expenses at the date and for the periods
that the financial statements are prepared. Actual results could differ from
those estimates.
F-8
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash, cash equivalents, accounts receivable, accounts
payable, and current notes payable approximate their fair values because of
the short maturity of these instruments. With respect to long-term debt, based
on the borrowing rates currently available to the Company for similar bank and
equipment loans and capitalized leases, the amounts reported approximate the
fair value of the respective financial instruments.
NET INCOME PER SHARE
As of January 2, 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128). This pronouncement provides
a different method of calculating earnings per share than was used in
accordance with APB 15, Earnings per Share. SFAS 128 provides for the
calculation of Basic and Diluted earnings per share. Basic earnings per share
includes no dilution and is computed by dividing net income available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could occur if securities or other contracts (such
as stock options or warrants) to issue common stock were exercised or
converted into common stock. All prior period weighted average and per share
information has been restated in accordance with SFAS 128. None of the
restated amounts were material.
STOCK BASED COMPENSATION
As of January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which
established a fair value method of accounting for stock-based compensation
plans. In accordance with SFAS 123, the Company has chosen to continue to
account for stock-based compensation utilizing the intrinsic value method
prescribed in APB 25. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. Also, in accordance with SFAS 123, the Company has provided footnote
disclosure with respect to stock-based employee compensation. The cost of
stock-based employee compensation is measured at the grant date based on the
value of the award and recognizes this cost over the service period. The value
of the stock-based award is determined using a pricing model whereby
compensation cost is the excess of the fair market value of the stock as
determined by the model at grant date or other measurement date over the
amount an employee must pay to acquire the stock.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform with the 1997 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 129, "Disclosure of
Information about Capital Structure," ("SFAS 129") issued by the FASB is
effective for financial statements ended after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 128. The adoption of SFAS No. 129 did not have an
impact on the Company's financial position or results of operations.
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," ("SFAS 130") issued by the FASB is effective for financial statements
with fiscal years beginning after December 15, 1997. SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company does not
expect adoption of SFAS 130 to have an
F-9
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
impact on its financial position or results of operations and any effect will
be limited to the form and content of its disclosures.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("SFAS 131") issued by the
FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. SFAS 131 requires that public companies report certain
information about operating segments, products, services and geographical
areas in which they operate and their major customers. The Company does not
expect adoption of SFAS 131 to have an impact on its financial position or
results of operations. The Company believes it may have expanded disclosures
with respect to certain of these items.
F-10
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND DECEMBER 29, 1995
NOTE 1--ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Domestic.............................................. $4,640,393 $4,718,142
Export................................................ 3,471,076 2,220,633
---------- ----------
8,111,469 6,938,775
Less allowance for doubtful accounts.................. 128,070 111,525
---------- ----------
$7,983,399 $6,827,250
========== ==========
</TABLE>
NOTE 2--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Raw materials and purchased parts................... $ 1,976,467 $ 1,518,819
Work in process..................................... 1,736,339 1,644,234
Finished goods...................................... 10,999,592 9,202,814
----------- -----------
$14,712,398 $12,365,867
=========== ===========
</TABLE>
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Machinery and equipment.............................. $11,890,362 $10,186,227
Furniture and fixtures............................... 4,896,349 4,460,082
Leasehold improvements............................... 3,240,727 2,550,049
----------- -----------
20,027,438 17,196,358
Less accumulated depreciation and amortization....... 10,003,257 8,275,369
----------- -----------
$10,024,181 $ 8,920,989
=========== ===========
</TABLE>
F-11
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--INVESTMENT IN JOINT VENTURE
The Company owns a 50% equity interest in a joint venture, the CANON-STAAR
Company, Inc. ("CSC"), with Canon Inc. ("Canon") and Canon Sales Co, Inc.
("Canon Sales"). The joint venture was formed to manufacture and sell the
Company's IOL products to Canon Sales or other distributors in Japan. The
Company sold CSC an exclusive license to manufacture and market its products
in Japan. The Company recorded $1,500,000 of deferred revenue on the sale of
the license, which was recognized over eight years through October 1996 on a
straight-line basis. The Company uses the equity method of accounting for this
investment. The financial statements of CSC include assets of approximately
$6,213,000 and $6,640,000, and liabilities of approximately $1,364,000 and
$1,381,000, as of January 2, 1998 and January 3, 1997, respectively.
The Company's equity in earnings of the joint venture is calculated as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Joint venture net income...................... $672,873 $685,296 $660,014
Equity interest............................... 50% 50% 50%
-------- -------- --------
Equity in net income.......................... 336,437 342,648 330,007
Recognition of deferred gain on sale of
license...................................... -- 143,750 187,500
-------- -------- --------
Equity in earnings of joint venture........... $336,437 $486,398 $517,507
======== ======== ========
</TABLE>
The Company recorded sales of certain IOL products to CSC of approximately
$469,000, $845,000, and $171,000 in 1997, 1996 and 1995, respectively.
NOTE 5--NOTES PAYABLE
In February 1996, the Company refinanced and increased its domestic line of
credit, which allowed the Company to borrow up to $5 million on a revolving
basis, at a rate of interest not to exceed the prime interest rate. The loan
agreement required the Company to satisfy certain financial tests and limited
the amount of indebtedness the Company may have to others and the payment of
dividends. Borrowings were collateralized by substantially all of the assets
of the Company. The line of credit expired in June 1997 and was replaced with
long-term debt as described in Note 6. Borrowings outstanding as of January 3,
1997 were approximately $4,700,000.
In May 1994, the Company entered into a separate revolving credit facility
with a Swiss bank which provides for borrowings up to $766,401 (1,125,000
Swiss Francs at the exchange rate at January 2, 1998) at the interest rate of
5.5%. A commission rate of 0.25% is payable each quarter. The loan does not
have a termination date and is secured by a general assignment of claims.
Borrowings outstanding under this facility as of January 2, 1998 and January
3, 1997 were $926,112 (1,359,440 Swiss Francs) and $789,549 (1,072,997 Swiss
Francs), respectively. As of January 2, 1998, the balance exceeded the maximum
allowable borrowings. The excess borrowings were permitted due to adequate
compensating cash balances.
In 1996, the Company issued a note in the amount of $2,000,000 as partial
consideration for the acquisition of a license. The note was paid in equal
quarterly installments during 1997.
F-12
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable to bank, interest at a rate not to
exceed prime less .25% payable monthly, due June 1,
1999(1)............................................. $5,506,940 $ --
Note payable to bank, interest at 6.25%, payable in
four equal annual installments plus interest
beginning in December 1996, guaranteed by the Swiss
federal government and Canton of Bern............... 397,186 618,584
Note payable to equipment vendor, interest at 13%,
payable in monthly installments plus interest
through December 1999, secured by equipment......... 74,778 101,118
Obligations under capitalized leases (see Note 11)... 396,272 827,608
---------- ----------
6,375,176 1,547,310
Less current portion................................. 624,698 703,260
---------- ----------
Long-term debt due after one year.................... $5,750,478 $ 844,050
========== ==========
</TABLE>
- --------
(1) In June 1997, the Company renegotiated its line-of-credit with its current
domestic lender. Under the new agreement, the Company may borrow up to
$10,000,000 on a revolving basis, at a rate of interest not to exceed the
prime interest rate (8.5% at January 2, 1998) less .25% (or, at the
election of the Company, if more than $500,000 is outstanding, at a rate
of interest equal to LIBOR, plus 1.75%). The loan agreement requires the
Company to satisfy certain financial tests and limits the amount of other
indebtedness the Company may incur. The line of credit expires June 1999.
Borrowings are not collateralized. The refinance of the line of credit
resulted in a reclassification of debt from short-term to long-term. The
Company was in compliance with restrictive covenants as of January 2,
1998.
In November 1997, the Company's domestic lender supplemented the Company's
domestic credit facility by committing through March 31, 1998 to make
additional advances to the Company of up to $5 million for business
acquisitions. No borrowings under this commitment have been made as of January
2, 1998.
Included in other long-term liabilities at January 2, 1998 is a note payable
of approximately $916,000 to the sellers of a corporation purchased by the
Company during 1997. The note carries an interest rate of 6% and is payable in
equal annual installments over a five year period. Also included in other long
term liabilities at January 2, 1998 is deferred revenue of approximately
$464,000. Other long-term liabilities at January 3, 1997 were not material.
F-13
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
(SFAS 109) which requires the asset and liability method of accounting for
income taxes. In accordance with SFAS 109, the tax benefits of net operating
loss carryforwards utilized in 1995 are presented in the Consolidated
Statement of Income as reductions of the provisions for income tax.
The provision (benefit) for income taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Current tax provision
U.S. federal (net of $1,258,000, $2,006,000,
and 2,513,000 tax benefit from operating
loss carryforwards)......................... $ 245,000 $ 492,000 $ 149,000
State and local............................ 581,000 725,000 684,000
Non-U.S.................................... 121,357 128,544 --
---------- ---------- ---------
Total current provision...................... 947,357 1,345,544 833,000
---------- ---------- ---------
Deferred tax provision (benefit)
U.S. federal and state..................... 3,374,000 1,993,000 (924,000)
Non-U.S.................................... (51,071) -- --
Total deferred provision..................... 3,322,929 1,993,000 (924,000)
---------- ---------- ---------
Provision for income taxes................... $4,270,286 $3,338,544 $ (91,000)
========== ========== =========
</TABLE>
The Company utilized all of its remaining tax net operating loss
carryforwards for federal income tax purposes during 1997. The Company
utilized all of its remaining tax loss carryforwards for California income tax
purposes during 1995.
Alternative minimum tax (AMT) credit carryforward at January 2, 1998 was
approximately $390,000. The AMT credit does not have an expiration date.
The provision (benefit) based on income before taxes differs from the amount
obtained by applying the statutory federal income tax rate to income before
taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
Computed provision for taxes based on income at
statutory rate......................................... 35 % 34.0 % 34.0 %
Permanent differences................................... (0.1) 1.5 0.2
State taxes, net of federal income tax benefit.......... 4.7 6.1 7.7
Tax benefit of net operating loss carryforward.......... -- (28.2)
Tax effect attributed to foreign operations............. (4.0) (10.1)
Reduction of valuation allowance........................ -- (18.5)
Other................................................... 0.9 1.1 3.8
---- ----- -----
Effective tax provision (benefit) rate.................. 36.5 % 32.6 % (1.0)%
==== ===== =====
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $3.1 million at January 2, 1998. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for United States
federal and state income taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the Company would be
subject to both United States income taxes (subject to an adjustment for
foreign tax credits) and withholding taxes payable to the various foreign
countries. Determination of the amount of unrecognized deferred United States
income tax liability is not practicable because of the complexities associated
with its hypothetical calculation.
F-14
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets (liabilities) as of January 2, 1998 and
January 3, 1997 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................... $ 65,000 $ 57,000
Inventory reserves and uniform capitalization..... 341,000 307,000
Accrued vacation.................................. 130,000 114,000
State taxes....................................... 204,000 153,000
Net operating loss carryforwards.................. -- 732,000
Tax credit carryforwards.......................... 391,000 905,000
Deferred taxes on foreign operations.............. 51,000 --
----------- ----------
Total deferred tax assets........................... 1,182,000 2,268,000
----------- ----------
Deferred tax liabilities:
Amortization of deferred gain..................... (1,041,000) --
Depreciation and amortization..................... (2,133,000) (937,000)
----------- ----------
Total deferred tax liabilities...................... (3,174,000) (937,000)
----------- ----------
Net deferred tax (liability) assets................. $(1,992,000) $1,331,000
=========== ==========
</TABLE>
As a result of the Company's positive operating results for each of the
three years ended January 2, 1998, the Company determined that deferred tax
assets of $1.2 million and $2.3 million should be recognized as of January 2,
1998 and January 3, 1997. These amounts were based on a consideration of
current and future anticipated earnings. Future income levels should result
and in full recognition of the deferred tax assets. The amount recorded as of
January 3, 1997 includes the capitalization of the remaining balance of the
Company net operating loss carryforwards. Management believes it is more
likely than not that the deferred tax assets will be realized in full.
NOTE 8--PATENTS
During 1995, the Company acquired from the Intersectoral Research and
Technology Complex Eye Microsurgery ("IRTC"), a Russian Federation located in
Moscow, Russia, exclusive patent rights to use and sell glaucoma devices in
the United States and certain foreign countries. During 1996, the Company
acquired from IRTC exclusive rights to several domestic and foreign patents
associated with the Company's implantable contact lenses (ICLs). The
transactions involve a specified amount for the patent rights and payments of
royalties over the life of the patents.
In 1996, the Company acquired a license, as part of the settlement of
litigation with Allergan Medical Optics, under U.S. Patent No. 4,681,102,
relating to an apparatus for insertion of an intraocular lens. The amount paid
has been included in patents in the accompanying balance sheet.
F-15
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--LICENSING AGREEMENTS
The Company has issued Allergan Medical Optics ("AMO"), Alcon Surgical, Inc.
(Alcon), Pharmacia & Upjohn, Bausch and Lomb Surgical and Mentor Corporation
with licenses to utilize certain of its patents involving foldable IOLs in the
United States and selected foreign countries. Each license has a certain
amount of prepaid royalties (which were received by the Company when the
license was issued) which will be utilized by that licensee as sales of the
licensed products are made. The Company recorded $3,040,000, $1,000,000 and
$514,000 of royalty income in 1997, 1996 and 1995, respectively, from these
licenses. See Note 17 with respect to royalty income recorded in 1997.
The Company was involved with certain litigation with Bausch and Lomb
(formerly Chiron) concerning the terms of the agreements entered into between
the companies in 1990. During the first quarter of 1998, the Company reached a
settlement with Bausch and Lomb.
NOTE 10--STOCKHOLDERS' EQUITY
COMMON STOCK
In 1995, the Company issued 51,111 shares to consultants for services
rendered to the Company. Also during 1995, the Company repurchased and
cancelled 175,000 shares and paid cash in lieu of exercise for 49,363 options
and warrants which were then cancelled. Total consideration paid for the
repurchased shares, options and warrants was $1,699,573.
In 1996, the Company issued 44,384 shares to consultants for services
rendered to the Company. Also during 1996, the Company repurchased and
cancelled 21,879 shares. Total consideration paid for the repurchased shares
was $314,500.
In 1997, the Company issued 24,074 shares to consultants for services
rendered to the Company. Also, during 1997, the Company repurchased and
cancelled 9,336 shares.
NOTES RECEIVABLE
As of January 2, 1998 and January 3, 1997, notes receivable from officers
and directors totalling $2,326,015, were outstanding. The notes were issued in
connection with purchases of the Company's common stock. The notes bear
interest at rates ranging between 6% and 8%, or at the lowest federal
applicable rate allowed by the Internal Revenue Service. The notes are secured
by stock pledge agreements and mature on various dates through May 1998.
F-16
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OPTIONS
The table below summarizes the transactions in the Company's several stock
option plans:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Balance at December 31, 1994............................. 1,318,754 $ 4.84
Options granted.......................................... 35,000 $ 4.67
Options exercised........................................ (116,192) $ 4.08
Options forfeited........................................ (9,808) $ 9.22
--------- ------
Balance at December 29, 1995............................. 1,227,754 $ 4.87
Options granted.......................................... 574,000 $12.50
Options exercised........................................ (226,552) $ 4.26
--------- ------
Balance at January 3, 1997............................... 1,575,202 $ 7.72
Options granted.......................................... 413,400 $10.94
Options exercised........................................ (160,719) $ 6.36
Options forfeited........................................ (5,108) $ 9.65
--------- ------
Balance at January 2, 1998............................... 1,822,775 $ 8.56
========= ======
Options exercisable (vested) at January 2, 1998.......... 1,273,441 $ 6.94
========= ======
</TABLE>
NOTES RECEIVABLE
Included in the table above are options to purchase 12,695 shares of common
stock outstanding at January 2, 1998, with an exercise price of $2.50 per
share, which options were granted pursuant to the Company's 1990 Stock Option
Plan. Generally, options under this plan are granted at fair market value at
the date of the grant, become exercisable over a 3-year period, or as
determined by the Board of Directors, and expire over periods not exceeding 10
years from date of grant.
Under provisions of the Company's 1991 Stock Option Plan, 2,000,000 shares
were reserved for issuance. Generally, options under this plan are granted at
fair market value at the date of the grant, become exercisable over a 3-year
period, or as determined by the Board of Directors, and expire over periods
not exceeding 10 years from date of grant. Pursuant to this plan, options for
591,579 shares were outstanding at January 2, 1998, with exercise prices
ranging between $2.50 to $9.25 per share.
In 1995, officers, employees and others exercised options to purchase 91,192
shares of common stock granted under the 1990 and 1991 stock option plans, at
prices from $2.50 to $6.00, in exchange for cash of $354,776. Also in 1995,
the Company's former President exercised options to purchase 25,000 shares of
common stock, at a price of $4.75, resulting in cash proceeds of $118,750.
In 1996, the Board of Directors of the Company approved the 1996 Non-
Qualified Stock Plan, authorizing the granting of options to purchase or
awards of the Company's common stock. Under provisions of the Non-Qualified
Stock Plan, 600,000 shares were reserved for issuance. Generally, options
under the plan are granted at fair market value at the date of the grant
become exercisable over a 3-year period, or as determined by the Board of
Directors, and expire over periods not exceeding 10 years from date of grant.
Pursuant to this plan, options for 566,000 and 570,000 shares were outstanding
at January 2, 1998 and January 3, 1997, respectively, with an exercise price
of $12.50 per share.
F-17
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1996, the Company granted options to officers, directors and consultants
to purchase 574,000 shares of the Company's common stock at a price of $12.50,
the quoted market value at date of grant. Out of the above, 4,000 options were
issued under the 1991 stock option plan and 570,000 options were issued as
non-qualified stock options.
In 1996, officers, employees, and others exercised 226,550 options from the
1990, 1991 and non-qualified stock option plans at prices from $2.50 to $5.875
resulting in cash and stock proceeds totaling $966,191.
In 1997, the Company granted options to directors to purchase 240,000 shares
at $12.00 per share and 173,400 shares to consultants at varying amounts which
was then the fair market value.
In 1997, officers, employees and others exercised 160,719 options from the
1990, 1991 and non-qualified stock option plans at prices from $2.50 to $12.50
resulting in cash and stock proceeds totalling $1,022,493.
FASB 123, Accounting for Stock-Based Compensation, requires the Company to
provide pro forma information regarding net income and earnings per share as
if compensation cost for the Company's stock option plans had been determined
in accordance with the fair value based method prescribed in FASB 123. The
Company estimates the fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1997: dividend yield of 0 percent;
expected volatility of 11 percent; risk free rate of 6.78 percent; and
expected lives of 5 years; and in 1996: dividend yield of 0 percent; expected
volatility of 11 percent; risk-free interest rate of 6.73 percent; and
expected lives of 7 years. Compensation cost computed pursuant to FASB 123 for
options granted in 1995 was not material.
The weighted average fair value of options granted during the year ended
January 2, 1998 and January 3, 1997 were $1.57 and $3.60, respectively.
Under the accounting provisions of FASB 123, the Company's net income and
earnings per share for 1997 and 1996 would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net income
As reported......................................... $7,419,000 $6,891,000
Pro forma........................................... $6,771,200 $6,705,000
Basic earnings per share
As reported......................................... $.57 $.53
Pro forma........................................... $.52 $.52
Diluted earnings per share
As reported......................................... $.53 $.50
Pro forma........................................... $.48 $.48
</TABLE>
Due to the fact that the Company's stock option programs vest over many
years and additional awards are made each year, the above proforma numbers are
not indicative of the financial impact had the disclosure provisions of FASB
123 been applicable to all years of previous option grants. The above numbers
do not include the effect of options granted prior to 1995 that vested in 1995
through 1997.
F-18
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding
at January 2, 1998.
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED- --------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 1/2/98 CONTRACTUAL LIFE EXERCISE PRICE AT 1/2/98 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.50
to $
4.00 185,195 3.9 years $ 2.88 185,195 $ 2.88
$4.75
to $
5.88 651,579 5.9 years $ 5.11 651,579 $ 5.11
$9.00
to
$12.50 986,000 7.7 years $11.91 436,667 $11.39
------ --------- --------- ------ --------- ------
$2.50
to
$12.50 1,822,774 6.7 years $ 8.56 1,273,441 $ 6.94
====== ========= ========= ====== ========= ======
</TABLE>
WARRANTS
The table below summarizes the transactions related to the Company's
warrants to purchase common stock:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- ---------
<S> <C> <C>
Balance at December 31, 1994............................ 470,974 $2.05
Warrants exercised...................................... (136,747) $2.17
Warrants expired........................................ (49,833) $2.63
-------- -----
Balance at December 29, 1995............................ 284,394 $1.89
Warrants exercised...................................... (37,500) $1.73
-------- -----
Balance at January 3, 1997 and January 2, 1998.......... 246,894 $1.91
======== =====
</TABLE>
All warrants are exercisable as of January 2, 1998.
In 1995, warrants to purchase 136,747 shares of common stock were exercised
at prices ranging from $0.60 to $4.24 per share resulting in cash and/or stock
(at market price effective on the date of exercise) proceeds in the amount of
$296,852. The stock paid to exercise the options was cancelled and shown as a
reduction in common stock and additional paid in capital on the balance sheet.
In 1996, warrants to purchase 37,500 shares of common stock were exercised
at prices ranging from $1.20 to $2.00 per share, resulting in proceeds of
$65,000.
NOTE 11--COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
The Company leases certain property, plant and equipment under capital and
operating lease agreements. In the later part of 1995, the Company entered
into a capital lease agreement to finance surgical equipment that was sent to
China in consideration of a five year exclusive supply agreement with a
hospital in Hangzhou, China. The Company committed a $300,000 letter of credit
as further collateral for the lease.
F-19
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Annual future minimum lease payments under noncancellable capital and
operating lease commitments as of January 2, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- -------- ----------
<S> <C> <C>
1998................................................. $431,535 $ 674,410
1999................................................. -- 596,695
2000................................................. -- 490,026
2001................................................. -- 387,603
Thereafter........................................... -- 354,130
-------- ----------
Total minimum lease payments......................... 431,535 $2,502,864
==========
Imputed interest..................................... 35,263
--------
Present value of net minimum lease payments.......... $396,272
========
</TABLE>
Rent expense was approximately $686,000, $700,000 and $606,000 for the years
ended January 2, 1998, January 3, 1997 and December 29, 1995, respectively.
LITIGATION AND CLAIMS
In February 1990, a plaintiff filed a $10,000,000 product liability claim
against a doctor and the Company arising from injuries purportedly suffered by
the plaintiff as a result of the implant of a purportedly defective lens
manufactured by Lynell, a subsidiary of the Company. The Company believes that
any liability was discharged as part of Lynell's reorganization under the
Federal Bankruptcy Code prior to the Company's acquisition of Lynell. In
addition, Lynell is being defended by its liability carrier. These proceedings
are presently administratively off the calendar as of August 1994. If the
lawsuit is reactivated, the Company believes that any liability that may
result will not be material to the consolidated financial position or results
of operations.
The Company is involved in other legal actions and claims arising in the
ordinary course of business. It is the opinion of management (based on advice
of legal counsel) that such litigation will be resolved without material
effect on the Company's financial position or results of operations.
OTHER COMMITMENTS
During 1993, the Company entered into consulting agreements with certain
individuals to assist the Company in the development of new products and the
promotion of its current products. Such agreements provide for payments of
cash and the issuance of shares of the Company's common stock and options to
purchase the Company's common stock, at $7 to $11 per share over a six year
period. All common stock was issued at fair market value.
The aggregate commitment under these agreements at January 2, 1998 is
approximately $15,000 in cash, $325,000 worth of common stock, 5,000 shares of
common stock, and options to purchase 132,500 shares of common stock. Included
in other current liabilities at January 2, 1998 and January 3, 1997, is
approximately $402,000 and $411,000, respectively, due to these consultants
payable in cash and shares of the Company's common stock.
NOTE 12--OTHER LIABILITIES
Included in other current liabilities at January 2, 1998 and January 3, 1997
are approximately $1,261,000 and $1,573,000 of commissions due to outside
sales representatives; income tax payable of $638,000 and $163,000; and
deferred revenue of $232,000 and $485,998, respectively.
F-20
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--RELATED PARTY TRANSACTIONS
The Company has had significant related party transactions as discussed in
Notes 4 and 10.
On February 29, 1996, the Company forgave a $120,000 note receivable from
one of the Company's officers in exchange for the officer's efforts in
obtaining certain patents.
During 1997, 1996 and 1995, a law firm, of which a partner is director and
stockholder of the Company, received approximately $280,000, $322,000 and
$256,000 for fees in connection with legal services performed on behalf of the
Company. As of January 2, 1998, included in prepaid, deposits, and other
current assets are $270,000 of prepaid legal fees.
The Company pays an override sales commission, based upon a percentage of
the Company's sales, to a corporation owned by an officer of the Company in
its capacity as a sales representative for the Company. This agreement relates
back to 1983, when the officer initially became associated with the Company in
a sales and marketing capacity. Commissions paid or accrued under this
arrangement totaled approximately $420,000, $412,000 and $322,000 during 1997,
1996 and 1995, respectively.
NOTE 14--STATEMENTS OF CASH FLOWS
Net cash provided by operating activities includes interest paid of
approximately $723,000, $557,000 and $419,000 for the years ended January 2,
1998, January 3, 1997 and December 29, 1995, respectively. Income taxes paid
amounted to approximately $315,000, $1,160,000 and $947,000 for the years
ended January 2, 1998, January 3, 1997 and December 29, 1995, respectively.
Changes in operating working capital as shown in the consolidated statements
of cash flows for the years ended January 2, 1998, January 3, 1997 and
December 29, 1995 are comprised of:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Decrease (increase) in:
Accounts receivable................... $(1,172,694) $ 584,675 $(2,222,700)
Other receivables..................... (3,250,000) -- --
Inventories........................... (2,346,531) (2,804,980) (1,086,795)
Prepaids, deposits and other current
assets............................... (673,300) (1,110,039) (308,272)
Increase (decrease) in:
Accounts payable...................... (76,590) 283,929 338,771
Other current liabilities............. 548,068 (21,607) 248,544
----------- ----------- -----------
Change in operating working capital..... $(6,971,047) $(3,068,022) $(3,030,452)
=========== =========== ===========
</TABLE>
NOTE 15--NET INCOME PER SHARE
The following is a reconciliation of the weighted average number of shares
used to compute basic and diluted earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Basic weighted average shares outstanding...... 13,123,950 12,909,506 12,756,183
Diluted effect of stock options and warrants... 989,133 957,602 922,699
---------- ---------- ----------
Diluted weighted average shares outstanding.... 14,113,083 13,867,108 13,678,882
========== ========== ==========
</TABLE>
F-21
<PAGE>
STAAR SURGICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--GEOGRAPHIC DATA AND EXPORT SALES
The Company's operations are conducted in the United States and
international markets, principally in Europe, South Africa, Australia and
Southeast Asia. Information about the Company's domestic and international
operations for each fiscal year is as follows:
<TABLE>
<CAPTION>
UNITED
GEOGRAPHIC REGION STATES FOREIGN ELIMINATION CONSOLIDATED
- ----------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1997
Sales to unaffiliated
customers.................... $27,843,000 $14,637,000 $ -- $42,480,000
Operating income.............. 11,304,000 1,409,000 (444,000) 12,269,000
Identifiable assets........... 48,260,000 14,131,000 -- 62,391,000
Capital expenditures.......... 1,978,000 868,000 -- 2,846,000
Depreciation and amortization. 2,915,000 610,000 -- 3,525,000
1996
Sales to unaffiliated
customers.................... $29,069,000 $12,143,000 $ -- $41,212,000
Operating income.............. 8,452,000 1,858,000 (233,000) 10,077,000
Identifiable assets........... 42,010,000 10,046,000 -- 52,056,000
Capital expenditures.......... 3,923,000 356,000 -- 4,279,000
Depreciation and amortization. 2,509,000 441,000 -- 2,950,000
</TABLE>
The Company's foreign operations for the year ended December 29, 1995 were
not material.
The Company's operations are structured to achieve consolidated objectives.
As a result, significant interdependencies and overlaps exist among the
Company's operating units. Accordingly, the sales, operating income and
identifiable assets shown for each geographic area may not be indicative of
the amounts which would have been reported if the operating units were
independent of one another. Operating is net sales less related costs and
operating expenses, excluding interest.
During the fiscal years ended January 2, 1998, January 3, 1997 and December
29, 1995, the Company had export sales, primarily to Europe, South Africa,
Australia, and Southeast Asia, of approximately $14,637,000, $11,620,000 and
$8,133,000, respectively. Of these sales, approximately $8,438,000, $7,576,000
and $4,841,000 were to Europe, which has been the Company's principal foreign
market for the last three fiscal years.
The Company sells its products internationally, which subject the Company to
several potential risks, including fluctuating exchange rates (to the extent
the Company's transactions are not in U.S. dollars), regulation of fund
transfers by foreign governments, United States and foreign export and import
duties and tariffs and political instability.
NOTE 17--FOURTH QUARTER SIGNIFICANT ITEMS
During the fourth quarter of 1997, the Company recorded royalty income of
$2,554,000 which resulted from a settlement agreement totaling $3,250,000
relating to the use of certain of the Company's patents from 1986 through
1997. As of January 2, 1998, the Company has deferred revenue of $696,000
related to this transaction which will be recognized over the next three
years.
NOTE 18--SUBSEQUENT EVENT
On January 5, 1998 the Company acquired a 60% interest in a foreign
distributor of ophthalmic products. The distributor had 1997 sales of
approximately $15 million. The results of operations of the distributor are
not material as compared to the Company's results of operations.
F-22
<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 6, 1998, included the
related financial statement schedule as of January 2, 1998, and for each of
the three years in the period ended January 2, 1998, included in the annual
report on Form 10-K of STAAR Surgical Company and subsidiaries. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audit. In our opinion, such financial statement schedule presents
fairly, in all material respects, the information set forth therein.
We consent to incorporation by reference in the Registration Statements (No.
33-37248) (No. 33-76404) and (No. 33-60241) on Form S-8 of STAAR Surgical
Company of our report dated March 6, 1998, relating to the consolidated
balance sheets of STAAR Surgical Company and subsidiaries as of January 2,
1998 and January 3, 1997 and the related consolidated statements of income,
stockholders' equity, and cash flows and related schedule for each of the
three years in the period ended January 2, 1998, which report appears in the
January 2, 1998 annual report on Form 10-K of STAAR Surgical Company and
subsidiaries.
BDO Seidman, LLP
Los Angeles, California
March 30, 1998
F-23
<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
BEGINNING AT END
DESCRIPTION OF YEAR ADDITIONS DEDUCTIONS OF YEAR
----------- --------- --------- ---------- --------
<S> <C> <C> <C> <C>
1997
Allowance for doubtful accounts
deducted from accounts receivable in
balance sheet........................ $112,000 $ 16,000 $ -- $128,000
Reserve for obsolescence deducted from
inventories in balance sheet......... -- 131,000 -- 131,000
-------- -------- -------- --------
$112,000 $147,000 $ -- $259,000
======== ======== ======== ========
1996
Allowance for doubtful accounts
deducted from accounts receivable in
balance sheet........................ $119,000 $ $ 7,000 $112,000
Reserve for obsolescence deducted from
inventories in balance sheet......... 31,000 31,000
-------- -------- -------- --------
$150,000 $ $ 38,000 $112,000
======== ======== ======== ========
1995
Allowance for doubtful accounts
deducted from accounts receivable in
balance sheet........................ $307,000 $112,000 $300,000 $119,000
Reserve for obsolescence deducted from
inventories in balance sheet......... 105,000 74,000 31,000
-------- -------- -------- --------
$412,000 $112,000 $374,000 $150,000
======== ======== ======== ========
</TABLE>
- --------
(1) Represents allowance for uncollectible receivables.
(2) Writeoffs.
(3) Obsolete inventory written down to zero value.
F-24
<PAGE>
EXHIBIT 10.3
LICENSE AGREEMENT
-----------------
This Agreement made effective the 17th day of December, 1986, by and
between STAAR SURGICAL CO., INC., a California corporation (hereinafter referred
to as "LICENSOR") and OPTICAL RADIATION CORPORATION, a corporation and its
affiliates (hereinafter referred to as "LICENSEE"):
WITNESSETH:
WHEREAS, LICENSOR represents that it is the sole owner of the entire
right, title and interest in and to the invention claimed in United States
Patent No. 4,573,998, issued March 4, 1986, and entitled METHODS FOR
IMPLANTATION OF DEFORMABLE INTRAOCULAR LENSES ("LICENSED PATENT" as hereinafter
defined) and certain know-how and trade secret information ("LICENSED
TECHNOLOGY" as hereinafter defined).
WHEREAS, LICENSOR represents that it has the sole right to grant licenses
under the Licensed Technology and Licensed Patent.
WHEREAS, LICENSEE is desirous of acquiring a non-exclusive right and
license under said Licensed Technology and Licensed Patent upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
recited below, the parties agree as follows:
1
<PAGE>
1. DEFINITIONS
-----------
For the purpose of this License Agreement, and solely for the purpose, the
terms set forth hereinafter shall be defined as follows:
(a) "Licensed Patent" shall mean United States Patent No. 4,573,998 and
any corresponding foreign patent applications or patents issued March 4, 1986,
and entitled METHODS FOR IMPLANTATION OF DEFORMABLE INTRAOCULAR LENSES and any
reissue thereof.
(b) "Licensed Technology" shall mean LICENSOR's know-how and trade
secret information the transfer of which is particularly described in Appendix A
hereto.
(c) "Valid Patent Claim" shall mean a bona fide, unexpired claim in the
Licensed Patent which has not been held invalid by a decision of a court or
other governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal, and which has not been admitted to be
invalid by the owner through reissue or disclaimer. If there should be two or
more such decisions conflicting with respect to the validity of the same claim
the decision of the higher or highest tribunal shall thereafter control;
however, should the tribunals be of equal dignity, the decision or decisions
holding the claim invalid shall prevail.
(d) "Licensed Product" shall mean any product, including intraocular
lenses, especially made, used, or sold by LICENSEE to its customers, for use in
a manner covered by a Valid
2
<PAGE>
Patent Claim of the Licensed Patent or resulting from LICENSEE's use of the
Licensed Technology.
(e) "Affiliate" as used in this Agreement in connection with LICENSEE
shall mean any corporation, other juridical entity, partnership or other
business enterprise which qualifies under any one of the following:
(1) Fifty-one percent (51%) or more of the voting rights with
respect to the election of directors or other governing body or members is
owned or controlled, directly or indirectly, by LICENSEE.
(2) Fifty-one percent (5l%) or more of the voting rights with
respect to the election of directors or other governing body or members is
owned or controlled, directly or indirectly, by any corporation, other
juridical entity, partnership or other business qualifying under item (1)
above.
(3) An exclusive distributor retained under contract.
(f) "Net Sales" or "Net Selling Price" shall mean the actual selling
price of Licensed Products sold by LICENSEE to others as per the invoices
covering LICENSEE's sales, less bona fide trade and cash discounts, allowance
for returns, give aways,
3
<PAGE>
royalties other than those due hereunder, and sales and other taxes and
governmental charges applicable to sales and packages; provided that the
--------
Licensed Products sold between LICENSEE and its Affiliates, or between
LICENSEE's Affiliates, shall not be regarded as sold for computation of Net
Sales receipts until sold by LICENSEE or its Affiliates to a third party other
than an Affiliate.
(g) "Person" shall mean an individual, corporation, partnership or other
entity.
(h) "Quarterly Period" shall mean that period of ORC's fiscal year
ending on January 31, April 30, July 31 and October 31 respectively.
(i) "Royalty Year" shall mean the twelve (12) month period commencing on
the effective date hereof and each subsequent twelve (12) month period
thereafter.
(j) "Royalty Bearing Country" shall mean the U. S. or any country in
which sales are made of Licensed Products which utilize Licensed Technology.
(k) "ORC" or "LICENSEE" shall mean OPTICAL RADIATION CORPORATION and/or
its Affiliates.
(1) "Joint Venture" shall mean STAAR's association with any entity
whereby STAAR has a right to receive profits derived from the business
activities of such entity or from the business activities of the joint venture.
This definition does not apply to STAAR's License Agreement with CooperVision.
4
<PAGE>
2. LICENSE
-------
(a) LICENSOR hereby grants to LICENSEE and its Affiliates, upon the
terms and conditions herein specified, a worldwide non-exclusive license under
the Licensed Technology and the Licensed Patent. There is no right to sublicense
included in this grant.
(b) This license shall be irrevocable so long as LICENSEE continues to
fulfill its commitments hereunder.
3. ROYALTIES
---------
(a) Upon execution of this Agreement, LICENSEE shall grant to LICENSOR a
license as specified in Exhibit 2.1.
(b) As further consideration for the Rights granted hereunder, during
the term of this Agreement, LICENSEE shall pay to LICENSOR a percentage
("Royalty Rate") of Net Sales of Licensed Product in Royalty Bearing Countries
as follows:
<TABLE>
<CAPTION>
Royalty Rate Type of Licensed Product
------------ ------------------------
<S> <C>
6% Covered by a valid patent
claim of Licensed Patent
("Type A"); or
4% Resulting from Licensee's
use of Licensed Technology
Rights ("Type B"); or
10% Those including both Type A
and Type B.
</TABLE>
5
<PAGE>
(c) Notwithstanding the provisions of paragraph 3(b) above, in the case
of Licensed Products which are intraocular lenses, the royalty to be paid by the
LICENSEE for sales in the United States shall be an average minimum royalty of
twenty-five dollars ($25.00) for each licensed lens until such time as accrued
royalties under subparagraph 3(b) exceed three (3) million dollars.
(d) In the event that a Licensed Product is sold as a part of a composite
unit upon which LICENSEE is not otherwise obligated to pay royalties to LICENSOR
and if, as such part, the Licensed Product does not have a separate invoiced
selling price, then for the purposes of computing royalties, the following
guidelines shall apply:
(1) Net Selling Price of such Licensed Product shall be equal to the
product of (i) a fraction, the numerator of which is the established current net
selling price of such composite unit and the denominator of which is the sum of
the established current net selling prices of each of the components of the
composite unit sold as a separate unit, times (ii) the established current net
selling price of the Licensed Product;
(2) If the computation set forth in (a) cannot be made for any
reason, then the Net Selling Price of the Licensed Product shall be the
established current net Selling Price for such Licensed Product when sold and
invoiced as a separate unit.
6
<PAGE>
4. ACCOUNTING AND RECORDS
-----------------------
4.1 Within forty-five (45) days after each Quarterly Period in respect
of which payments are due under Section 3, LICENSEE shall prepare and send to
LICENSOR a report setting forth Net Sales within the Territory by LICENSEE and
its Affiliates during such Quarterly Period, which report shall contain a
computation of the payments due hereunder. LICENSEE shall be entitled to make
all payments by corporate check.
4.2 LICENSEE shall keep accurate records in respect of all sales of the
Licensed products by LICENSEE and its Affiliates and shall maintain such records
for a period of not less than three years from the date of its report to
LICENSOR under Section 4.1 hereof. LICENSOR shall have the right, at its sole
cost and expense, not more than once each Royalty Year, to review LICENSEE's
records in respect of sales of the Licensed Products at times which are
reasonably convenient to LICENSEE, using for that purpose a retained independent
certified public accounting firm acceptable to LICENSEE. Any reports rendered by
LICENSEE to LICENSOR prior to the date of such review as to which LICENSOR
raises no reasonable written objection within one hundred twenty (120) days
after the commencement of such review shall be deemed conclusive and binding,
provided the LICENSEE has not unreasonably impeded such review. If LICENSOR
shall dispute the accuracy of any report, the dispute shall be resolved by a
panel of three
7
<PAGE>
independent certified public accountants, one selected by LICENSEE at its sole
cost and expense, one selected by LICENSOR at its sole cost and expense, one
selected by LICENSOR at its sole cost and expense, and the third selected by the
previously selected accountants, the cost and expense of the third to be borne
equally by LICENSEE and LICENSOR. The determination of said panel by majority
vote shall be conclusive and binding on the Parties hereto.
4.3 At the termination of this Agreement, LICENSEE shall render a final
report to LICENSOR within sixty (60) days after the end of the Quarterly Period
in the Royalty Year in which such termination occurs and payments shall be made
to LICENSOR for the portion of the Royalty Year ending at the date of
termination.
5. TERM
----
This Agreement shall become effective on the date of signing by both
Parties and unless terminated as provided in Section 6, below, shall remain in
effect as follows:
(a) regarding Licensed Products covered by the Licensed Patent, this
Agreement shall terminate upon the expiration of the Licensed Patent or at the
earliest date on which there is not at least one Valid Patent Claim pertinent to
the operations of LICENSEE still in existence or effect;
8
<PAGE>
(b) regarding Licensed Products covered by Licensed Technology for thirty
(30) years from the effective date hereof.
6. TERMINATION AND EFFECT OF TERMINATION
-------------------------------------
6.1 This Agreement may be terminated as follows:
(a) By one party giving written notice to the other party of its
intent to terminate, while stating with specificity the grounds therefor, in the
event that the other party fails to perform or otherwise breaches any material
obligations hereunder. The party so notified shall have sixty (60) days after
receipt of the notice to cure the breach or seek legal redress. In no event
shall such notice of intention to terminate be deemed to waive any right to
damages or any other remedy which the party giving the notice may have as a
consequence of such failure or such breach.
6.2 In the event that this Agreement is finally terminated (i.e., by
operation of the present terms or legal decree):
(a) LICENSEE shall have the right to dispose of all the licensed
Products coming under the terms of this Agreement, to utilize all inventory then
on hand to produce such Licensed Products, and to complete all orders for
Licensed Products then on hand. Royalties shall be paid with respect to
9
<PAGE>
said Licensed Products as though this Agreement had not been terminated.
(b) Both parties hereto shall be released from all obligations and
duties imposed or assumed hereunder except as expressly provided to the contrary
in this Agreement.
7. WARRANTY AND INDEMNIFICATION
----------------------------
(a) LICENSOR assumes no responsibility for the manufacture or product
specification or end use of Licensed Products manufactured by LICENSEE or for
LICENSEE by anyone other than LICENSOR and sold by LICENSEE. All
representations or warranties made in connection with the sale of Licensed
Products by LICENSEE and its Affiliates as manufacturer and/or seller shall in
no way directly or impliedly refer to or obligate LICENSOR, LICENSEE shall
indemnify, save and hold harmless LICENSOR, its successors and assigns from any
and all costs, expenses, damages and awards (including reasonable attorneys'
fees) of any kind relating to actual or threatened claim made against or any
judgment, award or verdict of any kind against LICENSOR resulting from or
arising from a representation or warranty, whether express or implied, of
LICENSEE or any of its Affiliates.
(b) LICENSOR agrees to defend the Licensed Patent against any
appropriation, practice, or infringement and shall have primary responsibility
for such defense.
10
<PAGE>
8. ADJUSTMENT TO LICENSE AGREEMENT
-------------------------------
If, LICENSOR grants or has granted to any third~party in competition with
LICENSEE, other than an Affiliate or joint venture partner of LICENSOR or a
government agency, a different license under the Licensed Patent and/or
Licensed Technology than the present license, which provides for more favorable
terms or royalty rates to the third party than those provided in this License
Agreement, then LICENSEE shall, at its option, be entitled to the more favorable
terms or royalty rates of said third-party license. LICENSOR agrees to notify
LICENSEE of such third party agreement within thirty (30) days of its execution
or of the signing hereof.
9. MISCELLANEOUS
-------------
9.1 Entire Agreement: Assignment
-----------------------------
This Agreement constitutes the entire Agreement and supersedes all prior
agreements and understandings, both written or oral, between the parties hereto
with respect to the subject matter hereof. This Agreement shall be binding upon
the parties hereto and their respective successors and assigns. The rights and
obligations of each party under this Agreement shall not be assignable or
otherwise transferable without the prior written consent of the other, except
that (a) LICENSEE may assign any or all of its rights or obligations under this
Agreement to any of
11
<PAGE>
its Affiliates, which assignment shall not release LICENSEE from any of its
obligations under this Agreement, and (b) LICENSEE may assign all of its rights
and obligations under this Agreement to any person in connection with the
transfer or sale of all or a portion of its business or the merger or
consolidation of LICENSEE with or into any other company, so long as such
transferee, purchaser or surviving company shall assume such obligations of
LICENSEE.
9.2 Notice
------
Any Notice required or permitted to be given by this Agreement shall be
given by postpaid first class certified mail addressed to:
IN THE CASE OF LICENSOR:
Thomas R. Waggoner
President
STAAR SURGICAL CO., INC.
1911 Walker Avenue
Monrovia, California 91016
and
Frank Frisenda, Jr.
FRISENDA, MORRIS & NICHOLSON
700 South Flower Street, Suite 2200
Los Angeles, California 90017
and IN THE CASE OF LICENSEE:
Richard Wood
President
OPTICAL RADIATION CORPORATION
1300 Optical Drive
Azusa, California 91702
12
<PAGE>
and
Martin Levy
OPTICAL RADIATION CORPORATION
1300 Optical Drive
Azusa, California 91702
Such addresses may be altered by written notice. If no time limit is
specified for a notice required or permitted to be given under this Agreement,
the time limit therefore shall be two (2) full business days, not including the
day of mailing.
9.3 Waiver,Governing Law. etc.
-------------------------
Any terms of this Agreement may be amended, modified or waived only with
the prior written consent of the party against whom enforcement of such
amendment, modification or waiver is sought. No waiver of any default,
condition or provision of this Agreement, or of any breach thereof, shall be
deemed to imply or constitute a waiver of any like default, condition or
provision of this Agreement or subsequent breach thereof. This Agreement
shall be governed by and construed in accordance with the laws of the State of
California. All matters regarding this Agreement shall be interpreted in
accordance with such laws, and any controversy that cannot be settled directly
shall be settled by arbitration in Los Angeles, California, by and in
accordance with the rules of the American Arbitration Association, and Section
1283.05 of the California Code of Civil Procedure, and judgment upon the award
rendered may be entered in any court having jurisdiction thereof. During the
pendancy of such arbitration or
13
<PAGE>
other legal process, this Agreement may not be terminated based upon the dispute
giving rise to such arbitration or other legal process. It is understood,
however, that this is a general form of Agreement; and if any of its provisions
in any way violate or contravene the laws of the State of California or of the
United States of America, such provisions shall be deemed not a part of this
Agreement, and the remainder of this Agreement shall remain in full force and
effect. The headings herein are for convenience only and shall not be deemed to
limit or otherwise affect the construction hereof. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
and it shall not be necessary in making proof of this Agreement to produce or
account for more than one such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year indicated.
STAAR SURGICAL COMPANY, INC.
"LICENSOR"
Dated: 12/17/86 By: /s/ Thomas R. Waggoner
---------------- ---------------------------
THOMAS R. WAGGONER
President
OPTICAL RADIATION CORPORATION
"LICENSEE"
Dated: 12/17/86 By: /s/ Richard Wood
---------------- --------------------------
RICHARD WOOD
President
14
<PAGE>
APPENDIX A
TRANSFER OF STAAR'S TRADE SECRETS AND KNOW-HOW
----------------------------------------------
Should ORC determine that it is necessary to obtain from STAAR certain
further trade secret and know-how information ("Licensed technology") to enable
ORC to design, evaluate and sell Licensed Products manufactured by STAAR for ORC
on an OEM basis or manufactured by ORC for its own use, then STAAR will make
available to ORC such Licensed Technology as provided below.
The transfer of said trade secrets and know-how shall be accomplished by
STAAR supplying ORC with documents as well as oral information upon ORC's
request, which are specifically identified by STAAR as being confidential and
proprietary to STAAR, with the receipt of each document by ORC to be
acknowledged in writing. STAAR and ORC representatives shall meet promptly
following execution of the Agreement and conduct good faith discussions
concerning the nature and extent of such transferred information required to
meet the goals of the Agreement.
In order to effect the orderly transfer and use of said trade secrets and
know-how and to cooperate with, to educate and to train personnel of ORC in
promoting use, evaluation and sale of licensed products hereunder, STAAR shall
render reasonable services as may be requested by ORC, so as to familiarize ORC
with said trade secrets and know-how and to enable ORC to use the
15
<PAGE>
same. Such services shall be rendered by STAAR by two fulltime STAAR designated
representatives acceptable to ORC for a period of two (2) weeks presence at
ORC's plant in Azusa, California. If services are to be rendered at any other
location, ORC will pay to STAAR reasonable travel and lodging expenses of
STAAR's designated representatives.
In addition, STAAR shall exercise its best efforts to assure that ORC will
obtain an IDE for its licensed intraocular lens product by July 31, 1987. Such
action shall include, providing ORC with reference access to STAAR's FDA master
file and supplying silicone lenses to ORC on an OEM basis at $125.00 per lens
(including the royalty payment provided for in the attached agreement) subject
to FDA cooperation and approval. Such access to STAAR's FDA master file shall
not constitute disclosure of Licensed technology.
As consideration for the reference access to STAAR's FDA master file and
STAAR's assistance in obtaining an IDE for the small incision silicone lenses to
be manufactured for ORC by STAAR, ORC will pay STAAR a "research fee" of One
Hundred Thousand Dollars ($100,000), plus reimbursement of all out-of-pocket
expenses incurred by STAAR on ORC's behalf and approved by ORC in advance. Such
payment will be made by ORC at the signing hereof.
16
<PAGE>
CONFIDENTIALITY
---------------
The confidential information comprising the Licensed technology to be
furnished by STAAR to ORC under the proposed Agreement shall be protected and
maintained in confidence by ORC and shall not be used for purposes outside the
scope of the Agreement, nor disclosed to others, except as may be reasonably
necessary in the conduct of the business of ORC or its affiliates under the
Agreement or unless one of the exceptions listed below applies. ORC shall take
all customary precautions to prevent said Confidential Information from being
disseminated to any third Parties, including the reasonable restriction of
access to said Confidential Information to those employees of ORC as need to
know it, the signing of confidentiality agreements by such employees, or others
to whom said Information is to be disclosed.
The provisions of this Section shall not apply and Licensed Technology
royalties shall no longer be due under this Agreement in that event that:
(a) such Information shall become known to third parties or shall
become publicly known through no fault of ORC; or
(b) such Information was already in ORC's possession prior to the
disclosure of said Information by STAAR to ORC; or
(c) such Information shall be subsequently disclosed to ORC by a third
party who is not under any obligation of confidentiality to STAAR; or
17
<PAGE>
(d) such Information is approved for disclosure by prior written consent
of STAAR; or
(e) such Information is required to be disclosed by court rule or
governmental law or regulation, provided that ORC give STAAR prompt notice of
any such requirement and cooperates with STAAR in attempting to limit such
disclosure; or
(f) such Information is developed by ORC independently of the transfer of
such Information from STAAR to ORC.
18
<PAGE>
EXHIBIT 10.12
PROMISSORY NOTE
(SECURED BY DEED OF TRUST)
$733,335.00 May 26, 1992
Ojai, California
FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby
acknowledged, Andrew F. Pollet and Sally M. Pollet, Co-Trustees of the Andrew
F. and Sally M. Pollet Revocable Trust dated March 6, 1990 (hereinafter
"Maker"), hereby promises to pay to Staar Surgical Company, a Delaware
corporation, or order (hereinafter "Holder"), at the address hereinbelow
designated on the signature page of this Note, or such other place as Holder may
designate by written notice to Maker, the principal sum hereinbelow described
(hereinafter the "Principal Amount"), together with interest thereon, in the
manner and at the times provided in this Note and subject to the terms and
conditions hereinbelow described.
1. Principal Amount.
----------------
The Principal Amount means the sum of Seven Hundred Thirty-three
Thousand Three Hundred Thirty-five and No/100 Dollars ($733,335.00).
2. Interest.
--------
Interest on the Principal Amount from time-to-time remaining unpaid
shall accrue from the date of this Note at the lesser of eight percent (8%) or
that fixed rate of interest (as of the date of this Note) which equals the
minimum applicable rate of simple interest (as of the date of this Note) which
will avoid the imputation of income to Maker. Interest shall be computed on the
basis of a three hundred sixty (360) day year and a thirty (30) day month.
3. Payment of Principal and Interest.
---------------------------------
Subject to Paragraph 7, the Principal Amount and accrued and unpaid
interest on the Principal Amount and all other indebtedness under this Note
shall be paid on May 31, 1995. Until such date, all interest on this Note shall
accrue.
4. Prepayments.
-----------
Maker shall have the right to prepay any portion of the Principal
Amount without prepayment penalty or premium or discount.
5. Manner of Payments/Crediting of Payments.
----------------------------------------
Payments of any amount required hereunder shall be made
1
<PAGE>
solely in lawful money of the United States, without deduction or offset, and
shall be credited first against accrued but unpaid interest, if any, and
thereafter against the unpaid balance of the Principal Amount.
6. Security.
--------
The payment of this Note is secured by a Deed of Trust executed by
Maker in favor of Holder of even date herewith.
7. Acceleration Upon Default.
-------------------------
At the option of Holder, all or any part of the indebtedness of Maker
hereunder shall immediately become due and payable, irrespective of any agreed
maturity, upon the happening of any of the following events of default ("Event
of Default"):
(a) Upon the occurrence of any event of default described under the
Deed of Trust;
(c) If any of the following events constituting default occurs,
provided, however, that if any such event of default is reasonably susceptible
of being cured, Maker shall be entitled to a grace period of thirty (30) days
following written notice of such event of default to cure it, and further
provided, that if such event of default is of such character as to reasonably
require more than thirty (30) days to cure, Maker has promptly commenced to cure
said events of default within the thirty (30) day period and used reasonable
diligence thereafter in curing such events of default, the thirty (30) day
period shall be reasonably extended (but not to exceed one hundred twenty days
(120)):
(i) If Maker shall breach any non-monetary condition or
obligation imposed on Maker pursuant to the terms of this Note;
(ii) If Maker shall make an assignment for the benefit of
creditors;
(iii) If a custodian, trustee, receiver, or agent is appointed or
takes possession of substantially all of the property of Maker;
(iv) If Maker becomes insolvent as that terms is defined in
Section 101(26) of Title 11 of the United States Code;
(v) If Maker shall (A) file a petition with the Bankruptcy Court
under the Bankruptcy Code, or (B) otherwise file any petition or apply to any
tribunal for appointment of a custodian, trustee, receiver, or agent of Maker,
or commence any proceeding related to Maker under any bankruptcy or
reorganization statute, or
2
<PAGE>
under any arrangement, insolvency, readjustment of debt, dissolution, or
liquidation law of any jurisdiction, whether now or hereafter in effect;
(vi) If any petition is filed against Maker under the Bankruptcy Code
and either (A) the Bankruptcy Court orders relief against Maker under the
chapter of the Bankruptcy Code under which the petition was filed, or (B)
such petition is not dismissed by the Bankruptcy Court within thirty (30)
days of the date of filing;
(vii) If any petition or application of the type described in
Subparagraph (vi)(A) above is filed against Maker, or any proceeding of the
type described in Subparagraphs (v)(A) or (v)(B) above is commenced, and
either (1) Maker, by any act, indicates his approval thereof, consent
thereto, or acquiescence therein, or (2) an order is entered appointing any
such custodian, trustee, receiver, or agent, adjudicating Maker bankrupt
or insolvent, or approving such petition or application in any such
proceeding, and any such order remains in effect for more than thirty (30)
days;
(viii) If any attachment, execution, or other writ is levied on
substantially all of the assets of Maker and remains in effect for more
than fifteen (15) days.
8. Collection Costs and Attorneys' Fees.
------------------------------------
(a) Maker agrees to pay Holder all costs and expenses, including actual
attorneys' fees, paid or incurred by Holder in connection with the collection or
enforcement of the Note or any instrument securing payment of this Note,
including defending the priority of such instrument or as a result of
foreclosure against, or conducting a trustee sale thereunder.
(b) In the event any party institutes or should the parties otherwise
become a party to any action or proceeding in connection with the enforcement or
interpretation or collection of this Note or any instrument securing payment of
this Note, or for damages by reason of any alleged breach of this Note or any
provision hereof or any alleged breach of any instrument securing payment of
this Note or any provision thereof, or for a declaration of rights in connection
with this Note or any instrument securing payment of this Note, or for any other
relief, including equitable relief, in connection with this Note or any
instrument securing payment of this Note, the prevailing party in any such
action or proceeding shall be entitled to receive from the non-prevailing party
all costs and expenses including, without limitation, actual attorneys' and
other fees incurred by the prevailing party in connection with such action or
proceeding.
3
<PAGE>
9. Notice.
-------
Any notice to Maker provided for in this Note shall be given by personal
delivery or by express mail, Federal Express, DHL or similar airborne/overnight
delivery service, or by mailing such notice by certified mail, return receipt
requested, addressed to Maker at the address set forth below where this Note is
executed, or to such other address as Maker may designate by written notice to
Holder. Any notice to Holder shall be given by personal delivery or by express
mail, Federal Express, DHL or similar airborne/overnight delivery service, or by
mailing such notice by certified mail, return receipt requested, to Holder at
the address set forth below where this Note is executed, or at such other
address as may have been designated by written notice to Maker. Mailed notices
shall be deemed delivered and received three (3) days after deposit in
accordance with this provision in the United States mail.
10. Usury Compliance.
-----------------
All agreements between Maker and Holder are expressly limited, so that in
no event or contingency whatsoever, whether by reason of the consideration given
with respect to this Note, the acceleration of maturity of the unpaid Principal
Amount and interest thereon, or otherwise, shall the amount paid or agreed to be
paid to Holder for the use, forbearance, or detention of the indebtedness which
is the subject of this Note exceed the highest lawful rate permissible under the
applicable usury laws. If, under any circumstances whatsoever, fulfillment of
any provision of this Note or any agreement securing payment of this Note or
executed in connection with this Note after timely performance of such provision
is due, shall involve transcending the limit of validity prescribed by law which
a court of competent jurisdiction deems applicable, then the obligations to be
fulfilled shall be reduced to the limit of such validity, and if, under any
circumstances whatsoever, Holder shall ever receive as interest an amount that
exceeds the highest lawful rate, the amount that would be excessive interest
shall be applied to the reduction of the unpaid Principal Amount and/or late
charges under this Note and not to the payment of interest, or, if such
excessive interest exceeds the unpaid balance of the Principal Amount and/or
late charges under this Note, such excess shall be refunded to Maker.
11. General.
--------
(a) No delay or omission on the part of Holder in exercising any rights
under this Note or under any instrument given to secure this Note, on default by
Maker, including, without limitation, Holder's right to accelerate, nor
reinstatement of this Note by Holder after such exercise, shall operate as a
waiver of Maker's right to exercise such right or of any other right under this
Note or the instruments given to secure this Note, for the same default or any
other default.
4
<PAGE>
(b) Except for the provision of written notice hereinabove set forth, Maker
hereby waives presentment for payment, demand, protest, notice of protest and
notice of dishonor, and all other notices to which Maker might otherwise be
entitled, and further waives the right to require Holder to proceed against any
security for this Note before proceeding against Maker, and further waives all
defenses based on release of security or extension of time or other indulgence
given in respect to payment of this Note.
(c) Holder shall have the right to sell, assign, or otherwise transfer,
either in part or in its entirety, this Note, and any instrument evidencing or
securing the indebtedness of this Note (provided such instrument is transferred
as security for the portion of the Note which is conveyed), without the consent
of Maker. The assignment of this Note by Holder shall be ineffective until
actual notice of same is received by Maker. Maker shall have no right to
delegate its duties under this Note or any instrument securing this Note without
the written consent of Holder, which consent Holder shall not unreasonably
withhold, provided, however, no delegation of such duties or obligations shall
release Maker from any duty or obligation under this Note or instrument securing
payment of this Note.
(d) Subject to the foregoing Subparagraph (c), this Note and all of the
covenants, promises, and agreements contained in it shall be binding on and
inure to the benefit of the respective legal and personal representatives,
devises, heirs, successors, and assigns of Maker and Holder.
(e) This writing is intended by the parties to be an integrated and final
expression of this Note and also is intended to be a complete and exclusive
statement of the terms of that agreement. No course of prior dealing between the
parties, no usage of trade, and no parol or extrinsic evidence of any nature
shall be used to supplement, modify or vary any of the terms hereof. There are
no conditions to the full effectiveness of this Note except as specifically
provided herein.
(f) If any provision of this Note, or the application of it to any party or
circumstance, is held to be invalid, the remainder of this Note, and the
application of such provision to other parties or circumstances, shall not be
affected thereby, the provisions of this Note being severable in any such
instance.
(g) This Note shall be governed by, interpreted under and construed and
enforced in accordance with the laws of the State of California applicable to
contracts entered into in the State of California, by residents of the State of
California, and intended to be performed entirely within the State of
California. Any action to enforce payment of this Note shall be filed and heard
solely in the Municipal or Superior Court of Los Angeles County, California.
5
<PAGE>
(h) Time is of the essence for each and every obligation under this
Note.
MAKER:
/s/ Andrew F. Pollet
-----------------------------------
Andrew F. Pollet, Co-Trustee of the
Andrew F. and Sally M. Pollet
Revocable Trust dated March 6, 1990
/s/ Sally M. Pollet
-----------------------------------
Sally M. Pollet, Co-Trustee of the
Andrew F. and Sally M. Pollet
Revocable Trust dated March 6, 1990
MAKER'S ADDRESS:
Andrew F. and Sally M. Pollet,
Co-Trustees
10934 Alto Court
Oak View, CA 93022
HOLDER'S ADDRESS:
Staar Surgical Company
1911 Walker Avenue
Monrovia, CA 91016
DO NOT DESTROY THIS NOTE; WHEN PAID, THIS NOTE
MUST BE SURRENDERED TO MAKER FOR CANCELLATION
6
<PAGE>
EXHIBIT 10.13
RECORDING REQUESTED BY: 98-014857 Rec Fee 40.00
AFTER RECORDED RETURN TO: Check 40.00
Recorded
MARY ANN SAPONE, ESQ. Official Records
POLLET & WOODBURY County of
10900 WILSHIRE BOULEVARD, SUITE 500 Ventura
LOS ANGELES, CALIFORNIA 90024 Richard D. Dean
Recorder
___________________________________ 9:48am 3-Feb-98 FF 12
DEED OF TRUST
-------------
THIS Deed of Trust is made this 1 day of August, 1997, by and among
---
Andrew F. Pollet and Sally M. Pollet, as Trustees and Beneficiaries of the
Andrew F. and Sally M. Pollet Revocable Trust dated March 6, 1990, whose
addresses are10934 Alto Court, Oak View, California 93022 (hereinafter
collectively referred to as the "Trustors"), and Staar Surgical Company, a
Delaware corporation, whose address is 1911 Walker Avenue, Monrovia, California
91016 (hereinafter the "Trustee" and\or the "Beneficiary").
1. GRANT OF SECURITY INTEREST IN REAL PROPERTY.
-------------------------------------------
The Trustors, in consideration of the obligations and/or
indebtedness referred to in Paragraph 2 below, irrevocably grant, convey, and
assign to the Trustee, in trust, with power of sale, all of the Trustors'
interests in that certain real property commonly known as 10934 Alto Court, Oak
View, California 93022, and more particularly described as follows (hereinafter
the "Real Property"):
Lot 50 of Tract 3044-3 in the County of Ventura, State of California
as shown on the map of said tract recorded in book 92, pages 93
through 96 of Miscellaneous Records (Maps) in the Office of the County
Recorder of said County.
2. OBLIGATIONS SECURED.
-------------------
The hereinabove described security interest is being granted by
the Trustors for the purpose of securing indebtedness in the original principal
amount of seven hundred thirty-three thousand three hundred thirty five dollars
($733,335.00) (hereinafter the "Debt"), as the Debt may be amended from time to
time as well as:
(a) PAYMENT OF ADDITIONAL SUMS. Payment of such additional sums,
--------------------------
with interest thereon:
(i) As may be incurred, paid, or advanced by the Beneficiary,
or as may otherwise be due to the Trustee or the Beneficiary, under any
provision of this Deed of Trust and any modification, extension, or renewal of
this Deed of Trust; and
(ii) As may otherwise be paid or advanced by the Beneficiary
to protect the security or priority of this Deed of Trust;
1
<PAGE>
(b) PERFORMANCE OF OBLIGATIONS. Performance of each obligation,
--------------------------
covenant, and agreement of the Trustors included in the Debt, this Deed of
Trust, or any other document executed by the Trustors in connection with the
obligation(s) secured by this Deed of Trust, whether set forth in this Deed of
Trust or incorporated in this Deed of Trust by reference;
(c) COMPLIANCE. Compliance with the performance by the Trustors
----------
of each and every monetary provision of all covenants, conditions, and
restrictions, if any, pertaining to the Real Property;
(d) PERFORMANCE OF AGREEMENTS. Performance of all agreements of
-------------------------
the Trustors to pay fees and charges to the Beneficiary whether or not in this
Deed of Trust set forth; and
(e) CHARGES. Payment of charges, as allowed by law, when such
-------
charges are made for any statement regarding the obligation(s) secured by this
Deed of Trust.
3. COVENANTS WITH RESPECT TO DEED OF TRUST.
---------------------------------------
To maintain and protect the security of this Deed of Trust, to
secure full and timely performance by the Trustors of each and every obligation,
covenant, and agreement of the Trustors under the Debt and this Deed of Trust,
and as additional consideration for the obligation(s) evidenced by the Debt, the
Trustors covenant as follows:
(a) PAYMENT OF PRINCIPAL AND INTEREST. The Trustors will promptly
---------------------------------
pay, when due, such installments of principal and interest and such prepayment,
late payment, and other charges as are provided for in relation to the Debt, and
such other amounts as are provided under this Deed of Trust.
(b) APPLICATION OF PAYMENTS. Except as otherwise expressly
-----------------------
provided by applicable law or any other provision of this Deed of Trust, all
payments received by the Beneficiary from the Trustors under the Debt or this
Deed of Trust shall be applied by the Beneficiary in the following order: (i)
costs, fees, charges, and advances paid or incurred by the Beneficiary or
payable to the Beneficiary, and interest thereon pursuant to any provision of
the Debt, this Deed of Trust, and any other obligation documents securing the
Debt, in such order as the Beneficiary, in the Beneficiary's sole discretion,
elects; (ii) interest payable under the Debt; and (iii) principal payable under
the Debt.
4. COVENANTS CONCERNING THE REAL PROPERTY.
--------------------------------------
(a) REPAIR AND MAINTENANCE OF THE REAL PROPERTY. The Trustors
-------------------------------------------
will: (i) keep the Real Property in good condition and repair; (ii) not
substantially alter, remove, or demolish the Real Property or any building on
the Real Property, except when incident to the replacement of fixtures,
equipment, machinery, or appliances with items of like kind; (iii) restore and
repair promptly and in good and workmanlike manner to no less than the
equivalent of its original condition, all or any part of the Real Property that
may be damaged or destroyed, including, but not limited to, damage from termites
and dry rot, whether or not insurance proceeds are available to cover any part
of the cost of such restoration and repair (iv) pay when due all claims for
labor performed and materials furnished in connection with the Real Property and
not permit any mechanic's or materialman's lien to arise
2
<PAGE>
against the Real Property; (v) comply with all laws affecting the Real Property
or requiring that any alterations or improvements be made to the Real Property;
(vi) not commit or permit waste on or to the Real Property, or commit, suffer,
or permit any act or violation of law to occur upon the Real Property; (vii) not
abandon the Real Property; and (viii) cultivate, irrigate, fertilize, fumigate,
and prune as reasonably necessary.
(b) INSPECTION OF THE REAL PROPERTY. The Beneficiary may make, or
-------------------------------
authorize other persons to make, entries upon or inspections of the Real
Property at reasonable times and for reasonable durations, and the Trustors will
permit all such entries and inspections to be made.
5. DEFAULT IN FORECLOSURE
----------------------
Upon default by the Trustors in the payment of any indebtedness
secured by this Deed of Trust or in the performance of any obligation under this
Deed of Trust, the Beneficiary may declare all sums secured by this Deed of
Trust immediately due and payable by delivering to the Trustee a written
declaration of default and demand for sale and a written notice of default and
election to sell the Real Property.
After the required time period has lapsed following the
recordation of the notice of default, and after notice of sale has been given as
required by law, the Trustee, without demand on the Trustors, shall sell the
Real Property at the time and place specified in the notice of sale, either as a
whole or in separate parcels, and in any order determined by the Trustee at
public auction to the highest bidder for cash in lawful money of the United
States, payable at the time of sale. The Trustee may postpone sale of all or any
portion of the Real Property by public announcement at the time and place of
sale, and from time to time thereafter may postpone the sale by public
announcement at the time fixed by the preceding postponement. The Trustee shall
deliver to the purchaser at the auction its deed conveying the Real Property
sold, but without any covenant or warranty, express or implied. Any person,
including the Trustors, the Trustee or the Beneficiary, may purchase at the
sale.
After deducting all costs, fees and expenses of the Trustee and
the Beneficiary under this paragraph, including costs of procuring evidence of
title incurred in connection with sale, the Trustee shall apply the proceeds of
sale to payment of all sums expended under the terms of this Deed of Trust, not
then repaid, with accrued interest at the amount allowed by law in effect at the
date of this Deed of Trust, all other sums then secured by this Deed of Trust,
and the remainder, if any, to the person or persons legally entitled to the
remaining proceeds.
6. OBLIGATION TO PAY TAXES.
-----------------------
The Trustors will promptly pay, satisfy, and discharge; (a) at
least ten (10) days prior to delinquency, all general and special taxes, and
assessments, water and sewer district charges, rents and premiums affecting the
Real Property, including but not limited to all property taxes on the Real
Property; and (b) all encumbrances, charges, and liens on the Real Property,
with interest on them, which are prior or superior to the lien of this Deed of
Trust.
3
<PAGE>
7. INSURANCE AND CONDEMNATION.
--------------------------
(a) FIRE AND CASUALTY INSURANCE. The Trustors will provide and
---------------------------
maintain in force, at all times, fire and such other type of insurance on the
Real Property in such reasonable amount and deductibles as determined by the
Trustors, but in an amount not less than the lesser of (i) the replacement cost
of the Real Property or (ii) the outstanding balance of the Debt and any other
liens prior or superior to this Deed of Trust.
(b) APPLICATION OF HAZARD INSURANCE PROCEEDS. All insurance
----------------------------------------
proceeds shall be applied for the restoration and repair of the Real Property to
the equivalent of its original condition provided, however, if the Trustors
elect not to so restore and repair the Real Property, the insurance proceeds
shall to applied to satisfy the indebtedness secured by this Deed of Trust, with
the balance of said proceeds, if any, to be retained by the Trustors.
If the insurance proceeds are applied to the payment of the
sums secured by this Deed of Trust, any such application of proceeds to
principal shall not extend or postpone the due date of any payments referred to
in this Deed of Trust or change the amount of such payments. The receipt of the
hazard insurance proceeds shall not cure or constitute a waiver of any default
or pending notice of default under this Deed of Trust, nor invalidate any act
done pursuant to such notice. No hazard insurance proceeds applied on the cost
of repair, restoration, or alteration of the improvements shall constitute a
payment on the indebtedness secured by this Deed of Trust.
Notwithstanding the foregoing, the Beneficiary may demand that
all proceeds be paid into an escrow account with an escrow agent mutually
acceptable to the parties in order to ensure that disbursements made for the
restoration or repair of the Real Property are so properly made.
(c) CONDEMNATION. All proceeds of any reward or claim for
------------
damages, direct or consequential, in connection with any condemnation for public
use of, or injury to, the Real Property, or any part of the Real Property, or
any improvements on the Real Property, and any payment of consideration or
damages for a conveyance in lieu of condemnation, shall be applied upon any
indebtedness secured by this Deed of Trust, whether or not then due, with the
excess, if any, paid to the Trustors.
Unless the Beneficiary and the Trustors otherwise agree in
writing, any such application of proceeds to principal shall not extend or
postpone the due date of any payments due under this Deed of Trust or change the
amount of such payments.
8. ACCELERATION PROVISIONS.
-----------------------
(a) ACCELERATION ON TRANSFER OR ENCUMBRANCE OF THE REAL PROPERTY.
------------------------------------------------------------
Subject to Sections 2924.6 and 2949 of the California Civil Code, as amended, if
---------------------
the Trustors sell, contract to sell, give an option to purchase, convey, or
alienate the Real Property, or any interest in the Real Property, or suffer
their title, or any interest in the Real Property, to be divested, whether
voluntarily or involuntarily; or if title to such Real Property be subject to
any lien or charge, voluntarily or involuntarily, contractual or statutory,
without the written consent of the Beneficiary being first had and obtained, the
Beneficiary may, at the Beneficiary's option, without prior notice, declare all
sums secured by this Deed of Trust, irrespective of their stated due date(s),
immediately due and payable,
4
<PAGE>
and may exercise all rights and remedies provided in this Deed of Trust.
(b) ACCELERATION ON INSOLVENCY OF TRUSTORS. In the event that (i)
--------------------------------------
the Trustors fail to pay their debts generally as they come due or file any
petition or action for relief under any bankruptcy, reorganization, insolvency,
or moratorium law, or any other law or laws for the relief of, or relating to,
debtors; (ii) an involuntary petition is filed against the Trustors, or either
of them, under any bankruptcy or similar statute and such petition is not set
aside or withdrawn or is still in effect within sixty (60) days from the date of
such filing; or (iii) a custodian, receiver, or trustee (or other similar
official) is appointed to take possession, custody, or control of any of the
properties of the Trustors; or (iv) the Real Property becomes subject to the
jurisdiction of a Federal Bankruptcy Court of successor to that court, or any
similar state court; or (v) the Trustors, or either of them, make an assignment
for the benefit of his/her/their creditors; or (vi) any portion of the Trustors'
assets are attached, executed upon, or judicially seized in any manner, and such
seizure is not discharged within ten (10) days, the Beneficiary, at the
Beneficiary's option, and to the extent permitted by applicable law, may,
without prior notice, declare all sums secured by this Deed of Trust,
irrespective of their stated due date(s), immediately due and payable and may
exercise all rights and remedies provided in this Deed of Trust, irrespective of
their stated due date(s), immediately due and payable, and may exercise all
rights and remedies provided in this Deed of Trust.
(c) OBLIGATION TO INFORM BENEFICIARY OF BANKRUPTCY, INSOLVENCY,
----------------------------------------------------------
TRANSFER OR ENCUMBRANCE. The Trustors will notify the Beneficiary in writing,
- -----------------------
at or prior to the time of the occurrence of any event described in the
preceding two Subparagraphs of this Paragraph 9 of such event, and will promptly
furnish the Beneficiary with any and all information concerning such event as
the Beneficiary may request.
9. MATTERS PERTAINING TO TRUSTEE.
-----------------------------
(a) TRUSTEE. The Trustee shall be deemed to have accepted the
-------
terms of this Trust when this Deed of Trust, duly executed and acknowledged, is
made public record as provided by law. The Trustee shall not be obligated to
notify any party hereto of any pending sale under any other deed of trust or of
any action or proceeding in which the Trustors, the Beneficiary, or the Trustee
is a party, unless such sale relates to or reasonably might affect the Real
Property, this Deed of Trust, the Beneficiary's security for the performance of
the Trustors' obligations under the Debt, or the rights or powers of the
Beneficiary or the Trustee under the Debt or this Deed of Trust, or unless such
action or proceeding has been instituted by the Trustee against the Real
Property, the Trustors, or the Beneficiary.
(b) POWER OF TRUSTEE TO RECONVEY OR CONSENT. At any time, without
---------------------------------------
liability therefor and without notice to the Trustors, upon written request by
the Beneficiary and presentation of the Debt and this Deed of Trust to the
Trustee for endorsement, and without altering or affecting the personal
liability of the Trustors or any other person for the payment of the
indebtedness secured by this Deed of Trust, or the lien of this Deed of Trust
upon the remainder of the Real Property as security for the repayment of the
full amount of the indebtedness then or thereafter secured by this Deed of Trust
or any right or power of the Beneficiary or the Trustee with respect to the
remainder of the Real Property, the Trustee may: (i) reconvey or release any
part of the Real Property from the lien of this Deed of Trust; or (ii) enter
into any extension or subordination agreement affecting the lien of this Deed of
Trust.
5
<PAGE>
(c) RECONVEYANCE. Upon written request of the Beneficiary
------------
reciting that all sums secured by this Deed of Trust have been paid, surrender
of the Debt and this Deed of Trust to the Trustee for cancellation, and payment
by the Trustors of any reconveyance fees customarily charged by the Trustee, the
Trustee shall reconvey, without warranty, the Real Property then held by the
Trustee under this Deed of Trust. The recitals in such reconveyance of any
matters of fact shall be conclusive proof of the truthfulness thereof. The
grantee in such reconveyance may be described as "the person or persons legally
entitled thereto."
(d) SUBSTITUTION OF TRUSTEE. The Beneficiary, at the
-----------------------
Beneficiary's option, may from time-to-time, by written instrument, substitute a
successor to any Trustee named in this Deed of Trust or acting under this Deed
of Trust, which instrument, when executed and acknowledged by the Beneficiary
and recorded in the office of the Recorder of the county or counties in which
the Real Property is located, shall constitute conclusive proof of the proper
situation of such successor Trustee, who shall, without conveyance from the
predecessor Trustee, succeed to all right, title, estate, powers and duties of
such predecessor Trustee, including, without limitation, the power to reconvey
the Real Property. To be effective, such instrument must contain the name of the
original Trustors, the Trustee, and the Beneficiary under this Deed of Trust,
the instrument number in which, or the book and page at which, and the county or
counties in which, this Deed of Trust is recorded, and the name and address of
the substitute Trustee. If any notice of default has been recorded under this
Deed of Trust, this power of substitution cannot be exercised until all costs,
fees and expenses of the then-acting Trustee have been paid. Upon such payment,
the then-acting Trustee shall endorse receipt thereof upon the instrument of
substitution. The procedure in this Deed of Trust for substitution of Trustees
shall not be exclusive of other provisions for substitution provided by
applicable law.
(e) ACCELERATION AND SALE ON DEFAULT. In the event of a default
--------------------------------
by the Trustors in the performance of any obligation or the payment of any
indebtedness secured by this Deed of Trust or in the performance of any
obligation under this Deed of Trust, the Beneficiary, at the Beneficiary's
option, may declare all sums secured by this Deed of Trust immediately due and
payable by delivering to the Trustee a written affidavit or declaration of
default and demand for sale, executed by the Beneficiary and reciting facts
demonstrating such default by the Trustors together with a written notice of
default and election to sell the Real Property. The Beneficiary shall also
deposit with the Trustee evidence of the Debt, this Deed of Trust, and documents
evidencing any additional advances or expenditures secured by this Deed of
Trust. Upon receipt by the Trustee of such affidavit or declaration of default
and such notice of default and election to sell, the Trustee shall accept as
true and conclusive all facts and statements contained in such affidavit or
declaration of default and shall cause such notice of default and election to
sell to be recorded as required by applicable law. Upon the expiration of such
period as may then be required by applicable law following recordation of such
notice of default, and after notice of sale has been given in the manner and for
the period required by applicable law, the Trustee, without demand on the
Trustors, shall sell the Real Property at the time and place filed in such
notice of sale, either as whole or in separate parcels, and in such order as the
Trustee may determine or the Beneficiary may direct (subject to whatever rights
the Trustors may have under applicable law to direct the order of sale), at
public auction to the highest bidder for cash in lawful money of the United
States, payable at the time of sale; provided, however, that the Beneficiary may
offset its bid at such sale to the extent of the full amount owing to it under
the Debt and this Deed
6
<PAGE>
of Trust, including, without limitation, the Trustee's fees and expenses of
sale, and costs, expenses, and attorneys' fees incurred by or on behalf of the
Beneficiary in connection with collecting, litigating, or otherwise enforcing
any right under the Debt or this Deed of Trust. The Trustee may postpone the
sale of all or any portion of the Real Property by public announcement made at
the initial time and place of sale, and from time to time thereafter by public
announcement made at the time and place of sale fixed by the preceding
postponement. The Trustee shall deliver to the purchaser at such public auction
its deed conveying the Real Property sold, but without any covenant or warranty,
express or implied. The recital in such deed of any matter of fact shall be
conclusive proof of the truthfulness thereof. Any person, including the
Trustors, the Trustee, or the Beneficiary, may purchase at such sale. After
deducting all costs, fees and expenses of the Trustee and the Beneficiary under
this paragraph, including costs of procuring evidence of title and the Trustee's
and attorney's fees incurred in connection with such sale, the Trustee shall
apply the proceeds of a sale as follows: (i) first to the payment of all sums
secured by this Deed of Trust, in such order as the Beneficiary, in the
Beneficiary's sole discretion, may elect; and (ii) if any proceeds thereafter
remain, to the person or persons legally entitled thereto.
10. MISCELLANEOUS.
-------------
(a) NO WAIVER BY BENEFICIARY. No waiver by the Beneficiary of any
------------------------
right or remedy provided by the Debt, this Deed of Trust, or applicable law,
shall be effective unless such waiver is in writing and subscribed by the
Beneficiary. Waiver by the Beneficiary of any right or remedy granted to the
Beneficiary under the Debt or any provision of the Debt, this Deed of Trust, or
applicable law, as to any transaction or occurrence, shall not be deemed a
waiver of any future transaction or occurrence. The acceptance of payment of any
sum so secured after its due date; or the payment by the Beneficiary of any
indebtedness or the performance by the Beneficiary of any obligation of the
Trustors under the Debt or this Deed of Trust, upon the failure of the Trustors
to do so; or the addition of any payment so made by the Beneficiary to the
indebtedness so secured; or the assertion by the Beneficiary of any other right
or remedy provided by the Debt or this Deed of Trust, shall not constitute a
waiver of the Beneficiary's right to require prompt performance of all other
obligations, covenants, and agreements of the Trustors under the Debt and this
Deed of Trust, or to exercise any other right or remedy provided by the Debt or
this Deed of Trust for any failure by the Trustors timely and fully to perform
its/his/her obligations, covenants, and agreements under the Debt and this Deed
of Trust. The Beneficiary expressly retains the right, from time-to-time, and
without notice or to consent from the Trustors, or any holder or claimant of a
lien or other interest in the Real Property that is junior to the lien of this
Deed of Trust, and without incurring liability to the Trustors or any other
person by so doing, to waive any right or remedy provided by the Debt, this Deed
of Trust, or applicable law.
(b) CONSENTS AND MODIFICATIONS. Notwithstanding the Trustors'
--------------------------
default in the performance of any obligations or payment of any indebtedness
secured by this Deed of Trust or in the performance of any obligation under this
Deed of Trust or the Trustors' breach of any obligation, covenant, or agreement
contained in the Debt or in this Deed of Trust, the Beneficiary, at the
Beneficiary's option, without notice to or consent from the Trustors, or any
holder or claimant of a lien or interest in the Real Property that is junior to
the lien of this Deed of Trust, and without incurring liability to the Trustors
or any other person by so doing, may from time to time (i) extend the time for
performance of any obligation or payment of all or any portion of the Trustors'
indebtedness under this Deed of Trust; (ii) agree with the Trustors to modify
the terms and conditions
7
<PAGE>
of performance and/or payment under this Deed of Trust; (iii) reduce the amount
of the payments that may be due under Paragraph 3 of this Deed of Trust; (iv)
reconvey or release other or additional security for the performance of the
Trustors' obligations or repayment of the Trustors' indebtedness under the Debt
and this Deed of Trust; or (v) enter into any extension or subordination
agreement affecting the lien of this Deed of Trust. No action taken by the
Beneficiary under this Subparagraph (b) shall be effective unless in writing,
subscribed by the Beneficiary, and, except as expressly provided in such
writing, no such action shall impair or affect: the obligation of the Trustors
to pay all sums secured by this Deed of Trust and to observe all obligations,
covenants, and agreements of the Trustors contained in the Debt and in this Deed
of Trust; or the lien or priority of the lien of this Deed of Trust.
(c) CONSENTS AND APPROVALS TO BE IN WRITING. Whenever the consent
---------------------------------------
or approval of the Beneficiary is specified as a condition of any provision of
this Deed of Trust, such consent or approval by the Beneficiary shall not be
effective unless such consent or approval is in writing, subscribed by the
Beneficiary.
(d) OBLIGATIONS OF TRUSTORS JOINT AND SEVERAL. If more than one
-----------------------------------------
person is named as Trustor, each obligation of the Trustors under this Deed of
Trust shall be the joint and several obligation of each such person. Any
Trustor who is a married person expressly agrees that the indebtedness secured
by this Deed of Trust may be satisfied by recourse to the separate property of
such Trustor.
(e) REMEDIES CUMULATIVE. Each remedy provided by this Deed of
-------------------
Trust is separate and distinct and is cumulative to all other rights and
remedies provided in this Deed of Trust or by applicable law, and each may be
exercised concurrently, independently, or successively, in any order whatsoever.
(f) NOTICES. Except for any notice required by applicable law to
-------
be given in another manner: (i) all notices provided in the Debt or in this Deed
of Trust shall be in writing; (ii) each such notice to the Trustors shall be
given by mailing such notice by first class mail to the Trustors' address(es)
specified in this Deed of Trust, or to such other address as the Trustors may
designate by notice given to the Beneficiary in the manner provided in this Deed
of Trust; and (iii) each such notice to the Beneficiary shall be given by
mailing such notice by certified mail, return receipt requested, to the
Beneficiary's address specified in this Deed of Trust, or to such other address
as the Beneficiary may designate by notice given to other address as the
Beneficiary may designate by notice given to the Trustors in the manner provided
in this Deed of Trust. All notices provided for in the Debt and this Deed of
Trust shall be deemed to have been given to the Trustors or the Beneficiary when
given in the manner specified in this Deed of Trust.
(g) SEVERABILITY. If any paragraph, clause, or provision of the
------------
Debt or this Deed of Trust is construed or interpreted by a court of competent
jurisdiction to be void, invalid or unenforceable, such decision shall affect
only those paragraphs, clauses, or provisions so construed or interpreted and
shall not affect the remaining paragraphs, clauses, and provisions of the Debt
or this Deed of Trust.
8
<PAGE>
(h) NO ASSIGNMENT. The Beneficiary shall not have the right to
-------------
sell, assign, or otherwise transfer, in whole or in part, this Deed of Trust
without the consent of the Trustors, which consent shall not be unreasonably
withheld.
(i) SUCCESSORS AND HEIRS. Subject to Subparagraph (i), this Deed
--------------------
of Trust applies to, inures to the benefit of, and binds, the respective heirs,
legatees, devises, administrators, executors, successors, and assigns of each of
the parties hereto.
(j) RULES OF CONSTRUCTION.
---------------------
(i) As used in this Deed of Trust, the term "Beneficiary"
shall mean and include the owner and holder (including a pledgee) of any Debts
or obligations secured by this Deed of Trust, whether or not named as
Beneficiary in this Deed of Trust, and the heirs, legatees, devises,
administrators, executors, successors, and assigns of any such person.
(ii) As used in this Deed of Trust, the term "Trustors" shall
mean and include the obligor under the Debt, whether or not named as the
Trustors in this Deed of Trust, and the heirs, legatees, devises,
administrators, executors, successors in interest to the Real Property, and
assigns of any such person.
(iii) As used in this Deed of Trust, the word "person" shall
mean and include natural persons, corporations, partnerships, unincorporated
associations, joint ventures, and any other form of legal entity.
(iv) As used in this Deed of Trust, the word "Debt" shall mean
and include the Debt, and any obligation evidenced thereby.
(v) As used in this Deed of Trust, the word "Real Property"
shall mean and include the Real Property and any part thereof.
(vi) As used in this Deed of Trust and unless the context
otherwise provides, the words "in this Deed of Trust," "under this Deed of
Trust" and "of this Deed of Trust" shall mean and include this Deed of Trust as
a whole, rather than any particular provision of this Deed of Trust.
(vii) In exercising any right or remedy, or taking any action
provided in this Deed of Trust, the Beneficiary may act through its employees,
agents, or independent contractors, as authorized by the Beneficiary.
(viii) Whenever the context so requires in this Deed of Trust,
the masculine gender includes, the feminine and neuter, the singular number
includes the plural, and vice versa.
(ix) Captions and paragraph headings used in this Deed of
Trust are for convenience only, are not a part of this Deed of Trust and shall
not be used in construing it.
(k) LITIGATION. The Trustors will give the Beneficiary immediate
----------
written notice of any action or proceeding (including, without limitation, any
judicial or nonjudicial proceeding to
9
<PAGE>
foreclose the lien of a junior or senior mortgage or Deed of Trust) affecting or
purporting to affect the Real Property, this Deed of Trust, the Beneficiary's
security for the performance of the Trustors' obligations under the Debt, or the
right or powers of the Beneficiary or the Trustee under the Debt or this Deed of
Trust.
(l) GOVERNING LAW. This Deed of Trust shall be governed by the
-------------
laws of the State of California. In the event any provisions of this Deed of
Trust or the Debt conflict with applicable law, such conflict shall not affect
other provisions of this Deed of Trust or Debt that can be given effect without
the conflicting provisions, and to this end the provisions of this Deed of Trust
and the Debt are declared to be severable.
(m) USURY. If any applicable law limiting the amount of interest
-----
or other charges permitted to be collected from the Trustors is interpreted so
that any charge provided for in this Deed of Trust or in the Debt, whether
considered separately or together with other charges levied in connection with
this Deed of Trust and the Debt, violates such law, and the Trustors are
entitled to the benefit of such law, such charge is reduced to the extent
necessary to eliminate such violation. The amounts, if any, previously paid to
the Beneficiary in excess of the amounts payable to the Beneficiary pursuant to
such charges as reduced shall be paid by the Beneficiary to reduce the principal
indebtedness evidenced by the Debt. For the purpose of determining whether any
applicable law limiting the amount of interest or other charges permitted to be
collected from the Trustors have been violated, all indebtedness secured by this
Deed of Trust or evidenced by the Debt and which constitutes interest, as well
as all other charges levied in connection with such indebtedness which
constitute interest, shall be deemed to be allocated and spread over the term
stated in the Debt. Unless otherwise required by applicable law, such allocation
and spreading shall be effected in such a manner that the rate of interest
computed thereby is uniform throughout the term stated in the Debt.
(n) REQUEST FOR NOTICE OF DEFAULT. The undersigned Trustors
-----------------------------
request that in accordance with California Civil Code section 2924b, a copy of
any Notice of Default and any Notice of Sale under this Deed of Trust be mailed
to he/she/them at his/her/their address specified in this Deed of Trust.
10
<PAGE>
(o) SUMS ADVANCED TO BEAR INTEREST AND TO BE ADDED TO DEED OF
---------------------------------------------------------
TRUST. At the Beneficiary's request, the Trustors will immediately pay any sum
- -----
advanced or paid by the Beneficiary or the Trustee under any provision of this
Deed of Trust. Until so repaid, all such sums shall be added, to and become a
part of, the indebtedness secured by this Deed of Trust and bear interest from
the date of advancement of payment by the Beneficiary or the Trustee at the same
rate as such indebtedness, unless payment of interest at such rate would be
contrary to applicable law, in which event such sums shall bear interest at the
highest rate then allowed by applicable law. All sums advanced by the
Beneficiary under the terms of this Deed of Trust shall conclusively be deemed
to be mandatory advances required for the preservation and protection of this
Deed of Trust and the Beneficiary's security for the performance of the
Trustors' obligations under the Debt, and shall be secured by this Deed of Trust
to the same extent and with the same priority as the principal and interest
payable under the Debt.
TRUSTORS:
/S/ Andrew F. Pollet
---------------------------------
ANDREW F. POLLET, CO-TRUSTEE OF THE
ANDREW F. AND SALLY M. POLLET REVOCABLE
TRUST DATED MARCH 6, 1990
/S/ Sally M. Pollet
--------------------------------
SALLY M. POLLET, CO-TRUSTEE OF THE
ANDREW F. AND SALLY M. POLLET REVOCABLE
TRUST DATED MARCH 6, 1990
11
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California
-----------------------------
County of Los Angeles
----------------------------
On August 1, 1997 before me, Mary Ann Parlapiano, Notary Public ,
-------------------- ---------------------------------------------
Date Name and Title of Officer
(e.g., "Jane Doe, Notary Public")
personally appeared Andrew F. Pollet and Sally M. Pollet
------------------------------------------------------------
Name(s) of Signer(s)
[_] personally known to me - OR - [X] proved to me on the basis of satisfactory
evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument
and acknowledged to me that he/she/they
executed the same in his/her/their
authorized capacity(ies), and that by
[SEAL APPEARS HERE] his/her/their signature(s) on the
instrument the person(s), or the entity
upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
/s/ Mary Ann Parlapiano
-----------------------------------------
Signature of Notary Public
- -------------------------------OPTIONAL----------------------------------------
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document.
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document: Deed of Trust
-----------------------------------------------------
Document Date: August 1, 1997 Number of Pages: 11
------------------------------------------ -------
Signer(s) Other Than Named Above: N/A
----------------------------------------------
Capacity(ies) Claimed by Signer(s)
<TABLE>
<S> <C>
Signer's Name: Andrew F. Pollet Signer's Name: Sally M. Pollet
---------------------------------- -------------------------
[_] Individual [_] Individual
[_] Corporate Officer [_] Corporate Officer
[_] Title(s): [_] Title(s):
-------------------------- --------------------------
[_] Partner -- [_] Limited [_] General [_] Partner -- [_] Limited [_] General
[_] Attorney-in-Fact [_] Attorney-in-Fact
[X] Trustee [X] Trustee
[_] Guardian or Conservator RIGHT THUMBPRINT [_] Guardian or Conservator RIGHT THUMBPRINT
[_] Other: OF SIGNER [_] Other: OF SIGNER
------------------- Top of thumb here ------------------- Top of thumb here
- ------------------------------ -----------------------------
Signer is Representing: Signer is Representing:
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.14
PROMISSORY NOTE
---------------
SECURED BY STOCK PLEDGE/SECURITY AGREEMENT
------------------------------------------
$80,001.60 July 3, 1992
Monrovia, California
FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged,
William C. Huddleston ("Maker"), hereby promises to pay to Staar Surgical
Company, a Delaware corporation, or order ("Holder"), at the address designated
on the signature page of this Note, or at such other place as Holder may
designate by written notice to Maker, the principal sum hereinbelow described
("Principal Amount"), together with interest thereon, in the manner and at the
times provided and subject to the terms and conditions described herein.
1. Principal Amount.
The Principal Amount means the sum of Eighty Thousand One Dollars and Sixty
Cents ($80,001.60).
2. Interest.
Interest on the Principal Amount from time-to-time remaining unpaid
shall accrue from the date of this Note at the rate of nine percent (9%) per
annum, compounded annually. Interest shall be computed on the basis of a three
hundred sixty (360) day year and a thirty (30) day month.
3. Payment of Principal and Interest.
Subject to Paragraph 10, the Principal Amount and accrued and unpaid
interest on the Principal Amount and all other indebtedness under this Note
shall be all due and payable on March 29, 1993.
MAKER ACKNOWLEDGES AND AGREES THAT THE ENTIRE PRINCIPAL AMOUNT SHALL BE DUE
AND PAYABLE ON THE LAST PAYMENT DATE OF THIS NOTE, UNLESS MAKER PREPAYS ANY
PORTION OF THE PRINCIPAL AMOUNT PURSUANT TO PARAGRAPH 4 BELOW.
4. Prepayments.
Maker shall have the right to prepay any portion of the Principal Amount
without prepayment penalty or premium or discount.
5. Manner of Payments/Crediting of Payments.
Payments of any amount required hereunder shall be made solely in lawful
money of the United States, without deduction or offset, and shall be credited
first against accrued but unpaid late
<PAGE>
charges, if any, thereafter against accrued but unpaid interest, if any, and
thereafter against the unpaid balance of the Principal Amount.
6. Maker Waivers.
Maker waives notice of acceptance hereof, presentment and demand for
payment, protest and notice of dishonor or default, trial by jury, and the right
to interpose any set-off or counterclaim of any return or description. No delay
or omission on the part of Holder in exercising any rights under this Note or
under any instrument given to secure this Note, on default by Maker, including,
without limitation, Holder's right to accelerate, nor reinstatement of this Note
by Holder after such exercise, shall operate as a waiver of Maker's right to
exercise such right or of any other right under this Note or the instruments
given to secure this Note, for the same default or any other default. Maker
consents to all extensions without notice for any period or periods of time and
to the acceptance of partial payments before or after maturity, and to the
acceptance, release, and substitution of security, all without prejudice to
Holder. The pleading of any statute of limitations as a defense to the
obligations evidenced by this Note is waived by Maker to the fullest extent
permissible by law.
7. Late Charge.
If any payment of the Principal Amount and/or interest thereon shall not be
received by Holder within ten (10) days after the date due, unless excused by
written notice from Holder, a late charge equal to five percent (5%) of the
overdue amount may be charged by Holder for the purpose of defraying expenses
incurred by Holder incident to handling such delinquent payments, provided,
however, Maker shall have given five (5) days prior written notice of such
delinquency. Considering all of the circumstances existing on the date of this
Note, such late charge represents, in the opinion of both Maker and Holder, a
fair and reasonable estimate of the costs that will be sustained by Holder due
to the failure of Maker to make timely payments. The parties further agree that
the amount of actual damages would be costly, inconvenient and extremely
difficult and impractical to prove. Holder's acceptance of any late payment
and/or late charge shall not constitute a waiver of the rights of Holder to (1)
collect any other amounts due under this Note, (2) declare a default under this
Note or any agreement securing payment of this Note, or (3) exercise any of the
other rights and remedies available to Holder.
8. Interest on Delinquent Payments.
Any payment under this Note not paid when due shall bear interest at the
same rate and method as interest is charged on the Principal Amount from the due
date until paid.
<PAGE>
9. Security.
The payment of this Note is secured by a Stock Pledge/Security Agreement
(the "Security Agreement") executed by Maker in favor of Holder of even date
herewith with respect to certain common stock of Staar Surgical Company, a
Delaware corporation, owned by Maker. The Security Agreement contains
provisions for acceleration of the maturity of this Note on the occurrence of
certain described events.
10. Acceleration Upon Default.
At the option of Holder, all or any part of the indebtedness of Maker
hereunder shall immediately become due, and payable, irrespective of any agreed
maturity date, upon the happening of any of the following events of default
("Event of Default"):
(a) If any part of the Principal Amount and/or interest thereon and/or late
charges under this Note are not paid when due, provided, however, Maker shall be
entitled to a grace period of thirty (30) days following written notice of such
event of default to cure said event of default;
(b) Upon the occurrence of any event of default described under the
Security Agreement;
(c) If any of the following events constituting default occurs, provided,
however, that if any such event of default is reasonably susceptible of being
cured, Maker shall be entitled to a grace period of thirty (30) days following
written notice of such event of default to cure such event of default, and
further provided, that if such event of default is of such character as to
reasonably require more than thirty (30) days to cure, Maker has promptly
commenced to cure said event of default within the thirty (30) day period and
uses reasonable diligence thereafter in curing such event of default, the thirty
(30) day period shall be reasonably extended:
(i) If Maker shall breach any non-monetary condition or obligation
imposed on Maker pursuant to the terms of this Note;
(ii) If Maker shall make an assignment for the benefit of creditors;
(iii) If a custodian, trustee, receiver, or agent is appointed or takes
possession of substantially all of the property of Maker;
(iv) If Maker shall be adjudicated bankrupt or insolvent or admit in
writing Maker's inability to
<PAGE>
pay Maker's debts as they become due;
(v) If Maker shall apply for or consent to the appointment of a
custodian, trustee, receiver, intervenor, liquidator or agent of Maker, or
commence any proceeding related to Maker under any bankruptcy or
reorganization statute, or under any arrangement, insolvency, readjustment
of debt, dissolution, or liquidation law of any jurisdiction, whether now
or hereafter in effect;
(vi) If any petition is filed against Maker under the Bankruptcy Code
and either (A) the Bankruptcy Court orders relief against Maker, or (B)
such petition is not dismissed by the Bankruptcy Court within thirty (30)
days of the date of filing; or
(vii) If any attachment, execution, or other writ is levied on
substantially all of the assets of Maker and remains in effect for more
than fifteen (15) days;
11. Collection Costs and Attorneys' Fees.
Maker agrees to pay Holder all costs and expenses, including actual
attorneys' fees, paid or incurred by Holder in connection with the collection or
enforcement of the Note or any instrument securing payment of the Note,
including without limitation, defending the priority of such instrument or
conducting a trustee sale thereunder. In the event any litigation is initiated
concerning the enforcement, interpretation or collection of this Note, (or any
instrument securing payment of this Note), the prevailing party in any
proceeding shall be entitled to receive from the non-prevailing party all costs
and expenses including, without limitation, reasonable attorneys' and other fees
incurred by the prevailing party in connection with such action or proceeding.
12. Notice.
Any notice to either party under this Note shall be given by personal
delivery or by express mail, Federal Express, DHL or similar airborne/overnight
delivery service, or by mailing such notice by first class or certified mail,
return receipt requested, addressed to such party at the address set forth
below, or to such other address as either party from time to time may designate
by written notice to Holder. Notices delivered by overnight delivery service
shall be deemed delivered the next business day following consignment for such
delivery service. Mailed notices shall be deemed delivered and received in
accordance with this provision three (3) days after deposit in the United States
mail.
<PAGE>
13. Usury Compliance.
All agreements between Maker and Holder are expressly limited, so that in
no event or contingency whatsoever, whether by reason of the consideration given
with respect to this Note, the acceleration of maturity of the unpaid Principal
Amount and interest thereon, or otherwise, shall the amount paid or agreed to be
paid to Holder for the use, forbearance, or detention of the indebtedness which
is the subject of this Note exceed the highest lawful rate permissible under the
applicable usury laws. If, under any circumstances whatsoever, Holder shall
ever receive as interest an amount that exceeds the highest lawful rate, the
amount that would be excessive interest shall be applied to the reduction of the
unpaid Principal Amount and/or late charges under this Note and not to the
payment of interest, or, if such excessive interest exceeds the unpaid balance
of the Principal Amount and/or late charges under this Note, such excess shall
be refunded to Maker. This provision shall control every other provision of all
agreements between Maker and Holder.
14. Jurisdiction and Venue.
This Note shall be governed by, interpreted under and construed and
enforced in accordance with the laws of the State of California. Any action to
enforce payment of this Note shall be filed and heard solely in the Municipal or
Superior Court of Los Angeles County, California.
MAKER:
/s/ William C. Huddleston
-------------------------
WILLIAM C. HUDDLESTON
MAKER'S ADDRESS:
6497 Camino Grande
Anaheim, California 92807
HOLDER'S ADDRESS:
STAAR SURGICAL COMPANY
1911 Walker Avenue
Monrovia, California 91016
Attn: Mr. John Wolf
DO NOT DESTROY THIS NOTE; WHEN PAID, THIS NOTE
MUST BE SURRENDERED TO MAKER FOR CANCELLATION
<PAGE>
EXHIBIT 10.15
STOCK PLEDGE/SECURITY AGREEMENT
-------------------------------
This STOCK PLEDGE/SECURITY AGREEMENT (hereinafter "Agreement") is made and
entered into this 3rd day of July, 1992, by and between William C. Huddleston,
an individual ("Pledgor"), Pollet & Associates, a California corporation,
("Pledgeholder") and Staar Surgical Company, a Delaware corporation ("Pledgee")
with reference to the following facts:
RECITALS
--------
WHEREAS, Pledgor has borrowed the sum of Eighty Thousand One Dollars and
Sixty Cents ($80,001.60) from Pledgee pursuant to the terms of a Promissory Note
attached hereto as Exhibit "1" and incorporated herein by this reference
("Note"), and
WHEREAS, Pledgor desires to pledge to Pledgee the interest of Pledgor in
certain common stock, pursuant to the terms of this Agreement, for the purpose
of securing payment of the Note.
THEREFORE, in consideration of mutual covenants and promises contained
herein, and for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties to this Agreement (hereinafter collectively
"parties" and individually "party") agree as follows:
AGREEMENT
---------
1. Pledge of Stock and Proceeds.
-----------------------------
(a) Pledge. As collateral security for the payment and/or performance of
------
all of Pledgor's presently existing or hereinafter arising obligations and
liabilities to Pledgee under the Note, Pledgor hereby pledges, grants and
assigns to Pledgeholder a continuing security interest in the following:
(i) the shares of common stock which are set forth on Exhibit "2" to
this Agreement ("Stock"); and
(ii) the proceeds of the Stock including, without limitation, any and
all dividends, cash, instruments and other property from time-to-time received,
receivable, or otherwise distributed in respect of or in exchange for any of the
Stock ("Proceeds"). (The Stock and the Proceeds shall hereinafter be
collectively referred to as the "Collateral").
(b) Delivery of Stock to Pledgeholder. Pledgor shall deliver to
---------------------------------
Pledgeholder, concurrently with the execution of this Agreement, the
certificate(s) representing the Stock and an Assignment of Corporate Shares in
the form of Exhibit "3" attached
1
<PAGE>
hereto and incorporated herein by this reference ("Stock Assignment"), signed by
Pledgor, in blank, such Stock Assignment to be used by Pledgeholder in
accordance with the terms of this Agreement.
(c) Notification of Payments Under Note. Pledgee agrees to notify
-----------------------------------
Pledgeholder of all amounts collected in accordance with the terms and
conditions of the Note, including final satisfaction of the Note, at which time
Pledgee shall direct Pledgeholder to return the Collateral to Pledgor.
(d) Pledgeholder's Acceptance of Collateral and Appointment as Pledgor's
--------------------------------------------------------------------
Attorney-In-Fact. Pledgeholder hereby agrees to accept the Collateral and
- ----------------
agrees to hold and dispose of the Collateral in accordance with and subject only
to the terms of this Agreement. Pledgor hereby irrevocably appoints
Pledgeholder as Pledgor's attorney-in-fact to arrange for the transfer of the
Collateral and to do and perform all actions that are necessary or appropriate
in order to effect the terms of this Agreement.
(e) Release of Collateral. Pledgeholder shall release the Collateral from
---------------------
this Agreement and return the Collateral to Pledgor upon satisfaction in full of
Pledgor's obligations under the Note.
2. Matters Pertaining to the Collateral.
------------------------------------
(a) Voting and Consensual Rights. Pledgor shall retain the right to
----------------------------
vote the Stock and to exercise any other consensual rights pertaining to the
Stock, provided, however, so long as Pledgor is in "Default" as defined in
Paragraph 3 of this Agreement, Pledgeholder shall vote the Stock and exercise
any consensual rights pertaining to the Stock as directed by Pledgee.
(b) Rights to Dividends and Distributions. So long as Pledgor is not in
-------------------------------------
default and except as expressly limited below, Pledgor shall be entitled to
receive and retain any proceeds. Notwithstanding the foregoing, Pledgeholder,
rather than Pledgor, shall be entitled to collect and receive all of the
following types of proceeds, which shall be added to and shall become a part of
the Collateral:
(i) all proceeds paid or payable other than in cash, and all
instruments and other property distributed in respect of, or in exchange for,
the Stock;
(ii) all proceeds paid or payable with respect to the Stock in
connection with a partial or total liquidation or dissolution of the issuing
corporation or in connection with a reduction of capital, capital surplus or
paid-in surplus of the issuing corporation; and
2
<PAGE>
(iii) all proceeds distributed in redemption of, or in exchange
for, the Stock.
To the extent the foregoing proceeds exceed the amount of Pledgor's
obligations and liabilities under the Note and/or this Agreement, Pledgor shall
be entitled to receive these excess proceeds.
In the event and for so long as Pledgor is in Default, Pledgeholder shall
be paid any proceeds with respect to the Stock; provided, however, Pledgeholder
shall apply such payments against the outstanding balance of the Note.
(c) Stock Adjustments. In the event that, during the term of this
-----------------
Agreement, any stock dividend, reclassification, readjustment, or other change
is declared or made in the capital structure of the issuing corporation, all new
substituted and additional shares or other securities issued with respect to the
Stock by reason of any such change shall be delivered to and held by
Pledgeholder under the terms of this Agreement in the same manner as the Stock.
3. Default.
-------
At the option of Pledgee, and without necessity of presentment for
payment, demand, protest, notice of protest or notice of dishonor or any other
notice except as specifically provided herein, Pledgeholder, at the direction of
Pledgee, may exercise any remedy under this Agreement upon the happening of any
of the following events of default ("Default"):
(a) Default Under The Note. If any act or event of "default" on the
----------------------
part of Pledgor occurs under the Note and is not cured as specifically provided
therein; or
(b) Default Under This Agreement. If Pledgor defaults in the due
----------------------------
performance or observance of any representation or obligation under this
Agreement; provided, however, that if such obligation is monetary, Pledgor shall
be entitled to a grace period of thirty (30) days following notice of such
default to cure said default, and further provided that if such obligation is
nonmonetary and is reasonably susceptible of being cured, Pledgor shall be
entitled to a grace period of thirty (30) days following written notice of
default to cure said default, and further provided that if such nonmonetary
default is of such character as to reasonably require more than thirty (30) days
to cure, Pledgor shall not be in default if Pledgor has diligently commenced to
cure the default within the thirty (30) day period and uses reasonable diligence
thereafter in curing the default.
3
<PAGE>
4. Remedies.
--------
Subject to Paragraph 3 of this Agreement, in the event Pledgor is in
Default, Pledgee shall have the following rights and remedies:
(a) Retention of Collateral by Pledgee. Choose to accept the Collateral
----------------------------------
(but only to the extent of unpaid obligations and liabilities under the Note
and/or this Agreement) after giving notice of such proposal to Pledgor and to
any other person with a security interest in the Collateral, as provided in
Section 9505 of the California Commercial Code, and such acceptance shall fully
--------------------------
discharge the obligation of Pledgor provided neither Pledgor, nor any other
person with a security interest in the Collateral, objects in writing to such
proposal within twenty-one (21) days from receipt of such notice.
(b) Sale of Collateral. Choose to sell the Collateral at a public or
------------------
private sale, in one or more sales or lots, at such price and on such terms as
Pledgee, acting in good faith and in a commercially reasonable manner, may deem
best, and the purchaser of any or all of the Collateral so sold shall thereafter
hold the same absolutely free from any claim, encumbrance or right of any kind
whatsoever. Provided, however, Pledgee shall first give any notice to Pledgor
required by Section 9504 of the California Commercial Code by mailing such
--------------------------
notice, postage prepaid, to Pledgor's address set forth below. Any other
requirement of notice, demand or advertisement for sale is, to the extent
permitted by law, waived by Pledgor. Any sale hereunder may be conducted by any
officer or agent of Pledgee. Any sale of the Collateral conducted in conformity
with reasonable commercial practices of banks, insurance companies or other
financial institutions disposing of property similar to the Collateral shall be
deemed to be commercially reasonable. The proceeds of any such sale shall be
applied in the following order:
(i) Reasonable expenses of retaking, holding, preparing for sale,
selling, and the like and, to the extent provided for in this Agreement and
not prohibited by law, the reasonable attorneys' fees and legal expenses
incurred by Pledgee.
(ii) Satisfaction of the balance of unpaid principal and accrued
but unpaid interest and other amounts due under the Note.
(iii) Satisfaction of any indebtedness secured by any subordinate
security interest in the Collateral if written notice and demand therefore
is received prior to distribution of the proceeds provided, however,
reasonable proof of such interest or interests is
4
<PAGE>
reasonably furnished to Pledgee.
(c) Pledgee's Right to Purchase Collateral. Pledgee may buy the Collateral
--------------------------------------
at a public sale or private sale described above in Subparagraph (b) pursuant to
the conditions specified in Section 9504(3) of the California Commercial Code.
--------------------------
(d) Pledgeholder's Right to Execute Documents. Pledgeholder shall have
-----------------------------------------
the right to execute any document or form, in its name or in the name of
Pledgor, which may be necessary or desirable in connection with the retention or
sale of the Collateral.
(e) Private Placement. In view of the fact that federal and state
-----------------
securities laws may impose certain restrictions on the method by which a sale of
the Collateral may be effected after a Default, and also upon the persons or
entities who may qualify or be eligible to purchase the Collateral, Pledgor
hereby agrees that upon the occurrence of a Default, Pledgee may, from time to
time, if the Collateral is not publicly traded on a nationally recognized stock
exchange and/or is considered a "restricted" security, attempt to sell all or
any part of the Collateral by a private placement, upon commercially reasonable
terms restricting the bidders and prospective purchasers to a limited number who
will represent and agree that they are purchasing for investment for their own
accounts only and not for distribution, and who will otherwise meet state or
federal securities law requirements, including those pertaining to sales made
pursuant to exemptions from registration under the Securities Act of 1933 and/or
registration or qualification under other state or federal securities laws.
5. Pledgor's Representations, Warranties and Covenants.
---------------------------------------------------
Pledgor represents, warrants and covenants to Pledgee as follows:
(a) Upon delivery to Pledgeholder as contemplated hereby, the
Collateral will be free of any security interests, liens, pledges or
encumbrances created by Pledgor (except for the security interest created
hereby), or any claims of third parties of any nature whatsoever, charges,
escrows, options, rights of first refusal, or other agreements, restrictions,
arrangements, commitments or obligations, written or oral, created by Pledgor,
affecting the legal or beneficial ownership of the Collateral.
(b) From and after the date hereof, Pledgor shall not make any
agreements restricting in any manner the transferability of the Collateral or
otherwise affecting the Collateral;
(c) Pledgor shall, at Pledgor's expense, take any steps
5
<PAGE>
necessary to preserve Pledgee's rights in the Collateral against any claims of
third parties; and
(d) Pledgor has made his own arrangements for keeping informed of changes
or potential changes affecting the Collateral (including, without limitation,
rights to convert, rights to subscribe, payment of dividends, reorganization or
other exchanges, tender offers and voting rights), and neither Pledgee nor
Pledgeholder shall have any responsibility or liability for informing Pledgor of
any such changes or potential changes or for taking any action or omitting to
take any action with respect thereto.
6. Matters Pertaining to Pledgeholder.
----------------------------------
(a) Pledgeholder shall not be personally liable for any act it may do or
omit to do under the Agreement while acting in good faith and in the exercise of
its best judgment, and any act done or omitted by Pledgeholder pursuant to the
advice of Pledgeholder's attorney shall be conclusive evidence of such good
faith. Except as expressly provided herein, Pledgeholder is expressly
authorized and directed to disregard any and all notices or warnings given by
any of the parties, or by any other person or corporation, excepting only orders
or process of court, and is hereby expressly authorized to comply with and obey
any and all orders, judgments or decrees of any court. If Pledgeholder obeys or
complies with any such order, judgment or decree of any court, it shall not be
liable to any of the parties or any other person, firm or corporation by reason
of such compliance, notwithstanding that any such order, judgment or decree be
subsequently reversed, modified, annulled, set aside or vacated, or found to
have been entered without jurisdiction.
(b) The parties expressly agree Pledgeholder has the absolute right at
Pledgeholder's election, if Pledgeholder considers it appropriate, to file an
action in interpleader requiring the parties to answer and litigate their claims
and rights among themselves, and Pledgeholder is authorized to deposit with the
clerk of the court all documents and funds held by it pursuant to this
Agreement. In the event such action is filed, the parties jointly and severally
agree to pay all costs, expenses and reasonable attorneys' fees which
Pledgeholder incurs in such interpleader action. Upon filing of such action
Pledgeholder shall thereupon be fully released and discharged from all
obligations to further perform any duties or obligations otherwise imposed by
the terms of this Agreement.
(c) Pledgeholder shall not be bound in any way by any other agreement
between the parties as to which Pledgeholder is not a party, whether or not
Pledgeholder has knowledge thereof, nor by any notice of a claim or demand with
respect to this Agreement or
6
<PAGE>
the Collateral. Pledgeholder shall have no duties or responsibilities except as
expressly set forth in this Agreement. Pledgeholder may rely conclusively on any
certificate, statement, request, waiver, receipt, agreement or other instrument
which Pledgeholder believes to be genuine and to have been signed and presented
by an appropriate person or persons.
(d) The retention and distribution of the Collateral in accordance with the
terms and provisions of this Agreement shall fully and completely release
Pledgeholder from any obligation or liability assumed by Pledgeholder hereunder
as to the Collateral.
(e) Pledgeholder, while in possession of the Collateral prior to or
following the occurrence of an event of Default, as hereinabove provided, and
while acting in accordance with the terms of this Agreement or applicable law,
is not responsible for any fluctuations in value or delays in disposing of the
Collateral.
(f) Pledgeholder shall not be liable in any respect for verifying the
identity, authority or rights of the parties executing or delivering or
purporting to execute and/or deliver this Agreement or any documents or papers
deposited hereunder. Pledgeholder shall not be liable for the loss of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with Pledgeholder.
(g) Notwithstanding anything herein to the contrary, Pledgeholder shall
have no duty with respect to the Collateral other than the duty to use
reasonable care in the custody and preservation of the Collateral if it is in
Pledgeholder's possession. Pledgeholder shall be under no obligation to take
any steps necessary to preserve rights in the Collateral against any other
parties, to sell the Collateral if it threatens to decline in value, or to
exercise any rights represented thereby, including voting or consensual rights;
provided, however, Pledgeholder may, at Pledgeholder's option, do so, and any
and all expenses incurred in connection therewith shall be for the sole account
of Pledgor.
(h) Pledgor and Pledgee agree to and each does hereby indemnify, defend
(with counsel acceptable to Pledgeholder) and hold Pledgeholder harmless against
any and all losses, damages, claims and expenses, including reasonable
attorneys' fees, that may be incurred by Pledgeholder by reason of its
compliance with the terms of this Agreement. If, as a result of any disagreement
between the parties and/or adverse demands and claims being made by any or all
of them upon Pledgeholder, Pledgeholder shall become involved in litigation,
including any interpleader brought by Pledgeholder as provided in this
Agreement, Pledgor and Pledgee each agree that they shall be jointly and
severally liable to Pledgeholder on demand for all costs, expenses and
attorneys' fees that Pledgeholder shall incur and/or be compelled to pay by
reason
7
<PAGE>
of such litigation.
7. Replacement of Pledgeholder.
---------------------------
In the event Pledgeholder is or becomes unwilling or unable to act in
such capacity for any reason, Pledgee shall appoint a successor. Pledgee (but
not Pledgor) shall have the right, after delivery of written notice signed by
Pledgee to Pledgeholder, to terminate Pledgeholder, and to name Pledgeholder's
successor.
8. Miscellaneous.
-------------
(a) It is acknowledged by each party that such party either had
separate and independent advice of counsel or the opportunity to avail himself
or itself of same. This Agreement was prepared by each party in conjunction with
counseling from such party's respective attorney or the opportunity to obtain
such counseling. In light of these facts it is acknowledged that no party shall
be construed to be solely responsible for the drafting of this Agreement, and
therefore any ambiguity shall not be construed against any party as the alleged
draftsman of it. Each party shall pay all costs and expenses incurred or to be
incurred by such party in negotiating and preparing this Agreement and in
performing and complying with all representations, warranties, covenants,
agreements and conditions contained in this Agreement to be performed or
complied with by such party, including legal fees.
(b) Each party agrees, without further consideration, to cooperate and
diligently perform any further acts, deeds and things and to execute and deliver
any documents that may be reasonably necessary to consummate, evidence, confirm
and/or carry out the intent and provisions of this Agreement, all without undue
delay or expense. Pledgor shall reimburse Pledgeholder or Pledgee for any costs
and expenses incurred by Pledgeholder or Pledgee in connection with any breach
or default of Pledgor under this Agreement, including collection efforts,
whether or not suit is commenced or judgement is entered. Such costs shall
include legal fees and costs incurred for collection efforts, negotiation of a
settlement, enforcement of rights, or other use. Furthermore, should any party
institute or should the parties otherwise become a party to any action or
proceeding to enforce or interpret this Agreement, the prevailing party in any
such action or proceeding shall be entitled to receive from the nonprevailing
party all costs and expenses of prosecuting or defending the action or
proceeding. This Agreement and the rights of each party under this Agreement
shall be governed by, interpreted under, and construed and enforced in
accordance with the laws of the State of California. Furthermore, in the event
that litigation between the parties is necessary, such litigation shall be filed
in and heard solely
8
<PAGE>
before the state courts of California with venue exclusively in Los Angeles
County.
(c) The parties expressly acknowledge and agree that this Agreement : (i)
is the final, complete and exclusive statement of the parties' agreement with
respect to the subject matter hereof, (ii) supersedes any prior or
contemporaneous promises, assurances, guarantees, representations,
understandings, conduct, proposals, conditions, commitments, acts, course of
dealing, warranties, interpretations or terms of any kind, oral or written
(collectively "Prior Agreements"), and that any such Prior Agreements are of no
force or effect except as expressly set forth herein, and (iii) may not be
varied, supplemented or contradicted by evidence of such Prior Agreements or by
evidence of subsequent oral agreements. Any agreement hereafter made shall be
ineffective to modify, supplement or discharge the terms of this Agreement, in
whole or in part, unless such agreement is in writing and signed by the party
against whom enforcement of the modification, supplement or discharge is sought.
By execution hereof, the parties specifically disavow any desire or intention to
create a "third party" beneficiary contract, and specifically declare that no
person or entity, save and except for the parties and their permitted
successors, and assigns, shall have any rights hereunder nor any right of
enforcement hereof. No waiver of any breach of any agreement or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof. The remedies of each party under this Agreement are cumulative and
shall not exclude any other remedies to which such party may be lawfully
entitled. If any term or provision of this Agreement or the application thereof
to any person or circumstance shall, to any extent, be determined to be invalid,
illegal or unenforceable, then the remaining part of this Agreement shall
nevertheless not be affected thereby and shall continue in full force and effect
to the fullest extent provided by law. Time is strictly of the essence with
respect to each and every term, condition, obligation and provision hereof.
(d) Pledgor may not delegate his duties under this Agreement, in whole or
in part, without the prior written consent of Pledgee, which consent may be
withheld in Pledgee's sole and arbitrary discretion. Notwithstanding the
preceding sentence, no such delegation shall release Pledgor from any liability
or obligation under this Agreement without the written consent of Pledgee, which
consent may be withheld in Pledgee's sole and arbitrary discretion. Subject to
the foregoing, all of the representations, warranties, covenants, conditions and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of each party and such party's respective heirs, executors,
administrators, legal representatives, successors and/or assigns.
(e) The headings used in this Agreement are for
9
<PAGE>
convenience and reference purposes only, and shall not be used in construing or
interpreting the scope or intent of this Agreement or any provision hereof.
References to this Agreement shall include all amendments or renewals thereof.
As used in this Agreement, each gender shall be deemed to include each other
gender, including neutral genders or genders appropriate for entities, if
applicable, and the singular shall be deemed to include the plural, and vice
versa, as the context requires.
(f) All notices, demands, requests, consents, approvals or other
communications ("Notices") given hereunder shall be in writing, and shall be
given by personal delivery or by express mail, Federal Express, DHL or other
similar form of nationally recognized airborne/overnight delivery service (which
forms of Notice shall be deemed to have been given upon delivery), or by telex
or facsimile transmission (which forms of Notice shall be deemed delivered upon
confirmed transmission), or by mailing in the United States mail by registered
or certified mail, return receipt requested, postage prepaid (which forms of
Notice shall be deemed to have been given upon the third (3rd) business day
following the date mailed). Notices shall be addressed to the appropriate
party(s) as set forth on the signature page of this Agreement, or to such other
address as the receiving party shall have specified most recently by like
Notice, with a copy to the other parties hereto. Any Notice given to the estate
of a party shall be sufficient if addressed to the party as provided in this
Subparagraph.
WHEREFORE, the parties hereto have executed this Agreement as of the date
first set forth above.
PLEDGOR:
/s/ William C. Huddleston
------------------------------------
William C. Huddleston
Address: 6497 Camino Real
Anaheim, California 92807
PLEDGEE:
STAAR SURGICAL COMPANY, a Delaware
Corporation
By: /s/ John R. Wolf
-------------------------------
Title: President
Address: 1911 Walker Avenue
Monrovia, California 91016
SIGNATURES CONTINUED ON NEXT PAGE
10
<PAGE>
PLEDGEHOLDER:
POLLET & ASSOCIATES,
By: /s/ Andrew F. Pollet
-------------------------------
Andrew F. Pollet, Esq.
10850 Wilshire Boulevard
Suite 300
Los Angeles, California 90024
11
<PAGE>
EXHIBIT "1"
PROMISSORY NOTE
SECURED BY STOCK PLEDGE/SECURITY AGREEMENT
------------------------------------------
$80,001.60 July 3, 1992
Monrovia, California
FOR VALUE RECEIVED, the receipt and sufficiency of which is acknowledged,
William C. Huddleston ("Maker"), hereby promises to pay to Staar Surgical
Company, a Delaware corporation, or order ("Holder"), at the address designated
on the signature page of this Note, or at such other place as Holder may
designate by written notice to Maker, the principal sum hereinbelow described
("Principal Amount"), together with interest thereon, in the manner and at the
times provided and subject to the terms and conditions described herein.
1. Principal Amount.
----------------
The Principal Amount means the sum of Eighty Thousand One Dollars and
Sixty Cents ($80,001.60).
2. Interest.
--------
Interest on the Principal Amount from time-to-time remaining unpaid
shall accrue from the date of this Note at the rate of nine percent (9%) per
annum, compounded annually. Interest shall be computed on the basis of a three
hundred sixty (360) day year and a thirty (30) day month.
3. Payment of Principal and Interest.
---------------------------------
Subject to Paragraph 10, the Principal Amount and accrued and unpaid
interest on the Principal Amount and all other indebtedness under this Note
shall be all due and payable on March 29, 1993.
MAKER ACKNOWLEDGES AND AGREES THAT THE ENTIRE PRINCIPAL AMOUNT SHALL BE DUE
AND PAYABLE ON THE LAST PAYMENT DATE OF THIS NOTE, UNLESS MAKER PREPAYS ANY
PORTION OF THE PRINCIPAL AMOUNT PURSUANT TO PARAGRAPH 4 BELOW.
4. Prepayments.
-----------
Maker shall have the right to prepay any portion of the Principal
Amount without prepayment penalty or premium or discount.
12
<PAGE>
5. Manner of Payments/Crediting of Payments.
----------------------------------------
Payments of any amount required hereunder shall be made solely in
lawful money of the United States, without deduction or offset, and shall be
credited first against accrued but unpaid late charges, if any, thereafter
against accrued but unpaid interest, if any, and thereafter against the unpaid
balance of the Principal Amount.
6. Maker Waivers.
-------------
Maker waives notice of acceptance hereof, presentment and demand for
payment, protest and notice of dishonor or default, trial by jury, and the right
to interpose any set-off or counterclaim of any return or description. No delay
or omission on the part of Holder in exercising any rights under this Note or
under any instrument given to secure this Note, on default by Maker, including,
without limitation, Holder's right to accelerate, nor reinstatement of this Note
by Holder after such exercise, shall operate as a waiver of Maker's right to
exercise such right or of any other right under this Note or the instruments
given to secure this Note, for the same default or any other default. Maker
consents to all extensions without notice for any period or periods of time and
to the acceptance of partial payments before or after maturity, and to the
acceptance, release, and substitution of security, all without prejudice to
Holder. The pleading of any statute of limitations as a defense to the
obligations evidenced by this Note is waived by Maker to the fullest extent
permissible by law.
7. Late Charge.
-----------
If any payment of the Principal Amount and/or interest thereon shall
not be received by Holder within ten (10) days after the date due, unless
excused by written notice from Holder, a late charge equal to five percent (5%)
of the overdue amount may be charged by Holder for the purpose of defraying
expenses incurred by Holder incident to handling such delinquent payments,
provided, however, Maker shall have given five (5) days prior written notice of
such delinquency. Considering all of the circumstances existing on the date of
this Note, such late charge represents, in the opinion of both Maker and Holder,
a fair and reasonable estimate of the costs that will be sustained by Holder due
to the failure of Maker to make timely payments. The parties further agree that
the amount of actual damages would be costly, inconvenient and extremely
difficult and impractical to prove. Holder's acceptance of any late payment
and/or late charge shall not constitute a waiver of the rights of Holder to (1)
collect any other amounts due under this Note, (2) declare a default under this
Note or any agreement securing payment of this Note, or (3) exercise any of the
13
<PAGE>
other rights and remedies available to Holder.
8. Interest on Delinquent Payments.
-------------------------------
Any payment under this Note not paid when due shall bear interest at
the same rate and method as interest is charged on the Principal Amount from the
due date until paid.
9. Security.
--------
The payment of this Note is secured by a Stock Pledge/Security
Agreement (the "Security Agreement") executed by Maker in favor of Holder of
even date herewith with respect to certain common stock of Staar Surgical
Company, a Delaware corporation, owned by Maker. The Security Agreement contains
provisions for acceleration of the maturity of this Note on the occurrence of
certain described events.
10. Acceleration Upon Default.
-------------------------
At the option of Holder, all or any part of the indebtedness of Maker
hereunder shall immediately become due, and payable, irrespective of any agreed
maturity date, upon the happening of any of the following events of default
("Event of Default"):
(a) If any part of the Principal Amount and/or interest thereon and/or
late charges under this Note are not paid when due, provided, however, Maker
shall be entitled to a grace period of thirty (30) days following written notice
of such event of default to cure said event of default;
(b) Upon the occurrence of any event of default described under the
Security Agreement;
(c) If any of the following events constituting default occurs,
provided, however, that if any such event of default is reasonably susceptible
of being cured, Maker shall be entitled to a grace period of thirty (30) days
following written notice of such event of default to cure such event of default,
and further provided, that if such event of default is of such character as to
reasonably require more than thirty (30) days to cure, Maker has promptly
commenced to cure said event of default within the thirty (30) day period and
uses reasonable diligence thereafter in curing such event of default, the thirty
(30) day period shall be reasonably extended:
(i) If Maker shall breach any non-monetary condition or
obligation imposed on Maker pursuant to the terms of this Note;
14
<PAGE>
(ii) If Maker shall make an assignment for the benefit of
creditors;
(iii) If a custodian, trustee, receiver, or agent is appointed or
takes possession of substantially all of the property of Maker;
(iv) If Maker shall be adjudicated bankrupt or insolvent or admit
in writing Maker's inability to pay Maker's debts as they become due;
(v) If Maker shall apply for or consent to the appointment of a
custodian, trustee, receiver, intervenor, liquidator or agent of Maker, or
commence any proceeding related to Maker under any bankruptcy or
reorganization statute, or under any arrangement, insolvency, readjustment
of debt, dissolution, or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(vi) If any petition is filed against Maker under the Bankruptcy
Code and either (A) the Bankruptcy Court orders relief against Maker, or (B)
such petition is not dismissed by the Bankruptcy Court within thirty (30)
days of the date of filing; or
(vii) If any attachment, execution, or other writ is levied on
substantially all of the assets of Maker and remains in effect for more than
fifteen (15) days;
11. Collection Costs and Attorneys' Fees.
------------------------------------
Maker agrees to pay Holder all costs and expenses, including actual
attorneys' fees, paid or incurred by Holder in connection with the collection or
enforcement of the Note or any instrument securing payment of the Note,
including without limitation, defending the priority of such instrument or
conducting a trustee sale thereunder. In the event any litigation is initiated
concerning the enforcement, interpretation or collection of this Note, (or any
instrument securing payment of this Note), the prevailing party in any
proceeding shall be entitled to receive from the non-prevailing party all costs
and expenses including, without limitation, reasonable attorneys' and other fees
incurred by the prevailing party in connection with such action or proceeding.
12. Notice.
------
Any notice to either party under this Note shall be given by personal
delivery or by express mail, Federal Express, DHL
15
<PAGE>
or similar airborne/overnight delivery service, or by mailing such notice by
first class or certified mail, return receipt requested, addressed to such party
the address set forth below, or to such other address as either party from time
to time may designate by written notice to Holder. Notices delivered by
overnight delivery service shall be deemed delivered the next business day
following consignment for such delivery service. Mailed notices shall be deemed
delivered and received in accordance with this provision three (3) days after
deposit in the United States mail.
13. Usury Compliance.
----------------
All agreements between Maker and Holder are expressly limited, so that
in no event or contingency whatsoever, whether by reason of the consideration
given with respect to this Note, the acceleration of maturity of the unpaid
Principal Amount and interest thereon, or otherwise, shall the amount paid or
agreed to be paid to Holder for the use, forbearance, or detention of the
indebtedness which is the subject of this Note exceed the highest lawful rate
permissible under the applicable usury laws. If, under any circumstances
whatsoever, Holder shall ever receive as interest an amount that exceeds the
highest lawful rate, the amount that would be excessive interest shall be
applied to the reduction of the unpaid Principal Amount and/or late charges
under this Note and not to the payment of interest, or, if such excessive
interest exceeds the unpaid balance of the Principal Amount and/or late charges
under this Note, such excess shall be refunded to Maker. This provision shall
control every other provision of all agreements between Maker and Holder.
14. Jurisdiction and Venue.
----------------------
This Note shall be governed by, interpreted under and construed and
enforced in accordance with the laws of the State of California. Any action to
enforce payment of this Note shall be filed and heard solely in the Municipal or
Superior Court of Los Angeles County, California.
MAKER:
EXHIBIT ONLY--DO NOT SIGN
-------------------------------------
WILLIAM C. HUDDLESTON
MAKER'S ADDRESS:
6497 Camino Grande
Anaheim, California 92807
16
<PAGE>
HOLDER'S ADDRESS:
STAAR SURGICAL COMPANY
1911 Walker Avenue
Monrovia, California 91016
Attn: Mr. John Wolf
DO NOT DESTROY THIS NOTE; WHEN PAID, THIS NOTE
MUST BE SURRENDERED TO MAKER FOR CANCELLATION
17
<PAGE>
EXHIBIT "2"
PLEDGED STOCK
Sixteen Thousand Six Hundred Sixty-Seven (16,667) post-split shares of the
common stock of Staar Surgical Company represented by certificate number
_____________________ issued to William Huddleston.
18
<PAGE>
EXHIBIT "3"
ASSIGNMENT OF CORPORATE SHARES
(Without Certificate)
FOR VALUE RECEIVED, the undersigned hereby assigns to Pollet & Associates,
as Pledgeholder under that certain Stock Pledge/Security Agreement, sixteen
thousand six hundred sixty-seven (16,667) shares of the common stock of Staar
Surgical Company, a Delaware corporation, represented by certificate number
____________ standing in the undersigned's name on the books of said
corporation, and do hereby instruct and appoint the custodian of that
corporation's stock books to so transfer the said stock on the books of said
corporation.
Dated: __________________ EXHIBIT ONLY - DO NOT SIGN
--------------------------
William C. Huddleston
SIGNATURE GUARANTEE:
_______________________________
19
<PAGE>
EXHIBIT 10.16
[LOGO OF AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION APPEARS
HERE]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
November 9, 1992, is made by and between LINDA LEE BROWN & PHYLLIS AND BAILEY
("Lessor") and STAAR SURGICAL COMPANY, A CALIFORNIA CORPORATION ("Lessee"),
(collectively the "Parties," or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 1941 WALKER AVENUE, MONROVIA, CALIFORNIA located
in the County of LOS ANGELES, State of CALIFORNIA and generally described as
(describe briefly the nature of the property) 30,185 square foot concrete tiltup
building with a four (4) car attached (20 x 40) garage on approximately 48,806
square feet of land. Lot 3 Tract 28379 except for north 65(degrees) thereof.
Twelve (12) parking space excluded for use of Lawrence Laboratory (Exhibit "B")
("Premises"). (See Paragraph 2 for further provisions.)
1.3 Term: Ten (10) years and no months ("Original Term") commencing
January 1, 1993 ("Commencement Date") and ending December 31, 2002 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: November 10, 1992, ("Early Possession Date"). (See
Paragraph 3.2 and 3.3 for further provisions.) (Also see Addendum P1.4.1)
1.5 Base Rent: $12,650.00 per month ("Base Rent"), payable on the first
day of each month commencing January 1, 1993 (See Addendum P's 4.1.1 thru 4.1.6)
(See Paragraph 4 for further provisions.)
[_] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted. (See Addendum P's 4.1.1 thru 4.1.6)
1.6 Base Rent Paid Upon Execution: $12,650.00 as Base Rent for the period
January 1, 1993 through January 31, 1993.
1.7 Security Deposit: $25,000.00 ("Security Deposit"). (See Paragraph 5
for further provisions.)
1.8 Permitted Use: Manufacture & distribution of Medical Devices. (See
Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
NO BROKER INVOLVED represents
[_] Lessor exclusively ("Lessor's Broker"); [_] both Lessor and Lessee, and
_____________________________________________________________________ represents
[_] Lessee exclusively ("Lessee's Broker"); [_] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by __________________________________________________________________
("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 1.4.1 through 11.2 and Exhibits A & B (ADDENDUM P's 1.4.1, 2.3.1,
2.6.1, 2.6.2, 3.1.1, 4.1.1, 4.1.2, 4.1.3, 4.1.4, 4.1.5, 4.1.6, 7.1.B1, 11.1 &
11.2 on Lease & Addendum Pages 1 thru 1 all of which constitute a part of this
Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors. If any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor
written notice of a non-compliance with this warranty within thirty (30) days
after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the Improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth will specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense. (See
Addendum P 2.3.1)
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environment aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as if
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.6 Legal Description. Lot 3 Tract 28379 except the North 65(degrees)
thereof. Approx 233' x 209'. (See Addendum P's 2.6.1 & 2.6.2)
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3. & Addendum P 3.1.1.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
Page 1
<PAGE>
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession if one is
specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case Lessor shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, change or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee. (See Addendum paragaraphs 4.1, 4.1.2, 4.1.3, 4.1.4, 4.15 & 4.1.6)
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner
(at Lessee's sole cost and expense) with all Applicable Law (as defined in
Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraph 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc), 7.2
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs
Initials
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as a result of Lessee's use, any prior use, the elements or the age of such
portion of the Premises), including without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs,sidewalks and parkways located in, on, about, or adjacent to the Premises.
Lessee shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under or about the Premises (including through the plumbing or
sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Leasee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance. (See Addendum Paragraph 7.1.b.1)
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non-structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or thereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of, any
needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, signs, air
lines, power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification, Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against
the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to
Lessor a surety bond satisfactory to Lessor in an amount equal to one and
one-half times the amount of such contested lien claim or demand, indemnifying
Lessor against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease Term Payment shall be made by Lessee to Lessor within
ten (10) days following receipt of an invoice for any amount due. (See Addendum
9.4.1.4)
8.2 Liability Insurance.
(a) Carried by Lessee. Lesses shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of Insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury
and property damage based upon, involving or arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be on an occurrence basis providing single limit coverage in an
amount not less than $1,000,000 per occurrence with an "Additional Insured-
Managers or Lessors of Premises" Endorsement and contain the "Amendment of the
Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile
fire. The policy shall not contain any intra-insured exclusions as between
insured persons or organizations, but shall include coverage for liability
assumed under this Lease as an "insured contract" for the performance of
Lessee's indemnity obligations under this Lease. The limits of said insurance
required by the Lease or as carried by Lessee shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance to be carried by Lessee shall be primary to and not contributory with
any similar insurance carried by Lessor, whose insurance shall be considered
excess insurance only.
(b) Carried By Lessor. In the event Lessor is the insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance--Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and keep
in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lenders(s)"), insuring loss
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or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amount of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located. If such insurance
coverage has a deductible clause, the deductible amount shall not exceed $1,000
per occurrence, and Lessee shall be liable for such deductible amount in the
event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an uninsured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a Lender
having a lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancellable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the
Insuring Party shall fail to procure and maintain the insurance required to be
carried by the Insuring Party under this Paragraph 8, the other Party may, but
shall not be required to, procure and maintain the same, but at Lessee's
expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property
arising our of or incident to the perils required to be insured against
Paragraph 8. The effect of such releases and waivers of the right to recover
damages shall not be limited by the amount of insurance carried or required, or
by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts of coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
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9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or willful
act of Lessee. In the event, however, that the damage or destruction was caused
by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage,
or before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option
during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent of $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve months.
9.8 Termination--Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 8, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand. (See Addendum (P) 4.1.4)
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 Definition of "Real Property Taxes". As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement distinct thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the parties.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10)days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises. (See
Addendum Paragraphs 11.1 & 11.2)
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer, or encumber (collectively, "ASSIGNMENT") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment requiring
Lessor's consent. The transfer, on a cumulative basis, of fifty percent or more
of the voting control of Lessee shall constitute a change in control for this
purpose.
(c) The involvement of Lessee or its assets in any transaction, or series of
transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than fifty percent (50%) of such Net Worth of Lessee
as it was represented to Lessor at the time of the execution by Lessor of this
Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes
of this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be a Default
curable after notice per Paragraph 13.1(c), or a noncurable Breach without the
necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a noncurable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days written notice ("Lessor's Notice), increase the monthly Base Rent to fair
market rental value or one hundred ten percent (110%) of the Base Rent then in
effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall not: (i)
be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) after the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from any
person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the Default or Breach by Lessee of
any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not constitute a
consent to any subsequent assignment or subletting by Lessee or to any
subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under this
Lease, Lessor may proceed directly against Lessee, any Guarantors or any one
else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in writing,
accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c) shall give
Lessor the right (but not the obligation) to require that the Security Deposit
be increased to an amount equal to six (6) times the then monthly Base Rent, and
Lessor may make the actual receipt by Lessor of the amount required to establish
such Security Deposit a condition to Lessor's consent to such transaction.
(h)Lessor, as a condition to giving its consent to any assignment or subletting,
may require that the amount and adjustment structure of the rent payable under
this Lease be adjusted to what is then the market value and/or adjustment
structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in
all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its obligations
under this Lease, Lessor, at its option and without any obligation to do so, may
require any sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of the sublessor under such sublease from the time of the
exercise of said option to the expiration of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents or security deposit paid by
such sublessee to such sublessor or for any other prior Defaults or Breaches of
such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a sublease
shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the Premises
without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to
the sublessee, who shall have the right to cure the Default of Lessee within the
grace period, if any, specified in such notice. The sublessee shall have a right
of reimbursement and offset from and against Lessee for any such Defaults cured
by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted
by Lessor in connection with a Lessee Default or Breach (as hereinafter
defined), $350,000 is a reasonable minimum sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default, and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said Default. A "DEFAULT" is defined as a failure
by the Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "BREACH" is defined
as the occurrence of any one or more of the following Defaults, and, where a
grace period for cure after notice is specified herein, the failure by Lessee to
cure such Default prior to the expiration of the applicable grace period, and
shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or
13:3:
(a) The vacating of the Premises without the intention to reoccupy same, or the
abandonment of the Premises.
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(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent. Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two such grace periods shall constitute both an unlawful detainer and a Breach
of this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall
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have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the building located on the Premises.
No reduction of Base Rent shall occur if the only portion of the Premises taken
is land on which there is no building. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages: provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. BROKER'S FEE. (NOT APPLICABLE --- NO BROKER INVOLVED)
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
lessor and said Brokers, the sum of $_________) for brokerage services rendered
by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor further
agrees that: (a) if Lessee exercises any Option (as defined in Paragraph 39.1)
or any Option subsequently granted which is substantially similar to an Option
granted to Lessee in this Lease, or (b) if Lessee acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this Paragraph 15. Each Broker shall be a third party
beneficiary of the provisions of this Paragraph 15 to the extent of its interest
in any commission arising from this Lease and may enforce that right directly
against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has had
no dealings with any person, firm, broker or finder (other than the Brokers, if
any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency relationships,
including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after written
notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and
deliver to the Requesting Party a statement in writing in form similar to the
then most current "TENANCY STATEMENT" form published by the American Industrial
Real Estate Association, plus such additional information, confirmation and/or
statements as may be reasonably requested by the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the
foregoing, the obligations and/or covenants in this Lease to be performed by the
Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the thirty-
first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing and may
be delivered in person (by hand or by messenger or courier service) or may be
sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent be registered or certified mail, return receipt requested,
shall be deemed given on the date of delivery shown on the receipt card, or if
no delivery date is shown, the postmark thereon. If sent by regular mail the
notice shall be deemed given forty-eight (48) hours after the same is addressed
as required herein and mailed with postage prepaid. Notices delivered by United
States Express Mail or overnight courier that guarantees next day delivery shall
be deemed given twenty-four (24) hours after deliver of the same to the United
States Postal Service or courier, if any notice is transmitted by facsimile
transmission or similar means, the same shall be deemed served or delivered upon
telephone confirmation of receipt of the transmission thereof, provided a copy
is also delivered via delivery or mail. If notice is received on a Sunday or
legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant of condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
of this Lease requiring such consent. Regardless of Lessor's knowledge of a
Default or Breach at the time of accepting rent, the acceptance of rent by
Lessor shall not be a waiver of any preceding Default or Breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent so
accepted. Any payment given Lessor by Lessee may be accepted by Lessor on
account of moneys or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit of
such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
Initials
PAGE 8
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28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT: NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject
and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquires ownership of
the Premises by reason of a foreclosure of a Security Device, and that in the
event of such foreclosure, such new owner shall not: (1) be liable for any act
or omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership, (ii) be subject to any offsets or defenses which
Lessee might have against any prior lessor, or (iii) be bound by prepayment of
more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor
after the execution of this Lease, Lessee's subordination of this Lease shall be
subject to receiving assurance (a "non-disturbance agreement") from the Lender
that Lessee's possession and this Lease, including any options to extend the
term hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the Preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or leasees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the road) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the terminatio of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects; attorneys; engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Leasee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. This failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the
form of the guaranty to be executed by each such Guarantor shall be in the form
most recently published by the American Industrial Real Estate Association, and
each said Guarantor shall have the same obligations as Lessee under this Lease.
Including but not limited to the obligation to provide the Tenancy Statement and
information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any such
Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor: (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor: (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
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<PAGE>
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Defaulis cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option,
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate and
be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee, for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
49. ABANDONMENT. Lessee shall not vacate or abandon the demised premises at any
time during the term of this Lease, and shall not permit the demised premises to
remain unoccupied except as may be necessary during and for the purposes of
making such repairs or restoration necessary under Lease provisions. If Lessee
abandons, vacates, or surrenders said Premises or becomes dispossessed by
process of law or otherwise, any personal property belonging to Lessee and left
on the premises shall, at the option of Lessor, be deemed abandoned by Lessee
and shall forthwith become the property of Lessor.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED. THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS
OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR
THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES: THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Dana Point, California Executed at Houston Texas
on November 9, 1992 on November 9, 1992
by LESSOR: by LESSEE:
LINDA LEE BROWN & PHYLLIS ANN BAILEY STAAR SURGICAL COMPANY
By /s/ Linda Lee Brown By /s/ John R. Wolf
--------------------------------- --------------------------------
Name Printed: LINDA LEE BROWN Name Printed: JOHN R. WOLF
Title: 50% OWNER 805-272-8903 Title: PRESIDENT
By /s/ Phyllis Ann Bailey By /s/ LaMar E. Laster
--------------------------------- --------------------------------
Name Printed: PHYLLIS ANN BAILEY Name Printed: LaMAR E. LASTER
Title: 50% OWNER Title: CHAIRMAN & SECRETARY
Address: 55 A EAST SIERRA MADRE BLVD. Address: 1911 WALKER AVENUE
SIERRA MADRE, CALIFORNIA 91024 MONROVIA, CALIFORNIA 91016
Tel. No. (818) 798-6781 (Office) ( ) Tel. No. (818) 303-7902 Fax No.( )
(818) 355-9284 (Home)
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 345 South Figueroa
Street, Suite M-1, Los Angeles, CA 90071. (213) 687-6777. Fax No. (213) 687-
8616.
<PAGE>
ADDENDUM TO LEASE BY AND BETWEEN LINDA LEE BROWN AND PHYLLIS ANN BAILEY, LESSORS
AND STAAR SURGICAL COMPANY, A CALIFORNIA CORPORATION, LESSEE OF PROPERTY LOCATED
AT 1941 WALKER AVENUE, MONROVIA, CALIFORNIA.
1.4.1 EARLY POSSESSION.
----------------
Lessee shall be given possession of premises on November 10, 1992 and
shall have full use thereof, provided such Lessee occupancy does not
interfere with any premise preparation improvements being made by
Lessor. Lessee shall have electric and water services started as of
November 10, 1992.
2.3.1 CLARIFICATION.
-------------
Improvements were built in full compliance with applicable building
codes, in effect at time of construction, that may have been changed or
modified into the now current Building Code applicable to new
construction.
2.6.1 EXISTING FACILITY DATA.
----------------------
a. Air conditioning & Heating: two (2) each Carrier Model #50DA028
units having twenty-five ton cooling capacity in plant area. Note:
Each unit has a replacement compressor condensor -- one in 1989 and
one in 1990.
Four (4) each Reznor roof suspended heaters 125,000 BTU each ---
plant area.
One (1) each Climatrol 5 ton unit --- office area.
One (1) each Rhem 5 ton unit --- office area.
Two (2) each 9 KW 31,000 BTU electric duct heaters to each 5 ton
A/C unit --- office area .
One (1) each Payne 48/100 YACX207 3 phase four ton cooling capacity
unit with 110,000 BTU Heating --- mezzanine area.
WARRANTY. The above air conditioning equipment will be inspected and
--------
serviced and/or repaired as needed before commencement date of this
lease. Lessor will then warranty that the equipment will be in good
and operable condition and will provide an equipment warranty same
as would be provided by equipment manufacturer for new equipment.
2.6.2 IMPROVEMENTS TO BE MADE BY LESSOR.
---------------------------------
a. Roof. A new 4 ply Glass System roof will be installed prior to
commencement date of this lease.
b. Dock Leveler. A new 7.0' x 9.0' long, 23,000 pound capacity will be
installed.
c. Fencing. Parking lot area will be wrought iron fenced and gated with
non-mechanical gates.
d. Access. Opening or openings, as designated by Lessee, shall be made
to provide access to adjacent building addressed as 1911 Walker
Avenue.
e. Overhead Doors. Present overhead doors will be removed and replaced
by rollup type doors.
f. Employee Entry Doors. Doors will replaced and/or adjusted as needed.
g. Condition. The structure and all equipment will be in good, clean
and operable condition.
2.6.1 EXISTING FACILITY DATA CONTINUED.
--------------------------------
b. Power Service. 800 Amp. 480/277 volt 4 wire service. One (1) each
75 KVA 3 phase 4 wire 480 volt 208/120 (Crettenden) transformer
located at office wall.
PAGE 11
<PAGE>
upgrade the electrical to meet future production requirements.
One (1) 75 KVA 3 phase 240 volt Sierra on North wall.
One (1) each 50 KVA Single Phase 480 240/120 Sierra located
over plant rest rooms.
c. LIGHTING. 225 each INSL 296 HO 277 volt fixtures in plant. Initially
---------
fixtures were rated at 125 footcandle lighting at work bench level.
d. SPECIAL. 1. Building has ordinary hazard fire sprinkler protection. 2.
--------
80 gallon hot water heater with circulating pump to supply fourteen
(14) plant area locations. 3. Fourteen (14) waste water drains in plant
area.
e. PARKING SPACES. 53 Each open area spaces plus four (4) spaces in the
---------------
garage.
3.1.1 LEASE TERM EXTENSION OPTION.
----------------------------
Provided that the lease is still in full force and effect and the
Lessee is not in default in the payment of rent or of any other terms
and conditions of the lease, Lessor grants to Lessee the right and
option to extend the term of the lease for two (2) additional five (5)
year periods commencing the day following the expiration of the
original or any extension of the lease term. Lessee shall have
exercised this option by giving Lessor written notice of election to
extend the term of each lease option at least four (4) months prior to
the expiration of the original term and four months prior to the
expiration of first optioned extension period.
4.1.1 RENTAL ADJUSTMENTS.
-------------------
The base monthly rent shall be adjusted every two (2) years (1/1/95 &
1/1/97 etc.) during the lease term as well as any optioned lease term
extension by the increase, if any, in the Consumer Price Index [all
Urban Consumers Los Angeles--Anaheim-Riverside, Metropolitan Area all
items, herein referred to as 'CPI', 1967 equalling 100, from U.S.
Department of Labor, Bureau of Labor Statistics, Washington, D.C.] over
August 1992 base index figure of 434.1. Each adjustment shall be
effective on January 1 and based on the percentage increase in the CPI
figure for the month of August immediately preceding such adjustment
date over the Base Index Figure.
4.1.2 SUBSTITUTE INDEX.
-----------------
In the event the CPI stipulated herein is discontinued by the
Government then the available Index most nearly the same as the CPI
shall be used to make calculations set forth in 4.1.1 above. If Lessor
and Lessee are unable to agree on the substitute Index prior to the
then rental adjustment date substitute Index shall, on application of
either party, be selected by the chief officer of the San Francisco
office of the Bureau of Labor Statistics or its successor.
4.1.3 FACILITY ALTERATIONS OR ADDITIONS.
----------------------------------
In the event Base Rental Rate is increased by subsequent Addendum
covering alterations or additions to the demised premises by Lessor the
monthly rental established in such Addendum will be used as the Base
Rental Rate for all subsequent adjustments.
4.1.4 INSURANCE AND PROPERTY TAXES.
-----------------------------
It has been agreed that Lessor shall pay and Lessee shall reimburse
Lessor in full for payments of premise insurance premiums and property
taxes as an addition to Base Rent. Failure of Lessee to pay Lessor's
invoices for such within ten (10) days of the due date shall carry the
same consequence as Lessee's failure to pay rent.
PAGE 12
<PAGE>
4.1.5 PAYMENTS.
--------
All payments under this Lease shall be made in full and without offset
or deduction of any kind. In case of a dispute under this Lease Lessee
shall have no right to offset any damages or claims against any
payments due Lessor unless and until Lessee has obtained a judgement
therefore by any court of competent jurisdiction.
4.1.6 TIMELY PAYMENT ASSURANCE.
------------------------
Lessee shall place an amount equal to three (3) months rental in
Certificate of Deposit made in favor of Linda Lee Brown and Phyllis
Ann Bailey with written instructions to disburse monthly rental
payments as due on the first day of each month. The Certificate of
Deposit shall be purchased prior to February 1, 1993 and shall have a
retained value amount of no less than the amount needed for one (1)
monthly rental payment.
7.1.b.1 MAINTENANCE & REPAIR.
--------------------
Building security and fire sprinkler system shall be on a continuous
monitoring hookup with a reputable company to maintain safety
monitoring of premises. 2. A qualified gardener shall provide weekly
service to maintain landscaping in a neat, clean and visually
attractive condition. 3. Lessee shall have the Fire sprinkler System
inspected, tested and Certified by a licensed contractor specializing
in such systems every three (3) years (January 1995 & 1998 etc.) with
copy of certificates to be furnished to Lessor.
11.1 PREMISE VACATION OR ABANDONMENT.
-------------------------------
If Lessee vacates or abandons premises, temporarily or otherwise,
prior to Lease Term expiration date, or prior to termination date,
Lessee shall maintain and pay for continued public utility services
and supply during such period, except any that may be excluded by
Lessor to Lessee in writing.
11.2 SECURITY AND FIRE PROTECTIONS SYSTEMS.
-------------------------------------
Lessee shall also maintain and pay for, all security and fire
protection monitoring systems and services in full force and effect
during any such vacation periods (11.1) and shall provide in writing,
with copy to Lessor, such service providers with Lessor's telephone
number and address for use in case of an alarm.
2.6.2.h ELECTRICAL. Lessor will pay electrician up to $10,000.00 for
----------
electrical distribution and hookups desired by Lessee.
6.2.d UNKNOWN EXISTING CONTAMINATION. Lessor shall hold Lessee harmless for
------------------------------
any past contamination, of any kind, on the premises, including any
existing groundwater contamination on commencement date of this Lease.
PAGE 13
<PAGE>
1941 WALKER AVENUE LEASE
EXHIBIT "A"
================================================================================
[MAP OF TRACT NO 28379 APPEARS HERE]
TRACT N/o/ 28379
M.B. 717 Pgs. 7-8
EXHIBIT "A"
[TI STAMP]
This is not a survey of the land but is compiled for information by the
Title Insurance and Trust Company from data shown by the official records.
<PAGE>
[PLOT PLAN APPEARS HERE]
WALKER AVE.
-----------
TAYLOR STREET PLOT PLAN
------------- =========
1"=20'-0"
EXHIBIT "B"
<PAGE>
EXHIBIT 10.17
INDENTURE OF LEASE
THIS INDENTURE OF LEASE is made at Monrovia , California,
-------------------------
this twentieth day of October, 1983, by and between
--------- ------- -- -----------------------------
Dale E. Turner and Frances R. Turner , as Lessor,
- ------------------------------------------------------------------
and Staar Surgical Company, a California Corporation , as Lessee.
--------------------------------------------------------------
WITNESSETH THAT:
IT IS MUTUALLY UNDERSTOOD AND AGREED by and between the parties hereto that
this lease is made for the term and upon the conditions and agreements
hereinafter expressed, each and all of which parties hereto acknowledge to have
read, and with each and everyone of which the parties hereto agree to comply,
to-wit:
1. PROPERTY OWNERSHIP: Lessors do hereby warrant and covenant that they
hold title to the real property described in Schedule ("A") attached hereto and
that they have full capacity and ability to lease said property to the Lessee,
including the building and improvements now in place or scheduled to erected or
installed on said premises in conformance with the plans and specifications and
plot plan therefor that has been mutually agreed upon by the parties hereto.
2. DEFINITIONS: A. Whenever the words "demised premises", "demised
property", "leased property", "premises", or words of similar import, are used
in this Lease they are intended and shall be construed to mean and include both
the real property and all improvements thereon or provided to be constructed or
installed thereon as described, set forth or provided for in Schedule "A", and
as designated in the plans and specifications for said improvements, unless a
different meaning is clearly required by the context.
B. LEASEHOLD IMPROVEMENTS: Leasehold improvements designation as
used herein shall be construed to mean and include those special improvements
constructed or installed, at Lessor's expense, on demised premises as a part
thereof, at request of Lessee, that are described, set forth or provided for in
Schedule "A" and/or the Lessee and Lessor approved plans and specifications or
modifications thereto agreed to in writing by Lessee and Lessor.
C. LESSEE IMPROVEMENTS: The words "Lessee Improvements" as used
herein shall be construed to mean those improvements installed by either the
Lessor or Lessee, at Lessee request and expense, that remain the property of
Lessee and do not become a part of the demised premises.
D. SCHEDULES, EXHIBITS AND LEASE ADDITIONS: All schedules, exhibits
and lease additions attached hereto or referred to herein hereby are
incorporated herein and made a part hereof.
E. HEAD NOTES: The paragraph head notes are inserted merely for
convenience and are not to be construed as part of this Lease or in any way
affecting it.
F. GENDER: As used herein the neuter gender includes both the
masculine and feminine, and the singular number includes the plural and vice
versa.
3. LEASE CONSIDERATION: The Lessors, for and in consideration of the
payment of the rents and payments in the nature of rent herein reserved and
agreed to be made by the Lessee, and of the performance and observance by the
Lessee of all and singular, the terms, covenants, conditions, provisions and
agreements which are herein contained, and which are to be kept, performed,
observed and fulfilled by the Lessee, and subject to the matters hereinafter set
forth, has demised and leased, and by these presents does demise and lease unto
the Lessee, and the Lessee has hired, and by these presents does hire and take
from the Lessor, for the term hereinafter provided, certain real property
located at 1911 Walker Avenue
---------------------------------------------------------------------
in the City of Monrovia , County of Los Angeles , State of California,
----------------- --------------
and all improvements now located thereon or provided to be constructed thereon,
as particularly described, set forth or provided in Schedule "A" attached
hereto, and in conformance with the plans and specifications and plot plan
therefor, Exhibit "A", that has been mutually agreed to and approved by
endorsement thereon by both parties hereto.
*1. 4. LEASE TERM: The term of this lease shall be sixty-two months,
----------------
commencing on November 1, 1983 and terminating at midnight December 31, 1988,
---------------- -----------------
provided construction or installation of improvements as specified or provided
for herein to be provided by Lessor are substantially completed and ready for
occupancy on commencement date herein stated.
*2. If, however, the demised premises shall not be ready for occupancy by
_________, by reason of any delay or delays caused by a common carrier, or by
order, decree, or judgement of any court or judge thereof, or by any contractor,
or by fire or other casualty, or by reason of strikes, lockouts, acts of God, or
by any other cause or causes beyond the control of Lessor, whether similar or
dissimilar to any of the foregoing, then, and in such event, Lessor shall not be
liable to Lessee for any loss or damage whatsoever occasioned thereby, directly
or indirectly, nor shall this Lease be void or voidable on account of any such
delay, or delays, but in that event there shall be no rental payments until
commencement date has been established as herein provided. The term of this
Lease shall be extended for a period equal to such delay or delays, as might be
occasioned, provided, such resultant commencement date shall not be later than
the date Lessor has substantially finished the constructions and installation of
improvements herein provided for and delivers or offers delivery of possession
of same to Lessee.
*3. 5. RENTAL: The Lessee covenants and agrees to pay the Lessor, as rent
for said premises as described in Schedule "A", the sum of six hundred
-----------
eighty-four thousand and no/100 dollars ($684,000.00), payable in equal monthly
- -------------------------------
installments of eleven thousand four hundred and no/100 ($11,400.00)
---------------------------------------
1
TDE FORM 41960
Revised 7/1/76
* 1. Provisions of Paragraph 4 are extended by Paragraph 1 of First Lease
Addition.
* 2. Provisions of Paragraph 4 are further extended by Paragraph 2 of First
Lease Addition.
* 3. Provisions of Paragraph 5 are extended by Paragraph 3 of First Lease
Addition.
<PAGE>
during each and every month of the term of this Lease commencing on date as
provided in Paragraph Four (4) hereof.
Each installment of rent shall be paid to the Lessors by the Lessee in advance,
on or before the first day of each and every calendar month during the term
-------
hereof. Should the commencement date of this Lease be on a day other than the
first of a calendar month, then the rental for the first month of the term
- -------
hereof shall be prorated so as to make all other payments due on the first of
-------
each month as herein provided.
In addition to the rental payments provided for above, Lessee covenants and
agrees to pay to Lessor, equal monthly payments of no dollars ($ no) during each
-- ----
and every month of the term of this Lease commencing on commencement date and
ending on termination date of the Lease Term as established in Paragraph 4
hereof, for the Leasehold Improvements installed in accordance with provisions
of Schedule A. Lessee and Lessor approved plan and specifications, or at written
request of Lessee.
6. TAXES AND ASSESSMENTS: As additional rent the Lessee agrees to pay to
proper authority or to reimburse Lessor for any such payments made by Lessor, as
the Lessor may designate, promptly as the same become due and payable, all taxes
and general and special assessments levied upon or assessed against the leased
property or any part thereof which are assessed and are, or become, a lien
during the term of this Lease. Unless and until the Lessor gives the Lessee
written notice that it elects to have such payments made by the Lessee direct
the Lessor shall itself first pay all such taxes and assessments and the Lessee
shall, on written notice of the amount of any such payment, reimburse the Lessor
therefor in full within ten (10) days after such notice. If and in the event the
Lessor gives the Lessee written notice that it elects to have such payments made
by the Lessee direct the Lessee shall make all such payments directly to the
proper tax collecting authority prior to delinquency and forthwith thereafter
shall deliver to the Lessor original or duplicate receipts evidencing such
payments. If the Lessee fails to make any such payment within such time, the
Lessor may, at its option, make the same and in such event the Lessee shall, on
demand, repay to the Lessor within ten days the amount so paid by Lessor.
The Lessee shall be entitled to protest or challenge any such tax or
assessment or the validity thereof in the name of the Lessor or otherwise, but
any such action shall be at its own cost and expense and without cost or expense
to the Lessor or the demised premises, and no such action shall be taken or
maintained without first delivering an indemnity agreement from a solvent
licensed surety company in an appropriate sum guaranteeing to hold the Lessor
and the demised premises free and harmless from loss, cost, expense or liability
in connection with or arising out of any such action.
If any special assessment made against the property covered by this Lease
may, at option of the owner of the property, be paid in installments or covered
by bond which is payable in installments, then the Lessee shall be entitled to
require that the assessment be paid in installments or that the bond be issued,
and in such case the Lessee shall be liable only for the payment of such
installments, or the prorate thereof, as become payable during the term of this
Lease.
The first at such taxes and assessments to be paid by the Lessee, either
directly or by reimbursement to Lesser shall be those payable for the fiscal tax
year in which the term of this Lease begins and the last of such tax
and assessments shall be those for the fiscal year in which the term of this
Lease ends; provided however the amount of such payments for the first and last
fiscal years shall be pro-rated to coincide with the beginning and the end of
the term hereof.
The Lessee shall pay and discharge before delinquency any and all taxes
and assessments against property of any kind or nature belonging to Lessee or
placed or kept upon or about the demised premises and agrees to save and hold
the Lessor and the demised premises free and harmless from any liability
therefor or in lien thereof.
7. SECURITY DEPOSIT. As security for the faithful performance of the
terms, conditions and covenants of this Lease, as well as to indemnify the
Lessor for damages, costs, expenses and attorney's fees to which Lessor may be
put by reason of any default by Lessee, Lessee hereby agrees to deposit with the
Lessor the sum of eleven thousand five hundred Dollars, ( $11,500.00 ), at least
------------------------------ ------------
one-half of said sum shall be paid at time of signing this Lease and any balance
of said sum be paid prior to taking of possession of the premises hereby
demised. In the event that Lessee shall be in default at any time prior to
termination hereof, then Lessor may apply the security deposit in payment of its
costs, expenses and attorney's fees in enforcing the terms hereof, and/or in
payment of any damages or loss suffered by Lessor, provided that nothing herein
contained shall be construed to mean that the recovery of damages by Lessor
against Lessee shall be limited to the sum of the Security Deposit. In the event
any portion or all of the Security Deposit is applied as aforesaid, then Lessee
shall within thirty (30) days after notification of such expenditures from said
Security Deposit deposit with Lessor additional sums so that the Security
Deposit in the hands of Lessor shall at all times during the term of the Lease
total eleven thousand five hundred & no/100 Dollars ($11,500.00). Subject to
---------------------------------------- -------------
application of the Security Deposit to the payment of sums due in accordance
with the foregoing provisions, any moneys remaining in the hands of the lessor
as Security Deposit, upon termination of the Lease, shall be refunded to the
Lessee:
8. CONSTRUCTION. Lessor, at his own cost and expense, shall forthwith,
after the delivery of this Lease executed by the parties hereto, begin and with
all reasonable expedition thereafter proceed to erect and install upon the
herein, described premises any required improvements as may be set forth in
Schedule "A" attached hereto and any such improvements shall be erected or
installed in accordance with plans and specifications agreed to and approved by
endorsement thereon by both parties. Said improvements shall conform to the
applicable building codes, laws, ordinances, rules and regulations as attested
to by the local authorized building inspector's initial or signature on building
permit card designating satisfactory completion.
9. RESTRICTIONS AND RESERVATIONS. This Lease is made and accepted and the
demised premises leased subject to conditions, covenants, restrictions,
reservations, easements and rights of way of record, and other is excepted and
reserved unto the Lessor and to its successors and assigns all water, oil, gas
and other hydrocarbons and other minerals in and under said demised property.
2
<PAGE>
10. ACCEPTANCE OF POSSESSION: Lessee covenants and agrees that, prior to
taking possession of the demised premises, it will inspect and examine the
condition of the said demised premises and every part thereof and that such
inspection and examination shall be made within five (5) days from date Lessor
notifies Lessee that the demised premises are ready for occupancy and the Lessee
will take and accept possession and occupancy of demised premises on date of
said inspection, provided facilities are found to be in substantial conformance
with specifications set forth in Schedule "A". Acceptance of possession of the
herein demised premises by Lessee shall constitute an agreement by Lessee with
Lessor that the demised premises are in good and tenantable condition and that
Lessor has complied with each and every obligation on its part to be performed
relating thereto, except Lessor shall and hereby agrees that any incomplete work
or items not in conformance with specifications set forth in Schedule "A", at
time of inspection, will without delay, and with reasonable expedition
thereafter be repaired, completed or otherwise made to conform to said
specifications, and thereafter, unless otherwise expressly provided for herein,
Lessee shall have no claims or demands and shall not assert any claims or
demands of any character based upon or arising out of the condition of the
demised premises, or any alleged failure of the Lessor to provide demised
property in the manner and within the time provided for in this Lease.
If Lessee does not take possession as herein provided, this Lease shall be,
at Lessor's option, terminated by reason of default on the part of the Lessee
and the Security Deposit, herein provided for, will be paid to and forfeited to
the Lessor and in addition Lessee will reimburse Lessor for all expenditures
made by Lessor in providing the Leasehold improvements for Lessee as specified
in Schedule "A" and/or Lessee and Lessor approved plans and specifications or by
written request of Lessee and Lessee shall also repay Lessor for any
expenditures by Lessor for removal of any of said Leasehold Improvements not
deemed to be an asset to the demised premises by the Lessor.
11. RECORDATION: This Lease shall not be recorded but the Lessor and the
Lessee shall, at option of either party, when the construction herein provided
for is completed, and the commencement date hereof has been determined execute a
written memorandum in recordable form, fixing the commencing and termination
dates of this Lease, and include therein Lessee's acceptance of the demised
property and acknowledgement of compliance by Lessor with the provisions of
Paragraph 8 hereof.
12. PERSONAL INJURIES AND PROPERTY DAMAGES: Lessee expressly agrees that
Lessor shall not be liable to Lessee or any other person in privity with Lessee
for any injury or damage to property that may occur on demised premises during
term of this Lease. The Lessee shall and agrees to indemnify and forever save
the Lessor and the demised premises free and harmless from and against (a) any
and all liability, penalties, losses, damages, costs and expenses, causes of
action, claims or judgements arising from or growing out of any injury or
injuries suffered or claimed by any person or persons or any damage or damages
to any property as a result of any accident or other occurrence during the term
of this Lease occasioned by any act or acts or omissions of the Lessee, its
officers, employees, agents, servants, subtenants, concessionaires, licencees,
contractors, invitees or permittees, or arising from or growing out of the
maintenance, occupation, operation, or the use or misuse of the demised premises
by any person or persons, during the term of this Lease, and (b) from and
against all legal costs and charges, including reasonable attorneys' fees,
incurred in and about any of such matters and the defense of any action arising
out of the same or in discharging the demised premises or any part thereof from
any and all liens, charges or judgements which may accrue or be placed thereon
by reason of any claim or claims hereunder.
*4. 13. PUBLIC LIABILITY INSURANCE: The Lessee shall and agrees, at its own cost
and expense, to procure and maintain in force and effect at all times during the
term hereof a policy or policies of public liability insurance issued by an
insurance company or companies approved by Lessor, in which the Lessor shall be
named as the insured or one of the insured covering all of the demised premises
which are the subject of this Lease irrespective of the use and occupancy
thereof, and insuring the Lessor against loss, damage or liability in minimum
amounts of $50,000.00 - Property damage in any one occurrence; $250,000.00 for
death or injury to any one person in any one occurrence $500,000.00 for death or
injury to two or more persons in any one occurrence. The limits of said policy
or policies shall not limit liability of Lessee hereunder.
The Lessee shall and agrees to furnish to the Lessor from time to time, at
its (the Lessee's) option, either a certificate or certificates or the actual
insurance policy or policies of the insurance carrier or carriers, indicating
insurance in compliance with the terms and provisions of this paragraph to be in
full force and effect. In the event the Lessee shall at any time during the term
hereof fail, neglect or refuse to procure, maintain or renew any such insurance
the Lessor may procure or renew such insurance, but shall be under no obligation
so to do, and any premium or premiums incurred or paid by the Lessor therefor
shall be charged against the Lessee, as an item in the nature of rent, and shall
be added to and deemed a part of and paid with the next installment of rental
payable by the Lessee to the Lessor hereunder.
14. FIRE AND COMPREHENSIVE INSURANCE: Lessor or Lessee, at option of Lessor,
shall obtain and keep in effect insurance on the demised premises covering fire
and any peril included in the California standard form of extended coverage, in
the amount of the stipulated replacement value of the demised premises, as
established and agreed with the insurance carrier to be 100% of the cost of
replacement, and also insurance against vandalism, malicious mischief and war
damage, when available. In addition to the other coverage herein stipulated said
insurance shall, in case of damage to or destruction of demised premises,
provide for payment to Lessor of up to twelve (12) monthly rental installment
payments payable by Lessee to Lessor during the time of repair or replacement of
damage to or destruction of demised premises. Any premium or premiums incurred
or paid by the Lessor therefor shall be charged against the Lessee, as an item
in the nature of rent, and shall be added to and deemed a part of and paid with
the next installment of rental payable by the Lessee to the Lessor hereunder.
Should a loss occur the Lessee agrees to promptly endorse to the Lessor any
checks that may be made payable to the Lessee by the insurance company in
payment of such loss.
It is understood and agreed between Lessee and Lessor that it is the
responsibility of Lessee to insure Lessee improvements and that they shall not
be covered by the Fire and Comprehensive insurance Policy covering the demised
premises.
Lessee agrees and shall not use or permit said premises or any part thereof
to be used, nor acts to be done, which will increase existing rate of insurance
upon adjacent property or cause a cancellation of any insurance policy covering
said demised premises or adjacent property or any part thereof, nor shall Lessee
sell or permit to be kept, used or sold in or about said premises any article
which may be prohibited by the standard form of fire
*4. Provisions of Paragraph 13 are modified by Paragraph 4 of First Lease
Addition.
3
<PAGE>
insurance policy. Lessee shall at his sole cost and expense comply with any and
all requirements pertaining to said premises necessary for the maintenance of
fire and extended coverage and public liability insurance, as herein provided.
15. SUBROGATION: Lessor and Lessee each shall procure forthwith after the
execution of this Lease from each of the insurers under appropriate policies of
insurance issued to or carried by Lessor and Lessee, respectively, pertaining to
the demised premises and to Lessee's business to be conducted thereon, a waiver
in writing of subrogation which said insurer might have or thereafter acquire
against Lessor and Lessee, respectively, and shall thereafter forthwith upon
becoming insured or reinsured under any such policy or policies of insurance
procure applicable waivers of subrogation as provided for herein.
16. USAGE: Lessee may use said demised premises for the purpose of
conducting the business of general offices, sales, manufacturing and
-----------------------------------------
distribution of medical devices and any other allied or related line of business
- -------------------------------
permitted in Zone M-1 locations as provided in the ordinances of Monrovia.
--------
Lessee shall and agrees that it will not use demised premises for any illegal or
immoral purposes and that Lessee will keep, maintain and operate the demised
premises in a clean, orderly and business-like condition and manner and in
compliance with the best standards and practices, and in conformity with all
mandates, laws, ordinances and regulations of all judicial, administrative and
governmental bodies having jurisdiction. Lessee shall at all times indemnify and
forever save the Lessor harmless from and against all fines, penalties, loss,
damage, costs, expense, attorney's fees and other charges imposed for or
resulting from any violation by any person or persons, at, in or about the
demised premises, of any mandates, ordinances, regulation and laws of all
judicial, administrative and governmental bodies having jurisdiction thereover.
Lessee shall not use the Leased Premises or any part thereof so as to constitute
a nuisance to or otherwise substantially interfere with owners or occupants of
adjoining or neighboring property or so as to cause cancellation of or prevent
the use of standard form fire insurance policy or insurance covering any peril
included in the California standard form of extended coverage. Lessee may
install or maintain any machinery or apparatus reasonable and necessary for the
purpose of its business, but will use due precaution and available safeguards to
prevent injury to the demised premises. All damage or injury to the demised
premises caused by the use or misuse during the term of this Lease, or in
removal therefrom, shall be repaired and demised premises restored to original
condition by the Lessee at his sole expense, provided Lessee shall not be
required to restore items attributable to fair wear and tear. The parking area
allocated to this building and included as a part of the demised premises shall
not be used for production work, storage or other non-parking uses without the
prior written consent of the Lessor.
17. PUBLIC UTILITY CHARGES: The Lessee shall pay and discharge all
electric, gas, water, telephone, fuel and other public utility charges arising
out of or in any manner connected with the furnishing of services to the
premises herein demised or any part or position thereof and shall hold said
premises and all thereof and the Lessor harmless of and from any and all claims,
demands or liabilities arising out of or in any manner connected with the
failure of the Lessee to pay and discharge any such charge.
*5. 18. REPAIRS AND MAINTENANCE: During the entire term of this Lease the
Lessee shall and agrees to, at its own cost and expense, make any and all proper
or necessary repairs, alterations and replacements to the demised premises and
keep and maintain all of the demised premises and every part thereof clean and
in good order, condition and repair as they shall be upon commencement of the
term hereof, reasonable wear and tear excepted, and in compliance with all
applicable laws and regulations and orders of public authority, whether now in
effect or hereafter adopted or issued; and the Lessor shall not be liable for or
be called upon to make or do any repairs alterations, replacements, painting or
maintenance in or upon the demised premises or any part or portion thereof under
any condition whatsoever except in accordance with the terms and provisions of
Paragraph 20 hereof. Provided, however, that Lessor shall be required to repair
any defects in or to the leased premises which appear, notification of which is
given in writing by Lessee to Lessor, during the first year of the term of said
Lease, and which are due to improper or faulty construction or installation. The
obligation of the Lessee with respect to repairs, alterations, replacements and
maintenance as set forth in this paragraph is intended and understood to and
shall cover and include but not be limited to the following: all plumbing,
heating, cooling, ventilating, lighting, fire-protection and utility
installations, fixtures and apparatus; all roofs, walls and foundations; all
painting, windows and glass; all stairways, doors, shades and shutters; all
locks and hardware; all fences or enclosures; all ground surfacing, walks,
aprons and curbs; and all planting and ornamentation. In the event the Lessee
shall at any time during the term hereof fail, neglect or refuse to make or do
any and all repairs, replacements or maintenance required to be
made or done by it under the terms and provisions of this paragraph the Lessor,
upon ten (10) days written notice and the failure of the Lessee to make or do
required repairs, alterations, replacements or maintenance within such time,
may make or do such repairs, alterations, replacements or maintenance for the
account of the Lessee, but shall be under no obligation so to do, and any costs
and expenses incurred or paid by the Lessor therefor shall be charged against
the Lessee and shall be added to and deemed a part of and paid with the next
installment of rental payable by the Lessee to the Lessor hereunder. The Lessee
hereby waives the provisions of Section 1942 of the Civil Code of the State of
California and any and all other statutes or laws, whether now in force or
hereafter adopted, permitting a tenant to make repairs at the expense or for the
account of the owner or to terminate a lease by reason of the condition of the
premises. Lessee shall not be responsible for repair or replacement of any
structural defects in the demised premises, that may appear, that are due to
improper or faulty construction or installation. Lessee shall be responsible for
the repair or replacement of Lessee improvements, if and when needed.
19. CHANGES, ALTERATIONS AND RESTORATION: Lessee shall have the right to
make, at its own expense, such improvements to the leased premises as it deems
necessary for its own use provided that none will be made affecting the
structural components of the building leased hereby without Lessor's prior
written approval. Title to improvements made at Lessee's expense shall remain in
Lessee until the conclusion or sooner termination of this Lease. Lessee shall
not remove any improvements made by it, except those improvements covered by
prior written removal permission granted by Lessor, and upon the conclusion or
sooner termination of this Lease title to said improvements shall forthwith vest
in Lessor, and Lessee agrees to execute such documents as Lessor may request to
effectuate such vesting. The improvements referred to are all improvements other
than trade fixtures, machinery and equipment installed and used by Lessee in its
business, and shall include, without limiting the generality of the foregoing,
lighting fixtures, lighting, gas, water, power and other conduits, pipes, power
installations, plumbing installations, air condition-
TDE FORM 41960
Revised 7/1/76
5. Provisions of Paragraph 18 are extended by Paragraph 5 of First Lease
Addition.
<PAGE>
ing; heating, sprinkler systems, fencing and partitions, except that such
improvements shall not include portable partitions or other portable
installations.
Signs, trade fixtures, machinery and equipment placed or installed upon or
within the Leased Premises by Lessee shall remain the property of Lessee and may
be removed by Lessee at any time prior to the last day of the term of this
Lease, and all such property shall remain Lessee's personal property, however,
any damage caused to the demised premises by reason of the installation, usage
or removal thereof shall be repaired and paid for by Lessee. Provided, that
should any such trade fixtures, machinery and equipment be left upon the demised
premises by Lessee at the end of the term or prior termination of this Lease,
such property shall be and become Lessor's property, at Lessor's option, if
Lessee has not removed same within five (5) days after notice has been given to
Lessee that such property remains upon the demised premises.
Upon the termination of this Lease Lessee shall restore the Leased premises
to Lessor in the same condition as when Lessee received same, excepting
reasonable wear and tear, damage or destruction for which Lessee is not liable
under provisions of this Lease, and improvements made by Lessee which under the
provision of this Paragraph become the property of Lessor. Provided, however,
that Lessor, in its discretion, may require Lessee to remove any improvements
made by Lessee even though under the terms of this Paragraph such improvements
would otherwise become the property of Lessor. Such restoration shall be
completed by Lessee not later than the last day of the term or sooner
termination of this Lease.
*6. 20. DAMAGE OR DESTRUCTION OF LEASED PREMISES: Should the demised building
or buildings become destroyed or damaged by fire or other insured loss or by
calamity such as earthquake, flood, or similar or dissimilar violent actions of
the elements, or by act of God, war, threats of war, bombing, insurrection,
invasion, falling objects from without the premises, explosions occurring off
the premises without the fault of Lessee or Sublessee and not resulting from the
activities of Lessee or Sublessee, or other calamities of such nature, then:
(a) If the damage be so slight as not to interfere substantially with the
use of said building or buildings by Lessee, Lessor shall repair the same to
substantially the same condition as it was in immediately preceding the damage
with due diligence, and there shall be no abatement of rent. If Lessor does not
commence said repairs within thirty (30) days from the date of notification of
such damage or after such commencement fails to proceed with due diligence to
complete said repairs Lessee may obtain an appropriate reduction in rental for
damaged space in accordance with Paragraph 41 hereof, from said date of such
damage until such repairs have been completed.
(b) If damage is substantial but renders the premises untenantable only in
part and Lessee may nevertheless continue its operation therein, Lessor shall
repair the same to substantially the same condition it was immediately preceding
the damage if such work can be completed within ninety (90) days from the date
of notification of such fire, loss or calamity, and there shall be an abatement
of rent for damaged space, as provided in Paragraph 41 hereof, from said date of
such damage until such repairs have been completed. If Lessor does not commence
said repairs within thirty (30) days from the date of notification of such
damage or after such commencement fails to proceed with due diligence to
complete said repairs Lessee may cancel this Lease on ten (10) days written
notice of intention to do so if said repairs are not commenced or proceeding as
herein provided within said ten (10) days.
(c) If the building or buildings are totally destroyed, Lessor may rebuild
the building or buildings to substantially the condition in which it or they
were immediately preceding the destruction if the work can be commenced within
thirty (30) calendar days of notification of damage and completed within one-
hundred-twenty (120) days after commencement. Within thirty (30) days after such
notification of destruction, Lessor may by written notice to Lessee cancel this
Lease. Lessee may cancel this Lease on ten (10) day written notice if, (1)
within thirty (30) days after such notification of damage to Lessor if Lessor
fails to notify Lessee in writing within said thirty (30) days that Lessor
intends to rebuild and that work can be commenced within thirty (30) calendar
days and completed within one-hundred twenty (120) days from commencement, if
not delayed by causes beyond control of Lessor, or (2) if the rebuilding is not
in fact completed within such period due to the lack of diligence of Lessor. Any
cancellation shall be effective as of the date of destruction. In the event of
rebuilding, rent shall be abated, in accordance with provisions of Paragraph 41
hereof, from the date of destruction to completion of rebuilding, but said
period shall be included as part of the term of this Lease unless it be mutually
agreed by and between Lessee and Lessor that this Lease should be extended by
said period.
(d) In event of loss or damage of Leasehold Improvements through calamity
such as earthquake, flood, Act of God, war, act of war or any other cause not
covered by insurance Lessee hereby agrees to replace or repair all Leasehold
Improvements, at his sole cost and expense, to as good or better condition as
they were just prior to such loss or damage, unless the demised building is
damaged at same time to the extent that the Lease is cancelled as provided for
in this Lease Paragraph 20, in which event the total of all the unpaid monthly
Leasehold Improvement payments, provided for in Paragraph 5 of this Lease, due
Lessor from Lessee for said Leasehold Improvements for each and every unexpired
month of the full term of this Lease, as set forth in Paragraph 4 of this Lease
shall be paid by Lessee to Lessor within thirty (30) days after such loss.
(e) In the event Lease is not cancelled because of damage or destruction,
as provided for in this Lease Paragraph 20, and Lessee desires Lessor to replace
or repair such loss or damage to said Leasehold Improvements, Lessor agrees to
make such repair or replacement at Lessee's expense.
(f) In the event of loss or damage of Leasehold Improvements that are
covered by insurance Lessor hereby agrees to either replace or repair said
Leasehold Improvements with insurance funds without cost to Lessee provided this
Lease is not cancelled as provided for in this Paragraph 20 and Lessee continues
making the monthly Leasehold Improvement payments for in Paragraph 5 of this
Lease. If Lease is cancelled per terms of this Paragraph 20 the insurance funds
received by Lessor for such insured loss will be accepted by Lessor as full
payment of and will relieve Lessee from making any further monthly Leasehold
Improvement payments provided for in Paragraph 5 of this Lease.
(g) In the event of loss or damage of Lessee Improvements, whether insured
or not, Lessee shall have the option of determining whether to replace or repair
or not to replace or repair such Lessee Improvements. Any replacement or repair
of Lessee Improvements shall be at the expense of Lessee.
Any sums payable to Lessor by Lessee for repair, replacement or rebuilding,
as provided for in this Paragraph 20, shall be due and payable in progressive
payments as work is completed for major job and in any event all sums shall be
due and payable ten (10) days after completion of such repair, replacement or
rebuilding.
Lessee shall not be entitled to collect from Lessor any compensation or
damages on account of any inconveni-
5
6. Paragraph 20 provisions are extended by Paragraph 6 of First Lease Addition.
<PAGE>
ence or annoyance of any work of repair or rebuilding or because of any injury,
damage, or destruction of demised premises except that it shall be entitled to a
pro rata reduction in rent payable during such period of repair as herein
provided.
Lessor shall not be entitled to collect from Lessee any compensation or
damages on account of any damages or destruction to demised premises caused by
calamity such as earthquake, flood, or similar violent action of the elements,
war or act of war, or act of God, or covered by fire or extended overage
insurance, however, in the event the damages or destruction were caused directly
or indirectly by the Lessee through the use or misuse of the demised premises
Lessee shall not be entitled to Lease cancellation privileges or rent abatement
as herein provided and shall pay Lessor for all repairs and rebuilding not
covered and paid for by any insurance and in addition Lessee will pay Lessor
reasonable compensation for supervising said repairs or rebuilding. Provided
further that in the event Lessor does repairs or rebuilding as provided for in
subparagraphs (a), (b) and (c) Lessor shall not thereby be deemed to have waived
its right or be estopped to contend that it was not obligated to do so. In the
event Lessor makes such repairs or rebuilding and it be thereafter determined
that said repairs or rebuilding were the obligation of the Lessee then Lessor
shall have the right to reasonable compensation and to reimbursement from Lessee
of expenditures made in such repairs or rebuilding and for any reduction or
abatement of rental taken by Lessee.
21. BANKRUPTCY OR INSOLVENCY OF LESSEE: This Lease and the interest of
Lessee hereunder shall not be subject to garnishment or sale under execution in
any proceeding which may be brought against or by Lessee without the written
consent of Lessor, and this Lease and all rights of Lessee hereunder shall, at
the option of Lessor, cease and terminate upon Lessee, or any person or persons
acting for or against Lessee, filing a petition in bankruptcy which petition
remains undismissed for a period of thirty (30) days, making an assignment for
the benefit of creditors, entering into a composition with creditors, entering
into any reorganization proceeding under the terms of the Bankruptcy Act or
being by any court adjudged bankrupt or insolvent. Not withstanding anything to
the contrary herein provided. Lessor may, at its option, in either or any of
such events, without notice to Lessee or any other person or persons,
immediately re-enter and take possession of the demised premises and terminate
this Lease with or without process of law, such process and or notice being
expressly waived by the Lessee. The option hereby given to Lessor to terminate
may be exercised at any time or stage of any of the contingencies herein noted,
and no delay in exercising the right to terminate shall constitute a waiver or
release of such right. Under such termination all installments of rental earned
to the date of termination and unpaid together with any other sums accrued to
Lessor as herein provided shall at once become due and payable and, in addition
thereto, Lessor shall have all rights provided by the bankruptcy laws relating
to the proof of claims of an anticipatory breach of an executory contract. In no
event shall this Lease or any interest of Lessee therein be considered as an
asset of Lessee in any bankruptcy receivership or other judicial proceeding.
22. LOSS THROUGH CONDEMNATION OR EMINENT DOMAIN: In the event all the
demised premises or more than ten (10) per cent of the floor area of the
building or buildings on the leased premises or more than twenty five (25) per
cent of the demised ground area not occupied by buildings shall be appropriated,
condemned or taken by eminent domain this Lease may, at option of either Lessee
or Lessor, be terminated. In the event this Lease is not terminated in total as
provided in this paragraph and in the event less than ten (10) per cent of the
demised floor area and twenty-five (25) per cent of the demised ground area be
appropriated, condemned or taken by eminent domain this Lease shall terminate
only as to the part appropriated, condemned or taken and the Lessor shall,
without delay, do any remodeling or repairs necessary to put remaining portion
of demised premises in good and operative condition and repair. Any and all
award or compensation arising from such appropriation, condemnation or taking
shall be paid and belong to Lessor except any award for damage or loss of use of
fixtures, Lessee Improvements machinery and equipment of Lessee, which later
award shall belong to Lessee, and there shall be an abatement in rent payable
after the actual taking and during the balance of the term hereof in accordance
with Paragraph 41 hereof.
23. CONVEYANCE OR ENCUMBRANCE OF PREMISES: In the event of a conveyance or
transfer of the fee title to the demised premises or of the Lessor's interest in
this Lease, and of the assumption in writing by the grantee or transferee of the
provisions, covenants and conditions herein contained on the part of the Lessor
to be kept and performed, then and in that event and upon there being delivered
to the Lessee an executed copy of such assumption agreement, the Lessor shall be
relieved and discharged of and from any and all further obligations or liability
thereafter accruing hereunder. This Lease shall be at all times subject and
subordinate to the lien or liens of mortgage or trust deeds now on or that
Lessor may put on demised premises, and to all advances made or hereafter to be
made upon the security thereof as well as any renewals or extensions of the
same. The Lessee agrees at any time during term hereof, and from time to time
upon written request of the Lessor to execute, acknowledge and deliver to the
Lessor a statement in writing certifying that this Lease is in full force and
effect, and if there have been modifications, stating the modifications, and the
dates to which the rent and other charges in the nature of rent have been paid
in advance, if any, and current financial condition of Lessee, it being
intended that any such statements may be relied upon by any prospective
purchaser of, or by the holder or prospective holder of any obligation secured
by any lien upon the fee title to the demised premises. The Lessor agrees that
the Lessee shall have the right at any time to redeem for the Lessor by payment,
any mortgages, or other liens upon the demised property made or suffered by the
Lessor and not agreed herein to be paid by the Lessee, in the event of default
of payment by the Lessor, and to be subrogated in the event of such payment to
the rights of the holder thereof.
Lessor hereby warrants that demised premises are now free and clear of any
lien or mortgage that might negate the terms of this Lease, as long as Lessee is
not in default per terms of this Lease at any time during term of this Lease.
Should Lessor, during the term of this Lease, place a lien or mortgage on said
demised premises proper subrogation provisions shall be included in such lien or
mortgage to protect Lessee's right to lease said demised premises for the term
set forth in Paragraph 4 of this Lease, provided Lessee is not then in default
and continues to fulfill all the obligations of Lessee per terms of this Lease.
24. DEFAULT OF LESSEE: Should default be made and continue for ten (10)
days after written notice from the Lessor specifying such default, either of
vacating or abandonment of premises by Lessee or in the payment of any portion
of the rent, or items in the nature of rent, or other charges, whether similar
or dissimilar thereto, herein provided to be paid by the Lessee as and when the
same come due, or should default be made and continue for thirty (30) days after
written notice from the Lessor specifying such default, in the performance of
any of the other covenants herein contained on the part of the Lessee to be kept
or performed, provided, that if the default complained of
6
<PAGE>
is of such a nature that the same cannot be rectified in such thirty (30) day
period as aforesaid, then such default shall be deemed to be rectified if Lessee
shall have within the said thirty (30) day period commenced and shall diligently
continue to remedy any such default until the same shall have been fully
rectified or performed, the Lessor or its agent or attorney shall have and at
its option may exercise any one or more of the following rights and remedies
each of which shall be cumulative and in addition to all other rights and
remedies authorized by law:
(a) It may, without terminating this Lease, bring and maintain an action
for any amount due and unpaid.
(b) It may re-enter and take possession of the premises, remove all persons
and property therefrom and, at its option, declare this Lease and the leasehold
estate hereby created to be, and thereupon shall be and become, terminated and
ended. In this event such default shall be deemed to be a breach of this Lease
in its entirety and the Lessor, at its option, shall thereupon be entitled to
recover from the Lessee pursuant to the provisions of section 3308 of the Civil
Code of the State of California the worth at the time of such termination of the
excess, if any, of the amount of the rent and charges or items equivalent to or
in the nature of rent reserved in this Lease for the balance of the term hereof
over the rental that can then be obtained for the premises for the same period.
(c) It may re-enter and take possession of the premises and remove all
persons therefrom and, at its option, without declaring this Lease or the
leasehold estate created hereby terminated or ended, may re-let the premises
herein demised or any portion thereof, for the account of the Lessee for such
rent and upon such terms as it may deem proper, or it may operate said property
itself. In this event if a sufficient sum shall not be thus realized, after-
paying the expenses of re-entry, reletting, collecting, or of operating said
property, and all other damages or expenses sustained by Lessor, to satisfy the
rent hereby reserved or items equivalent to or in the nature of rent payable by
the Lessee plus payments that may be herein reserved for leasehold improvements
the Lessee agrees forthwith to satisfy and pay any such deficiency as and when
the same arises and as and when demanded by the Lessor.
In the event of any such reletting, as herein provided, the Lessee agrees
that any and all of its furniture, furnishings, machinery, equipment, trade
fixtures and all Lessee Improvements that are in, on or about the demised
premises may be used by the Lessor or its tenant until the expiration of the
natural term or any earlier termination of this Lease, without payment of or
any liability for rent, compensation or other charge: but if, on the expiration
of the natural term or any earlier termination of this Lease the total net
amount so collected or received by the Lessor from and through any such
reletting has exceeded the total amount accrued and due and unpaid from the
Lessee then such excess shall be paid to the Lessee.
In the event Lessor takes and operates property itself Lessor shall waive
all payment of rent and items in the nature of rent during period of such
operation and shall, each month, credit Lessee with an amount equivalent to
their rental for use of any of its furniture, furnishings, machinery, equipment
and trade fixtures.
In the event of any such reletting by the Lessor, as herein provided, the
Lessor may execute any such lease either in the name of Lessor or in the name of
Lessee, as Lessor may see fit, and the tenant therein named shall be under no
obligation whatsoever to see to the application by the Lessor of any rent
collected by Lessor from such tenant, nor shall Lessee have any right or
authority whatever to collect any rent whatever from such tenant. Such
reletting to another tenant may be for the unexpired term of this Lease, or any
lesser part thereof or for a longer period of time, in which latter event the
period of time in excess of the term of this Lease shall be for the sole account
of Lessor. At Lessor's option this Lease may nevertheless be terminated by
written notice to Lessee prior or subsequent to such reletting. Nothing herein
contained shall be construed as obligating Lessor to re-let or lease the whole
or any part of the leased premises in case of default by Lessee.
Any re-entry or repossession of sid premises by the Lessor, or any notice
served in connection therewith shall not operate to release the Lessee from any
obligation under this Lease, except with the written consent of the Lessor.
In the event of any such re-entry by the Lessor, the Lessor may, at its
option, require the Lessee to remove from the premises any of the Lessee's
property located thereon. If the Lessee fails to do so, within ten (10) days
after written notice to do so, the Lessor shall not be responsible for the care
or safekeeping thereof and may remove any of the same from the demised premises
and place the same in storage in a public warehouse at the cost, expense and
risk of the Lessee with authority to the warehouseman to sell the same in the
event that the Lessee shall fail to pay the costs of transportation and storage
all in accordance with the rules and regulations applicable to the operation of
a public warehouseman's business. Any refusal by a public warehouseman to accept
personal property upon such conditions shall be conclusive evidence that same is
of no substantial value, and shall be an unconditional warrant to the Lessor for
disposing of the same in any manner it sees fit and without accountability for
any alleged value thereof. In any and all such cases of re-entry the Lessor may
make any repairs in, to or upon the demised premises which may be necessary and
the Lessee hereby waives any and all claims on account of any and all damage
which may be caused or occasioned by such re-entry or any of the aforesaid acts
of the Lessor or by reason of any loss or destruction or damage to any property
in or about the demised premises or any part thereof.
In addition to the foregoing rights and remedies the Lessor shall have and
at its option may exercise all other rights and remedies, whether similar or
dissimilar to the foregoing and whether now or hereafter authorized by law or
equity, it being understood that each and all of the rights and remedies
available to the Lessor shall be cumulative and none of them exclusive.
Whenever a right of re-entry is given to the Lessor by the terms of this
Lease, the Lessor may exercise the same by agent or attorney, and with or
without legal process, such process and any demand for possession of said
premises being expressly waived by the Lessee, and the Lessor may use all force
necessary to make such entry and to hold the demised premises after such entry,
and to remove the Lessee and any other person and property from the demised
premises; and the Lessor shall be entitled, on application to a court of
competent jurisdiction, to have a receiver appointed in aid of the enforcement
of any remedy herein provided for.
25. ASSIGNMENT AND SUBLETTING. It is agreed that the Lessee's leasehold
interest in the demised premises shall not, nor shall any part or portion
thereof or any interest therein, be sold, assigned, sublet, transferred or
encumbered, voluntarily, by operation of law or otherwise, without the written
consent of the Lessor first had and obtained; and the Lessee agrees that it will
not attempt to assign, sell, transfer, encumber or hypothecate this Lease or any
part or portion thereof or interest therein without such written consent;
provided however, such restriction shall not apply to the transfer to the
personal representative or distributee of a deceased individual Lessee; and
provided further, the Lessee may, if it is not in default and without release
from liability hereunder, assign this Lease and leasehold estate or any interest
therein or right thereto, to a subsidiary, affiliated, related or successor
corporation, or any corporation with which Lessee may become merged and
consolidated, for any use permitted in this Lease; provided, however, that as
such assignment shall be effective until delivery to the Lessor of a written
instrument or instruments executed by Lessee and such assignee, evidencing such
assignment and such assignee's acceptance thereof and assumption of
7
<PAGE>
all further obligations of the Lessee hereunder.
Any attempt to assign, transfer, encumber or hypothecate the Lessee's
interest or any portion thereof, and any attempt to sublet the demised premises
or any portion thereof, contrary to the terms of this Lease, shall be void and
of no force or effect; provided however, the Lessor shall not and agrees that
it will not arbitrarily withhold its consent to the subletting of the premises
or any part thereof to any subtenant of good character for the purpose of
operating a business that will not be harmful to the premises or out of keeping
with the general character of business conducted in and about the immediate
neighborhood.
Any consent given by the Lessor to the Lessee of any assignment of this
Lease or any interest herein, or to any subletting hereunder, shall not be
construed as a consent to any further or subsequent assignment or subletting or
as a waiver of the right of the Lessor to object to any further or subsequent
assignment or subletting, to which its consent has not been first had and
obtained.
The Lessee, together with all assignees, if the Lessor elects to treat such
assignees as tenants, shall be held and hereby agree to be held jointly and
severally responsible for the payment of rent and the faithful fulfillment of
all the covenants, terms and conditions of this Lease.
26. ENTRY AND RIGHT OF INSPECTION. The right is reserved to Lessor to
enter upon said premises at all reasonable times, and at any time in an
emergency, for the purpose of examination and inspection, and making repairs,
alterations or improvements to the extent permitted herein or exercising any of
the rights under this Lease or for posting notices required by law. Lessor,
however, shall make any repairs, alterations or improvements at such times so as
to inconvenience as little as possible Lessee in the operation of its business.
During the last thirty (30) days of the term of this Lease, Lessor shall have
the right to post or display on said premises such "For Rent" or "For Sale"
signs as Lessor shall deem advisable and also to show said premises to
prospective Lessees or purchasers.
Lessee shall have the right to require Lessor to be escorted by an employee
of Lessee during any entry by Lessor provided for herein.
27. DELIVERY & PREMISE CONDITION ON TERMINATION. Upon the expiration of
the term hereof or upon the cancellation or earlier termination of this Lease by
the Lessor or by operation of law for any cause whatsoever the Lessee shall
deliver and yield up the premises herein demised to the Lessor in as good
condition and repair as the same may be upon commencement of the term hereof,
obsolescence, damage by earthquake or other casualty or act of God and
reasonable wear and tear excepted.
28. WAIVER OF BREACH. No waiver of any rights and/or remedies by the
Lessor of any breach or breaches of any provision, covenant, or condition of
this Lease or provided by law shall be construed to be a waiver of any preceding
or succeeding breach of such provision, covenant or condition or of any other
provision, covenant or condition, and time is of the essence of each and every
provision, covenant and condition herein contained and on the part of either the
Lessor or on the part of the Lessee to be done and performed. Any forebearance
in seeking a remedy for any breach shall not be deemed a waiver of any rights or
remedies with respect to such breach.
29. SIGNS. Lessee agrees not to paint or install, or to allow to be
installed, any sign on the exterior of the said demised buildings, except on the
windows thereof, without the written consent of the Lessor first had and
obtained; except the Lessee is hereby granted permission to erect the usual
trade signs on the exterior of the demised building, on condition that the signs
and designs of the said signs are first submitted for the written approval of
the Lessor, and that the Lessee comply strictly with all applicable ordinances
now in effect or which may hereafter become effective in connection with the
size, style, maintenance and erection thereof provided. Lessee agrees to remove
said signs, repair damage caused by sign installation and removal, and repaint
building exterior as necessary to remove all trace of sign installation upon
termination of this Lease.
30. PROVISIONS OF ENFORCEMENT: This Lease contains all of the conditions,
covenants, stipulations, agreements and provisions agreed upon between the
parties hereto in relation to the demised premises; and this Lease supercedes
and cancels each and every other agreement, promise and/or negotiation between
the parties with reference to the demised premises; and neither party shall be
bound by any inducement, statement, representation promise or agreement not in
conformity herewith.
In the event any suit is brought by either party against the other to
protect its rights hereunder or to enforce any of the terms and provisions of
this Lease, or to collect any sum alleged to be due hereunder, then it is
agreed that the successful party in such suit shall be entitled to attorney's
fees and expenses in a reasonable amount to be fixed by the Court and included
in any judgement rendered in such action if such action is prosecuted to
judgement of a Court; if action is settled without being prosecuted to judgement
the successful party shall be entitled to reasonable attorney's fees and
expenses included in said settlement.
If Lessor is made a party defendant to any litigation with Lessee
concerning the operation of this Lease or the leased premises or the occupancy
thereof by Lessee, then Lessee shall hold harmless lessor from all liability by
reason of said litigation, including reasonable attorney's fees and expenses
incurred by Lessor in any such litigation, whether or not any such litigation is
prosecuted to judgement.
The various rights, options, elections and remedies of the Lessor provided
by law or contained in this Lease shall be construed as cumulative, and no one
of them as exclusive of any of the others or of any right or priority allowed
by law.
It is agreed that this Lease shall be construed pursuant to the laws of
the State of California and that the execution hereof be deemed to have taken
place on the part of all signatories hereto within the County of Los Angeles,
State of California.
31. EXECUTION OF RECORD MAPS. In the event the Lessor subdivides all or
any part of the real property forming a part of the demised premises into a
tract or tracts containing the same, and with or without adjacent property, the
Lessee shall and agrees to, upon the request of the Lessor, join in the
execution of such sub-division or record map or maps as may be prepared in
connection therewith on the condition that no part of the demised premises shall
be dedicated on said sub-division or record map or maps for any public purpose
that will interfere with the use thereof by the Lessee in connection with its
right or occupancy under the terms and provisions hereof.
32. SUCCESSORS AND ASSIGNS. Each of the provisions, covenants and
conditions of this Lease shall, subject to the provisions as to assignment,
extend to and bind and inure to the benefit of, as the case may be, not only the
parties hereto but each and every of the personal representatives, successors
and assigns of the respective parties, and whenever in this Lease a reference to
either of the parties is made such reference shall be deemed to include,
whenever applicable, also a reference to the personal representatives,
successors and assigns of such party the same
<PAGE>
as if every case so expressed; and all of the conditions and covenants contained
in this Lease shall be construed as covenants running with the land. No
modification of this Lease agreed upon with any successor shall release the
Lessee from liability under this Lease.
33. HOLDING OVER. In the event the Lessee holds over or remains in the
possession or occupancy of the demised premises after the expiration of the term
of this Lease by lapse of time without any written Lease of said promises being
made or entered into between the Lessor and the Lessee, such holding over or
continued possession or occupancy shall not be deemed or be held to operate as
any renewal or extension of the term of this Lease and shall, as rent is paid by
Lessee and accepted and acknowledged by Lessor for or during any period of time
the Lessee so holds over or remains in possession or occupancy, only create a
tenancy from month to month at the rental, including items or charges in the
nature of rent, hereinbefore provided for and subject to all applicable terms
and conditions herein provided, and such month to month tenancy may at any time
be terminated by either the Lessor or the Lessee giving to the other thirty (30)
days' written notice of intention to terminate the same.
34. LIENS. Lessee will not permit any mechanics', laborers' or
materialmen's lien to stand against premises for any labor or material furnished
to Lessee or claimed to have been furnished to Lessee or to Lessee's agents'
contractors or sub-lessees, in connection with work of any character performed
or claimed to have been performed on said premises by or at the direction or
sufferance of Lessee, provided, however, that the Lessee shall have the right to
contest the validity or amount of any such lien or claimed lien provided Lessee
shall give to the Lessor reasonable security as may be demanded by the Lessor to
insure payment thereof and prevent any sale, foreclosure or forfeiture of the
premises by reason of such non-payment provided such security need not exceed
one and one-half times the amount of such lien or claimed lien. On final
determination of the lien or claim for lien the Lessee will immediately pay any
judgement rendered plus all costs and charges and shall have the lien released
or judgement satisfied at Lessee's own expense.
35. RIGHT OF TERMINATION. This Lease shall not be terminable for any
reason by either party hereto, except as expressly provided for in this
instrument. Without limiting the generality of the foregoing, damage to or
destruction of any portion or all of the building or buildings and fixtures upon
the Leased Premises by fire, the elements or any other cause whatsoever, whether
or not without fault on the part of the Lessee, shall not terminate this Lease
or entitle the Lessee to surrender the Leased Premises, or entitle the Lessee to
any abatement of or reduction in rent payable by the Lessee hereunder, except as
specifically provided in this Lease, or otherwise affect the respective
obligations of the parties hereto, any present or future law to the contrary
notwithstanding.
36. ARBITRATION. In the event of any dispute between the Lessor and
Lessee concerning any provision of this Lease, such dispute shall be settled by
three (3) disinterested arbitrators, one of whom shall be chosen by each of the
parties hereto and the third by the two so chosen, or any such dispute may be
submitted for arbitration to the American Arbitration Association upon
application of either party hereto. Such arbitration shall be conducted by said
Association under its rules and regulations then prevailing and the
determination of such arbitration shall be final and binding upon both parties
hereto. Only one of the above methods of arbitration shall be used in resolving
any one dispute unless, in the case of submission to the three man arbitration
group, they can not agree on a decision, in which case, if parties hereto are
still in disagreement, the dispute will be submitted to the above mentioned
Association for arbitration. The cost of any such arbitration shall be borne
equally between the parties.
37. QUIET ENJOYMENT. The Lessor covenants that the Lessee, on paying the
rent and all other sums herein reserved, and performing all the other provisions
hereof on the Lessee's part to be performed, shall and may at all times
peaceably and quietly have, hold and enjoy the demised premises for the demised
term, subject to the provisions of this Lease.
38. EXPENDITURES BY LESSOR ON BEHALF OF LESSEE. If the Lessor shall make
any expenditure or incur any liability which the Lessee is required to make or
pay under this Lease, the amount thereof may, at the option of the Lessor, be
added to and be deemed a part of any installment of rent thereafter falling due.
39. PLACE 7 METHOD OF NOTICE AND PAYMENT DELIVERY. Lessor may from time to
time designate some one person, firm or corporation, which may or may not be the
Lessor, to receive notices, rental payments, tenders, documents, etc., which
Lessee is required or permitted to deliver to or serve upon it respectively and
will furnish Lessee the address of such designated receiver at least ten (10)
days prior to effective date thereof. Any notice herein required or permitted to
be given by Lessee to Lessor shall be deemed given if and when properly
addressed and mailed by registered mail, postage prepaid, to Lessor or to
receiver designated by Lessor.
Any notice herein required or permitted to be given by Lessor to Lessee
shall be deemed given if and when delivered or served personally or mailed in a
sealed wrapper, by United States registered mail, postage prepaid, properly
addressed to Lessee at the herein demised premises, whether or not Lessee has
departed from, abandoned or vacated the premises, and any further or additional
notice is hereby waived by Lessee.
Until changed as herein provided, notices, communications and rental
payments from Lessee to the Lessor shall be addressed as follows: D. E. Turner,
-------------
32771 Seven Seas Drive, Laguna Niguel, California 92677.
- -------------------------------------------------------
40. LEASE IN DUPLICATE. For the convenience of the parties hereto, this
Lease has been executed in duplicate, which in all respects are identical. Each
of them shall be deemed complete in itself.
41. RENT ABATEMENT. Should the Lessee be deprived of usage of all or any
part of the demised premises herein provided by reason of demised premises being
appropriated, condemned or taken by eminent domain, destroyed or damaged by fire
or other insured loss or by calamity such as earthquake, flood, tornado, or
similar or dissimilar violent action of the elements, or by the act of God, war,
bombing, insurrection, invasion, or other calamities of such nature, without the
fault of the Lessee and not resulting from the activities of Lessee, Lessee
shall be entitled to abatement or reductions of rental, from date of such
destruction, damage, appropriation, condemnation or taking of demised premises
and for such period of time as such part or portion of demised premises
immediately prior to said loss or usage of building and/or ground area, except
that rental payable for any land herein reserved for future expansion of
building or parking area shall not be included in rental so pro-rated unless
such expansion area is a part of area lost by eminent domain.
Under no circumstances will payments due Lessor from Lessee for any
Leasehold improvements, as may be herein
9
<PAGE>
reserved, be subject to abatement or reduction, nor shall payments of taxes,
assessments and insurance on demised premises, or other charges, whether similar
or dissimilar thereto, herein provided to be paid by the Lessee, be subject to
abatement, reduction or proration, except such as may be allowed or permitted by
the Insurance Company providing Fire and Comprehensive Insurance coverage for
demised property, taxing and/or assessing authority or by provisions of
Paragraph 20 of this Lease.
42. ABANDONMENT OF LEASED PREMISES. Lessee shall not vacate or abandon the
demised premises at any time during the term of this Lease, and shall not permit
the demised premises to remain unoccupied except during and for the purpose of
making such repairs or restoration as may become necessary under the provisions
hereof. If Lessee shall abandon, vacate, or surrender said premises or be
dispossessed by process of law or otherwise, any personal property belonging to
Lessee and left on the premises shall, at the option of the Lessor, be deemed
abandoned by Lessee and shall forthwith become the property of Lessor.
43. LEASE SURRENDER. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work a merger, and shall at
the option of Lessor, terminate all or any existing subleases or subtenancies or
may, at the option of Lessor, operate as an assignment to him of any or all of
such subleases or subtenancies.
44. INTEREST. Any sums payable to Lessor by Lessee, as herein provided,
that are not paid when due shall, at option of Lessor bear interest at the rate
of ten (10) per cent per annum from due date of such payment to date such
payment and accumulated interest is paid to Lessor.
IN WITNESS WHEREOF, the Lessor and the Lessee have executed this instrument the
day and year first above written.
Dale E. Turner & Frances R. Turner Staar Surgical Company
__________________________________ ___________________________________
LESSOR LESSEE
By /s/ Dale E. Turner By /s/ Thomas R. Waggoner
-------------------------------- ----------------------------------
Dale E. Turner Thomas R. Waggoner, President
By /s/ Frances R. Turner By /s/ C. Frederick Reish
-------------------------------- ----------------------------------
Frances R. Turner C. Frederick Reish, Secretary
STATE OF CALIFORNIA }
} SS
COUNTY OF LOS ANGELES }
On Oct. 31 , 1983, before me, the undersigned, a Notary Public in and for
--------------
said County and State, personally appeared Thomas R. Waggoner known to me to be
------------------
the X President and C. Frederick Reish, personally known to me to be the X
--- ------------------ ---
Secretary of Staar Surgical Company, A California Corporation, the Corporation
------------------------------------------------
that executed the within Lease between said Corporation, as Lessee, and Dale E.
-------
Turner & Frances R. Turner, as Lessor, consisting of 13 pages including
- -------------------------- --
Schedule "A", and the First Lease Addition, numbered consecutively from 1 to 15,
--
and known to me to be the persons who executed the within Lease on behalf of the
said Corporation, and acknowledged to me that said Corporation executed the
same.
WITNESS MY HAND AND OFFICIAL SEAL
/s/ Bonnie M. Davis
---------------------------------------
Notary Public in and for said County
(NOTARIAL SEAL) and State
STATE OF CALIFORNIA }
} SS
COUNTY OF LOS ANGELES }
On October 31, 1983, before me, the undersigned, a Notary Public
----------------
in and for said County and State, personally appeared Dale E. Turner
--------------
and Frances R. Turner, personally known to me to be the person (persons) who
- ---------------------
executed the within Lease between Staar Surgical Company, a Calif. Corp.,
---------------------- --------------
Lessee, and Dale E. Turner and Frances R. Turner, Lessor, consisting of 13
------------------------------------ --
pages including Schedule "A", and the First Lease Addition, numbered
consecutively from 1 to 13, and acknowledged to me that he (they) executed the
--
same.
WITNESS MY HAND AND OFFICIAL SEAL
/s/ M. Kathleen Lansing
---------------------------------------
Notary Public in and for said County
(NOTARIAL SEAL) and State
10
<PAGE>
SCHEDULE "A"
Attached to and made a part of Lease made the twentieth day of October,
----------------------------
1983, between Dale E. Turner and Frances R. Turner, Lessor, and Staar Surgical
- ---- ------------------------------------ --------------
Company, a California Corporation, Lessee.
- ---------------------------------
The promises, covenants, agreements, statements, understandings and
declarations made and set forth in this Schedule "A" are intended to and shall
have the same force and effect as if set forth at length in the body of said
Lease.
The real property herein described, together with the improvements thereon
or herein provided to be constructed or installed thereon shall constitute the
total property leased by this Lease.
1. LEGAL DESCRIPTION. All of Lot 2 and the North sixty-five (65') feet
of Lot 3 Tract 28379 of Los Angeles County. Address of demised premises is 1911
Walker Avenue, Monrovia, California 91016.
2. IMPROVEMENTS: The above described real property is improved with a
structure of approximately 36,750 square feet. Building is completely air
conditioned, lighted and fire sprinklered.
3. FACILITY PREPARATION: Lease is accepting demised property in `as is'
condition. Lessor shall, however, provide premise preparations as set forth in
Paragraph 2 of First Lease Addition.
11
<PAGE>
THIS FIRST LEASE ADDITION made in the City of Monrovia, State of
California, as of the twentieth day of October, 1983, to Lease by and between
Dale E. Turner and Frances R. Turner, Lessor, and Staar Surgical Company, A
- ------------------------------------ ----------------------
California Corporation, Lessee, dated the twentieth day of October, 1983,
- ---------------------- --------- -------
becomes a part thereof as though it were incorporated in and included as a part
of the original.
WITNESSETH THAT,
In consideration of the mutual promises, agreements, and covenants
hereinafter contained, the parties hereto further agree as follows:
1. LEASE TERM EXTENSION: The five year two month Lease Term as established
in Paragraph 4 of this Lease may be extended, at option of Lessee, for two
additional five (5) year terms, provided Lessee exercises such option at least
four (4) months prior to then current expiration date established per terms of
provisions of Paragraph 4 and this Paragraph 1 of the First Lease Addition, and
further provided Lessee is then occupying said demised premises and is not then
in default in the performance of any of the provisions of this Lease.
2. FACILITY PREPARATION: Lessee is to accept building and premises in 'as is'
condition and shall make all necessary leasehold improvements at expense of
Lessee. Plans for Lessee proposed leasehold improvements affecting the present
building improvements will be submitted to Lessor for approval prior to
installation. Permission is hereby given by Lessor to Lessee to remove the room
designated as a drying room located near the Northwest corner of the building.
Lessor does not know the condition of and therefore does not warranty the drying
room equipment. Lessor will have the following improvements made at the expense
of Lessor:
1. Install new steel rollup overhead door at North ground level truck
entry.
2. All air conditioning equipment shall be inspected and repaired as
required. Lessor shall warranty said air conditioning equipment for a
period of one hundred and twenty days and will pay in full for any
major equipment replacements that may be required during the first six
months of the Lease Term and one-half of such cost of replacements
during the next six months.* The evaporative water coolers are excluded
from any Lessor warranty or responsibility.
3. Paint exterior of building with color to be selected by Lessee.
4. Paint all mustard colored interior factory walls.
5. Reroof main (original) building and check and repair, if needed, the
balance of the roof system.
Lessor to have all the above work completed without delay.
3. RENTAL PAYMENTS: Rental installments as established in Paragraph 5 of
Lease shall start January 1, 1984. Lessee shall pay Lessor rental for the first
thirty (30) months of any Lease Term Extension, as provided for in Paragraph 1
of this Lease Addition, as determined by the following method: The monthly
rental rate starting January 1, 1989 shall be the monthly rental rate
established in Paragraph 5 of this Lease adjusted to equal the increase, if any,
in the Consumer Price Index, (United States City average, all items, 1967
equaling 100, from the U.S. Department of Labor, Bureau of Labor Statistics,
Washington, D.C.) for the month of August 1988 over that of 300.3 for August
1983. At the end of each thirty (30) month period during Lease Term Extension
(on June 1, 1991, January 1, 1994 and June 1, 1996 based on C.P.I. Index figures
of March 1991, October 1993 and March 1996 respectively) the monthly rental
payable as established by this Paragraph 3 for the first thirty (30) months of
optioned Lease Term Extension, shall be adjusted, from the date of last rental
adjustment, in accordance with provisions of this Paragraph, if any increase
occurs, in the Consumer Price Index during each period as stipulated herein. In
the event the monthly rental rate established in Paragraph 5 of this Lease is
increased during the term of this Lease by a subsequent Lease Addition covering
alteration or additions to demised premises the monthly rental established in
such subsequent Lease Addition will be used as the base rental for determining
the rental for any Lease Term Extension. If said Index is discontinued by the
Government, then the most nearly comparable Index shall be substituted.
* Provided, however, if Lessee engages the services of Mr. Pat McClory in
fulfillment of its obligation under Paragraph 5 of this First Lease
Addition, Lessor shall warrant said air conditioning equipment for a period
of one year and will pay in full for any major equipment replacements that
may be required during the first year of the Lease term.
-12-
<PAGE>
4. PUBLIC LIABILITY INSURANCE: Insurance limits as set forth in Paragraph
13 of Lease shall be increased to $31,000,000.00 for Bodily Injury and Personal
Injury combined for each occurance.
5. REPAIRS AND MAINTENANCE: Lessee agrees to secure and keep in force
an air conditioning equipment service and maintenance contract from a qualified
air conditioning servicing contractor approved by Lessor to perform monthly
service as required or needed on all the air conditioning equipment and shall
have all the air conditioning equipment included as a part of the demised
premises in good and operable condition at expiration or termination of this
Lease. In addition, if air conditioning equipment servicing contractor is not a
qualified water chemist, Lessee shall also secure and keep in for a contract
with a qualified water chemist to service the evaporative water condensor NOTE:
Airmac Heating & Air Conditioning (Mr. Pat McClory), 714-737-2034, is the most
knowledgeable contractor of the air conditioning equipment in this building
having maintained and serviced same for approximately eight years. Quoted
service rate of 3225.00 per month.
6. RESTORATION OR REBUILDING AFTER DAMAGE OR DESTRUCTION: The provisions
of Paragraph 20 of basic Lease are hereby amended by way of addition as follows:
The provision that the starting time or time limitations to effect repairs,
restoration or rebuilding be based on date of notification of such damage, fire,
or other loss or calamity as the starting point is hereby amended to date Lessee
and Lessor and their respective insurance carriers, as their interests may be
affected, have mutually agreed to extent of damage and their respective
liabilities.
7. LAND USE: None of the demised land area not covered with a
building, built or approved by Lessor, shall be used for production work,
storage or other non-vehicle parking uses without the prior written consent of
the Lessor.
8. SUBTENANT: Graphic Installation Services are now occupying
approximately 3000 square feet of the two story section of the demised premises.
Lessor hereby assigns and Lessee hereby accepts assignment of Graphic
Installation Services as a subtenant on a month to month basis under terms and
conditions as set forth in attached letter rental agreement between Lessors and
Graphic Installation Services as Lessee. Graphic Installation Services shall pay
monthly rental of $1200.00 to Lessor for months of November and December.
Starting January 1, 1984 said rental shall be payable to Staar Surgical Company.
IN WITNESS WHEREOF, the Lessor and Lessee have executed this instrument on the
day and year first above written.
Dale E. Turner & Frances R. Turner Staar Surgical Company
- ----------------------------------------- --------------------------------
LESSOR LESSEE
By: /s/ Dale E. Turner By: /s/ Tom Waggoner
-------------------------------------- --------------------------------
Dale E. Turner Thomas R. Waggoner, President
By: /s/ Frances R. Turner By: /s/ Frederick Reish
-------------------------------------- --------------------------------
Frances R. Turner C. Frederick Reish, Secretary
9. Right of First Refusal: If Lessor determines to sell all or any part of the
premises, Lessor shall notify Lessee of the terms on which Lessor will be
willing to sell.
If Lessee, within 15 days after receipt of Lessor's notice, indicates in
writing its agreement to purchase the premises or a part of the premises
on the terms stated in Lessor's notice, Lessor shall sell and convey the
premises or a part of the premises to Lessee on the terms stated in the
notice. If Lessee does not indicate its agreement within 15 days, Lessor
thereafter shall have the right to sell and convey the premises or a part of
the premises to a third party on the same terms stated in the notice. If
Lessor does not sell and convey the premises or a part of the premises
within 90 days, any further transaction shall be deemed a new
determination by Lessor to sell and convey the premises or a part of the
premises and the provisions of this paragraph shall be applicable.
-13-
<PAGE>
LEASE ADDITION
THIS THIRD LEASE ADDITION made in the City of Monrovia, State of California, as
of the second day of January, 1987, to Lease by and between Turner Trust, Dale
E. Turner & Frances R. Turner, Trustees, Lessor, and Staar Surgical Company, A
California Corporation, Lessee, dated the twentieth day of October, 1983,
becomes a part thereof as though it were incorporated in and included as a part
of the original.
WITNESSETH THAT,
In consideration of the mutual promises, agreements, and covenants
hereinafter contained, the parties hereto further agree as follows:
1. CHANGES, ALTERATIONS AND RESTORATION: Lessor hereby grants permission
to Lessee to cut up to a 6' wide by 8' high opening in rear wall of 1911 Walker
Avenue building to provide access to 1900 South Myrtle Avenue building through
opening of same size cut in rear (East) wall of 1900 South Myrtle Avenue
building, provided:
A. Opening is provided with necessary reinforcing to maintain the
structural integrity of wall cut to provide said opening. Such opening
reinforcing shall consist of a complete side and top frame made of T.S. (Tubular
Steel) 5" x 2" x 0.1875 steel tube across the top, secured in place by two (2)
each 5/8" x 6" redheads, and supported on each end by tubes of same size and
secured in place by a minimum of three (3) each 5/8" x 6" redheads in each
support.
B. Opening and space between buildings shall be provided with a water
proof surround of heavy gauge metal or other Lessor approved material.
C. Opening shall be provided with a self closing Fire Underwriters
approved fire door, either sliding or swinging, meeting current applicable code
requirements for exterior wall on property line installation.
D. Lessee shall, at expense of Lessee, close said opening and shall
leave floors and said affected wall in as near pre-opening condition as possible
on or before termination or expiration date of this Lease or usage by Lessee of
premises located at 1900 South Myrtle Avenue, Monrovia.
2. LEASE PROVISIONS: All the terms and provisions set forth in the basic
Lease as extended, amended or clarified by the First and Second Lease Additions
shall remain in full force and effect except such terms and provisions that have
been specifically amended, extended or clarified by this Third Lease Addition.
IN WITNESS WHEREOF, the Lessor and Lessee have executed this instrument on the
day and year first above written.
TURNER TRUST STAAR SURGICAL COMPANY
- ------------------------------------ ----------------------------------
LESSOR LESSEE
By: /s/ Dale E. Turner, Trustee By: /s/ Thomas R. Waggoner
-------------------------------- -----------------------------
Dale E. Turner, Trustee Thomas R. Waggoner, President
By: /s/ Frances R. Turner, Trustee By: /s/ Donald Hardy
-------------------------------- ------------------------------
Frances R. Turner, Trustee Donald Hardy, Vice President
-15-
<PAGE>
LEASE ADDITION
THIS FOURTH LEASE ADDITION made in the City of Monrovia, State of
California, as of the first day of October, 1988, to Lease by and between Turner
Trust, Dale E. Turner & Frances R. Turner, Trustees, Lessor, and Staar Surgical
Company, A California Corporation, Lessee, dated the twentieth day of October,
1988, becomes a part thereof as though it were incorporated in and included as a
part of the original.
WITNESSETH THAT,
IN CONSIDERATION OF THE MUTUAL PROMISES, AGREEMENTS, AND COVENANTS
HEREINAFTER CONTAINED, THE PARTIES HERETO FURTHER AGREE AS FOLLOWS:
1. LEASE TERM: The provisions of Paragraph 4 of Lease as extended by
Paragraph 1 of First Lease Addition are further amended as follows: The Lease
Term is hereby extended five (5) years to new termination date of December 31,
1993.
2. RENTAL: The provisions of Paragraph 5 of Lease as extended by Paragraph
3 of First Lease Addition as hereby amended by way of addition as follows: The
monthly rental rate starting January 1, 1989 shall be thirteen thousand five
hundred thirty-five and no/100 dollars ($13,535.00) increasing the total rental
payable under terms of this Lease by eight hundred twelve thousand one hundred
and no/100 dollars ($812,100.00), from six hundred eighty-four thousand and
no/100 dollars ($684,000.00) to one million four hundred ninety-six thousand one
hundred and no/100 dollars ($1,496,100.00) subject to further adjustment June 1,
1991 and thereafter as provided for in Paragraph 3 of First Lease addition.
3. RENTAL ADJUSTMENT IN CASE OF LEASE ASSIGNMENT OR SUBLETTING: Provisions
of Paragraph 25 of basic Lease are extended as follows: Lessor shall, in the
event Lessee in conformance with provisions of Paragraph 25 of Lease, makes an
assignment or subleases demised premises have the additional option of further
adjusting the rental rate being paid by Lessee at time of such assignment or
subletting to increase monthly rental to the then current fair market rental
rate. Fair market rate to be determined by mutual agreement between Lessee and
Lessor based on local leasing rates for comparable property located in the local
and adjacent areas supplied by reputable industrial leasing brokers active in
the local and adjacent areas. In the event agreement can not be reached between
Lessee and Lessor arbitration shall be had in accordance with applicable rules
of the American Arbitration Association which are in effect at the time the
demand for arbitration is filed.
4. BANKRUPTCY OR INSOLVENCY OF LESSEE: The provisions of Paragraph 21 of
Lease are modified as follows: In the event any petition in bankruptcy remains
undismissed for a period of thirty (30) days through no fault of Lessee such
period can be extended up to sixty (60) days provided due diligence has been and
continues to be exercised to effect such dismissal.
5. SECURITY DEPOSIT APPLICATION: Provisions of Paragraph 7 of basic Lease
are further extended as follows: The Security deposit is to be applied as set
forth in Paragraph 7 of Lease and shall not be used by Lessee toward payment of
the last, or any other, months rental due Lessor. Lessor shall refund to Lessee,
in accordance with terms of said Paragraph 7 of Lease, the then balance of the
Security Deposit upon termination of this Lease.
6. CONTAMINATION AND HAZARDOUS WASTE: Provisions of Paragraph 16 of basic
Lease are extended as follows: Lessee shall not use any hazardous substances or
substances that can generate contamination or hazardous waste without first
obtaining a permit from the proper authority controlling use of such substance
under California Health and Safety Codes. Lessee, in any event, shall conform to
and comply with applicable California Health and Safety Codes in the cleanup and
disposal of any contamination and/or hazardous waste that Lessee might generate
on or near demised property during the lease term provided for herein, or any
extension thereof.
-16-
<PAGE>
7. LEASE PROVISIONS: All terms and provisions set forth in the basic
Lease as extended, amended or clarified by the First, Second, and Third Lease
Additions shall remain in full force and effect except such terms and provisions
that have been specifically amended, extended or clarified by this Fourth Lease
Addition.
IN WITNESS WHEREOF, the Lessor and the Lessee have executed this instrument
effective the day and year first above written.
TURNER TRUST STARR SURGICAL COMPANY
- ------------------------------- ------------------------------
LESSOR LESSEE
By: /S/ Dale E. Turner By: /S/ Tom Waggoner
---------------------------- ------------------------------
Dale E. Turner, Trustee Thomas R. Waggoner, President
By: /S/ Frances R. Turner By: /S/ LaMar Laster
---------------------------- ------------------------------
Frances R. Turner, Trustee LaMar F. Laster, Secretary
<PAGE>
LEASE ADDITION
THIS FIFTH LEASE ADDITION made in the City of Monrovia, State of
------- ----------------
California, as of the ninth day of November, 1992, to Lease by and between
------- --------- ----
Turner Trust, Dale E. Turner & Frances R. Turner, Trustees, Lessor, and
- ----------------------------------------------------------
Staar Surgical Company, A California Corporation, Lessee, dated the twentieth
- ------------------------------------------------ ----------
day of October, 1983 , becomes a part thereof as though it were incorporated
-------- ----
and included as a part of the original.
WITNESSETH THAT,
In consideration of the mutual promises, agreements, and covenants
hereinafter contained, the parties hereto further agree as follows:
1. LEASE TERM: The provisions of Paragraph 4 of Lease as amended and extended
by Paragraphs 1 of the First and Fourth Lease Addition are further amended and
extended as follows: The Lease Term is hereby extended for ten (10) years to a
new termination date of December 31, 2003.
2. FACILITY IMPROVEMENTS: Lessor shall pay up to thirty-five thousand dollars
($35,000.00) for facility improvements desired by Lessee.
3. ACCESS TO 1941 WALKER AVENUE BUILDING: Lessor shall provide a 6' x 8'
access opening in South wall of 1911 Walker building and in the North wall of
1941 Walker building to provide access to 1941 Walker for personnel and
equipment. Plus an additional 3' x 6'8" personnel access doorway, if desired by
Lessee and is structurally practical in location desired.
4. LEASE PROVISIONS: All the terms and provisions set forth in the basic
Lease as extended, amended and clarified by the First, Second, Third and Fourth
Lease Additions shall remain in full force and effect except such terms and
provisions that have been specifically amended, extended or clarified by this
Fifth Lease Addition.
IN WITNESS WHEREOF, the Lessor and Lessee have executed this instrument on the
day and year first above written.
TURNER TRUST STAAR SURGICAL COMPANY
- ----------------------------- ----------------------------------------
LESSOR LESSEE
By: /s/ Dale E. Turner By: /s/ John R. Wolf
-------------------------- ---------------------------------------
Dale E. Turner, Trustee John R. Wolf, President
By: /s/ Frances R. Turner By: /s/ LaMar Laster
-------------------------- ---------------------------------------
Frances R. Turner, Trustee LaMar Laster, Chairman and Secretary
<PAGE>
EXHIBIT 10.21
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$10,000,000.00 El Monte, California
June 1, 1997
FOR VALUE RECEIVED, the undersigned STAAR SURGICAL COMPANY ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank")
at its office at Flair Industrial Park RCBO, 9000 Flair Drive Suite 100, El
Monte, CA 91731, or at such other place as the holder hereof may designate, in
lawful money of the United States of America and in immediately available funds,
the principal sum of $10,000,000.00, or so much thereof as may be advanced and
be outstanding, with interest thereon, to be computed on each advance from the
date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other day
on which commercial banks in California are authorized or required by law to
close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for 1, 2, 3, or 6 months, as designated by Borrower, during which all
or a portion of the outstanding principal balance of this Note bears interest
determined in relation to LIBOR; provided however, that no Fixed Rate Term may
be selected for a principal amount less than $500,000.00; and provided further,
that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof.
If any Fixed Rate Term would end on a day which is not a Business Day, then such
Fixed Rate Term shall be extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage equal
to 100% less any LIBOR Reserve Percentage.
(i) "Base LIBOR" means the rate per annum for United States dollar deposits
quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding
that such rate is quoted by Bank for the purpose of calculating effective rates
of interest for loans making reference thereto, on the first day of a Fixed Rate
Term for delivery of funds on said date for a period of time approximately equal
to the number of days in such Fixed Rate Term and in an amount approximately
equal to the principal amount to which such Fixed Rate Term applies. Borrower
understands and agrees that Bank may base its quotation of the Inter-Bank Market
Offered Rate upon such offers or other market indicators of the Inter-Bank
Market as Bank in its discretion deems appropriate including, but not limited
to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of Interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
--------
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum .25000% below the Prime Rate in effect from
time to time, or (ii) at a fixed rate per annum determined by Bank to be
1.75000% above LIBOR in effect on the first day of the applicable Fixed Rate
Term. When interest is determined in relation to the Prime Rate, each change in
the rate of interest hereunder shall become effective on the date each Prime
Rate change is announced within Bank. With respect to each LIBOR selection
option selected hereunder, Bank is hereby authorized to note the date, principal
amount, interest rate and Fixed Rate Term applicable thereto and any payments
made thereon on Bank's books and records (either manually or by electronic
entry) and/or on any schedule attached to this Note, which notations shall be
prima facie evidence of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of this Note
----------------------------------
bears Interest determined in relation to LIBOR, it may be continued by Borrower
at the end of the Fixed Rate Term applicable thereto so that all or a portion
thereof bears interest determined in relation to the Prime Rate or to LIBOR for
a new Fixed Rate Term designated by Borrower. At any time any portion of this
Note bears interest determined in relation to the Prime Rate, Borrower may
convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
Interest rate option selected by Borrower, (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone so long as, with respect to
each LIBOR selection,
<PAGE>
(A) Bank receives written confirmation from Borrower not later than 3 Business
Days after such telephone notice is given, and (B) such option requested
hereunder. Bank will quote the applicable fixed rate to Borrower at
approximately 10:00 a.m., California time, on the first day of the Fixed Rate
Term. If Borrower does not immediately accept the rate quoted by Bank, any
subsequent acceptance by Borrower shall be subject to a redetermination by Bank
of the applicable fixed rate: provided however, that if Borrower fails to accept
any such rate by 11:00 a.m., California time, on the Business Day such quotation
is given, then the quoted rated shall expire and Bank shall have no obligation
to permit a LIBOR option to be selected on such day. If no specific designation
of interest is made at the time any advance is requested hereunder or at the end
of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate
interest selection for such advance or the principal amount to such Fixed Rate
Term applied.
(c) Additional LIBOR Provisions.
---------------------------
(i) If Bank at any time shall determine that for any reason adequate
and reasonable means do not exist for ascertaining LIBOR, then Bank shall
promptly give notice thereof to Borrower. If such notice is given and until
such notice has been withdrawn by Bank, then (A) no new LIBOR option may be
selected by Borrower, and (B) any portion of the outstanding principal balance
hereof which bears interest determined in relation to LIBOR, subsequent to the
end of the Fixed Rate Term applicable thereto, shall bear interest determined in
relation to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a court
or governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be cancelled, and in the
latter event, any such unlawful LIBOR-based interest rates then outstanding
shall be converted, at Bank's option, so that interest on the portion of the
outstanding principal balance subject thereto is determined in relation to the
Prime Rate; provided however, that if any such Change in Law shall permit any
LIBOR-based interest rates to remain in effect until the expiration of the Fixed
Rate Term applicable thereto, then such permitted LIBOR-based interest rates
shall continue in effect until the expiration of such Fixed Rate Term. Upon the
occurrence of any of the foregoing events, Borrower shall pay to Bank
immediately upon demand such amounts as may be necessary to compensate Bank for
any fines, fees, charges, penalties or other costs incurred or payable by Bank
as a result thereof and which are attributable to any LIBOR options made
available to Borrower hereunder, and any reasonable allocation made by Bank
among its operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any
central bank or other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to any
LIBOR options, or change the basis of taxation of payments to Bank
of principal, interest, fees or any other amount payable hereunder
(except for changes in the rate of tax on the overall net income
of Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances
or loans by, or any other acquisition of funds by any office of
Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
(d) Payment of Interest. Interest accrued on this Note shall be payable on
-------------------
the 1st day of each month, commencing July 1, 1997.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the term
-----------------------
of this Note borrow, partially or wholly repay its outstanding borrowings, and
reborrow, subject to all of the limitations, terms and conditions of this Note
and of any document executed in connection with or governing this Note; provided
however, that the total outstanding borrowings under this Note shall not at any
time exceed the principal amount stated above. The unpaid principal balance of
this obligation at any time shall be the total amounts advanced hereunder by the
holder hereof less the amount of principal payments made hereon by or for any
Borrower, which balance may be endorsed hereon from time to time by the holder.
The outstanding principal balance of this Note shall be due and payable in full
on June 1, 1999.
(b) Advances. Advances hereunder, to the total amount of the principal sum
--------
available hereunder, may be made by the holder at the oral or written request of
(i) WILLIAM C. HUDDLESTON or JOHN R. WOLF or JOHN SANTOS or DEBORAH ANDREWS,
anyone acting alone, who are authorized to request advances and direct the
Page 2
<PAGE>
disposition of any advances until written notice of the revocation of such
authority is received by the holder at the office designated above, or (ii) any
person, with respect to advances deposited to the credit of any account of any
Borrower with the holder, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of each Borrower
regardless of the fact that persons other than those authorized to request
advances may have authority to draw against such account. The holder shall have
no obligation to determine whether any person requesting an advance is or has
been authorized by any Borrower.
(c) Application of Payments. Each payment made on this Note shall be
-----------------------
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.
PREPAYMENT:
(a) Prime Rate. Borrower may prepay principal on any portion of this Note
----------
which bears interest determined in relation to the Prime Rate at any time, in
any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note which
-----
bears interest determined in relation to LIBOR at any time and in the minimum
amount of $500,000.00; provided however, that if the outstanding principal
balance of such portion of this Note is less than said amount, the minimum
prepayment amount shall be the entire outstanding principal balance thereof. In
consideration of Bank providing this prepayment option to Borrower, or if any
such portion of this Note shall become due and payable at any time prior to the
last day of the Fixed Rate Term applicable thereto by acceleration or otherwise,
Borrower shall pay to Bank immediately upon demand a fee which is the sum of the
discounted monthly differences for each month from the month of prepayment
through the month in which such Fixed Rate Term matures, calculated as follows
for each such month:
(i) Determine the amount of interest which would have accrued each month on
---------
the amount prepaid at the interest rate applicable to such amount had it
remained outstanding until the last day of the Fixed Rate Term applicable
thereto.
(ii) Subtract from the amount determined in (i) above the amount of interest
--------
which would have accrued for the same month on the amount prepaid for the
remaining term of such Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a principal amount equal to
the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of Default"
under this Note:
(a) The failure to pay any principal, interest, fees or other charges when
due hereunder or under any contract, instrument or document executed in
connection with this Note.
(b) The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.
(c) The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.
<PAGE>
(f) Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
(g) Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of
--------
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or apellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
-----------------------------
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the state of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
STAAR SURGICAL COMPANY
By: /S/ William C. Huddleston
---------------------------
William C. Huddleston
Chief Financial Officer
Revolving Line of Credit Note (08/96), Page 4
<PAGE>
EXHIBIT 21
LIST OF SIGNIFICANT SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION OF EACH SUCH SIGNIFICANT
SUBSIDIARY, AND NAMES (IF ANY) UNDER WHICH
NAME OF SIGNIFICANT SUBSIDIARY EACH SUCH SIGNIFICANT SUBSIDIARY DOES BUSINESS
- ------------------------------ ----------------------------------------------
<S> <C>
STAAR Surgical AG............... Switzerland
</TABLE>
<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 January 2, 1998, an Integrated Annual Report on Form
10-K ("Report") with the Securities and Exchange Commission, Washington, D.C.,
hereby constitutes and appoints John R. Wolf and William Huddleston and each of
them, severally, with full power of substitution and resubstitution, as
attorneys or attorney to sign for the undersigned in any and all capacities such
Report, and any and all applications or other documents to be filed pertaining
to such Report with the Securities and Exchange Commission and with full power
and authority to do and perform any and all acts and things whatsoever required
and necessary to be done in the premises, as fully to all intents and purposes
as the undersigned could do if personally present. The undersigned hereby
ratifies and confirms all that said attorneys-in-fact and agents, or any of
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
EXECUTED this 27th day of March, 1998.
/s/ Donald R. Sanders, M.D.
-------------------------------
Donald R. Sanders, M.D.
<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 January 2, 1998, an Integrated Annual Report on Form
10-K ("Report") with the Securities and Exchange Commission, Washington, D.C.,
hereby constitutes and appoints John R. Wolf and William Huddleston and each of
them, severally, with full power of substitution and resubstitution, as
attorneys or attorney to sign for the undersigned in any and all capacities such
Report, and any and all applications or other documents to be filed pertaining
to such Report with the Securities and Exchange Commission and with full power
and authority to do and perform any and all acts and things whatsoever required
and necessary to be done in the premises, as fully to all intents and purposes
as the undersigned could do if personally present. The undersigned hereby
ratifies and confirms all that said attorneys-in-fact and agents, or any of
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
EXECUTED this 27th day of March, 1998.
/s/ John R. Wolf
-------------------------
John R. Wolf
<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 January 2, 1998, an Integrated Annual Report on Form
10-K ("Report") with the Securities and Exchange Commission, Washington, D.C.,
hereby constitutes and appoints John R. Wolf and William Huddleston and each of
them, severally, with full power of substitution and resubstitution, as
attorneys or attorney to sign for the undersigned in any and all capacities such
Report, and any and all applications or other documents to be filed pertaining
to such Report with the Securities and Exchange Commission and with full power
and authority to do and perform any and all acts and things whatsoever required
and necessary to be done in the premises, as fully to all intents and purposes
as the undersigned could do if personally present. The undersigned hereby
ratifies and confirms all that said attorneys-in-fact and agents, or any of
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
EXECUTED this 27th day of March, 1998.
/s/ Michael R. Deitz, M.D.
----------------------------
Michael R. Deitz, M.D.
<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 January 2, 1998, an Integrated Annual Report on Form
10-K ("Report") with the Securities and Exchange Commission, Washington, D.C.,
hereby constitutes and appoints John R. Wolf and William Huddleston and each of
them, severally, with full power of substitution and resubstitution, as
attorneys or attorney to sign for the undersigned in any and all capacities such
Report, and any and all applications or other documents to be filed pertaining
to such Report with the Securities and Exchange Commission and with full power
and authority to do and perform any and all acts and things whatsoever required
and necessary to be done in the premises, as fully to all intents and purposes
as the undersigned could do if personally present. The undersigned hereby
ratifies and confirms all that said attorneys-in-fact and agents, or any of
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
EXECUTED this 27th day of March, 1998.
/s/ Andrew F. Pollet
---------------------------
Andrew F. Pollet
<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 January 2, 1998, an Integrated Annual Report on Form
10-K ("Report") with the Securities and Exchange Commission, Washington, D.C.,
hereby constitutes and appoints John R. Wolf and William Huddleston and each of
them, severally, with full power of substitution and resubstitution, as
attorneys or attorney to sign for the undersigned in any and all capacities such
Report, and any and all applications or other documents to be filed pertaining
to such Report with the Securities and Exchange Commission and with full power
and authority to do and perform any and all acts and things whatsoever required
and necessary to be done in the premises, as fully to all intents and purposes
as the undersigned could do if personally present. The undersigned hereby
ratifies and confirms all that said attorneys-in-fact and agents, or any of
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
EXECUTED 27th day of March, 1998.
/s/ Peter J. Utrata, M.D.
---------------------------
Peter J. Utrata, M.D.
<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 January 2, 1998, an Integrated Annual Report on Form
10-K ("Report") with the Securities and Exchange Commission, Washington, D.C.,
hereby constitutes and appoints John R. Wolf and William Huddleston and each of
them, severally, with full power of substitution and resubstitution, as
attorneys or attorney to sign for the undersigned in any and all capacities such
Report, and any and all applications or other documents to be filed pertaining
to such Report with the Securities and Exchange Commission and with full power
and authority to do and perform any and all acts and things whatsoever required
and necessary to be done in the premises, as fully to all intents and purposes
as the undersigned could do if personally present. The undersigned hereby
ratifies and confirms all that said attorneys-in-fact and agents, or any of
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
EXECUTED this 27th day of March, 1998.
/s/ William C. Huddleston
----------------------------
William C. Huddleston
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-END> JAN-02-1998
<CASH> 6,279,136
<SECURITIES> 0
<RECEIVABLES> 8,111,469
<ALLOWANCES> 128,070
<INVENTORY> 14,712,398
<CURRENT-ASSETS> 35,413,144
<PP&E> 20,027,438
<DEPRECIATION> 10,003,257
<TOTAL-ASSETS> 62,390,881
<CURRENT-LIABILITIES> 10,477,373
<BONDS> 0
0
0
<COMMON> 132,462
<OTHER-SE> 44,650,322
<TOTAL-LIABILITY-AND-EQUITY> 62,390,881
<SALES> 42,480,014
<TOTAL-REVENUES> 45,519,585
<CGS> 10,261,748
<TOTAL-COSTS> 22,989,240
<OTHER-EXPENSES> 319,808
<LOSS-PROVISION> (162,967)
<INTEREST-EXPENSE> 595,810
<INCOME-PRETAX> 11,689,416
<INCOME-TAX> 4,270,286
<INCOME-CONTINUING> 7,419,130
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,419,130
<EPS-PRIMARY> .57
<EPS-DILUTED> .53
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-03-1997 DEC-29-1995
<PERIOD-END> JAN-03-1997 DEC-29-1995
<CASH> 6,469,515 3,767,011
<SECURITIES> 0 0
<RECEIVABLES> 6,938,775 7,611,929
<ALLOWANCES> 111,525 119,490
<INVENTORY> 12,365,867 9,591,898
<CURRENT-ASSETS> 29,607,243 25,092,967
<PP&E> 17,196,358 12,917,686
<DEPRECIATION> 8,275,369 6,554,990
<TOTAL-ASSETS> 52,056,019 38,802,990
<CURRENT-LIABILITIES> 14,607,585 8,758,293
<BONDS> 0 0
0 0
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