Note 12 - Commitments and Contingencies

Lines of Credit and Guarantee

The Company’s wholly owned Japanese subsidiary, STAAR Japan, entered into an agreement on December 28, 2012, as amended, with Mizuho Bank, which provides for borrowings of up to 500,000,000 Yen (approximately $4.2 million based on the rate of exchange on October 2, 2015), at an interest rate equal to the Tokyo short-term prime interest rate (approximately 1.475% as of October 2, 2015). The line of credit expires September 30, 2016 and is renewable annually. The Company had 500,000,000 Yen outstanding on the line of credit as of October 2, 2015 and January 2, 2015 (approximately $4.2 million based on the foreign currency exchange rates on October 2, 2015 and January 2, 2015, respectively). As of October 2, 2015 there were no available borrowings under the line.

In August 2010, the Company’s wholly-owned Swiss subsidiary, STAAR Surgical AG, entered into a credit agreement with Credit Suisse (“Credit Suisse”). The credit agreement provides for borrowings of up to 1,000,000 Swiss Francs (approximately $1.0 million at the rate of exchange on October 2, 2015), to be used for working capital purposes. Borrowings, if any, on the credit line are due in one year from the borrowing date. The credit agreement is renewable every three years with a current expiration date of September 1, 2016. There were no borrowings outstanding as of October 2, 2015 and January 2, 2015, and the full amount of the line, reduced by any guarantees made to Bankinter Spain (“Bankinter”) (described below), was available for borrowing.

On May 1, 2015, STAAR Surgical AG entered into a guarantee agreement with Bankinter. The agreement, as amended, provides Bankinter with a guarantee of up to EUR 400,000 (approximately $436,000 at the rate of exchange on October 2, 2015) for trade receivables from the Company’s Spanish customers. The total guarantee amount is offset against the credit agreement in place with Credit Suisse and therefore reduces the credit line available to STAAR Surgical AG for working capital requirements to up to 564,000 Swiss francs (approximately up to $578,000 at the rate of exchange on October 2, 2015). Unless terminated sooner by Bankinter, the guarantee agreement expires on May 1, 2017

Covenant Compliance

The Company is in compliance with the covenants of its credit facilities as of the date of this report.

Litigation and Claims

From time to time the Company may be subject to various claims and legal proceedings arising out of the normal course of our business. These claims and legal proceedings may relate to, among other things, contractual rights and obligations, employment matters, and claims of product liability. The most significant of these actions, proceedings and investigations are described below. STAAR maintains insurance coverage for product liability and certain securities claims. Legal proceedings can extend for several years, and the matters described below concerning the Company are at very early stages of the legal and administrative process. As a result, these matters have not yet progressed sufficiently through discovery and/or development of important factual information and legal issues to enable the Company to determine whether the proceedings are material to the Company or to estimate a range of possible loss, if any. Unless otherwise disclosed, the Company is unable to estimate the possible loss or range of loss for the legal proceedings described below. While it is not possible to accurately predict or determine outcomes of these items, an adverse determination in one or more of these items currently pending could have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.

On July 8, 2014, a putative securities class action lawsuit was filed by Edward Todd against STAAR and three officers in the federal court located in Los Angeles, California. The plaintiff claims that STAAR made misleading statements to and omitted material information from our investors between February 27, 2013 and June 30, 2014 about alleged regulatory violations at STAAR’s Monrovia manufacturing facility. On October 20, 2014, plaintiff amended its complaint, dismissed two Company officers, added one other officer, and reduced the alleged Class Period to November 1, 2013 through June 30, 2014. Although the ultimate outcome of this action cannot be determined with certainty, the Company believes that the allegations in the Complaint are without merit. The Company intends to vigorously defend against this lawsuit. On September 21, 2015, the Company filed a motion to dismiss the amended complaint. The Company has not recorded any loss or accrual in the accompanying condensed consolidated financial statements at October 2 2015 and January 2, 2015 for this matter as the likelihood and amount of loss, if any, has not been determined and is not currently estimable.

In 2015, the Company received a claim from a certain supplier who is also a customer. The supplier is claiming damages related to allegedly defective injectors. The Company is currently investigating the matter and is in discussions with the supplier. The ultimate outcome of this matter cannot be determined with certainty and the Company intends to vigorously protect its interests and work with all parties involved to resolve this matter. The Company has not recorded any loss or accrual in the accompanying condensed consolidated financial statements at October 2, 2015for this matter as the likelihood and amount of loss, if any, has not been determined and is not currently estimable.

Employment Agreements

The Company’s Chief Executive Officer and certain officers have as provisions of their agreements certain rights, including continuance of cash compensation and benefits, upon a “change in control,” which may include an acquisition of substantially all of its assets, or termination “without cause or for good reason” as defined in the employment agreements.

Decommissioning Fund

The Company is required by the California Department of Public Health (“CDPH”) to set aside funds for future estimated decommissioning expenses related to certain equipment used in the manufacturing process. The Company has set aside approximately $120,000, as determined and mandated by the CDPH, for such costs included in other assets as of October 2, 2015 and January 2, 2015, respectively.