Note 12 — Commitments and Contingencies

Lease Obligations

The Company leases certain property, plant and equipment under non-cancellable capital and operating lease agreements. These leases vary in duration and contain renewal options and/or escalation clauses. Current and long-term obligations under capital leases are included in the Company’s consolidated balance sheets.

Estimated future minimum lease payments under leases having initial or remaining non-cancelable lease terms more than one year as of December 30, 2016 are as follows (in thousands):

	Operating		Capital
Fiscal Year	Leases		Leases
2017		1,849		1,220
2018		1,032		1,180
2019		972		175
2020		879		5
2021		535		—
Thereafter		453		—
Total minimum lease payments	$	5,720	$	2,580
Less amounts representing interest		—		43
	$	5,720	$	2,537

Rent expense was approximately $2.2 million, $1.2 million, and $1.4 million, for the years ended December 30, 2016, January 1, 2016, and January 2, 2015, respectively.

The Company had the following assets under capital lease at December 30, 2016 and January 1, 2016 (in thousands):

	2016		2015
Machinery and equipment	$	5,650	$	1,195
Furniture and fixtures		43		7
Computers, software, and peripherals		445		—
Automobiles		216		—
Leasehold improvements		124		—
		6,478		1,202
Less accumulated depreciation		3,359		329
	$	3,119	$	873

Depreciation expense for assets under capital lease for each of the years ended December 30, 2016, January 1, 2016, and January 2, 2015, was approximately $195,000, $176,000, and $330,000, respectively.

Indemnification Agreements

The Company has entered into indemnification agreements with its directors and officers that may require the Company: (a) to indemnify them against liabilities that may arise by reason of their status or service as directors or officers, except as prohibited by applicable law; (b) to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified; and (c) to make a good faith determination whether or not it is practicable for the Company to obtain directors’ and officers’ insurance. The Company currently has directors’ and officers’ liability insurance through a third-party carrier. Also, in connection with the sale of products and entering into business relationships in the ordinary course of business, the Company may make representations affirming, among other things, that its products do not infringe on the intellectual property rights of others and agrees to indemnify customers against third-party claims for such infringement as well as its negligence. The Company has not been required to make material payments under such provisions.

Tax Filings

The Company’s tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for taxes; however, final assessments, if any, could be significantly different than the amounts recorded in the consolidated financial statements.

Employment Agreements

On October 3, 2014, the Company’s former Chief Executive Officer announced his retirement effective March 1, 2015. Effective with his retirement, he became a consultant to the Company through March 31, 2016. In March 2015, the Company accrued approximately $300,000 in benefits due to the former CEO, such benefits were paid over a one year period beginning on March 1, 2015 and ending on March 31, 2016. As of January 1, 2016, there was approximately $60,000 remaining to be paid to the former CEO pursuant to this agreement which was paid by March 31, 2016. There are no further obligations remaining under this agreement at December 30, 2016.

The Company’s Chief Executive Officer entered into an employment agreement with the Company, effective March 1, 2015. She 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 its assets, or termination “without cause or for good reason” as defined in the employment agreements.

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 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.

Stockholder Securities Litigation: Todd Action

On July 8, 2014, a putative securities class action lawsuit was filed by Edward Todd against STAAR and three officers in the U.S. District Court for the Central District of 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, reduced the alleged Class Period to November 1, 2013 through June 30, 2014, and demanded compensatory damages and attorneys’ fees. On January 5, 2017, the court granted plaintiff’s Motion for Class Certification. 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 itself against this lawsuit. The Company has not recorded any loss or accrual in the accompanying condensed consolidated financial statements at December 30, 2016 and January 1, 2016 for this matter as the likelihood and amount of loss, if any, has not been determined and is not currently estimable.

Stockholder Derivative Litigation: Forestal Action

On June 21, 2016, Kevin Forestal filed a stockholder derivative complaint against our then-current Board of Directors, which included Caren Mason, Mark B. Logan, Stephen C. Farrell, Richard A. Meier, John C. Moore, J. Steven Roush, Louis E. Silverman, and William P. Wall, and STAAR as well as Barry G. Caldwell and John S. Santos in the U.S. District Court for the Central District of California. The plaintiff alleges breaches of fiduciary duties by, among other things, allowing STAAR to disseminate misleading statements to investors regarding the condition of the Company’s Quality System, failing to properly oversee the Company, and unjust enrichment. The complaint seeks damages, restitution and governance reforms, attorneys’ fees, and costs. On January 31, 2017, the court granted the Company’s Motion to Dismiss. On February 6, 2017, plaintiff filed a Notice of Appeal. 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 has not recorded any loss or accrual in the accompanying condensed consolidated financial statements at December 30, 2016 for this matter as the likelihood and amount of loss, if any, has not been determined and is not currently estimable.