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 29, 2017 are as follows (in thousands):

Fiscal Year	Operating Leases		Capital Leases
2018	$	1,956	$	1,309
2019		1,611		307
2020		1,409		124
2021		548		104
2022		463		4
Thereafter		463		—
Total minimum lease payments	$	6,450	$	1,848
Less amounts representing interest		—		39
	$	6,450	$	1,809

Rent expense was approximately $2,436,000, $2,243,000 and $1,198,000, for the years ended December 29, 2017, December 30, 2016 and January 1, 2016, respectively.

The Company had the following assets under capital lease at December 29, 2017 and December 30, 2016 (in thousands):

	2017		2016
Machinery and equipment	$	4,311	$	5,650
Furniture and fixtures		2,285		704
Leasehold improvements		155		124
		6,751		6,478
Less accumulated depreciation		4,239		3,359
	$	2,512	$	3,119

Depreciation expense for assets under capital lease for each of the years ended December 29, 2017, December 30, 2016 and January 1, 2016, was approximately $388,000, $195,000 and $176,000, respectively.

As of December 29, 2017, there were open purchase orders of $3,308,000 and severance payable of $41,000.

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

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 most of the matters concerning the Company are at 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 Statements of Operations, Balance Sheets, or Statements of 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 September 29, 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 September 29, 2014, and demanded compensatory damages and attorneys’ fees. On January 5, 2017, the court granted plaintiff’s Motion for Class Certification. On June 20, 2017, plaintiff sought preliminary approval of a proposed class action settlement in the amount of $7,000,000. The settlement documents filed by the plaintiff included a “Stipulation and Agreement of Settlement” that provided, among other things, that the $7,000,000 settlement amount “shall be wired on behalf of all Defendants and Released Persons out of insurance proceeds from STAAR’s Insurance Policies into the Settlement Escrow Account.” The Company determined it was probable the insurance carriers would satisfy their obligation. On July 10, 2017, the court granted the plaintiff’s application for preliminary approval of the class action settlement. On or about July 28, 2017, the Company’s insurance carriers directly funded the entire settlement amount to the court-authorized escrow account. On October 23, 2017, the court granted plaintiff’s application for final approval of the class action settlement in the amount of $7,000,000. A third-party claims administrator will administer and oversee the distribution of the settlement funds to qualified class members, pursuant to the process approved by the court.

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 and on July 17, 2017 plaintiff filed his appellate brief. On September 14, 2017, the Company filed its appellate answering brief. 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 Consolidated Financial Statements at December 29, 2017 for this matter as the likelihood and amount of loss, if any, has not been determined and is not currently estimable.