-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QViTMMkNPnZ2bSxoaHEdUct929DkgfGxIxHU7E2qu8RspQWo9MeHTnUKvdUPjRNp rP5eNYoLeAlfPQu9sImIcw== 0000009892-96-000023.txt : 19961104 0000009892-96-000023.hdr.sgml : 19961104 ACCESSION NUMBER: 0000009892-96-000023 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960916 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961101 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARD C R INC /NJ/ CENTRAL INDEX KEY: 0000009892 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 221454160 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06926 FILM NUMBER: 96652497 BUSINESS ADDRESS: STREET 1: 730 CENTRAL AVE CITY: MURRAY HILL STATE: NJ ZIP: 07974 BUSINESS PHONE: 9082778000 MAIL ADDRESS: STREET 1: 730 CENTRAL AVENUE CITY: MURRAY HILL STATE: NJ ZIP: 07974 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A (AMENDMENT NO. 1) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: SEPTEMBER 16, 1996 C. R. BARD, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) New Jersey 1-6926 22-1454160 (STATE OF COMMISSION FILE NUMBER IRS EMPLOYER INCORPORATION) IDENTIFICATION NO. 730 Central Avenue, Murray Hill, New Jersey (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 07974 (ZIP CODE) (908) 277-8000 (REGISTRANT'S TELEPHONE NUMBER) Item 7. Financial Statements and Exhibits C. R. Bard, Inc. filed on September 27, 1996 a Current Report on Form 8-K (the "September 27, 1996 Form 8-K") related to the Company's acquisition of IMPRA, Inc. The following historical financial statements of IMPRA, Inc. were inadvertently omitted from the original filing of the September 27, 1996 8-K. C. R. Bard, Inc. is hereby amending the September 27, 1996 8-K to include such financial statements. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. C. R. BARD, INC. (Registrant) By: William C. Bopp /s/ William C. Bopp Executive Vice President and Chief Financial Officer Dated: November 1, 1996 - 2 - IMPRA, INC. AND SUBSIDIARIES TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1996 and 1995: Independent Auditors' Report ................... 2 Consolidated Balance Sheets .................... 3-4 Consolidated Statements of Income and Retained Earnings ........................... 5 Consolidated Statements of Cash Flows .......... 6 Notes to Consolidated Financial Statements ..... 8 E - 1 Deloitte & Touche ILP Suite 1200 Telephone: (602)234-5100 2901 North Central Ave. Facsimile: (602)234-5186 Phoenix, AZ 85012-2799 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Impra, Inc. and Subsidiaries Tempe, Arizona We have audited the accompanying consolidated balance sheets of Impra, Inc. and subsidiaries (the "Company") as of June 30, 1996 and 1995, and the related consolidated statements of income and retained earnings and of cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Impra Medica SA, Impra Medica GmbH and Impra UK Ltd. (consolidated subsidiaries), which statements reflect total assets constituting 28% and 25%, respectively, of consolidated total assets as of June 30, 1996 and 1995, and total revenues constituting 32% and 33%, respectively, of consolidated total revenues for the years then ended. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Impra Medica SA, Impra Medica GmbH and Impra UK Ltd., is based solely on the reports of such other auditors. 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 financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Deloitte & Touche LLP /s/ August 27, 1996 DeloitteTouche Tohmatsu International E - 2 IMPRA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND 1995
ASSETS (Notes 6 and 7) 1996 1995 CURRENT ASSETS: Cash and cash equivalents $ 6,853,619 $ 5,664,743 Restricted investments (Note 10) 3,216,459 Accounts receivable - net of allowance of $15,000: Trade 7,781,386 6,923,361 Other(Note 11) 187,507 68,362 Inventories - net (Note 3) 3,903,172 3,414,021 Notes receivable - related parties (Note 11) 2,470,472 Deferred income taxes (Note 8) 513,400 965,000 Income taxes receivable 541,900 Other current assets 537,792 414,986 Total current assets 22,789,248 20,666,932 PROPERTY AND EQUIPMENT - Net (Notes 4 and 10) 2,999,099 2,373,467 OTHER ASSETS: Notes receivable - related parties (Note 11) 532,000 Intangibles - net (Note 5) 573,178 463,377 Deferred income taxes (Note 8) 371,100 435,000 Other 201,261 146,840 Total other assets 1,145,539 1,577,217 TOTAL $26,933,886 $24,617,616
See notes to consolidated financial statements. (Continued) E - 3 IMPRA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 CURRENT LIABILITIES: Accounts payable $ 2,594,042 $ 1,650,148 Accrued expenses(Note 10) 4,035,349 2,946,515 Accrued commissions 1,098,909 761,379 Accrued pension liabilities (Note 9) 894,624 796,684 Estimated patent settlement (Note 10) 5,229,000 Current portion of long-tern debt (Note 7) 2,830,345 281,688 Total current liabilities 11,453,269 11,665,414 LONG-TERM DEBT - Less current portion (Note 7) 63,614 1,457,314 Total liabilities 11,516,883 13,122,728 COMMITMENTS AND CONTINGENCIES (Notes 2,3, 9 and 10) STOCKHOLDERS' EQUITY (Notes 7 and 10): Common stock, no par value - authorized 5,000,000 shares; issued 49,338 shares, outstanding 30,258 shares 170,715 170,715 Retained earnings 17,278,443 13,208,326 Treasury stock - at cost, 19,080 shares repurchased (2,158,479) (2,158,479) Foreign currency translation adjustment 126,324 274,326 Total stockholders' equity 15,417,003 11,494,888 TOTAL $26,933,886 $24,617,616
See notes to consolidated financial statements. (Concluded) E - 4 IMPRA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995 NET SALES $48,795,876 $41,239,748 COST OF GOODS SOLD 7,914,290 6,606,681 GROSS PROFIT 40,881,586 34,633,067 OPERATING EXPENSES (Notes 9, 10 and 11): Occupancy 1,356,078 1,331,853 Selling 19,250,909 16,925,765 Administrative 10,520,628 8,413,437 Research and development 2,753,045 2,053,874 Total operating expenses 33,880,660 28,724,929 INCOME FROM OPERATIONS 7,000,926 5,908,138 OTHER INCOME (EXPENSE) (Notes 10 and 11): Litigation - net 154,000 Loss on disposal of assets (829) (622,864) Foreign currency transaction loss (233,964) 91,052 Interest expense (373,485) (259,281) Interest income 332,654 316,144 Other (9,785) 62,571 Total other income (expense) (131,409) (412,378) INCOME BEFORE INCOME TAXES 6,869,517 5,495,760 INCOME TAXES (Note 8) 2,799,400 2,266,000 NET INCOME 4,070,117 3,229,760 RETAINED EARNINGS, BEGINNING OF YEAR 13,208,326 9,978,566 RETAINED EARNINGS, END OF YEAR $17,278,443 $13,208,326
See notes to consolidated financial statements. E - 5 IMPRA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1996 AND 1995
OPERATING ACTIVITIES 1996 1995 Net income $4,070,117 $3,229,760 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 603,693 553,924 Deferred income taxes 515,500 (268,801) Loss on disposal of assets 829 622,864 Loss on disposal of intangible assets 158,736 Litigation - net (154,000) Provision for excess and slow moving inventories 227,175 Foreign currency translation adjustment (148,002) 292,269 Changes in operating assets and liabilities: Restricted cash 3,216,459 (139,459) Accounts receivable: Trade (858,025) (1,033,408) Other (119,145) 136,335 Inventories (716,326) (1,032,180) Income taxes receivable (541,900) Other current assets (122,806) (81,458) Intangible assets (290,841) (186,600) Other assets (54,421) (63,784) Accounts payable 943,894 180,377 Accrued expenses 888,834 1,035,183 Accrued commissions 337,530 201,836 Accrued pension liabilities 97,940 186,883 Estimated litigation settlement (4,875,000) Net cash provided by operating activities 3,180,241 3,633,741 INVESTING ACTIVITIES: Purchases of property and equipment (1,262,216) (910,822) Advances to related parties (1,938,472) (335,000) Payments from related parties 131,330 Proceeds from sale of assets 54,366 104,730 Net cash used in investing activities (3,146,322) (1,009,762) FINANCING ACTIVITIES: Proceeds from long-term debt 2,305,771 443,965 Payments on long-term debt (1,150,814) (943,749) Net cash provided by (used in) financing activities 1,154,957 (499,784) INCREASE IN CASH & CASH EQUIVALENTS 1,188,876 2,124,195 CASH & CASH EQUIVALENTS, BEGINNING OF YEAR 5,664,743 3,540,548 CASH & CASH EQUIVALENTS, END OF YEAR $6,853,619 $5,664,743 (Continued)
E - 6 IMPRA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 298,270 $ 234,193 Income taxes paid $1,759,547 $2,175,785 Note receivable - received from a related party in connection with sale of equipment (Note 11) $ 42,008 Capital expenditures financed through obligations under capital leases $ 147,462 See notes to consolidated financial statements. (Concluded)
E - 7 IMPRA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business and Organization - IMPRA, Inc. and its subsidiaries, IMPRA Foreign Sales Corp. ("FSC"), IMPRA Medica SA (Switzerland), IMPRA Medica GmbH (Germany), IMPRA UK Ltd. (United Kingdom), IMPRA SARL (France), and IMPRA Canada (the "Company") manufacture, distribute, and sell medical devices worldwide primarily to hospitals and medical device distributors. The significant accounting policies followed by the Company are summarized as follows: a. Principles of Consolidation - The accompanying consolidated financial statements include the accounts of IMPRA, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. b. Cash and Cash Equivalents - The Company considers all highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents. c. Inventories are stated at the lower of cost (first-in, first-out basis) or market. d. Property and equipment are recorded at cost and depreciation and amortization are provided using straight-line and accelerated methods over estimated useful lives as follows: Description Years Leasehold improvements 40 Machinery and equipment 3 to 10 Furniture and fixtures 3 to 10 Automobiles 3 to 5 e. Intangibles - Patents and trademarks are amortized using the straight-line method generally over lives of 17 years. Goodwill is amortized using the straight-line method over 10 years. E - 8 f. Foreign Currency Translation - The financial statements of IMPRA, Inc.'s non-United States subsidiaries are translated into United States dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, Foreign Currency Translation. Assets and liabilities of these foreign subsidiaries representing cash, amounts receivable, inventories or payables are translated into United States dollars at current rates of exchange in effect at year-end. Other accounts including property and equipment and notes payable are translated at historical exchange rates. Income and expense items are translated at the average exchange rate for the year. The resulting translation adjustments are recorded directly as a separate component of stockholders' equity. g. Revenue Recognition - The Company records revenue when goods are shipped. h. Income taxes are provided based on the provisions of SFAS No. 109, Accounting for Income Taxes, which, among other things, requires that the recognition of deferred income taxes be measured by the provisions of enacted tax laws in effect at the date of the financial statements. I. Accounting Pronouncements - During 1995 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Management of the Company does not believe implementation of SFAS No. 121 will have a significant impact on the financial statements. j. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. k. Reclassifications - Certain reclassifications have been made to the 1995 financial statements to conform to the 1996 presentation. E - 9 2. SUBSEQUENT EVENT On August 5, 1996, the Company entered into an agreement to sell all of the outstanding stock of the Company to C.R. Bard, Inc. The transaction is subject to the Hart Scott Rodino Act. Closing of the transaction is anticipated to occur in September 1996. In conjunction with the closing, all of the related party notes receivable (Note 11) are to be repaid to the Company and all notes payable to and lines of credit with banks (Notes 6 and 7) will be paid in full. As a result the notes receivable and payable are classified as current in these financial statements. In addition, the real property leased by the Company from related parties (Note 11) will be acquired by C.R. Bard, Inc. and therefore, all leases with related parties will be terminated. 3. INVENTORIES Inventories at June 30 consist of the following: 1996 1995 Raw materials $ 200,051 $ 218,885 Work-in-process 211,975 428,373 Finished goods 3,812,516 2,860,958 Allowance for excess and slow moving inventories (321,370) (94,195) Total inventories $3,903,172 $3,414,021 The Company distributes certain products through an exclusive domestic agreement. The agreement expires in September 1996. A renewal of the agreement has not been obtained. In the event the agreement is not renewed the Company may have excess inventories on hand. Under the terms of the existing agreement the Company will be prohibited from selling such inventories. Management estimates the potential loss could be up to $800,000 if the Company is unable to sell the excess inventories. Sales of this product totaled approximately $3.4 million and $2.3 million, respectively, for the years ended June 30, 1996 and 1995. E - 10 4. PROPERTY AND EQUIPMENT Property and equipment at June 30 consist of the following: 1996 1995 Leasehold improvements $1,667,666 $1,259,809 Machinery and equipment 2,365,209 1,974,790 Furniture and fixtures 1,336,844 1,027,811 Automobiles 440,287 408,291 Total 5,810,006 4,670,701 Less accumulated depreciation (2,810,907) (2,297,234) Property and equipment - net $2,999,099 $2,373,467 5. INTANGIBLES Intangibles at June 30 consist of the following: 1996 1995 Patents $346,341 $323,412 Trademarks 90,514 78,812 Goodwill 105,531 105,531 Other 68,148 Total 610,534 507,755 Less accumulated amortization (37,356) (44,378) Intangibles - net $573,178 $463,377 6. CREDIT FACILITIES The Company has a $ 1,000,000 line of credit which bears interest at the bank's prime rate plus .5% (8.75% at June 30, 1996). The credit line expires on December 2, 1996. The Company has a $500,000 term loan available for the purchase of equipment. The agreement bears interest at the bank's prime rate plus 1% (9.25% at June 30, 1996) and matures on December 31, 1996. The above credit facilities are guaranteed by the two majority stockholders and are collateralized by substantially all of the assets of the Company (Note 2). E - 11 Among other things, under the above credit facilities the Company is required to maintain certain amounts of tangible net worth and profitability and has restrictions on the amount of capital expenditures. For the year ended June 30, 1996, the Company was in compliance with all such loan covenants. The Company has a 300,000 Swiss franc (approximately $239,000 at June 30, 1996) credit line which bears interest at 5.25% and is unsecured. There were no amounts outstanding under the above credit facilities at June 30, 1996. 7. LONG-TERM DEBT Long-term debt at June 30 consists of the following: 1996 1995 Note payable to bank, monthly principal payments of $44,536 plus interest at the bank's base rate plus 1% (9.25% at June 30, 1996) due February 1, 1999 (Note 2) $1,425,160 Note payable to a former stockholder, annual principal and interest payments of $265,000, interest at 11.5%, due March 2002 1,105,090 $1,228,780 Note payable to bank, monthly principal payments of $7,500 plus interest at the bank's base rate plus 1% (9.25% at June 30, 1995), due October 27, 1998 (Note 2) 189,675 279,675 Notes payable to bank, monthly principal and interest payments with interest at 8% and 8.75%, due through January 1998 (Note 2) 52,803 99,037 Capital lease obligations, interest at rates ranging from 12.5% to 14.5%, due through March 2000 (Note 10) 121,231 131,510 Total 2,893,959 1,739,002 Less current portion 2,830,345 281,688 Long-term portion $ 63,614 $1,457,314 E - 12 Annual maturities of long-term debt outstanding at June 30, 1996 after giving effect to the anticipated transaction with C.R. Bard, Inc. (Note 2) are as follows: 1997 $2,830,345 1998 40,545 1999 23,069 Total $2,893,959 The above obligations are collateralized by substantially all of the Company's assets and a stock pledge agreement. On July 12, 1996, the note payable to former stockholder was paid in full and the Company canceled all of the treasury stock (Note 10). Based upon available market information and borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of long-term debt approximates the carrying value. 8. INCOME TAXES The provision for income taxes consists of the following for the year ended June 30: 1996 1995 Current: Federal $ 1,287,416 $ 1,737,891 Foreign 664,220 348,422 State 332,264 448,488 Total current 2,283,900 2,534,801 Deferred: Federal 540,667 (213,662) Foreign (164,694) State 139,527 (55,139) Total deferred 515,500 (268,801) Total $ 2,799,400 $ 2,266,000 E - 13 The provision for income taxes differs from the amount computed at the statutory tax rate as follows: 1996 1995 Provision using statutory tax rate $2,335,627 $1,868,558 State tax net of federal income tax benefit 412,169 329,747 Meals and entertainment 235,414 87,547 Export sales tax exemption (115,090) (130,053) Other (68,720) 110,201 Provision for income taxes $2,799,400 $2,266,000 Significant components of the Company's net deferred tax assets are comprised of the following as of June 30: 1996 1995 Current Noncurrent Current Noncurrent Deferred tax assets: Capitalized inventory costs $173,283 $ 133,897 Vacation accrual 110,562 88,863 Inventory allowance 93,360 Litigation 80,000 864,294 Pension adjustment $259,738 223,148 Capital loss carry forward 79,000 79,000 Exchange gains and losses 28,451 38,792 Other 45,144 194,862 51,154 211,852 Valuation allowance (79,000) (79,000) Total 530,800 454,600 1,177,000 435,000 Deferred tax liabilities: Patent costs (83,500) Exchange gains and losses (203,486) Other (17,400) (8,514) Total (17,400) (83,500) (212,000) Net deferred tax asset $513,400 $371,100 $ 965,000 $435,000 As of June 30, 1996, the Company has a capital loss carry forward of $196,319 which will expire in 1998. The Company has provided a valuation allowance against the capital loss carry forward. E - 14 9. PENSION BENEFITS The Company has a noncontributory defined benefit pension plan (the "plan") covering substantially all domestic employees. Domestic employees are covered on the first day of the plan year in which they complete one year of service and attain age 21. Plan benefits are based on the employee's compensation and tenure. As a result of the anticipated transaction with C.R. Bard, Inc. (Note 2) the plan may be terminated and merged with a similar benefit plan of C.R. Bard, Inc. in the future. The following table sets forth the plan's funded status and amounts recognized in the consolidated balance sheets at June 30, 1996 and 1995 based on measurement dates of June 30, 1996 and 1995. Actuarial present value of benefit obligations: 1996 1995 Accumulated benefit obligation, including vested benefits of $2,311,369 and $1,849,859 $3,634,985 $2,921,166 Projected benefit obligation for service rendered to date $5,011,029 $4,014,575 Plan assets at fair value 3,928.518 3,003,687 Projected benefit obligation in excess of plan assets 1,082,511 1,010,888 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 253,826 259,182 Unrecognized obligation established July 1, 1989 being recognized over 15 years 132,113 148,628 Domestic pension liability $ 696,572 $ 603,078 E - 15 Net pension expense is comprised for the following components: 1996 1995 Service cost - benefits earned during the period $ 821,604 $ 666,366 Interest cost on projected benefit obligation 314,019 251,972 Actual (return) loss on plan assets (463,823) (308,628) Net amortization and deferral 240,511 136,819 Domestic net periodic pension expense $ 912,311 $ 746,529 The weighted-average discount rate, rate of increase in future compensation levels, and expected rate used to determine the costs and liabilities at June 30, 1996 and 1995 were as follows: Pre-retirement discount rate 7.75% Post-retirement discount rate 5.00 Rate of increase in future compensation 4.50 Long-term rate of return 7.75 The Company also has a profit sharing plan that was frozen in January 1991. During 1996 and 1995, no contributions were made to this plan. In addition, IMPRA UK Ltd., IMPRA Medica GmbH, and IMPRA Medica SA have governmentally sponsored pension plans. The Company contributed approximately $209,000 in each of the years ended June 30, 1996 and 1995. 10. COMMITMENTS AND CONTINGENCIES The Company leases certain equipment under capital lease agreements. The Company also leases the majority of its office and manufacturing facilities from the officers and stockholders of the Company under operating lease agreements. Other operating leases are for equipment and the Company's foreign offices. The leases expire at various dates through 2000 and include renewal options. Leased assets totaling $ 105,854 (net of accumulated depreciation of $84,731) are included in property and equipment as of June 30, 1996. E - 16 Minimum future lease commitments under these leases for the years ending June 30 are as follows: Capital Operating Leases Leases 1997 $57,617 $466,763 1998 53,093 238,484 1999 37,463 27,605 2000 21,273 Total minimum future lease payments 169,446 $732,852 Less amounts representing interest (48,215) Minimum future lease payments - net $121,231 Rent expense under the operating leases totaled approximately $640,000 and $668,000 for the years ended June 30, 1996 and 1995, respectively, of which $359,000 and$343,000 were to related parties. In 1992, the Company purchased 19,080 shares from a former stockholder and simultaneously entered into a noncompete agreement with a former stockholder of the Company. The agreement requires payments of $85,000 through March 2002, which are expensed on an annual basis and no liability or corresponding asset has been recorded in the financial statements. Treasury stock of $2,158,479 was recorded. The Company was a defendant in a lawsuit filed during 1991 by one of its competitors alleging patent infringement. On January 25, 1994, the court ruled that the Company's product does infringe certain claims of the patent. The court further ruled that the Company failed in its burden of proof to prove that the patent is invalid. The Company has not sold any such products since 1992. The court determined that damages approximate $5,229,000. Accordingly, a liability was recorded for the estimated settlement and is included in the financial statements at June 30, 1995. The Company appealed the court decision. In order to appeal, the Company was required to pledge to the court a $5,229,000 letter of credit which was collateralized by $3,216,459 in restricted investments and substantially all assets of the Company and was guaranteed by the two majority stockholders. In December 1995, the Company settled the matter for $4,875,000 and reversed the remaining accrual of $354,000 which is included in other income. E - 17 The Company is a defendant in two lawsuits filed in 1995 and 1996 by two former employees alleging wrongful termination on the basis of age and race discrimination. Management has made offers of settlement in these matters, and has recorded a liability which is included in accrued expenses. Management does not believe the resolution of these matters will have a material adverse effect on the financial position, results of operations or cash flows of the Company. 11. RELATED PARTY TRANSACTIONS In addition to related party transactions and balances described elsewhere, the Company had the following receivables from related parties at June 30: 1996 1995 Note receivable from majority stockholders, quarterly interest payments of $25,732, interest at 5.53%, due December 1998, collateralized by real property (Note 2) $1,861,300 Unsecured note receivable from Original Equipment Manufacturers, interest at 6%, due July 1, 1998 (Note 2) 359,172 $282,000 Note receivable from stockholder, interest payments of $ 15,000 due annually on November 1, interest at 5.53%, principal due November 1, 1997, collateralized by 500 shares of Company stock (Note 2) 250,000 250,000 Total $2,470,472 $532,000 Original Equipment Manufacturers ("OEM"), is a company wholly-owned by a stockholder of the Company. Interest income recognized on the above notes during 1996 and 1995 totaled $90,668 and $29,163, respectively. Amounts due from employees totaled $76,083 and $56,685 at June 30, 1996 and 1995, respectively, and are included in other accounts receivable. E - 18 During 1995, the Company wrote-off unamortized leasehold improvements on a facility leased from a related party totaling approximately $462,000. Because the Company discontinued certain products, the leasehold improvements were no longer necessary. In addition, the Company sold excess equipment to a related party at a loss of approximately $43,000. In accordance with the terms of a July 1992 consulting agreement, consulting fees totaling $216,000 were paid to a stockholder ofthe Compary during 1995. No such fees were paid during 1996. * * * * * * E - 19 -----END PRIVACY-ENHANCED MESSAGE-----