This excerpt taken from the HSTX DEF 14A filed Oct 7, 2009.
During fiscal year 2009, and prior to the May 27, 2009 spin-off of our shares of common stock to the stockholders of Harris, Harris was a significant related party to us through its 56 percent ownership of our common stock. We had an investor agreement with Harris, which terminated at the time of the spin-off, that provided that Harris would not, and would not permit any of its affiliates to, directly or indirectly, enter into any transaction or series of related transactions with us or any of our subsidiaries unless (i) the transaction was on arms length terms and (ii) if it had a fair market value of more than $5 million, the transaction was approved in advance by a majority of the Class A directors (with certain exceptions).
Prior to the Harris spin-off, we shared a directors and officers insurance policy with Harris. The primary layer was available to Harris and the Company on a first-case, first-served basis.
Prior to the Stratex merger, some of the former MCD executives were awarded options to purchase Harris common stock. In accordance with Statement of Financial Accounting Standards No. 123(R) Share-Based Payment (SFAS 123(R)), we recognized these expenses and have reimbursed Harris with cash in the amount of $0.1 million in respect of fiscal year 2009.
Prior to the Stratex merger, Harris provided information services, human resources, financial shared services, facilities, legal support and supply chain management services to us. The charges for those services were billed to us primarily based on actual usage. On January 26, 2007, we entered into a Transition Services Agreement with Harris to provide for certain services during the periods subsequent to the Stratex acquisition. These services also are charged to us based primarily on actual usage and include database management, supply chain operating systems, eBusiness services, sales and service, financial systems, back office material resource planning support, HR systems, internal and information systems shared services support, network management and help desk support, and server administration and support. During fiscal 2009, we incurred charges of $5.5 million for these services from Harris. We intend to continue to utilize select services from Harris and have extended the terms of the Transition Services Agreement.
We have sales to, and purchases from, other Harris entities from time to time. Prior to January 26, 2007, the entity initiating the transaction sold to the other Harris entity at cost or transfer price, depending on jurisdiction. The entity making the sale to the end customer recorded the profit on the transaction above cost or transfer price, depending on jurisdiction. Subsequent to January 26, 2007, these purchases and sales were recorded at market price. Our sales to other Harris entities were $6.0 million in fiscal 2009. We also recognized costs associated with related party purchases from Harris of $3.3 million for fiscal 2009.
Additionally, we have other receivables and payables in the normal course of business with Harris. Total receivables from Harris were $6.4 million as of July 3, 2009. Total payables to Harris were $3.3 million as of July 3, 2009.
Prior to January 26, 2007, MCD used certain assets in Canada owned by Harris that were not contributed to us with Harris. We continue to use these assets in our business and we entered into a 5-year lease agreement to accommodate this use. This agreement is a capital lease under generally accepted accounting principles. As of July 3, 2009, our lease obligation to Harris was $1.4 million of which $0.5 million is a current liability and the related asset amount, net of accumulated amortization of $1.4 million is included in property, plant and equipment. Quarterly lease payments are due to Harris based on the amount of 103% of Harris annual depreciation calculated in accordance with U.S. generally accepted accounting principles.
During fiscal 2009 we paid Harris $1.4 million under this capital lease obligation. Our amortization expense on this capital lease was $1.1 million, $1.8 million and $0.8 million in fiscal 2009, 2008 and 2007. As of July 3, 2009, the future minimum payments for this lease are $0.8 million for fiscal 2010, $0.5 million for fiscal 2011 and $0.2 million for fiscal 2012.
We have entered into a tax sharing agreement with Harris which provides that if our financial results are required to be included in a Harris consolidated, combined, or unitary income or franchise tax return, or vice versa, the parties will consent to the inclusion of such results in the combined return. We have agreed to reimburse Harris for any tax liability of ours reflected in a Harris tax return (and vice versa), and Harris has agreed to reimburse us for use of any tax benefits of ours that are used by Harris in its tax return (and vice versa). These arrangements also apply to our subsidiaries as well as to those of Harris Corporation, although for purposes of the tax sharing agreement, neither we nor our subsidiaries are considered subsidiaries of Harris Corporation. There were no settlement payments under these arrangements during the fiscal year ended July 3, 2009.
During fiscal 2007, our Singapore subsidiary issued 8,250 redeemable preference shares to the Company which, in turn, sold the shares to two unrelated investment companies at par value for total sale proceeds of $8.25 million. Upon original issuance in fiscal 2007, Harris guaranteed redemption of these preference shares directly with these two unrelated investment companies through the existence of put option arrangements. During May 2009, one of these unrelated investment companies exercised a put option with Harris and sold its entire
interest in 3,250 redeemable preference shares at face value to Harris. Accordingly, Harris owns this partial interest in our Singapore subsidiarys redeemable preference shares outstanding as of July 3, 2009. These redeemable preference shares represent less than a 1% interest in our Singapore subsidiary. The redeemable preference shares have an automatic redemption date of January 2017, which is 10 years from the date of issue. Preference dividends are cumulative and payable quarterly in cash at the rate of 12% per annum. The holders of the redeemable preference shares have liquidation rights in priority of all classes of capital stock of our Singapore subsidiary. The holders of the redeemable preference shares do not have any other participation in, or rights to, our profits, assets or capital shares, and do not have rights to vote as a shareholder of the Singapore subsidiary unless the preference dividend or any part thereof is in arrears and has remained unpaid for at least 12 months after it has been declared. During fiscal 2009, 2008 and 2007, preference dividends totaling $1.0 million, $1.0 million and $0.4 million were recorded as interest expense in the our consolidated statements of operations. We have classified the redeemable preference shares as a long-term liability due to the mandatory redemption provision 10 years from issue date. Our Singapore subsidiary has the right at any time after 5 years from the issue date to redeem, in whole or in part, the redeemable preference shares as follows: 105% of the issue price after 5 years but before 6 years from issue date; 104% of the issue price after 6 years but before 7 years from issue date; 103% of the issue price after 7 years but before 8 years from issue date; 102% of the issue price after 8 years but before 9 years from issue date; 101% of the issue price after 9 years but before 10 years from issue date and 100% of the issue price at the automatic redemption date of 10 years from issue date.