NOTE G – COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases facilities, office equipment, and distribution vehicles under non-cancelable operating leases with terms ranging from one to fifteen years. The processing facility leases contain various renewal options and escalating payments. The Company intends to exercise certain aspects of these renewal options when the initial terms expire. The vehicle leases contain contingent rentals based on mileage.

Future minimum lease payments as of December 31, 2011 are as follows (in 000's):


Years ending December 31
2012	$	2,448
2013		1,885
2014		1,648
2015		1,475
2016		1,161
Thereafter		859

Total	$	9,476

Rental expense for the years ended December 31, 2011, 2010 and 2009 totaled approximately $3.8 million, $3.7 million, and $3.5 million (including contingent rentals of approximately $324,000, $313,000, and $313,000), respectively. The Company is in the process of negotiating renewals of leases that expire in 2012.

Contractual Obligations

The Company offers instruments pursuant to a Joint Marketing Agreement with Aesculap, Inc. ("Aesculap"). Under the terms of this agreement, Aesculap furnishes and repairs most of the surgical instruments that are delivered to customers and receives an agreed upon fee from the Company for each procedure. The Company has arrangements with Standard Textile Co., Inc. ("Standard Textile") and Forum Industries, Inc. ("Forum"), under which the Company purchases the majority of its reusable surgical linens.

The Company's management believes that Aesculap, Standard Textile and Forum's prices are and will be comparable to prices available from other vendors. Standard Textile is a shareholder of the Company. If Aesculap, Standard Textile or Forum were unable to perform under these procurement arrangements, the Company would need to obtain alternate sources for its reusable surgical products. The Company is not bound to purchase any minimum quantity of products under these agreements, however, the Company is required to purchase at least fifty-percent (50%) of its annual reusable surgical linen requirements from Forum. The Company estimates that its payments under these agreements will be between $14.0 and $16.0 million in 2012. Amounts in subsequent years will be comparable, adjusted by changes in the Company's customer demand, amortization rates, product prices, and other variables affecting its business. During the years ended December 31, 2011, 2010, and 2009, the Company purchased reusable surgical linen products in the amounts of $6.9 million, $5.7 million, and $4.8 million, respectively. During the years ended December 31, 2011, 2010, and 2009, the Company incurred fees of $8.7 million, $9.4 million, and $11.3 million, respectively, for instrument usage.

Under the terms of the Co-Marketing Agreement with Cardinal Health, the Company received $1.0 million and $250,000 in January 2009 and 2010, respectively, which was initially recognized in other accrued expenses in its balance sheets. The amounts received from Cardinal Health were intended to reimburse the Company for certain expenses incurred for marketing and sales, opening depots in territories not currently served by the Company, and to close its disposable products assembly plant located in Plant City, Florida, among other items. During the years ended December 31, 2010 and 2009, the Company incurred costs of $37,000 and $485,000, respectively, related to certain costs, including severance, asset disposal and other costs, associated with the closing of its disposable assembly facility in Plant City, Florida. The costs directly associated with the plant closing were applied against the payment received from Cardinal Health. Additionally, during the years ended December 31, 2010 and 2009, the Company incurred costs of $399,000 and $329,000, respectively, related to the hiring of sales and marketing professionals to support the agreement, as well as software development, and training and management sessions in an effort to support the agreement. The direct costs incurred in support of the agreement with Cardinal Health were applied against the payment received from Cardinal Health. The Company accounted for cash incentive payments under the provisions of ASC 605-50-45-13b, Revenue Recognition: Customer Payments and Incentives, which requires that consideration received from a vendor that is a reimbursement for cost incurred to sell the vendor's product be characterized as a reduction of that cost when recognized in the income statement.

During 2010, W.L. Gore and Associates ("Gore"), the supplier of the barrier fabric used in the Company's Level III and Level IV surgical gowns and its Level IV drapes, notified the Company it is exiting the medical fabrics market in early 2012. As a result of its decision, Gore gave its customers the option to make advance purchases of fabric to bridge their process of transitioning to another supplier. The Company will make a substantial purchase of approximately $7.2 million of fabric pursuant to this program. During the year ended December 31, 2011, the Company purchased raw material barrier fabric from Gore in the amount of $504,000.

Management Employment Agreements

The Company has employment agreements with its Chief Executive Officer and Chief Financial Officer that provide for payment of twelve months and nine months base salary, respectively, and a pro-rated bonus as severance, if involuntarily terminated by the Company. The officers are prohibited from competing with the Company during the two-year period following termination of their employment. The Company incurred a charge of approximately $238,000 in 2009 in connection with the termination agreement between the Company and a former officer.

Legal Proceedings

From time to time, the Company is involved in claims that arise in the ordinary course of business. The Company does not believe these proceedings, individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, or cash flows.