0001169232-05-002074.txt : 20050412 0001169232-05-002074.hdr.sgml : 20050412 20050412145745 ACCESSION NUMBER: 0001169232-05-002074 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20050226 FILED AS OF DATE: 20050412 DATE AS OF CHANGE: 20050412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EZ EM INC CENTRAL INDEX KEY: 0000727008 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 111999504 STATE OF INCORPORATION: DE FISCAL YEAR END: 0105 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13003 FILM NUMBER: 05746085 BUSINESS ADDRESS: STREET 1: 717 MAIN ST CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 5163338230 10-Q 1 d63326_10-q.htm QUARTERLY REPORT 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 26, 2005

OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission file number 1-11479

E-Z-EM, Inc. ————————————————————— (Exact name of registrant as specified in its charter)

Delaware ————————————— (State or other jurisdiction of incorporation or organization)	11-1999504 ———————— (I.R.S. Employer Identification No.)

1111 Marcus Avenue, Lake Success, New York ———————————————————— (Address of principal executive offices)	11042 ————— (Zip Code)

(516) 333-8230 —————————————————————— Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes |X| No |_|

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes |_| No |X|

As of April 7, 2005, there were 10,777,758 shares of the issuer’s common stock outstanding.

E-Z-EM, Inc. and Subsidiaries

INDEX

Part I: Financial Information	Page

Item l. Financial Statements

Consolidated Balance Sheets - February 26, 2005 and
May 29, 2004	3 - 4

Consolidated Statements of Earnings - Thirteen and thirty-nine
weeks ended February 26, 2005 and February 28, 2004	5

Consolidated Statement of Stockholder’s Equity and
Comprehensive Income - Thirty-nine weeks ended
February 26, 2005	6

Consolidated Statements of Cash Flows - Thirty-nine weeks
ended February 26, 2005 and February 28, 2004	7 - 8

Notes to Consolidated Financial Statements	9 - 24

Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations	25 - 36

Item 3. Quantitative and Qualitative Disclosures About
Market Risk	36 - 37

Item 4. Controls and Procedures	37

Part II: Other Information

Item 1. Legal Proceedings	38

Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds	38

Item 3. Defaults Upon Senior Securities	38

Item 4. Submission of Matters to a Vote of Security Holders	38

Item 5. Other Information	38

Item 6. Exhibits	38 - 39

-2-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(in thousands)

ASSETS	February 26, 2005		May 29, 2004

	(unaudited)		(audited)

CURRENT ASSETS
Cash and cash equivalents	$	10,412	$	12,334
Debt and equity securities, at fair value		15,304		12,130
Accounts receivable, principally
trade, net		21,141		16,673
Inventories		22,405		18,901
Other current assets		6,729		5,792
Current assets of discontinued operation				40,290


Total current assets		75,991		106,120

PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization		17,076		15,415

INTANGIBLE ASSETS, less accumulated
amortization		588		133

DEBT AND EQUITY SECURITIES, at fair value		1,643		3,107

INVESTMENTS AT COST		490		1,000

OTHER ASSETS		7,772		7,409

NONCURRENT ASSETS OF DISCONTINUED OPERATION				9,352


	$	103,560	$	142,536

The accompanying notes are an integral part of these statements.

-3-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

LIABILITIES AND STOCKHOLDERS’ EQUITY	February 26, 2005		May 29, 2004

	(unaudited)		(audited)

CURRENT LIABILITIES
Notes payable	$	407	$	440
Current maturities of long-term debt		94		149
Accounts payable		6,158		4,415
Accrued liabilities		7,335		6,557
Accrued income taxes		210		179
Current liabilities of discontinued
operation				5,744


Total current liabilities		14,204		17,484

LONG-TERM DEBT, less current maturities		123		178

OTHER NONCURRENT LIABILITIES		3,747		3,488

NONCURRENT LIABILITIES AND MINORITY INTEREST
OF DISCONTINUED OPERATION				9,611


Total liabilities		18,074		30,761


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred stock, par value $.10 per
share - authorized, 1,000,000 shares;
issued, none
Common stock, par value $.10 per share -
authorized, 16,000,000 shares; issued
and outstanding 10,772,286 shares at
February 26, 2005 and 10,698,216 shares
at May 29, 2004 (excluding 86,288 and
83,062 shares held in treasury at February
26, 2005 and May 29, 2004, respectively)		1,077		1,070
Additional paid-in capital		28,170		38,445
Retained earnings		53,161		70,638
Accumulated other comprehensive income		3,078		1,622


Total stockholders’ equity		85,486		111,775


	$	103,560	$	142,536

The accompanying notes are an integral part of these statements.

-4-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in thousands, except per share data)

	Thirteen weeks ended						Thirty-nine weeks ended

	February 26, 2005			February 28, 2004			February 26, 2005			February 28, 2004


Net sales	$	30,833		$	24,950		$	81,067		$	72,879
Cost of goods sold		18,106			15,207			46,462			44,255


Gross profit		12,727			9,743			34,605			28,624


Operating expenses
Selling and administrative		8,923			7,963			26,192			23,233
Plant closing and operational
restructuring costs		649			500			2,074			1,700
Research and development		1,421			1,047			3,919			3,229


Total operating expenses		10,993			9,510			32,185			28,162


Operating profit		1,734			233			2,420			462

Other income (expense)
Interest income		83			162			230			672
Interest expense		(84	)		(82	)		(249	)		(235	)
Other, net		1,496			828			2,522			1,378


Earnings from continuing
operations before income
taxes		3,229			1,141			4,923			2,277

Income tax provision		311			593			551			1,182


Earnings from continuing
operations		2,918			548			4,372			1,095

Earnings from discontinued
operation, net of income tax
provision					681			1,228			1,604


NET EARNINGS	$	2,918		$	1,229		$	5,600		$	2,699


Basic earnings per common share
From continuing operations	$	0.27		$	0.05		$	0.41		$	0.11
From discontinued operation,
net of income tax provision		0.00			0.07			0.11			0.15


Net earnings	$	0.27		$	0.12		$	0.52		$	0.26


Diluted earnings per common share
From continuing operations	$	0.27		$	0.05		$	0.40		$	0.11
From discontinued operation,
net of income tax provision		0.00			0.07			0.11			0.15


Net earnings	$	0.27		$	0.12		$	0.51		$	0.26


Weighted average common shares
Basic		10,772			10,348			10,751			10,261


Diluted		10,960			10,683			10,943			10,544

The accompanying notes are an integral part of these statements.

-5-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

Thirty-nine weeks ended February 26, 2005
(unaudited)
(in thousands, except share data)

	Common stock				Additional paid-in capital			Retained earnings			Accumulated other comprehensive income			Total			Compre- hensive income

	Shares		Amount


Balance at May 29, 2004		10,698,216	$	1,070	$	38,445		$	70,638		$	1,622		$	111,775

Exercise of stock options,
net of 3,226 shares tendered
to satisfy withholding taxes		65,303		6		219									225
Income tax benefits on
stock options exercised						1,217									1,217
Compensation related to
stock option plans, net of
income tax benefit						421									421
Issuance of stock		8,767		1		107									108
Proceeds from subsidiary’s
initial public offering, net
of financing costs and
minority interest						1,442									1,442
Net earnings									5,600						5,600		$	5,600
Cash dividend ($.30 per
common share)									(3,220	)					(3,220	)
Net book value of discontinued
operation at date of spin-off						(13,681	)		(19,857	)		173			(33,365	)
Unrealized holding gain on debt
and equity securities
Arising during the period												1,108			1,108			1,108
Reclassification adjustment
for gains included in
net earnings												(2,385	)		(2,385	)		(2,385	)
Decrease in fair market value
on interest rate swap												(55	)		(55	)		(55	)
Foreign currency translation
adjustments												2,615			2,615			2,615


Comprehensive income																	$	6,883


Balance at February 26, 2005		10,772,286	$	1,077	$	28,170		$	53,161		$	3,078		$	85,486

The accompanying notes are an integral part of this statement.

-6-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

	Thirty-nine weeks ended

	February 26, 2005			February 28, 2004


Cash flows from operating activities:
Net earnings	$	5,600		$	2,699
Adjustments to reconcile net earnings to net
cash provided by operating activities
Earnings from discontinued operation,
net of tax		(1,228	)		(1,604	)
Depreciation and amortization		2,262			2,195
Gain on sale of investments		(2,385	)		(993	)
Provision for doubtful accounts		69			58
Tax benefit on exercise of stock options		1,217			1,200
Deferred income tax provision
(benefit)		81			(68	)
Other non-cash items		504			(425	)
Changes in operating assets and liabilities,
net of business divested
Accounts receivable		(4,623	)		(579	)
Inventories		(3,440	)		(324	)
Other current assets		(913	)		(1,590	)
Other assets		(473	)		(532	)
Accounts payable		2,397			84
Accrued liabilities		778			1,118
Accrued income taxes		31			110
Other noncurrent liabilities		184			144
Net cash provided by operating activities
of discontinued operation		567			1,140


Net cash provided by operating
activities		628			2,633


Cash flows from investing activities:
Additions to property, plant and
equipment, net		(2,997	)		(1,764	)
Purchase of intangible assets		(555	)
Proceeds from sale of investment at cost		575
Investment at cost		(90	)
Available-for-sale securities
Purchases		(23,545	)		(17,200	)
Proceeds from sale		23,108			18,516
Net cash used in investing activities
of discontinued operation		(11,140	)		(642	)


Net cash used in investing activities		(14,644	)		(1,090	)

The accompanying notes are an integral part of these statements.

-7-

E-Z-EM, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
(in thousands)

	Thirty-nine weeks ended

	February 26, 2005			February 28, 2004


Cash flows from financing activities:
Repayments of debt	$	(263	)	$	(307	)
Proceeds from issuance of debt		93			151
Proceeds from repayment of debt by discontinued
operation		3,000
Dividends paid		(3,220	)		(2,552	)
Proceeds from exercise of stock options		225			2,247
Purchase of treasury stock					(417	)
Proceeds from issuance of stock in connection
with the stock purchase plan		10			4
Cash distributed with discontinued operation		(8,453	)
Net cash provided by (used in) financing
activities of discontinued operation		18,958			(498	)


Net cash provided by (used in) financing
activities		10,350			(1,372	)


Effect of exchange rate changes on
cash and cash equivalents		1,744			676


INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS		(1,922	)		847

Cash and cash equivalents
Beginning of period		12,334			8,520


End of period	$	10,412		$	9,367


Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest	$	83		$	157


Income taxes (net of refunds of $175
in 2004)	$	2,013		$	1,182

The accompanying notes are an integral part of these statements.

-8-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE A – NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of Business

E-Z-EM, Inc. and its subsidiaries (“the Company” or “E-Z-EM”) is a leading provider of medical products used by radiologists, gastroenterologists and speech language pathologists primarily in screening for and diagnosing diseases and disorders of the gastrointestinal (GI) tract. Products are used for colorectal cancer screening, evaluation of swallowing disorders (dysphagia), and testing for other diseases and disorders of the GI system. The Company is also a third-party contract manufacturer, a business that enables the Company to leverage its capacity in quality control, process, automation and manufacturing. Prior to the spin-off of AngioDynamics, Inc. (“AngioDynamics”) on October 30, 2004, the Company was also a provider of innovative medical devices used in minimally invasive, image-guided procedures to treat peripheral vascular disease, or PVD. AngioDynamics designed, developed, manufactured and marketed a broad line of therapeutic and diagnostic devices that enabled interventional physicians (interventional radiologists, vascular surgeons and others) to treat PVD and other non-coronary diseases.

Basis of Presentation

The consolidated balance sheet as of February 26, 2005, the consolidated statement of stockholders’ equity and comprehensive income for the period ended February 26, 2005, and the consolidated statements of earnings and cash flows for the periods ended February 26, 2005 and February 28, 2004, have been prepared by the Company without audit. The consolidated balance sheet as of May 29, 2004 was derived from audited consolidated financial statements. In the opinion of management, all adjustments (which include only normally recurring adjustments) necessary to present fairly the financial position, changes in stockholders’ equity and comprehensive income, results of operations and cash flows at February 26, 2005 (and for all periods presented) have been made.

Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended May 29, 2004 filed by the Company on August 27, 2004. The results of operations for the periods ended February 26, 2005 and February 28, 2004 are not necessarily indicative of the operating results for the respective full years.

The consolidated financial statements include the accounts of E-Z-EM, Inc. and all wholly owned subsidiaries, as well as the accounts of AngioDynamics through its spin-off on October 30, 2004. As a result of the spin-off, AngioDynamics is reported separately as a discontinued operation for all periods presented within the consolidated financial statements (see Note B.

-9-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE A - NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)

Discontinued Operation). All significant intercompany balances and transactions have been eliminated.

NOTE B – DISCONTINUED OPERATION

On November 4, 2004, the Company announced the completion of the spin-off of AngioDynamics by means of a tax-free distribution of the Company’s remaining 80.4% ownership of AngioDynamics. In February 2004, the Company received a favorable private letter ruling from the Internal Revenue Service regarding the tax-free treatment of the distribution of E-Z-EM’s remaining ownership in AngioDynamics. The Company made a pro rata distribution of its 9,200,000 shares of AngioDynamics on October 30, 2004 to E-Z-EM shareholders of record as of October 11, 2004 (the “Record Date”). Based on the shares outstanding of each company on the Record Date, E-Z-EM shareholders received ..856377 shares of AngioDynamics stock for each share of E-Z-EM stock they owned on the Record Date. For all periods presented, AngioDynamics is accounted for as a discontinued operation in the Company’s financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for Impairment and Disposal of Long-Lived Assets.” Amounts in the financial statements and related notes for all periods shown have been reclassified to reflect the discontinued operation.

In fiscal 2004, E-Z-EM entered into three agreements with AngioDynamics – a master separation and distribution agreement, a corporate agreement and a tax allocation and indemnification agreement – that relate to its relationship with AngioDynamics both before and after the separation of AngioDynamics from the Company. All of the agreements between the Company and AngioDynamics were made in the context of a parent-subsidiary relationship and were negotiated in the overall context of the spin-off.

-10-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE B – DISCONTINUED OPERATION (continued)

Summarized results of operations for AngioDynamics, including minority interest, as reported in earnings from discontinued operation in the accompanying consolidated statements of earnings are as follows:

	Thirteen weeks ended				Thirty-nine weeks ended

	February 26, 2005		February 28, 2004		February 26, 2005		February 28, 2004

	(in thousands)

Net sales
From unaffiliated customers			$	12,223	$	22,342	$	34,289
From affiliates				232		420		647


Total net sales		—	$	12,455	$	22,762	$	34,936


Earnings before income taxes			$	946	$	2,628	$	2,593
Income tax provision				265		1,103		989


Earnings before minority
interest		—		681		1,525		1,604
Minority interest						297


Earnings from discontinued
operation		—	$	681	$	1,228	$	1,604

For the thirty-nine weeks ended February 26, 2005, the results of operations for AngioDynamics represented twenty-two weeks’ activity.

-11-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE B – DISCONTINUED OPERATION (continued)

The following table represents summarized balance sheet information for AngioDynamics, including minority interest, as of the date of the spin-off, and is provided to assist in understanding the impact of the disposition on the consolidated balance sheet of the Company (amounts in thousands):

ASSETS

Cash and cash equivalents	$	10,238
Debt and equity securities		11,407
Accounts receivable		7,202
Inventory		9,200
Other current assets		1,363
Property, plant and equipment		7,559
Other assets		1,954


Total assets	$	48,923


LIABILITIES AND STOCKHOLDER’S EQUITY

Current maturities of long-term debt	$	160
Accounts payable		1,947
Accrued liabilities		2,278
Accrued income taxes		44
Long-term debt		3,060
Minority interest		8,133
Stockholder’s equity		33,301


Total liabilities and stockholder’s equity	$	48,923

-12-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE C – STOCK-BASED COMPENSATION

At February 26, 2005, the Company had three stock-based compensation plans. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, no compensation expense has been recognized under these plans concerning options granted to key employees and to members of the Board of Directors, as all such options granted had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. For the thirteen weeks ended February 26, 2005 and February 28, 2004, compensation expense of $21,000 and $2,000, respectively, was recognized under these and certain AngioDynamics plans for options granted to consultants and a former director serving as a consultant. For the thirty-nine weeks ended February 26, 2005 and February 28, 2004, compensation expense of $432,000 and $4,000, respectively, was recognized under these and certain AngioDynamics plans for options granted to consultants and a former director serving as a consultant.

The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to options granted under these plans to key employees and to members of the Board of Directors:

	Thirteen weeks ended						Thirty-nine weeks ended

	February 26, 2005			February 28, 2004			February 26, 2005			February 28, 2004

	(in thousands, except per share data)

Net earnings, as reported	$	2,918		$	1,229		$	5,600		$	2,699
Deduct: Total stock-based
employee compensation expense
determined under the fair value
based method for all awards,
net of income tax effects
(see Note N)		(2,124	)		(141	)		(2,704	)		(421	)


Pro forma net earnings	$	794		$	1,088		$	2,896		$	2,278


Earnings per common share
Basic - as reported	$	.27		$	.12		$	.52		$	.26
Basic - pro forma		.07			.11			.27			.22

Diluted - as reported	$	.27		$	.12		$	.51		$	.26
Diluted - pro forma		.07			.10			.26			.22

-13-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE D — EARNINGS PER COMMON SHARE

Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the period.

The following table sets forth the reconciliation of the weighted average number of common shares:

	Thirteen weeks ended				Thirty-nine weeks ended

	February 26, 2005		February 28, 2004		February 26, 2005		February 28, 2004

	(in thousands)

Basic		10,772		10,348		10,751		10,261
Effect of dilutive securities
(stock options)		188		335		192		283

Diluted		10,960		10,683		10,943		10,544

Excluded from the calculation of earnings per common share, are options to purchase 396,000 and 24,000 shares of common stock for the thirteen and thirty-nine weeks ended February 26, 2005, respectively, as their inclusion would be anti-dilutive. The range of exercise prices on the excluded options was $13.45 to $14.51 per share for the thirteen weeks ended February 26, 2005 and the exercise price on the excluded options was $13.45 for the thirty-nine weeks ended February 26, 2005.

-14-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE E – EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs”, an amendment of ARB No. 43, Chapter 4. The amendments made by SFAS No. 151 will improve financial reporting by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 24, 2004. The Company is currently evaluating the impact of adoption of SFAS No. 151 on its financial position and results of operations.

In December 2004, the FASB issued SFAS No. 123 (R), “Share-Based Payment.” SFAS No. 123 (R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123 (R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS No. 123 (R), only certain pro forma disclosures of fair value were required. SFAS No. 123 (R) shall be effective for the Company as of the beginning of the first interim reporting period that begins after June 15, 2005. The adoption of this statement may have a material impact on the financial statements of the Company commencing with the second quarter ending December 3, 2005. (See Note N).

In March 2004, the FASB Emerging Issues Task Force (“EITF”) released Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF 03-1 provides guidance for determining whether impairment for certain debt and equity investments is other-than-temporary and the measurement of an impaired loss. Certain disclosure requirements of EITF 03-1 were adopted in fiscal 2004 and the Company has complied with the new disclosure requirements in its consolidated financial statements. The recognition and measurement requirements of EITF 03-1 were initially effective for reporting periods beginning after June 15, 2004. In September 2004, the FASB Staff issued FASB Staff Position (“FSP”) EITF 03-1-1 that delayed the effective date for certain measurement and recognition guidance contained in EITF 03-1. The FSP requires that entities continue to apply previously existing “other-than-temporary” guidance until a final consensus is reached. The Company does not anticipate that issuance of a final consensus will materially impact its financial condition or results of operations.

-15-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE F – COMPREHENSIVE INCOME

The components of comprehensive income, net of related tax, are as follows:

	Thirteen weeks ended						Thirty-nine weeks ended

	February 26, 2005			February 28, 2004			February 26, 2005			February 28, 2004

	(in thousands)

Net earnings	$	2,918		$	1,229		$	5,600		$	2,699
Unrealized holding gain (loss)
on debt and equity
securities:
Arising during the period		(43	)		1,599			1,108			3,421
Reclassification adjustment
for gains included in net
earnings		(979	)		(467	)		(2,385	)		(679	)
Increase (decrease) in fair
value on interest rate swap
arising during the period					(35	)		(55	)		96
Foreign currency translation
adjustments arising during
the period		(1,538	)		(481	)		2,615			866


Comprehensive income	$	358		$	1,845		$	6,883		$	6,403

The components of accumulated other comprehensive income, net of related tax, are as follows:

	February 26, 2005		May 29 , 2004

	(in thousands)

Unrealized holding gain on debt and equity
securities	$	1,153	$	2,430
Fair value on interest rate swap				(118	)
Cumulative translation adjustments		1,925		(690	)


Accumulated other comprehensive income	$	3,078	$	1,622

-16-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE G – ASSET PURCHASE

On January 16, 2005, the Company entered into an Asset Purchase Agreement (the “Agreement”) with O’Dell Engineering Ltd. and Philip O’Dell, the sole shareholder and officer of O’Dell Engineering.

Under the Agreement, the Company has agreed to purchase all of O’Dell Engineering’s assets related to reactive skin decontamination lotion (“RSDL”) business and technology. These assets include all licenses, intellectual property, customer orders, contracts and all other assets and properties relating to O’Dell Engineering’s RSDL business and technology (collectively, the “RSDL Assets”).

The purchase price for the RSDL Assets is (i) $5.0 million, of which $500,000 was paid upon signing the Agreement and is included in intangible assets in the accompanying balance sheet, $2.5 million was paid at closing on April 7, 2005, and the balance of which is payable in three installments over the two years following the closing and (ii) royalty payments, not to exceed $8.0 million in total, on sales of RSDL products over the seven years following the closing.

The Agreement also provides that Philip O’Dell will provide consulting services to the Company over a three-year term, with diminishing time commitments in the second and third years, related to commercialization of the RSDL technology. Under the consulting arrangement, Mr. O’Dell is entitled to royalty payments, calculated at 4% of net sales of patented products and 2% of net sales of unpatented products, for seven years based on inventions created or developed by him, or introduced to the Company by him, related to decontamination that are not part of the RSDL technology being acquired by the Company. O’Dell Engineering and Mr. O’Dell have also agreed not to compete with the Company in the sale of RSDL products or other decontamination products anywhere in the world for seven years following the closing of the acquisition.

-17-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE H – PLANT CLOSINGS AND OPERATIONAL RESTRUCTURINGS

In the fourth quarter of fiscal 2004, the Company completed the closing of its device manufacturing facility in San Lorenzo, Puerto Rico as well as its heat-sealing operation in Westbury, New York, each of which was part of the E-Z-EM segment. The Company currently outsources these operations to a third-party manufacturer. This realignment was part of the Company’s strategic plan of restructuring its operations to achieve greater efficiency. The Company has begun realizing the savings it had anticipated from this project during the first quarter of fiscal 2005. For the thirteen and thirty-nine weeks ended February 26, 2004, project costs, primarily severance relating to 98 employees, aggregated $500,000 and $1,700,000, respectively. At February 26, 2005 and February 28, 2004, the liability for the plant closing and operational restructuring, which is included in accrued liabilities, approximated $8,000 and $792,000, respectively.

In June 2004, the Company announced a plan to further streamline its operations in the E-Z-EM segment, specifically by moving its powder-based barium production to its manufacturing facility in Montreal, Canada. The Company expects the project to take 12 months to complete, and to generate savings beginning in fiscal 2006. An expected pre-tax charge to earnings of $2,800,000 will be recorded in fiscal 2005 as a result of this program. Of the $2,800,000 in project costs, approximately $1,400,000 is severance relating to 71 employees and the balance relates primarily to training, relocation and regulatory costs. For the thirteen and thirty-nine weeks ended February 26, 2005, project costs aggregated $649,000 and $2,074,000, respectively. At February 26, 2005, the liability for this restructuring, which is included in accrued liabilities, approximated $687,000.

NOTE I – INVENTORIES

Inventories consist of the following:

	February 26, 2005		May 29 , 2004

	(in thousands)

Finished goods	$	10,689	$	9,850
Work in process		410		252
Raw materials		11,306		8,799


	$	22,405	$	18,901

-18-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE J – DEBT AND EQUITY SECURITIES

During the thirteen and thirty-nine weeks ended February 26, 2005, the Company sold 100,000 shares and 300,000 shares, respectively, of its investment in Cedara Software Corporation. The Company recognized gains on these sales totaling $979,000 and $2,385,000, respectively, during the thirteen and thirty-nine weeks ended February 26, 2005, which are included in the consolidated statements of earnings under the caption “Other, net”.

NOTE K – INCOME TAXES

For the thirteen weeks ended February 26, 2005, the Company’s effective tax rate of 10% differed from the Federal statutory tax rate of 34% due primarily to the reversal of valuation allowances relating to a previously impaired, non-core equity security and losses of a U.S. subsidiary which operated in Puerto Rico, partially offset by non-deductible expenses. For the thirty-nine weeks ended February 26, 2005, the Company’s effective tax rate of 11% differed from the Federal statutory tax rate of 34% due primarily to the reversal of valuation allowances relating to a previously impaired, non-core equity security and losses of a U.S. subsidiary which operated in Puerto Rico, partially offset by non-deductible expenses, including stock option compensation costs of $377,000.

NOTE L – CONTINGENCIES

E-Z-EM, AngioDynamics, the Company’s former subsidiary, and Medical Components, Inc., or Medcomp, have been named as co-defendants in an action entitled Duhon, et. al vs. Brezoria Kidney Center, Inc. et. al, case no. 27084 filed in the District Court of Brezoria County, Texas, 239^th Judicial District on December 29, 2003. The complaint alleges that the defendants designed, manufactured, sold, distributed and marketed a defective catheter that was used in the treatment of, and caused the death of, a hemodialysis patient, as well as committing other negligent acts. The complaint seeks compensatory and other monetary damages in unspecified amounts. Under AngioDynamics’distribution agreement with Medcomp, Medcomp is required to indemnify AngioDynamics against all its costs and expenses, as well as losses, liabilities and expenses (including reasonable attorneys’ fees) that relate in any way to products covered by the agreement. The Company has tendered the defense of the Duhon action to Medcomp and Medcomp has accepted defense of the action. Based upon its prior experience with Medcomp, the Company expects Medcomp to honor its indemnification obligation to AngioDynamics if it is unsuccessful in defending this action.

-19-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE L – CONTINGENCIES (continued)

On January 6, 2004, Diomed, Inc. filed an action against AngioDynamics entitled Diomed, Inc., vs. AngioDynamics, Inc., civil action no. 04 10019 RGS in the U.S. District Court for the District of Massachusetts. Diomed’s complaint alleges that AngioDynamics has infringed on Diomed’s U.S. patent no. 6,398,777 by selling a kit for the treatment of varicose veins (now called the “VenaCure(TM) Procedure Kit”) and two diode laser systems: the Precision 980 Laser and the Precision 810 Laser, and by conducting a training program for physicians in the use of the VenaCure(TM) Procedure Kit. The complaint alleges that AngioDynamics’ actions have caused, and continue to cause, Diomed to suffer substantial damages. The complaint seeks to prohibit AngioDynamics from continuing to market and sell these products, as well as conducting training programs, and seeks compensatory and treble money damages, reasonable attorneys’ fees, costs and pre-judgment interest. AngioDynamics believes that the product does not infringe the Diomed patent. AngioDynamics purchases the lasers and laser fibers for its laser systems from biolitec, Inc. under a supply and distribution agreement. biolitec has engaged counsel on AngioDynamics’ behalf to defend this action.

In accordance with the Master Separation and Distribution Agreement between AngioDynamics and E-Z-EM, AngioDynamics has agreed to indemnify E-Z-EM from any claims which arise out of the business operations of AngioDynamics prior to its spin-off (October 30, 2004) in which E-Z-EM is a named defendant solely because E-Z-EM was the sole stockholder of AngioDynamics.

The Company has been notified by a competitor that it believes specific claims contained in issued United States patents owned by this competitor may be relevant to certain features of the Company’s Empower CT injector. Management is currently in discussions to resolve this matter, and the extent of any liability is not estimable at this time.

The Company is party to other claims, legal actions and complaints that arise in the ordinary course of business. The Company believes that any liability that may ultimately result from the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on its financial position or results of operations.

-20-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE M – COMMON STOCK

AngioDynamics Initial Public Offering

On May 27, 2004, AngioDynamics, the Company’s former subsidiary, sold 1,950,000 shares of its common stock at $11.00 per share through an initial public offering (“IPO”). Proceeds from the IPO, net of certain financing costs, totaling $19,949,000 were received by AngioDynamics on June 2, 2004. At May 29, 2004, the Company owned 9,200,000 shares, or 82.5% of the 11,150,000 shares outstanding. At May 29, 2004, the Company has recorded a credit to common stock and additional paid-in capital of $12,174,000 which is net of financing costs of $1,279,000 and minority interest of $6,496,000. On June 15, 2004, the underwriters of the IPO exercised their over-allotment option and acquired 292,500 shares at $11.00 per share, less underwriting discounts and commissions, and on June 18, 2004, AngioDynamics received net proceeds of $2,992,000. At June 15, 2004, the Company’s ownership interest in AngioDynamics decreased to 80.4%. For the thirty-nine weeks ended February 26, 2005, the Company has recorded a credit to common stock and additional paid-in capital of $1,442,000 which is net of financing costs of $225,000 and minority interest of $1,325,000.

AngioDynamics Spin-off

Stock Repurchase Program

In March 2003, the Board of Directors authorized the repurchase of up to 300,000 shares of the Company’s common stock at an aggregate purchase price of up to $3,000,000. During the thirteen and thirty-nine weeks ended February 26, 2005, no shares were repurchased under this program. In aggregate, the Company has repurchased 74,234 shares of common stock for approximately $716,000 under this program.

-21-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE M – COMMON STOCK (continued)

Cash Dividends

In June 2003, the Company’s Board of Directors declared a cash dividend of $.25 per outstanding share of the Company’s common stock. The dividend was distributed on August 1, 2003 to shareholders of record as of July 15, 2003. In June 2004, the Company’s Board of Directors declared a cash dividend of $.30 per outstanding share of the Company’s common stock. The dividend was distributed on July 1, 2004 to shareholders of record as of June 15, 2004. Future dividends are subject to Board of Directors’ review of operations and financial and other conditions then prevailing.

NOTE N – STOCK COMPENSATION PLANS

In connection with the completion of the AngioDynamics spin-off, as of October 30, 2004, all outstanding stock options (“E-Z-EM Pre-spin Options”) were adjusted and/or exchanged with E-Z-EM options (the “E-Z-EM Post-spin Options”) and AngioDynamics options (the “AngioDynamics Post-spin Options”), collectively referred to as (the “Replacement Options”).

The exercise price and the number of shares subject to each of the Replacement Options was established pursuant to a formula designed to ensure that: (1) the aggregate “intrinsic value” (i.e., the difference between the exercise price of the option and the market price of the common stock underlying the option) of the Replacement Option did not exceed the aggregate intrinsic value of the outstanding E-Z-EM Pre-spin Option which was replaced by such Replacement Option immediately prior to the spin-off, and (2) the ratio of the exercise price of each option to the market value of the underlying stock immediately before and after the spin-off was preserved.

Substantially all of the other terms and conditions of each Replacement Option, including the time or times when, and the manner in which, each option is exercisable, the duration of the exercise period, the permitted method of exercise, settlement and payment, the rules that apply in the event of the termination of employment of the employee, is the same as those of the replaced E-Z-EM Pre-spin Option, except that (1) in some cases, the exercise period of the AngioDynamics Post-spin Options are shorter than the exercise period of the E-Z-EM Pre-spin Options and (2) option holders who are employed by one company are permitted to exercise, and are subject to all of the terms and provisions of, options to acquire shares in the other company as if such holder was an employee of such other company.

-22-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE N – STOCK COMPENSATION PLANS (continued)

Under the 1983 and 1984 Stock Option Plans, options for 20,000 shares were granted at $16.02 per share, options for 68,529 shares were exercised at prices ranging from $3.64 to $8.08 per share, options for 25,984 shares expired at $4.22 per share, and options for 14 shares were forfeited at prices ranging from $3.66 to $12.49 per share during the thirty-nine weeks ended February 26, 2005. Under the 2004 Stock and Incentive Award Plan, which was adopted on October 26, 2004, options for 492,500 shares were granted at prices ranging from $12.66 to $14.51 per share and no options were exercised, forfeited or expired during the thirty-nine weeks ended February 26, 2005.

On January 17, 2005, the Company’s Board of Directors accelerated the vesting of the outstanding unvested stock options awarded to the officers, directors and employees under the E-Z-EM, Inc. 2004 Stock and Incentive Award Plan, all of which had an exercise price greater than the price of the common stock on January 14, 2005. As a result of the acceleration, options to acquire 372,000 shares of common stock (representing approximately 38.6% of the total outstanding options under all of the Company’s compensation plans), which otherwise would have vested from time to time in one-third increments in 2005, 2006 and 2007, became immediately exercisable. The board’s decision to accelerate the vesting of these options was in response to the issuance by the FASB of SFAS No. 123 (R), “Share-Based Payment.” By accelerating the vesting of these options, the Company avoided recognizing any compensation expense in future periods associated with these options. The pro forma charge relating to the accelerated options was $2,260,000 for the thirteen and thirty-nine weeks ended February 26, 2005.

Effective October 26, 2004, the Company extended the exercise period of expiring stock options of a former director who currently provides the Company with consulting services. The Company recorded compensation charges of $21,000 and $406,000 during the thirteen and thirty-nine weeks ended February 26, 2005, respectively, in connection with this extension.

NOTE O – OPERATING SEGMENT

The Company currently operates in one reportable segment: the E-Z-EM segment. Prior to October 30, 2004, the Company operated in two reportable segments: the E-Z-EM segment and the AngioDynamics segment, through its majority-owned subsidiary, AngioDynamics, Inc. Effective as of October 30, 2004, E-Z-EM spun off AngioDynamics by distributing to E-Z-EM’s shareholders 9,200,000 shares of AngioDynamics common stock then held by E-Z-EM. As discussed in Note B. Discontinued Operation, the AngioDynamics segment is being reported as a discontinued operation and the E-Z-EM segment is being reported as the Company’s continuing operations.

-23-

E-Z-EM, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004
(unaudited)

NOTE O – OPERATING SEGMENT (continued)

In the E-Z-EM segment, the Company develops, manufactures and markets medical products used by radiologists, gastroenterologists and speech language pathologists primarily in screening for and diagnosing diseases and disorders of the gastrointestinal (GI) tract. Products in this segment are used for colorectal cancer screening, evaluation of swallowing disorders (dysphagia), and testing for other diseases and disorders of the GI system. The Company is also a third-party contract manufacturer, a business that enables the Company to leverage its capacity in quality control, process, automation and manufacturing. The entire business is focused in the following general areas: X-ray fluoroscopy, CT imaging, contract manufacturing, virtual colonoscopy, gastroenterology and accessory medical devices.

-24-

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read together with the consolidated financial statements and the notes thereto and other information included elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements and Risk Factors

Our disclosure and analysis in this report, including but not limited to the information discussed in this Quarterly Report on Form 10-Q, contain forward-looking information about our company’s financial results and estimates, business prospects and products in research that involve substantial risks and uncertainties. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies, such as legal proceedings, and financial results. Among the factors that could cause actual results to differ materially are the following:

•

our pricing flexibility is constrained by the formation of large Group Purchasing Organizations;

•

if we fail to adequately protect our intellectual property rights, our business may suffer;

•

if third parties claim that our products infringe their intellectual rights, we may be forced to expend significant financial resources and management time defending against such actions and our results of operations could suffer;

•

we currently purchase significant amounts of products, product components and raw materials from several single-source suppliers;

•

our reliance on a single Canadian manufacturing facility to produce most of our X-ray fluoroscopy and CT barium sulfate formulation products may impair our ability to respond to natural disasters or other adverse events, and also exposes us to the effects of changes in Canadian dollar - U.S. dollar exchange rate;

•

the market potential for our Reactive Skin Decontamination Lotion product is uncertain;

•

if we fail to develop new products and enhance existing products, we could lose market share to our competitors and our results of operations could suffer;

•

the adoption rate of virtual colonoscopy as a screening modality for colon cancer has been slower than we anticipated;

-25-

•

the market dynamics and competitive environment in the healthcare industry are subject to rapid change, which may affect our operations;

•

if we cannot obtain approval from governmental agencies for new or modified products, we will not be able to sell those products; and

•

inadequate levels of reimbursement from governmental or other third-party payors for procedures using our products may cause our revenues to decline.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Form 10-K filing for the 2004 fiscal year listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Item 7 of that filing under the heading “Risk Factors.” You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Overview

We are a leading provider of medical diagnostic oral contrast agents used in the diagnosis of abdominal disease. Our customers include radiologists and gastroenterologists. We are focused on becoming a CT solutions company for the computed tomography (CT) market. This focus is driven by the trend away from older fluoroscopic procedures (e.g., barium enema) to CT small bowel imaging procedures. Frost & Sullivan, a leading market research firm, has estimated that CT procedures will grow at 11.25% compound annual growth rate over the period 2003 through 2010.

We have pioneered solutions for the emerging area of Virtual Colonography, which may offer unique capabilities for the early detection of colorectal cancer, and have also developed new contrast agents that focus on CT and CT Angiography applications in Multidetector CT technology. We also manufacture and market several lines of CT power injectors, which are used to deliver CT contrast agents. We were recently rated # 1 in user satisfaction among vendors of CT Power injectors by MD Buyline.

In addition to our products for the radiology market, we have focused our efforts in the area of healthcare decontamination. Reactive Skin Decontamination Lotion (RSDL), is a liquid skin decontaminant that is effective in neutralizing a broad spectrum of chemical warfare and toxic agents. In January 2005, we entered into an agreement to purchase all of the RSDL Assets of O’Dell Engineering Ltd., the licensee of the RSDL technology. We completed this transaction on April 7, 2005.

-26-

Prior to our spin-off of AngioDynamics on October 30, 2004, we were also a provider of innovative medical devices used in minimally invasive, image-guided procedures to treat peripheral vascular disease, or PVD. AngioDynamics designed, developed, manufactured and marketed a broad line of therapeutic and diagnostic devices that enabled interventional physicians (interventional radiologists, vascular surgeons and others) to treat PVD and other non-coronary diseases.

AngioDynamics Initial Public Offering

On May 27, 2004, AngioDynamics, our former subsidiary, sold 1,950,000 shares of its common stock at $11.00 per share through an initial public offering (“IPO”). Proceeds from the IPO, net of certain financing costs, totaling $19,949,000 were received by AngioDynamics on June 2, 2004. At May 29, 2004, we owned 9,200,000 shares, or 82.5% of the 11,150,000 shares outstanding. On June 15, 2004, the underwriters of the IPO exercised their over-allotment option and acquired 292,500 shares at $11.00 per share, less underwriting discounts and commissions, and on June 18, 2004, AngioDynamics received net proceeds of $2,992,000. At June 15, 2004, our ownership interest in AngioDynamics decreased to 80.4%.

AngioDynamics Spin-off

On November 4, 2004, we announced the completion of our spin-off of AngioDynamics by means of a tax-free distribution of our remaining 80.4% ownership of AngioDynamics. In February 2004, we received a favorable private letter ruling from the Internal Revenue Service regarding the tax-free treatment of the distribution of our remaining ownership in AngioDynamics. We made a pro rata distribution of our 9,200,000 shares of AngioDynamics on October 30, 2004 to our shareholders of record as of October 11, 2004 (the “Record Date”). Based on the shares outstanding of each company on the Record Date, our shareholders received .856377 shares of AngioDynamics stock for each share of E-Z-EM stock they owned on the Record Date. For all periods presented, AngioDynamics is accounted for as a discontinued operation in our financial statements in accordance with SFAS No. 144, “Accounting for Impairment and Disposal of Long-Lived Assets.”

Results of Operations

Recent Developments

In mid-December 2004, our principal competitor, Mallinckrodt, a division of Tyco International Ltd., initiated a recall of its liquid barium products due to potential microbial contamination. As a result, we estimate that our third quarter net sales were favorably affected by $3.3 million to $3.7 million due to our ability to provide replacement products. We anticipate that Mallinckrodt will resume shipping these products prior to the end of our fourth quarter. We are unable to predict what portion of the business, if any, we will be able to retain.

We recently received notice of price increases from several of our single-source barium suppliers. While this had no affect on the current quarter operating results, it could adversely affect our future results of operation. We currently are negotiating with our suppliers and exploring various alternatives to mitigate this potential cost increase.

As of the end of our current fiscal year, we will become subject to the accelerated filing requirements and the Section 404 internal control requirements of the Sarbanes-Oxley Act of 2002. As an accelerated filer, our

-27-

quarterly and annual SEC reports will be subject to more stringent filing deadlines. Additionally, under Section 404 of the Act, we will be required to design and implement a system of internal control over financial reporting and to evaluate and determine the effectiveness of our internal control over financial reporting. During the current quarter, we dedicated significant amounts of time and resources to these compliance efforts. We incurred outside consulting and auditing costs of $165,000 in the quarter, and we expect that our costs for continuing Sarbanes-Oxley compliance will be significant.

Quarters ended February 26, 2005 and February 28, 2004

Our fiscal quarters ended February 26, 2005 and February 28, 2004 both represent thirteen weeks.

Consolidated Results of Operations

For the quarter ended February 26, 2005, we reported net earnings of $2,918,000, or $.27 per common share on both a basic and diluted basis, compared to net earnings of $1,229,000, or $.12 per common share on both a basic and diluted basis, for the comparable period of last year.

Both the current quarter and the comparable quarter of the prior year included charges for restructuring our manufacturing operations. The current quarter included $649,000, or $.04 per basic share, in plant closing and operational restructuring costs related to the moving of our powder-based barium production to our manufacturing facility in Montreal, Canada. We expect the project to be completed by the end of fiscal 2005, and to generate projected annual pre-tax savings of $2,200,000 beginning in fiscal 2006. An expected pre-tax charge to earnings of $2,800,000 (inclusive of $2,074,000 in charges incurred during the nine months ended February 26, 2005), approximately half of which is severance related, will be recorded in the current year as a result of this program. The comparable quarter of the prior year included $500,000, or $.04 per basic share, in plant closing and operational restructuring costs related to the closings of our device manufacturing facility in San Lorenzo, Puerto Rico, and our heat-sealing operation in Westbury, New York, both of which were completed in the fourth quarter of fiscal 2004.

Excluding the effect of the plant closings and operational restructurings, operating results improved by $1,650,000 due to increased sales and improved gross profit, partially offset by increased operating expenses.

Continuing Operations

Net sales for the quarter ended February 26, 2005 increased 24%, or $5,883,000, over the quarter ended February 28, 2004 due to sales volume increases of $5,557,000, of which we estimate $3,300,000 to $3,700,000 can be attributed to the Mallinckrodt product recall, and foreign currency exchange rate fluctuations, which increased the translated amounts of our foreign subsidiaries’sales to U.S. dollars for financial reporting purposes by $425,000. On a product line basis, the net sales increase resulted from increased sales of CT imaging contrast products, particularly our CT Smoothie lines, and CT injector systems totaling $4,322,000 and increased sales of X-ray fluoroscopy products of $1,175,000. Price increases had minimal effect on net sales for the current quarter.

Net sales in international markets, including direct exports from the United States, increased 11%, or $991,000, to $9,887,000 for the current quarter

-28-

from $8,896,000 for the comparable period of last year. This increase is attributable to higher sales volumes of $566,000 and foreign currency exchange rate fluctuations, which increased the translated amounts of foreign subsidiaries’sales to U.S. dollars for financial reporting purposes by $425,000.

Gross profit, expressed as a percentage of net sales, improved to 41% for the current quarter from 39% for the comparable quarter of the prior year due primarily to favorable changes in sales product mix and cost savings from the closings of our device manufacturing facility in San Lorenzo, Puerto Rico, and our heat-sealing operation in Westbury, New York. Our third fiscal quarters traditionally have fewer production days than the other fiscal quarters, resulting in somewhat lower gross profit percentages.

Selling and administrative (“S&A”) expenses were $8,923,000 for the quarter ended February 26, 2005 compared to $7,963,000 for the quarter ended February 28, 2004. This increase of $960,000, or 12%, was due, in large part, to: (i) increased compensation costs of $260,000; (ii) costs of $165,000 for Sarbanes-Oxley Act Section 404 compliance efforts; and (iii) foreign currency exchange rate fluctuations which increased the translated amounts of our foreign subsidiaries’ S&A expenses to U.S. dollars for financial reporting purposes by $134,000.

Research and development (“R&D”) expenditures increased 36% for the current quarter to $1,421,000, or 5% of net sales, from $1,047,000, or 4% of net sales, for the comparable quarter of the prior year due primarily to increased spending of $179,000 relating to X-ray fluoroscopy and CT imaging projects, $74,000 relating to gastroenterology projects, $59,000 relating to general regulatory costs and $42,000 relating to virtual colonoscopy projects. Of the R&D expenditures for the current quarter, approximately 53% relate to X-ray fluoroscopy and CT imaging projects, 28% to general regulatory costs, 11% to gastroenterology projects, 6% to virtual colonoscopy projects and 2% to other projects. R&D expenditures are expected to continue at approximately current levels for the remainder of this fiscal year.

Other income, net of other expenses, totaled $1,495,000 for the current quarter compared to $908,000 for the comparable period of last year. This increase was due primarily to increased foreign currency exchange gains of $366,000, resulting from the strengthening of the U.S. dollar in the current quarter, and increased gains of $322,000 on the sales of non-core equity securities, partially offset by reduced interest income of $79,000. Interest income for the comparable period of last year included $115,000 in imputed interest on loans to AngioDynamics. Certain of these loans were capitalized in connection with the initial public offering of AngioDynamics and the balance was repaid in the current fiscal year.

For the quarter ended February 26, 2005, our effective tax rate of 10% differed from the Federal statutory tax rate of 34% due primarily to the reversal of valuation allowances relating to a previously impaired, non-core equity security and losses of our subsidiary in Puerto Rico, partially offset by non-deductible expenses. For the quarter ended February 28, 2004, our effective tax rate of 52% differed from the Federal statutory tax rate of 34% due primarily to not currently deductible losses incurred at our subsidiary in Puerto Rico and non-deductible expenses. The losses incurred at our Puerto Rican subsidiary resulted from the closing of this facility and the outsourcing of its operations.

-29-

Discontinued Operations

We have consolidated the financial statements of AngioDynamics and reported its results as a discontinued operation in an amount equal to our percentage of equity ownership through October 30, 2004, the spin-off date. Since the spin-off occurred prior to our third fiscal quarter, the results for the discontinued operation were excluded from the accompanying consolidated statement of earnings for the current quarter.

Summarized results of operations for AngioDynamics as reported in earnings from discontinued operation in the accompanying consolidated statement of earnings are as follows:

	Thirteen weeks ended February 28, 2004

	(in thousands)

Net sales
From unaffiliated customers	$	12,223
From affiliates		232


Total net sales	$	12,455


Earnings before income taxes	$	946
Income tax provision		265


Earnings from discontinued
operation	$	681

Nine months ended February 26, 2005 and February 28, 2004

Our nine months ended February 26, 2005 and February 28, 2004 both represent thirty-nine weeks.

Consolidated Results of Operations

For the nine months ended February 26, 2005, we reported net earnings of $5,600,000, or $.52 and $.51 per common share on a basic and diluted basis, respectively, compared to net earnings of $2,699,000, or $.26 per common share on both a basic and diluted basis, for the comparable period of last year.

Both the current nine months and the comparable nine months of the prior year included charges for restructuring our manufacturing operations. The current nine months included $2,074,000, or $.13 per basic share, in plant closing and operational restructuring costs related to the moving of our powder-based barium production to our manufacturing facility in Montreal, Canada. The comparable nine months of the prior year included $1,700,000, or $.15 per basic share, in plant closing and operational restructuring costs related to the closings of our device manufacturing facility in San Lorenzo, Puerto Rico, and our heat-sealing operation in Westbury, New York, both of which were completed in the fourth quarter of fiscal 2004.

Excluding the effect of the plant closings and operational restructurings, operating results improved by $2,332,000 due to increased sales and improved gross profit, partially offset by increased operating expenses, including the recording of compensation costs of $406,000, resulting from the modification of certain stock options previously granted to one of our former directors.

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Continuing Operations

Net sales for the nine months ended February 26, 2005 increased 11%, or $8,188,000, compared to the nine months ended February 28, 2004 due to sales volume increases of $6,782,000, of which we estimate $3,300,000 to $3,700,000 can be attributed to the Mallinckrodt product recall, and foreign currency exchange rate fluctuations, which increased the translated amounts of our foreign subsidiaries’ sales to U.S. dollars for financial reporting purposes by $1,202,000. On a product line basis, the net sales increase resulted from increased sales of CT imaging contrast products, particularly our CT Smoothie lines, and CT injector systems totaling $8,188,000. Price increases accounted for less than 1% of net sales for the current period.

Net sales in international markets, including direct exports from the United States, increased 4%, or $931,000, to $27,019,000 for the current period from $26,088,000 for the comparable period of last year. Foreign currency exchange rate fluctuations, which increased the translated amounts of foreign subsidiaries’ sales to U.S. dollars for financial reporting purposes by $1,202,000, were partially offset by lower sales volumes.

Gross profit, expressed as a percentage of net sales, improved to 43% for the current period from 39% for the comparable period of the prior year due primarily to: (i) cost savings from the closings of our device manufacturing facility in San Lorenzo, Puerto Rico, and our heat-sealing operation in Westbury, New York; (ii) the decline in distributor rebates; and (iii) reduced raw material and purchased finished product costs.

S&A expenses were $26,192,000 for the nine months ended February 26, 2005 compared to $23,233,000 for the nine months ended February 28, 2004. This increase of $2,959,000, or 13%, was due, in large part, to: (i) increased compensation costs of $596,000; (ii) foreign currency exchange rate fluctuations, which increased the translated amounts of our foreign subsidiaries’ S&A expenses to U.S. dollars for financial reporting purposes by $435,000; (iii) the recording of a non-cash compensation charge of $406,000, resulting from the modification of certain stock options previously granted to one of our former directors; and (iv) costs of $165,000 for Sarbanes-Oxley Act Section 404 compliance efforts.

R&D expenditures increased 21% for the current period to $3,919,000, or 5% of net sales, from $3,229,000, or 4% of net sales, for the comparable period of the prior year due primarily to increased spending of $313,000 relating to gastroenterology projects, $198,000 relating to X-ray fluoroscopy and CT imaging projects, $73,000 relating to general regulatory costs and $60,000 relating to virtual colonoscopy projects. Of the R&D expenditures for the current period, approximately 48% relate to X-ray fluoroscopy and CT imaging projects, 28% to general regulatory costs, 14% to gastroenterology projects, 8% to virtual colonoscopy projects and 2% to other projects.

Other income, net of other expenses, totaled $2,503,000 for the current period compared to $1,815,000 for the comparable period of last year. This improvement was due primarily to increased gains of $1,392,000 on the sales of non-core equity securities, partially offset by reduced interest income of $442,000 and unfavorable changes in foreign currency exchange gains and losses of $183,000, resulting from the weakening of the U.S. dollar. Interest income for the comparable period of last year included $535,000 in imputed interest on loans to AngioDynamics. Certain of these loans were capitalized in connection with the initial public offering of AngioDynamics and the balance was repaid in the current fiscal year.

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For the nine months ended February 26, 2005, our effective tax rate of 11% differed from the Federal statutory tax rate of 34% due primarily to the reversal of valuation allowances relating to a previously impaired, non-core equity security and losses of our subsidiary in Puerto Rico, partially offset by non-deductible expenses, including stock option compensation costs of $377,000. For the nine ended February 28, 2004, our effective tax rate of 52% differed from the Federal statutory tax rate of 34% due primarily to not currently deductible losses incurred at our subsidiary in Puerto Rico and non-deductible expenses, partially offset by the utilization of previously unrecorded net operating loss carryforwards in certain foreign jurisdictions. The losses incurred at our Puerto Rican subsidiary resulted from the closing of this facility and the outsourcing of its operations.

Discontinued Operations

We have consolidated the financial statements of AngioDynamics and reported its results as a discontinued operation in an amount equal to our percentage of equity ownership through October 30, 2004, the spin-off date. The results for the discontinued operation for the current nine months represent only twenty-two weeks activity and, therefore, are not comparative to the results for the prior year’s first nine months.

	Twenty-two weeks ended October 30, 2004		Thirty-nine weeks ended February 28, 2004

	(in thousands)
Net sales
From unaffiliated customers	$	22,342	$	34,289
From affiliates		420		647


Total net sales	$	22,762	$	34,936


Earnings before income taxes	$	2,628	$	2,593
Income tax provision		1,103		989


Earnings before minority
interest		1,525		1,604
Minority interest		297


Earnings from discontinued
operation	$	1,228	$	1,604

Liquidity and Capital Resources

For the nine months ended February 26, 2005, cash dividends and capital expenditures were funded by working capital, cash reserves and the repayment of intercompany debt by AngioDynamics from the proceeds of its IPO. Our policy has generally been to fund operations and capital requirements without incurring significant debt. At February 26, 2005, debt (notes payable, current maturities of long-term debt and long-term debt) was $624,000, as compared to $767,000 at May 29, 2004. We have available $1,614,000 under a bank line of credit, of which no amounts were outstanding at February 26, 2005.

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Our contractual obligations and their effect on liquidity and cash flows as of February 26, 2005 are set forth in the table below. We have no variable interest entities or other off-balance sheet obligations.

	Payments Due By Period as of February 26, 2005

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

	(in thousands)
Contractual Obligations:
Long-term debt	$	217	$	107	$	110
Notes payable		407		407
Operating leases (1)		9,652		1,763		3,552	$	3,550	$	787
Purchase obligations (1)		4,876		4,876
Employment contract (1)		680		680
Consulting contracts (1)		77		42		35
Other long-term liabilities
reflected on the
consolidated balance sheet
Deferred compensation (2)		2,713		16		40		51		2,606
Accrued retirement
benefits		200		62						138


Total	$	18,822	$	7,953	$	3,737	$	3,601	$	3,531

(1)

The non-cancelable operating leases, purchase obligations, and employment and consulting contracts are not reflected on the consolidated balance sheet under accounting principles generally accepted in the United States of America. The purchase obligations consist primarily of finished good product and component parts.

(2)	Deferred compensation costs covering active employees are assumed payable after five years, although certain circumstances, such as termination, would require earlier payment.

At February 26, 2005, approximately $25,716,000, or 25%, of our assets consisted of cash and cash equivalents and short-term debt and equity securities. The current ratio was 5.35 to 1, with net working capital of $61,787,000, at February 26, 2005, compared to a current ratio of 6.07 to 1, with net working capital of $88,636,000, at May 29, 2004. The decrease in net working capital resulted from our spin-off of AngioDynamics. We believe that our cash reserves, cash provided from continuing operations and our existing bank line of credit will provide sufficient liquidity to meet our current obligations for the next 12 months.

In March 2003, the Board of Directors authorized the repurchase of up to 300,000 shares of our common stock at an aggregate purchase price of up to $3,000,000. During the nine months ended February 26, 2005, no shares were repurchased under this program. In aggregate, we have repurchased 74,234 shares of common stock for approximately $716,000 under this program.

In June 2003, our Board of Directors declared a cash dividend of $.25 per outstanding share of our common stock. The dividend was distributed on August 1, 2003 to shareholders of record as of July 15, 2003. In June 2004, our Board of Directors declared a cash dividend of $.30 per outstanding share of our common stock. The dividend was distributed on July 1, 2004 to shareholders of record as of June 15, 2004. Future dividends are subject to our Board of Directors’ review of operations and financial and other conditions then prevailing.

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Critical Accounting Policies

Our significant accounting policies are summarized in Note A to the Consolidated Financial Statements included in our Annual Report on Form 10-K for our fiscal year ended May 29, 2004. While all these significant accounting policies affect the reporting of our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require us to use a greater degree of judgment and/or estimates. Actual results may differ from those estimates.

We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgment or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report. The accounting policies identified as critical are as follows:

Revenue Recognition

We recognize revenues in accordance with generally accepted accounting principles as outlined in Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements,” which requires that four basic criteria be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) the price is fixed or determinable; (3) collectibility is reasonably assured; and (4) product delivery has occurred or services have been rendered. Decisions relative to criterion (3) regarding collectibility are based upon our judgments, as discussed under “Accounts Receivable” below. Should conditions change in the future and cause us to determine this criterion is not met, our results of operations may be affected. We recognize revenue on the date the product is shipped, which is when title passes to the customer. Shipping and credit terms are negotiated on a customer-by-customer basis. Products are shipped primarily to distributors at an agreed-upon list price. The distributor then resells the products primarily to hospitals and, depending upon contracts between us, the distributor and the hospital, the distributor may be entitled to a rebate. We deduct all rebates from sales and have a provision for rebates based on historical information for all rebates that have not yet been submitted to us by the distributors. All product returns must be pre-approved by us and customers may be subject to a 20% restocking charge. To be accepted, a returned product must be unadulterated, undamaged and must have at least 12 months remaining prior to its expiration date. We record revenue on warranties and extended warranties on a straight-line basis over the term of the related warranty contracts, which generally cover one year. Deferred revenues related to warranties and extended warranties are $510,000 at February 26, 2005. Service costs are expensed as incurred.

Accounts Receivable

Accounts receivable are generally due within 30 to 90 days and are stated at amounts due from customers, net of an allowance for doubtful accounts. We perform ongoing credit evaluations and adjust credit limits based upon payment history and the customer’s current credit worthiness, as determined by a review of their current credit information. We continuously monitor aging reports, collections and payments from customers, and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues we identify. While such credit losses have historically been within expectations and the provisions established, we cannot guarantee the same credit loss rates will be

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experienced in the future. We write off accounts receivable when they become uncollectible. Concentration risk exists relative to our accounts receivable, as 35% of our total accounts receivable balance at February 26, 2005 is concentrated in one distributor. While the accounts receivable related to this distributor are significant, we do not believe the credit loss risk to be significant given the distributor’s consistent payment history.

Income Taxes

In preparing our financial statements, income tax expense is calculated for each jurisdiction in which we operate. This involves estimating actual current taxes due plus assessing temporary differences arising from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities. Deferred tax assets are periodically evaluated to determine their recoverability, based primarily on our ability to generate future taxable income. Where their recovery is not likely, we establish a valuation allowance and record a corresponding additional tax expense in our statement of earnings. If actual results differ from our estimates due to changes in assumptions, the provision for income taxes could be materially affected.

Inventories

We value inventories at the lower of cost (on the first-in, first-out method) or market. On a quarterly basis, we review inventory quantities on hand and analyze the provision for excess and obsolete inventory based primarily on product expiration dating and our estimated sales forecast, which is based on sales history and anticipated future demand. Our estimates of future product demand may not be accurate and we may understate or overstate the provision required for excess and obsolete inventory. Accordingly, any significant unanticipated changes in demand could have a significant impact on the value of our inventory and results of operations. At February 26, 2005, our reserve for excess and obsolete inventory was $1,763,000.

Property, Plant and Equipment

We state property, plant and equipment at cost, less accumulated depreciation, and depreciate principally using the straight-line method over their estimated useful lives. We determine this based on our estimates of the period over which the asset will generate revenue. Any change in condition that would cause us to change our estimate of the useful lives of a group or class of assets may significantly affect depreciation expense on a prospective basis.

Effects of Recently Issued Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs”, an amendment of ARB No. 43, Chapter 4. The amendments made by SFAS No. 151 will improve financial reporting by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 24, 2004. We are currently evaluating the

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impact of adoption of SFAS No. 151 on our financial position and results of operations.

In December 2004, the FASB issued SFAS No. 123 (R), “Accounting for Stock-Based Compensation.” SFAS No. 123 (R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123 (R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS No. 123 (R), only certain pro forma disclosures of fair value were required. SFAS No. 123 (R) shall be effective for us as of the beginning of the first interim reporting period that begins after June 15, 2005. The adoption of this statement may have a material impact on our financial statements commencing with the second quarter ending December 3, 2005.

In March 2004, the FASB Emerging Issues Task Force (“EITF”) released Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” EITF 03-1 provides guidance for determining whether impairment for certain debt and equity investments is other-than-temporary and the measurement of an impaired loss. Certain disclosure requirements of EITF 03-1 were adopted in fiscal 2004 and we have complied with the new disclosure requirements in its consolidated financial statements. The recognition and measurement requirements of EITF 03-1 were initially effective for reporting periods beginning after June 15, 2004. In September 2004, the FASB Staff issued FASB Staff Position (“FSP”) EITF 03-1-1 that delayed the effective date for certain measurement and recognition guidance contained in EITF 03-1. The FSP requires that entities continue to apply previously existing “other-than-temporary” guidance until a final consensus is reached. We do not anticipate that issuance of a final consensus will materially impact our financial condition or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in foreign currency exchange rates and, to a much lesser extent, interest rates on investments and financing, which could impact our results of operations and financial position. We do not currently engage in any hedging or market risk management tools. There have been no material changes with respect to market risk previously disclosed in our Annual Report on Form 10-K for our 2004 fiscal year.

Foreign Currency Exchange Rate Risk

The financial reporting of our international subsidiaries is denominated in currencies other than the U.S. dollar. Since the functional currency of our international subsidiaries is the local currency, foreign currency translation adjustments are accumulated as a component of accumulated other comprehensive income in stockholders’ equity. Assuming a hypothetical aggregate change in the exchange rates of foreign currencies versus the U.S. dollar of 10% at February 26, 2005, our assets and liabilities would increase or decrease by $3,771,000 and $534,000, respectively, and our net sales and net earnings would increase or decrease by $2,575,000 and $433,000, respectively, on an annual basis.

We also maintain intercompany balances and loans receivable with subsidiaries with different local currencies. These amounts are at risk of foreign exchange losses if exchange rates fluctuate. Assuming a hypothetical

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aggregate change in the exchange rates of foreign currencies versus the U.S. dollar of 10% at February 26, 2005, our pre-tax earnings would be favorably or unfavorably impacted by approximately $620,000 on an annual basis.

Interest Rate Risk

Our excess cash is invested in highly liquid, short-term, investment grade securities with maturities of less than one year. These investments are not held for speculative or trading purposes. Changes in interest rates may affect the investment income we earn on cash, cash equivalents and debt securities and therefore affect our cash flows and results of operations. As of February 26, 2005, we were exposed to interest rate change market risk with respect to our investments in tax-free municipal bonds in the amount of $15,160,000. The bonds bear interest at a floating rate established between seven and 35 days. For the nine months ended February 26, 2005, the after-tax interest rate on the bonds approximated 1.5%. Each 100 basis point (or 1%) fluctuation in interest rates will increase or decrease interest income on the bonds by approximately $152,000 on an annual basis.

As our principal amount of fixed interest rate financing approximated $624,000 at February 26, 2005, a change in interest rates would not materially impact results of operations or financial position. At February 26, 2005, we did not maintain any variable interest rate financing.

As of February 26, 2005, we have available $1,614,000 under a working capital bank line of credit. Advances under this line of credit will bear interest at an annual rate indexed to prime. We will thus be exposed to interest rate risk with respect to this credit facility to the extent that interest rates rise when there are amounts outstanding under this facility.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information we (including our consolidated subsidiaries) are required to disclose in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes in Internal Controls over Financial Reporting

There was no change in our internal control over financial reporting that occurred in the quarter ended February 26, 2005, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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E-Z-EM, Inc. and Subsidiaries

Part II: Other Information

Item 1. Legal Proceedings

Certain legal proceedings in which we are involved are discussed in Part I, Item 3 of our Annual Report on Form 10-K for the fiscal year ended May 29, 2004.

Item 2. Unregistered Sales of Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission Of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

No.	Description	Page

3.1	Restated Certificate of Incorporation of the Registrant, as
	amended	(a)

3.2	Amended and Restated Bylaws of the Registrant	(b)

10.1	Asset Purchase Agreement dated January 16, 2005 by and among
	E-Z-EM, Inc. and O’Dell Engineering Ltd. and Philip O’Dell	41

10.2	Form of Non-statutory Stock Option Agreement for 2004 Stock and
	Incentive Award Plan (Employee)	84

10.3	Form of Non-statutory Stock Option Agreement for 2004 Stock and
	Incentive Award Plan (Member of the Board of Directors)	89

10.4	Form of Incentive Stock Option Agreement for 2004 Stock and
	Incentive Award Plan (Employee)	93

31.1	Certification pursuant to Rule 13a-14(a)/15d-14(a) as adopted
	pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	(Anthony A. Lombardo)	98

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No.	Description	Page

31.2	Certification pursuant to Rule 13a-14(a)/15d-14(a) as adopted
	pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	(Dennis J. Curtin)	99

32.1	Certification pursuant to Title 18, United States Code, Section
	1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
	Act of 2002 (Anthony A. Lombardo)	100

32.2	Certification pursuant to Title 18, United States Code, Section
	1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
	Act of 2002 (Dennis J. Curtin)	101

(a)

Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form 8-A filed with the Commission on April 8, 2005.

(b)

Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on January 21, 2005 under Commission File No. 1-11479.

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SIGNATURES

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.

	E-Z-EM, Inc. ——————————————————— (Registrant)

Date April 12, 2005 ——————	/s/ Anthony A. Lombardo ——————————————————— Anthony A. Lombardo, President, Chief Executive Officer, Director

Date April 12, 2005 ——————	/s/ Dennis J. Curtin ——————————————————— Dennis J. Curtin, Senior Vice President - Chief Financial Officer (Principal Financial and Chief Accounting Officer)

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EX-10.1 2 d63326_ex10-1.htm ASSET PURCHASE AGREEMENT EX-10.1

Exhibit 10.1

ASSET PURCHASE AGREEMENT

by and among

E-Z-EM, Inc.

— and —

O’Dell Engineering Ltd.

— and —

Philip C. O’Dell

January 16, 2005

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the “Agreement”) is entered into and effective as of January 16, 2005 by and among E-Z-EM, Inc., a corporation organized and existing under the laws of the State of Delaware (“Purchaser”), O’Dell Engineering Ltd., a corporation organized and existing under the laws of Ontario (“Seller”) and Mr. Philip O’Dell, an individual resident in the Province of Ontario (“Shareholder”).

WITNESSETH

WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to acquire from Seller certain assets that Seller owns or in which Seller has an interest, on the terms and subject to the conditions set forth herein; and

WHEREAS, Shareholder is the sole shareholder and officer of Seller;

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.	DEFINITIONS

1.1

Definitions. As used in this Agreement, the following defined terms shall have the meanings indicated below:

“Acquired Books and Records” has the meaning set forth in Section 2.1.7.

“Action” means any action, suit, hearing, proceeding, arbitration or Governmental or Regulatory Authority investigation or audit, whether civil, criminal, administrative or otherwise. For purposes of this Agreement, “pending” Actions and Proceedings include demands, claims, notices of violations, and demand letters.

“Affiliate” means, as applied to any Person, (a) any other Person directly or indirectly controlling, controlled by or under common control with, that Person, (b) any other Person that owns or controls 5% or more of any class of Equity Interest (including any Equity Interest issuable upon the exercise of any Option) of that Person or any of its Affiliates, or (c) any director, manager, member, partner, officer, agent, employee or relative of such Person. For the purposes of this definition, “control” (including with correlative meanings, the terms “controlling”, “controlled by”, and “under common control with”) as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through ownership of voting securities or by Contract or otherwise.

“Agreement” means this Agreement and the Exhibits and Schedules hereto (other than the Ancillary Agreements, to the extent required by the context) and the

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certificates delivered in connection herewith, as the same may be amended, modified or restated from time to time in accordance with the terms hereof.

“Ancillary Agreements” means the Bill of Sale, the Assignment and Assumption Agreement, the O’Dell Restrictive Covenant, and all other Contracts to be delivered in connection with the transactions contemplated by this Agreement.

“Assets and Properties” of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including, the goodwill related thereto, operated, owned, licensed or leased by or in the possession of such Person, including cash, cash equivalents, investment assets, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and Intellectual Property including the goodwill related thereto.

“Assigned Licenses” has the meaning set forth in Section 2.1.4.

“Assignment and Assumption Agreement” has the meaning set forth in Section 3.2.2.

“Assumed Obligations” has the meaning set forth in Section 2.3.

“Bill of Sale” has the meaning set forth in Section 3.2.1.

“Books and Records” means all files, documents, instruments, papers, books and records relating to the Business, including budgets, data bases, pricing guidelines, ledgers (including general financial ledgers), journals, deeds, records, files and other data relating to current and past orders and jobs and prospect lists for future orders and jobs, Contracts, Licenses, customer and supplier lists, mailing lists, computer files and programs, retrieval programs, operating data and plans and environmental studies and plans.

“Business” means the business of Seller relating and/or involving the development, commercialization, exploitation, marketing, manufacturing and sale of the RSDL Products and the RSDL Technology.

“Business Contracts” has the meaning set forth in Section 2.1.6.

“Business Day” means a day other than Saturday, Sunday or any day on which banks located in the State of New York are authorized or obligated to close.

“CCC Contract” means the contract dated November 21, 2003 (5FB0A-04/x809/001/PV) between the Canadian Commercial Corporation and the Seller.

“Claim Notice” has the meaning set forth in Section 9.4.1.

“Closing” has the meaning set forth in Section 3.1.

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“Closing Date” has the meaning set forth in Section 3.1.

“Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, and any successor legislation thereto.

“Condition” as it relates to any Person or business, means the condition (financial or otherwise), results of operations, Assets and Properties and prospects of such Person or business.

“Confidential Information” has the meaning set forth in Section 7.4.

“Constating Documents” means, with respect to any Person (i) the articles of incorporation, organization or formation forming such Person (or any similar document or certificate serving such function) and all amendments thereto, (ii) the bylaws, agreement of general or limited partnership, limited liability company operating agreement, as applicable, and (iii) all resolutions of directors, committees, shareholders, members, managers, partners, as applicable, of such Person.

“Consulting Term” has the meaning set forth in Section 7.1.

“Contract” means any written or oral contract, agreement, undertaking, understanding, promise or commitment, whether express or implied, and whether or not legally binding.

“Customer Orders” has the meaning set forth in Section 2.1.5.

“Emergency Services” means police, firefighting, ambulance and hospital furnished emergency medical services including search and rescue organizations.

“Employment Offer” means the written offer of employment from an Affiliate of Purchaser to Jasmine Rakic, in the form attached as Exhibit B hereto.

“Equity Interest” means, as applicable, shares of capital stock, partnership interests, membership interests, equity interests, quotas, or any similar term under applicable Law, including nominee, qualifying and similar shares.

“Field of Use” means military, including chemical weapon demilitarization and area remediation, and Emergency Services, but excludes Canadian military sales.

“Governmental or Regulatory Authority” means any court, tribunal, arbitrator, board, bureau, department, authority, agency, commission, official or other instrumentality of the United States, Canada, any foreign country or any domestic or foreign state, county, city or other political subdivision.

“Improvements” has the meaning set forth in Section 7.5(a).

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“Indebtedness” of any Person means all obligations of such Person (or any other Persons if secured by the Assets and Properties of such first Person) (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases and (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person.

“Indemnified Party” has the meaning set forth in Section 9.4.1.

“Indemnified Person” has the meaning set forth in Section 9.1.

“Indemnifying Party” has the meaning set forth in Section 9.4.1.

“Initial Payment” has the meaning set forth in Section 2.5(a)(ii).

“Intellectual Property” means, without duplication, all patents and patent rights, trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, brand names, inventions, processes, formulae, copyrights and copyright rights, trade dress, business and product names, logos, slogans, Trade Secrets, industrial models, processes, designs, specifications, data, technology, methodologies, computer programs, confidential and proprietary information, whether or not subject to statutory registration, and all related technical information, manufacturing, engineering and technical drawings, know-how, ideas, developments and all pending applications for and registrations of patents, trademarks, service marks and copyrights, including all unregistered Intellectual Property rights pertaining to the Business and the right to sue for past infringement, if any, in connection with any of the foregoing, and all documents, disks and other media on which any of the foregoing is stored.

“Intellectual Property Assets” means the RSDL Technology and the Improvements.

“Inventions” has the meaning set forth in Section 7.5(b).

“Knowledge” or “Know” or “Known” means, with respect to Seller, the knowledge of any director, officer or employee of Seller, or all of them, as the case may be, as well as matters that either Shareholder or any director, officer or employee of Seller, or all of them, as the case may be, should have known, after due inquiry.

“Labor Claims” has the meaning set forth in Section 6.

“Laws” means all laws (including common law), statutes, rules, regulations, ordinances and other pronouncements having the effect of law of the United States, Canada any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority.

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“Liabilities” means all Indebtedness, obligations and other liabilities of a Person (whether absolute, accrued, contingent, known or unknown, fixed or otherwise, or whether due or to become due).

“Licenses” means all licenses, permits, certificates of authority, authorizations, approvals, registrations, franchises and similar consents granted or issued by any Governmental or Regulatory Authority.

“Liens” means any mortgage, deed of trust, pledge, assessment, security interest, lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or any conditional sale Contract, title retention Contract or other Contract to give any of the foregoing.

“Loss” means any and all damages, fines, fees, penalties, deficiencies, Liabilities, losses and expenses, including interest, reasonable expenses of investigation, court costs, reasonable fees and expenses of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment (such fees and expenses to include all fees and expenses, including fees and expenses of attorneys, incurred in connection with (i) the investigation or defense of any third party claims or (ii) successfully asserting or disputing any rights under this Agreement against any party hereto or otherwise).

“Net Sales” means the amount of sales of a product less any discounts, rebates, chargebacks, returns, allowances, royalties paid to third parties, pre-paid freight and insurance and uncollectible receivables.

“New Product” has the meaning set forth in Section 7.5(b).

“Nonassignable Contract” has the meaning set forth in Section 2.2.

“Nonassignable License” has the meaning set forth in Section 2.2.

“Option” with respect to any Person means any security, right, subscription, warrant, option, “phantom” stock right or other Contract that gives the right to (i) purchase or otherwise receive or be issued any Equity Interest of such Person or any security of any kind convertible into or exchangeable or exercisable for any Equity Interest of such Person or (ii) receive any benefits or rights similar to any rights enjoyed by or accruing to the holder of Equity Interests of such Person, including any rights to participate in the equity, income or election of directors or officers or Persons holding like positions or performing like functions of such Person.

“Order” means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).

“Person” means any natural person, corporation, limited liability company, general partnership, limited partnership, proprietorship, other business

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organization, trust, union, association or Governmental or Regulatory Authority and also includes a division of any Person.

“Prohibited Worker” shall have the meaning set forth in Section 7.9.1;

“Purchase Price” has the meaning set forth in Section 2.5(a).

“Purchaser” has the meaning set forth in the preamble.

“RC Term” shall have the meaning set forth in Section 7.8.1;

“Retained Obligations” has the meaning set forth in Section 2.4.

“Royalty Payment” has the meaning set forth in Section 2.5(a)(vi).

“RSDL Consent” has the meaning set forth in Section 3.2.3.

“RSDL License Agreement” means the license agreement effective May 14, 1996 between Her Majesty the Queen in Right of Canada, as represented by the Minister of National Defence, and O’Dell Engineering Ltd., as amended by that First Amending Agreement dated April 1, 1999.

“RSDL Product” means any solution, lotion, foam, cream, barrier cream, skin decontaminant or substance for topical application in humans, the manufacture, use, or sale of which incorporates any aspect of the RSDL Technology.

“RSDL Technology” means all Intellectual Property directly or indirectly relating to the RSDL License Agreement.

“Sale Assets” has the meaning set forth in Section 2.1.

“Seller” has the meaning set forth in the preamble.

“Services” has the meaning set forth in Section 7.1.

“Shareholder” has the meaning set forth in the preamble.

“Software License” has the meaning set forth in Section 7.13.

“Support” has the meaning set forth in Section 7.13.

“Tax” or “Taxes” means all federal, state, provincial, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, bank shares, withholding, payroll, employment, excise, sales, use, property, alternative or add-on minimum, environmental or other taxes, assessments, duties, fees, levies or other governmental charges of any nature whatever, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto.

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“Tax Returns” means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax.

“TD Fund” means the Technology Development Fund, as defined in the RSDL License Agreement.

“Termination Agreement” has the meaning set forth in Section 3.2.8.

“Territory” shall have the meaning ascribed to it in the RSDL License Agreement.

“Therapex Agreement” means that certain representation and supply agreement made February 11, 1997 between the Therapex division of E-Z-Em Canada, Inc. and the Seller.

“Third Party Claim” has the meaning set forth in Section 9.4.1.

“Trade Secrets” has the meaning set forth in the Economic Espionage Act of 1996, as the same may be amended from time to time.

“Treaty” has the meaning set forth in Section 2.7.1.

“US Government Contract” means the contract effective as of October 31, 2003 between US Med Research ACQ Activity and Canadian Commercial Corporation W81XWH-04-D-001, as amended by MOD A00001, effective as of July 13, 2004, P00001, effective as of July 16, 2004 and P00002, effective as of August 20, 2004.

“VRS” means Vanguard Response Systems Inc., a corporation organized under the laws of the Province of Ontario, and an Affiliate of Seller.

1.2

Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (iv) the term “Section” refer to the specified Section of this Agreement; (v) the term “other party” refer to Seller, on the one hand, and Purchaser, on the other; (vi) the phrases “ordinary course of business” and “ordinary course of business consistent with prior practice” refer to the business and practice of Seller and (vii) the phrase “including” shall mean “including without limitation”.

2.	PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES

2.1

Sale Assets. Subject to and upon the terms and conditions set forth in this Agreement, Seller hereby agrees to sell, assign and deliver to Purchaser and Purchaser hereby agrees to purchase, free and clear of all Liabilities and Liens, other than the Assumed Obligations, all of Seller’s right, title and interest in and to

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the following Assets and Properties (collectively, the “Sale Assets”) on the Closing Date such that Purchaser shall have good and marketable title thereto:

2.1.1

all Assets and Properties relating to the RSDL Technology and/or the Business;

2.1.2

the TD Fund, and all research, developments, improvements, products, information, contacts and other rights and benefits related thereto;

2.1.3

all Improvements;

2.1.4

all Licenses relating to the Business (the “Assigned Licenses”);

2.1.5

all customer orders of Seller relating to the Business as at the Closing Date, which shall be the customer orders set forth on Schedule 2.1.5, minus orders that are filled between the date of Schedule 2.1.5 and the Closing Date, plus orders entered into in the ordinary course of business consistent with prior practice between the date of Schedule 2.1.5 and the Closing Date (the “Customer Orders”);

2.1.6

all Contracts (other than the Customer Orders) (i) to which Seller is a party, relating to the Business, including the RSDL License Agreement, Contracts relating to suppliers, sales representatives, dealers, distributors, marketing arrangements, maintenance agreements, manufacturing arrangements, confidentiality agreements and non-compete agreements, and (ii) described herein as pending Contracts, provided that this Section 2.1.6 shall transfer the exclusive right, but not the obligation, to negotiate and enter into each such Contract (collectively, the “Business Contracts”), a list of which Business Contracts is set forth on Schedule 2.1.6;

2.1.7

all Books and Records of Seller other than those not directly or indirectly related to the Business (the “Acquired Books and Records”); and

2.1.8

all other Assets and Properties of any kind of Seller that relating to, employed in connection with or otherwise necessary or beneficial for the operation of the Business, in each case not otherwise set forth in this Section 2.1. For greater certainty, this Section 2.1.8 shall not include any office furniture or office equipment of Seller.

2.2

Nonassignable Contracts and Permits. To the extent that any Customer Order or Business Contract (a “Nonassignable Contract”) or any License (a “Nonassignable License”) is not assignable or transferable without the consent or waiver of the issuer thereof or the other party thereto or any third party (including any Governmental or Regulatory Authority) or if such assignment or transfer or attempted assignment or transfer would constitute a breach thereof or a violation of any Law or Order, this Agreement shall not constitute an assignment or

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transfer, or an attempted assignment or transfer thereof until such consent or waiver has been obtained, and the following provisions shall be applicable:

2.2.1

Seller shall use its best efforts and Purchaser shall reasonably cooperate therewith, to obtain the consents and waivers referred to in this Section 2.2. To the extent that any consent or waiver referred to in this Section 2.2 is not obtained by Seller, Seller shall (A) provide to Purchaser at Seller’s expense the benefits of any such Nonassignable Contract and/or any such Nonassignable License, (B) cooperate in any reasonable and lawful arrangement requested by Purchaser designed to provide such benefits to Purchaser, and (C) at the request of Purchaser, enforce for the account of Purchaser at Seller’s expense any right of Seller arising from any such Nonassignable Contract and/or Nonassignable License against such issuer or the other party or parties thereto (including the right to elect to terminate in accordance with the terms thereof on the advice of Purchaser).

2.2.2

To the extent that Purchaser is provided the benefits pursuant to this Section 2.2 of any such Nonassignable Contract, Purchaser shall perform for the benefit of the issuer thereof or the other party or parties thereto, the obligations of Seller thereunder or in connection therewith, but only to the extent that (i) such performance would not result in any default thereunder or in connection therewith and (ii) such obligations would have been Assumed Obligations, but for the nonassignability or nontransferability thereof.

2.2.3

The provisions of this Section 2.2 shall not affect Purchaser’s obligation to indemnify Seller and any other Person pursuant to Section 9.

2.3

Assumed Obligations. Purchaser is not assuming any obligations in connection with the sale, transfer, conveyance, assignment and delivery of the Sale Assets pursuant to this Agreement except for the obligations of Seller set forth on Schedule 2.3, but only to the extent arising and to be performed on or after the Closing Date, and excluding any such obligations arising or to be performed prior to the Closing Date (the “Assumed Obligations”), provided, however, that notwithstanding anything herein to the contrary, Purchaser shall assume such obligations only to the extent that Purchaser receives the benefits relating to such Assumed Obligations.

2.4

Retained Obligations. Purchaser shall not assume any of the Liabilities of Seller other than the Assumed Obligations. Without limiting the foregoing, except for the Assumed Obligations, Seller shall be responsible for and shall discharge in a timely manner all Liabilities incurred by Seller (the “Retained Obligations”).

2.5

Purchase Price. (a) The purchase price for the Sale Assets shall be Five Million Dollars ($5,000,000.00) plus the amount payable pursuant to Section 2.5(a)(vi)

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(the “Purchase Price”), payable as follows (provided that in no event shall the Purchase Price exceed Thirteen Million Dollars ($13,000,000.00)):

(i)

Five Hundred Thousand Dollars ($500,000.00) payable on the signing of this Agreement by way of certified check or wire transfer (the “Deposit”);

(ii)

Two Million Five Hundred Thousand Dollars ($2,500,000.00) payable at the Closing by way of certified check or wire transfer (the “Initial Payment”);

(iii)

Six Hundred Thousand Dollars ($600,000.00) on the date which is 180 days after the Closing Date;

(iv)

Seven Hundred Thousand Dollars ($700,000.00) on the first anniversary of the Closing Date;

(v)

Seven Hundred Thousand Dollars ($700,000.00) on the second anniversary of the Closing Date; and

(vi)

the sum of (A) five percent (5%) of all Net Sales of RSDL Products made in the Field of Use (plus Canadian military sales) in the Territory (plus Canada), plus

(B) one percent (1%) of the portion of all federal grants or awards to Purchaser that are specifically allocated by the applicable federal agency or official for capital expenditures by Purchaser to produce RSDL Product,

in each case after the Closing Date (the “Royalty Payment”), up to a maximum of Eight Million Dollars ($8,000,000.00); provided however, that the right to receive Royalty Payments shall not apply to any Net Sales, grants or awards made after the seventh anniversary of the Closing Date, even if the aggregate amount of Royalty Payments actually earned pursuant to this Section 2.5(a)(vi) with respect to Net Sales, grants or awards through such date is less than $8,000,000.00, unless the contract for such Net Sales was executed or the grant or award approved prior to the seventh anniversary of the Closing Date (and the $8,000,000.00 cap has not yet been reached). For greater certainty, in no circumstances shall the total amount of the Royalty Payments exceed $8,000,000.00.

(b)

Subject to the limitations set forth in Section 2.5(a)(vi), installments of the Royalty Payment shall be paid quarterly within forty-five (45) days of the end of each fiscal quarter of Purchaser in which payment for the RSDL Products that generated such Net Sales are received by Purchaser.

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2.6

Allocation of Purchase Price. Seller and Purchaser shall, and shall cause their respective Affiliates to, allocate the Purchase Price (including for this purpose the Assumed Obligations) among the Sale Assets in an amount equal to their fair market value as set forth on Schedule 2.6. Seller and Purchaser each agrees to be bound by the allocations set forth in this Section 2.6, and to file, or cause to be filed, all other Tax Returns in a manner consistent with such allocation, and not to take any actions inconsistent therewith.

2.7

Withholding Tax.

2.7.1

As required by the Code or any other applicable law, Purchaser will withhold any required amount from payments to Seller hereunder for payment to the appropriate taxing authority. Any amount so withheld from will be treated as paid to the Seller for purposes of this Agreement. Unless otherwise required by law, Purchaser will withhold 10% of any amounts treated as interest for U.S. federal income tax purposes that qualify for such 10% rate pursuant to the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital (the “Treaty”), provided that Seller executes and files such forms or other documents as may be required to secure his entitlement to such rate under the Treaty, including the furnishing by Seller of Internal Revenue Service Form W-BEN to Purchaser. If Seller fails to execute or file any such forms, or otherwise fails to take action to secure his entitlement to the 10% rate provided under the Treaty, Purchaser will withhold 30% of any amounts that are treated as interest for U.S. federal income tax purposes.

2.7.2

With respect to payments made under Section 2.5 hereof, where a portion any such payment is treated as interest for U.S. federal income tax purposes, such portion will be calculated by reference to the “test rate” set forth in Treasury Regulation Section 1.1274-4, which is the lowest “applicable Federal rate” in effect during the three month period ending with the month in which the Closing Date occurs.

3.	CLOSING

3.1

Closing Date and Time. The closing of the purchase and sale of the Sale Assets (the “Closing”) shall take place on or before February ___, 2005 at the offices of Davies Ward Phillips & Vineberg, LLP, 625 Madison Avenue, 12th Floor, New York, NY 10022, with effect as of 9:00 a.m. (the “Closing Date”).

3.2

Seller Deliveries. At the Closing, Seller shall deliver to Purchaser:

3.2.1

a bill of sale in the form of Schedule 3.2.1, duly executed by Seller (the “Bill of Sale”);

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3.2.2

an assignment and assumption agreement in the form of Schedule 3.2.2, duly executed by Seller (the “Assignment and Assumption Agreement”);

3.2.3

the written consent of Her Majesty the Queen in Right of Canada, as represented by the Minister of National Defence, to the transfer of the RSDL License Agreement to Purchaser or an Affiliate of Purchaser, which consent, for the avoidance of doubt, shall also amend certain of the provisions of the RSDL License Agreement and shall be in the form of Schedule 3.2.3 (the “RSDL Consent”);

3.2.4

the written consent of the Canadian Commercial Corporation to the transfer of the CCC Contract to Purchaser or an Affiliate of Purchaser (the “CCC Consent”);

3.2.5

the Acquired Books and Records, which shall be delivered constructively;

3.2.6

such other good and sufficient instruments of conveyance, assignment and transfer, in form and substance satisfactory to Purchaser’s counsel, as shall be required to vest in Purchaser good and marketable title to the Sale Assets free and clear of all Liabilities and Liens other than the Assumed Obligations;

3.2.7

such documents as Purchaser may reasonably request to release all outstanding Liens on the Sale Assets other than Liens with respect to the Assumed Obligations;

3.2.8

a termination agreement in the form of Schedule 3.2.8, duly executed by Seller with respect to the Therapex Agreement (the “Termination Agreement”);

3.2.9

a Certificate of Good Standing for Seller issued by the Province of Ontario dated not more than five (5) days prior to the Closing Date;

3.2.10

a legal opinion of counsel to Seller in the form of Schedule 3.2.10;

3.2.11

a check of the Seller in the amount of Canadian fifty thousand dollars ($50,000.00) payable to E-Z-EM Canada, Inc. in satisfaction of the loan made by E-Z-EM Canada, Inc. to Seller;

3.2.12

such documents as Purchaser may request to transfer the Intellectual Property Assets; and

3.2.13

all other documents required to be delivered to Purchaser under the provisions of this Agreement.

3.3

Purchaser Deliveries. At the Closing, Purchaser shall deliver or cause to be delivered to Seller:

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3.3.1

the Initial Payment by wire transfer of immediately available funds to such account as Seller shall designate.

3.3.2

the Assignment and Assumption Agreement, duly executed by Purchaser.

3.3.3

the Termination Agreement, duly executed by Purchaser.

3.4

Employment Offer. On or before the Closing, an Affiliate of Purchaser shall have delivered the executed Employment Offer to Jasmine Rakic.

3.5

Operation of the Business of Seller. Between the date of this Agreement and the Closing, Seller shall (and Shareholder shall cause Seller to):

3.5.1

conduct the RSDL Business only in the ordinary course of business;

3.5.2

except as otherwise directed by Purchaser in writing, and without making any commitment on Purchaser’s behalf, use its best efforts to preserve intact its current business organization, keep available the services of its officers, employees and agents and maintain its relations and good will with suppliers, customers, employees, agents and others having business relationships with it;

3.5.3

confer with Purchaser prior to implementing operational decisions of a material nature;

3.5.4

otherwise report periodically to Purchaser concerning the status of its business, operations and finances in any way material to the Sale Assets and/or the Assumed Obligations;

3.5.5

maintain the Sale Assets in a state of repair and condition that complies with all legal requirements and is consistent with the requirements and normal conduct of Seller’s business;

3.5.6

keep in full force and effect, without amendment, all material rights relating to Seller’s business;

3.5.7

comply with all Laws and contractual obligations applicable to the operations of Seller’s business;

3.5.8

cooperate with Purchaser and assist Purchaser in identifying the governmental authorizations required by Purchaser to operate the business from and after the Closing Date and either transferring existing governmental authorizations of Seller to Purchaser, where permissible, or obtaining new governmental authorizations for Purchaser;

3.5.9

upon request from time to time, execute and deliver all documents, make all truthful oaths, testify in any proceedings and do all other acts that may be reasonably necessary or desirable in the opinion of Purchaser to

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consummate the transactions contemplated by this Agreement, all without further consideration; and

3.5.10

maintain all Acquired Books and Records of Seller relating to Seller’s business in the ordinary course of business.

3.6

Negative Covenant. Except as otherwise expressly permitted herein, between the date of this Agreement and the Closing Date, Seller shall not, and Shareholder shall not permit Seller to, without the prior written Consent of Purchaser, (a) make any modification to any material Contract or governmental authorization; or (b) enter into any compromise or settlement of any litigation, proceeding or governmental investigation relating to the Sale Assets, the RSDL Business or the Assumed Obligations.

3.7

Notification. Between the date of this Agreement and the Closing, Seller and Shareholder shall promptly notify Purchaser in writing if any of them becomes aware of

3.7.1

any fact or condition that causes or constitutes a breach of any of Seller’s representations and warranties made as of the date of this Agreement or

3.7.2

the occurrence after the date of this Agreement of any fact or condition that would or be reasonably likely to (except as expressly contemplated by this Agreement) cause or constitute a breach of any such representation or warranty had that representation or warranty been made as of the time of the occurrence of, or Seller’s or either Shareholder’s discovery of, such fact or condition. During the same period, Seller and Shareholder also shall promptly notify Purchaser of the occurrence of any breach of any covenant of Seller or Shareholder in Section 3.5 or 3.6 or of the occurrence of any event that may make the satisfaction of the conditions in Section 10.1 impossible or unlikely.

3.8

Further Assurances.

3.8.1

At any time or from time to time after the Closing, at Purchaser’s request and without further consideration, Seller and Shareholder shall execute and deliver to Purchaser such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as Purchaser may reasonably deem necessary or desirable in order to more effectively transfer, convey and assign to Purchaser, and to confirm Purchaser’s title to, all of the Sale Assets and, to the fullest extent permitted by Law, to put Purchaser in actual possession and operating control of the Sale Assets and to assist Purchaser in exercising all rights with respect thereto, and otherwise to fulfill their obligations under this Agreement and the Ancillary Agreements to which they are a party.

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3.8.2

Seller shall not in any manner, directly or indirectly, take any action which is designed, intended or might be reasonably anticipated to have the effect of discouraging customers, suppliers, lessors, licensors and other Persons having business relations with the Business from maintaining the same business relationships with Purchaser at any time after the date of this Agreement as were maintained with Seller and its Affiliates prior to the date of this Agreement. Seller will immediately give notice of and convey any and all inquiries by a customer or by any other Person, relating to or in connection with any Customer Order, Contract, the Business or RSDL Technology, to Purchaser.

3.8.3

Seller hereby constitutes and appoints Purchaser the true and lawful attorney of Seller, with full power of substitution, in the name of Seller, or Purchaser, but on behalf of and for the benefit of Purchaser: (i) to demand and receive from time to time any and all the Sale Assets and to make endorsements and give receipts and releases for and in respect of the same and any part thereof; (ii) to institute, prosecute, compromise and settle any and all Actions or Proceedings that Purchaser may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the Sale Assets, (iii) to defend or compromise any or all Actions or Proceedings in respect of any of the Sale Assets, and (iv) to do all such acts and things in relation to the matters set forth in the preceding clauses (i) through (iii) as Purchaser shall deem desirable. Seller hereby acknowledges that the appointment hereby made and the powers hereby granted are coupled with an interest and are not and shall not be revocable by it in any manner or for any reason; provided, however, that Purchaser shall not institute or prosecute any Action in Seller’s name unless (x) Purchaser has been advised by counsel that it may not institute or prosecute such Action in its own name, (y) Purchaser shall first obtain the written consent of Seller to bring such Action, which consent shall not be unreasonably withheld, delayed or conditioned, and (z) such Action shall be brought at Purchaser’s own expense unless Purchaser is entitled to indemnification for the costs, fees or expenses of such Action pursuant to Section 9.1.

3.8.4

At any time after the Closing upon the written request of Purchaser to Seller or Seller to Purchaser stating the need therefor for litigation, Tax or accounting purposes, the party receiving such request shall (i) make or cause to be made available to the other party, its Affiliates or successors, and permit such other party and its agents to inspect and copy, the Books and Records of the party receiving such request (which for purposes hereof shall be limited to the Acquired Books and Records if Purchaser is the party receiving such request) and (ii) assist in arranging discussions with (and calling as witnesses) officers, employees and agents of the party receiving such request on matters relating to the Sale Assets, the Assumed Obligations and the Retained Obligations subject to the reimbursement of the party receiving such request for any actual out-of-pocket expenses

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incurred by the party receiving such request in the performance of its obligations under this Section 3.8.4.

3.8.5

Notwithstanding anything to the contrary contained in this Section 3.8, if the parties are in an adversarial relationship in any Action, the furnishing of information, documents or records in accordance with Section 3.8.4 shall be subject to applicable rules relating to discovery.

3.9

Best Efforts. Seller and Shareholder shall use their best efforts to cause the conditions in Section 10 to be satisfied.

4.	REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER

Seller and Shareholder hereby jointly and severally represent and warrant to Purchaser as follows:

4.1

Organization of Seller. Seller is duly organized, validly existing and in good standing under the Laws of the Province of Ontario and is duly qualified, licensed or admitted to do business and is in good standing in those jurisdictions in which the ownership, use or leasing of its Assets and Properties relating to the Business, or the conduct or nature of Business, makes such qualification, licensing or admission necessary. Set forth on Schedule 4.1 is a list of all jurisdictions in which Seller is qualified to do business. Seller has complied with all requirements of fictitious name statutes in all jurisdictions in which it conducts the Business and has not conducted the Business under any name other than those listed on Schedule 4.1. Seller has all requisite power and authority to own its Assets and Properties relating to the Business and to carry on the Business.

4.2

Shareholder. Shareholder owns all of the issued and outstanding Equity Interests in Seller and no other Person has any Option or any other interest with respect to any Equity Interest in Seller.

4.3

Power and Authority. Seller has the full power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. This Agreement and each of the Ancillary Agreements to which Seller or Shareholder is a party has been or will be duly and validly executed and delivered by Seller and/or Shareholder, as applicable. This Agreement and the Ancillary Agreements constitute the legal, valid and binding obligation of Seller and/or Shareholder, as applicable, enforceable against it or him in accordance with their respective terms. This Agreement and each Ancillary Agreement to which Seller is a party have been duly approved by all requisite action of Shareholder.

4.4

No Conflicts. The execution and delivery by Seller and Shareholder of this Agreement and the Ancillary Agreements to which it or he is a party, the performance by Seller and Shareholder of its or his obligations under this Agreement and the Ancillary Agreements to which it or he is a party and the

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consummation of the transactions contemplated hereby and thereby do not and will not:

4.4.1

conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Constating Documents of Seller;

4.4.2

conflict with or result in a violation or breach of any term or provision of any Law, Contract, or Order applicable to Seller or Shareholder or any of its or his Assets and Properties; or

4.4.3

(i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require Seller or Shareholder to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, (iv) result in or give to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (v) result in or give to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or (vi) result in the creation or imposition of any Lien upon such or any of its Assets and Properties under, any Contract to which Seller or Shareholder is a party or by which any of its or his Assets and Properties are bound.

4.5

Governmental Approvals and Filings. Except as set forth in Schedule 4.5, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority on the part of Seller or Shareholder is required in connection with the execution, delivery and performance of this Agreement or any of the Ancillary Agreements or the consummation of the transactions contemplated hereby or thereby.

4.6

Legal Proceedings.

4.6.1

There are no Actions or Proceedings pending or, to the Knowledge of Seller, threatened against, relating to or affecting Seller, Shareholder or any of their respective Assets and Properties that (A) could reasonably be expected to result in the issuance of an Order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements or otherwise result in a material diminution of the benefits contemplated by this Agreement or any of the Ancillary Agreements to Purchaser, or (B) if determined adversely to Seller or Shareholder could reasonably be expected to result in (a) any injunction or other equitable relief that could interfere in any respect with the Business or (b) Losses by Seller, individually, or in the aggregate with Losses in respect of other such Actions or Proceedings, exceeding Ten Thousand Dollars ($10,000).

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4.6.2

There are no facts or circumstances Known to Seller or Shareholder that could reasonably be expected to give rise to any Action that would be required to be disclosed pursuant to Section 4.6.1.

4.6.3

There are no Orders outstanding against Seller or Shareholder.

4.6.4

Attached hereto as Schedule 4.6.4, are all responses of counsel for Seller to auditors’ requests for information regarding Actions or Proceedings pending or threatened against, relating to or affecting Seller or its Assets and Properties relating to the Business.

4.7

Compliance With Laws and Orders. Seller is now complying and has at all times since January 1, 2001 complied with all Laws and Orders applicable to the Business. Seller has not at any time since January 1, 2001 received notice that it is or has at any time since January 1, 2001 been, in violation of or in default under, any Law or Order applicable to it or to any of its Assets and Properties relating to the Business other than violations and defaults that have been fully cured as of the Closing Date. Neither the ownership nor use of the Sale Assets, nor the conduct of the Business, conflicts with the rights of any other Person, or violates, or with or without the giving of notice or the passage of time, or both, will violate, conflict with or result in a default, right to accelerate, increased costs or payments, or loss of rights under, any terms or provisions of any Contract to which Seller is a party or by which Seller or its Assets and Properties may be bound or affected, or any Law or Order by which Seller or its Assets and Properties may be bound or affected, or reasonably justify any Action or penalty based thereon. Seller does not Know of any proposed Laws, Orders, Governmental or Regulatory Authority takings, condemnations or other proceedings that would be applicable to the Business before or after the Closing Date.

4.8

Taxes.

4.8.1

All Tax Returns and reports in respect of Taxes required to be filed with respect to Seller have been timely filed and all Taxes required to be shown on such Tax Returns and reports or otherwise due have been timely paid; all such Tax Returns and reports (insofar as they relate to the activities or income of Seller) are true, correct and complete in all respects; and the Seller has paid in full or set up an adequate reserve in respect of all material Taxes for the periods covered by such Tax Returns, as well as all other material Taxes, penalties, interest, fines, deficiencies, assessments and governmental charges that have become due and payable, including all Taxes that the Seller is obligated to withhold from amounts paid or payable to or benefits conferred upon employees, creditors and third parties.

4.8.2

Seller has not made any payments, is not obligated to make any payments, and is not a party to any Contract that under any circumstances could

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oblige it to make payments to any person upon a change of control of the Seller, in each case that would not be deductible under applicable tax laws.

4.8.3

There are no Tax liens imposed by any Governmental or Regulatory Authority outstanding against any Sale Assets.

4.9

Intellectual Property Rights.

4.9.1

The Intellectual Property Assets set forth in Schedule 4.9 constitute the only Intellectual Property used by Seller in the conduct of the Business or material to the Condition of the Business and no other Intellectual Property is used by Seller or is necessary or beneficial in the conduct of the Business. Seller owns and possesses all right title and interest in each item of the Intellectual Property Assets, free and clear of all Liens. Except as disclosed on Schedule 4.9, (i) Seller has the right to use the Intellectual Property Assets as used by it, (ii) Seller has not made any registrations or applications to Governmental or Regulatory Authorities in respect of such Intellectual Property Assets, (iii) there are no restrictions on the direct or indirect transfer of any such Intellectual Property Assets, (iv) there has been delivered to Purchaser prior to the execution of this Agreement, documentation with respect to any invention, process, design, computer program or other know-how or (without duplication) Trade Secret included in the Intellectual Property Assets, which documentation is accurate in all material respects and reasonably sufficient in detail and content to identify and explain such invention, process, design, computer program or other know-how or Trade Secret without reliance on the special knowledge or memories of others, (v) Seller has taken reasonable security measures to protect the secrecy, confidentiality and value of its Trade Secrets, (vi) Seller has not granted any license to use the Intellectual Property Assets and (vii) Seller has no Knowledge that the Intellectual Property Assets are being infringed by any other Person.

4.9.2

The conduct of the Business is not infringing any Intellectual Property rights of any other Person and no claim is pending or, to the Knowledge of Seller has been threatened to such effect. There have been no claims and there is no basis for any claim challenging the scope, validity or enforceability of any of the Intellectual Property Assets.

4.9.3

Except as set forth in Schedule 4.9, Seller is not obligated to pay and Purchaser shall not be obligated to pay, any Person any royalty, fee or other consideration with respect to the use of the Intellectual Property Assets.

4.10

Contracts.

4.10.1

Schedule 4.10A contains a true and complete list of each of the following Contracts or other arrangements (true and complete copies or, if none,

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complete and accurate written descriptions of which, together with all amendments and supplements thereto and all waivers of any terms thereof, are attached hereto as Schedule 4.10B) to which Seller is a party or by which the Sale Assets are bound or affected or relating to the Business or this Agreement:

(a)

all Contracts (excluding benefit plans) providing for a commitment of employment or consultation services for a specified or unspecified term, the name, position and rate of compensation of each Person party to such a Contract and the expiration date of each such Contract and any written or unwritten representations, commitments, promises, communications or courses of conduct involving an obligation of Seller to make payments (with or without notice, passage of time or both) to any Person in connection with, or as a consequence of, the transactions contemplated hereby or by any of the Ancillary Agreements or to any employee;

(b)

all Contracts with any Person containing any provision or covenant prohibiting or limiting its ability to engage in any business activity relating to the Business anywhere in the world or to compete with any Person anywhere in the world or prohibiting or limiting the ability of any Person to compete with it anywhere in the world;

(c)

all partnership, joint venture, shareholders’ or other similar Contracts relating to the Business;

(d)

all Contracts relating to the Business concerning the provision of services or products by or to any Person;

(e)

all Contracts with independent contractors relating to the Business;

(f)

all Contracts relating to Indebtedness relating to the Business;

(g)

all Contracts relating to the RSDL Technology, including the RSDL License Agreement; and

(h)

(A) all other Contracts relating to the Business that involve the payment or potential payment, pursuant to the terms of any such Contract, by or to it of more than Ten Thousand Dollars ($10,000), (B) all Contracts relating to the Business that cannot be terminated within thirty (30) calendar days after giving notice of termination without resulting in any cost or penalty to Seller and (C) and all of the Contracts that are material to the Business.

4.10.2

Each Contract required to be disclosed on Schedule 4.10A is in full force and effect and constitutes a legal, valid and binding Contract, enforceable in accordance with its terms, of each party thereto. Seller and each other

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party to the such Contracts have complied with such Contracts and there is not under any such Contract any existing default, or event which, after notice or lapse of time, or both, would constitute a default or result in a right to accelerate or loss of rights thereunder. Seller is not obligated, nor can Seller be compelled, to renegotiate any such Contract.

4.10.3

Seller is not a party to or bound by any Contract that has been or could reasonably be expected to be, in the aggregate with any other such Contracts, adverse to the Condition of Seller or the Business.

4.10.4

Neither Seller nor Shareholder knows or has reason to know that any party to any Contract required to be set forth on Schedule 4.10A intends to terminate or seek to renegotiate such Contract, whether due to the transactions contemplated by this Agreement and the Ancillary Agreements or otherwise.

4.10.5

Each Business Contract is disclosed on Schedule 4.10A, and except as set forth in Schedule 4.10.5, each Business Contract is assignable to Purchaser without the consent of any other party thereto or of any other purchaser.

4.11

Insurance. Since January 1, 2001, there have been no claims made under any insurance policies with respect to the Business. Neither Seller nor Shareholder has received notice that any insurer under any policy is denying liability with respect to a claim thereunder or defending under a reservation of rights clause. Neither Seller or Shareholder has any Knowledge of any threatened claims.

4.12

Affiliate Transactions. With respect to the Business (i) there are no Liabilities between Seller and any current or former officer, director, or stockholder of Seller or any Affiliate of any such officer, director, or stockholder, (ii) no current or former officer, director, or stockholder of Seller or any Affiliate of any such officer, director or stockholder provides or causes to be provided any assets, services or facilities to Seller, and (iii) Seller neither provides nor causes to be provided any assets, services or facilities to any current or former officer, director, or stockholder of Seller, or Affiliate of any such officer, director or stockholder.

4.13

Other Negotiations; Brokers. Neither Seller, Shareholder, any Affiliate thereof, or any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for or on behalf of Seller, Shareholder or any such Affiliate, (i) has entered into a Contract that conflicts with this Agreement or any Ancillary Agreement to which it is a party, or (ii) has taken any action that could result in Purchaser, or any member, manager, officer, employee, agent or any Affiliate of Purchaser, being subject to any claim for liability under this Agreement or any Ancillary Agreement. No agent, broker, finder, investment banker, financial advisor or other similar Person will be entitled to any fee, commission or other compensation in connection with this Agreement or any Ancillary Agreement on the basis of any act or statement made or alleged to have been made by Seller,

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Shareholder, any Affiliate thereof, or any investment banker, financial advisor, attorney, accountant, or other Person retained by or acting for Seller, Shareholder or any such Affiliate.

4.14

Restrictions on Conduct of Business. Seller is not prohibited or restricted from conducting the Business (as presently conducted and as intended in the future to be conducted) by any Contract, any Order, Governmental or Regulatory Authority or Law.

4.15

Entire Business. The Sale Assets are all related to and used in connection with the Business and are sufficient to conduct the Business (as previously conducted and as intended in the future to be conducted). No Person (including Shareholder) other than Seller owns or has any right, title or interest in any of the Sale Assets and the Sale Assets constitute all of the Assets and Properties of Seller used in connection with the Business. Shareholder does not, either directly or through any ownership of any Equity Interest or other business interest in any Person directly or indirectly competing with the Business. For greater certainty, the Shareholder’s position as a director of VRS Inc. does not breach this Section 4.15.

4.16

Absence of Certain Business Practices. Neither Seller or any of Seller’s shareholders, directors, officers, employees or agents, nor any other Person acting on their behalf, has directly or indirectly, within the past five (5) years (i) given or agreed to give any contribution, gift or similar benefit to or for the private use of or at the direction of any customer, client, supplier, governmental employee or other Person who is or may be in a position to help or hinder Seller’s business (or assist Seller in connection with any actual or proposed transaction) that (A) might subject Seller to any damage or penalty in any Action in any jurisdiction, (B) if not given in the past, might have had an adverse effect on the Condition of Seller or the Business or (C) if not continued in the future, might adversely affect the Condition of Seller or the Business, (ii) established or maintained any unrecorded fund or asset for any purpose, or made any false or artificial entries on the books of account of Seller for any reason; or (iii) made any payments to any Person with the intention or understanding that any part of such payment was to be used for any other purpose than that described in the documents supporting the payment.

4.17

Customers and Suppliers.

4.17.1

Set forth on Schedule 4.17.1 are the names and addresses of the customers of the Business.

4.17.2

With respect to the Business, no supplier or customer has cancelled or otherwise terminated, or threatened to cancel or otherwise terminate, its relationship with Seller, or has during the last 12 months, decreased or limited materially or threatened to decrease or limit materially, its services, supplies or materials to Seller or its usage of the RSDL Products, as the case may be. Seller has not received any notice that any such supplier or customer intends to cancel or otherwise modify its relationship

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with Seller and Seller has no Knowledge that the assignment of the Sale Assets to Purchaser will adversely affect the relationship of any such supplier or customer with the Business. All services and/or products provided by Seller have been provided in accordance with recognized industry standards and Seller does not have, nor will it have, any Liability to any Person with respect to any services performed and/or products manufactured prior to the Closing Date.

4.18

Title. Seller has good and marketable title to all of the Sale Assets, free and clear of all Liens and Liabilities (other than the Assumed Obligations) and upon transfer of the Sale Assets to Purchaser as provided herein, Purchaser shall have good and marketable title thereto, free and clear of all Liens and Liabilities (other than the Assumed Obligations).

4.19

Licenses. The only License necessary or beneficial for the carrying on of the Business and the ownership of the Sale Assets is the RSDL License Agreement. The RSDL License Agreement is valid, binding and in full force and effect and Seller has not received any notice that it is in default (or with the giving of notice or the lapse of time or both, would be in default).

4.20

Solvency. Seller’s Assets and Properties exceed its Liabilities and Seller is able to pay its obligations as they come due in the ordinary course of business. There has not been filed any petition or application, or any proceeding commenced which has not been discharged, by or against Seller with respect to any Assets and Properties of Seller under any Law relating to bankruptcy, reorganization, fraudulent transfer, compromise, arrangements, insolvency, readjustment of debt or creditors’ rights, and no assignment has been made by Seller for the benefit of creditors.

4.21

Disclosure Regarding Seller and the Business. No representation or warranty contained in this Agreement or any Ancillary Agreement, and no statement contained in any Schedule hereto or thereto or in any certificate, list or other writing furnished to Purchaser pursuant to any provision of this Agreement or any Ancillary Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein, in the light of the circumstances under which they were made, not misleading. There is no fact concerning the Business which Seller or Shareholder has not disclosed to Purchaser in writing which materially and adversely affects (or may materially or adversely affect) the Business or its Condition.

5.	REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller as follows:

5.1

Organization. Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware.

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5.2

Power and Authority. Purchaser has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Purchaser of this Agreement and the Ancillary Agreements to which it is a party, and the performance by Purchaser of its obligations hereunder and thereunder, have been duly and validly authorized by all necessary corporate action. This Agreement and the Ancillary Agreements to which it is a party have been duly and validly executed and delivered by Purchaser and constitute legal, valid and binding obligations of Purchaser enforceable against Purchaser in accordance with their respective terms.

5.3

Governmental Approvals and Filings. No consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority on the part of Purchaser is required in connection with the execution, delivery and performance of this Agreement or the Ancillary Agreements to which it is a party or the consummation of the transactions contemplated hereby or thereby.

5.4

Legal Proceedings. There are no Actions or Proceedings pending or, to the Knowledge of Purchaser, threatened against, relating to or affecting Purchaser or any of its Assets and Properties that could reasonably be expected to result in the issuance of an Order restraining, enjoining or otherwise prohibiting or making illegal (i) the consummation of any of the transactions contemplated by this Agreement or any of the Ancillary Agreements to which it is a party.

5.5

Other Negotiations; Brokers. Neither Purchaser, any Affiliate thereof, or any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for or on behalf of the Purchaser or any such Affiliate, (i) has entered into a Contract that conflicts with this Agreement or any Ancillary Agreement to which it is a party, or (ii) has taken any action that could result in Seller, Shareholder, or any Affiliate of Seller, being subject to any claim for liability as a result of entering into this Agreement or any Ancillary Agreement to which it is a party. No agent, broker, finder, investment banker, financial advisor or other similar Person will be entitled to any fee, commission or other compensation in connection with this Agreement or any Ancillary Agreement on the basis of any act or statement made or alleged to have been made by Purchaser, any Affiliate thereof, or any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for Purchaser or any such Affiliate.

5.6

Liability Insurance. For a period equal to the earlier of (a) three years from the last installment of the Royalty Payment pursuant to Section 2.5(a)(vi)(A) and (b) seven years from the date hereof, Purchaser or an Affiliate shall maintain product liability insurance relating to the RSDL Products or any New Products in an amount consistent with current practice and shall include Seller as a named insured on any such policy.

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6.	LABOR AND EMPLOYMENT MATTERS

Notwithstanding anything herein to the contrary, Purchaser shall have no obligation to (i) offer employment to any employee of Seller or (ii) make any severance payment or make any other payment or provide any benefit to any employee of Seller. Furthermore, Purchaser and Seller agree that Purchaser shall assume no responsibility of any kind for any Liabilities directly or indirectly related to employees of Seller (“Labor Claims”), including any costs concerning Seller’s employees, their employment, or the termination of their employment, the cost of separation, severance, termination benefits, any employee benefits, compensation, or remuneration, or any Liabilities for wages, bonus, or other employee compensation of any nature and any obligations incurred in connection with any benefit plan of Seller. Additionally, Purchaser shall be under no obligation with respect to and any amounts payable in connection with any sales representative agreements (including the termination thereof) to which Seller is a party.

7.	CONSULTING SERVICES

7.1

Engagement. Purchaser shall engage the consulting services of Shareholder (the “Services”) on the terms and conditions set forth in this Section 7.1 for a period of three (3) years commencing on the date hereof (unless earlier terminated as provided herein) (the “Consulting Term”). Shareholder hereby accepts such appointment and agrees faithfully to render the Services and to promote the interest of the Company to the best of his ability. Shareholder shall perform the Services with the highest level of care, skill and diligence and shall use sound and professional principles and practices, in compliance with all applicable laws, regulations, rules, codes and standards. Purchaser and Shareholder hereby agree that certain of the consulting work provided with respect to the Software License as described in Section 7.13 may be performed by Seller.

7.2

Time Commitment; Duties. Shareholder agrees to provide Purchaser with consulting services in accordance with the following:

(i)

one hundred seventy-five (175) days in year 1 of the Consulting Term;

(ii)

one hundred thirty-five (135) days in year 2 of the Consulting Term; and

(iii)

one hundred (100) days in year 3 of the Consulting Term.

Shareholder’s duties shall include such functions and duties as he may be required to fulfill from time to time by Purchaser and its Board of Directors relating to the commercialization of the RSDL Technology and the development and application of new products, including the New Products. Shareholder shall make himself available to the Company on such days during the Consulting Term as Purchaser may reasonably require. Shareholder shall perform the Services directly and shall not

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enter into any subcontract with respect to the Services without the approval of Purchaser.

7.3

Independent Contractor.

(a)

Shareholder is and shall remain at all times an independent contractor and is not, and shall not represent himself to be an agent, joint venturer, partner or employee of Purchaser or to be related to Purchaser in any fashion other than as an independent contractor. Shareholder agrees that it shall not make any representations or engage in any acts which could establish an apparent relationship of agency, joint venture, partnership or employment with Purchaser. For greater certainty, Purchaser shall not be bound in any manner whatsoever by any agreement, warranties or representations made by Shareholder to any other person, firm or Purchaser or by any action of Shareholder, except where Shareholder has first obtained the prior written consent of Purchaser. Nothing contained in this Section 7 is intended to create nor shall be construed as creating an employment relationship between Shareholder and Purchaser.

(b)

Shareholder recognizes that he has the sole responsibility as an independent contractor to comply with all requirements of applicable laws, rules and regulations. Purchaser shall not make any deductions or withholdings for pension plans, employment insurance, taxes or any other similar amounts from the Consulting Fee. It is agreed that Shareholder shall be solely responsible for deducting all applicable Taxes, pension plan deductions, employment insurance premiums and all other relevant deductions from the Consulting Fee and for remitting same to any government authorities as may be prescribed by law. Shareholder hereby indemnifies and holds harmless Purchaser from and against all payments or remittances made and costs incurred by Purchaser in the event that Purchaser is required to make any payments or remittances in respect of the deductions and withholdings referred to in this Section 7.3(b), including but not limited to any Taxes or other costs imposed directly on Purchaser with respect to the Consulting Fee.

(c)

As an independent contractor, Shareholder shall not be entitled to any employment related benefits other than as set forth in this Agreement. With the exception of the Consulting Fee, Shareholder shall have no claim or cause of action against Purchaser for any cause, matter or thing including, without limitation, any claim or cause of action arising out of any alleged employment relationship between Shareholder and Purchaser (which specifically includes any claim for notice, pay in lieu of notice, severance or vacation

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pay, whether arising by statute or otherwise). It is agreed that the provisions of this paragraph shall survive the termination of this Agreement and shall remain binding on Shareholder.

7.4

Confidential Information.

(a)

Shareholder acknowledges that the nature of Shareholder’s services to Purchaser is such that Shareholder shall have access to information of a confidential and/or trade secret nature which has great value to Purchaser and which constitutes a substantial basis and foundation upon which the business of Purchaser is based. Such information includes, without limitation, (i) trade secrets, inventions, ideas, source and object codes, data, programs, other works of authorship, know-how; (ii) information regarding marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers and customers; (iii) information regarding the skills and compensation of other employees Purchaser or its affiliates, including but not limited to, their respective business plans or clients (including, without limitation, customer lists and lists of customer sources), or information relating to the products, services, customers, sales or business affairs of Purchaser or its affiliates (the “Confidential Information”)

(b)

Shareholder shall keep all such Confidential Information in confidence during the Consulting Term and at any time thereafter and shall not disclose any of such Confidential Information to any other person, except to the extent such disclosure is (i) necessary to the performance of the Services and in furtherance of Purchaser’s best interests, (ii) required by applicable law, (iii) lawfully obtainable from other sources, or (iv) authorized in writing by a senior officer or the Board of Directors of Seller. Upon termination of Shareholder’s services to Purchaser, Shareholder shall deliver to Purchaser all documents, records, notebooks, work papers, and all similar material containing any of the foregoing information, whether prepared by Shareholder, Purchaser or anyone else.

7.5

Improvements and Inventions.

(a)

Shareholder agrees that any improvements, revisions, modifications, discoveries, inventions, derivative works, enhancements, line extensions, new applications for or changes to the RSDL Technology, whether patented or patentable or otherwise protectable (the “Improvements”) created or developed by Shareholder during the Consulting Term shall be the property of Purchaser and Purchaser shall be the sole owner of all right, title and interest in such Improvements and Shareholder shall have no

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right, title or interest in such Improvements. Shareholder agrees to transfer and assign any such Improvements to Purchaser without payment of any compensation or royalty. For greater certainty, the items listed in Schedule 7.5 form part of the Improvements.

(b)

The parties agree that any discoveries, developments, inventions, ideas, concepts, products, whether patented or patentable or otherwise protectable (the “Inventions”), relating to decontamination created or developed by Shareholder during the Consulting Term that do not form part of the RSDL Technology shall be the property of Purchaser and Purchaser shall be the sole owner of all right, title and interest in such Inventions and Shareholder shall have no right, title or interest in such Inventions. Shareholder shall transfer and assign any such Inventions to Purchaser. In the event that Purchaser sells an Invention or a product derived from an Invention created or developed by Shareholder (a “New Product”) and,

(i)

such New Product is covered by a valid U.S. patent, Purchaser shall pay to Shareholder a royalty fee of 4% of the Net Sales of such New Product for a period of seven (7) years beginning on the date of the first commercial sale of such New Product, payable quarterly within forty-five (45) days of the end of each quarter of Purchaser; or

(ii)

such New Product is not covered by a valid U.S. Patent, Purchaser shall pay to Shareholder a royalty fee of 2% of the Net Sales of such New Product for a period of seven (7) years beginning on the date of the first commercial sale of such New Product, payable quarterly within forty-five (45) days of the end of each quarter of Purchaser.

(c)

In connection with any Improvement or Inventions, Shareholder further agrees to cooperate and provide Purchaser with any information necessary to assist in the prosecution of any patent applications and to timely execute any papers or documents necessary to file patent applications.

(d)

In the event that Purchaser sells a New Product that was identified and introduced to Purchaser by Shareholder (but developed or created by a third party) during the Consulting Term, Purchaser shall pay to Shareholder a royalty fee of 2% of the Net Sales of such New Product for a period of seven (7) years beginning on the date of the first commercial sale of such New Product, payable quarterly within forty-five (45) days of the end of each quarter of Purchaser.

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(e)

Until the later of the end of the RC Term or the month in which the payment of the last payment of Royalty Payments is made, Shareholder agrees to provide Purchaser with prompt notice of the creation or development of any Improvements or Inventions and of the identification of any New Products created or developed by third parties.

7.6

Single Royalty Payment. For greater certainty, in no circumstances shall Shareholder be entitled to a royalty payment pursuant to Section 7.5(b) with respect to a RSDL Product or a New Product if at that time the Shareholder is already entitled to a Royalty Payment pursuant to Section 2.5(a)(vi) with respect to such product.

7.7

Expenses. Purchaser shall reimburse Shareholder for all reasonable travel and lodging expenses incurred or paid by Shareholder in the course of the performance of the Services, upon presentation by Shareholder of documentation, expense statements, vouchers and/or such other supporting information as Purchaser may reasonably request. Notwithstanding the foregoing, any expense to be incurred by Shareholder in excess of Two Thousand Dollars ($2,000.00) must be pre-approved by Purchaser, and Shareholder hereby agrees to provide Purchaser with any documentation required in connection therewith. For greater certainty, Shareholder shall be entitled to fly business class on overseas flights and stay in the hotel that is hosting any relevant trade show or conference, if available; provided, however that Shareholder shall be required to take reasonable steps to purchase a reasonably priced business class ticket.

7.8

Restrictive Covenant.

7.8.1

Each of Seller and Shareholder agrees that during the period from the date of this Agreement through the seventh (7th) anniversary of the Closing Date (the “RC Term”):

(a)

neither Seller nor Shareholder, or any of their Affiliates, shall directly or indirectly, own, finance, manage, operate, control or participate in the ownership, financing, management, operation or control of, be a beneficiary of, be employed by, have any equity interest (whether stock, a partnership interest, a limited liability company interest, a trust interest or otherwise) in, be an officer of, be a participant in, joint venture or partnership with, contract with or be associated or connected in any capacity or in any manner with, or guarantee the obligations of, any Person engaged in or planning to become engaged in, any business that is directly or indirectly (whether through Affiliates or otherwise) manufactures, markets, sells, offers for sale, promotes or distributes any decontamination products in the Territory; provided, however, that this Section 7.8.1(a) shall not prevent Seller or Shareholder from owning stock in and Shareholder from acting as a director of VRS

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or owning less than 1% of the stock of any publicly traded company;

(b)

neither Seller nor Shareholder, or any of their Affiliates, shall directly or indirectly, manufacture, market, sell, offer for sale, promote or distribute any product for or on behalf of any Person that directly or indirectly manufactures, markets, sells, offers for sale, promotes or distributes any decontamination products in the Territory; and

(c)

neither Seller nor Shareholder, or any of their Affiliates, shall directly or indirectly, manufacture, market, sell, offer for sale, promote or distribute any product that is a derivative or variation of any of the RSDL Products for or on behalf of any Person that directly or indirectly manufactures, markets, sells, offers for sale, promotes or distributes any of the foregoing in the Territory.

7.8.2

In the case of New Products, each of Seller and Shareholder agrees that for a period of seven years from the date of the first commercial sale of a New Product, neither Seller nor Shareholder, or any of their Affiliates, shall directly or indirectly, manufacture, market, sell, offer for sale, promote or distribute any product that is a derivative or variation of such New Product, for or on behalf of any Person that directly or indirectly manufactures, markets, sells, offers for sale, promotes or distributes any of the foregoing in the Territory.

7.9

Non-Solicitation.

7.9.1

Except as permitted in writing by Purchaser, each of Seller and Shareholder agrees that:

(a)

during the RC Term, neither Seller nor Shareholder, or any of their Affiliates, shall directly or indirectly supervise, manage, hire, cause to be hired or otherwise induce any employee, consultant, contractor or any other Person otherwise in the service of or remunerated by Purchaser (each, a “Prohibited Worker”) to leave the employment of Purchaser or induce any Prohibited Worker to terminate his, her or its engagement with Purchaser; or

(b)

for a period of thirty-six (36) months following the last month in which Royalty Payments are paid to the Seller, neither Seller nor Shareholder, or any of their Affiliates shall directly or indirectly supervise, manage, hire or cause to be hired any Prohibited Worker for any reason, or otherwise interfere with any such Prohibited Worker’s employment with Purchaser.

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7.10

No Appropriation of Diversion of Business.

Each of Seller and Shareholder agree that during the RC Term, neither Seller, Shareholder nor any of their Affiliates shall directly or indirectly appropriate, divert or assist any other Person to appropriate or divert any business or customer away from Purchaser or its Affiliates (or attempt to do any of the foregoing).

7.11

Remedies.

7.11.1

In the event of a breach of this Section 7, if Seller, Shareholder or any of their Affiliates is prevented by a court from committing any further violation, whether by a temporary restraining order, injunction or otherwise, the time periods set forth in this Agreement (for Seller and all of its Affiliates) shall be computed by commencing the periods on the date of the applicable court order and continuing them from that date for the full period provided.

7.11.2

The parties hereto agree that the services to be rendered by Shareholder pursuant to this Section 7 and the rights and privileges granted to Purchaser pursuant to this Section 7 are of a special, unique, extraordinary and intellectual character, which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and that the breach by Shareholder of any of the terms of this Section 7 will cause Purchaser great and irreparable injury and damage. Shareholder hereby expressly agrees that Purchaser shall be entitled to:

(a)

without the necessity for posting any bond, (i) an injunction or injunctions to prevent breaches of the provisions of this Agreement, (ii) enforce specifically this Agreement and the terms and provisions hereof in any Action instituted in any court having jurisdiction over Seller, and (iii) apply for any other equitable relief available to Purchaser; and

(b)

any other remedy to which Purchaser or its Affiliates may be entitled pursuant hereto or otherwise.

For greater certainty, the remedies in this Section 7.11 are in addition to any remedies of the Purchaser pursuant to Section 9.

7.12

Reasonableness. Seller and Shareholder agree that the covenants contained in Sections 7.8, 7.9 and 7.10 are reasonable with respect to their duration, geographic area and scope.

7.13

License Agreement. Seller and Shareholder hereby grant to Purchaser a non-exclusive, worldwide, perpetual, irrevocable, royalty-free license (the “Software License”) to use, copy, distribute, display, sublicense, sell, offer to sell and rent the proprietary software owned or used by Seller and/or Shareholder that is necessary to complete all reporting requirements under the U.S. Government Contract. For a period of three years from the date hereof, at the request of

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Purchaser, Seller and/or Shareholder shall provide Purchaser with training, maintenance and support (collectively, “Support”) with respect to the Software License. Seller and/or Shareholder shall also provide Purchaser with any updates or improvements made to such software. The hours spent by Seller and/or Shareholder providing Support shall be counted towards the required consulting hours in Section 7.2. Seller and/or Shareholder shall not be entitled to any compensation for providing the Support or any updates or improvements.

8.	SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS

Notwithstanding any right of Purchaser (whether or not exercised) to investigate the Business, the affairs of Seller or the accuracy of the representations and warranties of Seller contained in this Agreement and the Ancillary Agreements, Purchaser has the right to rely fully upon the representations, warranties, covenants and agreements of Seller contained in this Agreement and the Ancillary Agreements. The representations, warranties, covenants and agreements of Purchaser and Seller contained in this Agreement and the Ancillary Agreements shall survive the Closing (a) until the second anniversary of the Closing Date with respect to all representations and warranties and any covenant or agreement to be performed in whole or in part on or prior to the Closing (other than the representations and warranties contained in Sections 4.1, 4.3 and 4.18, which shall survive forever; representations and warranties contained in Section 4.8, which shall survive until 60 days following the longest applicable statute of limitations contained in the Code has expired; or (b) with respect to each other covenant or agreement contained in this Agreement, indefinitely, and no party shall have any liability pursuant to Section 9 with respect to any representation, warranty, covenant or agreement after it terminates pursuant to this Section 8, except that any representation, warranty, covenant or agreement that would otherwise terminate in accordance with clause (a) will continue to survive if notice is given to the other party on or prior to such termination date, until the related claim for indemnification has been satisfied or otherwise resolved.

9.	INDEMNIFICATION

9.1

Indemnification by Seller and Shareholder. Seller and Shareholder hereby jointly and severally agree to indemnify and to hold Purchaser and its respective shareholders, directors, managers, officers, employees and agents, subsidiaries and affiliates (the “Indemnified Persons”) harmless from, against and in respect of, and shall on demand reimburse the Indemnified Persons for, any and all Loss suffered or incurred by any of them in connection with or arising from:

(a)

any breach by Seller or Shareholder of any of its or his covenants or agreements in this Agreement or in any Ancillary Agreement;

(b)

any failure by Seller or Shareholder to perform any of its or his obligations in this Agreement or any Ancillary Agreement;

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(c)

any breach of any warranty or the inaccuracy of any representation of Seller or Shareholder contained in this Agreement or in any Ancillary Agreement;

(d)

any third party claim in connection with any RSDL Product manufactured or sold or services performed by Seller on or before the Closing Date, except those claims relating solely to a defect in any RSDL Product as a result of the manufacturing of such RSDL Product (as oppose to a defect in the design or specifications);

(e)

any Liabilities of Seller other than the Assumed Obligations;

(f)

any Liabilities relating to the Business to the extent based upon or resulting from actions or omissions occurring on or prior to the Closing Date other than the Assumed Obligations;

(g)

(i) any and all Taxes imposed on Seller, or for which Seller is liable, (ii) all Taxes arising out of a breach of the representations and warranties or covenants contained in Section 4, (iii) any and all Liabilities which may be asserted as a result of Seller’s noncompliance with any bulk transfer or bulk sales Law and (iv) any costs or expenses with respect to Taxes indemnified hereunder;

(h)

any Labor Claim; and

(i)

any Liabilities relating to the Business arising after the Closing Date resulting from the gross negligence or willful misconduct of Shareholder and/or Seller during the Consulting Term.

9.2

Set-Off. Purchaser shall be entitled to set off any amounts owing by Seller and/or Shareholder pursuant to this Agreement, against any amounts owed to Seller and/or Shareholder pursuant to this Agreement.

9.3

Indemnification by Purchaser. Purchaser hereby agrees to indemnify and to hold Seller and Shareholder harmless from, against and in respect of and shall on demand reimburse Seller and Shareholder for any and all Loss suffered or incurred by Seller or Shareholder by reason of (a) any inaccurate representation, breach of warranty or nonfulfillment of any covenant or agreement by Purchaser contained herein, in any Ancillary Agreement or in any certificate, document or instrument delivered to Seller pursuant hereto or thereto or in connection herewith or therewith, (b) the Assumed Obligations, (c) any Liabilities relating to the Business to the extent based upon or resulting from actions or omissions occurring on or after the Closing Date (including any actions taken under Section 2.2), other than any Liabilities arising as a result of the gross negligence or willful misconduct of Shareholder and/or Seller during the Consulting Term and (d) any third party claim in connection with any RSDL Product manufactured

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by Purchaser on or prior to the Closing Date resulting solely from a defect in the manufacturing of such RSDL Product (as opposed to a defect in the design or specifications).

9.4

Method of Asserting Claims. All claims for indemnification under Section 9 shall be asserted and resolved as follows:

9.4.1

The party claiming indemnification (the “Indemnified Party”) in respect of, arising out of or involving a claim or demand made by a third party against the Indemnified Party (a “Third Party Claim”) shall deliver notice (a “Claim Notice”) to the other party (the “Indemnifying Party”) as soon as reasonably practicable after receipt by such Indemnified Party of written notice of the Third Party Claim; provided, however, that failure to give such Claim Notice shall not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure. The Indemnifying Party shall promptly mitigate any such prejudice to the extent possible.

9.4.2

If a Third Party Claim is made against an Indemnified Party, the Indemnifying Party shall be entitled to participate in the defense thereof and, if it acknowledges that as between it and the Indemnified Party, it is responsible for such Third Party Claim, the Indemnifying Party may choose to assume the defense thereof with counsel selected by the Indemnifying Party, which counsel must be reasonably satisfactory to the Indemnified Party. Should the Indemnifying Party so assume the defense of a Third Party Claim, the Indemnifying Party shall not be liable to the Indemnified Party for legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof, but shall continue to pay for any expenses of investigation and any Loss suffered. If the Indemnifying Party assumes such defense, the Indemnified Party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnifying Party. If (i) the Indemnifying Party shall not assume the defense of a Third Party Claim with counsel satisfactory to the Indemnified Party within five days of any Claim Notice, or (ii) legal counsel for the Indemnified Party notifies the Indemnifying Party that there are or may be legal defenses available to the Indemnified Party that are different from or additional to those available to the Indemnifying Party, which, if the Indemnified Party and the Indemnifying Party were to be represented by the same counsel, would constitute a conflict of interest for such counsel or prejudice prosecution of the defenses available to such Indemnified Party, or (iii) if the Indemnifying Party shall assume the defense of a Third Party Claim and fail to prosecute such defense with reasonable diligence, then in each such case the Indemnified Party, by notice to the Indemnifying Party, may employ its own counsel and control the defense of the Third Party Claim and the Indemnifying Party shall be liable for the reasonable fees, charges and disbursements of counsel

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employed by the Indemnified Party and the Indemnified Party shall be promptly reimbursed for any such fees, charges and disbursements, as and when incurred. Whether the Indemnifying Party or the Indemnified Party controls the defense of any Third Party Claim, the parties shall cooperate in the defense thereof. Such cooperation shall include the retention and provision to the counsel of the controlling party of records and information that are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Indemnifying Party shall have the right to settle, compromise or discharge a Third Party Claim (other than any such Third Party Claim in which criminal conduct is alleged) without the Indemnified Party’s consent if such settlement, compromise or discharge (i) constitutes a complete and unconditional discharge and release of the Indemnified Party, and (ii) provides for no relief other than the payment of monetary damages and such monetary damages are paid in full by the Indemnifying Party.

9.4.3

If any Indemnified Party should have a claim under Section 9 against any Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver notice (an “Indemnity Notice”) with reasonable promptness to the Indemnifying Party. The failure by any Indemnified Party to give the Indemnity Notice shall not impair such party’s rights hereunder except to the extent that an Indemnifying Party demonstrates that it has been actually prejudiced thereby. The Indemnifying Party shall promptly mitigate any such prejudice to the extent practicable. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim described in such Indemnity Notice, the Loss in the amount specified in the Indemnity Notice will be conclusively deemed a liability of the Indemnifying Party under Section 9 and the Indemnifying Party shall pay such amount to the Indemnified Party on demand. If the Indemnifying Party disputes its liability with respect to such claim, the Indemnifying Party and the Indemnified Party will in good faith attempt to negotiate a resolution of such dispute.

10.

Conditions Precedent and Termination

10.1

Conditions Precedent to Purchaser’s Obligation to Close. Purchaser’s obligation to purchase the Sale Assets and to take the other actions required to be taken by Purchaser at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Purchaser, in whole or in part):

10.1.1

Each of Seller’s and Shareholder’ representations and warranties in this Agreement shall have been accurate in all material respects as of the date of this Agreement, and shall be accurate in all material respects as of the time of the Closing as if then made (except each of the representations and

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warranties in this Agreement that contains an express materiality qualification which shall be accurate in all respects as of the time of the Closing as if then made).

10.1.2

Each of the covenants and obligations that Seller and Shareholder are required to perform or to comply with pursuant to this Agreement at or prior to the Closing shall have been duly performed and complied with in all material respects.

10.1.3

Seller shall have obtained the RSDL Consent and the CCC Consent and such consents shall be in full force and effect.

10.1.4

Seller and Purchaser shall have met with individuals from US Med Research ACQ Activity (Fort Deidrich).

10.1.5

Seller shall deliver all other documents required to be delivered pursuant to Section 3.2.

10.1.6

Since the date of this Agreement, there shall not have been commenced or threatened against Purchaser, or against any Affiliate of Purchaser, any proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, the transaction contemplated by this Agreement or (b) that may have the effect of preventing, delaying, making illegal, imposing limitations or conditions on or otherwise interfering with the transactions contemplated by this Agreement.

10.1.7

Neither the consummation nor the performance of any of the transactions contemplated by this Agreement will, directly or indirectly (with or without notice or lapse of time), contravene or conflict with or result in a violation of or cause Purchaser or any Affiliate of Purchaser to suffer any adverse consequence under (a) any applicable Law or Order or (b) any Law or Order that has been published, introduced or otherwise proposed by or before any governmental body.

10.2

Conditions Precedent to Seller’s Obligation to Close. Seller’s obligation to sell the Sale Assets and to take the other actions required to be taken by Seller at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Seller in whole or in part):

10.2.1

Each of Purchaser’s representations and warranties in this Agreement shall have been accurate in all material respects as of the date of this Agreement and shall be accurate in all material respects as of the time of the Closing as if then made.

10.2.2

All of the covenants and obligations that Purchaser is required to perform or to comply with pursuant to this Agreement at or prior to the Closing (considered collectively), and each of these covenants and obligations

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(considered individually), shall have been performed and complied with in all material respects.

10.2.3

Purchaser shall deliver all the documents required to be delivered pursuant to Section 3.3.

10.2.4

There shall not be in effect any Law or any injunction or other Order that (a) prohibits the consummation of the transactions contemplated by this Agreement and (b) has been adopted or issued, or has otherwise become effective, since the date of this Agreement.

10.3

Termination Events. By notice given prior to or at the Closing, subject to Section 10.4, this Agreement may be terminated as follows:

10.3.1

by Purchaser if a material breach of any provision of this Agreement has been committed by Seller or Shareholder and such breach has not been waived by Purchaser;

10.3.2

by Seller if a material breach of any provision of this Agreement has been committed by Purchaser and such breach has not been waived by Seller;

10.3.3

by mutual written consent of Purchaser and Seller; or

10.3.4

by Purchaser if the Closing has not occurred on or before [March] 30, 2005 or such later date as the parties may agree upon, unless the Purchaser is in material breach of this Agreement.

10.4

Effect Of Termination. Each party’s right of termination under Section 10.3 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of such right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 10.3, (i) Seller shall return the Deposit to Purchaser within 48 hours of such termination and (b) all obligations of the parties under this Agreement will terminate, except that the obligations of the parties in this Section 10.4 and Section 12 will survive, provided, however, that, if this Agreement is terminated because of a breach of this Agreement by the non-terminating party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the party’s failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

11.

TAX PROCEDURES

11.1

Conveyance Taxes. Any documentary, sales, use, stamp or other similar Taxes and recording and filing fees (including any penalties and interest) incurred in connection with the transactions contemplated by this Agreement shall be borne by Seller.

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11.2

Purchase Price Adjustments. All amounts paid pursuant to this Agreement by one party to another party (other than interest payments, if any) shall be treated by such parties for tax purposes as an adjustment to the Purchase Price to the extent permitted by Law.

12.

MISCELLANEOUS

12.1

Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission or mailed by prepaid first class certified mail, return receipt requested, or mailed by overnight courier prepaid, to the parties at the following addresses or facsimile numbers:

If to Seller or Shareholder, to:

          O’Dell Engineering Ltd.
          28 Hilborn Avenue
          Cambridge, Ontario
          N1T 1M7 Canada

          Facsimile No.: (519) 694-9922
          Attn: Mr. Philip C. O’Dell, P.Eng.
                    President

If to Purchaser, to

          E-Z-EM, Inc.
          1111 Marcus Avenue, LL-26
          Lake Success, New York 11590

          Facsimile No.: (516) 302-2918
          Attn: Anthony A. Lombardo

with a copy to:

          Davies Ward Phillips & Vineberg LLP
          625 Madison Avenue, 12th Floor
          New York, New York 10022

          Facsimile No.: (212) 308-0132
          Attn: Steven H. Levin, Esq.

All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section 12.1, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section 12.1, be deemed given upon receipt, (iii) if delivered by mail in the manner described above to the address as provided in this Section

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12.1, be deemed given upon receipt provided that such notice is sent by certified mail and (iv) if delivered by overnight courier to the address as provided in this Section 12.1, be deemed given on the earlier of the first Business Day following the date sent by such overnight courier or upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section 12.1). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto.

12.2

Entire Agreement. This Agreement and the Ancillary Agreements supersede all prior discussions and agreements between the parties with respect to the subject matter hereof and thereof and contain the sole and entire agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof.

12.3

Expenses. Except as otherwise expressly provided in this Agreement, each party will pay its own costs and expenses, provided that Purchaser shall pay all sales Taxes relating to the purchase and sale of the Sale Assets.

12.4

Public Announcements. Seller and/or Shareholder will not issue or make any statements or releases to the public with respect to this Agreement or the transactions contemplated hereby without Purchaser’s consent.

12.5

Waiver. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative.

12.6

Amendment. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each party hereto.

12.7

Currency. All references to dollar amounts in this Agreement are references to U.S. dollars.

12.8

No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights, and this Agreement does not confer any such rights, upon any other Person other than any Person entitled to indemnity under Section 9.

12.9

Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation hereunder may be assigned (by operation of law or otherwise) by Seller without the prior written consent of Purchaser and any attempt to do so will be void.

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If Purchaser is assigning this Agreement to a Person owning assets having a fair market value at such time at more than $25 million, then Purchaser may assign this Agreement upon written notice to the Seller, provided that Purchaser’s assignee assumes (in writing) the then-outstanding obligations owing hereunder to Seller. Seller hereby consents to any such assignment that includes such an assumption, and acknowledges and agrees that such an assumption shall be deemed to effect a novation and a release of Purchaser with respect to the obligations so assumed by Purchaser’s assignee.

If Purchaser is assigning this Agreement to a Person owning assets having a fair market value at such time at $25 million or less (a “Covered Assignee”), then Purchaser may assign this Agreement to such Covered Assignee upon written notice to the Seller, provided that the Covered Assignee assumes (in writing) Purchaser’s then-outstanding obligations owing hereunder to Seller. In addition, effective concurrently with such assignment to and assumption by the Covered Assignee, if any, Purchaser hereby guaranties, as a surety and on a contingent basis (i.e., Seller shall first exhaust his remedies against such assignee), the Covered Assignee’s payment of the assumed obligations in favor of Seller. Seller hereby consents to any such assignment that includes such an assumption and guaranty, and acknowledges and agrees that thereafter, Purchaser’s sole remaining obligation under this Agreement shall be pursuant to the guaranty contained in the preceding sentence.

Subject to the preceding sentences of this Section 12.9, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and assigns.

12.10

Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

12.11

Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

12.12

Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the

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State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

12.13

Construction. The parties hereto agree that this Agreement is the product of negotiation between sophisticated parties and individuals, all of whom were represented by counsel, and each of whom had an opportunity to participate in and did participate in, the drafting of each provision hereof. Accordingly, ambiguities in this Agreement, if any, shall not be construed strictly or in favor of or against any party hereto but rather shall be given a fair and reasonable construction without regard to the rule of contra proferentum.

12.14

Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

12.15

Attorneys’ Fees. In the event of any Action arising out of this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and expenses from the other party.

[The remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by each party hereto as of the date first above written.

E-Z-EM, INC.

By: /s/ Anthony A. Lombardo
       ——————————————
       Name: Anthony A. Lombardo
       Title:   President and CEO

O’DELL ENGINEERING LTD.

By: /s/ Philip C. O’Dell
       ——————————————
       Name: Philip C. O’Dell
       Title:   President

       /s/ Philip C. O’Dell
       ——————————————
                        Philip C. O’Dell

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EX-10.2 3 d63326_ex10-2.htm FORM OF NON-STATUTORY STOCK OPTION AGREEMENT EX-10.2

Exhibit 10.2

NON-STATUTORY STOCK OPTION AGREEMENT

THIS AGREEMENT is made as of «STARTDATE» (the “Grant Date”) between E-Z-EM, Inc. (the “Company”) and «FIRSTNAM» «LASTNAM» (the “Optionee”). Terms used but not defined herein have the same meaning as in the Company’s 2004 Stock and Incentive Award Plan (the “Plan”) unless the context suggests otherwise. All references to Sections in this Agreement refer to Sections of this Agreement unless otherwise indicated.

1. The Company hereby grants to the Optionee a Non-Statutory Stock Option to purchase «NOOPTIONS» shares of Common Stock subject to the terms and conditions of this Agreement and the Plan (the “Option”). The terms and conditions of the Plan have been or are being delivered to the Optionee and are incorporated herein by this reference. In the event of any conflict between this Agreement and the Plan, the Plan shall control. The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Code.

2. (a) The purchase price per share subject to the Option is «PRICE». The purchase price may be paid in whole or in part (i) in money, (ii) by bank-certified, cashier’s or personal check subject to collection, (iii) by a stockbroker-assisted exercise procedure that complies with the Plan and any additional terms and conditions that the Committee may at any time impose, or (iv) in shares of Common Stock which have been owned by the Optionee for at least six months or which were acquired on the open market and which are surrendered to the Company actually or by attestation. Shares of Common Stock thus surrendered shall be valued at their Fair Market Value on the date of exercise.

(b) At no time may the Option be exercised for fewer than 100 of the shares that are subject to the Option unless the Option is exercisable pursuant to the other provisions of this Agreement only with respect to fewer than 100 shares at that time, in which case the Option may be exercised only for the full balance of the shares with respect to which the Option is exercisable at that time.

3. (a) The Option shall expire on «EXPIRES» (the “Expiration Date”), unless before that date it terminates in accordance with the terms and conditions of this Agreement or is cancelled in accordance with Section 9(f) of the Plan. If the Option has not expired, terminated or been cancelled during the Optionee’s employment by the Company and its Subsidiaries, it shall terminate on cessation of such employment to the extent that it is not exercisable thereafter pursuant to Section 7 or 8. Subject to Section 4, to the extent that the Option is exercisable after cessation of such employment pursuant to Section 7 or 8 but is not exercised within the applicable period set forth in Section 7 or 8, the Option shall terminate at the expiration of the applicable period set forth therein. Any provision of this Agreement to the contrary notwithstanding, in no event may the Option be exercised on or after the Expiration Date.

(b) For the avoidance of doubt, a transfer of the Optionee from the employ of the Company to the employ of a Subsidiary, or from the employ of a Subsidiary to the employ of the Company or another Subsidiary, shall not be deemed a

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cessation of employment for purposes of this Agreement, but if the Optionee is employed by a Subsidiary that ceases to be a Subsidiary (for example, because the Company sells or spins off the Subsidiary) and the Optionee is not then employed by the Company or another Subsidiary, the Optionee’s employment by the Company and its Subsidiaries shall be deemed to cease for purposes of this Agreement when the Subsidiary ceases to be a Subsidiary.

(c) In the event that, before the Expiration Date, the Company is dissolved or liquidated, or is merged, consolidated or otherwise combined with another corporation and is not the surviving corporation, the Committee may terminate the Option at the time of the transaction without the consent of the Optionee but only if not less than 15 days nor more than 90 days prior to such transaction the Optionee is notified in writing that the Option will terminate at the time of the transaction and that the Optionee will have the right, subject to Section 4, to exercise the Option during the 15 day period (or a specified longer period) prior to the transaction (the “Pre-Transaction Exercise Period”) to the extent hereafter provided. Subject to Section 4 and Section 7(b), the Option shall be exercisable during the Pre-Transaction Exercise Period to the extent of all of the shares that are subject to the Option, irrespective of the provisions of Section 5(a), unless the Optionee is not employed by the Company and its Subsidiaries at the commencement of the Pre-Transaction Exercise Period, in which case to the extent that the Option is exercisable at the time of exercise during the Pre-Transaction Exercise Period pursuant to Section 7 or 8.

4. In the event the Optionee becomes employed by, associated in any way with, or the beneficial owner of more than 1% of the equity of, any business (other than AngioDynamics, Inc.) which competes, directly or indirectly, with the Company’s business in any geographical area where the Company then does business, or if the Optionee engages in criminal conduct with respect to the Company, a Subsidiary, or any of their property, shareholders, employees, officers or directors, or engages in conduct involving moral turpitude, the Option shall immediately terminate and the Optionee shall have no rights hereunder.

5. (a) Except as provided otherwise in the Plan, the Option shall become exercisable.

(b) Subject to Section 9(f) of the Plan, any portion of the Option which does not expire or terminate in accordance with Section 3 or 4 or become exercisable pursuant to Section 3(c) or Section 5(a) before the date, if any, on which a Change in Control occurs while the Optionee is in the employ of the Company or a Subsidiary, shall become exercisable on that date.

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6. The Option shall not be transferable otherwise than by will or by the laws of descent and distribution or to a Beneficiary and during the lifetime of the Optionee shall be exercisable only by the Optionee.

7. In the event the Optionee ceases to be employed by the Company and its Subsidiaries for any reason other than death or disability, the Option may be exercised (but only if it has not expired or terminated on or before the date of exercise as provided in Section 3 or 4 and only to the extent that it is exercisable under Section 3(c) or Section 5 on the date such employment ceases) only during the 180 days after the date of such cessation.

Notwithstanding the foregoing, (a) if the Optionee dies or becomes disabled within the meaning of Section 8 during the aforementioned 180 day period, then that 180 day period shall be extended for an additional 180 days, and (b) in the event the Optionee’s employment is terminated by the Company or a Subsidiary for cause, the Option shall terminate at the time the Optionee’s employment is so terminated. For this purpose, cause shall mean gross negligence, willful misconduct, criminal activity, conduct involving moral turpitude or a material breach of a written Company or Subsidiary policy, including without limitation the Company’s Code of Business Conduct and Ethics as in effect from time to time; provided that after a Change in Control the Company and its Subsidiaries shall not have cause to terminate the Optionee’s employment (solely for purposes of this Agreement) for any of the foregoing reasons, other than criminal activity or conduct involving moral turpitude, unless (i) the Company gives the Optionee a written notice expressly warning that the conduct in question, which shall be described with particularity in the notice, will constitute cause for purposes of this Agreement if not discontinued within a reasonable period of time after the Optionee receives the written notice (which shall be specified in the written notice and shall not be less than 7 days after the Optionee receives the written notice), and (ii) the Optionee does not discontinue the conduct in question within the period of time specified in the written notice.

8. In the event the Optionee ceases to be employed by the Company and its Subsidiaries by reason of death or disability, the Option may be fully exercised as to all Shares covered hereby (if it has not expired or terminated on or before the date of exercise as provided in Sections 3 or 4 but regardless of whether it is exercisable under Section 3(c) or Section 5 on the date such employment ceases) only during the one year period after the date of such cessation. “Disability” as used herein means a medical condition that would entitle the Optionee to receive benefits (either immediately or after expiration of a waiting period) under the long-term disability insurance program of the Company that is in effect on the Grant Date, if such program were in effect on the date of such cessation and the Optionee were a participant therein.

9. Nothing herein or in the Plan shall confer upon the Optionee any right to continue in the employment of the Company or a Subsidiary. Upon the exercise of the Option, the Optionee shall remit to the Company an amount of money sufficient in the judgment of the Company to satisfy all taxes that the Company determines it is required to withhold in connection with the exercise. However, the Optionee may pay the employer’s minimum statutory withholding tax obligation arising from the exercise of the Option (or, if the Committee permits, withholding taxes in excess of the employer’s

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minimum statutory withholding tax obligation) by having the Company withhold shares of Common Stock being acquired upon such exercise, which shall be valued for this purpose at their Fair Market Value on the date of such withholding.

10. The Option and the Plan are subject to adjustments, changes and amendments as provided in the Plan.

11. This Agreement shall bind and inure to the benefit of the Company, its successors and assigns, and the Optionee and the Optionee’s Beneficiary, subject to the Plan.

12. This Agreement will be governed by and construed under the laws of Delaware, without giving effect to the principles of conflicts of laws thereof. The existence of the Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks ahead of or affecting the stock or the rights thereof or convertible into or exchangeable for stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Except as expressly provided in Section 9(f) or 10 of the Plan, the issuance by the Company of shares of stock of any class, or securities convertible into or exchangeable for shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of options, rights or warrants to subscribe therefor, or to purchase the same, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of stock subject to the Option.

13. The Committee, in its sole and absolute discretion, shall resolve any disputes, claims or interpretive issues arising hereunder and the Committee’s determinations shall be final and uncontestable.

14. By signing this Agreement the Optionee irrevocably agrees to and accepts the terms and conditions of the Option as set forth or incorporated by reference in this Agreement and the terms and conditions of the Plan applicable to the Option. This Agreement is subject to any rights of the Optionee and obligations of the Company with respect to the Option under the Change in Control Employment Security Agreement, if any, that is in effect between the Company and the Optionee on the Grant Date (the “ESA”). Nothing in this Agreement is intended to enlarge, diminish or otherwise alter or affect any of such rights and obligations. By signing this Agreement, the Optionee confirms and agrees that the first sentence of Section 1 of the ESA (which provides for options held upon a Change in Control (as defined in the ESA) to remain exercisable until the original expiration date without regard to the need to remain employed by the Company) was not and is not intended to override Section 12 of the Company’s 1983 Stock Option Plan (with respect to any options granted to the Optionee under that Plan) or Section 3(c) of this Agreement or Section 9(f) of the Plan (with respect to the Option).

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IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective from the date first above written.

E-Z-EM, Inc.

By: _________________________

__________________________
«FIRSTNAM» «LASTNAM»

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EX-10.3 4 d63326_ex10-3.htm FORM OF NON-STATUTORY STOCK OPTION AGREEMENT EX-10.3

Exhibit 10.3

NON-STATUTORY STOCK OPTION AGREEMENT
FOR MEMBERS OF THE BOARD OF DIRECTORS

3. (a) The Option shall expire on «EXPIRES» (the “Expiration Date”), unless before that date it terminates in accordance with the terms and conditions of this Agreement or is cancelled in accordance with Section 9(f) of the Plan. If the Option has not expired, terminated or been cancelled during the Optionee’s service on the Board of Directors of the Company (the “Board”), it shall terminate on cessation of such service, but only if such service ceases for cause within the meaning of the Company’s By-Laws as amended and restated on the Grant Date. If such service ceases for any other reason, then, subject to Section 4, to the extent that the Option is exercisable after cessation of such service pursuant to Section 7 or 8 but is not exercised within the applicable period set forth in Section 7 or 8, the Option shall terminate at the expiration of the applicable period set forth in Section 7 or 8. Any provision of this Agreement to the contrary notwithstanding, in no event may the Option be exercised on or after the Expiration Date.

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(b) For the avoidance of doubt, a transfer of the Optionee from the service of the Company to the service of a Subsidiary, or from the service of a Subsidiary to the service of the Company or another Subsidiary, or from the status of a director to that of a consultant, shall not be deemed a cessation of the Optionee’s Board service solely for purposes of this Agreement, but if the Optionee is a director or consultant of a Subsidiary that ceases to be a Subsidiary (for example, because the Company sells or spins off the Subsidiary) and the Optionee is not then a director or consultant of the Company or another Subsidiary, the Optionee’s Board service shall be deemed to cease for purposes of this Agreement when the Subsidiary ceases to be a Subsidiary.

(c) In the event that, before the Expiration Date, the Company is dissolved or liquidated, or is merged, consolidated or otherwise combined with another corporation and is not the surviving corporation, the Committee may terminate the Option at the time of the transaction without the consent of the Optionee but only if not less than 15 days nor more than 90 days prior to such transaction the Optionee is notified in writing that the Option will terminate at the time of the transaction and that the Optionee will have the right, subject to Section 4, to exercise the Option during the 15 day period (or a specified longer period) prior to the transaction (the “Pre-Transaction Exercise Period”) to the extent hereafter provided. Subject to Section 4 and Section 7(b), the Option shall be exercisable during the Pre-Transaction Exercise Period to the extent of all of the shares that are subject to the Option, irrespective of the provisions of Section 5(a), unless the Optionee’s Board service ceased before the commencement of the Pre-Transaction Exercise Period, in which case to the extent that the Option is exercisable at the time of exercise during the Pre-Transaction Exercise Period pursuant to Section 7 or 8.

5. (a) Except as provided otherwise in the Plan, the Option shall become exercisable.

(b) Subject to Section 9(f) of the Plan, any portion of the Option which

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does not expire or terminate in accordance with Section 3 or 4 or become exercisable pursuant to Section 3(c) or Section 5(a) before the date, if any, on which a Change in Control occurs while the Optionee is providing Board service to the Company or a Subsidiary, shall become exercisable on that date.

7. In the event the Optionee’s Board service ceases for any reason other than death or disability, the Option may be exercised (but only if it has not expired or terminated on or before the date of exercise as provided in Section 3 or 4 and only to the extent that it is exercisable under Section 3(c) or Section 5 on the date such employment ceases) only during the 180 days after the date of such cessation.

Notwithstanding the foregoing, (a) if the Optionee dies or becomes disabled within the meaning of Section 8 during the aforementioned 180 day period, then that 180 day period shall be extended for an additional 180 days, and (b) in the event of a cessation of the Optionee’s Board service for cause within the meaning of the Company’s By-Laws as amended and restated on the Grant Date, the Option shall terminate at the time the Optionee’s Board service so ceases.

8. In the event the Optionee’s Board service ceases by reason of death or disability, the Option may be fully exercised as to all Shares covered hereby (if it has not expired or terminated on or before the date of exercise as provided in Sections 3 or 4 but regardless of whether it is exercisable under Section 3(c) or Section 5 on the date such Board service ceases) only during the one year period after the date of such cessation. “Disability” as used herein means a medical condition that would entitle the Optionee to receive benefits (either immediately or after expiration of a waiting period) under the long-term disability insurance program of the Company that is in effect on the Grant Date, if such program were in effect on the date of such cessation and the Optionee were a participant therein.

9. Nothing herein or in the Plan shall confer upon the Optionee any right to continue as a member of the Board or otherwise in the service of the Company or a Subsidiary.

10. The Option and the Plan are subject to adjustments, changes and amendments as provided in the Plan.

11. This Agreement shall bind and inure to the benefit of the Company, its successors and assigns, and the Optionee and the Optionee’s Beneficiary, subject to the Plan.

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consolidation of the Company, or any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks ahead of or affecting the stock or the rights thereof or convertible into or exchangeable for stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. Except as expressly provided in Section 9(f) or 10 of the Plan, the issuance by the Company of shares of stock of any class, or securities convertible into or exchangeable for shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of options, rights or warrants to subscribe therefor, or to purchase the same, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of stock subject to the Option.

IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective from the date first above written.

E-Z-EM, Inc.

By: _________________________
Dennis J. Curtin
Senior VP & CFO

__________________________
«FIRSTNAM» «LASTNAM»

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EX-10.4 5 d63326_ex10-4.htm FORM OF INCENTIVE STOCK OPTION AGREEMENT EX-10.4

Exhibit 10.4

INCENTIVE STOCK OPTION AGREEMENT

1. The Company hereby grants to the Optionee an Incentive Stock Option to purchase «NOOPTIONS» shares of Common Stock subject to the terms and conditions of this Agreement and the Plan (the “Option”). The terms and conditions of the Plan have been or are being delivered to the Optionee and are incorporated herein by this reference. In the event of any conflict between this Agreement and the Plan, the Plan shall control. The Option is intended to constitute an incentive stock option as defined in Section 422(b) of the Code and will be interpreted accordingly.

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Subsidiary that ceases to be a Subsidiary (for example, because the Company sells or spins off the Subsidiary) and the Optionee is not then employed by the Company or another Subsidiary, the Optionee’s employment by the Company and its Subsidiaries shall be deemed to cease for purposes of this Agreement when the Subsidiary ceases to be a Subsidiary.

5. (a) Except as provided otherwise in the Plan, the Option shall become exercisable.

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6. The Option shall not be transferable otherwise than by will or by the laws of descent and distribution, and during the lifetime of the Optionee shall be exercisable only by the Optionee. Any provision of this Section 6 to the contrary notwithstanding, as permitted by Treasury Regulation Section 1.421-1(b)(2) the Optionee may designate a Beneficiary who may exercise the Option after the Optionee’s death, subject to the other provisions of this Agreement.

Notwithstanding the foregoing, (a) if the Optionee dies or becomes disabled within the meaning of Section 8 during the aforementioned 180 day period, then that 180 day period shall be extended for an additional 180 days, and (b) in the event the Optionee’s employment is terminated by the Company or a Subsidiary for cause, the Option shall terminate at the time the Optionee’s employment is so terminated. For this purpose, cause shall mean gross negligence, willful misconduct, criminal activity, conduct involving moral turpitude, or a material breach of a written Company or Subsidiary policy, including without limitation the Company’s Code of Business Conduct and Ethics as in effect from time to time; provided that after a Change in Control the Company and its Subsidiaries shall not have cause to terminate the Optionee’s employment (solely for purposes of this Agreement) for any of the foregoing reasons, other than criminal activity or conduct involving moral turpitude, unless (i) the Company gives the Optionee a written notice expressly warning that the conduct in question, which shall be described with particularity in the notice, will constitute cause for purposes of this Agreement if not discontinued within a reasonable period of time after the Optionee receives the written notice (which shall be specified in the written notice and shall not be less than 7 days after the Optionee receives the written notice), and (ii) the Optionee does not discontinue the conduct in question within the period of time specified in the written notice.

9. Nothing herein or in the Plan shall confer upon the Optionee any right to continue in the employment of the Company or a Subsidiary. THE OPTIONEE AGREES TO NOTIFY THE COMPANY PROMPTLY IF HE OR SHE SELLS OR OTHERWISE DISPOSES OF ANY SHARE ACQUIRED THROUGH THE EXERCISE OF THE OPTION

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WITHIN TWO YEARS FROM THE GRANT DATE OR WITHIN ONE YEAR AFTER THE TRANSFER OF THE SHARE TO THE OPTIONEE.

10. The Option and the Plan are subject to adjustments, changes and amendments as provided in the Plan.

11. This Agreement shall bind and inure to the benefit of the Company, its successors and assigns, and the Optionee and the Optionee’s Beneficiary, subject to the Plan.

IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective from the date first above written.

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E-Z-EM, Inc.

By: _________________________

__________________________
«FIRSTNAM» «LASTNAM»

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EX-31.1 6 d63326_ex31-1.htm CEO CERTIFICATION EX-31.1

Exhibit 31.1

CERTIFICATION

I, Anthony A. Lombardo, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of E-Z-EM, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 12, 2005
——————

/s/ Anthony A. Lombardo
—————————————————
Anthony A. Lombardo, President,
Chief Executive Officer and Director

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EX-31.2 7 d63326_ex31-2.htm CFO CERTIFICATION EX-31.2

Exhibit 31.2

CERTIFICATION

I, Dennis J. Curtin, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of E-Z-EM, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 12, 2005
——————

/s/ Dennis J. Curtin
—————————————————
Dennis J. Curtin, Senior Vice
President - Chief Financial Officer

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EX-32.1 8 d63326_ex32-1.htm CEO CERTIFICATION EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO TITLE 18,
UNITED STATES CODE, SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Anthony A. Lombardo, President, Chief Executive Officer and Director of E-Z-EM, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

the Quarterly Report on Form 10-Q of the Company for the quarter ended February 26, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 12, 2005
——————

/s/ Anthony A. Lombardo
—————————————————
Anthony A. Lombardo, President,
Chief Executive Officer and Director

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EX-32.2 9 d63326_ex32-2.htm CFO CERTIFICATION EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO TITLE 18,
UNITED STATES CODE, SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Dennis J. Curtin, Senior Vice President - Chief Financial Officer of E-Z-EM, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 12, 2005
——————

/s/ Dennis J. Curtin
—————————————————
Dennis J. Curtin, Senior Vice
President - Chief Financial Officer

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

E-Z-EM, Inc. and Subsidiaries

INDEX

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – NATURE OF BUSINESS AND BASIS OF PRESENTATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)

NOTE B – DISCONTINUED OPERATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B – DISCONTINUED OPERATION (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B – DISCONTINUED OPERATION (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C – STOCK-BASED COMPENSATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE D — EARNINGS PER COMMON SHARE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E – EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F – COMPREHENSIVE INCOME

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE G – ASSET PURCHASE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H – PLANT CLOSINGS AND OPERATIONAL RESTRUCTURINGS

NOTE I – INVENTORIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J – DEBT AND EQUITY SECURITIES

NOTE K – INCOME TAXES

NOTE L – CONTINGENCIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE L – CONTINGENCIES (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M – COMMON STOCK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE M – COMMON STOCK (continued)

NOTE N – STOCK COMPENSATION PLANS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N – STOCK COMPENSATION PLANS (continued)

NOTE O – OPERATING SEGMENT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE O – OPERATING SEGMENT (continued)

Forward-Looking Statements and Risk Factors

Overview

AngioDynamics Initial Public Offering

AngioDynamics Spin-off

Results of Operations

Recent Developments

Quarters ended February 26, 2005 and February 28, 2004

Consolidated Results of Operations

Continuing Operations

Discontinued Operations

Nine months ended February 26, 2005 and February 28, 2004

Consolidated Results of Operations

Continuing Operations

Discontinued Operations

Liquidity and Capital Resources

Critical Accounting Policies

Revenue Recognition

Accounts Receivable

Income Taxes

Inventories

Property, Plant and Equipment

Effects of Recently Issued Accounting Pronouncements

Foreign Currency Exchange Rate Risk

Interest Rate Risk

Evaluation of Disclosure Controls and Procedures

Changes in Internal Controls over Financial Reporting

E-Z-EM, Inc. and Subsidiaries

Part II: Other Information

SIGNATURES

ASSET PURCHASE AGREEMENT

by and among

E-Z-EM, Inc.

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

NON-STATUTORY STOCK OPTION AGREEMENT
FOR MEMBERS OF THE BOARD OF DIRECTORS