SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934 (Amendment No. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14(a)-12
E-Z-EM, INC.
(Name of Registrant as Specified in Charter)
DENNIS J. CURTIN
(Name of Person(s) filing Proxy Statement)
Payment of filing fee (check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:1. (Set forth the amount on which the filing fee is
calculated and state how it was determined.)
<PAGE>
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
$125
(2) Form, schedule or registration statement no.:
Preliminary Proxy Statement on Form 14A
(3) Filing party:
Goodman Phillips & Vineberg
(4) Date filed:
October 16, 1996
<PAGE>
E-Z-EM, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 5, 1997
----------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Meeting")
of E-Z-EM, INC., a Delaware corporation (the "Company"), will be held at the
Milleridge Inn, Jericho, New York, on March 5, 1997 at 10:00 a.m., Local Time,
for the following purposes:
1. To elect two Class III directors, each to serve for a term of three years;
2. To ratify the appointment of Grant Thornton LLP as the Company's independent
auditors for the fiscal year ending May 31, 1997;
3. To amend Section 4.1.1. of the Restated Certificate of Incorporation of the
Company to provide that the approval of certain significant matters, which now
requires the approval of the holders of sixty-six percent (66%) of the total
issued and outstanding shares of the Company's Class A Common Stock, requires
the approval of the holders of sixty-six percent (66%) of the shares of the
Company's Class A Common Stock voting on such matters;
4. To approve the proposed public offering of shares of the Company's
wholly-owned subsidiary, AngioDynamics, Inc., as part of a reorganization of the
Company whereby the business previously conducted by its AngioDynamics division
is separated from the Company; and
5. To transact such other business as may properly come before the Meeting.
The Board of Directors has fixed the close of business on January 22, 1997 as
the record date (the "Record Date") for the Meeting. Only stockholders of record
of the Company's Class A Common Stock, $0.10 par value, on the Company's stock
transfer books on the close of business on that date are entitled to vote at the
Meeting.
By Order of the Board of Directors
W. PHILIP VAN KIRK, Secretary
Westbury, New York
Dated: February 5, 1997
<PAGE>
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO FILL
IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE THAT IS PROVIDED,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
If you wish to attend, please check the appropriate box on the enclosed proxy
and return it in the enclosed envelope.
<PAGE>
E-Z-EM, INC.
717 MAIN STREET
WESTBURY, NEW YORK 11590-5021
PROXY STATEMENT
FOR
MEETING OF STOCKHOLDERS
MARCH 5, 1997
INTRODUCTION
This Proxy Statement is being furnished to stockholders by the Board of
Directors of E-Z-EM, Inc., a Delaware corporation (the "Company"), in connection
with the solicitation of the accompanying proxy (each a "Proxy" and
collectively, the "Proxies") for use at the 1996 Annual Meeting of Stockholders
of the Company (the "Meeting") to be held at the Milleridge Inn, Jericho, New
York, on Wednesday, March 5, 1997, at 10:00 a.m., or at any adjournment thereof.
The principal executive offices of the Company are located at 717 Main
Street, Westbury, New York 11590-5021. The approximate date on which this Proxy
Statement and the accompanying Proxy will first be sent or given to stockholders
is February 5, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and accordingly files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed with the Commission are available for inspection and copying
at the public reference facilities maintained by the Commission at 450 Fifth
Street, Washington, D.C. 20549 and at certain of the Commission's regional
offices. Copies of such documents may be obtained from the Public Reference
Section of the Commission at prescribed rates. In addition, such material and
other information concerning the Company can be inspected at the American Stock
Exchange, on which exchange shares of the Company's securities are listed.
<PAGE>
TABLE OF CONTENTS
Summary of Proxy Statement
Record Date and Voting Securities
Voting of Proxies
Security Ownership
Election of Directors
Nominees
Meetings
Executive Compensation
Certain Transactions
Ratification of Appointment of Independent Auditors
Amending the Company's Restated Certificate of Incorporation
to modify certain Supermajority Voting Requirements
Approval of Proposed Public Offering of Shares of AngioDynamics
Introduction
Overview of AngioDynamics Business
Reasons for the Reorganization
Selected Financial Data of the Company and AngioDynamics
Pro Forma Consolidated Condensed Financial Statements of the
Company
Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Company and AngioDynamics
Re-Capitalization of AngioDynamics
Manner of Effecting the Reorganization
The Transfer
The Public Offering
The Spin-Off
No Appraisal Rights
<PAGE>
Abandonment of the Public Offering
Federal Income Tax Consequences of the Reorganization
Future Management of AngioDynamics
Relationship between the Company and AngioDynamics
Financial
Stock Ownership
Tax Matters
Insurance Matters
Employee Matters
Shared Services
Corporate Agreement
Manufacturing Agreement
Annual Report
Stockholder Proposals
Other Matters
Financial Statements
Annual Financial Statements of the Company
Interim Financial Statements of the Company
Financial Statements of AngioDynamics
<PAGE>
SUMMARY OF PROXY STATEMENT
The following is a summary of certain information contained in this Proxy
Statement. This summary should not be considered complete and is qualified in
its entirety by the more detailed information and financial statements contained
in the Proxy Statement. Certain capitalized terms used in this summary are
defined in the Proxy Statement.
The principal offices of the Company are located at 717 Main Street,
Westbury, New York 11590-5021, (516) 333-8230.
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
Two of the Company's eight directors are to be elected at the Annual
Meeting. Each of the directors will serve until the 1999 Annual Meeting of
Shareholders and until, in each case, his successor is duly elected and
qualified.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL NO. 2)
Shareholders are being asked at the Annual Meeting to ratify the
appointment of Grant Thornton LLP, certified public accountants, as the
independent auditors for the Company for the 1997 fiscal year.
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO MODIFY CERTAIN SUPERMAJORITY VOTING REQUIREMENTS
(PROPOSAL NO. 3)
The proposed amendment to the Company's Restated Certificate of
Incorporation (the "Certificate") is to provide the Company with the ability to
take certain actions upon receiving the affirmative vote of holders of sixty-six
percent (66%) of the shares voted in connection with such actions, instead of
requiring the affirmative vote of holders of sixty-six percent (66%) of all of
the outstanding Class A Common Stock. Such actions include amending the
Certificate, reducing the Company's capital, engaging in a merger or
consolidation, transferring all or substantially all of the Company's property
or assets, and liquidating, dissolving or winding up of the Company.
The Board of Directors believes that this change will enable the Company to
take advantage of opportunities and engage in an action described in the
preceding paragraph, provided that the holders of sixty-six percent (66%) of the
Company's voting shares who are sufficiently interested in the transaction to
vote on it approve the action. The Board of Directors also believes that the
amendment will prevent the Company from missing opportunities that would
otherwise benefit its shareholders because an insufficient number of
shareholders cast votes in connection therewith.
<PAGE>
Notwithstanding the proposed amendment, voting is still subject to applicable
Delaware law, which contains minimum voting requirements for certain of the
actions described above.
The approval of the amendment requires the affirmative vote of the holders
of sixty-six percent (66%) of the outstanding shares of the Class A Common
Stock.
APPROVAL OF PROPOSED PUBLIC OFFERING OF SHARES OF
ANGIODYNAMICS, INC. (PROPOSAL NO. 4)
Introduction
The Board of Directors of the Company has determined, for the reasons set
forth below, among others, that it is in the best interests of the Company and
its shareholders to separate the business (the "AngioDynamics Business")
previously conducted by its AngioDynamics division (the "Division") from the
Company. This will be accomplished through a three-step process (collectively,
the "Reorganization"): (i) a capital contribution of the assets and liabilities
of the Division to a wholly-owned subsidiary of the Company, AngioDynamics, Inc.
("AngioDynamics") (which was effected June 1, 1996), followed by (ii) a public
offering by AngioDynamics of shares representing up to 19.9% of the voting power
of AngioDynamics (the "Public Offering") and then (iii) a spin-off to the
Company's shareholders of the shares of AngioDynamics owned by the Company (the
"Spin-Off"). The Spin-Off will be effected after the Company obtains a private
letter ruling ("PLR") from the Internal Revenue Service ("IRS") that the
Reorganization qualifies as a tax-free reorganization. While the Company
anticipates receiving a PLR, there can be no assurance that it will be obtained.
The AngioDynamics Business
AngioDynamics develops, manufactures and markets a variety of therapeutic
and diagnostic products, primarily for use in the diagnosis and treatment of
cardiovascular disease. These products are primarily designed for use in the
growing interventional medicine market, which involves the use of less invasive
surgical and diagnostic procedures. AngioDynamics has focused its development
efforts on three interventional product groups: stent products, angiographic and
fluid management products, and thrombolytic products. AngioDynamics has both a
core group of products that are currently sold in the United States and
internationally, and a group of new products, including AngioDynamics' stents
and a carbon dioxide ("CO2") angiography system, which are being sold
internationally and for which AngioDyamics plans to seek regulatory approval
within the United States. AngioDynamics' objective is to become a leading
provider of interventional medical devices through the development of innovative
technologies that improve the quality of patient care at reduced cost to the
healthcare system.
<PAGE>
Reasons for the Reorganization
The Company's Board of Directors has determined that the AngioDynamics
Business is substantially different from the Company's other businesses and that
retention of the AngioDynamics Business is not consistent with either the
long-range goals of the AngioDynamics Business or the Company's other
businesses.
The Company's Board of Directors believes that companies in the
cardiovascular medical device business, which is the business in which
AngioDynamics is engaged, tend to be valued differently from the Company's other
businesses and that the value of the AngioDynamics Business to the Company's
shareholders is not presently being reflected in the Company's stock price. The
Company's Board of Directors further believes that the value and potential of
the AngioDynamics Business can be better realized as a separate public company,
which will facilitate equity and debt financings. The principal reason for the
spin-off of AngioDynamics is to help assure the success of the public offering
by establishing AngioDynamics as a stand-alone company. Additionally, as a
public company, AngioDynamics will be able to offer direct equity ownership to
its key personnel. The Company's Board of Directors believes that providing such
incentives to key personnel will tend to benefit all shareholders. In addition,
the Company's Board of Directors believes that by effecting the Reorganization
there will be a greater potential for increasing the long-term value of the
Company's shareholders' investment. Further, the Reorganization will enable
current shareholders and potential investors to direct their investment to their
specific area of interest.
Federal Income Tax Consequences of the Public Offering and Spin-Off
It is intended that no gain or loss will be recognized by (and no amount
will be included in the income of) the Company's shareholders as a result of the
Reorganization. The Company will complete the Spin-Off upon receiving the PLR
from the IRS confirming the tax-free nature of the transactions contemplated
therein, as described elsewhere in this Proxy Statement. While the Company
anticipates receiving a PLR, there can be no assurance that it will be obtained.
Future Management of AngioDynamics
AngioDynamics continues to be operated substantially in the manner in which
the Division was operated by the Company in the past and with substantially the
same operating management. The Board of Directors of AngioDynamics is composed
of Howard Stern, the Chairman of the Board and a Director of the Company, Donald
Meyer and Paul Echenberg, each a Director of the Company, and Eamonn Hobbs, a
Vice President of the Company and the President and Chief Executive Officer of
AngioDynamics.
<PAGE>
Relationship Between the Company and AngioDynamics
The Public Offering will raise capital needed by AngioDynamics to fund the
operation, development and expansion of the AngioDynamics Business. During the
time that the Company operated the AngioDynamics Business through the Division,
the AngioDynamics Business had the benefit of access to the Company's credit
through the extension of intracompany loans. Following the Public Offering, the
Company does not intend to extend any additional credit to or on behalf of
AngioDynamics, through either direct loans or the providing of a guaranty.
The Company, AngioDynamics and other companies within the Company's
consolidated group (AngioDynamics and each such other company is referred to as
a "Member") have entered into a tax-sharing agreement with respect to federal
income taxes, which agreement will continue as to each Member until such time as
such Member is deconsolidated for tax purposes. Pursuant to the tax-sharing
agreement, the Company and each Member will pay its appropriate share of taxes
actually due and payable, and also, will make payments among themselves such
that, with respect to any period, the amount of federal income taxes to be paid
by any Member, subject to certain adjustments, generally will be determined as
though each such Member were to file separate federal income tax returns. Each
Member will be reimbursed, however, for federal income tax attributes that it
generates, such as net operating losses, if and when they are used on a
consolidated basis.
AngioDynamics' liability insurance is included in the Company's liability
policy. This will continue until the Company determines such coverage for
AngioDynamics is no longer reasonably available, or until such time as
AngioDynamics is no longer able to be covered under the Company's policy, or
until AngioDynamics obtains its own insurance coverage.
Most employees of the Division have become employees of AngioDynamics (the
"Transferred Employees") and as of June 1, 1996, AngioDynamics assumed all
liabilities of the Company with respect to the Transferred Employees other than
liabilities with respect to the Company's stock option plan. There may be a
limited number of employees who perform services for both AngioDynamics and the
Company's other businesses who will be shared by the Company and AngioDynamics.
Additionally, although the AngioDynamics Business has been operated to a
large degree independently of the Company's other businesses, the Company and
<PAGE>
AngioDynamics have entered into a Services Agreement pursuant to which the
Company provides certain services to AngioDynamics. These services include,
among others, engineering, tax, legal and regulatory, treasury and financial,
corporate and senior management services. The services will be charged to
AngioDynamics for fees based on the costs incurred by the Company for providing
such services, the number of hours required, the hourly cost of the person or
persons providing the services and the costs of materials, overhead (including
employee benefits) and capital consumed in providing the services. The services
will be provided for an indefinite period of time and will be phased out as and
when no longer needed by AngioDynamics. In addition, the Company may discontinue
providing a service if to continue to provide the service would unreasonably
interfere with the Company's business and operations.
The Company and AngioDynamics have also entered into a manufacturing
agreement pursuant to which the Company manufactures certain products for
AngioDynamics and AngioDynamics manufactures certain products for the Company.
In each case, the fees charged by the manufacturer are determined on an
arm's-length basis.
RECORD DATE AND VOTING SECURITIES
As of the close of business on January 22, 1997, the record date (the
"Record Date"), there were 4,035,346 outstanding shares of the Company's Class A
Common Stock, $0.10 par value (the "Class A Common Stock"). Holders of the Class
A Common Stock have one vote per share on each matter to be acted upon. Only
stockholders of Class A Common Stock of record at the close of business on the
Record Date for the Meeting (the "Stockholders"), will be entitled to vote at
the Meeting and at any adjournment thereof. A majority of the outstanding shares
of Class A Common Stock present in person or by proxy is required to constitute
a quorum at the Meeting.
Additionally, the Company had 5,293,648 shares of Class B Common Stock,
$0.10 par value (the "Class B Common Stock" and collectively with the Class A
Common Stock, the "Common Stock") outstanding as of the Record Date. Shares of
Class B Common Stock are nonvoting shares.
VOTING OF PROXIES
Shares of Class A Common Stock represented by Proxies that are properly
executed, duly returned and not revoked, will be voted in accordance with the
instructions contained therein. If no specification is indicated on the Proxy,
the shares of Class A Common Stock represented thereby will be voted: (i) for
the election as Directors of the persons who have been nominated by the Board of
Directors; (ii) for the ratification of the appointment of Grant Thornton LLP as
<PAGE>
the Company's independent auditors for the fiscal year ending May 31, 1997 (the
"1997 Fiscal Year"); (iii) to approve the amendment to the Company's Certificate
of Incorporation to require the approval of the holders of sixty-six percent
(66%) of the shares of Class A Common Stock voting on certain significant
matters to approve such matters; (iv) to approve the proposed public offering of
shares of AngioDynamics as part of a Reorganization in which the AngioDynamics
Business is separated from the Company; and (v) with respect to any other matter
that may properly be brought before the Meeting in accordance with the judgment
of the person or persons voting the Proxies.
The execution of a Proxy will in no way affect a Stockholder's right to
attend the Meeting and vote in person. Any Proxy executed and returned by a
Stockholder may be revoked at any time thereafter if written notice of
revocation is given to the Secretary of the Company prior to the vote to be
taken at the Meeting, or by execution of a subsequent proxy which is presented
before the Meeting, or if the Stockholder attends the Meeting and votes by
ballot, except as to any matter or matters upon which a vote shall have been
cast pursuant to the authority conferred by such Proxy prior to such revocation.
For purposes of determining the presence of a quorum for transacting business at
the Meeting, abstentions and broker "non-votes" (i.e., proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares on a particular matter
with respect to which the brokers or nominees do not have discretionary power)
will be treated as shares that are present but which have not been voted.
The cost of solicitation of the Proxies being solicited on behalf of the
Board of Directors will be borne by the Company. In addition to the use of the
mail, proxy solicitation may be made by telephone, telegraph and personal
interview by officers, directors and employees of the Company. The Company will,
upon request, reimburse brokerage houses and persons holding Class A Common
Stock in the names of their nominees for their reasonable expenses in sending
soliciting material to their principals.
<PAGE>
SECURITY OWNERSHIP
The following table sets forth information, as of January 22, 1997, as to
the beneficial ownership of the Company's voting Class A Common Stock by each
person known by the Company to own beneficially more than 5% of the Company's
voting Class A Common Stock.
Name and Address of Shares Percent of
Beneficial Owner Beneficially Owned Class
---------------- ------------------ -----
Howard S. Stern,................ 956,412 23.7
Chairman of the Board
and Director
717 Main Street
Westbury, NY 11590
Betty S. Meyers.................. 820,806 20.3
401 Emerald Street
New Orleans, LA 70124
Wellington Management Company... 219,258 5.4
75 State Street
Boston, MA 02109
The following table sets forth information, as of January 22, 1997, as to
the beneficial ownership of the Company's voting Class A and nonvoting Class B
Common Stock, by (i) each of the Company's directors, (ii) those persons who
were, at the end of the fiscal year ended June 1, 1996 (the "1996 Fiscal Year"),
Chief Executive Officer ("CEO") (Daniel R. Martin) and each of the four most
highly compensated executive officers of the Company other than the CEO
(collectively, the "Named Executive Officers"), and (iii) all directors and
executive officers of the Company as a group:
<PAGE>
Class A Class B
--------------------- ----------------------
Shares Percent Shares Percent
Name of Beneficially of Beneficially of
Beneficial Owner Owned (1) Class Owned (2) Class
---------------- ------------ ------- ------------ --------
Howard S. Stern,........... 956,412 23.7 1,209,473 22.5
Chairman of the Board,
Director
David P. Meyers ........... 192,750 4.8 242,921 4.6
Director
Daniel R. Martin,.......... 23,882 * 175,119 3.2
President, Chief Executive
Officer, Director
Arthur L. Zimmet,.......... 28,750 * 83,925 1.6
Senior Vice President
Robert M. Topol,........... 26,313 * 59,321 1.1
Director
Paul S. Echenberg,......... 3,313 * 69,348 1.3
Chairman of the Board of
E-Z-EM Canada, Director
James L. Katz,............. 3,338 * 49,806 *
Director
George P. Carden,.......... 6,725 * 45,596 *
Senior Vice President and
General Manager
Donald A. Meyer,........... 20,492 * 29,670 *
Director
Eamonn P. Hobbs,........... 50 * 37,380 *
Vice President
Michael A. Davis, M.D.,.... None * 34,632 *
Medical Director, Director
All directors and executive
officers as a group (21
persons)................. 1,265,059 (3) 31.1 2,299,305 (4) 37.6
- ---------------
* Does not exceed 1%.
<PAGE>
(1) Includes Class A Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from January 22, 1997
as follows: Daniel R. Martin (16,882), Robert M. Topol (2,813), Paul S.
Echenberg (2,813), James L. Katz (2,813) and Donald A. Meyer (2,813).
(2) Includes Class B Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from January 22, 1997
as follows: Howard S. Stern (74,263), Daniel R. Martin (166,364), Arthur L.
Zimmet (47,963), Robert M. Topol (36,898), Paul S. Echenberg (68,725),
James L. Katz (48,125), George P. Carden (37,322), Donald A. Meyer (5,998),
Eamonn P. Hobbs (37,322) and Michael A. Davis, M.D. (34,632).
(3) Includes Class A Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from January 22, 1997
totalling 28,134 shares.
(4) Includes Class B Common Stock shares issuable upon exercise of options
currently exercisable or exercisable within 60 days from January 22, 1997
totalling 816,036 shares.
PROPOSAL I--ELECTION OF DIRECTORS
NOMINEES
As of January 1, 1997, the effective date of the retirement of Irwin H.
Nadel, the Company's Board of Directors consisted of eight Directors. The Board
is classified into three classes, each of which has a staggered three-year term.
At the Meeting, the Stockholders will elect two Class III directors each of whom
will hold office until the Annual Meeting of Stockholders to be held in 1999 and
until their successors are duly elected and qualified. The Class I directors and
Class II directors will continue in office during the terms indicated below.
Unless otherwise specified, all Proxies received will be voted in favor of the
election of the persons named below (the "Nominees") as directors of the
Company. Directors shall be elected by a plurality of the votes cast, in person
or by proxy, at the Meeting. Abstentions from voting and broker non-votes on the
election of directors will have no effect since they will not represent votes
cast at the Meeting for the purpose of electing directors. Both nominees are
currently directors of the Company. On November 19, 1996, the Company's Board of
Directors elected David P. Meyers, who is the son of the late Dr. Phillip H.
Meyers, former officer, director and holder of over 23% of the Company's
securities, to the directorship previously held by his father.
The term of each of the current non-retiring Class III directors expires at
<PAGE>
the Meeting when his respective successor is duly elected and qualified.
Management has no reason to believe that any of the Nominees will be unable or
unwilling to serve as a director, if elected. Should any of the Nominees not
remain a candidate for election at the date of the Meeting, the Proxies will be
voted in favor of the Nominees who remain candidates and may be voted for
substitute nominees selected by the Board of Directors. The names of the
Nominees and certain information concerning them are set forth below:
Nominees to Class III of the Board of Directors
<TABLE>
<CAPTION>
First
Year
Became
Name Principal Occupation Age Director
---- -------------------- --- --------
<S> <C> <C> <C>
Howard S. Stern Chairman of the Board of 65 1962
the Company
David P. Meyers President and Chief 32 1996
Executive Officer,
MedTest Express, Inc.
</TABLE>
HOWARD S. STERN, age 65, is a co-founder of the Company and has served as
Chairman of the Board and Director of the Company since its formation in 1962.
Prior to 1994, Mr. Stern also served as Chief Executive Officer, and from the
formation of the Company until 1990, he served as President of the Company.
DAVID P. MEYERS, age 32, was elected by the Company's directors to the
Board of Directors on November 19, 1996. He is the founder of MedTest Express,
Inc., an Atlanta, Georgia provider of contracted laboratory services for home
health agencies, and has served as its President and Chief Executive Officer
since November 1994. For the five years prior to that, Mr. Meyers was the Vice
President of Operations at Radiation Care, Inc., an Atlanta, Georgia operator of
radiation therapy and diagnostic imaging centers. Mr. Meyers is the son of Dr.
Phillip H. Meyers, a former director, officer and holder of over 23% of the
outstanding securities of the Company, who died during the past year.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES.
<PAGE>
The following Class I and II Directors will continue on the Board of Directors
for the terms indicated:
Class I Directors
(Term Expiring in 1997):
JAMES L. KATZ, CPA, JD, age 60, has been a director of the Company since
1983. He is a founder and has been a principal of Chapman Partners LLC
(investment banking) since its organization in 1995. Previously, he had been the
co-owner and President of Ever Ready Thermometer Co., Inc. from its acquisition
in 1985 until its sale in November 1994. From 1971 until 1980 and from 1983
until 1985, he held various executive positions with Baxter International and
subsidiaries of Baxter International, including that of Chief Financial Officer
of Baxter International. He is also a director of Intec, Inc. and Binax.
DANIEL R. MARTIN, age 59, has served as President, Chief Executive Officer
and Director since 1994, and previously served as President, Chief Operating
Officer and Director from 1990 to 1993.
MICHAEL A. DAVIS, M.D., age 55, has served as Medical Director and Director
of the Company since July 1995, and previously served as Medical Director from
1994 to July 1995 and as Associate Medical Director from 1988 to 1993. He has
been Professor of Radiology and Nuclear Medicine and Director of the Division of
Radiologic Research, University of Massachusetts Medical Center since 1980.
Class II Directors
(Term Expiring in 1998):
PAUL S. ECHENBERG, age 53, has been a director of the Company since 1987
and has served as Chairman of the Board of E-Z-EM Canada Inc. since 1994. He is
a founder and has been a general partner and director of Eckvest Equity Inc.
(personal investment and consulting services) since 1989. He was also a founder
and had been a senior partner of BDE Capital Partners (investment banking
partnership) from 1992 to 1994. He is also a director of Lallemand Inc., ISG
Technologies, Inc., LDI Research Co., Inc., LDI Marketing Co., Inc., Benvest
Capital Inc. and Colliers MacAuley Nicholl. The Company has an investment in ISG
Technologies, Inc.
DONALD A. MEYER, age 62, has been a director of the Company since 1968. He
is currently an independent consultant in legal matters and to arts and business
organizations, specializing in technical assistance. He had been the Executive
Director of the Western States Arts Federation, Santa Fe, New Mexico, which
provides and develops regional arts programs, from 1990 to October 1995. From
1958 through 1990, he was an attorney practicing in New Orleans, Louisiana.
<PAGE>
ROBERT M. TOPOL, age 71, has been a director of the Company since 1982.
Prior to his retirement in 1994, he served as an Executive Vice President of
Smith Barney, Inc. (financial services) for more than five years. He is also a
director of First American Health Concepts, Fund for the Aging, City Meals on
Wheels, American Health Foundation, State University of New York - Purchase and
Group One Ltd.
MEETINGS
The Board of Directors held four regular meetings and two special meetings
by conference call during the 1996 Fiscal Year. From time to time, the members
of the Board of Directors act by unanimous written consent pursuant to the laws
of the State of Delaware. All directors attended all regular Board meetings
during the 1996 Fiscal Year, except that Messrs. Nadel and Topol each missed one
meeting.
The Company has a standing Executive Committee, Audit Committee, Nominating
Committee, Compensation Committee and Finance Committee.
The Executive Committee has the power and authority to act on behalf of the
Board during intervals between regularly scheduled Board meetings. The members
of the Executive Committee are Messrs. Stern, Martin, Echenberg, Katz and Topol.
The Executive Committee met six times during the 1996 Fiscal Year.
The Audit Committee recommends to the Board the selection of independent
accountants and reviews the scope and results of the annual audit. The members
of the Audit Committee are Messrs. Katz and Topol. The Audit Committee met twice
during the 1996 Fiscal Year.
The Nominating Committee recommends to the Board nominees for election to
the Board. The members of the Nominating Committee are Messrs. Meyer and Topol.
The Nominating Committee met once during the 1996 Fiscal Year.
The Compensation Committee determines the compensation for the President
and the Chief Executive Officer. In addition, the Compensation Committee also
sets the policies and parameters of the Company's executive compensation
programs and awards thereunder, and makes determinations as to stock option
grants under the 1983 Stock Option Plan and the 1984 Directors and Consultants
Stock Option Plan. The members of the Compensation Committee are Messrs. Stern
and Meyer. The Compensation Committee met three times during the 1996 Fiscal
Year.
The Board of Directors created a Finance Committee in January 1995. Its
members are Messrs. Topol and Katz. The Finance Committee did not meet during
the 1996 Fiscal Year.
<PAGE>
Phillip H. Meyers, M.D., a director of the Company who died during the past
year, served on the Company's Executive and Nominating Committees.
Irwin H. Nadel, a director of the Company who retired as of January 1,
1997, served on the Audit Committee and the Finance Committee.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation for
services, in all capacities for the 1996, 1995 and 1994 fiscal years, of the
Named Executive Officers:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------- -------------------------------
Awards Payouts
------------------ -------
Other All
Annual Restricted Other
Name and Compensa- Stock LTIP Compensa-
Principal Fiscal Salary Bonus tion (1) Awards Options Payouts tion (3)
Position Year ($) ($) ($) ($) #(2) ($) ($)
- --------- ------ ------ ----- --------- ---------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Howard S. Stern, ..................... 1996 $250,000 None None None None None $ 7,245
Chairman of the Board 1995 250,000 None None None 74,263 None 11,712
1994 250,000 None None None None None 9,627
Daniel R. Martin, .................... 1996 $220,000 None None None None None $ 9,261
President and Chief 1995 200,000 None None None 116,699 None 8,453
Executive Officer 1994 200,000 None None None None None 9,150
George P. Carden, .................... 1996 $186,300 None None None None None $ 7,257
Senior Vice President 1995 186,300 $25,000 None None 30,766 None 7,330
1994 172,125 None None None None None 7,853
Arthur L. Zimmet, .................... 1996 $153,000 None None None None None $ 7,760
Senior Vice President 1995 153,000 $10,000 None None 40,314 None 7,466
1994 153,000 None None None None None 8,094
Eamonn P. Hobbs, ..................... 1996 $170,648 None None None None None $ 8,021
Vice President 1995 120,000 $15,000 None None 30,766 None 5,856
1994 120,000 None None None None None 6,020
</TABLE>
- ---------------
(1) The Company has concluded that the aggregate amount of perquisites and
other personal benefits paid to each of the Named Executive Officers for
the 1996, 1995 and 1994 fiscal years did not exceed the lesser of 10% of
such officer's total annual salary and bonus for the 1996, 1995 or 1994
fiscal years or $50,000; such amounts are, therefore, not reflected in the
table.
(2) Retroactively adjusted for the 3% stock dividends described in Note K to
the Consolidated Financial Statements included herein.
(3) For the 1996, 1995 and 1994 fiscal years, represents for each of the Named
Executive Officers the amounts contributed by the Company under the
Profit-Sharing Plan and, as matching contributions, under the companion
401(k) Plan.
<PAGE>
Option Grants Table
The Company did not grant any stock options or stock appreciation rights to
the Named Executive Officers during the 1996 Fiscal Year.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth certain information concerning all exercises
of stock options during the 1996 Fiscal Year by the Named Executive Officers and
the fiscal year-end value of unexercised stock options on an aggregated basis:
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
June 1, 1996 June 1, 1996
(#) ($) (1)
------------- -------------
Shares Value Exercisable/ Exercisable/
Acquired on Realized Unexercisable Unexercisable
Name Exercise (#) ($) (2) (2)
---- ------------ -------- ------------- -------------
Howard S. Stern....... None None 74,263/ $651,485/
None None
Daniel R. Martin...... None None 183,246/ $1,462,783/
None None
George P. Carden...... None None 37,322/ $319,273/
None None
Arthur L. Zimmet...... None None 47,963/ $411,263/
None None
Eamonn P. Hobbs....... None None 37,322/ $319,273/
None None
- ---------------
(1) Options are "in-the-money" if on June 1, 1996, the market price of the
stock exceeded the exercise price of such options. At June 1, 1996, the
closing price of the Company's Class A and Class B Common Stock was $14.13
and $13.25, respectively. The value of such options is calculated by
determining the difference between the aggregate market price of the stock
covered by the options on June 1, 1996 and the aggregate exercise price of
such options.
<PAGE>
(2) Options granted prior to the Company's recapitalization on October 26, 1992
are exercisable one-half in Class A Common Stock and one-half in Class B
Common Stock. Options granted after the recapitalization are exercisable in
Class B Common Stock.
Employment Contract
During 1994, the Company entered into an employment contract with Howard S.
Stern. This employment contract is for a term of eight years at an annual
compensation of $250,000.
Severance Arrangements
The Company has entered into severance agreements ("Severance Agreements")
with the Named Executive Officers (excluding Howard S. Stern) and certain other
executive officers and key employees ("Executives").
Each Severance Agreement provides certain security to the Executives in
connection with a change of control. A change of control ("Change of Control")
is defined as the acquisition of 50% or more of the outstanding voting power of
all capital stock of the Company; or the transfer of all or substantially all of
the assets of either or both of the AngioDynamics or Contrast Systems business
segments. Upon a Change of Control, all outstanding stock options vest and
remain exercisable until the original expiration date of such options without
regard to the need to remain employed by the Company. The Company will provide
the Executive (or his estate) with an interest-free loan in the amount necessary
to pay the exercise price and the income and employment taxes due as a result of
the option exercise. It is likely that the Reorganization constitutes a Change
of Control.
If an Executive's employment with the Company is terminated by the Company
for good cause (as defined below), death or disability, or by the Executive
other than for good reason (as defined below), during the term of the Severance
Agreement and within two years following a Change of Control, the Executive
shall be entitled to accrued but unpaid base salary.
A termination of employment is for good cause ("Good Cause") under the
Severance Agreements if the basis of termination is (i) repeated acts or serious
omissions constituting dishonesty, intentional breach of fiduciary obligation or
intentional wrongdoing or malfeasance; (ii) conviction of a crime involving
fraud, dishonesty or moral turpitude; or (iii) a material breach of the Security
Agreement.
Good reason ("Good Reason") exists under the Severance Agreements if there
is (i) a significant reduction in the nature or the scope of the Executive's
authority and/or responsibility; (ii) a material reduction in the Executives
rate of base salary; (iii) a significant reduction in employee benefits; or (iv)
a change in the principal location in which the Executive is required to perform
services, which significantly increases commuting distance.
If an Executive's employment with the Company is terminated by the Company
without Good Cause or by the Executive for Good Reason, during the term of the
Severance Agreement and within two years following a Change of Control, the
Executive shall be entitled to: (i) accrued but unpaid base salary; (ii) a lump
sum payment equal to between one and two times annual base salary, based upon
years of service; (iii) any benefits accrued under any incentive and retirement
plans; (iv) paid medical plan coverage until the earlier of 18 months from
termination or the time when the Executive obtains comparable coverage through a
new employer; (v) a lump sum payment equal to the unvested portion, if any, of
the Executive's 401(k) plan; and (vi) outplacement and career counseling
services.
<PAGE>
Each Severance Agreement provides that if any amounts due to an Executive
thereunder become subject to the "golden parachute" rules set forth in Section
4999 of the Internal Revenue Code, then such amounts will be reduced to the
extent necessary to avoid the application of such rules.
COMPENSATION AND STOCK OPTION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
General
The Compensation Committee determines the cash and other incentive
compensation, if any, to be paid to the Company's executive officers and key
employees. Howard S. Stern and Donald A. Meyer are the members of the
Compensation Committee.
Compensation Philosophy
The Compensation Committee's executive compensation philosophy is to base
management's pay, in part, on the achievement of the Company's annual and
long-term performance goals by (a) setting levels of compensation designed to
attract and hold superior executives in a highly competitive business
environment, (b) providing incentive compensation that varies directly with the
Company's financial performance and individual initiative and achievement
contributions to such performance, (c) linking compensation to elements which
affect the Company's annual and long-term performance, (d) evaluating the
competitiveness of executive compensation programs based upon information drawn
from a variety of sources, and (e) establishing salary levels and bonuses
intended to be consistent with competitive practice and level of responsibility,
with salary increases and bonuses reflecting competitive trends, the overall
financial performance of the Company, the performance of the individual
executive and the contractual arrangements that may be in effect with the
individual executive. Executive compensation consists of base salary, annual
performance bonuses, and stock options.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), prohibits a publicly held corporation, such as the Company, from
claiming a deduction on its federal income tax return for compensation in excess
of $1 million paid for a given fiscal year to the chief executive officer (or
person acting in that capacity) or to the four most highly compensated officers
<PAGE>
of the corporation, other than the chief executive officer, at the end of the
corporation's fiscal year. The $1 million compensation deduction limitation does
not apply to "performance-based compensation." The Company believes that any
compensation received by executive officers in connection with the exercise of
options granted under the 1983 Stock Option Plan will qualify as
"performance-based compensation." The Company has not established a policy with
respect to Section 162(m) of the Code because the Company has not and does not
currently anticipate paying compensation in excess of $1 million per annum to
any employee.
Base Salaries
Base salaries for the Company's executive officers are determined initially
by evaluating the responsibilities of the position held and the experience of
the individual, and by reference to the competitive marketplace for management
talent, including a comparison of base salaries for comparable positions at
comparable companies. Annual salary adjustments are determined consistent with
the Company's compensation policy by evaluating the competitive marketplace, the
performance of the Company, the performance of the executive particularly with
respect to the ability to manage growth of the Company, and any increased
responsibilities assumed by the executive.
Annual Performance Bonuses
The Company administers an Executive Incentive Bonus Plan (the "Bonus
Plan"), under which cash bonuses may be made to the CEO and President, other
corporate officers, and certain divisional personnel. The bonus pool is
determined at the beginning of each fiscal year based on budgeted earnings for
the year. The bonus pool is limited to an aggregate of 10% of the annual pretax
profit of the Company and its subsidiaries taken as a whole. In general,
individual bonus awards under the Bonus Plan are determined as follows:
o 50% of such individual award is based on the attainment by the
Company of certain pretax profit level goals which are
approved in advance by the Board of Directors ("Profit
Objectives");
o 50% of such individual award is based on the attainment of
individual objectives (an "MBO") which have been proposed,
evaluated, and approved at the beginning of each fiscal year
by the Compensation Committee in the case of the CEO and
President, and by Mr. Martin, the President and CEO, in the
case of all other participants.
A bonus may be awarded if either the Profit Objective or the individual MBO
has been met, as determined by the Compensation Committee in the case of the CEO
<PAGE>
and President, and by Mr. Martin, in the case of all other participants. The
Company awarded bonuses to corporate officers under the Bonus Plan for the 1996
Fiscal Year in the aggregate amount of $25,000.
Stock Option Agreements
Long-term compensation awards are granted pursuant to the stockholder
approved stock option plans. The use of stock options ensures that the interest
of the Company's executive officers are tied to the interest of the Company's
stockholders by making a portion of the executive's long-term compensation
dependent upon the value created for stockholders. Options are granted at an
exercise price equal to the fair market value of the Company's Class B Common
Stock on the date of the grant. The Committee considers the amount of stock
options previously granted to each officer, as well as the officer's current
performance and contribution to the Company when determining the size of an
option grant.
Compensation of Chief Executive Officer
During the 1996 Fiscal Year, no options were granted to Mr. Martin. No
options previously granted were exercised by Mr. Martin. During the 1996 Fiscal
Year, the base salary for Mr. Martin was adjusted to $230,000 from its 1995
level of $200,000. Based upon the reported 1996 Fiscal Year profits of the
Company, Mr. Martin did not receive a cash bonus.
Compensation of Directors
Directors, who are not employees of the Company, are entitled to directors
fees of $15,000 annually. Directors, who serve on committees of the Company and
who are not employees or consultants of the Company, are entitled to a fee of
$500 for each committee meeting attended, except that the chairman of a
committee is entitled to a fee of $1,000 for each committee meeting attended.
Common Stock Performance
On October 27, 1992 (the "Recapitalization Date"), the Company effected a
recapitalization which was accomplished by a one-for-two reverse stock split of
the then existing common stock of the Company (the "Old Common Stock"), and the
reclassification of the Old Common Stock as voting Class A Common Stock. In
addition, a dividend of one share of new nonvoting Class B Common Stock was paid
on each share of Class A Common Stock.
The following graph provides a comparison of the cumulative total return of
(i) the Company's Old Common Stock and its Class A Common Stock after its
creation on the Recapitalization Date and (ii) the Class B Common Stock after
its creation on the Recapitalization Date, with returns on the Nasdaq Stock
Market (U.S.) Index ("NASDAQ Index"), the American Stock Exchange Market Value
<PAGE>
Index ("AMEX Market Value") and the Standard and Poor's Medical Products and
Supplies Index ("S&P Medical Index"), for the five year period ended May 31,
1996. The total return of the Class A Common Stock presented in the following
graph treats all stock dividends payable in Class B Common Stock as cash
dividends and assumes the reinvestment of such dividends in Class A Common
Stock. As prescribed by the SEC, the measurements are indexed to a value of $100
at May 31, 1991, and assume all dividends were reinvested.
(GRAPH OMITTED - TO BE SUBMITTED UNDER SEPARATE COVER)
Total Return - Data Summary
Cumulative Total Return
-----------------------
5/91 5/92 5/93 5/94 5/95 5/96
E-Z-EM, INC.-CLASS A (EZM.A) 100 107 80 72 67 206
E-Z-EM, INC.-CLASS B (EZM.B) 100(1) 100 74 72 231
NASDAQ INDEX (2)(INAS) 100 117 141 149 177 257
AMEX MARKET VALUE(2) (IAMX) 100 106 118 118 132 164
S & P INDEX (IMDP) 100 112 91 86 126 172
Graph Produced by Research Data Group
- --------------------
(1) The Class B Common Stock was authorized and issued in October 1992.
(2) As of July 24, 1995 the Company's Common Stock commenced trading on the
American Stock Exchange ("AMEX") and ceased being quoted on NASDAQ.
CERTAIN TRANSACTIONS
A facility of the Company located in Westbury, New York is owned 27% by
Howard S. Stern, 25% by Betty S. Meyers, a principal shareholder, 4% by other
employees of the Company and 44% by unrelated parties, which includes a 25%
owner who manages the property. Aggregate rentals, including real estate tax
payments, were $142,537 during the 1996 Fiscal Year. The lease term expired in
June 1996 and is currently being extended on a month-to-month basis.
The Company has engaged Eckvest Equity Inc. ("Eckvest"), of which Paul S.
Echenberg, a director of the Company, is a principal, as a consultant. Fees paid
to Eckvest and fees paid to Mr. Echenberg for attendance at directors' meetings,
aggregated approximately $319,000 during the 1996 Fiscal Year. In connection
<PAGE>
with the sale of Surgical Dynamics Inc., a 51%-owned subsidiary of the Company
("SDI") in November 1995, Mr. Echenberg resigned as a director of SDI and
Eckvest received an investment banker's fee of $905,000, and Mr. Echenberg
received a bonus of $191,000 arising from the sale of SDI and a payment of
$268,000 in connection with the surrender of outstanding stock options in SDI.
Additionally, the Company has an investment in an entity in which Mr. Echenberg
serves as a director.
In connection with the sale of SDI, Arthur L. Zimmet resigned as a director
of SDI and received a bonus of $191,000 arising from the sale of SDI and a
payment of $268,000 in connection with the surrender of outstanding stock
options in SDI.
The Company has engaged James L. Katz, a director of the Company, for
consulting services. Fees for such services, including fees relating to
attendance at directors' meetings, were approximately $99,000 during the 1996
Fiscal Year.
The Company has engaged Michael A. Davis, M.D., a director of the Company,
for consulting services. Fees for such services were approximately $97,000
during the 1996 Fiscal Year.
PROPOSAL II--RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Board of Directors appointed Grant Thornton LLP, certified public
accountants, who were the Company's independent auditors for the 1996 Fiscal
Year, as the Company's independent auditors for the 1997 Fiscal Year. Although
the selection of auditors does not require ratification, the Board of Directors
has directed that the appointment of Grant Thornton LLP be submitted to the
Stockholders for ratification due to the significance of their appointment to
the Company.
The approval of the proposal to ratify the appointment of Grant Thornton
LLP requires the affirmative vote of a majority of the votes cast by all
Stockholders represented and entitled to vote thereon. Therefore, an abstention,
withholding of authority to vote or broker non-vote will not have the same legal
effect as an "against" vote and will not be counted in determining whether the
proposal has received the required shareholder vote.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE 1997 FISCAL YEAR.
PROPOSAL III - AMENDING THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO MODIFY CERTAIN SUPERMAJORITY VOTING REQUIREMENTS
The Board of Directors of the Company has determined, for the reasons set
<PAGE>
forth below, among others, that it is in the best interests of the Company and
its shareholders to amend the Company's Restated Certificate of Incorporation
(the "Certificate") to provide the Company with the ability to take certain
actions upon receiving the affirmative vote of sixty-six percent (66%) of the
shareholders voting in connection with such actions.
Section 4.1.1. of the Certificate currently reads as follows:
4.1.1. Voting. Except as otherwise provided by the Board of Directors
in fixing the voting rights of any series of Preferred Stock in
accordance with Section 4.2. of this Article 4 or as otherwise
required by law or expressly provided in this Certificate of
Incorporation, voting power in the election of directors and for all
other purposes shall be vested exclusively in the holders of Class A
Common Stock, and each holder of Class A Common Stock shall be
entitled to one vote for each share of Class A Common Stock held.
Notwithstanding anything to the contrary contained in this Certificate
of Incorporation, no action may be taken without the affirmative vote
of sixty-six percent (66%) of the outstanding shares of the Class A
Common Stock with respect to any (i) amendment of this Certificate of
Incorporation, (ii) reduction of capital, (iii) merger or
consolidation of the Company with one or more other corporations, (iv)
sale, conveyance, lease, mortgage, pledge, or exchange of all or
substantially all of the Company's property or assets or (v)
liquidation, dissolution, or winding up of the Company. The Class B
Common Stock shall have no voting rights on any matters except as
otherwise required by law or expressly provided in this Certificate of
Incorporation.
The Company's Board of Directors believes that it is in the best interests
of the Company to amend the second sentence to read in its entirety as follows:
Notwithstanding anything to the contrary contained in this Certificate
of Incorporation AND SUBJECT TO APPLICABLE VOTING REQUIREMENTS OF THE
DELAWARE GENERAL CORPORATION LAW, no action may be taken without the
affirmative vote of sixty-six percent (66%) OF THE SHARES OF THE CLASS
A COMMON STOCK ACTUALLY BEING VOTED IN CONNECTION WITH any (i)
amendment of this Certificate of Incorporation, (ii) reduction of
capital, (iii) merger or consolidation of the Company with one or more
other corporations, (iv) sale, conveyance, lease, mortgage, pledge, or
exchange of all or substantially all of the Company's property or
assets or (v) liquidation, dissolution, or winding up of the Company.
[The underscored language reflects the proposed amendment.]
The Company's Board of Directors believes that this change will enable the
Company to take advantage of opportunities and engage in an action described in
(i) through (v) above, provided that the holders of sixty-six percent (66%) of
<PAGE>
the Company's voting shares who are sufficiently interested in the transaction
to vote on it approve the action. The Board of Directors believes that this will
prevent the Company from missing opportunities that would otherwise benefit its
shareholders because an insufficient number of shareholders cast votes in
connection therewith.
Notwithstanding the proposed amendment, voting is still subject to
applicable Delaware law, which provides that to approve certain corporate
actions, such as the sale, lease or conveyance of all or substantially all of
the Company's assets, the approval of a majority of all outstanding shares of
the Company's voting stock is required.
The approval of this amendment to the Certificate requires the affirmative
vote of the holders of sixty-six percent (66%) of the outstanding shares of the
Class A Common Stock.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE AMENDMENT
OF THE CERTIFICATE AS DESCRIBED ABOVE.
PROPOSAL IV--APPROVAL OF PROPOSED PUBLIC OFFERING OF SHARES OF
ANGIODYNAMICS, INC.
Introduction
The Board of Directors of the Company has determined, for the reasons set
forth below, among others, that it is in the best interests of the Company and
its shareholders to separate the business (the "AngioDynamics Business")
previously conducted by its AngioDynamics division (the "Division") from the
Company. The separation will be accomplished in three steps (collectively, the
"Reorganization"). The first step, the transfer, as a capital contribution, of
all of the assets of the Company used principally in connection with the
AngioDynamics Business and the liabilities associated therewith to
AngioDynamics, Inc., a Delaware corporation ("AngioDynamics") wholly-owned by
the Company, took place effective June 1, 1996 (the "Transfer").
The second step is the sale by AngioDynamics in a public offering (the
"Public Offering") of shares representing up to 19.9% of the voting power of
AngioDynamics, with the Company initially retaining ownership of the balance of
the shares. For federal income tax purposes, AngioDynamics will not recognize
gain or loss on the sale of its stock in the Public Offering. The Board of
Directors of the Company is seeking shareholder approval of the Public Offering
in this Proposal IV.
The third step is a distribution of the Company's shares of AngioDynamics
by the Company to its shareholders (the "Spin-Off"). The offering materials for
the Public Offering will specify that the Company will seek a private letter
ruling (the "PLR") from the Internal Revenue Service ("IRS") to the effect that
the Reorganization qualifies as a tax-free reorganization pursuant to ss.
368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). The
<PAGE>
Company's investment advisors have recommended, and the Company's Board of
Directors agrees, that the Public Offering has the greatest chance of success if
the Spin-Off takes place in connection with the Public Offering. The Spin-Off
will take place as soon as practicable following receipt of the PLR from the
IRS. While the Company anticipates receiving a PLR, there can be no assurance
that it will be obtained.
Because of the significance of the Reorganization to the Company and its
shareholders, the Board of Directors has determined that the Company should not
effect the Public Offering without shareholder approval.
Overview of AngioDynamics Business
AngioDynamics develops, manufactures and markets a variety of therapeutic
and diagnostic products, primarily for use in the diagnosis and treatment of
cardiovascular disease. These products are primarily designed for use in the
growing interventional medicine market, which involves the use of less invasive
surgical and diagnostic procedures. AngioDynamics has focused its development
efforts on three interventional product groups: stent products used to hold open
human vessels that have become obstructed or closed due to aging, disease or
trauma; angiographic/fluid management products used to image human vasculature
and blood flow; and thrombolytic products used to dissolve blood clots.
AngioDynamics has a core group of products that are currently sold in the United
States and internationally. AngioDynamics also has a group of innovative new
products, including AngioDynamics' stents and CO2 angiography system, which are
being sold internationally and for which AngioDynamics plans to seek regulatory
approval within the United States. AngioDynamics' objective is to become a
leading provider of interventional medical devices through the development of
innovative technologies that improve the quality of patient care at reduced cost
to the healthcare system.
Interventional medicine involves the use of less invasive surgical and
diagnostic procedures. AngioDynamics believes that the interventional medicine
market is growing due, in large part, to the less invasive nature of
interventional procedures as compared to open surgical procedures, resulting in
a reduction in the overall cost of medical care while providing important
patient benefits. Interventional procedures are often performed on an
out-patient basis, thereby requiring fewer hospital support services, but even
when performed on an in-patient basis, they generally require a shorter hospital
stay than do surgical procedures. Interventional procedures also typically have
reduced risk and trauma, are less complex, have fewer and less serious
complications, can often be performed earlier in the stage of a disease and
frequently result in less costly and more definitive therapy than do surgical
procedures. AngioDynamics expects the number of interventional procedures
performed to increase as the procedures gain wider acceptance, as more
physicians become trained in interventional procedures and as these procedures
become more widely performed in community hospitals as well as in major medical
centers. The primary consumers of AngioDynamics' products are interventional
cardiologists, interventional radiologists and vascular surgeons.
AngioDynamics is developing a family of platinum stents based on its
proprietary AngioStent technology. AngioDynamics believes that the design and
composition of the AngioStent provide advantages over competing stent products
in terms of strength, flexibility, visibility and biocompatibility. The initial
application for the AngioStent is the treatment of coronary vessels. The
AngioStent is currently sold in Europe, Asia, Australia and South America.
AngioDynamics believes that the AngioStent technology is applicable to
non-coronary applications, including the treatment of peripheral vasculature
stenosis, biliary strictures, carotid artery stenosis and urethral strictures.
AngioDynamics expects to file an IDE with the FDA in the second half of 1997 to
commence clinical trials for coronary applications of the AngioStent.
In January 1997, AngioDynamics purchased the assets of Leocor, a developer
and manufacturer of angioplasty catheters. The angioplasty catheters are used as
a delivery system for the AngioStent and by acquiring these assets,
AngioDynamics will be able to vertically integrate its stent manufacturing
capability, as well as to compete in the worldwide angioplasty market. As a
result of the Leocor acquisition, AngioDynamics has added Percutaneous
Transluminal Coronary Angioplasty ("PTCA") balloons to its angioplasty product
line. PTCA balloon catheters, which
<PAGE>
inflate to clear narrowed or blocked arteries, are the current "gold standard"
for primary intervention in coronary artery disease. PTCA balloon procedures
generally result in less chest pain and improved mobility for the patient.
AngioDynamics has developed CO2Ject, a proprietary angiographic imaging
system that uses carbon dioxide ("CO2") instead of iodine as the standard
contrast media. AngioDynamics believes that CO2 is safer than iodinated contrast
media, which can cause severe allergic reactions in certain patients.
AngioDynamics also believes that CO2 is more cost effective and provides better
images than iodinated contrast media. Currently, the CO2Ject is being sold in
Europe, South America, Australia and Asia. To date, there is no automated CO2
system that has received FDA approval for sale in the United States, and there
is no assurance that such approval will be obtained.
AngioDynamics also has a line of diagnostic catheters and fluid management
products cleared for sale in the United States. AngioDynamics' diagnostic
catheters can be used with angiographic systems using either traditional
contrast media or CO2. All of AngioDynamics' diagnostic catheters are cleared
for sale in the United States and internationally. AngioDynamics' angiographic
fluid management products are used to control, administer and contain fluids,
such as blood, saline solutions and contrast media, in order to reduce the
healthcare worker's contact with them. These products are intended to reduce the
potential exposure of the healthcare worker to disease, including hepatitis and
HIV infection. All of AngioDynamics' fluid management products are cleared for
sale in the United States and internationally.
AngioDynamics' thrombolytic products, such as its Pulse*Spray Set, are used
to dissolve blood clots in the arteries and veins. The Pulse*Spray Set optimizes
the delivery of the lytic agent (the drug administered to dissolve the clot) by
providing a controlled, forceful, uniform dispersion. All of AngioDynamics'
single-use thrombolytic products have been cleared for sale in the United States
and internationally. AngioDynamics also has developed an injector that is
designed to be used in conjunction with its thrombolytic products. The automated
injector is designed to improve the consistency and efficiency of the delivery
of the thrombolytic drugs. The injector is approved for sale in certain
countries outside the United States, and in the United States a 510(k)
submission was submitted in September 1996 and is currently pending before the
FDA, which has requested additional information from AngioDynamics.
<PAGE>
Reasons for the Reorganization
The Company's Board of Directors continually reviews the businesses
operated by the Company with a view to assessing the operating and financial
characteristics and the growth potential of the businesses in light of current
economic conditions and other circumstances affecting the Company. After
considerable review, the Company's Board of Directors has determined that the
AngioDynamics Business is significantly and substantially different from the
Company's other businesses and that retention of the AngioDynamics Business is
not consistent with either the long-range goals of the AngioDynamics Business or
the Company's other businesses.
<PAGE>
The Company's Board of Directors believes that companies in the
cardiovascular medical device business, which is the business in which
AngioDynamics is engaged, tend to be valued differently from the Company's other
businesses and that the value of the AngioDynamics Business to the Company's
shareholders is not presently being reflected in the Company's stock price. The
Company's Board of Directors further believes that the value and potential of
the AngioDynamics Business can be better realized as a separate public company,
which will facilitate equity and debt financings. The principal reason for the
Spin-Off is to help assure the success of the Public Offering by establishing
AngioDynamics as a stand-alone company. Additionally, as a public company,
AngioDynamics will be able to offer direct equity ownership to its key
personnel. The Company's Board of Directors believes that providing such
incentives to key personnel will tend to benefit all shareholders.
The Company's Board of Directors has determined that the Reorganization is
the most appropriate means of separating the AngioDynamics Business from the
Company. The Company's Board of Directors agrees with the Company's investment
advisors that completion of the Spin-Off of the stock of AngioDynamics in
connection with the Public Offering is important to the success of the Public
Offering. As discussed above, the Company will seek a PLR from the IRS that the
Spin-Off is part of a tax-free reorganization under ss. 368(a)(1)(D) of the
Code. In addition, the Company's Board of Directors believes that, by effecting
the Reorganization, there will be a greater potential for increasing the
long-term value of the Company's shareholders' investment. Further, the
Reorganization will enable current shareholders and potential investors to
direct their investment to their specific area of interest.
SELECTED FINANCIAL DATA OF E-Z-EM, INC.
The following selected consolidated financial data for the fifty-two weeks
ended May 30, 1992, May 29, 1993 and May 28, 1994, fifty-three weeks ended June
3, 1995 and fifty-two weeks ended June 1, 1996 are derived from the audited
consolidated financial statements of E-Z-EM, Inc. The selected consolidated
financial data for the twenty-six weeks ended December 2, 1995 and November 30,
1996 are derived from unaudited consolidated financial statements. The unaudited
consolidated financial statements, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the consolidated results of operations and financial
condition for the periods presented. Operating results for the twenty-six weeks
ended November 30, 1996 are not necessarily indicative of the results that may
be expected for the entire fiscal year. The data should be read in conjunction
with the consolidated financial statements, related notes and other information
included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Fifty-two weeks ended Fifty-three Fifty-two Twenty-six weeks ended
------------------------- weeks ended weeks ended -------------------------
May 30, May 29, May 28, June 3, June 1, December 2, November 30,
1992* 1993* 1994* 1995* 1996 1995 1996
------ ------ ------ ------ ------ ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Net sales (2)........... $78,711 $84,507 $85,645 $88,526 $91,932 $45,004 $49,347
Gross profit............ 33,071 35,547 33,617 36,681 36,414 18,754 20,116
Operating profit (3).... 4,113 2,558 1,200 2,837 957 1,259 634
Earnings from continuing
operations before
income taxes.......... 5,186 3,888 1,528 3,559 1,940 1,476 1,015
Earnings from continuing
operations............ 4,512 2,451 379 2,473 1,697 1,246 756
Net earnings............ 4,610 1,679 277 1,630 21,008 20,656 756
Earnings from continuing
operations per common
share
Primary and fully
diluted........... .49 .27 .04 .27 .17 .13 .08
Earnings per common
share
Primary (1)......... .50 .18 .03 .18 2.16 2.19 .08
Fully diluted (1)... .50 .18 .03 .18 2.14 2.15 .08
Cash dividends declared
per common share...... $ .20 .10 $ .00 $ .00 $ .00 $ .00 $ .00
Weighted average common
shares
Primary (1)......... 9,147 9,105 9,081 9,088 9,724 9,444 10,049
Fully diluted (1)... 9,160 9,107 9,081 9,092 9,833 9,594 10,049
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA OF E-Z-EM, INC. (continued)
<TABLE>
<CAPTION>
May 30, May 29, May 28, June 3, June 1, November 30,
1992 1993 1994 1995 1996 1996
------ ------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital......... $35,328 $36,283 $33,088 $33,254 $53,508 $53,497
Cash, certificates of
deposit and short-
term debt and equity
securities............ 12,132 8,359 7,336 4,447 23,610 21,896
Total assets............ 74,417 73,252 71,531 76,095 96,037 102,198
Long-term debt, less
current maturities.... 654 2,900 586 1,114 680 1,127
Stockholders' equity.... 54,900 55,001 54,269 57,890 80,603 80,811
</TABLE>
- ---------------
* Reclassified to reflect the discontinued operation described in Note B to
the Consolidated Financial Statements included herein.
(1) Retroactively restated to reflect the total shares issued after the 3%
stock dividends described in Note K to the Consolidated Financial
Statements included herein.
(2) Sales of Lafayette products for the period June 2, 1991 through November
27, 1991 of approximately $3,505,000 have been excluded from net sales and
reclassified to disposal of assets, which is included in operating profit
in the consolidated statements of earnings.
(3) On November 27, 1991, the Company divested the assets of its Lafayette
division to Lafayette Pharmaceuticals, Incorporated pursuant to an Asset
Purchase Agreement dated June 27, 1991 (the "Agreement"). The aggregate
sales price was approximately $5,413,000. The Lafayette division was
purchased by the Company in December 1988 from Lafayette Pharmacal, Inc.
The Agreement was approved by the Federal Trade Commission ("FTC") on
November 14, 1991, pursuant to the FTC's order of June 12, 1990 which
required the Company to divest the assets it had purchased from Lafayette
Pharmacal, Inc. At June 2, 1990, the Company had established a reserve,
before tax, of $8,627,000 which approximated the anticipated loss on
divestiture and related expenses. The Company recorded a pretax gain of
$953,000 during 1992 representing the difference between the actual sales
price and expenses pertaining to the divestiture compared with the amounts
previously estimated. Such gain is included in operating profit in the
consolidated statement of earnings for 1992.
<PAGE>
SELECTED FINANCIAL DATA OF ANGIODYNAMICS, INC.
(A FORMER DIVISION OF E-Z-EM, INC.)
The following selected financial data for the fifty-two weeks ended May 28,
1994, fifty-three weeks ended June 3, 1995 and fifty-two weeks ended June 1,
1996 are derived from the audited financial statements of AngioDynamics, Inc. (a
former division of E-Z-EM, Inc.). The selected financial data for the fifty-two
weeks ended May 30, 1992 and May 29, 1993 and the twenty-six weeks ended
December 2, 1995 and November 30, 1996 are derived from unaudited financial
statements. The unaudited financial statements, in the opinion of management,
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations and financial
condition for the periods presented. Operating results for the twenty-six weeks
ended November 30, 1996 are not necessarily indicative of the results that may
be expected for the entire fiscal year. The data should be read in conjunction
with the financial statements, related notes, and other financial information
included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Fifty-two weeks ended Fifty-three Fifty-two Twenty-six weeks ended
------------------------- weeks ended weeks ended -------------------------
May 30, May 29, May 28, June 3, June 1, December 2, November 30,
1992 1993 1994 1995 1996 1995 1996
------ ------ ------ ------ ------ ------ ------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Net sales............... $ 1,376 $ 2,990 $ 5,001 $ 7,396 $11,696 $5,081 $9,917
Gross (loss) profit..... (150) 663 2,034 2,379 5,561 2,816 4,996
(Loss) earnings before
income taxes.......... (4,827) (4,641) (3,468) (4,603) (1,536) (563) 207
Net (loss) earnings (1). (4,827) (4,641) (3,468) (4,603) (1,536) (563) 117
(Loss) earnings per
share (1)........... $(4,827) $(4,641) $(3,468) $(4,603) $(1,536) $ (563) $ 117
Common shares
outstanding (2)....... 1,000 1,000 1,000 1,000 1,000 1,000 1,000
</TABLE>
<TABLE>
<CAPTION>
May 30, May 29, May 28, June 3, June 1, November 30,
1992 1993 1994 1995 1996 1996
------ ------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital......... $ 666 $3,281 $3,726 $5,060 $ 8,920 $ 6,397
Total assets............ 3,498 6,416 6,911 8,529 12,945 17,799
Stockholder's equity.... 2,686 5,846 6,453 7,921 11,804 11,921
</TABLE>
- ---------------
(1) The pro forma effects of allocating certain E-Z-EM corporate overhead
costs pertaining to insurance, treasury and finance, legal and regulatory,
employee benefit administration and human resources to AngioDynamics, Inc.
are described in Note E to the AngioDynamics, Inc. financial statements
included herein.
(2) Such common shares, authorized and issued in July 1992, have been
retroactively applied to the fifty-two weeks ended May 30, 1992 and the
entire fifty-two week period ended May 29, 1993.
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Pro Forma Consolidated Condensed Balance Sheet of the Company as of
November 30, 1996 reflects the financial position of the Company after giving
effect to the Spin-Off of AngioDynamics discussed in Proposal IV and assumes the
Spin-Off took place on November 30, 1996.
The Pro Forma Consolidated Condensed Statements of Earnings for the
fifty-two weeks ended June 1, 1996 and the twenty-six weeks ended November 30,
1996 assume that the Spin-Off of AngioDynamics took place at the beginning of
the fifty-two week period ended June 1, 1996 and are based on the continuing
operations of the Company for the periods then ended.
The unaudited pro forma condensed consolidated financial statements have
been prepared by the management of the Company based upon assumptions deemed
proper by it. The unaudited pro forma condensed consolidated financial
statements presented herein are shown for illustrative purposes only and are not
necessarily indicative of the future financial position or future results of
operations of the Company, or of the financial position or results of operations
of the Company that would have actually occurred had the transaction been in
effect as of the date or for the periods presented. In addition, it should be
noted that the Company's consolidated financial statements will reflect the
Spin-Off only after such transaction actually occurs.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the historical consolidated financial statements and
related notes of the Company.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
November 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments (I)
---------------------------- Pro
Historical AngioDynamics (A) Other Forma
---------- ----------------- ------- -------
(in thousands)
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,969 $ 248 $ 3,721
Debt and equity securities 17,927 17,927
Accounts receivable 19,896 4,909 $ 208 (B) 15,195
Inventories 27,370 6,810 20,560
Other current assets 2,676 245 2,431
Due from E-Z-EM, Inc. 63 63 (B)
------- ------ ------ ------
Total current assets 71,838 12,275 271 59,834
PROPERTY, PLANT AND EQUIPMENT 23,758 5,146 18,612
DEBT AND EQUITY SECURITIES 1,403 1,403
OTHER ASSETS 5,199 378 4,821
------- ------ ------ ------
$102,198 $17,799 $ 271 $84,670
======= ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 4,712 $ 3,800 $ 912
Current maturities of long-term debt 520 520
Accounts payable 6,398 1,119 $ 271 (C) 5,550
Accrued liabilities 6,222 864 5,358
Accrued income taxes 489 95 394
------- ------ ------ ------
Total current liabilities 18,341 5,878 271 12,734
LONG-TERM DEBT, less current maturities 1,127 1,127
OTHER NONCURRENT LIABILITIES 1,919 1,919
------- ------ ------ ------
Total liabilities 21,387 5,878 271 15,780
STOCKHOLDERS' EQUITY 80,811 11,921 68,890
------- ------ ------ ------
$102,198 $17,799 $ 271 $84,670
======= ====== ====== ======
</TABLE>
See accompanying Notes to Pro Forma Financial Information.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
Fifty-two weeks ended June 1, 1996
(unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments (I)
---------------------------- Pro
Historical AngioDynamics (D) Other Forma
---------- ----------------- ------- -------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Net sales $91,932 $11,696 $ 700 (E) $80,936
Cost of goods sold 55,518 6,135 700 (F) 50,083
------ ----- ----- ------
Gross profit 36,414 5,561 - 30,853
------ ----- ----- ------
Operating expenses
Selling and administrative 30,134 5,441 24,693
Research and development 5,323 1,656 3,667
------ ----- ----- ------
Total operating expenses 35,457 7,097 - 28,360
------ ----- ----- ------
Operating profit (loss) 957 (1,536) - 2,493
Other income 983 193 (G) 1,176
------ ----- ----- ------
Earnings (loss) from continuing
operations before income taxes 1,940 (1,536) 193 3,669
Income tax provision 243 637 (H) 880
------ ----- ----- ------
Earnings (loss) from continuing
operations 1,697 (1,536) (444) 2,789
Discontinued operation 19,311 19,311
------ ----- ----- ------
NET EARNINGS (LOSS) $21,008 $(1,536) $ (444) $22,100
====== ===== ===== ======
Primary earnings per common share
Continuing operations $ .17 $ .28
Discontinued operation 1.99 1.99
Total operations 2.16 2.27
Fully diluted earnings per common share
Continuing operations $ .17 $ .28
Discontinued operation 1.97 1.97
Total operations 2.14 2.25
Weighted average common shares
Primary 9,723,626 9,723,626
Fully diluted 9,832,676 9,832,676
</TABLE>
See accompanying Notes to Pro Forma Financial Information.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
Twenty-six weeks ended November 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments (I)
---------------------------- Pro
Historical AngioDynamics (D) Other Forma
---------- ----------------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $49,347 $9,917 $ 429 (E) $39,859
Cost of goods sold 29,231 4,921 429 (F) 24,739
------ ----- ----- ------
Gross profit 20,116 4,996 - 15,120
------ ----- ----- ------
Operating expenses
Selling and administrative 16,507 3,540 12,967
Research and development 2,975 1,249 1,726
------ ----- ----- ------
Total operating expenses 19,482 4,789 - 14,693
------ ----- ----- ------
Operating profit 634 207 - 427
Other income 381 381
----- ----- ----- -----
Earnings before income
taxes 1,015 207 - 808
Income tax provision 259 90 169
----- ----- ----- -----
NET EARNINGS $ 756 $ 117 $ - $ 639
===== ===== ===== =====
Earnings per common share
Primary and fully diluted $ .08 $ .06
===== =====
Weighted average common shares
Primary 10,049,169 10,049,169
========== ==========
Fully diluted 10,049,237 10,049,237
========== ==========
</TABLE>
See accompanying Notes to Pro Forma Financial Information.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AND STATEMENTS OF EARNINGS
(unaudited)
(A) To eliminate the assets and liabilities of AngioDynamics included in the
Company's consolidated balance sheet at November 30, 1996.
(B) To reverse the elimination of amounts due to AngioDynamics from the Company
at November 30, 1996.
(C) To reflect amounts due to AngioDynamics at November 30, 1996.
(D) To eliminate the profit and loss of AngioDynamics for the entire period.
(E) To reverse the elimination of AngioDynamics intercompany sales.
(F) To reverse the elimination of AngioDynamics intercompany cost of goods
sold.
(G) To reduce interest expense and reflect interest income resulting from the
Company not having to fund the operations of AngioDynamics for the periods
presented.
(H) To reflect the estimated income tax effect of the elimination of
AngioDynamics' taxable loss and to reflect the estimated income tax effect
of the pro forma adjustments referred to in Notes (E), (F) and (G) at an
assumed effective federal and state income tax rate of 38% for the
fifty-two weeks ended June 1, 1996.
(I) The pro forma effects of the potential public offering of AngioDynamics
stock is not reflected in these pro forma statements due to uncertainties
with respect to the pricing of such stock and the percentage ownership that
will be retained by the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE COMPANY AND ANGIODYNAMICS
The following discussion and analysis is based on the results of continuing
operations of the Company and AngioDynamics.
Fiscal years ended June 1, 1996, June 3, 1995 and May 28, 1994
The Company's fiscal year ended June 1, 1996 represents fifty-two weeks,
the fiscal year ended June 3, 1995 represents fifty-three weeks and the fiscal
year ended May 28, 1994 represents fifty-two weeks.
Results of Operations
Segment Overview
The Company operates in two industry segments: Diagnostic products and
AngioDynamics products.
The Diagnostic products industry segment accounted for 88% of sales in
1996, as compared to 92% in 1995 and 95% in 1994. This segment encompasses both
contrast systems, consisting of barium sulfate formulations and related medical
devices used in X-ray, CT-scanning and other imaging examinations, and
non-contrast systems, including diagnostic radiology devices, custom contract
pharmaceuticals, gastrointestinal cleansing laxatives, X-ray protection
equipment, and immunoassay tests. Contrast systems, which constitute the
Company's core business and the majority of the Diagnostic products segment,
accounted for 68% of sales in 1996, as compared to 72% in 1995 and 75% in 1994.
Non-contrast system sales accounted for 20% of sales in 1996, 1995 and 1994.
Diagnostic segment results for 1996 were adversely affected by unabsorbed
overhead costs associated with the relocation of a portion of the Company's core
manufacturing operations, as well as by increased selling and marketing expenses
in the Company's core business. The unabsorbed overhead costs resulted during
the planned construction at the Company's Canadian manufacturing facility. The
effects of the relocation will continue to be felt through the first half of
1997, resulting in lower than normal Canadian gross profits. Investment in new
marketing initiatives and product introductions contributed to the increased
selling and marketing expenses.
Diagnostic segment results for 1995 were positively impacted by improved
gross margins, partially offset by increased domestic and international selling
and administrative expenses.
Diagnostic segment results for 1994 were adversely impacted by the cost of
product recalls, which the Company began in March 1994, due to packaging and
formulation problems with its effervescent granules and colon cleansing
products. The Company recorded pretax charges in the aggregate amount of
$1,546,000 during 1994, with respect to such recalls.
Diagnostic segment results for 1994 were also adversely impacted by a
decline in sales of contrast systems in the domestic market. The Company
attributes the sales decline in 1994 to the turmoil in the healthcare industry
from proposed reform, which resulted in reduced patient procedures, consequent
purchasing cutbacks on the part of hospitals, and a generalized slowdown in our
customer's orders.
<PAGE>
The AngioDynamics products industry segment accounted for 12% of sales, net
of intersegment eliminations (see Note M to the Consolidated Financial
Statements included herein) in 1996, as compared to 8% in 1995 and 5% in 1994.
This segment includes stent products, angiographic and fluid management
products, and thrombolytic products used in the interventional medicine
marketplace.
AngioDynamics segment results for 1996 were positively affected by sales
growth of 57%, as compared to 1995, coupled with improved manufacturing
efficiencies. The AngioDynamics sales growth was due to domestic and
international market penetration and the introduction of the AngioStentTM. The
AngioStent, a device used during coronary procedures as a treatment for
atherosclerosis, was introduced in the third quarter of 1996 in certain
international markets. AngioDynamics gross profit expressed as a percentage of
sales improved to 48% in 1996, as compared to 32% in 1995 and 41% in 1994.
AngioDynamics incurred operating losses of $1,536,000 in 1996, as compared to
operating losses of $4,603,000 in 1995 and $3,468,000 in 1994. Included in these
operating losses were losses of $1,189,000 in 1996, $1,972,000 in 1995 and
$877,000 in 1994 relating to AngioDynamics' CO2 Angiographic operations, which
resulted primarily from its continued research and development. The initial
overseas commercial sale of the Company's CO2Ject system, which delivers carbon
dioxide gas as a replacement for more expensive iodinated contrast media,
occurred in the second quarter of 1996.
During 1996, the Company discontinued the operation of its surgical
products industry segment when it sold SDI, its 51%-owned subsidiary, to USSC.
As a result of this sale, the Company recognized a gain, pretax of approximately
$25,539,000, after-tax of approximately $19,520,000 or $2.01 per common share on
a primary basis. The surgical products industry segment has been reported as a
discontinued operation and, accordingly, the gain from the sale of SDI and the
Company's proportionate share of losses from operations of SDI have been
classified as a discontinued operation in the consolidated statements of
earnings. The surgical products industry segment included the NucleotomeTM
device, the Ray Threaded Fusion CageTM and other surgical devices and
accessories used in spinal surgery.
The sales and operating profit (loss) of each industry segment and the
identifiable assets, depreciation and amortization, and capital expenditures
attributable to each industry segment are set forth in Note M to the
Consolidated Financial Statements included herein.
Consolidated Results of Operations
The Company reported net earnings of $21,008,000, or $2.16 and $2.14 per
common share on a primary and fully diluted basis, respectively, for 1996, as
compared to net earnings of $1,630,000, or $.18 per common share on a primary
and fully diluted basis, for 1995, and net earnings of $277,000, or $.03 per
common share on a primary and fully diluted basis, for 1994. Results for 1996
were positively impacted by the after-tax gain on the sale of SDI of
$19,520,000, or $2.01 and $1.99 per common share on a primary and fully diluted
basis, respectively.
Earnings from continuing operations for 1996 were $1,697,000, or $.17 per
common share on both a primary and fully diluted basis, as compared to
$2,473,000, or $.27 per common share on both a primary and fully diluted basis,
in 1995 and $379,000, or $.04 per common share on both a primary and fully
diluted basis, in 1994. Results from continuing operations for 1996
<PAGE>
were adversely impacted by unabsorbed overhead costs during construction at the
Company's Canadian facility, as well as by increased selling and marketing
expenses in the Company's core business, and were positively affected by
AngioDynamics sales growth and improved AngioDynamics manufacturing
efficiencies.
Results from continuing operations for 1995 were positively impacted by
increased sales demand in the AngioDynamics segment, coupled with improved gross
margins in the Diagnostic segment, partially offset by increased domestic and
international selling and administrative expenses in both industry segments.
Results from continuing operations for 1994 were adversely impacted by the
reserve for product recalls of $1,546,000 and severance benefits to terminated
employees of $638,000. The reserve for product recalls is included in cost of
goods sold and selling and administrative expenses in the consolidated
statements of earnings. Results from continuing operations for 1994 were also
adversely impacted by reduced manufacturing activity in the Diagnostic segment,
partially offset by reduced operating expenses due to cost containment programs
instituted in 1993. The reduced level of manufacturing activity resulted from
both high opening inventory levels and lower than expected demand for contrast
systems products due to uncertainty surrounding the numerous healthcare reform
proposals.
Sales increased 4%, or $3,406,000, in 1996, as compared to 3%, or
$2,881,000, in 1995. Sales in 1996 were favorably affected by increased
AngioDynamics sales of $3,995,000, increased non-contrast systems sales of
$1,148,000 and price increases, which accounted for approximately .5% of sales
in 1996. The AngioDynamics sales growth was due to domestic and international
market penetration and the introduction of the AngioStent. Sales in 1996 were
adversely affected by a decline in the Company's sales of barium contrast
systems. Sales in 1995 were favorably affected by increased sales of
AngioDynamics products of $2,323,000 and price increases, which accounted for
approximately 1% of sales in 1995. Sales in 1995 were adversely affected by a
domestic decline in the Company's sales of barium contrast systems.
Sales in international markets, including direct exports from the U.S.,
increased 5%, or $1,744,000, in 1996 and 9%, or $2,625,000, in 1995. The 1996
increase was due to increased sales of AngioDynamics products of $1,888,000. The
1995 increase was due to increased sales of contrast systems of $1,582,000,
non-contrast systems of $741,000 and AngioDynamics products of $302,000.
Gross profit expressed as a percentage of sales was 40% in 1996, as
compared to 41% in 1995 and 39% in 1994. Gross profit in 1996 was negatively
impacted by approximately $2,479,000 of unabsorbed overhead costs during
construction at the Company's Canadian facility, and was positively affected by
improved AngioDynamics manufacturing efficiencies. Gross profit in 1995 was
adversely affected by increased provisions for inventory adjustments, partially
offset by sales price increases. The lower gross profit percentage in 1994 was
due primarily to the reserve for product recalls of $1,420,000, reduced
manufacturing activity in the Diagnostic segment, and severance benefits to
terminated employees of $262,000.
Selling and administrative ("S&A") expenses were $30,134,000 in 1996,
$27,767,000 in 1995 and $25,520,000 in 1994. The increase in 1996 versus
<PAGE>
1995 of $2,367,000, or 9%, was due primarily to expanded domestic selling and
marketing efforts in the Company's core business approximating $1,361,000 and
expanded AngioDynamics selling and marketing efforts in both the domestic and
international marketplace approximating $1,063,000. Investment in new marketing
initiatives and product introductions contributed to the increased selling and
marketing expenses in both industry segments. The increase in 1995 versus 1994
of $2,247,000, or 9%, was due primarily to expanded Diagnostic and AngioDynamics
S&A efforts in both the domestic and international marketplace of $1,438,000 and
$608,000, respectively, and a reversal of product liability claim reserves of
$201,000 in 1994.
Research and development ("R&D") expenditures in 1996 totalled $5,323,000,
or 6% of sales, as compared to $6,077,000, or 7% of sales, in 1995 and
$6,897,000, or 8% of sales, in 1994. The decline in 1996 versus 1995 of $754,000
was due primarily to reduced spending of $898,000 relating to AngioDynamics' CO2
Angiographic operations and reduced spending of $347,000 relating to the
commercialization of H. pylori test-related products, partially offset by
increased contrast system spending of $361,000 relating to the development of
several new products. The reduced AngioDynamics CO2 Angiographic spending
resulted from the overseas commercialization of the CO2Ject system, which
delivers carbon dioxide gas as a replacement for more expensive iodinated
contrast media in the second quarter of 1996. The decline in 1995 versus 1994 of
$820,000 was due primarily to reduced spending of $1,123,000 relating to the
commercialization of H. pylori test-related products, and reduced contrast
system spending of $504,000, primarily due to staff reductions, partially offset
by increased spending of $873,000 relating to AngioDynamics projects. Of the R&D
expenditures in 1996, approximately 37% relate to contrast systems, 31% to
AngioDynamics projects, 6% to immunological projects, 16% to other projects and
10% to general regulatory costs. R&D expenditures are expected to continue at
approximately current levels. In addition to its in-house technical staff, the
Company is presently sponsoring various independent R&D projects and is
committed to continued expansion of its product lines through R&D.
Other income, net of other expenses, totalled $983,000 in 1996, $722,000 in
1995 and $328,000 in 1994. The improvement in other income in 1996 versus 1995
was primarily due to increased licensing income of $240,000 and increased
interest income of $184,000, partially offset by increased currency exchange
losses incurred by foreign subsidiaries of $211,000. The increased interest
income of $184,000 resulted from the investment of SDI sale proceeds, partially
offset by the income recorded in 1995 of $180,000 as a result of the prepayment
of an interest-free loan. The improvement in other income in 1995 versus 1994
was primarily due to the income recorded in 1995 of $180,000 as a result of the
prepayment of an interest-free loan. Improvements in currency exchange gains and
losses incurred by foreign subsidiaries totalling $132,000 and increased
licensing income of $55,000 also contributed to the increase in other income in
1995.
Note F to the Consolidated Financial Statements included herein details the
major elements affecting income taxes for 1996, 1995 and 1994. In 1996, the
Company's low effective tax rate of 13% differed from the Federal statutory tax
rate of 35% due primarily to earnings of the Puerto Rican subsidiary, which are
subject to favorable U.S. tax treatment and tax-exempt interest income. In 1995,
the Company's effective tax rate of 31% differed from the Federal statutory tax
rate of 34% due primarily to earnings of the Puerto Rican subsidiary, which are
<PAGE>
subject to favorable U.S. tax treatment, and were partially offset by the fact
that the Company did not provide for the tax benefit on losses incurred in
certain jurisdictions, since, at that time, it was more likely than not that
such benefits would not be realized. In 1994, the Company's high effective tax
rate of 75% differed from the Federal statutory tax rate of 34% due primarily to
the fact that the Company did not provide for the tax benefit on losses incurred
in certain jurisdictions, since, at that time, it was more likely than not that
such benefits would not be realized, and were partially offset by earnings of
the Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment.
Liquidity and Capital Resources
During 1996, capital expenditures and increased inventory levels (on
continuing operations) were funded primarily by cash reserves. As a result of
the sale of SDI in November 1995, the Company increased its cash reserves by
approximately $21,000,000. The proceeds from the sale of SDI have currently been
invested in debt securities. During 1995, capital expenditures, primarily
related to the acquisition of the previously leased Canadian facility, increased
inventory levels and repayments of debt were funded primarily by cash provided
by operations and cash reserves. During 1994, operating and capital requirements
were funded by cash provided by operations. The Company's policy has been to
fund capital requirements without incurring significant debt. At June 1, 1996,
debt declined to $1,927,000 from $2,343,000 at June 3, 1995 and from a
previously reported high of $6,219,000 at February 27, 1993. The Company has
available $4,731,000 under two bank lines of credit of which $287,000 was
outstanding at June 1, 1996.
The Company's current policy is to issue stock dividends. During the third
quarter of fiscals 1994, 1995 and 1996, the Company issued 3% stock dividends.
Presently, the Company is continuing to look for both new and complementary
lines of business for expansion in order to ensure its continued growth.
At June 1, 1996, approximately 66% of the Company's assets consist of
inventories, debt and equity securities, accounts receivable, and cash and cash
equivalents. Inventories (on continuing operations) have increased at a greater
rate than sales as a result of broadened product lines. The current ratio is
5.15 to 1, with net working capital of $53,508,000 at June 1, 1996, as compared
to the current ratio of 3.39 to 1, with net working capital of $33,254,000 at
June 3, 1995. The improvement in both the current ratio and net working capital
is a direct result of the cash proceeds received from the sale of SDI.
Net capital expenditures, primarily for machinery and equipment and
facility improvements, were $4,231,000 in 1996, as compared to $4,812,000 in
1995 and $2,175,000 in 1994. Of the 1996 expenditures, approximately $2,223,000
relates to the purchase of machinery and equipment and facility improvements in
connection with the Company's manufacturing site relocation. Of the 1995
expenditures, approximately $2,817,000 relates to the purchase of the land and
building housing the manufacturing facilities of the Company's Canadian
subsidiary. No material increase in the aggregate level of capital expenditures
is currently contemplated for 1997.
<PAGE>
Twenty-six weeks ended November 30, 1996 and December 2, 1995
Results of Operations
Segment Overview
The Diagnostics products industry segment includes both contrast systems
and non-contrast systems. Diagnostic product sales, which decreased 1% during
the twenty-six weeks ended November 30, 1996, accounted for 81% of sales in the
current period versus 89% in the comparable period of last year. The
AngioDynamics products industry segment includes stent products, angiographic
and fluid management products, and thrombolytic products used in the
interventional medicine marketplace. AngioDynamics product sales, which
increased 97% during the twenty-six weeks ended November 30, 1996, represented
19% of sales in the current period, as compared to 11% in the prior year.
Diagnostic segment results for both the current period and comparative
period of last year were adversely affected by unabsorbed overhead costs
associated with the relocation of a portion of the Company's contrast systems
manufacturing operations. These costs resulted from the planned construction at
the Company's Canadian manufacturing facility. The effects of the relocation
will continue to be felt through the fourth fiscal quarter of the current year,
resulting in lower than normal Diagnostic segment gross profits.
AngioDynamics segment results for the current period were positively
affected by sales growth of 97%, resulting from domestic and international
market penetration and the introduction of the AngioStentTM, partially offset by
increased operating expenses. The AngioStent, a device used during coronary
procedures as a treatment for atherosclerosis, was introduced by the Company in
the third quarter of the prior year in certain international markets. The
AngioDynamics segment contributed an operating profit of $206,000 to the
Company's consolidated operations in the current period, an improvement of
$769,000 as compared to an operating loss of $563,000 in the comparable period
of last year.
During the comparative period of the prior year, the Company discontinued
the operation of its surgical products industry segment when it sold Surgical
Dynamics Inc. ("SDI") to United States Surgical Corporation ("USSC"). As a
result of this sale, the Company recognized a gain, pretax of approximately
$25,692,000, after-tax of approximately $19,619,000, or $2.08 per common share
on a primary basis. The surgical products industry segment has been reported as
a discontinued operation and, accordingly, the gain from the sale of SDI and the
Company's proportionate share of losses from operations of SDI have been
classified as a discontinued operation in the consolidated statements of
earnings. The surgial products industry segment included the NucleotomeTM
device, the Ray Threaded Fusion CageTM and other surgical devices and
accessories used in spinal surgery.
Consolidated Results of Operations
For the twenty-six weeks ended November 30, 1996, the Company reported net
earnings of $756,000, or $.08 per common share on both a primary and fully
diluted basis, as compared to net earnings of $20,656,000, or $2.19 and $2.15
per common share on a primary and fully diluted basis, respectively, for the
comparable period of last year. Last year's results
<PAGE>
included an after-tax gain on the sale of SDI of $19,619,000, or $2.08 and $2.04
per common share on a primary and fully diluted basis, respectively.
Earnings from continuing operations for the current period were $756,000,
or $.08 per common share on both a primary and fully diluted basis, as compared
to $1,246,000, or $.13 per common share on both a primary and fully diluted
basis, for the comparable period of the prior year. Results from continuing
operations for both the current period and comparative period of the prior year
were adversely impacted by unabsorbed overhead costs associated with the
relocation of a portion of the Company's contrast systems manufacturing
operations. Results from continuing operations for the current period were
positively affected by AngioDynamics sales growth, partially offset by increased
operating expenses in both industry segments.
Net sales for the twenty-six weeks ended November 30, 1996 increased 10%,
or $4,343,000, as compared to the twenty-six weeks ended December 2, 1995. Net
sales in the current quarter were favorably affected by increased AngioDynamics
sales of $4,665,000 and non-contrast systems of $708,000. The AngioDynamics
sales growth was due to domestic and international market penetration and the
introduction of the AngioStent. Net sales in the current quarter were adversely
affected by a decline in the Company's sales of contrast systems of $1,189,000.
Price increases had no effect on net sales in the current period. Net sales in
international markets, including direct exports from the U.S., increased 18%, or
$3,004,000 in the current period versus the comparable period of last year due
to increased sales of AngioDynamics products of $3,325,000 and non-contrast
systems of $261,000, partially offset by decreased sales of contrast systems of
$582,000.
Gross profit expressed as a percentage of sales decreased to 41% during the
current period from 42% in the comparable period of last year due primarily to
approximately $502,000 of increased unabsorbed overhead costs associated with
the relocation of a portion of the Company's contrast systems manufacturing
operations.
S&A expenses were $16,507,000 during the twenty-six weeks ended November
30, 1996 versus $15,053,000 during the twenty-six weeks ended December 2, 1995.
This increase of $1,454,000, or 10%, in the current period was due to increased
AngioDynamics S&A expenses of $970,000 and increased Diagnostic S&A expenses of
$484,000, resulting from severance costs of $322,000 during the current period
and a gain on the sale of a facility of $150,000 during the comparative prior
year period. Investment in new product introductions and selling and marketing
initiatives contributed to the increased S&A expenses in the AngioDynamics
segment.
<PAGE>
R&D expenditures increased 22% in the current period to $2,975,000, or 6%
of sales, from $2,442,000, or 5% of sales, in the comparable prior year period
due primarily to increased spending of $438,000 relating to AngioDynamics
projects and increased contrast system spending of $87,000. Of the R&D
expenditures in the current period, approximately 42% relate to AngioDynamics
projects, 33% to contrast systems, 4% to immunological projects, 11% to other
projects and 10% to general regulatory costs. R&D expenditures are expected to
continue at approximately current levels.
Other income, net of expenses, increased $164,000 versus the comparable
period of last year due to increased interest income, resulting from the
investment of proceeds arising from the sale of SDI in the second quarter of the
prior year.
The Company's effective tax rate of 26% during the twenty-six weeks ended
November 30, 1996 differed from the Federal statutory tax rate of 34% due
primarily to earnings of the Puerto Rican subsidiary, which are subject to
favorable U.S. tax treatment, tax-exempt interest income, and the utilization of
net operating loss carryforwards in a certain jurisdiction. For the twenty-six
weeks ended December 2, 1995, the Company's effective tax rate of 16% differed
from the Federal statutory tax rate of 35% due primarily to earnings of the
Puerto Rican subsidiary, which are subject to favorable U.S. tax treatment, and
the utilization of net operating loss carryforwards in certain jurisdictions.
Liquidity and Capital Resources
During the twenty-six weeks ended November 30, 1996, increased inventory
levels and capital expenditures were funded primarily by proceeds from the
issuance of bank debt and cash reserves. In the past, the Company's policy has
been to fund capital requirements without incurring significant debt. At
November 30, 1996, debt (notes payable, current maturities of long-term debt and
long-term debt) was $6,359,000 as compared to $1,927,000 at June 1, 1996. The
Company has available $10,481,000 under three bank lines of credit of which
$4,272,000 was outstanding at November 30, 1996.
The Company's current policy is to issue stock dividends. During each third
quarter of fiscal years 1994, 1995 and 1996, the Company issued 3% stock
dividends.
Presently, the Company is continuing to look for both new and complementary
lines of business for expansion in order to ensure its continued growth.
At November 30, 1996, approximately 68% of the Company's assets consist of
inventories, accounts receivable, debt and equity securities, and cash and cash
equivalents. Inventories have increased at a greater rate than sales as a result
<PAGE>
of broadened product lines, and safety stock during the relocation of a portion
of the Company's contrast systems manufacturing operations. The current ratio is
3.92 to 1, with net working capital of $53,497,000 at November 30, 1996, as
compared to the current ratio of 5.15 to 1, with net working capital of
$53,508,000 at June 1, 1996.
On January 8, 1997, the Company purchased the assets of Leocor, Inc.
("Leocor"), and certain other assets directly from a principal shareholder of
Leocor, for aggregate consideration approximating $7,000,000. Leocor is a Texas
corporation, based in Houston, Texas, which develops and manufactures
angioplasty catheters.
The purchase of Leocor is a strategic acquisition for the AngioDynamics
business segment. Angioplasty catheters are used as a delivery system for the
AngioStent and the acquisition enables AngioDynamics to vertically integrate its
stent manufacturing capability, as well as to compete in the worldwide
angioplasty market.
This Proxy Statement contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are intended to be covered by the safe
harbors created thereby. Investors are cautioned that all forward- looking
statements involve risks and uncertainty, including without limitation, the
ability of the Company to develop its products, as well as general market
conditions, competition and pricing. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Proxy
Statement will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
<PAGE>
Re-Capitalization of AngioDynamics
It is intended that AngioDynamics will be re-capitalized with two classes
of stock, Class A common stock (the "Class A Stock") and Class B common stock
(the "Class B Stock"). The Class A Stock and Class B Stock are identical in all
material respects except that (i) shares of the Class B Stock entitle the
holders thereof to three votes per share on all matters and shares of the Class
A Stock entitle the holders thereof to one vote per share on all matters, and
(ii) the shares of Class B Stock are subject to certain restrictions on
transfer. The shares of Class B Stock are not transferable except in certain
very limited instances to family members, trusts, other holders of Class B
Stock, charitable organizations and entities controlled by such persons
(collectively, "Permitted Transferees"). These restrictions on transfer may be
removed by the Board of Directors if the Board determines that the restrictions
<PAGE>
may have a material adverse effect on the liquidity, marketability or market
value of the outstanding shares of Class A Stock.
The Class B Stock is fully convertible at any time into shares of Class A
Stock on a share-for-share basis and will automatically be converted into shares
of Class A Stock upon any purported transfer to a person who is not a Permitted
Tranferee. Once a share of Class B Stock has been converted into a share of
Class A Stock, such share of Class A Stock cannot thereafter be re-converted
into a share of Class B Stock. Because the Class B Stock will at all times be
convertible into Class A Stock on a share-for-share basis, holders of Class B
Stock will be able to sell the equity interest represented by their Class B
Stock to persons who are not Permitted Transferees by converting such shares
into Class A Stock.
No cash dividend may be declared or paid on the Class B Stock unless an
equal or greater dividend is simultaneously declared or paid on the Class A
Stock. Otherwise, the Class A Stock and the Class B Stock rank equally and have
equal rights per share with respect to all dividends and distributions,
including distributions upon liquidation of AngioDynamics and consideration to
be received upon a merger or consolidation of AngioDynamics or a sale of all or
substantially all of AngioDynamics' assets. The Class A Stock will be sold in
the Public Offering and, in most cases, will also be the class of stock issued
upon the exercise of options pursuant to the stock option plan to be established
prior to the Public Offering for the employees, officers and directors of
AngioDynamics (the "Option Plan"). The Class B Stock will be issued to the
Company and will be held by the Company until the Spin-Off is effected, at which
time the Class B Stock will be distributed to the Company's shareholders as of a
record date that will be established by the Company's Board of Directors (the
"Spin-Off Record Date"). In some cases, Class B Stock may be issued pursuant to
the Option Plan. It is intended that the Class A Stock will be quoted on NASDAQ
or listed on a national securities exchange. It is not intended that there will
be a trading market for the Class B Stock.
The two class capitalization structure has been selected for two primary
reasons. First, in order to effect the Spin-Off in a tax-free transaction, it is
necessary that the Company maintain at least 80% of the voting power of
AngioDynamics. Having two classes of stock will enable AngioDynamics to sell
more than 20% of its equity in the Public Offering, while permitting the Company
to retain greater than 80% of the voting power of AngioDynamics, and therefore
retain the Company's ability to effect the Spin-Off on a tax-free basis. This
flexibility will also allow AngioDynamics to issue additional Class A Stock
prior to the Spin-Off (i) pursuant to the Option Plan and (ii) in connection
with a subsequent offering to raise additional capital, an acquisition or
another transaction requiring the issuance of stock, without reducing the
Company's voting power below 80%. Second, the two class capitalization structure
will make AngioDynamics less susceptible to a take-over, thereby allowing
management to protect its commitment to growth by focusing on maximizing long-
term shareholder value.
The two class capitalization structure will concentrate AngioDynamics'
<PAGE>
voting power in the current shareholders of the Company, particularly in the
Company's current two largest shareholders, Howard S. Stern and Betty S. Meyers,
each of whom will hold greater than 5% of the voting power of AngioDynamics
after the Spin-Off. Based upon their current holdings of the Company's stock,
assuming that stock representing twenty percent (20%) of the voting power of
AngioDynamics is sold in the Public Offering, after the Spin-Off, Mr. Stern and
Mrs. Meyers will control 21.9% and 18.7%, respectively, of the voting power of
AngioDynamics on a non-diluted basis. It is likely that the voting power of Mr.
Stern and Mrs. Meyers will increase over time, assuming that they will hold
their Class B Stock and that other Class B Stock will convert to Class A Stock
as it is traded by the Company's other shareholders. For example, assuming that
one-half of the Class B Stock not held by Mr. Stern or Mrs. Meyers will trade
and convert into Class A Stock, the voting power of Mr. Stern and Mrs. Meyers
will be 26.5% and 22.3%, respectively, on a non-diluted basis. This
concentration of voting power will make AngioDynamics a less attractive target
to a potential acquirer in a non-negotiated transaction.
Manner of Effecting the Reorganization
The Transfer. The first step of the Reorganization, the transfer of the
AngioDynamics Business to AngioDynamics, took place effective June 1, 1996, by
the Company assigning to AngioDynamics all of the assets and liabilities
attributable principally to the AngioDynamics Business. These assets included
cash, intangible assets, such as intellectual property and contracts, as well as
tangible property, such as inventory, equipment and real property. Also
effective June 1, 1996, AngioDynamics assumed the liabilities of the Company
attributable to the AngioDynamics Business (including contingent and unknown
liabilities). The value of the assets transferred by the Company to
AngioDynamics is $12,945,000 and the value of the liabilities assumed by
AngioDynamics (other than contingent and unknown liabilities) is $1,141,000.
The Public Offering. The second step of the Reorganization, the Public
Offering, will be accomplished by AngioDynamics engaging one or more
underwriters to offer shares of AngioDynamics to the public in an offering
registered with Securities and Exchange Commission (the "Commission"). The
Public Offering will be made only by means of a prospectus. It has not yet been
determined how many shares of AngioDynamics will be offered in the Public
Offering, but in order to permit the Company to effect the Spin-Off on a
tax-free basis, the Company must own shares of AngioDynamics representing at
least eighty percent (80%) of the voting power of AngioDynamics immediately
prior to the Spin-Off. Because of AngioDynamics' capitalization structure, as
described above, it will be possible for AngioDynamics to sell greater than
twenty percent (20%) of its equity, without selling greater than twenty percent
(20%) of the voting power. The price for the shares in the Public Offering will
depend on the valuation of AngioDynamics at the time of the Public Offering.
The Spin-Off. The third step of the Reorganization, the Spin-Off of the
Class B Stock of AngioDynamics initially retained by the Company to the
shareholders of the Company, will be accomplished by distributing such
<PAGE>
Class B Stock to the Company's shareholders as of the Spin-Off Record Date. The
Company intends to effect the Spin-Off as soon as possible after receiving the
PLR. If the PLR cannot be obtained, the Company does not intend to effect the
Spin-Off, in which case AngioDynamics would remain a majority held subsidiary of
the Company.
No holder of the Company's shares will be required to pay any cash or other
consideration for the shares of AngioDynamics to be received in the Spin-Off or
to surrender or exchange shares of the Company in order to receive the shares of
AngioDynamics. No certificates or scrip representing fractional shares of
AngioDynamics stock will be issued to the Company's shareholders as part of the
Spin-Off. The Company will transfer in the name of its shareholders all of the
Class B shares of AngioDynamics that it owns to a distribution agent (the
"Distribution Agent"), who will as soon as practicable thereafter distribute
such shares to the Company's shareholders in proportion to their holdings of the
Company's Common Stock issued and outstanding on the Spin-Off Record Date.
Fractional shares which would have been distributed by the Distribution Agent
will be aggregated into whole shares by the Distribution Agent and sold in the
open market at then prevailing prices on behalf of the Company's shareholders
who would otherwise have received such fractional share interests, and such
persons will receive instead a cash payment from the Distribution Agent in the
amount of their pro-rata share of the total sales proceeds received with respect
to the aggregate fractional shares.
Class B Stock of AngioDynamics distributed in the Spin-Off will be freely
tradable, except for shares received by persons who may be deemed to be
affiliates of AngioDynamics under the Securities Act of 1933, as amended (the
"Securities Act"). Persons who may be deemed to be affiliates of AngioDynamics
after the Spin-Off generally include individuals or entities that control, are
controlled by or are under common control with, AngioDynamics, including the
directors of AngioDynamics, as well as principal shareholders of AngioDynamics.
Persons who are affiliates of AngioDynamics will be permitted to sell their
AngioDynamics shares only pursuant to an effective registration statement under
the Securities Act or an exemption from the registration requirements of the
Securities Act, such as the exemption offered by Rule 144 promulgated under the
Securities Act. Shares of AngioDynamics Class B Stock distributed in the
Spin-Off will automatically convert into Class A shares upon the transfer of
such shares subsequent to the Spin-Off, except for transfers to Permitted
Transferees. There will not be a trading market for the Class B Stock.
No Appraisal Rights
Shareholders who are opposed to the Reorganization and vote against
Proposal IV will have no appraisal or similar rights if the Reorganization is
approved and consummated, in whole or in part.
Abandonment of the Public Offering
It is the current intent of the Company's Board of Directors that, subject
to the receipt of the PLR, the entire Reorganization take place,
<PAGE>
but the Board of Directors reserves the right, in its sole discretion, not to
proceed with the Public Offering, even if it is approved by the Company's
shareholders. Among other reasons, a decision not to proceed with the Public
Offering might be made if market conditions at the time of the proposed Public
Offering are not favorable. If the Public Offering does not occur, AngioDynamics
would continue as a wholly-owned subsidiary of the Company.
Federal Income Tax Consequences of the Reorganization
The Spin-Off will be consummated by the Company as soon as possible after
it obtains the PLR. It is expected that if received, the PLR would provide,
among other things, that:
1. No gain or loss will be recognized by the Company on the Transfer, pursuant
to ss.ss. 361(a) and 357(a) of the Code.
2. No gain or loss will be recognized by AngioDynamics upon its receipt of the
assets of the AngioDynamics Business in exchange for stock, pursuant to ss.1032
of the Code.
3. AngioDynamics' basis in the assets it received in the Transfer will equal
the basis of such assets in the hands of the Company immediately prior to the
Transfer, pursuant to ss.362 of the Code.
4. AngioDynamics' holding period for the assets it received in the Transfer
includes the period during which the Company held such assets, pursuant to
ss.1223(2) of the Code.
5. No gain or loss will be recognized by the Company upon the distribution to
its shareholders of the Class B Stock, pursuant to ss.361(c) of the Code.
6. No gain or loss will be recognized by the shareholders of the Company upon
their receipt of Class B Stock in the Spin-Off, pursuant to ss.355(a)(1) of the
Code.
7. Each shareholder's tax basis in the Company's stock held before the Spin-Off
will be allocated between the Company stock and the Class B Stock held by the
shareholder after the transaction in proportion to their relative fair market
values, as provided by ss.1.358-2 of the Income Tax Regulations.
8. The holding period of the Class B Stock received by shareholders of the
Company will include the period during which the shareholders of the Company
held Company stock with respect to which the distribution was made, provided
that the Company stock is a capital asset in the hands of the respective
shareholders of the Company on the date of the distribution, pursuant to
ss.1223(1) of the Code.
9. A proper allocation of the earnings and profits between the Company and
AngioDynamics will be made, pursuant to ss.312(h) of the Code.
<PAGE>
Future Management of AngioDynamics
AngioDynamics continues to be operated substantially in the manner in which
the Division was operated by the Company in the past and with substantially the
same operating management. The Board of Directors of AngioDynamics is composed
of Howard Stern, the Chairman of the Board and a Director of the Company, Donald
Meyer and Paul Echenberg, each a Director of the Company, and Eamonn Hobbs, a
Vice President of the Company and the President and Chief Executive Officer of
AngioDynamics.
The following sets forth certain information with respect to the executive
officers and key employees of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Eamonn Hobbs 43 President, Chief Executive Officer and
Director
Dennis Curtin 49 Vice President - Chief Financial Officer
Harold Mapes 36 Secretary/Vice-President - Operations
Robert Rossell 41 Vice President - Sales and Marketing
William Appling 33 Vice President - Product Development
Joseph Gerardi 34 Vice President - Controller
Andrew Jones 43 Managing Director - Ireland
</TABLE>
Eamonn Hobbs has been the President and Chief Executive Officer of
AngioDynamics since June 1996. From June 1991 until June 1996, Mr. Hobbs was a
Vice President of the Company with operational responsibility for the Division.
He has been an employee of the Company since 1988. From 1986 until 1988, Mr.
Hobbs was Director of Marketing for the North American Instrument Corporation
(NAMIC) in Glen Falls. Mr. Hobbs is a Bio-Medical Engineer with over 20 years
experience in the interventional cardiology, interventional radiology and
gastroenterology industries. Mr. Hobbs started his career at Cook, Inc. of
Bloomington, Indiana, a leading company in interventional radiology and an
important player in the interventional cardiology and gastroenterology
marketplaces. In 1982, Mr. Hobbs founded Hobbs Medical, Inc., a venture capital
backed start-up company focused on disposables for GI endoscopists. Hobbs
Medical, Inc. still retains significant market share in certain GI endoscopic
accessories. Mr. Hobbs' background is very broad-based in that he has experience
in sales, marketing, product development, and general management.
Dennis Curtin has been Chief Financial Officer of AngioDynamics since
November 1996. He has been Vice President - Chief Financial Officer of the
Company since August 1995 and will continue to serve in that position until the
Spin-off is effected. From 1985 to 1995, Mr. Curtin served as the Company's Vice
President - Finance. He has been employed by the Company since 1983. Mr. Curtin
brings to AngioDynamics over 25 years of financial experience and general
management experience in the medical device, consumer product and packaging
industries. For so long as Mr. Curtin is employed by both the Company and
AngioDynamics, he will be able to devote sufficient time to each to fulfill his
obligations thereto.
Harold Mapes has been Secretary and Vice President - Operations of
AngioDynamics since June 1996. Previously, Mr. Mapes was Director of
<PAGE>
Operations for the Division. Before joining the Division in 1992, Mr. Mapes was
a Senior Product Development/Manufacturing Engineer at Mallinckrodt Medical,
Inc. Mr. Mapes brings to AngioDynamics over 10 years experience in the medical
device industry, developing and manufacturing products for interventional
radiologists and cardiologist.
Robert Rossell was appointed Vice President - Sales and Marketing in
October 1996. Prior to his appointment, Mr. Russell was Business Manager for CO2
and Stents. Before joining the Division in 1990, Mr. Russell was the Marketing
Manager at the North American Instrument Corporation (NAMIC) in Glens Falls.
Prior to his employment at NAMIC, Mr. Russell held various sales positions with
leading healthcare companies, including Johnson & Johnson Company and American
Hospital Supply Corporation. Mr. Russell has over 15 years experience in the
medical device industry in sales and marketing positions.
William Appling was appointed Vice President - Product Development in
October 1996. Prior to his appointment, Mr. Appling was Director of Product
Development. Before joining the Division in 1988, Mr. Appling was a Product
Development Engineer with the North American Instrument Corporation (NAMIC) in
Glen Falls. Prior to his employment at NAMIC, Mr. Appling was a Product
Development Engineer with the Edwards Division of American Hospital Supply
Corporation. Mr. Appling provides overall direction for the product development
group, together with maintaining a focus on the development of new and unique
diagnostic and therapeutic products.
Joseph Gerardi was appointed Vice President - Controller in October 1996.
From 1992 to 1996, Mr. Gerardi was the Plant Controller. From 1987 to 1992, Mr.
Gerardi was the Controller of Mallinckrodt Medical, Inc.'s anesthesiology plant,
located in Argyle, New York. Before joining Mallinckrodt Medical, Inc., Mr.
Gerardi was employed by FACTRON/Schlumberger for over 5 years as Manager of
Consolidations and as a Cost Accountant.
Andrew Jones joined AngioDynamics Ltd., AngioDynamics' wholly-owned Irish
subsidiary, as Managing Director in October 1996. Prior to this, Mr. Jones was
Managing Director of Summit Technology Ireland B.V. from its inception in 1991,
and before that he was Deputy Managing Director of Technicon Ireland Ltd. Mr.
Jones has 23 years experience in the aerospace and medical device industries, 11
of these at senior management levels in engineering, operations and general
management roles.
Relationship Between the Company and AngioDynamics
Financial
The Public Offering will raise capital needed by AngioDynamics to fund the
operation, development and expansion of the AngioDynamics Business. During the
time that the Company operated the AngioDynamics Business through the Division,
<PAGE>
the AngioDynamics Business had the benefit of access to the Company's credit
through the extension of intracompany loans. In order to finance AngioDynamics
prior to the Public Offering, AngioDynamics entered into a loan agreement with
Fleet Bank ("Fleet") providing for a revolving line of credit in the amount of
Five Million Dollars ($5,000,000) (the "Fleet Agreement"). The Company has
guaranteed the obligations of AngioDynamics pursuant to the Fleet Agreement. It
is expected that the Fleet Agreement will be sufficient to provide for
AngioDynamics' ordinary course financial requirements through the Public
Offering, as well as to finance part of a new facility that AngioDynamics is
building in Ireland and that all funds borrowed under the Fleet Agreement will
be repaid out of the proceeds of the Public Offering. If the Public Offering
does not occur, funds borrowed under the Fleet Agreement will be repaid in
accordance with the terms of the Fleet Agreement. In addition to the line of
credit available pursuant to the Fleet Agreement, AngioDynamics needs to borrow
additional funds to partially finance the new Irish facility and to finance its
acquisition of the assets of Leocor, Inc. AngioDynamics is seeking financing for
these purposes, which may require the guarantee of the Company. These additional
funds will also be repaid out of the proceeds of the Public Offering, if it
occurs, and otherwise will be repaid pursuant to a repayment schedule to be
agreed upon by the lender of such funds and AngioDynamics. Following the Public
Offering, the Company does not intend to extend any additional credit to or on
behalf of AngioDynamics, through either direct loans or the providing of a
guaranty.
Stock Ownership
Until the Public Offering, AngioDynamics will continue to be a wholly-owned
subsidiary of the Company. Following the Public Offering, but prior to the
Spin-Off, the Company will remain the majority owner of AngioDynamics,
controlling in excess of 80% of the voting power of AngioDynamics. Following the
Spin-Off, the Company will have no ownership interest in AngioDynamics.
Tax Matters
The Company, AngioDynamics and other companies within the Company's
consolidated group (AngioDynamics and each such other company is referred to as
a "Member") have entered into a tax-sharing agreement with respect to federal
income taxes, which agreement will continue as to each Member until such time as
such Member is deconsolidated for tax purposes, which in general, will occur
when the Company owns less than 80% of such Member on a fully diluted basis. The
Company and the Members do not intend to file state or local tax returns on a
consolidated or combined basis. Pursuant to the tax-sharing agreement, the
Company and each Member will pay its appropriate share of taxes actually due and
payable, and also will make payments among themselves such that, with respect to
any period, the amount of federal income taxes to be paid by any Member, subject
to certain adjustments, generally will be determined as though such Member were
to file separate federal income tax returns (including, except as provided
below, any amounts determined to be due as a result of a redetermination of the
tax liability of the Company arising from an audit or otherwise). Each Member
will be reimbursed, however, for federal income tax attributes
<PAGE>
that it generates, such as net operating losses, if and when they are used on a
consolidated basis.
In determining the amount of tax-sharing payments under the tax- sharing
agreement, the Company will prepare for each Member pro forma returns with
respect to federal income taxes that reflect the same positions and elections
used by the Company in preparing the returns for the Company's consolidated
group. During the periods covered by the tax-sharing agreement, the Company will
continue to have all the rights of a parent of a consolidated group, will be the
sole and exclusive agent for each Member in any and all matters relating to the
federal income tax liabilities of each Member, will have sole and exclusive
responsibility for the preparation and filing of consolidated federal (and if
filed on such basis, consolidated or combined state) income tax returns (or
amended returns), and will have the power to contest or compromise any asserted
federal income tax adjustments or deficiency and to file, litigate or compromise
any claim for refund on behalf of any Member. In addition, the Company has
agreed to undertake to provide the aforementioned services with respect to each
Member's separate state and local returns and its foreign returns. Under the
tax-sharing agreement, each Member will reimburse the Company for all direct and
indirect costs and expenses incurred with respect to its share of the overall
costs and expenses incurred by the Company with respect to tax related services.
Each member of a consolidated group for federal income tax purposes is
jointly and severally liable for the federal income tax liability of each other
member of the consolidated group. For benefit plan purposes, AngioDynamics will
be part of the Company's controlled group, which includes the Company and its
other subsidiaries. Under the Employment Retirement Income Security Act of 1974,
as amended and federal income tax law, each member of the controlled group is
jointly and severally liable for funding and termination liabilities of tax
qualified defined benefit retirement plans as well as certain plan taxes.
Accordingly, any company in the Company's consolidated or controlled group could
be liable under such provisions in the event any such liability or tax is
incurred, and not discharged, by any other member of the Company's consolidated
or controlled group.
Insurance Matters
AngioDynamics' liability insurance is included in the Company's liability
policy. This will continue until the Company determines such coverage for
AngioDynamics is no longer reasonably available, or until such time as
AngioDynamics is no longer able to be covered under the Company's policy, or
until AngioDynamics obtains its own insurance coverage. Because the design,
development, manufacture and marketing of implantable medical devices entails an
inherent risk of product liability claims and product recalls, the cost of
liability insurance for the Company may be greater than if AngioDynamics were
not included in the same liability policy. AngioDynamics will pay the Company
for its allocated share of such insurance as allocated by the insurance carrier,
or if no such allocation is made by the insurance carrier, as reasonably
<PAGE>
determined by the Company based upon the relative total revenues of the Company
and AngioDynamics and such other factors as the Company deems appropriate.
Employee Matters
Most employees of the Division have become employees of AngioDynamics (the
"Transferred Employees") and as of June 1, 1996, AngioDynamics assumed all
liabilities of the Company with respect to the Transferred Employees other than
liabilities with respect to the Company's stock option plan. There may be a
limited number of employees who perform services for both AngioDynamics and the
Company's other businesses who will be shared by the Company and AngioDynamics.
It is currently intended that the Transferred Employees (as well as the
Directors of AngioDynamics) will remain participants in the Company's existing
1983 Stock Option Plan (and the 1984 Directors and Consultants Stock Option
Plan) with respect to stock options granted before the date of the Transfer, and
will be able to participate in the Option Plan.
Shared Services
Although the AngioDynamics Business has been operated to a large degree
independently of the Company's other businesses, the Company and AngioDynamics
have entered into a Services Agreement pursuant to which the Company provides
certain services to AngioDynamics. These services include, among others,
engineering, tax, legal and regulatory, treasury and financial, corporate and
senior management services. The services will be charged to AngioDynamics for
fees based on the costs incurred by the Company for providing such services, the
number of hours required, the hourly cost of the person or persons providing the
services and the costs of materials, overhead (including employee benefits) and
capital consumed in providing the services. The Company will also be reimbursed
for travel expenses and for the costs of outside professional services incurred
by the Company for the benefit of AngioDynamics, including accounting, legal and
marketing services. The services will be provided for an indefinite period of
time and will be phased out as and when no longer needed by AngioDynamics. In
addition, the Company may discontinue providing a service if to continue to
provide the service would unreasonably interfere with the Company's business and
operations.
Corporate Agreement
The Company and AngioDynamics have entered into a corporate agreement (the
"Corporate Agreement") under which AngioDynamics will grant to the Company a
continuing option, transferable to any of its subsidiaries, to purchase under
certain circumstances, additional shares of Class B Stock (the "Stock Option").
The Stock Option may be exercised by the Company immediately prior to the
issuance of an equity security of AngioDynamics to the extent necessary to
maintain its then-existing percentage of the total voting power of
AngioDynamics. The purchase price of the shares of Class B Stock purchased upon
any exercise of the Stock Option, subject to certain exceptions, will be equal
to the price in the sale that gave rise to the option. The Stock Option expires
in the event that the Company reduces its beneficial ownership of common stock
in AngioDynamics to common stock representing less than 60% of the number of
outstanding shares of common stock.
The Corporate Agreement provides that, upon the request of the Company,
AngioDynamics will use its best efforts to effect the registration under the
applicable federal and state securities laws of any of the shares of Class B
Stock (and any other securities issued in respect thereof or in exchange
therefore) held by the Company for sale in accordance with the Company's
intended method of disposition thereof, and will take such other actions as may
be necessary to permit the sale thereof in other jurisdictions, subject to
certain limitations specified in the Corporate Agreement. The Company will also
have the right, which it may exercise at any time and from time to time, to
include the shares of Class B Stock (and any other securities issued in respect
thereof or in exchange therefore) held by it in certain other registrations of
common equity securities of AngioDynamics initiated by AngioDynamics on its own
behalf or on behalf of its other shareholders. AngioDynamics will agree to pay
all out-of-pocket costs and expenses in connection with each such registration
that the Company requests or in which the Company participates (other than
underwriting fees and expenses). Subject to certain limitations specified in the
Corporate Agreement, such registration right will be assignable by the Company
and its assignee. The Corporate Agreement will contain indemnification and
contribution provisions: (i) by the Company and its permitted assignee for the
benefit of AngioDynamics and related persons; and (ii) by AngioDynamics for the
benefit of the Company and the other persons entitled to effect registration of
common stock (and other securities) pursuant to its terms and related persons.
Manufacturing Agreement
The Company and AngioDynamics have entered into a manufacturing agreement
pursuant to which the Company manufactures certain products for AngioDynamics
and AngioDynamics manufactures certain products for the Company. In each case,
the fees charged by the manufacturer are determined on an arm's-length basis.
The approval of the proposal to effect the Public Offering requires the
affirmative vote of a majority of the votes cast by all Stockholders represented
and entitled to vote thereon. Therefore, an abstention,
<PAGE>
withholding of authority to vote or broker non-vote will not have the same legal
effect as an "against" vote and will not be counted in determining whether the
proposal has received the required shareholder vote.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE IN FAVOR OF THE
PUBLIC OFFERING.
ANNUAL REPORT
All stockholders of record as of the Record Date, have been sent, or are
concurrently herewith being sent, a copy of the Company's 1996 Annual Report for
the 1996 Fiscal Year.
ANY STOCKHOLDER OF THE COMPANY MAY OBTAIN WITHOUT CHARGE A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE 1996 FISCAL YEAR (WITHOUT
EXHIBITS), AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, BY WRITING TO
STOCKHOLDER INFORMATION, E-Z-EM, INC., 717 MAIN STREET, WESTBURY, NEW YORK
11590-5021.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy materials to be
distributed in connection with the next Annual Meeting of Stockholders of the
Company, stockholder proposals for such meeting must be submitted to the Company
no later than May 1, 1997.
OTHER MATTERS
As of the date of this Proxy Statement, management knows of no matters
other than those set forth herein which will be presented for consideration at
the Meeting. If any other matter or matters are properly brought before the
Meeting or any adjournment thereof, the persons named in the accompanying Proxy
will have discretionary authority to vote, or otherwise act, with respect to
such matters in accordance with their judgment.
W. PHILIP VAN KIRK
Secretary
February 5, 1997
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Annual Financial Statements of the Company
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as at June 1, 1996 and June 3, 1995
Consolidated Statements of Earnings for the fiscal years ended
June 1, 1996, June 3, 1995 and May 28, 1994
Consolidated Statements of Stockholders' Equity for the fiscal
years ended June 1, 1996, June 3, 1995 and May 28, 1994
Consolidated Statements of Cash Flows for the fiscal
years ended June 1, 1996, June 3, 1995 and May 28, 1994
Notes to Consolidated Financial Statements
Interim Financial Statements of the Company
Consolidated Balance Sheets as at November 30, 1996 and June 1, 1996
Consolidated Statements of Earnings for the twenty-six weeks
ended November 30, 1996 and December 2, 1995
Consolidated Statement of Stockholders' Equity for the twenty-six weeks
ended November 30, 1996
Consolidated Statements of Cash Flows for the twenty-six weeks
ended November 30, 1996 and December 2, 1995
Notes to Consolidated Financial Statements
Financial Statements of AngioDynamics
Report of Independent Certified Public Accountants
Balance Sheets as at June 3, 1995, June 1, 1996 and November 30, 1996
Statements of Operations for the fiscal years ended May 28,
1994, June 3, 1995 and June 1, 1996 and the twenty-six weeks
ended December 2, 1995 and November 30, 1996
Statement of Stockholder's Equity for the fiscal
years ended May 28, 1994, June 3, 1995 and June 1, 1996
and the twenty-six weeks ended November 30, 1996
Statements of Cash Flows for the fiscal years ended May 28,
1994, June 3, 1995 and June 1, 1996 and the twenty-six weeks
ended December 2, 1995 and November 30, 1996
Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
E-Z-EM, Inc.
We have audited the accompanying consolidated balance sheets of E-Z-EM,
Inc. and Subsidiaries as of June 1, 1996 and June 3, 1995, and the
related consolidated statements of earnings, stockholders' equity and
cash flows for the fifty-two weeks ended June 1, 1996, the fifty-three
weeks ended June 3, 1995 and the fifty-two weeks ended May 28, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the
financial statements of a certain subsidiary, which statements reflect
total assets constituting approximately 16% in 1996 and 20% in 1995 and
net sales constituting approximately 12% in 1996, 13% in 1995 and 15%
in 1994 of the related consolidated totals. We also did not audit the
financial statements of a certain subsidiary for the fifty-two weeks
ended May 28, 1994, for which the results of operations have been
classified as a discontinued operation for all periods presented.
Those statements were audited by other auditors, whose reports thereon
have been furnished to us, and our opinion, insofar as it relates to
the amounts included for these subsidiaries, is based solely upon the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other
auditors, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of E-Z-EM,
Inc. and Subsidiaries as of June 1, 1996 and June 3, 1995, and the
consolidated results of their operations and their consolidated cash
flows for the fifty-two weeks ended June 1, 1996, the fifty-three weeks
ended June 3, 1995 and the fifty-two weeks ended May 28, 1994, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Certified Public Accountants
Melville, New York
August 8, 1996
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 1, June 3,
ASSETS 1996 1995
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 3,363 $ 3,962
Debt and equity securities 20,247 485
Accounts receivable, principally
trade, net of allowance for
doubtful accounts of $527 in
1996 and $465 in 1995 16,152 17,354
Inventories 23,708 22,752
Other current assets 2,936 2,602
------- -------
Total current assets 66,406 47,155
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 21,823 20,864
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
amortization of $411 in 1996 and
$354 in 1995 558 633
INTANGIBLE ASSETS, less accumulated
amortization of $345 in 1996 and
$492 in 1995 767 463
DEBT AND EQUITY SECURITIES 3,647 4,352
OTHER ASSETS 2,836 2,628
------- -------
$96,037 $76,095
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 1, June 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---- ----
CURRENT LIABILITIES
Notes payable $ 979 $ 1,021
Current maturities of long-term debt 268 208
Accounts payable 5,095 6,713
Accrued liabilities 6,218 5,559
Accrued income taxes 338 400
------- -------
Total current liabilities 12,898 13,901
LONG-TERM DEBT, less current maturities 680 1,114
OTHER NONCURRENT LIABILITIES 1,856 1,805
MINORITY INTEREST IN SUBSIDIARY 1,385
COMMITMENTS AND CONTINGENCIES
------- -------
Total liabilities 15,434 18,205
------- -------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per share -
authorized, 1,000,000 shares; issued, none - -
Common stock
Class A (voting), par value $.10 per
share - authorized, 6,000,000 shares;
issued and outstanding, 4,035,346 shares
in 1996 and 4,032,532 shares in 1995 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding, 5,199,615
shares in 1996 and 4,785,462 shares
in 1995 520 479
Additional paid-in capital 15,165 11,570
Retained earnings 63,347 44,953
Unrealized holding gain on debt and equity
securities 2,360 1,786
Cumulative translation adjustments (1,192) (1,301)
------- -------
Total stockholders' equity 80,603 57,890
------- -------
$96,037 $76,095
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995* 1994*
------- ------- -------
Net sales $91,932 $88,526 $85,645
Cost of goods sold 55,518 51,845 52,028
------- ------- -------
Gross profit 36,414 36,681 33,617
------- ------- -------
Operating expenses
Selling and administrative 30,134 27,767 25,520
Research and development 5,323 6,077 6,897
------- ------- -------
Total operating expenses 35,457 33,844 32,417
------- ------- -------
Operating profit 957 2,837 1,200
Other income (expense)
Interest income 735 551 429
Interest expense (264) (286) (386)
Other, net 512 457 285
------- ------- -------
Earnings from continuing
operations before income taxes 1,940 3,559 1,528
Income tax provision 243 1,086 1,149
------- ------- -------
Earnings from continuing
operations 1,697 2,473 379
Discontinued operation:
Losses from operations, net of
income tax provision (benefit)
of $10, $142 and $(261) in 1996,
1995 and 1994, respectively (209) (843) (102)
Gain on sale, net of income tax
provision of $6,019 19,520
------- ------- -------
NET EARNINGS $21,008 $ 1,630 $ 277
======= ======= =======
Primary earnings per common share
Continuing operations $ .17 $ .27 $ .04
Discontinued operation 1.99 (.09) (.01)
Total operations 2.16 .18 .03
Fully diluted earnings per common share
Continuing operations $ .17 $ .27 $ .04
Discontinued operation 1.97 (.09) (.01)
Total operations 2.14 .18 .03
* Reclassified to reflect the discontinued operation.
The accompanying notes are an integral part of these statements.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Fifty-two weeks ended June 1, 1996, fifty-three weeks ended
June 3, 1995 and fifty-two weeks ended May 28, 1994
(in thousands, except share data)
<TABLE>
<CAPTION>
Unrealized
Class A Class B holding gain
common stock common stock Additional on debt Cumulative
------------ ------------ paid-in Retained and equity translation
Shares Amount Shares Amount capital earnings securities adjustments Total
------ ------ ------ ------ ------- -------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 29, 1993 4,032,533 $403 4,275,175 $428 $ 9,248 $45,399 $ - $ (477) $55,001
Issuance of stock (1) 4,479 22 22
3% common stock dividend 249,026 25 1,235 (1,262) (2)
Net earnings 277 277
Foreign currency translation
adjustments (1,029) (1,029)
--------- ---- --------- ---- ------- ------- ------ ------- -------
Balance at May 28, 1994 4,032,532 403 4,528,680 453 10,505 44,414 - (1,506) 54,269
Unrealized holding gain on
debt and equity securities
at May 29, 1994 3,531 3,531
Issuance of stock 270 1 1
3% common stock dividend 256,512 26 1,064 (1,091) (1)
Net earnings 1,630 1,630
Unrealized holding loss on
debt and equity securities (1,745) (1,745)
Foreign currency translation
adjustments 205 205
--------- ---- --------- ---- ------- ------- ------ ------- -------
Balance at June 3, 1995 4,032,532 403 4,785,462 479 11,570 44,953 1,786 (1,301) 57,890
Exercise of stock options 2,813 145,369 14 1,005 1,019
Issuance of stock 1 933 5 5
3% common stock dividend 267,851 27 2,585 (2,614) (2)
Net earnings 21,008 21,008
Unrealized holding gain on
debt and equity securities 574 574
Foreign currency translation
adjustments 109 109
--------- ---- --------- ---- ------- ------- ------ ------- -------
Balance at June 1, 1996 4,035,346 $403 5,199,615 $520 $15,165 $63,347 $2,360 $(1,192) $80,603
========= ==== ========= ==== ======= ======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995 1994
------ ------ ------
Cash flows from operating activities:
Net earnings $21,008 $1,630 $ 277
Adjustments to reconcile net
earnings to net cash (used in)
provided by operating activities
Depreciation and amortization 2,552 2,800 2,728
Gain on disposal of business (25,539)
Gain on sale of assets (193)
Gain on sale of investments (24)
Minority share of subsidiary's
operations (200) (810) (97)
Deferred income taxes 60 282 (61)
Changes in operating assets
and liabilities, net of
disposition
Accounts receivable (731) 233 (1,077)
Inventories (3,123) (3,833) 1,637
Other current assets (446) (305) 372
Other assets (754) 128 (116)
Accounts payable (312) 2,319 616
Accrued liabilities 905 312 (960)
Accrued income taxes 22 (107) (309)
Other noncurrent liabilities 168 190 36
------ ------ ------
Net cash (used in) provided
by operating activities (6,583)* 2,839 3,022
------ ------ ------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (4,231) (4,812) (2,175)
Proceeds from disposal of business,
net of cash sold 26,785
Proceeds from sale of assets 485
Held-to-maturity securities
Purchases (104,253) (1,958)
Proceeds from maturity 105,846 1,964 6
Available-for-sale securities
Purchases (39,750) (31) (793)
Proceeds from sale 19,995 844
------ ------ ------
Net cash provided by (used in)
investing activities 4,877 (4,837) (2,118)
------ ------ ------
* Includes income taxes paid on the disposition of Surgical Dynamics
Inc. of approximately $6,019.
The accompanying notes are an integral part of these statements.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Fifty-two Fifty-three Fifty-two
weeks ended weeks ended weeks ended
June 1, June 3, May 28,
1996 1995 1994
------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of debt $ 1,121 $1,686 $ 892
Repayments of debt (910) (3,374) (1,254)
Proceeds from issuance of loan
by minority shareholder 238 258
Proceeds from exercise of stock
options 1,019
Issuance of stock in connection with
the stock purchase plan 5 1 22
------ ------ ------
Net cash provided by (used in)
financing activities 1,473 (1,429) (340)
------ ------ ------
Effect of exchange rate changes on
cash and cash equivalents (366) 538 (767)
------ ------ ------
DECREASE IN CASH AND CASH
EQUIVALENTS (599) (2,889) (203)
Cash and cash equivalents
Beginning of year 3,962 6,851 7,054
------ ------ ------
End of year $3,363 $3,962 $6,851
====== ====== ======
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 136 $ 201 $ 360
====== ====== ======
Income taxes (net of $508,
$449 and $263 in refunds
in 1996, 1995 and 1994,
respectively) $6,319 $ 674 $1,050
====== ====== ======
The accompanying notes are an integral part of these statements.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented to assist
the reader in understanding and evaluating the consolidated
financial statements. These policies are in conformity with
generally accepted accounting principles and have been applied
consistently in all material respects.
Basis Of Consolidation
----------------------
The consolidated financial statements include the accounts of E-Z-EM,
Inc. and all 100%-owned subsidiaries, as well as the accounts of
Surgical Dynamics Inc. ("SDI"), a 51%-owned subsidiary prior to its
sale in November 1995 (the "Company"). SDI has been reported as a
discontinued operation and, accordingly, the gain from the sale of
SDI and the Company's proportionate share of losses from operations
of SDI have been classified as a discontinued operation for all
periods presented in the accompanying consolidated statements of
earnings. The discontinued operation has not been segregated in
the accompanying statements of consolidated cash flows and,
therefore, amounts for certain captions will not agree with the
respective consolidated statements of earnings. The Company is
primarily engaged in developing, manufacturing and marketing
diagnostic products used by radiologists and other physicians
during image-assisted procedures to detect physical abnormalities
and diseases.
Operations outside the U.S. are included in the consolidated
financial statements and consist of: a subsidiary operating a
mining and chemical processing operation in Nova Scotia, Canada and
a manufacturing and marketing facility in Montreal, Canada; a
subsidiary manufacturing products located in Puerto Rico; a
subsidiary manufacturing and marketing products located in Japan; a
subsidiary promoting and distributing products located in Holland;
and a subsidiary promoting and distributing products located in the
United Kingdom.
Fiscal Year
-----------
The Company reports on a fiscal year which concludes on the Saturday
nearest to May 31. Fiscal year 1996 ended on June 1, 1996 for a
reporting period of fifty-two weeks, fiscal year 1995 ended on June
3, 1995 for a reporting period of fifty-three weeks and fiscal
year 1994 ended on May 28, 1994 for a reporting period of fifty-two
weeks.
Cash and Cash Equivalents
-------------------------
The Company considers all unrestricted highly liquid investments
purchased with a maturity of less than three months to be cash
equivalents. Included in cash equivalents are certificates of
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
deposit and Eurodollar investments of $1,796,000 and $1,133,000 at
June 1, 1996 and June 3, 1995, respectively. The carrying amount
of these financial instruments reasonably approximates fair value
because of their short maturity. Foreign-denominated cash and cash
equivalents aggregated $1,101,000 and $1,695,000 at June 1, 1996
and June 3, 1995, respectively.
Debt and Equity Securities
--------------------------
Effective in fiscal 1995, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). In accordance with
the provisions of SFAS 115, this Statement was not applied
retroactively to financial statements prior to fiscal 1995.
Pursuant to SFAS 115, debt and equity securities are to be classified
in three categories and accounted for as follows: debt securities
that the Company has the positive intent and ability to hold to
maturity are classified as "held-to-maturity securities" and
reported at amortized cost; debt and equity securities that are
bought and held principally for the purpose of selling them in the
near term are classified as "trading securities" and reported at
fair value, with unrealized gains and losses included in
operations; and debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with
unrealized gains and losses excluded from operations and reported
as a separate component of stockholders' equity, net of the related
tax effects. Cost is determined using the specific identification
method.
Inventories
-----------
Inventories are stated at the lower of cost (on the first-in, first-
out method) or market. Appropriate consideration is given to
deterioration, obsolescence and other factors in evaluating net
realizable value.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed principally using the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the terms of the related
leases or the useful life of the improvements, whichever is
shorter. Expenditures for repairs and maintenance are charged to
expense as incurred. Renewals and betterments are capitalized.
Depreciation expense from continuing operations was $2,308,000,
$2,273,000 and $2,230,000 in 1996, 1995 and 1994, respectively.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cost in Excess of Fair Value of Net Assets Acquired
---------------------------------------------------
The excess cost is being amortized on a straight-line basis over 5
and 40 year periods. On an ongoing basis, management reviews the
valuation and amortization of this asset to determine possible
impairment by comparing the carrying value to the undiscounted
future cash flows of the related asset. Amortization from
continuing operations was $73,000, $70,000 and $65,000 in 1996,
1995 and 1994, respectively.
Intangible Assets
-----------------
Intangible assets are being amortized on a straight-line basis over
the estimated useful lives of the respective assets ranging from
five to fifteen and one-half years. Amortization from continuing
operations was $47,000, $44,000 and $41,000 in 1996, 1995 and 1994,
respectively.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121")
that established accounting standards for the impairment of long-
lived assets, certain intangibles and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 is required
to be adopted for fiscal years beginning after December 15, 1995.
In accordance with SFAS 121, it is the Company's policy to
periodically review and evaluate whether there has been a permanent
impairment in the value of intangibles and adjust the carrying
value accordingly. Factors considered in the valuation include
current operating results, trends and anticipated undiscounted
future cash flows. Accordingly, the adoption of SFAS 121 is not
expected to have a significant effect on the consolidated financial
statements of the Company.
Income Taxes
------------
In accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), deferred income
taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities and loss
carryforwards and tax credit carryforwards for which income tax
benefits are expected to be realized in future years. A valuation
allowance has been established to reduce deferred tax assets as it
is more likely than not that all, or some portion, of such deferred
tax assets will not be realized. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that
includes the enactment date.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Translation
----------------------------
In accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation," the Company has determined that
the functional currency for each of its foreign subsidiaries is the
local currency. This assessment considers that the day-to-day
operations are not dependent upon the economic environment of the
parent's functional currency, financing is effected through their
own operations, and the foreign operations primarily generate and
expend foreign currency. Foreign currency translation adjustments
are accumulated as a separate component of stockholders' equity.
Earnings Per Common Share
-------------------------
Primary and fully diluted earnings per common share are computed on
the basis of the weighted average number of common shares
outstanding plus the common stock equivalents which would arise
from the exercise of stock options, if the latter causes dilution
in earnings per common share in excess of 3%. Common stock
equivalents are included in both the primary and fully diluted
calculations for 1996, 1995 and 1994.
The weighted average number of common shares used was:
1996 1995 1994
---- ---- ----
Primary 9,723,626 9,087,678 9,081,038
Fully diluted 9,832,676 9,092,403 9,081,084
The weighted average number of common shares and the per share
amounts for all periods presented have been retroactively restated
to reflect the total shares issued after the 3% stock dividends
described in Note K.
Stock-Based Compensation
------------------------
Adoption of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") is required
for fiscal years beginning after December 15, 1995 and allows for a
choice of the method of accounting used for stock-based
compensation. Entities may elect the "intrinsic value" method
based on APB No. 25 "Accounting for Stock Issued to Employees" or
the new "fair value" method contained in SFAS 123. The Company
intends to implement SFAS 123 in fiscal 1997 by continuing to
account for stock-based compensation under the guidelines of APB
No. 25. As required by SFAS 123, the pro forma effects on net
earnings and earnings per common share will be determined as if the
fair value based method had been applied and disclosed in the notes
to the consolidated financial statements.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at year-end and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications
-----------------
Certain reclassifications have been made to the prior year amounts to
conform to the 1996 presentation.
NOTE B - DISCONTINUED OPERATION
On November 22, 1995 (the "Closing Date"), E-Z-EM, Inc. completed the
sale of all of the capital stock of SDI held by E-Z-EM, Inc.
through its subsidiary, E-Z-SUB, Inc., (collectively, the
"Company") to United States Surgical Corporation ("USSC") pursuant
to the terms of an Agreement and Plan of Merger Agreement dated
November 7, 1995 (the "Merger Agreement") by and among USSC, USSC
Acquisition Corporation, SDI, CalMed Laboratories, Inc. ("CalMed")
and the Company. As of the Closing Date, the Company owned 51%
(approximately 47% on a fully diluted basis after taking into
account outstanding options) of the outstanding capital stock of
SDI and CalMed, a company not affiliated with E-Z-EM, Inc., owned
49% (approximately 45% on a fully diluted basis after taking into
account outstanding options) of the outstanding capital stock of
SDI. The aggregate consideration paid for SDI was $59,900,000 in
cash, which amount included repayment by USSC of $200,000 of loans
owed by SDI to its shareholders. After closing costs and payments
made to option holders, the Company received, at closing, cash
proceeds of $27,073,000 for the sale of its interest in SDI. In
addition, $510,000 of the consideration payable to the Company is
being held back by USSC as a nonexclusive source of indemnification
for breaches of representations and warranties, and to the extent
not drawn upon, will be repaid to the Company two years after the
Closing Date. As a result of this sale, the Company recognized a
gain, pretax, of approximately $25,539,000, after-tax of
approximately $19,520,000, or $2.01 per common share on a primary
basis. The effective tax rate of 24% on the gain on the sale of
SDI differs from the Federal statutory tax rate of 35% due
primarily to the utilization of previously unrecorded tax loss and
tax credit carryforwards.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE B - DISCONTINUED OPERATION (continued)
SDI is a manufacturer of minimally invasive surgical devices for the
spine, including the NucleotomeTM for use in percutaneous
diskectomy and the Ray Threaded Fusion CageTM spine implants for
use in interbody fusions.
SDI has been reported as a discontinued operation and, accordingly,
the gain from the sale of SDI and the Company's proportionate share
of losses from operations of SDI have been classified as a
discontinued operation for all periods presented in the
accompanying consolidated statements of earnings. Revenues
attributable to the SDI operations were approximately $3,475,000
for the period June 4, 1995 through November 22, 1995 and
$9,071,000 and $8,478,000 for the fiscal years ended June 3, 1995
and May 28, 1994. Changes in operating assets and liabilities
reflected in the consolidated statements of cash flows include
amounts pertaining to the operations of SDI.
NOTE C - DEBT AND EQUITY SECURITIES
Debt and equity securities at June 1, 1996 consist of the following:
Unrealized
Amortized Fair holding
cost value gain (loss)
------- ------- ------
(in thousands)
Current
Available-for-sale securities
(carried on the balance
sheet at fair value)
Debt securities $19,787 $19,776 $ (11)
Equity securities 398 376 (13)
Other 95 95
------- ------- ------
$20,280 $20,247 $ (24)
======= ======= ======
Noncurrent
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities $1,675 $3,646 $1,971
Other 1 1
------- ------- ------
$1,676 $3,647 $1,971
======= ======= ======
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE C - DEBT AND EQUITY SECURITIES (continued)
Debt and equity securities at June 3, 1995 consist of the following:
Unrealized
Amortized Fair holding
cost value gain (loss)
------ ------ ------
(in thousands)
Current
Held-to-maturity securities
(carried on the balance
sheet at amortized cost)
Debt securities $ 75 $ 75
------ ------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities 398 357 $ (31)
Other 53 53
------ ------ ------
451 410 (31)
------ ------ ------
$ 526 $ 485 $ (31)
====== ====== ======
Noncurrent
Held-to-maturity securities
(carried on the balance
sheet at amortized cost)
Debt securities with
maturities after one
year through five years $1,593 $1,605
------ ------
Available-for-sale securities
(carried on the balance
sheet at fair value)
Equity securities 1,670 2,758 $1,088
Other 1 1
------ ------ ------
1,671 2,759 1,088
------ ------ ------
$3,264 $4,364 $1,088
====== ====== ======
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE D - INVENTORIES
Inventories consist of the following:
June 1, June 3,
1996 1995
---- ----
(in thousands)
Finished goods $13,157 $11,856
Work in process 1,159 2,214
Raw materials 9,392 8,682
------- -------
$23,708 $22,752
======= =======
NOTE E - PROPERTY, PLANT AND EQUIPMENT, AT COST
Property, plant and equipment are summarized as follows:
Estimated
useful June 1, June 3,
lives 1996 1995
----- ---- ----
(in thousands)
Building and building
improvements 10 to 39 years $11,661 $11,176
Machinery and equipment 2 to 10 years 24,008 23,897
Leasehold improvements Term of lease 1,568 1,816
------- -------
37,237 36,889
Less accumulated depreciation
and amortization 18,903 19,709
------- -------
18,334 17,180
Land 3,489 3,684
------- -------
$21,823 $20,864
======= =======
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES
Income tax expense (benefit) from continuing operations analyzed by
category and by income statement classification is summarized as
follows:
1996 1995 1994
------ ------ ------
(in thousands)
Current
Federal $ 413 $ 1 $ 1
State and local 31 60 59
Foreign (261) 877 1,015
------ ------ ------
Subtotal 183 938 1,075
Deferred 60 148 74
------ ------ ------
Total $ 243 $1,086 $1,149
====== ====== ======
Temporary differences which give rise to deferred tax assets and
liabilities are summarized as follows:
June 1, June 3,
1996 1995
----- -----
(in thousands)
Deferred tax assets
Difference between book and tax basis
in investment sold to Canadian
subsidiary $1,137 $1,137
Tax credit carryforwards 638 1,295
Tax operating loss carryforwards 372 3,767
Capital loss carryforwards 453
Alternative minimum tax ("AMT")
credit carryforward 165
Expenses incurred not currently
deductible 1,191 1,455
Unrealized investment losses 722 877
Deferred compensation costs 547 487
Inventories 291 243
Other 89 67
----- -----
Gross deferred tax asset 4,987 9,946
----- -----
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES (continued)
June 1, June 3,
1996 1995
------ ------
(in thousands)
Deferred tax liabilities
Excess tax over book depreciation $1,074 $ 914
Unrealized investment gains 305 144
Tax on unremitted profits of Puerto
Rican subsidiary 67 145
Other 86 109
------ ------
Gross deferred tax liability 1,532 1,312
Valuation allowance (3,040) (7,861)
------ ------
Net deferred tax asset $ 415 $ 773
====== ======
In 1994, the Company sold to its Canadian subsidiary warrants to
purchase 396,396 shares of stock in ISG Technologies, Inc. This
transaction generated a capital gain for tax purposes of
approximately $3,344,000, utilizing a portion of the Company's
capital loss carryforward and giving rise to a temporary difference
pertaining to the difference between the financial statement and
tax basis in this asset.
During 1996, the Company utilized tax operating and capital losses,
tax credit and AMT credit carryforwards of approximately
$8,279,000, $596,000 and $121,000, respectively, in connection with
the sale of SDI described in Note B.
If not utilized, the tax operating loss carryforwards will expire in
various amounts over the years 1997 through 2010. The tax credit
carryforwards will expire in various amounts over the years 1997
through 2003.
Deferred income taxes are provided for the expected Tollgate tax on
the undistributed earnings of the Company's Puerto Rican
subsidiary, which are expected to be distributed at some time in
the future.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES (continued)
At June 1, 1996, undistributed earnings of certain foreign
subsidiaries aggregated $13,339,000 which will not be subject to
U.S. tax until distributed as dividends. Any taxes paid to foreign
governments on these earnings may be used, in whole or in part, as
credits against the U.S. tax on any dividends distributed from such
earnings. It is not practical to estimate the amount of U.S. tax,
if any, that might be payable on the eventual remittance of such
earnings. On remittance, certain foreign countries impose
withholding taxes that are then available for use as credits
against a U.S. tax liability, if any, subject to certain
limitations. The amount of withholding tax that would be payable
on remittance of the entire amount of undistributed earnings would
approximate $667,000. Under the provisions of the Omnibus Budget
Reconciliation Act of 1993, undistributed earnings of foreign
subsidiaries may be taxable in certain situations for fiscal years
beginning after September 30, 1993.
Deferred tax assets and liabilities are included in the consolidated
balance sheets as follows:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Current - Accrued income taxes $(118) $(220)
Noncurrent - Other assets 533 993
----- -----
Net deferred tax asset $ 415 $ 773
===== =====
Earnings (loss) from continuing operations before income taxes for
U.S. and international operations consist of the following:
1996 1995 1994
------ ------ -------
(in thousands)
U.S. $2,280 $ 805 $(1,563)
International (340) 2,754 3,091
------ ------ -------
$1,940 $3,559 $ 1,528
====== ====== =======
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE F - INCOME TAXES (continued)
The Company's consolidated income tax provision has differed from the
amount which would be provided by applying the U.S. Federal
statutory income tax rate to the Company's earnings from continuing
operations before income taxes for the following reasons:
1996 1995 1994
------ ------ ------
(in thousands)
Income tax provision $243 $1,086 $1,149
Effect of:
State income taxes, net of
Federal tax benefit (21) (22) (19)
Research and development credit 95 24 11
Earnings of the Puerto Rican
subsidiary, net of Puerto
Rico Corporate tax and
Tollgate tax 348 373 367
Earnings of the Foreign Sales
Corporation 16
Tax-exempt portion of
investment income 137 7 13
Nondeductible expenses (251) (138) (53)
Losses of entities generating
no current tax benefit (79) (83) (1,034)
Utilization of tax operating
and capital loss
carryforwards 61 50
Change in valuation allowance 74
Other 56 (37) 36
---- ------- ------
Income tax provision at
statutory tax rate of 35% in
1996 and 34% in 1995 and 1994 $679 $1,210 $ 520
==== ====== ======
The Company has an agreement with the Commonwealth of Puerto Rico
pursuant to which its operations in Puerto Rico are subject to a
partial tax exemption which expires January 23, 2007. Commonwealth
taxes are currently being provided on earnings of the subsidiary.
The U.S. Federal income tax returns of the Company through May 30,
1992 have been closed by the Internal Revenue Service.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE G - DEBT
Short-term debt consists of the following:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Japanese bank
2.63% note (1) $462
4.00% note (1) $ 607
Bank, lines of credit
6.5% (2) 287
10.75% 150
Other financial institutions
6.12% note, unsecured 230
6.37% note, unsecured 264
---- ------
$979 $1,021
==== ======
Long-term debt consists of the following:
June 1, June 3,
1996 1995
------- -------
(in thousands)
Japanese bank loans, due December 1998
through March 2001, 1.45% to 4.10% (1) $948 $1,277
Obligations under capital leases 45
---- ------
948 1,322
Less current maturities 268 208
---- ------
$680 $1,114
==== ======
(1) Collateralized by property, plant and equipment having a net
carrying value of $1,900,000 at June 1, 1996.
(2) The Company's Canadian subsidiary has available $730,600
(Canadian $1,000,000) under this line of credit with a bank,
which is collateralized by accounts receivable and expires on
September 30, 1996.
The Company has available $4,000,000 under an unsecured line of
credit with a bank, which expires on November 30, 1996. At June 1,
1996, no amounts were outstanding under this line of credit.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE G - DEBT (continued)
The Company believes that the carrying amount of its debt
approximates the fair value as the variable interest rates
approximate current prevailing interest rates.
During 1996 and 1995, the weighted average interest rates on short-
term debt were 5.93% and 5.48%, respectively.
NOTE H - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
June 1, June 3,
1996 1995
------ ------
(in thousands)
Payroll and related expenses $3,146 $3,341
Accrued sales rebates 1,040 370
Accrued lease settlement (Note J) 510 600
Other 1,522 1,248
------ ------
$6,218 $5,559
====== ======
NOTE I - RETIREMENT PLANS
E-Z-EM, Inc. and certain domestic subsidiaries ("E-Z-EM") provide
pension benefits through a Profit-Sharing Plan, under which E-Z-EM
makes discretionary contributions to eligible employees, and a
companion 401(k) Plan, under which eligible employees can defer a
portion of their annual compensation, part of which is matched by
E-Z-EM. These plans cover all E-Z-EM employees not otherwise
covered by collective bargaining agreements. In 1996, 1995 and
1994, profit-sharing contributions were $468,000, $464,000 and
$457,000, respectively, and 401(k) matching contributions were
$316,000, $292,000 and $274,000, respectively.
E-Z-EM Canada Inc., a wholly-owned subsidiary of the Company, also
provides pension benefits to eligible employees through a Defined
Contribution Plan. In 1996, 1995 and 1994, contributions were
$45,000, $53,000 and $88,000, respectively.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company is presently a defendant in a product liability action.
This suit claims damages based upon alleged injuries resulting from
the use of one of the Company's products. The action is in its
early stages and while the Company is actively defending against
the claim, it is unable to predict its outcome. It should be noted
that in this action the Company is one among several defendants
and, as such, the Company's liability, if any, is not quantifiable
at this time. The Company does not believe that the ultimate
outcome in this action will have a material adverse effect on the
consolidated financial statements.
The Company was the defendant in a product liability action with
respect to an alleged injury resulting from the use of one of its
products. The Company was dismissed without prejudice from such
action in February 1996.
Pursuant to a contractual agreement with Picker International, Inc.
("Picker"), the Company assumed the defense of a lawsuit in which
Picker, along with multiple other named defendants, had been sued
for injuries alleged to have resulted from the use of protective
aprons. The plaintiff has recently abandoned this action.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992,
is presently pending in the U.S. Bankruptcy Court for the Middle
District of Florida. The Company is being represented in this
action by a law firm which is also representing numerous other
defendants being sued by the same plaintiff on the same grounds -
recovery for alleged undercharges for freight carriage. It is not
possible, at this stage, to determine what, if any, liability
exists with respect to the Company in this matter. The Company
will vigorously defend against this action; it has been informed by
legal counsel that there exist numerous valid defenses to this
case.
During 1993, SDI's lease agreement on the Alameda, California, office
and production facilities was prematurely terminated by SDI, a
former 51%-owned subsidiary of the Company. In 1993, SDI accrued
$600,000 for the estimated settlement of the lease commitment.
Pursuant to the terms of the Merger Agreement described in Note B,
the $600,000 liability was assumed by USSC (the purchaser of SDI),
and the Company and the previous minority shareholder of SDI
assumed any liability in excess of $600,000 in connection with the
lease termination. The dispute was settled in July 1996 for
$1,600,000, of which the Company was liable for $510,000, or 51% of
the $1,000,000 excess. Such amount is included in accrued
liabilities at June 1, 1996.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE J - COMMITMENTS AND CONTINGENCIES (continued)
During March 1994, the Company began recalling its effervescent
granules and colon cleansing products due to packaging and
formulation problems, which might have resulted in inconsistent
product performance over time. The recalls were initiated by the
Company's desire to ensure complete product efficacy, as patient
safety issues were not involved. The Company recorded a pretax
provision in the aggregate amount of $1,546,000 during 1994, with
respect to such recalls. During 1995, such recall was completed
and the Company reduced this provision by $156,000 based upon the
actual results of the recall. Such amounts are reflected in cost
of goods sold in the consolidated statements of earnings. These
products currently account for less than five percent of the
Company's sales volume.
The Company leases several facilities from related parties. During
1996, 1995 and 1994, aggregate rental costs under all operating
leases from continuing operations, which primarily consist of
facility rentals, were approximately $1,131,000, $1,041,000 and
$1,288,000, respectively, of which approximately $202,000, $205,000
and $198,000 were paid to related parties. Future annual
operating lease payments in the aggregate, which include escalation
clauses and real estate taxes, with initial remaining terms of more
than one year at June 1, 1996, are summarized as follows:
Total Related party
leases leases
------ -------------
(in thousands)
1997 $ 759 $ 69
1998 465 25
1999 399
2000 414
2001 429
Thereafter 2,531
------ ----
$4,997 $ 94
====== ====
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE J - COMMITMENTS AND CONTINGENCIES (continued)
The Company has an employment contract with a key executive that
provides for a term of eight years. Future annual commitments with
respect to this contract at June 1, 1996, are summarized as
follows:
(in thousands)
1997 $ 250
1998 250
1999 250
2000 250
2001 250
2002 125
------
$1,375
======
NOTE K - COMMON STOCK
In August 1983, the Company adopted a Stock Option Plan (the "1983
Plan"). The 1983 Plan provides for the grant to key employees of
both nonqualified stock options and incentive stock options. A
total of 1,742,694 shares of the Company's Common Stock may be
issued under the 1983 Plan pursuant to the exercise of options.
All stock options must have an exercise price of not less than the
market value of the shares on the date of grant. Options will be
exercisable over a period of time to be designated by the
administrators of the 1983 Plan (but not more than 10 years from
the date of grant) and will be subject to such other terms and
conditions as the administrators may determine. The 1983 Plan
terminates in December 2005.
In August 1984, the Company adopted a second Stock Option Plan (the
"1984 Plan"). The 1984 Plan provides for the grant to members of
the Board of Directors and consultants of nonqualified stock
options. A total of 435,553 shares of the Company's Common Stock
may be issued under the 1984 Plan pursuant to the exercise of
options. All stock options must have an exercise price of not less
than the market value of the shares on the date of grant. Options
will be exercisable over a period of time to be designated by the
administrators of the 1984 Plan (but not more than 10 years from
the date of grant) and will be subject to such other terms and
conditions as the administrators may determine. The 1984 Plan
terminates in December 2005.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE K - COMMON STOCK (continued)
On June 1, 1996, options for 640,180 shares were exercisable at
prices ranging from $3.88 to $11.33 per share under the 1983 Plan
and 185,954 shares were exercisable at prices ranging from $3.88 to
$11.38 per share under the 1984 Plan. On June 1, 1996, there
remained 207,088 and 103,636 shares available for granting of
options under the 1983 and 1984 Plans, respectively.
The following schedules summarize the changes in stock options for
the three fiscal years ended June 1, 1996:
1983 Plan 1984 Plan
------------------------- -------------------------
Number of Option price Number of Option price
shares per share shares per share
--------- ------------ --------- ------------
Outstanding at
May 29, 1993 806,867 $5.58 to $12.02 133,437 $5.58 to $15.79
Granted 2,185 4.58 7,957 4.71
Cancelled (111,544) 5.58 to 11.33
------------------------- -------------------------
Outstanding at
May 28, 1994 697,508 4.58 to 12.02 141,394 4.71 to 15.79
Granted 968,882 3.88 to 4.48 178,875 3.88 to 4.48
Cancelled (394,542) 4.48 to 12.02 (74,793) 5.58 to 15.79
------------------------- -------------------------
Outstanding at
June 3, 1995 1,271,848 3.88 to 11.33 245,476 3.88 to 15.03
Granted 81,612 9.10 52,350 5.83 to 13.25
Cancelled (45,111) 4.48 to 9.23 (5,909) 15.03
Exercised (145,682) 4.01 to 11.33 (2,500) 4.71
------------------------- -------------------------
Outstanding at
June 1, 1996 1,162,667 $3.88 to $11.33 289,417 $3.88 to $13.25
========================== ========================
On June 1, 1996, the weighted average exercise price for outstanding
options under the 1983 and 1984 Plans was $5.16 and $5.97 per
share, respectively.
Options granted prior to the Company's recapitalization on October
26, 1992 are exercisable one-half in Class A Common Stock and one-
half in Class B Common Stock. Options granted after the
recapitalization are exercisable in Class B Common Stock.
In August 1985, the Company adopted an Employee Stock Purchase Plan
(the "Employee Plan"). The Employee Plan provides for the purchase
by employees of Company stock at a discounted price of 85% of the
market value of the shares on the date of purchase. A total of
150,000 shares of the Company's Common Stock may be purchased under
the Employee Plan which terminates on September 30, 1998. During
1996, employees purchased 932 shares, at prices ranging from $4.57
to $8.82. Total proceeds received by the Company approximated
$5,000.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE K - COMMON STOCK (continued)
On January 10, 1994, the Board of Directors declared a 3% stock
dividend on shares of Class A and Class B Common Stock. The dividend,
payable in nonvoting Class B Stock, was distributed on March 11, 1994
to shareholders of record on February 11, 1994. On January 24, 1995,
the Board of Directors declared a 3% stock dividend on shares of Class
A and Class B Common Stock. The dividend, payable in nonvoting Class B
Stock, was distributed on March 16, 1995 to shareholders of record on
February 24, 1995. On January 23, 1996, the Board of Directors
declared a 3% stock dividend on shares of Class A and Class B Common
Stock. The dividend, payable in nonvoting Class B Stock, was
distributed on March 15, 1996 to shareholders of record on February
23, 1996. Earnings per common share have been retroactively adjusted
to reflect the stock dividends.
NOTE L - OTHER RELATED PARTIES
A director provided services, both as a consultant and employee, to
the Company during 1996, 1995 and 1994. Fees for such services,
including fees relating to attendance at directors' meetings, were
approximately $319,000, $165,000 and $88,000 during 1996, 1995 and
1994, respectively. In connection with the sale of SDI in November
1995, this director resigned as a director of SDI and received an
investment banker's fee of $905,000, a bonus of $191,000 arising
from the sale and a payment of $268,000 in connection with the
surrender of outstanding stock options in SDI.
In connection with the sale of SDI, an executive officer resigned as
a director of SDI and received a bonus of $191,000 arising from the
sale and a payment of $268,000 in connection with the surrender of
outstanding stock options in SDI.
Two other directors provided consulting services to the Company
during 1996, 1995 and 1994. Fees for such services, including fees
relating to attendance at directors' meetings, were approximately
$196,000, $196,000 and $195,000 during 1996, 1995 and 1994,
respectively.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS
The Company is engaged in the manufacture and distribution of a wide
variety of products which are classified into two industry
segments: Diagnostic products and AngioDynamics products.
Diagnostic products encompass both contrast systems, consisting of
barium sulfate formulations and related medical devices used in X-
ray, CT-scanning and other imaging examinations, and non-contrast
systems, including diagnostic radiology devices, custom contract
pharmaceuticals, gastrointestinal cleansing laxatives, X-ray
protection equipment, and immunoassay tests. AngioDynamics
products include stent products, angiographic and fluid management
products, and thrombolytic products used in the interventional
medicine marketplace. The Company's primary business activity is
conducted with radiologists and hospitals, located throughout the
U.S. and abroad, through numerous distributors. The Company's
exposure to credit risk is dependent, to a certain extent, on the
healthcare industry. The Company performs ongoing credit
evaluations of its customers and does not generally require
collateral; however, in certain circumstances, the Company may
require letters of credit from its customers.
In the tables below, operating profit (loss) from continuing
operations includes total net sales less operating expenses.
Identifiable assets are those associated with industry segment or
geographic area operations, excluding loans to or investments in
another industry segment or geographic area operation.
Intersegment sales and intergeographic sales are not material.
In 1996, 1995 and 1994, there was one customer to whom sales of
Diagnostic products represented 16%, 15% and 16% of total sales,
respectively. Approximately 21% and 17% of accounts receivable
pertained to this customer at June 1, 1996 and June 3, 1995,
respectively.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
Industry Segments 1996 1995* 1994*
------- ------- -------
(in thousands)
Net Sales
Diagnostic products $80,936 $81,525 $80,966
AngioDynamics products 11,696 7,396 5,001
Eliminations (700) (395) (322)
------- ------- -------
Total Net Sales $91,932 $88,526 $85,645
======= ======= =======
Operating Profit (Loss)
Diagnostic products $2,509 $7,452 $4,658
AngioDynamics products (1,536) (4,603) (3,468)
Eliminations (16) (12) 10
------- ------- -------
Total Operating Profit $ 957 $2,837 $1,200
======= ======= =======
Identifiable Assets
Diagnostic products $83,304 $62,585 $59,760
AngioDynamics products 12,945 8,529 6,911
Discontinued operation 5,033 5,162
Eliminations (212) (52) (302)
------- ------- -------
Total Identifiable Assets $96,037 $76,095 $71,531
======= ======= =======
Depreciation and Amortization
Diagnostic products $2,111 $2,109 $1,986
AngioDynamics products 317 278 350
Discontinued operation 124 413 392
------- ------- -------
Total Depreciation and
Amortization $2,552 $2,800 $2,728
======= ======= =======
Capital Expenditures
Diagnostic products $3,850 $4,187 $1,330
AngioDynamics products 370 361 527
Discontinued operation 11 264 318
------- ------- -------
Total Capital Expenditures $4,231 $4,812 $2,175
======= ======= =======
* Net sales and operating profit (loss) amounts have been reclassified
to reflect the discontinued operation described in Note B.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
Geographic Areas
The following geographic area data includes net sales, operating
profit (loss) generated by and assets employed in operations
located in each area:
1996 1995* 1994*
------- ------- -------
(in thousands)
Net Sales
U.S. operations $71,939 $65,073 $63,422
International operations:
Canada 12,254 14,100 14,301
Other 13,456 13,763 12,196
Eliminations (5,717) (4,410) (4,274)
------- ------- -------
Total Net Sales $91,932 $88,526 $85,645
======= ======= =======
Operating Profit (Loss)
U.S. operations $1,084 $ 118 $(2,086)
International operations:
Canada (410) 2,350 3,143
Other 225 456 100
Eliminations 58 (87) 43
------- ------- -------
Total Operating Profit $ 957 $2,837 $ 1,200
======= ======= =======
Identifiable Assets
U.S. operations:
Continuing operations $73,604 $47,590 $48,356
Discontinued operation 5,033 5,162
International operations:
Canada 15,543 15,816 12,433
Other 8,067 8,857 7,731
Eliminations (1,177) (1,201) (2,151)
------- ------- -------
Total Identifiable Assets $96,037 $76,095 $71,531
======= ======= =======
* Net sales and operating profit (loss) amounts have been reclassified
to reflect the discontinued operation described in Note B.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 1, 1996, June 3, 1995 and May 28, 1994
NOTE M - INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS (continued)
The Company's domestic export sales by geographic area are summarized
as follows:
1996 1995 1994
------ ------ ------
(in thousands)
Europe $5,655 $2,605 $1,728
Other 3,783 3,421 3,206
------ ------ ------
$9,438 $6,026 $4,934
====== ====== ======
NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results of operations during 1996 and 1995 were as follows:
1996
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
Net sales $21,999 $23,005 $21,550 $25,378
Gross profit 9,131 9,623 8,209 9,451
Net earnings 569 20,087 9 343
Earnings per common share (1)
Primary (2) .06 2.09 .00 .03
Fully diluted (2) .06 2.07 .00 .03
1995 (3)
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
(in thousands, except per share data)
Net sales $21,545 $21,377 $19,856 $25,748
Gross profit 9,379 8,834 7,455 11,013
Net earnings (loss) 1,050 455 (1,077) 1,202
Earnings (loss) per common
share (1)
Primary and fully diluted .12 .05 (.12) .13
(1) Earnings per common share have been retroactively restated to
reflect the total shares issued after the 3% stock dividends
described in Note K.
(2) The sum of the quarters does not equal the fiscal year due to
rounding and changes in the calculation of weighted average shares.
(3) Reclassified to reflect the discontinued operation described in
Note B.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
November 30, June 1,
ASSETS 1996 1996
------ ------
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents $ 3,969 $ 3,363
Debt and equity securities 17,927 20,247
Accounts receivable, principally
trade, net 19,896 16,152
Inventories 27,370 23,708
Other current assets 2,676 2,936
------- ------
Total current assets 71,838 66,406
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and
amortization 23,758 21,823
COST IN EXCESS OF FAIR VALUE OF NET ASSETS
ACQUIRED, less accumulated amortization 530 558
INTANGIBLE ASSETS, less accumulated
amortization 758 767
DEBT AND EQUITY SECURITIES 1,403 3,647
OTHER ASSETS 3,911 2,836
------- ------
$102,198 $96,037
======= ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
November 30, June 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
------ ------
(unaudited) (audited)
CURRENT LIABILITIES
Notes payable $ 4,712 $ 979
Current maturities of long-term debt 520 268
Accounts payable 6,398 5,095
Accrued liabilities 6,222 6,218
Accrued income taxes 489 338
------- ------
Total current liabilities 18,341 12,898
LONG-TERM DEBT, less current maturities 1,127 680
OTHER NONCURRENT LIABILITIES 1,919 1,856
CONTINGENCIES
------- ------
Total liabilities 21,387 15,434
------- ------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share - authorized, 1,000,000 shares;
issued, none - -
Common stock
Class A (voting), par value $.10 per
share - authorized, 6,000,000 shares;
issued and outstanding 4,035,346 shares
at November 30, 1996 and June 1, 1996 403 403
Class B (nonvoting), par value $.10 per
share - authorized, 10,000,000 shares;
issued and outstanding 5,277,819 shares
at November 30, 1996 and 5,199,615 shares
at June 1, 1996 528 520
Additional paid-in capital 15,743 15,165
Retained earnings 64,103 63,347
Unrealized holding gain on debt and equity
securities 908 2,360
Cumulative translation adjustments (874) (1,192)
------- ------
Total stockholders' equity 80,811 80,603
------- ------
$102,198 $96,037
======= ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Twenty-six weeks ended
--------------------------
November 30, December 2,
1996 1995
------ ------
(in thousands,
except per share data)
Net sales $49,347 $45,004
Cost of goods sold 29,231 26,250
------ ------
Gross profit 20,116 18,754
------ ------
Operating expenses
Selling and administrative 16,507 15,053
Research and development 2,975 2,442
------ ------
Total operating expenses 19,482 17,495
------ ------
Operating profit 634 1,259
Other income (expense)
Interest income 422 160
Interest expense (141) (129)
Other, net 100 186
----- ------
Earnings from continuing
operations before income taxes 1,015 1,476
Income tax provision 259 230
----- ------
Earnings from continuing
operations 756 1,246
Discontinued operation:
Losses from operations, net
of income taxes (209)
Gain on sale, net of income
taxes of $6,073 19,619
----- ------
NET EARNINGS $ 756 $20,656
===== ======
Primary earnings per common share
Continuing operations $ .08 $ .13
Discontinued operation .00 2.06
Total operations .08 2.19
Fully diluted earnings per common share
Continuing operations $ .08 $ .13
Discontinued operation .00 2.02
Total operations .08 2.15
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Twenty-six weeks ended November 30, 1996
(unaudited)
(in thousands, except share data)
Unrealized
Class A Class B holding gain
common stock common stock Additional on debt Cumulative
----------------- ----------------- paid-in Retained and equity translation
Shares Amount Shares Amount capital earnings securities adjustments Total
--------- ------ --------- ------ ---------- -------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1996 4,035,346 $403 5,199,615 $520 $15,165 $63,347 $2,360 $(1,192) $80,603
Exercise of stock options 77,209 8 569 577
Issuance of stock 995 9 9
Net earnings 756 756
Unrealized holding loss on debt
and equity securities (1,452) (1,452)
Foreign currency translation
adjustments 318 318
--------- --- --------- --- ------ ------ ----- ----- ------
Balance at November 30, 1996 4,035,346 $403 5,277,819 $528 $15,743 $64,103 $ 908 $ (874) $80,811
========= === ========= === ====== ====== ===== ===== ======
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Twenty-six weeks ended
--------------------------
November 30, December 2,
1996 1995
------ ------
(in thousands)
Cash flows from operating activities:
Net earnings $ 756 $20,656
Adjustments to reconcile net earnings
to net cash (used in) provided by
operating activities
Depreciation and amortization 1,395 1,338
Gain on disposal of business (25,692)
Loss on sale of investments 27
Minority share of subsidiary's
operations (200)
Deferred income taxes 6 340
Changes in operating assets and
liabilities, net of disposition
Accounts receivable (3,744) 831
Inventories (3,662) (2,267)
Other current assets 260 683
Other assets (332) (316)
Accounts payable 1,303 326
Accrued liabilities 4 328
Accrued income taxes 145 5,649
Other noncurrent liabilities 82 79
----- ------
Net cash (used in) provided by
operating activities (3,760) 1,755
----- ------
Cash flows from investing activities:
Additions to property, plant and
equipment, net (3,260) (2,284)
Proceeds from disposal of business,
net of cash sold 26,785
Held-to-maturity securities
Purchases (26,000)
Proceeds from maturity 1,093
Available-for-sale securities
Purchases (14,805) (1,036)
Proceeds from sale 17,127
------ ------
Net cash used in investing activities (938) (1,442)
------ ------
<PAGE>
E-Z-EM, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
Twenty-six weeks ended
--------------------------
November 30, December 2,
1996 1995
------ ------
(in thousands)
Cash flows from financing activities:
Proceeds from issuance of debt $4,850
Repayments of debt (357) $ (352)
Proceeds from issuance of loan by
minority shareholder 238
Proceeds from exercise of stock options 577 666
Proceeds from issuance of stock in connection
with the stock purchase plan 9 5
----- -----
Net cash provided by financing activities 5,079 557
----- -----
Effect of exchange rate changes on
cash and cash equivalents 225 (384)
----- -----
INCREASE IN CASH AND CASH EQUIVALENTS 606 486
Cash and cash equivalents
Beginning of period 3,363 3,962
----- -----
End of period $3,969 $4,448
===== =====
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 59 $ 63
===== =====
Income taxes (net of $203 and $68 in
refunds in 1996 and 1995, respectively) $ 228 $ 318
===== =====
The accompanying notes are an integral part of these financial statements.
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1996 and December 2, 1995
(unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of November 30, 1996, the consolidated
statement of stockholders' equity for the period ended November 30,
1996, and the consolidated statements of earnings and cash flows for the
periods ended November 30, 1996 and December 2, 1995, have been prepared
by the Company without audit. In the opinion of management, all
adjustments (which include only normally recurring adjustments)
necessary to present fairly the financial position, changes in
stockholders' equity, results of operations and cash flows at November
30, 1996 (and for all periods presented) have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, 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 fiscal 1996
Annual Report on Form 10-K filed by the Company on August 30, 1996. The
results of operations for the periods ended November 30, 1996 and
December 2, 1995 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 100%-owned subsidiaries, as well as the accounts of Surgical
Dynamics Inc. ("SDI"), a 51%-owned subsidiary prior to its sale in
November 1995 (the "Company"). SDI has been reported as a discontinued
operation and, accordingly, the gain from the sale of SDI and the
Company's proportionate share of losses from operations of SDI have been
classified as a discontinued operation for the twenty-six weeks ended
December 2, 1995 in the accompanying consolidated statements of
earnings.
NOTE B - EARNINGS PER COMMON SHARE
Primary and fully diluted earnings per common share are computed on the
basis of the weighted average number of common shares outstanding plus
the common stock equivalents which would arise from the exercise of
stock options, if the latter causes dilution in earnings per common
share in excess of 3%. Common stock equivalents are included in both
the primary and fully diluted calculations for all periods presented.
The weighted average number of common shares used was:
Twenty-six weeks ended
--------------------------
November 30, December 2,
1996 1995
------ ------
Primary 10,049,169 9,443,606
Fully diluted 10,049,237 9,593,695
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1996 and December 2, 1995
(unaudited)
NOTE C - INVENTORIES
Inventories consist of the following:
November 30, June 1,
1996 1996
------ ------
(in thousands)
Finished goods $14,387 $13,157
Work in process 1,108 1,159
Raw materials 11,875 9,392
------ ------
$27,370 $23,708
====== ======
NOTE D - COMMON STOCK
Under the 1983 and 1984 Stock Option Plans, options for 77,209 shares were
exercised at prices ranging from $4.48 to $5.72 per share, options for
19,931 shares were cancelled at prices ranging from $4.48 to $10.00 per
share and no options were granted during the twenty-six weeks ended
November 30, 1996.
Under the Employee Stock Purchase Plan, 995 shares were purchased at
prices ranging from $9.67 to $9.99 per share during the twenty-six weeks
ended November 30, 1996. Total proceeds received by the Company
approximated $9,000.
NOTE E - CONTINGENCIES
The Company is presently a defendant in a product liability action. This
suit claims damages based upon alleged injuries resulting from the use
of one of the Company's products. The action is in its early stages and
while the Company is actively defending against the claim, it is unable
to predict its outcome. It should be noted that in this action the
Company is one among several defendants and, as such, the Company's
liability, if any, is not quantifiable at this time. The Company does
not believe that the ultimate outcome in this action will have a
material adverse effect on the consolidated financial statements.
The Company has been sued by Olympia Holding Corporation p/k/a P-I-E
Nationwide, Inc. for $443,830. The suit, filed on October 5, 1992, is
presently pending in the U.S. Bankruptcy Court for the Middle District
of Florida. The Company is being represented in this action by a law
firm which is also representing numerous other defendants being sued by
the same plaintiff on the same grounds - recovery for alleged
undercharges for freight carriage. It is not possible, at this stage,
to determine what, if any, liability exists with respect to the Company
<PAGE>
E-Z-EM, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1996 and December 2, 1995
(unaudited)
NOTE E - CONTINGENCIES (continued)
in this matter. The Company will vigorously defend against this action;
it has been informed by legal counsel that there exist numerous valid
defenses to this case.
NOTE F - SUBSEQUENT EVENT
On January 8, 1997, the Company purchased the assets of Leocor, Inc.
("Leocor"), and certain other assets directly from a principal shareholder
of Leocor for aggregate consideration of $5,000,00 and $1,800,000,
respectively. Leocor is a Texas corporation, based in Houston, Texas, which
develops and manufactures angioplasty catheters.
In connection with this acquisition, the Company also entered into a
consulting agreement with the principal shareholder of Leocor for
consideration of $200,000. The term of such consulting agreement is for a
period of two years from the acquisition date of January 8, 1997.
The Company also entered into an agreement to lease office space from the
principal shareholder of Leocor for a period of two years from the
acquisition date of January 8, 1997. Minimum future lease commitments under
this agreement approximate $188,000.
NOTE G - RECLASSIFICATIONS
Certain reclassifications have been made to the prior year amounts to
conform to the current year presentation.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
AngioDynamics, Inc.
We have audited the accompanying combined balance sheets of AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.) as of June 3, 1995 and June 1, 1996, and the
related combined statements of operations, stockholder's equity and cash flows
for the fifty-two weeks ended May 28, 1994, the fifty-three weeks ended June 3,
1995 and the fifty-two weeks ended June 1, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of AngioDynamics, Inc. (a
former division of E-Z-EM, Inc.) as of June 3, 1995 and June 1, 1996, and the
combined results of their operations and their combined cash flows for the
fifty-two weeks ended May 28, 1994, the fifty-three weeks ended June 3, 1995 and
the fifty-two weeks ended June 1, 1996, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Certified Public Accountants
Melville, New York
September 30, 1996
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 3, June 1, November 30,
ASSETS 1995 1996 1996
------- ------- -------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 105 $ 834 $ 248
Accounts receivable, net of allowance for doubtful
accounts of $58, $114 and $144 (unaudited) 1,424 2,719 4,909
Inventories 4,109 6,462 6,810
Due from E-Z-EM, Inc. 63
Other current assets 30 46 245
------- ------- -------
Total current assets 5,668 10,061 12,275
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and amortization 2,731 2,789 5,146
OTHER ASSETS 130 95 378
------- ------- -------
$ 8,529 $12,945 $17,799
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 608 $ 1,141 $ 1,983
Note payable to bank 3,800
Accrued income taxes 95
------- ------- -------
Total current liabilities 608 1,141 5,878
------- ------- -------
STOCKHOLDER'S EQUITY
Common stock
Class A (voting), par value $1.00 per share;
authorized, issued and outstanding, 500 shares 1 1 1
Class B (nonvoting), par value $1.00 per share;
authorized, issued and outstanding, 500 shares 1 1 1
Division equity 7,919
Additional paid-in capital 11,802 11,802
Retained earnings 117
------- ------- -------
Total stockholder's equity 7,921 11,804 11,921
------- ------- -------
$ 8,529 $12,945 $17,799
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Fifty-two Fifty-three Fifty-two Twenty-six weeks ended
weeks ended weeks ended weeks ended ---------------------------
May 28, June 3, June 1, December 2, November 30,
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 5,001 $ 7,396 $ 11,696 $ 5,081 $ 9,917
Cost of sales 2,967 5,017 6,135 2,265 4,921
-------- -------- -------- -------- --------
Gross profit 2,034 2,379 5,561 2,816 4,996
-------- -------- -------- -------- --------
Operating expenses
Selling, marketing and 3,792 4,399 5,441 2,569 3,540
administrative
Research and development 1,710 2,583 1,656 810 1,249
-------- -------- -------- -------- --------
5,502 6,982 7,097 3,379 4,789
-------- -------- -------- -------- --------
(Loss) earnings before
income taxes (3,468) (4,603) (1,536) (563) 207
Income tax provision -- -- -- -- 90
-------- -------- -------- -------- --------
NET (LOSS) EARNINGS $ (3,468) $ (4,603) $ (1,536) $ (563) $ 117
======== ======== ======== ======== ========
(Loss) earnings per share $ (3,468) $ (4,603) $ (1,536) $ (563) $ 117
======== ======== ======== ======== ========
Common shares outstanding 1,000 1,000 1,000 1,000 1,000
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
STATEMENT OF STOCKHOLDER'S EQUITY
Fifty-two weeks ended May 28, 1994, fifty-three weeks ended
June 3, 1995, fifty-two weeks ended June 1, 1996 and
twenty-six weeks ended November 30, 1996 (unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Class A Class B
common stock common stock Additional
-------------------- ------------------- Division paid-in Retained
Shares Amount Shares Amount equity capital earnings Total
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 29, 1993 500 $ 1 500 $ 1 $ 5,844 $ 5,846
Net cash provided by E-Z-EM, Inc. 4,075 4,075
Net loss (3,468) (3,468)
-------- -------- -------- -------- -------- --------
Balance at May 28, 1994 500 1 500 1 6,451 6,453
Net cash provided by E-Z-EM, Inc. 6,071 6,071
Net loss (4,603) (4,603)
-------- -------- -------- -------- -------- --------
Balance at June 3, 1995 500 1 500 1 7,919 7,921
Net cash provided by E-Z-EM, Inc. 5,419 5,419
Net loss (1,536) (1,536)
Capital contribution from E-Z-EM, Inc. (11,802) $ 11,802
-------- -------- -------- -------- -------- -------- --------
Balance at June 1, 1996 500 1 500 1 -- 11,802 11,804
Net earnings (unaudited) $ 117 117
-------- -------- -------- -------- -------- -------- -------- --------
Balance at November 30, 1996
(unaudited) 500 $ 1 500 $ 1 $ -- $ 11,802 $ 117 $ 11,921
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fifty-two Fifty-three Fifty-two Twenty-six weeks ended
weeks ended weeks ended weeks ended -------------------------
May 28, June 3, June 1, December 2, November 30,
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net (loss) earnings $(3,468) $(4,603) $(1,536) $ (563) $ 117
Adjustments to reconcile net (loss)
earnings to net cash used in operating
activities
Depreciation and amortization 288 278 317 156 174
Provision for doubtful accounts 27 12 56 30 30
Loss on disposition of leasehold
improvements 62
Changes in operating assets and
liabilities
Accounts receivable (466) (227) (1,351) (509) (2,220)
Inventories 205 (1,394) (2,353) (1,260) (348)
Other current assets 3 (7) (16) (7) (199)
Other assets 14 24 30 13 (285)
Accounts payable and accrued
liabilities (113) 150 533 (31) 842
Accrued income taxes 95
------- ------- ------- ------- -------
Net cash used in operating activities (3,448) (5,767) (4,320) (2,171) (1,794)
------- ------- ------- ------- -------
Cash flows from investing activities
Capital expenditures (527) (361) (370) (134) (2,529)
Acquisition of intangible asset (75)
------- ------- ------- ------- -------
Net cash used in investing activities (527) (436) (370) (134) (2,529)
------- ------- ------- ------- -------
Cash flows from financing activities
Charges paid by E-Z-EM, Inc. 3,470 5,964 6,369 3,106 1,024
Payments to E-Z-EM, Inc. (950) (175) (3,087)
Advances from E-Z-EM, Inc. 605 107 2,000
Proceeds from issuance of note
payable to bank 3,800
------- ------- ------- ------- -------
Net cash provided by financing
activities 4,075 6,071 5,419 2,931 3,737
------- ------- ------- ------- -------
INCREASE (DECREASE) IN
CASH 100 (132) 729 626 (586)
Cash at beginning of period 137 237 105 105 834
------- ------- ------- ------- -------
Cash at end of period $ 237 $ 105 $ 834 $ 731 $ 248
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE A - BASIS OF PRESENTATION, BUSINESS DESCRIPTION, AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Basis of Presentation
The accompanying combined audited financial statements as of June 3, 1995
and June 1, 1996 and for the fifty-two weeks ended May 28, 1994,
fifty-three weeks ended June 3, 1995 and fifty-two weeks ended June 1,
1996, as well as the unaudited interim financial statements for the
twenty-six weeks ended December 2, 1995, include A.D., Inc., an inactive,
wholly-owned subsidiary of E-Z-EM, Inc. ("E-Z-EM") and the operations of
AngioDynamics, Inc., a division of E-Z-EM (collectively referred to as
"AngioDynamics" or the "Company"). These entities are under common control
and therefore are presented on a combined basis.
Pursuant to a Contribution Agreement, dated June 1, 1996, E-Z-EM
transferred all of the assets and liabilities of the AngioDynamics division
to A.D., Inc. for purposes of operating the AngioDynamics business as a
separate corporation. These net assets represent a contribution to capital
by E-Z-EM to the Company.
In July 1996, E-Z-EM changed the name of A.D., Inc. to AngioDynamics, Inc.
and in November 1996, the Company established its wholly-owned subsidiary,
AngioDynamics Limited, which is located in Ireland.
Accordingly, the accompanying unaudited consolidated financial statements
as of November 30, 1996 and for the twenty-six-week period then ended
include the accounts of AngioDynamics, Inc. and its wholly-owned subsidiary
and reflect the financial position, results of operations and cash flows of
AngioDynamics, Inc., a wholly-owned subsidiary of E-Z-EM. All intercompany
balances and transactions have been eliminated in consolidation.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE A (continued)
These financial statements are presented as if the Company had existed as
an entity separate from its parent, E-Z-EM, during the periods presented
and includes the historical assets, liabilities, sales and expenses that
are directly related to the Company's operations. The financial information
included herein may not necessarily reflect the financial position, results
of operations and cash flows of the Company in the future or what such
financial position or results would have been had the Company been a
separate, stand-alone entity due to the Company's historical operations
having been part of the larger E-Z-EM enterprise.
The financial statements also include allocations of certain E-Z-EM
expenses. Although management believes these allocations are reasonable,
they may not necessarily be indicative of the expenses that would have
resulted had the Company been a separate entity and had otherwise
contracted for, or managed these functions independently.
2. Business Description
The Company develops, manufactures and markets a variety of therapeutic and
diagnostic products, primarily for use in the diagnosis and treatment of
cardiovascular disease. These products are primarily designed for use in
the interventional medicine market, which involves the use of less invasive
surgical and diagnostic procedures than those traditionally employed. The
Company has focused its development efforts in three interventional product
groups: stent products used to hold open human vessels that have become
obstructed or closed due to aging, disease or trauma; angiographic and
fluid management products used to image human vasculature and blood flow;
and thrombolytic products used to dissolve blood clots. The Company has a
core group of products that are currently sold in the United States and
internationally. The Company also has a group of new products, including
the Company's stents and carbon dioxide angiography system, which are being
sold internationally and for which the Company plans to obtain regulatory
approval within the United States. The Company's objective is to become a
leading provider of interventional medical devices through the development
of proprietary technologies that provide its products with enhanced,
cost-effective
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE A (continued)
performance, thereby improving the quality of patient care at reduced cost
to the healthcare system. The primary consumers of the Company's products
are interventional cardiologists, interventional radiologists and vascular
surgeons. E-Z-EM is primarily engaged in developing, manufacturing and
marketing diagnostic products used by radiologists and other physicians
during image-assisted procedures to detect physical abnormalities and
diseases.
3. Summary of Significant Accounting Policies
The summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the accompanying financial
statements. These policies are in conformity with generally accepted
accounting principles and have been applied consistently in all material
respects.
Fiscal Year
The Company reports on a fiscal year which concludes on the Saturday
nearest to May 31. Fiscal year 1994 ended on May 28, 1994 for a reporting
period of fifty-two weeks, fiscal year 1995 ended on June 3, 1995 for a
reporting period of fifty-three weeks and fiscal year 1996 ended on June 1,
1996 for a reporting period of fifty-two weeks.
Inventories
Inventories are stated at the lower of cost (by the first-in, first-out
method) or market. Appropriate consideration is given to deterioration,
obsolescence and other factors in evaluating net realizable value.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE A (continued)
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are
amortized over the terms of the related lease or the useful life of the
improvements, whichever is shorter. Expenditures for repairs and
maintenance are charged to expense as incurred. Renewals and betterments
are capitalized.
Intangibles
Intangibles with an original cost of $75,000, representing a license
agreement acquired in fiscal 1995, are included in "Other assets" in the
accompanying balance sheets and are being amortized on a straight-line
basis over a fifteen-year period. Amortization was $2,000 and $5,000 in
fiscal 1995 and 1996, respectively, and $2,000 for each of the twenty-six
weeks ended December 2, 1995 and November 30, 1996.
Deferred Offering Costs
Offering costs of $234,000 incurred during the twenty-six weeks ended
November 30, 1996 in connection with the Company's contemplated initial
public offering have been deferred and will be charged against the proceeds
of such offering when completed. Such deferred offering costs are included
in "Other assets" in the accompanying balance sheet at November 30, 1996.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE A (continued)
Income Taxes
The Company's results of operations are included in the Federal income tax
returns of E-Z-EM. Income taxes are presented in the accompanying financial
statements as if the Company filed income tax returns as a separate entity;
however, no provision or benefit from income taxes has been provided for in
the accompanying financial statements through June 1, 1996 based on the
ongoing losses generated from operations, coupled with uncertainties with
respect to the Company's ability to generate future taxable income. Net
operating losses occurring prior to this date were utilized on E-Z-EM's
consolidated tax returns.
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and loss
carryforwards for which income tax benefits are expected to be realized in
future years. A valuation allowance would be established to offset the
deferred tax assets if it is more likely than not that all, or some portion
of, such deferred tax assets will not be realized. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
Revenue Recognition
Revenues are recognized as products are shipped.
Research and Development
Research and development costs are expensed as incurred.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE A (continued)
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist of trade receivables. The Company's
business activities are primarily conducted with hospitals in the United
States and with distributors overseas. The Company's exposure to credit
risk is dependent, to a certain extent, on the healthcare industry. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral; however, in certain circumstances, the
Company may require letters of credit from its customers.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent liabilities at the date of the financial statements, as well as
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. The significant estimates
include the allowance for doubtful accounts and inventory reserves.
Interim Financial Information
The financial information presented as of November 30, 1996, for the
twenty-six weeks ended December 2, 1995 and November 30, 1996 and events
subsequent to June 1, 1996 disclosed in the notes to the financial
statements are unaudited. In the opinion of management, this unaudited
financial information contains all adjustments (which consist of normal
recurring accrual adjustments) necessary for a fair presentation for the
interim periods presented. The results for the interim periods are not
necessarily indicative of results expected for the full fiscal year.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE B - INVENTORIES
Inventories consist of the following:
June 3, June 1, November 30,
1995 1996 1996
---- ---- ----
(unaudited)
(in thousands)
Raw materials $1,708 $2,522 $2,427
Work in process 1,110 683 479
Finished products 1,291 3,257 3,904
----- ----- -----
$4,109 $6,462 $6,810
===== ===== =====
NOTE C - PROPERTY, PLANT AND EQUIPMENT, AT COST
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
Estimated useful June 3, June 1, November 30,
lives 1995 1996 1996
----- ---- ---- ----
(unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Building and building
improvements 31-1/2 to 39 years $1,250 $1,289 $1,311
Machinery and equipment 3 to 8 years 1,898 2,152 2,362
Leasehold improvements Term of lease 48 59 59
------ ------ ------
3,196 3,500 3,732
Less accumulated depreciation
and amortization 853 1,164 1,336
------ ------ ------
2,343 2,336 2,396
Land 212 212 212
Projects in construction 176 241 2,538
------ ------ ------
$2,731 $2,789 $5,146
====== ====== ======
</TABLE>
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE C (continued)
Depreciation expense was $288,000, $276,000 and $312,000 in fiscal 1994,
1995 and 1996, respectively, and $154,000 and $172,000 for the twenty-six
weeks ended December 2, 1995 and November 30, 1996, respectively.
NOTE D - NOTE PAYABLE TO BANK
The Company has $5,000,000 available under a line of credit with a bank
which expires on November 30, 1997. At November 30, 1996, $3,800,000 was
outstanding under such agreement bearing interest at a rate of 6.81%.
Interest on the outstanding loans under the line of credit is payable
monthly at a rate equal to LIBOR, on the loan date, plus 150 basis points.
Outstanding promissory notes under the line of credit are guaranteed by
E-Z-EM.
NOTE E - RELATED PARTY TRANSACTIONS AND AGREEMENTS
Funding of Divisional Operations and Division Equity
Until fiscal 1997, the Company had no indebtedness to any lenders (other
than E-Z-EM) and had relied on funding provided by E-Z-EM to meet its
working capital requirements and to fund its capital expenditures.
Operating expenses paid by E-Z-EM on behalf of the Company through June 1,
1996, included employee salaries and benefits and other operating expenses
including royalty and commission fees, product liability insurance,
research and development, and foreign selling expenses. The cumulative
funds provided by E-Z-EM to the Company were reflected as division equity
until June 1, 1996. On June 1, 1996 (see Note A-1), such funds were
contributed as capital to the Company and reclassified in the accompanying
statement of stockholder's equity from division equity to additional
paid-in capital. The accompanying statements of operations do not reflect
interest charges on such funding provided by E-Z-EM.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE E (continued)
Commencing with the transfer of assets and liabilities and the contribution
of capital by E-Z-EM, effective June 1, 1996 (described in Note A-1), all
funds advanced by E-Z-EM on behalf of the Company will be repaid pursuant
to a repayment schedule to be agreed upon by E-Z-EM and the Company. All
funds advanced by E-Z-EM to the Company during fiscal 1997 have been repaid
as of November 30, 1996.
Allocations From E-Z-EM
Certain identifiable, allocable costs have been incurred by E-Z-EM on
behalf of the Company with respect to manufacturing, research and
development, commissions and foreign selling expenses and proportionately
charged to the Company. These costs are included in the respective
statements of operations as follows:
<TABLE>
<CAPTION>
Fifty-two Fifty-three Fifty-two Twenty-six weeks ended
weeks ended weeks ended weeks ended --------------------------
May 28, June 3, June 1, December 2, November 30,
1994 1995 1996 1995 1996
-------------- -------------- -------------- ----------- ------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Cost of sales $158 $208 $280 $164 $ 96
Selling, marketing
and administrative 22 51 149 37 82
Research and
development 339 661 405 218 279
--- --- --- --- ---
$519 $920 $834 $419 $457
=== === === === ===
</TABLE>
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE E (continued)
Pro Forma Corporate Allocations
The accompanying financial statements through June 1, 1996, exclude certain
corporate E-Z-EM overhead costs pertaining to insurance, treasury and
finance, legal and regulatory, employee benefit administration and human
resources. Such costs have been estimated on a proportional basis to the
Company's operations. Subsequent to June 1, 1996, such corporate
allocations have been charged by E-Z-EM to the Company and are included in
the accompanying statement of operations for the twenty-six weeks ended
November 30, 1996. The pro forma effects of these corporate allocations are
as follows:
<TABLE>
<CAPTION>
Fifty-two Fifty-three Fifty-two Twenty-six
weeks ended weeks ended weeks ended weeks ended
May 28, June 3, June 1, December 2,
1994 1995 1996 1995
------- ------- ------- ------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Historical net (loss) earnings $(3,468) $(4,603) $(1,536) $ (563)
Pro forma corporate
overhead adjustments (320) (345) (227) (113)
------- ------- ------- -------
NET LOSS $(3,788) $(4,948) $(1,763) $ (676)
======= ======= ======= =======
Loss per share $(3,788) $(4,948) $(1,763) $ (676)
======= ======= ======= =======
</TABLE>
In management's opinion, the above allocations are reasonable and would not
vary materially from charges that the Company would have incurred had it
performed these functions, or acquired similar services, on a stand-alone
basis.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE E (continued)
Services Agreement
Commencing in fiscal 1997, the Company and E-Z-EM have entered into a
services agreement (the "Services Agreement") with respect to services
provided by E-Z-EM to the Company. The Services Agreement provides that
such services will be provided in exchange for fees equal to the fully
allocable costs incurred by E-Z-EM for providing such services. Based on
current costs for such services, the Company believes such fees would not
exceed fees that would be paid if such services were provided by
independent third parties.
The purpose of the Services Agreement is to ensure that E-Z-EM continues to
provide to the Company the range of services that E-Z-EM provided to the
Company when it was a division of E-Z-EM. The services initially to be
provided by E-Z-EM to the Company include tax advice and services,
assistance on legal issues, financial and investment advice, assistance in
the preparation of certain public documents, engineering and design
assistance and policy advice by E-Z-EM's senior management. The Company is
not obligated to utilize any or all of the services made available by
E-Z-EM and is free to purchase such services from unrelated parties.
In addition to the identified services, E-Z-EM has agreed to continue to
provide the Company with insurance coverage, if such coverage is reasonably
available. The amount payable by the Company for such coverage is the
actual cost of such insurance as allocated by the insurance carrier
providing such coverage, and if such allocation is not provided by the
insurance carrier, the amount payable by the Company is determined by
E-Z-EM based upon the respective total revenues of E-Z-EM and the Company
and such other factors as E-Z-EM reasonably determines to be appropriate.
Either E-Z-EM or the Company may terminate such coverage under E-Z-EM's
policies at any time on sixty days' written notice.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE E (continued)
During the twenty-six weeks ended November 30, 1996, E-Z-EM charged the
Company $457,000, including $74,000 in corporate allocations, with respect
to services performed on behalf of the Company, which amount is reflected
in the accompanying statement of operations (see Allocations From E-Z-EM
and Pro Forma Corporate Allocations captions above).
Sales to E-Z-EM and E-Z-EM Affiliates
Sales to E-Z-EM and E-Z-EM affiliates were $322,000, $395,000 and $700,000
in fiscal 1994, 1995 and 1996, respectively, and $258,000 and $429,000 for
the twenty-six weeks ended December 2, 1995 and November 30, 1996,
respectively. Amounts due from these E-Z-EM affiliates and included in
"Accounts receivable" in the accompanying balance sheets were $52,000,
$212,000 and $208,000 at June 3, 1995, June 1, 1996 and November 30, 1996,
respectively.
Retirement Plans
Substantially all of the Company's salaried and hourly employees have been
covered by the E-Z-EM Profit-Sharing Plan, under which E-Z-EM makes
discretionary contributions to eligible employees, and a companion 401(k)
Plan, under which eligible employees can defer a portion of their annual
compensation, part of which is matched by E-Z-EM. These plans cover all
employees not otherwise covered by collective bargaining agreements. Profit
sharing contributions charged to the Company were $61,000, $114,000 and
$124,000 in fiscal 1994, 1995 and 1996, respectively, and $61,000 and
$66,000 for the twenty-six weeks ended December 2, 1995 and November 30,
1996, respectively, and matching contributions charged to the Company were
$37,000, $72,000 and $80,000 in fiscal 1994, 1995 and 1996, respectively,
and $39,000 and $42,000 for the twenty-six weeks ended December 2, 1995 and
November 30, 1996, respectively. E-Z-EM has agreed that until the Company
establishes its own employee benefit plans, E-Z-EM, to the extent it can
reasonably do so, will provide benefit coverage to the Company's employees
and the Company has agreed to reimburse E-Z-EM for direct costs incurred by
E-Z-EM in connection therewith.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE E (continued)
Manufacturing Agreement
Commencing in fiscal 1997, the Company and E-Z-EM have entered into a
manufacturing agreement pursuant to which the Company manufactures certain
products for E-Z-EM and E-Z-EM manufactures certain products for the
Company. Management believes that the fees charged by the manufacturer will
approximate those charged on an arm's-length basis.
Recapitalization and Corporate Agreement
It is intended that the Company will be recapitalized with two classes of
stock, Class A common stock ("Class A Stock") and Class B common stock
("Class B Stock"). The Class A Stock and Class B Stock will be identical in
all material respects except that: (i) shares of the Class B Stock will
entitle the holders to three votes per share on all matters and shares of
the Class A Stock will entitle the holders to one vote per share on all
matters, and (ii) the shares of Class B Stock will be subject to certain
restrictions on transfer.
The Company and E-Z-EM have entered into a corporate agreement (the
"Corporate Agreement") under which the Company will grant to E-Z-EM a
continuing option, transferable to any of its subsidiaries, to purchase
under certain circumstances, additional shares of Class B Stock (the "Stock
Option"). The Stock Option may be exercised by E-Z-EM immediately prior to
the issuance of an equity security of the Company to the extent necessary
to maintain its then-existing percentage of the total voting power of the
Company. The purchase price of the shares of Class B Stock purchased upon
any exercise of the Stock Option, subject to certain exceptions, will be
equal to the price in the sale that gave rise to the option. The Stock
Option expires in the event that E-Z-EM reduces its beneficial ownership of
common stock in the Company to common stock representing less than 60% of
the number of outstanding shares of common stock. The Corporate Agreement
also contains certain registration rights with respect to Class B Stock
held by E-Z-EM.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE F - INCOME TAXES
The Company has not recorded any income tax expense (benefit) through June
1, 1996.
The tax effect of carryforwards and temporary differences which give rise
to the Company's deferred income tax assets and liabilities, as if the
Company filed income tax returns as a separate entity, are summarized as
follows:
June 3, June 1,
1995 1996
------- -------
(in thousands)
Deferred tax assets (liabilities)
Net operating loss carryforwards $ 5,904 $ 6,375
Inventories 44 103
Depreciation (80) (108)
Other 22 24
------- -------
Gross deferred tax assets 5,890 6,394
Valuation allowance (5,890) (6,394)
------- -------
$ -- $ --
======= =======
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE F (continued)
As stated above, these deferred taxes are presented as if the Company filed
income tax returns as a separate entity. On such basis, realization of the
tax benefits of operating loss carryforwards and deductible temporary
differences depends on having sufficient taxable income of an appropriate
character within the carryforward period. Because of the uncertainties with
respect to the Company's ability to generate taxable income in the future
sufficient to realize the benefits of the deferred income tax assets, the
Company has provided a full valuation allowance against the deferred income
tax assets.
At June 1, 1996, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $19,000,000. However, such
losses generated prior to June 1, 1996 were utilized on E-Z-EM's
consolidated tax return.
Effective with the transfer of assets and liabilities at June 1, 1996, and
the establishment of AngioDynamics, Inc. as a separate corporation
described in Note A-1, the above cumulative deferred tax assets and
liabilities are not applicable to the Company.
Effective at the beginning of fiscal 1997, the Company, E-Z-EM and other
companies within E-Z-EM's consolidated group (the Company and each such
other company is referred to as a "Member") have entered into a tax-sharing
agreement with respect to Federal income taxes, which agreement will
continue as to each Member until such time as such Member is deconsolidated
for tax purposes, which, in general, will occur when E-Z-EM owns less than
80% of such Member on a fully diluted basis. E-Z-EM and the Members do not
intend to file state or local tax returns on a consolidated or combined
basis. Pursuant to the tax-sharing agreement, E-Z-EM and each Member will
pay its appropriate share of taxes actually due and payable, and, also,
will make payments among themselves such that, with respect to any period,
the amount of Federal income taxes to be paid by any Member, subject to
certain adjustments, generally will be determined as though each such
Member were to file separate Federal income tax returns. Each Member will
be reimbursed,
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE F (continued)
however, for Federal income tax attributes that it generates, such as net
operating losses, if and when they are used on a consolidated basis. Under
the tax-sharing agreement, each Member will reimburse E-Z-EM for all direct
and indirect costs and expenses incurred with respect to its share of the
overall costs and expenses incurred by E-Z-EM with respect to tax-related
services.
In the opinion of management, the tax provision of $90,000 for the interim
unaudited twenty-six weeks ended November 30, 1996 includes the amount owed
to E-Z-EM of $87,000 pursuant to such tax-sharing agreement.
NOTE G - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases various equipment and a warehouse facility under
noncancellable operating leases expiring through 2001. Aggregate rental
expenses pursuant to these leases were $67,000, $53,000 and $59,000 in
fiscal 1994, 1995 and 1996, respectively, and $29,000 and $38,000 for the
twenty-six weeks ended December 2, 1995 and November 30, 1996,
respectively.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE G (continued)
The minimum rental commitments under these noncancellable operating leases
at June 1, 1996, are summarized as follows:
Fiscal Equipment Building Total
------ --------- -------- -----
(in thousands)
1997 $ 31 $47 $ 78
1998 31 31
1999 31 31
2000 29 29
2001 2 2
----- ---- -----
$ 124 $ 47 $ 171
===== ==== =====
Dependence on Overseas Distributors
The Company markets its products internationally through independent
distributors. These international distributors may also distribute
competitive products under certain circumstances. The international
distributors also play an important role in the Company's clinical testing
outside of the United States. Accordingly, the loss of a significant
international distributor could have a material adverse effect on the
Company's business if a new distributor, sales representative or other
suitable sales organization could not be found on a timely basis.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE H - EXPORT SALES
The Company's domestic export sales by geographic area are summarized as
follows:
<TABLE>
<CAPTION>
Fifty-two Fifty-three Fifty-two Twenty-six weeks ended
weeks ended weeks ended weeks ended ----------------------------
May 28, June 3, June 1, December 2, November 30,
1994 1995 1996 1995 1996
------------- -------------- -------------- ------------- ---------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Europe $390 $544 $2,038 $710 $2,962
South America 17 72 313 102 579
Asia 32 172 235 55 604
Australia 6 4 125 48 218
Other 63 65 73 29 47
---- ---- ------ ---- ------
$508 $857 $2,784 $944 $4,410
==== ==== ====== ==== ======
</TABLE>
NOTE I - SUBSEQUENT EVENTS (UNAUDITED)
Overseas Manufacturing Facility
Subsequent to November 30, 1996, the Company completed the purchase of a
parcel of land and building for a total of $990,000 in County Wexford,
Ireland, for purposes of establishing an overseas manufacturing and
engineering facility. In addition, pursuant to an agreement with an Irish
construction contractor, the Company has expended $1,300,000 for purposes
of making renovations to the above facility. Additionally, the Company has
received a capital grant of approximately $400,000 from the Ireland
Industrial Development Agency to be applied against such expenditures. In
January 1997, this manufacturing and engineering facility became
operational.
<PAGE>
AngioDynamics, Inc.
(a former division of E-Z-EM, Inc.)
NOTES TO FINANCIAL STATEMENTS (continued)
May 28, 1994, June 3, 1995 and June 1, 1996
and December 2, 1995 and November 30, 1996
(Information with respect to the twenty-six-week periods ended
December 2, 1995 and November 30, 1996 is unaudited)
NOTE I (continued)
Asset Purchase
On January 8, 1997, the Company purchased the assets of Leocor, Inc.
("Leocor") and certain other assets directly from a principal shareholder
of Leocor for aggregate consideration of $5,000,000 and $1,800,000,
respectively. Leocor is a Texas corporation, based in Houston, Texas, which
develops and manufactures angioplasty catheters. The funds required to
complete this purchase were advanced to the Company by E-Z-EM.
In connection with this acquisition, the Company also entered into a
consulting agreement with the principal shareholder of Leocor for
consideration of $200,000. The term of such consulting agreement is for a
period of two years from the acquisition date of January 8, 1997.
The Company also entered into an agreement to lease office space from the
principal shareholder of Leocor for a period of two years from the
acquisition date of January 8, 1997. Minimum future lease commitments under
this agreement approximate $188,000.
<PAGE>
E-Z-EM,INC. Proxy--1996 Annual Meeting of Stockholders
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 THROUGH 5.
1. ELECTION OF DIRECTORS
For Howard S. Stern and David P. Meyers as Class III directors:
TO WITHHOLD AUTHORITY
WITHHOLD TO VOTE FOR ANY NOMINEE(S),
FOR VOTE PRINT NAME(S) BELOW
2. RATIFICATION OF APPOINTMENT OF AUDITORS
FOR AGAINST ABSTAIN
3. AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
FOR AGAINST ABSTAIN
4. TO APPROVE PUBLIC OFFERING
FOR AGAINST ABSTAIN
5. DISCRETIONARY AUTHORITY
FOR AGAINST ABSTAIN
Please mark, date and sign exactly as your name appears on this proxy card. When
shares are held jointly, both holders should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
the holder is a corporation or partnership, the full corporate or partnership
name should be signed by a duly authorized officer.
Signature
Signature, if shares held jointly
Dated 1997
